35272357

ASIAN DEVELOPMENT BANK PPA: INO 21214
PROJECT PERFORMANCE AUDIT REPORT
ON THE
Seventh, Eighth, and Ninth Port Projects

(Loans 688/797/951-INO)
IN
INDONESIA
December 1999
CURRENCY EQUIVALENTS
Currency Unit – Rupiah (Rp)
At Appraisal
Seventh Port (Loan 688) Eighth Port (Loan 797) Ninth Port (Loan 951)
(June 1984) (October 1986) (September 1988)
$1.00 = Rp1,015 $1.00 = Rp1,631 $1.00 = Rp1,715

Rp1.00 = $0.000985 Rp1.00 = $0.000613 Rp1.00 = $0.000583
SR1.00 = Rp282
$1.00 = SR3.60
At Project Completion
Seventh Port Eighth Port Ninth Port

(March 1992) (June 1993) (April 1996)
$1.00 = Rp2,010 $1.00 = Rp2,074 $1.00 = Rp2,310

Rp1.00 = $0.000498 Rp1.00 = $0.000482 Rp1.00 = $0.000433
SR1.00 = Rp536
$1.00 = SR3.75
At Operations Evaluation
(June 1999)
$1.00 = Rp 7,600
Rp1.00 = $0.000132
SR1.00 = Rp2,027
$1.00 = SR3.75
ABBREVIATIONS
ADB – Asian Development Bank

DGSC – Directorate General for Sea Communications
DMC – developing member countries
DWT – dead weight ton
EA – executing agency
EIRR – economic internal rate of return
FIRR – financial internal rate of return
ICT – international container terminal
JBIC – Japan Bank for International Cooperation
J EXIM – Export-Import Bank of Japan
PCR – project completion report
PTPI – Persero Pelabuhan (Public Limited Corporation)
TA – technical assistance
NOTES
(i) The fiscal year (FY) of the Government ends on 31 March and that of the PTPIs
on 31 December.
(ii) In this report, “$” refers to US dollars.
Operations Evaluation Office, PE-541

ii
CONTENTS
Page
BASIC DATA ii
EXECUTIVE SUMMARY v
MAP Error! Bookmark not defined.
I. INTRODUCTION 1
A. Background 1
B. Formulation, Objectives, and Scope at Appraisal 1
C. Completion 2
D. Evaluation 3
E. Project Performance Audit Report 4
II. THEMATIC EVALUATION 1
A. Gateway and Regional Port System 1

B. National Gateway Ports and Inland Transport 2
C. Assistance to Secondary Ports 2
D. ADB Support for Privatization, Port Reforms, and Infrastructure Development 3
III. PERFORMANCE EVALUATION OF THE PORT PROJECTS 1
A. Implementation Performance 1
B. Operational Performance 2
IV. CONCLUSIONS 1
A. Overall Assessment 1
B. Lessons Learned 2
C. Follow-Up Actions and Recommendations for the Future 3
APPENDIXES 6
BASIC DATA
Seventh Port Project (Loan 688-INO)
Key Project Data ($ million) As per ADB Loan Actual

Documents
Total Project Cost 158.0 132.0
Foreign Exchange Cost 107.0 97.7
Local Currency Cost 51.0 34.3
ADB Loan Amount/ Utilization 86.0 76.5
ADB Loan Amount/ Cancellation 9.5
Key Dates Expected Actual

Appraisal 19 – 30 March 1984
Loan Negotiations 25 – 26 July 1984
Board Approval 28 August 1984
Loan Agreement 13 September 1984
Loan Effectiveness 13 December 1984 28 February 1985
Project Completion December 1988 May 1992
Loan Closing 31 December 1989 22 October 1992
Months (Effectiveness to Completion) 49 87
Key Performance Indicators (%) Appraisal PCR PPAR
Economic Internal Rate of Return 19.1 17.6 17.0

Financial Internal Rate of Return 15.3 12.1 2.0
Republic of Indonesia
Borrower
Executing Agency Perum Pelabuhan III
Mission Data
Type of Mission No. of Missions Person-Days
Appraisal 1 60
Project Administration
Review 9 182
Special Loan Administration 3 12
Project Completion 1 30
Operations Evaluationa 1 20
________________________________
a
One operations evaluation mission was undertaken to review three port projects, i.e., Loan 688-INO: Seventh Port
Project, Loan 797-INO: Eighth Port Project, and Loan 951-INO: Ninth Port Project, simultaneously.
iii
Eighth Port Project (Loan 797-INO)
Project Preparation/Institution Building
TA TA Project Name Type Person-Months Amount Approval Date

595 Sixth Port Project TA Loan 445 $5,400,000 4 November 1982
817 Institutional Strengthening A&O 27 $445,000 18 November 1986
of Perum IV

Documents
ADB Loan Amount/Utilization 40.00 19.54
ADB Loan Amount/Cancellation 20.46

Appraisal 20 April – 9 May 1986
Loan Negotiations 6 – 8 October 1986
Board Approval 18 November 1986
Loan Agreement 31 July 1987
Loan Effectiveness 29 October 1987 7 January 1988
Project Completion December 1991 June 1992
Loan Closing 30 June 1992 15 October 1992

Economic Internal Rate of Return 15.4 15.6 —
Banjarmasin 14.9 17.3 28.0
Balikpapan 17.0 14.8 27.0
Financial Internal Rate of Return 3.9 8.6 —

Banjarmasin 3.3 9.3 Negative
Balikpapan 5.6 8.8 Negative
Borrower Republic of Indonesia
Executing Agencies Perum Pelabuhan III

Perum Pelabuhan IV
Mission Data
Appraisal 2 77
Review 7 33
Special Loan Administration 1 9
Operations Evaluationa 1 20
________________________________
— = not calculated.
a
iv
Ninth Port Project (Loan 951-INO)
Project Preparation/Institution Building
TA TA Project Name Type Person-Months Amount Approval Date

980 Ninth Port PP 4 $91,000 12 May 1988
1122 Port Maintenance and A&O 25 $515,000 7 February 1999
Rehabilitation and
Computer Operation

Documents
ADB Loan Amount/Utilization 22.00 21.35
ADB Loan Amount/Cancellation 0.65
a
Amount of Cofinancing: JBIC 12.60 9.91

Appraisal 5 – 26 September 1988
Loan Negotiations 21 – 23 November 1988
Board Approval 7 February 1989
Loan Agreement 1 March 1989
Loan Effectiveness 30 May 1989 22 August 1989
Project Completion June 1993 August 1994
Loan Closing 31 December 1994 12 July 1995

Economic Internal Rate of Return 16.8 23.0 —
Financial Internal Rate of Return
Project 5.1 — —
Civil Works 6.2
Harbor Craft 10.2 – 36.0
Cargo Handling Equipment
Banjarmasin 25.0
Semarang 34.0
Borrower Republic of Indonesia

Executing Agencies Directorate General of Sea Communications
Perum Pelabuhan I
Perum Pelabuhan III
Perum Pelabuhan IV
Mission Data
Appraisal 1 110
Review 11 51
Operations Evaluationb 1 20
________________________________
— = not calculated, JBIC = Japan Bank for International Cooperation.

a
This Project was cofinanced by the Export-Import Bank of Japan (J EXIM). On 1 October 1999, JBIC was
established by merging the Overseas Economic Cooperation Fund of Japan and J EXIM.
b
EXECUTIVE SUMMARY
This evaluation covers the three most recent loans provided to rehabilitate and improve
Indonesian ports: Loan 688-INO (Seventh Project), Loan 797-INO (Eighth Project), and Loan
951-INO (Ninth Project). The common objectives of these projects were to modernize and
increase the capacity of the project ports to efficiently handle cargo traffic, and improve the
management information systems in the respective Executing Agencies. The Seventh Project
was appraised in March 1984, and Asian Development Bank’s (ADB’s) loan of $86 million
approved on 28 August 1984. The Eighth Project was prepared by a feasibility study under the
Sixth Port Project (Loan 595); this Project was appraised in April-May 1986 and the loan for $40
million was approved on 18 November 1986. The Ninth Project was appraised in September
1988; ADB loan of $22 million was approved on 7 February 1989. All the loans were sourced
from ADB’s ordinary capital resources.
The Seventh Project comprised the construction of an international container terminal at

Surabaya, provision of container handling, and other related equipment. The Eighth Project
comprised construction and rehabilitation of ports in Banjarmasin and Balikpapan, and provision
of tugboats, computer equipment, and consulting services. ADB’s loan for the Ninth Project
financed civil works for rehabilitation at 16 secondary or smaller ports. The procurement of
equipment, harbor craft, as well as consulting services for design and construction supervision,
and a master plan study for Benoa port were financed under the Japan Bank for International
Cooperation1 cofinancing for $12.6 million.
Overall, the three ADB projects are rated as generally successful, in that
(i) the facilities provided were needed;
(ii) they were in most cases of the right type, although in one case (Banjarmasin’s
Trisakti quay), an old fashioned and inappropriate berth design was used;
(iii) the facilities are being used, at high rates of occupancy; and
(iv) the economic internal rates of return have been high, and transport costs are
lower than they would have been without the investments. The high returns are
partly attributable to traffic growth that exceeded expectations at appraisal.
Some of ADB’s assistance, however, was suboptimal. With the benefit of hindsight, not
enough was done to improve productivity at the project ports. If it had been, the need for new
berth construction could have been reduced.
The Mission observed that the key to improving port efficiency is the replacement of
government operations by competing private terminals, combined with deregulation. Instead,
ADB has concentrated on technical assistance to the Government bodies, which retained
control and effectively limited the most efficient forms of private participation.
1
The Ninth Port Project was cofinanced by the Export-Import Bank of Japan (J EXIM). On 1 October 1999, the
Japan Bank for International Cooperation was established by merging the Overseas Economic Cooperation Fund
of Japan and J EXIM.
vi
The Evaluation Mission undertook a thematic evaluation, in addition to an audit of

individual components under each Project, to identify key issues, draw lessons relevant to the
port sector in Indonesia as well as in other developing member countries. The Mission also
reviewed experiences of other funding agencies in Indonesia and in other developing member
countries.
Gateway and Regional Ports System
The gateway system (introduced under the World Bank-sponsored Integrated Sea
Transport Study of 1982), established a four-level hierarchy of ports: at the apex were four main
ports of Tanjung Priok, Surabaya, Belawan, and Ujungpandang. They were served by regional
collector ports, that received traffic from regional trunk ports, which, in turn were fed by feeder
ports. Thus export cargo originating in a feeder port would have to be transhipped three times
by the time it left Surabaya and probably a fourth time at Singapore. The rationale of the
gateway system was to match ship sizes and thus costs with cargo densities on given routes.
The consolidation of cargo in these ports was expected to lead to a reduction in the overall
transport and shipping costs. While another aim of this hierarchy was to ration the scarce funds
available for investment in ports, the transport costs became extremely high. Moreover, this
centrally planned system did not recognize that the private shipping industry incurred high cost
to adapt to the gateway system. Since 1985, when the system was abandoned, ships have
made direct calls at many small ports, thereby avoiding multiple transhipment costs; regional
ports are no longer limited to serving as gateway ports. Ships on international routes can, and
do, now call at many ports in Indonesia.
Nevertheless, much of the export cargo from the islands of central and east Indonesia is
in fact routed via Surabaya. Many of the smaller ports do, in practice, operate as regional ports.
ADB assistance (the Eighth Project) did not acknowledge the abolition of the hierarchy system.
The Mission concluded that categorizing ports as regional ports is not helpful and only
raises transport costs unnecessarily, as in the past. It is recommended that development plans
for each port should be based on each port’s actual role in practice—not as part of a
hierarchical system.
As for operations, there has been little attempt to extend the Government’s privatization
program to the regional ports. Furthermore, the Government-regulated tariffs, are too low to
attract private investment. These problems require attention.
Integration of National Gateway Ports with Other Modes
The only gateway port covered in the evaluated projects was Surabaya. It had few
problems with inland transport. There is a good road network linking it with its hinterland, and
road haulage tariffs are reasonable. The Mission observed that the $2 million rail link to the port,
which was funded under the Seventh Port Project, still has little traffic. Experience elsewhere
confirms that road transport dominates rail at almost all container ports, except where distances
are long, or where there is acute urban congestion. The situation in Surabaya did not require
special assistance under the Seventh Project for inland transport. Furthermore, projects for
improving inland transport are best implemented separately.
Strategies for Efficient Rehabilitation and Operation of Secondary Ports

vii
Upon reviewing ADB’s Ninth Project, the Mission confirmed the conclusion of the project
completion report that monitoring a large number of small ports in remote locations was
impracticable, and required disproportionate expenditure on ADB missions. Furthermore, the
investment, mainly for rehabilitation, affected only a small part of the overall port. Thus, there
are few quantifiable benefits that can be monitored properly. The Mission also confirmed that
the Persero Pelabuhans, domestic consultants, and construction companies have adequate
capacity to implement these projects. In hindsight, considering the implementation experience in
the Ninth Project, the Mission concluded that the secondary ports would have been better
assisted through a sector-type assistance instead of a project-type. The Directorate General for
Sea Communications, which continues to directly supervise the operation of smaller ports,
should be advised to prepare a long-term strategy for sustainably operating these ports, without
Government subsidy. ADB should actively support the Government to provide autonomy to the
ports to allow them to set tariffs to recover costs.
ADB’s Support for Privatization, Port Reforms, and Infrastructure Development
Privatization has been limited to two international container terminals. The privatization
program at these main ports, in which ADB had no active role, is misguided. These terminals
were already quite efficient and made very large surpluses before the program commenced.
Consequently, the significant outcome of the container terminal privatization was to raise money
for the central Government—rather than to improve port efficiency. There were no significant
attempts to promote competition between or within the ports. The two most lucrative berths (at
Tanjung Priok and Surabaya) have been handed over to foreign companies, which, although
efficient, often have a keen eye for a monopoly position in the countries in which they operate.
There are no plans to require the private concession holders to reduce tariffs, as might be
expected when private specialist firms replace state monopolies.
Government regulation of tariffs and port investment has been retained, despite the fact
that freedom of entry and pricing are crucial to the working of market mechanisms. The
regulatory framework does not include surrogates for competition. Therefore, it will be difficult to
extend privatization to the interisland/domestic port facilities, mainly because the domestic port
tariffs, which are regulated by the Government, are too low to allow a return on investment. The
Government is urgently in need of specialized guidance on how to proceed with port reform and
privatization.
The concept of privatizing port infrastructure was also to include financing of port
investments on commercial terms. The commonly held view is that the multilateral development
agencies, including ADB should move away from funding port infrastructure. It is claimed that
the private sector can now be relied on to build berths. But in practice there has been relatively
little private investment in port infrastructure in Indonesia—or, indeed, in neighboring countries.
Unlike international container operations, domestic cargo handling, and operation of public
terminals and smaller ports are not attractive to the private sector. Tariffs are too low to allow an
acceptable return. Radical tariff reform and removal of subsidies are therefore necessary
preconditions to attract private sector funds to domestic ports. Concomitantly, external
assistance is needed to rehabilitate, expand, and efficiently operate these ports.
I. INTRODUCTION
A. Background
1. Since 1972, the Asian Development Bank (ADB) has provided 11 loans for a total of
$357.35 million and 18 technical assistance (TAs) for $6.15 million to Indonesia’s ports sector.1
Six loans provided financing for rehabilitation and improvement of the three major gateway
ports.2 Of these, three loans (103, 317, and 375) were evaluated. Two other loans were
provided for similar improvement to the regional ports.3 One loan was provided for rehabilitating
the feeder ports.4
2. This evaluation includes loans 688 (Seventh Project), 797 (Eighth Project), and 951
(Ninth Project). The evaluation aims to assess the overall impact of these loans on the sector,
and extract lessons for future activities. The background and rationale of individual projects are
in Appendix 1, Table A1.1.
B. Formulation, Objectives, and Scope at Appraisal
1. Seventh Port Project
3. The Seventh Project was appraised in March 1984, and approved on 28 August 1984.
The loan for $86 million was sourced from ADB’s ordinary capital resources. The main objective
of the Project was to enable the port of Surabaya to cope with the rapid shift to containerization
(Appendix 1, Table A1.2). The Project comprised the construction of an international container
terminal (ICT) to handle cargo volumes until 1993, and provision of container handling and other
related equipment. The Project was also designed to help with institutional development of the
executing agency (EA), Perum Pelabuhan III.
2. Eighth Port Project
4. The Eighth Project was prepared by a feasibility study under the Sixth Port Project5
(Appendix 1, Table A1.1). The Eighth Project was appraised in April-May 1986 and approved on
18 November 1986. The $40 million loan was sourced from ADB’s ordinary capital resources.
The Project was accompanied by an advisory TA for standardization and modernization study of
1
While the ports of Belawan (in Sumatra island), Jakarta, Surabaya (in Java island), and Ujungpandang (in Sulawesi
island) are the four major gateway ports of the country, there are about 40 other key regional ports that are also
open to foreign trade. In addition, there are more than 230 smaller ports that cater mainly to interisland and local
trade and passenger movement.
2
Loan 91-INO(SF): Tandjung Priok Port Development Project, for $5.3 million, approved on 24 April 1972; Loan
103-INO: Surabaya Port Development Project, for $5.5 million, approved on 24 October 1972; Loan 245-INO:
Belawan and Surabaya Ports Project (Phase I), for $4.35 million, approved on 2 December 1975; Loan 317-INO:
Fourth Port Project, for $17.5 million approved on 17 November 1977; Loan 375-INO: Fifth Port Project, for $26.3
million, approved on 7 December 1978; and Loan 688-INO: Seventh Port Project, for $86 million, approved on 28
August 1984.
3
Loan 688-INO: Seventh Port Project, for $86 million, approved on 28 August 1984; and Loan 797-INO: Eighth Port
Project, for $40 million, approved on 18 November 1986.
4
Loan 951-INO: Ninth Port Project, for $22 million, approved on 7 February 1989.
5
Loan 595-INO: Sixth Port Project, for $5.4 million, approved on 4 November 1982.
2
traditional sailing vessels for $260,000. This was financed out of the loan savings, and was
approved in July 1989 at the request of the Government.
5. The Project’s objective was to modernize and increase the capacity of the ports at
Banjarmasin and Balikpapan in Kalimantan to efficiently handle general cargo traffic volumes
growth until 1995 (Appendix 1, Table A1.2). The Project also aimed to strengthen the
institutional and operational capabilities of the Government-owned ports corporation (Persero III
and IV) through the TA. The Project comprised construction and rehabilitation of the two ports,
and provision of tugboats, computer equipment, and consulting services.
3. Ninth Port Project
6. The Ninth Project aimed to modernize and increase capacity at 16 secondary or smaller
ports located in remote and resource-rich hinterlands across the main islands, primarily to
support the nonoil exports of the country.
7. The Project was prepared under an ADB-financed TA (TA 980),6 and was formulated
after a detailed analysis of the constraint on access to these remote ports and the availability of
the domestic construction capabilities for rehabilitating the ports. The Project was appraised in
September 1988. The ADB loan of $22 million was approved on 7 February 1989.
8. The Project comprised civil works for rehabilitation, most7 of which was financed by ADB
loan. The procurement of equipment, harbor craft, and consulting services for design and
construction supervision, and a master plan study for Benoa port were financed under the
Japan Bank for International Cooperation8 cofinancing for $12.6 million (Appendix 1, Table A1.2
summarizes further details).
9. The EAs included Perum Pelabuhan III (for the Seventh, Eighth, and Ninth projects);
Persero IV (for the Eighth and Ninth projects); and the Directorate General for Sea
Communications (DGSC) and Perum Pelabuhan I (for the Ninth Project).9
C. Completion
10. The project completion reports (PCRs) observed that all three projects were generally
satisfactorily implemented. In addition, all projects’ PCRs adequately reported and analyzed
deviations in the designs, delays, and cost variations. The PCRs also highlighted the issues
affecting project performance and included specific recommendations (Appendix 1, Table A1.3).
11. The Seventh Project was implemented substantially according to the scope at appraisal.
However, there were modifications of the volume of dredging and reclamation, length of the
access bridge, and of the equipment for container handling. The project’s completion was
6
TA 980-INO: Ninth Port Project, for $91,000, approved on 12 May 1988.
7
The rehabilitation of Martapura Port in Banjarmasin was financed by the Government.
8
The Ninth Port Project was cofinanced by the Export-Import Bank of Japan (J EXIM). On 1 October 1999, the
Japan Bank for International Cooperation was established by merging the Overseas Economic Cooperation Fund
of Japan and J EXIM.
9
Persero Pelabuhan = Public Limited Corporation (for Sea Ports), Perum Pelabuhan = Public Enterprise for Sea
Ports.
3
delayed by more than three years.10 The PCR was prepared in 1992. The overall project cost
was 16 percent less than the appraisal estimate of $158 million (Appendix 2, Table A2.2).11
12. The Eighth Project design was substantially modified during implementation. Several
engineering specifications, such as the width of the access channel and depth of dredging, were
modified. Many of these changes were appropriate, a few were not. The Project included the
construction of a container yard at Banjarmasin, although the need was not foreseen in the
feasibility study or at appraisal. Project completion was close to the appraisal schedule and the
PCR was prepared in 1993. The total project cost was substantially below the appraisal
estimate.12 The PCR observed that the berth extension for Balikpapan port was not the least-
cost alternative for improving the efficiency of the terminal, in view of the high cost of
construction and unsuitability of the site for container operations. Construction of a container
handling facility at a new site within Balikpapan Bay would provide an optimal solution for
managing the break-bulk cargo traffic between the nearby facilities rehabilitated under the Ninth
Project.
13. The Ninth Project was completed 14 months later than the appraisal schedule. Contract
awards under DGSC suffered long delays (up to three years) mainly due to the lack of
appropriate technical staff. Once contracts were awarded, the construction was completed
within the contract schedules at all ports. (Other issues raised in the PCRs are summarized in
Appendix 1, Table A1.3).
D. Evaluation
14. The Operations Evaluation Mission undertook a thematic evaluation, in addition to a

typical audit of individual components under each project, to draw lessons relevant to the ports
0sector in Indonesia as well as in other developing member countries (DMCs). Four themes
were identified for investigation based on the Mission’s assessment of their relevance to ADB
operations in the ports sector in Indonesia and other DMCs. These themes also emerged from
the PCR conclusions:
(i) Gateway and Regional Port System. Both the Seventh and Eighth projects
were designed by the Indonesian Government’s hierarchical system that was
abandoned in 1985 (para. 18). The Mission investigated the impact of ADB’s
assistance under the new policies.
(ii) Integration of Gateway Ports with Inland Transport. The Seventh Project’s
PCR observed that the Project did not place adequate emphasis on intermodal
and inland distribution to optimally utilize Surabaya Port. The Mission
investigated the performance of the railway link extended under the Project.
(iii) Assistance to Secondary Ports. Indonesia has over 300 small ports that mainly
cater to interisland and local trade, and passenger movement. The Ninth Project
10
Awarding of contracts for civil works and equipment were delayed by more than three years. This was mainly due
to the change of the project manager and unfamiliarity with Government procedures. The civil works suffered
delays of nine months during implementation.
11
The savings were attributed to a high original cost estimate, major devaluation of the rupiah in 1986, and
competitive bidding by domestic suppliers.
12
The appraisal estimate for unit costs and quantities of civil works were too high because even the highest priced
bid was only 70 percent of the appraisal estimate.
4
targeted 16 such ports. The Mission evaluated the impact of ADB’s assistance
and assessed the preferred modalities of funding projects in the future.
(iv) ADB’s Support for Port Reform and Infrastructure Development. The
Mission reviewed and assessed the level of success of port sector reforms,
particularly those targeting privatization. A desk review of port reforms in other
DMCs was also accomplished to rank the relative achievement in Indonesia with
those of other DMCs in the region.
15. The Mission collected detailed information on individual port operation, and reviewed
and assessed other issues such as dredging, siltation, lighter operations, boats, waiting times,
etc., in relation to project sustainability. The Mission visited Indonesia between 23 June-3 July
1999 and met with officials from DGSC, the EAs, and all project ports. The Mission organized a
workshop on 12 July 1999 to present the preliminary findings; representatives of ADB’s
operations department participated.
E. Project Performance Audit Report
1. Report Organization
16. The themes addressed in this evaluation are discussed in Chapter II. Chapter III
presents the highlights of the evaluation of implementation and operational performance.
Conclusions, including overall assessment, lessons learned, and follow-up actions are
presented in Chapter IV. Relevant details pertaining to individual projects are in Appendixes 1-6.
Other information on port reforms in DMCs, and a summary of recommendations from the
special evaluation study of port projects are in Appendixes 7 and 8, respectively.
2. Report Finalization
17. This report is based on the findings of the Mission and discussions with representatives
from the Government, the EAs, individual project ports, ADB’s operations department, and other
funding agencies. The report is also based on a review of relevant documents available in ADB
on these projects and other ongoing projects. The draft report was circulated to the Borrower,
EAs, and concerned departments for review and comments. Comments received were
incorporated in finalizing this report.
II. THEMATIC EVALUATION
A. Gateway and Regional Port System
18. In the first half of the 1980s, the Indonesian government introduced a hierarchy of ports.
At the top were the four gateway ports—the only ports permitted to handle foreign traffic. They
were Tanjung Priok, Surabaya, Belawan, and Ujungpandang. At the second level were the
regional collector ports (e.g., Banjarmasin and Balikpapan) whose role was to feed the gateway
ports. The regional collector ports were in turn fed by regional trunk ports that were in turn fed
by feeder ports. Thus export cargo originating in a feeder port would be transhipped three times
by the time it left Surabaya, and probably a fourth time at Singapore. The rationale of the
gateway system was to match ship sizes and thus costs with cargo densities on given routes.
Cargo consolidation in these ports was expected to lead to a reduction in the overall transport
and shipping costs. Another aim was to ration the scarce funds available for port investment; but
the transport costs became extremely expensive. Moreover, this centrally planned system did
not recognize that the private shipping industry could not adapt to it without major cost
sacrifices. Since this system (introduced via the International Bank of Reconstruction and
Development-sponsored Integrated Sea Transport Study of 1982) was abandoned in 1985,
ships have made direct calls at many small ports, thereby avoiding multiple transhipment costs.
The diversity of the interisland fleet meant that even larger, old ships could operate on short
hauls and smaller ones on long trips. The whole system needed effective regulation, which was
lacking. Much of the export cargo from the islands of central and east Indonesia continues to be
routed via Surabaya so that many of the smaller ports do in practice operate as regional ports.1
ADB assistance, through the Eighth Project, did not acknowledge the abolition of the
hierarchical system of the ports.2 As a result, the expansion provided at Balikpapan and
Banjarmasin was based on conservative traffic volume and even lesser growth in containerized
cargo—this proved to be wrong (para. 33). In fact, the port converted part of the open-space
parking area for container storage (para. 33).
19. The Mission concluded that the categorization of a port as a regional port was not
helpful, and raised transport costs unnecessarily. It is recommended that the development plan
for all ports should be based on their actual role in practice—not on their place in a hierarchical
system.3 In particular, careful attention should be paid to forecasting when direct calls are likely
to be made by international ships. This usually depends on reaching a threshold volume at
which it pays the shipping line to divert directly to the regional port.4 DGSC has recently adopted
a new master plan (prepared under a Japan International Cooperation Agency study, 1999) to
1
The Seventh Port berth design depth of 13 meters (m) provided for deeper draft direct-entry vessels at Surabaya.
But the reality of continued Singapore feeder vessels was recognized by only dredging to 10.5 m, thus saving cost
while catering to future development, not only to potential direct entry, but to increase the intra Asian and
Singapore feeder trade using gradually larger vessels. Both of the latter events have occurred, as the ADB staff
expected.
2
The Appraisal Mission apparently recognized that the gateway prescription would be unlikely to occur, and that the
dynamics of shipping would determine actual routing and technology. In that sense, the design was perhaps
deliberately conservative.
3
The Government and ADB operations department concurred with this assessment.
4
A forced gateway and rigid hierarchy of domestic port feeder services was unrealistic. While the appraisals were
constrained partly by official gateway policy, it would have been unrealistic to not cater to possible development of
larger vessel calls in the Seventh Port Project design. The Government proposals for 14 interisland berths at
Surabaya, which ADB declined to include in the project scope, were motivated partly by the Government’s gateway
feeder expectations.
2
develop regional hubs.5 However, while external assistance is needed to develop these ports,
ADB is not yet actively involved in such proposals (para. 56).
B. National Gateway Ports and Inland Transport
20. The road network is good in Java, but poor on the other islands. Thus Surabaya has
good links with its hinterland and reasonable road haulage tariffs; while Banjarmasin,
Balikpapan, and the small ports have very poor links with their potential hinterlands. The
Mission reviewed the $2 million rail link (included under the Seventh Project) to the port of
Surabaya. The rail link was a relatively low cost option, and in line with practice elsewhere, to
provide access to the hinterland.6 While the Mission acknowledged the rationale for the rail link,
it could have been deferred, as it attracted little traffic. Experience elsewhere confirms that road
transport dominates at all container ports, except where distances are long or where urban
traffic is affected by acute congestion and truck bans.7 The situation in Surabaya did not require
special assistance for inland transport. In this regard, in the Mission’s assessment, problems of
inland transport, contrary to claims in the Seventh Project PCR and the Special Evaluation
Study,8 should not be simultaneously targeted under port projects. They should be addressed
under regional master plan studies and implemented as separate projects.9 In addition, road
and rail construction cost much more and take more time to implement than port projects.
Moreover, they usually come under a different agency or authority. The construction of a road
network in south and east Kalimantan, will be a major undertaking.
C. Assistance to Secondary Ports
21. The Mission reviewed the project components and implementation arrangements under
the Ninth Project. The Mission concurs with the PCR’s conclusion that the monitoring of large
numbers of small ports in remote locations was impracticable, and required a disproportionate
expenditure on missions. Also, the data obtainable at the small ports was inadequate to monitor
performance in the normal way. The need for continuing assistance to rehabilitate and develop
the numerous secondary ports was confirmed by DGSC and Persero Pelabuhans (Public
Limited Corporation) [PTPIs]. The available evidence suggests that the PTPIs, as a result of
good advisory intervention from ADB under this Project, domestic consultants and construction
companies have developed adequate capacity to allocate and implement sector loans. As for
ADB, the central problem associated with project-based lending for the small ports is that the
cost of ADB mission visits and office analysis is disproportionately large relative to the cost of
the individual subproject. Thus, in practice, the analysis is not done properly. 10 It would be
inefficient for ADB to supervise future projects with the same approach. In conclusion, future
secondary ports would be best assisted via sector loans rather than project loans. ADB can
5
The East hub was chosen at Bitung port; the location of the West hub is still under discussion.
6
The rail links to the Nilam Quay, which were also rehabilitated under the Project are in regular use.
7
It is quite likely that this will continue to be valid in East Java until fuel subsidies are totally removed, or the road
sector becomes significantly congested, which is not the current situation.
8
TA 5715-REG: Special Evaluation Study on Port Projects, for $260,000, approved on 20 December 1996.
9
Covenanting road improvements are ineffective, as the EA for ports usually has no control over the roads.
10
In the Ninth Project, the analysis only skimmed the surface at each port. In fact, the PCR conceded that it was not
really possible to calculate the economic internal rates of return (EIRR) and the financial internal rates of return
(FIRR) for these small ports–partly because the data needed for ADB analysis is not available, and partly because
the investment is often only for rehabilitation, or because it affects only a small part of the overall port. In many
cases, there are few easily quantifiable benefits (e.g., where a pilot boat is provided). While these were useful
inclusion in the Project, nevertheless, attempts to produce EIRRs and FIRRs in these circumstances lead to a
lowering of standards.
3
extend further capacity building services to DGSC and the PTPIs.11 Concerned external
financiers could also actively participate in supporting the Government to provide autonomy to
the PTPIs and the smaller ports to set tariffs that allow them to recover operation costs. DGSC,
which continues to directly supervise the operation of smaller ports, should be advised to
prepare a long-term strategy for sustainably operating these ports, without Government subsidy.
External financing agencies could actively assist in these areas in the future.
D. ADB Support for Privatization, Port Reforms, and Infrastructure Development
1. Privatization at Major Ports
22. The privatization program, which has recently started in Indonesia’s main ports, has
been generally supported by multilateral agencies (the International Monetary Fund, World
Bank, and ADB). While the first steps in the mid-1990s were very much in the wrong direction,12
the next initiative was a step in the right direction: the allocation of the general cargo berths at
Tanjung Priok to about 11 companies, each holding 2-3 berths. But there are still several flaws
in the arrangements. In particular, labor is still effectively employed by the national pool, via the
port administration, rather than the cargo handling company, thereby limiting company loyalty.
Also, the contractors’ concession periods of about five years are too short to encourage
investment. Finally, in 1999, there were two more developments that combined both good and
bad aspects. Hutchison (the largest port operator in Hong Kong, China) was granted a 20-year
concession to run the main container terminal at Tanjung Priok in a joint venture with the port
authority; and the Peninsular and Oriental Steam Navigation Company [P&O] (Australia) was
granted a similar concession at Surabaya.13 This was commendable in the sense that these two
companies are the world's top two international stevedoring companies, and transparent open
bidding took place.14
23. However, the port privatization program at the main ports (in which ADB did not actively
participate) is misguided.15 In particular, as these ports were already efficient, the significant
outcome of the container terminal privatization was to raise money for the central Government—
rather than improve port efficiency, which might have been the original intention. The current
program, which culminated in the granting of the concessions to Hutchison and P&O, was not
11
The thrust of a sector loan approach is not limited to reducing the supervision and monitoring responsibilities of the
EA and ADB during project implementation. ADB’s sector loan policy stipulates that application of this modality has
to be built on three building blocks, including a well-defined sector policy agenda, a corresponding investment
program, and an appropriate institutional setup.
12
The initial plan was to hand over control of Indonesia’s top two container terminals (those at Tanjung Priok and
Surabaya) to companies without cargo handling experience. Neither attempt, however, was successful. At
Surabaya the deal was not concluded; and at Tanjung Priok, the Humpuss Corporation subsidiary, entered a joint
venture with the port authority (PTPI II) at terminal 3 (CT3), failed to perform, and is now bankrupt.
13
Between 1992 and 1997, ADB explored, at length, ways to get port privatization moving in appropriate directions,
especially for relating a subsequent expansion of the Surabaya container port terminal after completion of the
Seventh Port Project. As for the stated present lack of competition at Surabaya, there could have been two
terminals had the Government followed two of the potential options discussed with ADB missions.
14
PT (Persero) Pelabuhan Indonesia III has started to restructure the Port Hospital. Furthermore, PTPI III has sold 49
percent of its operating concession to PT. Terminal Petikemas Surabaya, on a lease basis for 20 years.
15
ADB essentially maintained an appropriate dialogue with the Government, where it was possible, to deal with the
difficult political and institutional framework that created and has perpetuated the inefficiencies.
4
initiated by the port authorities.16 Furthermore, while no final decision has been made on the
status of the port sales revenues, a part of the proceeds (just under $400 million) went to the
central Government (as an advance dividend). Only a small fraction went to the port (PTPI II),
which is now short of funds. The Mission recommends that the responsibility for the ports should
be shared by the Ministry of Communications, specialized in transport, and the Ministry of State-
Owned Enterprises. This would promote the long-term objectives of privatization, which include
stimulating competition and improving efficiencies, while helping the Government fulfill its
obligations to the International Monetary Fund.17
2. Port Sector Reforms
24. The Mission reviewed ADB’s support for port sector reforms through these evaluated
projects. The projects, or accompanying TAs, provided capacity building components to improve
the management information system and skills of the government bodies and PTPIs. With the
benefit of hindsight, although not much was accomplished to improve productivity at the project
ports, and thereby reduce the need for new berth construction, ADB has appropriately
concentrated TA on improving the existing Government bodies. The Mission acknowledges that
this approach was partly needed to achieve early benefits in safeguarding project investments,
and to educate all stakeholders on the advantages of the reform. The government bodies
should not continue to retain control, which would limit the most efficient forms of private
participation.18 Experience elsewhere confirms that the key to improving operations is the
replacement of government operations by competing private terminals,19 combined with
deregulation. However, Government regulation of tariffs and port investment has been retained,
despite the fact that freedom of entry and pricing are crucial to the working of market
mechanisms.20
16
The Ministry of State-Owned Enterprises (MSOE) was set up to provide overall supervision and management of
state-owned enterprise (SOE) reforms including privatization. These policy changes are an integral part of the
economic reform program being supported by international financial institutions in the aftermath of the financial
crisis. The current efforts comprise stage I of SOE reforms, which include restructuring, profitability, and
privatization. SOEs with good financial performance may be privatized immediately. ADB is supporting the
implementation of the overall economic reform program including SOE reforms and privatization. ADB has an
ongoing TA that helps MSOE formulate the SOE reform agenda. ADB has also been working with the Government
to develop a comprehensive SOE reform program that focuses on improving SOE corporate governance,
addressing financial and corporate restructuring and strengthening competition. MSOE was asked to draw up a list
of industries for sale to generate funds for the Government, which was in financial difficulties during the Asian crisis
of 1998, and was committed by the International Monetary Fund to raise revenue. The list included cement
production, telecommunications, ports, airports, steel, trading companies, etc. The privatization procedures and the
use of consultants were dominated by MSOE, not the port authorities.
17
MSOE had at first considered selling Indonesia’s four regional port authorities wholesale to the private sector, but
found that law required an SOE rather than a private body to control the ports.
18
However, it should be emphasized that very few countries were aware that privatization, deregulation, and/or
competition was the best approach at the time of the appraisal of the Seventh, Eighth, and Ninth Port Projects.
Even the United Kingdom did not really tackle port reform until 1989-1991.
19
Indonesian ports still use the old-fashioned system under which private contractors deploy gangs drawn from the
national dock labor pool. This system, despite being private, is inefficient and often corrupt in almost all countries in
which it still operates. It is usually much less efficient than the more modern system of privately run terminals with
their own permanent staff. In Indonesia, the national dock labor pool is technically employed by a local
representative of the Ministry of Communications rather than the stevedoring companies, and has little loyalty to
the cargo handling contractors.
20
The Seventh Port Appraisal Mission advised the Government to adopt specific measures to improve productivity by
about 20 percent and provided consulting services, to support earlier advice under the Fourth Port Project. This
avoided the construction of about 14 new interisland berths in response to the perceived productivity gains.
5
25. Privatization so far has been limited to the two most lucrative international container
terminals, which were reasonably efficient and highly profitable before they were privatized.21 It
will be difficult to extend privatization to the interisland, domestic port facilities, mainly because
tariffs, regulated by the Government, are too low to allow a return on investment.
26. The most lucrative terminals were handed over to foreign companies, which although
very efficient, often have a keen eye for gaining a monopoly position in the countries in which
they operate.22 There are no plans to require the private concession holders to reduce tariffs, as
might be expected when private specialist firms replace state monopolies. On the contrary, the
private concession holders are reported to have already exerted pressure for an increase in
tariffs (although without success).
27. Throughout the world over the last 20 years ports that used to be inefficient have seen
productivity increase and costs fall when the right types of reforms were introduced. These
generally entail privatization, deregulation of entry, investment and tariffs, and strong
government measures to tackle the labor problems of overstaffing, and restrictive practices.23
28. But in many Asian countries, the results have not been so impressive. Although the
private sector is generally allowed to build and run single-user ports, the governments usually
protect their own monopolies over common user ports, i.e., general cargo. The experience at
the major common user ports of Bangladesh, the People’s Republic of China, India, Indonesia,
Malaysia, and the Philippines and the most common defects in the respective port reform
programs are summarized in Appendix 7.
3. Port Infrastructure Development
29. There is a common view that the private sector can now be relied on to finance and build
berths. But in practice there has been relatively little private investment in port infrastructure
during the 1990s in Indonesia—or, indeed, in neighboring countries such as the Bangladesh,
the People’s Republic of China, India, and the Philippines.
30. Unlike the international container operations, the domestic (interisland) cargo handling
and the operation of the public terminals and smaller ports are not attractive to the private
sector. The tariffs are too low to allow an acceptable return. The port tariffs for domestic
shipping which are fixed by the central Government, are well below those for international
shipping. Most of the domestic ports therefore register losses, and their PTPIs are only able to
make surpluses because they are subsidized by large revenues from two other sources—
pilotage for private berths, which often handle very large tonnages (e.g., petroleum, liquefied
natural gas, and coal), and concession fees from private ports. Neither source of revenue would
21
The container facilities at Tanjung Priok and Surabaya were both privatized in a single unit, despite having enough
traffic (1.7 million twenty feet equivalent unit [TEU] and 0.7 million TEU, respectively) to justify being split into at
least two separate terminals. In theory, Hutchison faces competition from a smaller terminal at Tanjung Priok
(CT3), run by a joint venture of Humpuss and the PTPI, but in practice Humpuss has not been able to provide
funds or to operate efficiently, and PTPI II is trying to buy them out. Also, CT3’s traffic level is only one sixth of that
at the Hutchison terminal.
22
MSOE argues that it would have preferred local investors—its favored method of privatization being sale of shares
on the local market. But this did not prove possible, as Indonesian investors are short of funds at present, and the
share market is depressed.
23
There is a general consensus on the desirability of the withdrawal of port authorities to a landlord role, with all
operations carried out by private companies in a competitive environment—with incentives to succeed and
penalties for failure.
6
be available to a private investor. Radical tariff reform and stripping out of subsidies are
therefore necessary preconditions for attracting private sector funds to domestic ports.24
31. As for the regional ports, the PTPIs in some cases make large surpluses and can fund
expansions.25 But they will continue to rely on external assistance from international
development agencies for developing regional port infrastructure.26 Parts of the port operations
such as container terminals can be offered to the private sector. However, it may be better for
the PTPIs to operate and manage these, and get all profits, rather than being merely the
landlord, until competition can be expected from private investors.
32. As for the smaller ports, the central Government (DGSC) continues to manage and
operate these ports, and rightly so. While these ports have excellent economic benefits, as
confirmed by the evaluation of Ninth Port Project, they need subsidies for their operation and
maintenance. Several smaller ports have to be rehabilitated in the near future and there is a
need for external assistance to the Government.27 On the contrary, the Government has taken
the view that these ports should be like PTPIs: self-financing and seek private sector
assistance—which is unlikely.
24
The Mission observed that users demonstrated willingness to pay for a better quality service. The only way the
demand can be sustained, not withstanding the tariff increases, is by improving service quality.
25
For example, PTPI III funded the last 500-m extension of the ocean-going container berth and 450 m new
interisland container berth at Surabaya, after ADB dropped out of the picture, and also the expansion of Benoa.
PTPI IV recently funded a 160-m extension at Balikpapan.
26
The Overseas Economic Cooperation Fund is currently financing, or likely to finance, new specialized container
terminals at Bitung, Kupang, Semarang, and Ujungpandang; and is supporting expansions at many small ports. It
has also granted a Maritime Sector loan for ships, navigational aids, ferry terminals, etc. The Japan International
Cooperation Agency has recently completed a study of port needs in Indonesia up to 2018, and will draw up a
program of support. It will focus mainly on infrastructure needs rather than institutional and regulatory policy.
27
Operations at many smaller ports involve public service obligations (PSOs). These do not automatically lead to the
public provision of these services. Alternative approaches should be studied, including competitive tendering of
PSOs to enhance transparency of any necessary subsidies and to improve operational efficiency at smaller ports.
III. PERFORMANCE EVALUATION OF THE PORT PROJECTS
A. Implementation Performance
33. The original designs for the project ports were generally followed during construction,
with some deviations except for the Ninth Project. The Surabaya port’s (Seventh Project) 500-
meter (m) container terminal berths were dredged appropriately to only 10.5 m, instead of the
13 m envisaged at appraisal, as the ships calling were smaller than expected.1 However, at
Banjarmasin the high recurring costs of dredging and maintaining the design depth of 9 m was
not fully confronted at appraisal—despite the existence of earlier studies.2 In addition, the
procurement of two tugs at Banjarmasin did not materialize as the smaller ships that were
coming did not require a tug. Furthermore, ADB correctly opted for full container berths at
Surabaya, instead of multipurpose general cargo berths desired by the port management.
However, at Banjarmasin, the Eighth Project did not include a container yard in the original
design. Nevertheless, during project implementation, the port converted part of the open space
parking area to a container yard to cope with the growing container traffic (para. 38). At the
Balikpapan port, the new construction was limited mainly to a very small extension to the
existing general cargo berth plus a passenger building. The design of the facilities was
satisfactory; but the port authorities consider the passenger terminal to be too small. Large
crowds must sit outside, partly a result of a high ratio of well-wishers to travelers.
34. The ADB guidelines were followed by all projects for procurement and engagement of
consultants and contractors. The consulting services covering technical supervision of
contractors and financial management were considered satisfactory for all projects; as was the
performance of contractors (Appendix 2, Table A2.1). There were no major problems in the
organization and management, aside from the Government’s failure to submit legal opinions
and bid evaluation (Eighth Project), which caused delays.
35. The actual costs in all projects were below appraisal. The main reasons were (i) reduced
scope of works (Eighth Project), (ii) competitive bidding, (iii) overestimation at appraisal, and
(iv) devaluation of the rupiah (Appendix 2, Table A2.2). The relatively minor delays experienced
in both the Eighth and Ninth projects did not adversely affect project implementation and port
performance. At the Surabaya port, the delay of more than three years in completing the
Seventh Project resulted in average waiting times of five days for container ships by 1991
(Appendix 2, Table A2.3).
1
PTPI III plans to undertake a study on deepening and widening the channel to accommodate future demand for
bulk carriers because of rapid industrial development in the surrounding areas.
2
As the channel would be expensive to maintain at the design depth (9 m) selected, the design width for the 14 km
channel was reduced from 100 to 60 m. The reduction was accompanied by assurances from the port to ADB that
they would introduce a traffic control system, monitor siltation levels, and monitor traffic to see when widening was
justifiable. But the dredging has always been expensive and was therefore only carried out intermittently.
Consequently, the channel depth in 1993 had fallen to 3.5 m at mean low water springs, compared with the design
depth of 6 m. Further solutions were sought in a study financed by JICA. It recommended a $38 million submerged
wall; but it was feared that silt would build up and could come over the wall. Another solution was proposed by a
DETEG study under a 1997 Dutch grant: it was a new channel, costing about $30 million (for about 10 million cu.m.
of dredging plus navigational aids). It would permit two way traffic and is probably justifiable for the new high-
volume coal barge traffic. A channel fee to cover the costs is being discussed with various parties.
2
36. All projects supported the EAs by improving their management information system.
These components were successful and useful. However, the level of success was lower for the
components that aimed to improve operational efficiencies of cargo handling operations and
introduce two-shift working.3 The training, which focused on the PTPIs, should have also
addressed the concerns of the stevedoring companies (ADPEL) that carry out the operations.
37. In all projects, compliance with covenants was generally satisfactory (Appendix 2,
Table A2.4). The few covenants that were partly complied with did not adversely affect project
performance. The exception was at Banjarmasin, where the channel was not maintained at 6 m
depth, despite the fact that the design draft was 9 m. Considering the importance and high cost
of regular channel dredging, it was unrealistic and inadequate for ADB to rely solely on a loan
covenant.
B. Operational Performance
1. Traffic and Port Operations
38. The Mission reviewed the utilization of facilities at all ports. All the berths built under the
projects at larger ports—Balikpapan, Banjarmasin, and Surabaya—have been used intensively
since their construction. The occupancy at Trisakti would have been much higher and the berths
less productive if the cargo had still been handled conventionally; but about 70 percent of the
present traffic was for containers, which were handled much faster than conventional general
cargo.
39. Traffic at all the main berths examined was well above the levels forecast at appraisal.
The appraisal teams tended to take a more pessimistic view of traffic growth than the feasibility
study consultants.4 Consequently, traffic exceeded forecasts by a large margin in almost all
project ports. In particular, the projects generally underestimated the rapid growth of
containerization. In all the main project ports, container traffic increased much faster than
assumed at appraisal. In the smaller ports, the growth rate was 6 percent per annum combined,
rather than the appraisal estimate of 3 percent. Actual and forecast traffic for 1998, and berth
occupancies in 1995 and 1998 are compared in Table 1.
Table 1: Traffic and Berth Utilization at Major Project Ports

Traffic for 1998
Berth Occupancies
(percent)
Forecast Actual
Port Unit (Appraisal Report) (the Mission) 1995 1998
3
The client for the TA was the PTPI rather than the private contractors (who carry out the operations), utilizing a
national labor pool that is employed by an independent port administrator under the Ministry of Communications
(ADPEL). The current operators have proven resistant to change. There are acknowledged problems in labor
relations—mainly because the workers’ employer is ADPEL, the independent port administrator, and they do not
have loyalty to the stevedoring companies. In the meantime, the stevedores are still working a single shift (although
14 hours) in 1999.
4
The reasons given varied. They included the adoption of a conservative view of economic prospects, because of a
downturn in the economy (which proved temporary); and, in one case, the common error of relating port traffic
growth mainly to gross domestic product (GDP) growth. In most countries, trade increases at a much faster rate
than GDP. Worldwide, GDP has averaged about 3 percent in the last decade, while international trade has
increased at about 6 percent and containers at 9 percent per annum.
3
1. Surabaya ICT 1,000 TEU 381 730 66 74

(+domestic)
2. Banjarmasin
a. Trisakti 1,000 tons 500 1,700 65 72
b. New Martapura 1,000 tons 543 738 100 100
3. Balikpapan, Semayang 1,000 tons 350 350 82 78
ICT = international container terminal; TEU = twenty feet equivalent unit
40. As a result of the conservative view of traffic growth, the appraisals scaled down the
proposed expansions. At Balikpapan, they reduced the extension proposed by the consultants
from 320 m to 60 m; and at Banjarmasin they reduced the extension at Trisakti from 320 m to
120 m, and the New Martapura berth from 500 m to 350 m. This conservative approach was
partly successful as containers generated productivity increases. Nevertheless, more facilities
have to be built soon at Balikpapan, and the New Martapura wharf is operating at over 100
percent occupancy (Appendix 3, Table A3.1).5
41. Forecasts of shipping traffic were generally satisfactory, with some exceptions. First,
Banjarmasin was expected to attract 10,000 dead weight ton (DWT) ships, and the berths were
designed accordingly. But in practice, the cost of dredging to maintain such a depth would have
been extremely high, and was not carried out. The ships calling have therefore been restricted
to about 3,500-6,000 DWT, despite dredging of about 2.5 million cubic meters per annum.
Secondly, the Surabaya forecasts for attracting direct calls by east-west trunk route ships were
excessively optimistic. Asian and Pacific rim container shipping has been dominated by the hub
ports of Colombo; Hong Kong, China; Singapore; and Taipei,China for two decades. The main
ports of Bangladesh, India, Indonesia, the Philippines, and Thailand have failed to attract many
direct calls, except on the shorter routes to other Asian destinations. Lastly, the appraisal
assumed, conservatively, that the smaller ports would be limited to domestic cargo, some of
which would feed exports to large ports. In practice, a significant minority of the exports at these
ports were picked up by direct calls by international vessels.
2. Institutional Performance
42. In general, the performance of the EAs, the PTPIs, was satisfactory; but the approval
procedures of the Borrower, created delays for all projects with adverse effects in Surabaya
(para. 35) (Appendix 3, Table A3.2).
43. The only private participation at the project ports (except for stevedoring labor
contractors) has been at the container terminal at Surabaya.6 At the other ports, no private
investors have come forward, despite Government policy welcoming their participation.7
5
Suitable changes were made during implementation and the now canceled Belawan, Banjarmasin, and Balikpapan
port projects would have catered to the continuity of what is needed at Banjarmasin. For many years, also, the
option of a new container port construction, avoiding the bar and channel siltation problem, was always considered
among the options. At Banjarmasin, although the siltation situation was agreed to be underestimated during
formulation of the Eighth Port Project, a round-robin feeder arrangement via Surabaya and Banjarmasin and based
on Singapore became the norm, and maximum use was made of the facilities provided. It is an important
consideration in any port development that there will always be a strong element of choice by shipping interests.
6
It was privatized in May 1999, via the setting up of a joint venture with the PTPI. The joint venture is the sole
operator for international containers, as there is no competition.
7
These ports depend on revenues from private ports to cover their costs. This revenue would not be available to
private operators. The port tariffs are regulated by the central Government. Port tariffs for domestic operations
have been, and still are, too low to attract private investment.
4
3. Financial Reevaluation
44. The methodologies and assumptions in the financial evaluations used in the appraisal
reports and PCRs were difficult to follow. Furthermore, they contain some incorrect
assumptions. In particular, they assume that port revenues are affected immediately by an
investment. In practice, traffic levels are often likely to remain the same for several years
whether or not the investment takes place (except where there is competition between ports,
which was not the case in the project ports). It is only when congestion reaches very high levels
that the revenue streams with and without the Project start to diverge. Moreover, the FIRRs
calculated at appraisal were already low, because the regulated port tariffs are low. But with the
additional assumption that financial benefits would start only a few years after economic
benefits, the FIRRs become much lower, because revenues in the early years have a greater
value than revenues in the later years. The appraisals, however, were correct in not using low
FIRRs as an argument against berth construction.8 The appraisal and the recalculated FIRRs
are compared in Table 3. Details are in Appendix 4, Tables A4.1–A4.4.
8
In fact, port projects with high EIRRs often have low FIRRs. The reason is that a large part of the benefits of port
construction takes the form of reduced vessel waiting times, which benefit the shipping lines (and their customers),
rather than the port. These benefits are not reflected in the ports accounts, unless waiting times become so high
that ships stop calling. This, however, would generally only happen several years after the failure to invest, when
congestion becomes extreme. Thus the construction of an additional berth often reduces queuing costs
immediately, but has little effect on traffic levels, and therefore port revenues, unless tariffs are revised, for several
years. Financial sustainability should have been the concern at appraisal if the revenue streams had been correctly
calculated and thus the FIRRs had not been overestimated.
5
Table 3: FIRRs of Project Ports

(%)
Project Appraisal PCR PPAR
Seventh Project
Surabaya 15.3 12.1 2
Eighth Project
Banjarmasin 3.3 9.3 negative
Balikpapan 5.6 8.8 negative
Ninth Project (Overall) 5.1 6.2-36.0 not calculated9
PCR = project completion report, PPAR = project performance audit report.
4. Economic Reevaluation
45. The Mission undertook economic reevaluation following ADB guidelines.10 The EIRRs
were calculated taking into account actual developments in cargo traffic, shipping traffic, and
berth occupancies. Economic benefits for the main investments are high. They consist mainly of
reduced waiting time for ships, faster turnaround at berth, and avoided lighterage. Without the
project expansions, queuing costs in particular would have been extremely high. The calculated
EIRRs were higher than those calculated at appraisal, because traffic levels were higher than
forecast. Consequently, the potential for reducing congestion and queuing costs was higher. An
exception was Surabaya, where the main benefits were reduced because the ships calling are
small feeder ships rather than large trunk route ships. The daily operating costs of feeders, and
the benefits associated with them, are much lower. The recalculated EIRRs are compared with
those of the appraisal reports in Table 4. Details are in Appendix 4, Tables A4.1–A4.4.
Table 4: EIRRs of Project Ports

(%)
Project Appraisal PCR PPAR
Seventh Project
Surabaya 19.1 17.6 17
Eighth Project
Banjarmasin 14.9 17.3 28
Balikpapan 17.0 14.8 27
Ninth Project (Overall) 16.8 23.0 not calculated11
PCR = project completion report, PPAR = project performance audit report.
9
See reasons in Appendix 4, Table A4.1.
10
The details presented in the economic evaluations contained in the appraisals were insufficient to fully understand
or rework the calculations. In particular, berth occupancies, which are a key determinant of the main benefits at all
the ports (savings in queuing costs), were not usually discussed.
11
See reasons in Appendix 4, Table A4.1.
6
5. Environmental Impact
46. There were no major adverse environmental impacts from operation and maintenance
dredging at the project ports (Appendix 4, Table A4.5).
6. Sustainability
47. There were no significant technical problems affecting sustainability, except at

Banjarmasin, where the high costs of maintenance dredging have prevented the planned depth
of the berths from being realized. Two PTPIs have been making reasonable surpluses in recent
years. PTPI III accumulated enough of a surplus to build a 500-m extension to the container
terminal at Surabaya from its own internal funds; and PTPI IV was able to fund a 160-m
extension at Balikpapan internally. But other PTPIs stated that they have more limited funds
than before. Also, most of the proceeds from the sale of 49-51 percent of the container
terminals has gone to the central Government rather than the PTPI.
48. The operations within the individual ports, especially those covered by the Ninth Project,
will not be profitable, unless tariffs are revised. It is only where they can obtain revenue from
services, e.g., pilotage to private ports with very high traffic volumes, that they avoid losses.
Also, ports with international traffic can make profits on their own operations, as tariffs on
international trade are much higher than on domestic trade. The institutions managing the ports
appear to perform satisfactorily in most respects; but the central agencies dealing with policy
are in need of guidance on policy and implementation for port reforms, privatization, promotion
of competition, and deregulation (para. 58).
IV. CONCLUSIONS
A. Overall Assessment
1. Seventh Project
49. The main objective to provide facilities to handle rapidly increasing container traffic was
achieved. Without the Project, container vessels would have been handled relatively slowly at
general cargo berths, and ship waiting costs would have been high. Fewer ships have used the
port than expected, as most are feeders or direct call ships on short routes. The TA was
successful in its main objective—training staff for the new ICT. However, it was only partly
successful in increasing capacity and productivity for general cargo berths.1 It was carried out
for the wrong clients (the Perums); and they were not able to compel the dock workers to
change their existing work practices.2 A delay of more than three years in completion resulted in
long ship waiting times (five days) before the ICT opened. Other questionable aspects of the
Project are that the berths were designed for larger and deeper ships than have come so far;
and it might have been possible to avoid such a long bridge (by opting for the alternative site at
Gresik).3 The rail link provided has attracted lower traffic than anticipated at appraisal. The
terminal funded by ADB was privatized via a joint venture with P&O in 1999.4 The joint venture
has no competition. The key to maximizing the productivity and minimizing the costs and tariffs
of the terminal built under the Seventh Port Project would be to promote competition between
terminals. Overall, and considering the level of the EIRR, the Project is rated as generally
successful.
2. Eighth Project
a. Banjarmasin
50. The new wharves built under the Eighth Port Project are being used intensively.
Occupancies are very high. The berth, however, was designed for old-fashioned general cargo
operations, with only a narrow apron between ship and sheds, while most of the general cargo
has now moved into containers. No container yard was included in the design. The ships calling
are smaller than expected, partly because the channel was not dredged to the design depth.
51. The dredging problems at Banjarmasin were underestimated at the time of appraisal,
and were given little emphasis in the appraisal documents.5 The Project was completed about
1
PTPI III, however, reported productivity at the general cargo berth increased by 25 percent, attributable to the
Project.
2
In particular, the consultants were not able to introduce two shifts to replace the current one-shift system.
3
PTPI III clarified that an earlier evaluation of an alternative site at Gresik was not considered feasible due to various
reasons: poor road connection between Gresik and Surabaya (the toll road, which was opened in 1996, was not
anticipated), and increased cost of reclamation of the container yard, which was considered more expensive than
the access bridge built under the Project.
4
Earlier, ADB dropped out of funding Surabaya port, because of the failure of the port to use the correct procedures
when the takeover by Citra Lamtoro was being considered.
5
The projects assumed that the Trisakti wharf would have a depth of 6 m and accommodate ships of 10,000 DWT
calling directly, but in practice it has handled mainly domestic ships, with maximum sizes varying between about
2
four months behind schedule, because of a delay in the Government submission of a legal
opinion. Project costs were only 55 percent of the originally estimated cost. The TA for financial
management and computer operations helped PTPI IV improve its management performance,
but the major goal of introducing two-shift work was not achieved. The completion of the access
road at Banjarmasin was delayed, but this is not the fault of ADB or the PTPI. The coordination
with the Department of Public Works at the planning stage was satisfactory, but implementation
was slow.
b. Balikpapan
52. The rehabilitated and expanded facilities are being used at high rates of occupancy.
However, the 320-m extension at the main public berth (Semayang) recommended by the
consultants was reduced to 60 m. This was a mistake. Occupancy became very high
immediately after completion, and the port had to build another 160 m with internal funds. Even
after this extension, occupancy was almost 80 percent in 1998. Traffic has been far above
forecast levels, even after the surge in traffic associated with the building of the airport (1992-
1993) subsided. The passenger terminal built under the Project is used intensively, but is
generally considered to be too small. The TA for financial management and computer
operations helped the PTPIs improve their management performance; but the major goal of
introducing two-shift work was not achieved. Inland transport continues to be problematic. But
there is little that the Project could reasonably have achieved. The development of an inland
transport network in the hinterland of Balikpapan will be a major undertaking. The private sector
has not shown interest in building general cargo berths.
53. The Banjarmasin component was highly successful, when compared with the
Balikpapan component. Overall, the Eighth Project is rated as generally successful, based on
the high EIRRs.
3. Ninth Project
54. The Mission’s review of port operations at all project ports revealed that facilities were
improved and are being used intensively. This was also confirmed at Jakarta meeting in July
1999, attended by representatives from the project ports.6 Earlier missions found that it was not
possible to carry out economic or financial evaluations on a sound basis for several reasons—in
particular, the remote and scattered locations of the ports, the absence of data required for
benefit monitoring, and the fact that the project works were only a small component of the
overall facility. Access to markets has been improved and reportedly generate economic activity
in the local hinterlands. However, in all these project ports there were few easily quantifiable
benefits (such as from pilot boats). The Mission did not recalculate EIRRs and FIRRs, and
accepted PCR estimates as reliably indicative of the Project’s success. The scale of the Ninth
Project, however, was too limited, because ADB took an excessively conservative view of traffic
growth. Overall, the Project is rated as generally successful.
B. Lessons Learned
55. Common lessons learned (Appendix 6) from the three projects include the following:
3,500 and 6,000 DWT. PTPI III reported that a recent study, which suggested a new channel (100 m, 5 m depth) to
the south, claimed that dredging below 5 m will not be economical.
6
Without such a meeting, it would have been difficult to assess the impact of the Project, as the Project mainly
funded rehabilitation, often only of a small part of the overall port.
3
(i) An overcautious approach by appraisal teams has in some cases resulted in

underinvestment during Indonesia’s phase of rapid growth. Container traffic
grows extremely fast in developing economies at early stages of containerization.
The growth was underestimated for all projects. Shipping specialists are needed
to participate in feasibility studies to ensure that realistic forecasts are made of
the type of vessels that will call.
(ii) The entry of the private sector requires extremely careful and detailed planning.
Promoting competition or including surrogates for competition is a precondition
for success in ICT privatization. The key to increasing productivity is the
replacement of Government operations with competing private sector operations.
Tariff reform is a key enabling factor for port reform and the attraction of private
participation. But ADB’s TA under the evaluated projects concentrated on
improving efficiency of existing government bodies.7
C. Follow-Up Actions and Recommendations for the Future
56. Although ADB assistance under the Seventh, Eighth, and Ninth port projects was
generally successful, part of the assistance was suboptimal.
1. Follow-Up Actions at the Project Ports
(i) Surabaya. In the mid-1990s, ADB withdrew from funding of Surabaya,

and in particular, from the funding of the recent 500-m expansion of the
container terminal, which was completed in 1998. Meanwhile, the port
built the 500-m expansion with its own funds. But container traffic is still
growing rapidly, and a further expansion will be necessary. There is also
scope to increase productivity via regulatory intervention; this would
reduce the need for future investment.8 Also, privatization has yet to be
extended to general cargo operations. 9
(ii) Banjarmasin. Further expansion will likely be required. Berth occupancy

is high and traffic is growing. Furthermore, general cargo has moved very
rapidly into containers in the last five years, and the existing berths are
poorly designed to handle containers. Banjarmasin also has a major
problem with dredging. The annual dredging is expensive, and the effects
are shortlived. This has prevented the berths at Banjarmasin’s ADB-
funded expansion from being dredged to their design depths. Several
solutions have been studied by external funding agencies, but all are
expensive. However, in recent years an increasing volume of coal has
been mined upriver, and the 10,000 DWT coal barges use the channel.
There may be a possibility for a jointly funded solution.
7
ADB should also be engaging consultants who can help the Government introduce new port technology to attract
private sector participation.
8
Reasonable assumptions on annual productivity growth at the ports should be explicitly incorporated in future
project appraisals.
9
The joint venture set up between the Peninsular and Oriental Steam Navigation Company [P&O] and PTPI III in
1999 handles all the international containers. It is likely to be reasonably efficient, but further improvements would
be possible if at least one other terminal provided competition.
4
(iii) Balikpapan. The extension funded under the Eighth Port Project was too
short, and the port had to fund a further extension from internal funds. But
even after that extension, occupancy remains high, and traffic is likely to
continue increasing and require capacity expansion. Also, the passenger
terminal is generally considered to be too small and may need extending.
A new port is being considered, along with a new industrial area at
Kariangau, a few kilometers away from Semayang.
(iv) Benoa. The PTPI III has expressed interest in receiving funding for the
expansion of Benoa, the main port of Bali.10 A feasibility study for the port
was carried out under the Ninth Port Project, and served as the basis for
a phase I expansion program. It included a dredging program, but there
are still several shallow areas in the channel that prevent use by larger
cruise ships. They currently anchor offshore at a port located about 1.5
hours drive from the center of the tourist areas. PTPI III considers that
there is a need for more dredging, and also a container terminal. Traffic is
still fairly low, but expected to expand rapidly.
(v) Small Ports. Continued external assistance for small port rehabilitation
and expansion may be needed. The private sector is unlikely to provide
funds for the small ports, even if they provide funding for larger ports. A
sector loan approach rather than a project-based loan would be
appropriate to reduce project preparation and administration costs.
2. General Recommendations
57. This evaluation confirmed many positive recommendations observed in an earlier

Operations Evaluation Office study (Appendix 8).
a. For the Borrower
58. The Indonesian government is urgently in need of a clear set of guidelines to place its
port reforms, privatization, promotion of competition, and deregulation on the right track. A
complete overhaul of domestic tariffs is necessary if the private sector is to be attracted to
participate in port facilities for domestic cargo. In the major ports, priority should be given to
introducing competition, thereby creating built-in incentives to maintain high efficiency and keep
costs down. The Mission also recommends that close coordination be maintained between the
Ministry of Communications, which is responsible for port sector policy and regulation, and
MSOE, which is undertaking the important task of privatization, so that the long-term sectoral
priorities are carefully considered in the early stages of introducing private sector participation in
the ports sector.
b. For the Asian Development Bank
59. ADB should actively support the acceleration of port reforms. Despite government policy,
the private sector has not been investing in ports. In particular, ADB should help the
Government and the PTPIs introduce competition at major ports and revise tariffs for domestic
10
According to PTPI III, Benoa port is mainly expected to handle general cargo, fishery, and tourism. Bulk cargo is
planned to be handled at the port of Celuk Baung.
5
cargo. To catalyze and facilitate this process, ADB may have to reconsider its partial withdrawal
from port sector funding.11
11
The cancellation of a recently approved loan (Loan 1559-INO: Belawan, Banjarmasin, and Balikpapan Ports, for
$100 million, approved on 30 September 1997) was at the request of the Government in view of the extremely
difficult fiscal situation of the country and the refocusing of its priorities in the aftermath of the financial crisis.
6
APPENDIXES
Cited on
Number Title Page (page, para.)
1 Background 21 1, 2
2 Implementation Performance 25 3,11
3 Project Results 29 4,16

attachments\pe541-TableA3.1.doc
4 Development Impact 32 4,16
attachments\pe541-TableA4.2-7thirr.xls
attachments\pe541-TableA4.3-
8thirrbal.xls
attachments\pe541-TableA4.4-
8thirrban.xls
5 Key Issues 37 4,16
6 Lessons Learned 38 4,16
7 Port Reform Experience in the 39 9,28
Developing Member Countries
8 Special Evaluation Study of Port Projects: 43 19,57
Summary of Recommendations
Appendix 3, page 1
PROJECT RESULTS
Table A3.1: Overall Performance
Project/Item Details
A. Seventh Port ?? Handling speeds increased and ship time at berth fell after the container berths
were opened.
?? Boxes per crane per hour at Surabaya international container terminal.
1980s ? 10
1994 ? 19
1995 ? 18
1996 ? 19
1997 ? 20
1998 ? 21
?? Waiting times for berths fell from five days before the container terminal opened
in 1992 to negligible levels after the opening.
?? Staff levels are reasonable by international standards. In 1998, 669 staff were
employed to handle 732,000 TEU.
?? Handling speeds for interisland containers and general cargo, however, did not
increase. Customs delays caused long periods in storage, which the port did not
discourage as it boosted storage revenues. Also equipment was not used.
Cargo handling methods continued to be mainly manual and cargoes remained
unpalletized.
B. Eighth Port ?? There was only a minor increase in cargo handling speeds for general and
bagged cargo following technical assistance. The gangs work only a single
14-hour shift, so that productivity falls in the final hours of the shift.
Cargo Handling Speeds
(tons or boxes per gang hour)
General Cargo Bagged Cargo Containers
1991 ? 18 1991 ? 22 1991 ? 6
1998 ? 23 1998 ? 18 1998 ? 16
?? Another operational problem is the inability of the roads around Banjarmasin to
accommodate containers.
?? They have low axle-load capacities and weak bridges (and there are 55 bridges)
on the road between Banjarmasin and the nearest town on the east coast,
Batalucin. Outside Java, roads are not generally capable of handling containers,
and inland waterways are frequently used for inland transport. Most of
containers handled at Banjarmasin, however, have initial inland origins and
destination close to the city. A ring road is being built around the city.
?? There was only a minor increase in cargo handling speeds following technical
assistance. The port still works only a single 14-hour shift, with productivity
falling toward the end of the shift.
C. Ninth Port ?? Data not included here. Details are compiled in a supplementary appendix.
TEU = twenty feet equivalent unit.

Appendix 3, page 2
Table A3.2: Institutional Performance
A. Seventh Port ?? The Borrower’s performance was not very satisfactory. The Government’s bid
evaluation and approval procedures were responsible for most of the more than
three years of delay. It is understood that these procedures have now been
streamlined. Also, the Executing Agency should have exerted more control over
the crane fabricator’s site management.
?? In other respects, however, the performance of the Borrower was considered
satisfactory.
?? Technical assistance provided during the Project was effective in improving the
management information and accounts available to the Perum. It also provided
satisfactory training for about 100 staff for the international container terminal.
But it was unable to achieve improvement in handling speeds for general cargo,
mainly because of entrenched labor practices and labor restrictions.
B. Eighth Port ?? There was a delay in declaring the loan effective. In other respects, the
performance of the Borrower was satisfactory. The performance of the Executing
Agency, PTPI IV, was satisfactory.
C. Ninth Port ?? The Project was completed 14 months behind schedule. There were delays in
finishing tender documents and in obtaining Government approvals for contracts.
Further delays were caused by lack of suitable staff within the DGSC to provide
project management during design and construction.
?? Otherwise, the Implementing Agencies, the PTPIs and DGSC, performed
satisfactorily.
DGSC = Directorate General for Sea Communications, PTPI = Persero Pelabuhan (Public Limited Corporation).
Appendix 3, page 3
Table A3.3: Financial Performance
A. Seventh Port ?? In the year before the Tanjung Perak container terminal was privatized it had a
very large surplus:
(ICT, 1998, Rp billion)
Revenues 302
Expenses including depreciation
and interest 74
Surplus 218
?? The financial performance of PTPI III as a whole has also improved continuously
since the appraisal in 1984. It was able to finance the second 500 m of container
terminal at Surabaya from internal funds, and is regarded as the most profitable
of the PTPIs. But at present, it considers itself short of development funds.
?? The proceeds of P&O’s recent payment ($173 million) for their concession at
Surabaya went mainly to the central Government.
B. Eighth Port ?? The port of Banjarmasin makes a small surplus. However, dredging
requirements impose a heavy cost on the port. Its annual bill for the required
3
2.5 million m is about Rp9 billion. A new channel would cost $30 million and
annual maintenance costs would be the same but it would give a depth of 5-6 m
all year round, and two-way traffic. The high-volume coal traffic, which has
emerged in recent years, may be able to contribute to the costs. Proposals are
being discussed.
?? The port of Balikpapan makes a financial surplus; this is mainly attributable to
pilotage services provided to the high-volume petroleum shipments and various
fees from the private sector. The port operations at Balikpapan (Semayang and
Kampung Baru) make a loss, despite the high occupancies, because the tariff
levels for domestic traffic, regulated by DGSC, are very low.
C. Ninth Port ?? Data information is not analyzed in the project performance audit report. Details
are summarized (for ports with information) in a supplementary appendix.
DGSC = Directorate General for Sea Communications, m = meter, m3 = cubic meter, P&O = Peninsular and Oriental
Steam Navigation Company, PTPI = Persero Pelabuhan (Public Limited Corporation).
Appendix 4, page 1
DEVELOPMENT IMPACT
Table A4.1: Financial and Economic Reevaluation
A. Seventh Port ?? The main economic benefits of the Project were reductions in container vessel
waiting times, which had risen to an average of five days before the terminal was
opened, plus reductions in ship times at berth with faster handling and reduction in
general cargo ship waiting times at the conventional berths when the container
ships left.
?? The appraisal report included another benefit that did not materialize. It assumed
that a container terminal at Surabaya would attract the large mother vessels
deployed on the east-west trunk routes. However, there was never much prospect
of such vessels diverting to Surabaya, and the depth to which the container berths
are dredged is, in any case, too low to attract such ships (10.5 m instead of 13 m).
On the other hand, Surabaya receives direct calls from ships on the Asian routes
to Hong Kong; Japan; Republic of Korea; Malaysia; Philippines; and Taipei,China.
?? The EIRR was calculated at 19.1 percent at appraisal, but recalculated at
17.6 percent in the PCR.
B. Eighth Port ?? The benefits of the Project were reduced ship waiting times, avoidance of
lighterage cost, slightly better turnaround times at berth.
?? The EIRR at Banjarmasin was calculated at 14.9 percent at appraisal, and
recalculated in the PCR at 17.3 percent.
?? The EIRR for Balikpapan was calculated at 17 percent at appraisal; and
recalculated in the PCR at 14.8 percent.
?? The FIRR for Banjarmasin estimated at appraisal was very low, at 3.3 percent. It
was recalculated in the PCR, using the same approach as in the appraisal, at
9.3 percent.
?? The FIRR estimated for Balikpapan at appraisal was low, at 5.6 percent. It was
recalculated, using the same approach as at appraisal, at completion at
8.8 percent.
?? However, as stated in the PCR, the dominant financial benefit was debatable. It
consisted of the savings to Perums III and IV resulting from a program of staff
reductions and cost cutting supported by ADB. There are two errors here. First,
the cost reductions are not dependent on, or benefits of, the Eighth Port Project
investment at Balikpapan or Banjarmasin; and second, they should be allocated to
all ports under the Perums, not just Balikpapan or Banjarmasin.
C. Ninth Port ?? The PCR drew attention to the difficulties of evaluating the economic effects of
minor investments at small, remote ports with different types of problems. It
concluded that the economic and financial analyses could not be carried out on a
rational basis.
?? At appraisal, however, the main economic benefits identified were reductions in
ship waiting times, ship service times, and lighterage costs.
?? The EIRR for all the small ports combined was estimated at 16.8 percent at
appraisal; and recalculated at 23 percent in the PCR.
?? The financial evaluation made the assumption that all the ports were at full
capacity and that revenues on all additional traffic could be considered attributable
to the investment. This seems extremely unlikely, but even with this assumption
the FIRR on the ports with civil works was estimated at only 5 percent at
appraisal. It was recalculated at 6 percent in the PCR.
ADB = Asian Development Bank, EIRR = economic internal rate of return, FIRR = financial internal rate of return,
m = meter, PCR = project completion report.
Table A4.2: Surabaya International Container Terminal
Reestimated Economic and Financial Internal Rates of Return
Economic Internal Rate of Return Financial Internal Rate of Return
Traffic ('000 TEU)
Benefits ($'000) Traffic Assumed to
Savings (Time) Net Additional Net Handled Divert to Other
Costs ($'000) Ship Ship Benefits Traffic Costs ($'000) Revenuesd Benefits Unconstrained at ICT Ports Without
Year Investmenta M&R Waitingc Service ($'000) ('000 TEU) Investment M&R ($'000) ($'000) Traffic (first 500 m) the Investment
1983 (910) (910) (1,137) (1,137)

1984 (1,005) (1,005) (1,256) (1,256)
1985 (78) (78) (97) (97)
1986 (3,726) (3,726) (4,658) (4,658)
1987 (23,774) (23,774) (29,717) (29,717)
1988 (33,680) (33,680) (42,100) (42,100)
1989 (15,115) (15,115) (18,894) (18,894)
1990 (36,429) (36,429) (45,536) (45,536)
1991 (37,743) (3,402) (41,146) (47,179) (4,253) (51,432)
1992 (39,692) (4,254) 18,880 2,098 (22,968) 236 (49,615) (5,317) 0 (54,932) 236 236 0
1993 (4,254) 31,008 2,871 29,626 323 (5,317) 0 (5,317) 323 323 0
1994 (4,254) 46,144 3,662 45,553 412 (5,317) 0 (5,317) 412 412 0
1995 (4,254) 50,064 3,973 49,784 447 (5,317) 0 (5,317) 447 447 0
1996 (4,254) 54,096 4,293 54,136 483 (5,317) 0 (5,317) 483 483 0
e e
1997 (4,254) 56,000 4,444 56,191 500 (5,317) 4,402 (915) 571 500 71
1998 (4,254) 56,000 4,444 56,191 500 (5,317) 14,322 9,005 731 500 231
1999 (5,958) (4,254) 56,000 4,444 50,232 500 (7,448) (5,317) 19,761 6,996 819 500 319
2000 (4,254) 56,000 4,444 56,191 500 (5,317) 25,852 20,535 917 500 417
2001 (4,254) 56,000 4,444 56,191 500 (5,317) 31,000 25,683 1027 500 500
2002 (4,254) 56,000 4,444 56,191 500 (5,317) 31,000 25,683 1150 500 500
2003 (28,632) (4,254) 56,000 4,444 27,559 500 (35,790) (5,317) 31,000 (10,107) 1288 500 500
2004 (4,254) 56,000 4,444 56,191 500 (5,317) 31,000 25,683 1417 500 500
2005 (4,254) 56,000 4,444 56,191 500 (5,317) 31,000 25,683 1559 500 500
2006 (5,494) (4,254) 56,000 4,444 50,696 500 (6,868) (5,317) 31,000 18,815 1715 500 500
2007 (4,254) 56,000 4,444 56,191 500 (5,317) 31,000 25,683 1886 500 500
2008 (4,254) 56,000 4,444 56,191 500 (5,317) 31,000 25,683 2075 500 500
2009 (4,254) 56,000 4,444 56,191 500 (5,317) 31,000 25,683 2282 500 500
b b
2010 90,658 (4,254) 56,000 4,444 146,849 500 113,323 (5,317) 31,000 139,006 2510 500 500
EIRR 17% FIRR 2%
EIRR = economic internal rate of return, FIRR = financial internal rate of return, ICT = international container terminal, m = meter, M&R = maintenance and rehabilitation, TEU = twenty feet equivalent unit
Note: There are also benefits of reduced breakage and pilferage, but they are minor.
a
First three years are costs of detailed engineering. All costs as shown in the project completion report. A standard conversion factor equivalent to 0.8 was used to arrive at economic costs and benefits.
b
Residual value.
c
By the time the delayed ICT opened at the end of 1992, container vessels were already waiting for 5 days. It is assumed that the waiting times would rise to 7 days.
The queuing costs are estimated on the following assumptions:
Daily cost of feeder ship in port ($): 8,000
Average waiting time without project rising from 5 days to 7 days
Handling speed without project: 360 TEU/day
Handling speed with project: 500 TEU/day
d
Revenue that would be lost when congestion finally deterred traffic from coming to the port. It is difficult to predict the threshold at which this would occur, but experience elsewhere shows that it would not do so
until ship waiting times reach very high levels.
e
The capacity of the 500 meter wharf is estimated at approximately 500,000 TEU: (based on 4 feeder berths x 500 TEU per berth day x 70 percent occupancy).
Table 2: Revised FIRR ('000)
Traffic ('000 TEU)

Assumed to
Traffic Divert to Other
Costs Additional Net Unconstrained Handled at ICT Ports W/o
a c
Investment M&R Revenues Benefits Traffic (first 500 m) Investment
1983 (1,137) (1,137)

1984 (1,256) (1,256)
1985 (97) (97)
1986 (4,658) (4,658)
1987 (29,717) (29,717)
1988 (42,100) (42,100)
1989 (18,894) (18,894)
1990 (45,536) (45,536)
1991 (47,179) (4,253) (51,432)
1992 (49,615) (5,317) 0 (54,932) 236 236 0
1993 (5,317) 0 (5,317) 323 323 0
1994 (5,317) 0 (5,317) 412 412 0
1995 (5,317) 0 (5,317) 447 447 0
1996 (5,317) 0 (5,317) 483 483 0
d
1997 (5,317) 4,402 (915) 571 500 71
1998 (5,317) 14,322 9,005 731 500 231
1999 (7,448) (5,317) 19,761 6,996 819 500 319
2000 (5,317) 25,852 20,535 917 500 417
2001 (5,317) 31,000 25,683 1027 500 500
2002 (5,317) 31,000 25,683 1150 500 500
2003 (35,790) (5,317) 31,000 (10,107) 1288 500 500
2004 (5,317) 31,000 25,683 1417 500 500
2005 (5,317) 31,000 25,683 1559 500 500
2006 (6,868) (5,317) 31,000 18,815 1715 500 500
2007 (5,317) 31,000 25,683 1886 500 500
2008 (5,317) 31,000 25,683 2075 500 500
2009 (5,317) 31,000 25,683 2282 500 500
b
2010 113,323 (5,317) 31,000 139,006 2510 500 500
2% FIRR 2 %
a
First three years are costs of detailed engineering. All costs as shown in the project completion report.
b
Residual value
c
Revenue which would be lost when congestion finally deterred traffic from coming to the port. It is difficult to
predict the threshold at which this would occur, but experience elsewhere shows that it would not do so until
ship waiting times reached very high levels.
d
The capacity of the 500 meter wharf is estimated at approximately 500,000 TEU (based on 4 feeder berths x 500
TEU per berth day x 70 percent occupancy).
Average revenues based on recent accounts, $/TEU 62

Table A4.3: Balikpapan
Economic Internal Rate of Return Financial Internal Rate of Return

Benefits ($'000)
Savings
in Ship Avoidance Net Incremental Net
Costs ($'000) Waiting of Lighterage Benefits Costs ($'000) Revenuesc Benefits
Year Investment M&R Timea Costsb ($'000) Investment M&R ($'000) ($'000)
1988 (760) (760) (950) (950)

1989 (1,200) (1,200) (1,500) (1,500)
1990 (2,040) (2,040) (2,550) (2,550)
1991 (2,248) (2,248) (2,810) (2,810)
1992 (1,552) (40) 2,358 280 1,046 (1,940) (50) 40 (1,950)
1993 (40) 2,358 280 2,598 (50) 40 (10)
1994 (40) 2,358 280 2,598 (50) 40 (10)
1995 (40) 2,358 280 2,598 (50) 40 (10)
1996 (40) 2,358 280 2,598 (50) 40 (10)
1997 (40) 2,358 280 2,598 (50) 40 (10)
1998 (40) 2,358 280 2,598 (50) 40 (10)
1999 (40) 2,358 280 2,598 (50) 40 (10)
2000 (80) (40) 2,358 280 2,518 (100) (50) 40 (110)
2001 (40) 2,358 280 2,598 (50) 40 (10)
2002 (40) 2,358 280 2,598 (50) 40 (10)
2003 (40) 2,358 280 2,598 (50) 40 (10)
2004 (40) 2,358 280 2,598 (50) 40 (10)
2005 (80) (40) 2,358 280 2,518 (100) (50) 40 (110)
2006 (40) 2,358 280 2,598 (50) 40 (10)
2007 (40) 2,358 280 2,598 (50) 40 (10)
2008 (40) 2,358 280 2,598 (50) 40 (10)
2009 (40) 2,358 280 2,598 (50) 40 (10)
d
2010 3,840 (40) 2,358 280 6,438 4,800 (50) 40 4,790
EIRR 27% FIRR -4%
EIRR = economic internal rate of return, FIRR = financial internal rate of return, M&R = maintenance and rehabilitation
a
Without the 60-meter berth extension occupancy would have been extremely high from the opening date, as traffic surged during the airport
construction in 1992-1993. The new berth therefore can be considered to have reduced congestion levels from extremely high levels to
reasonable levels. The queuing cost without the new berth is estimated at $2.77 million and with the new berth at $0.4 million, as follows:
Before After
Project Project
No. of berths 4 5
Occupancy 0.95 0.76
Ship days at berth 1,387 1,387
Cost per ship day at berth ($) 1,000 1,000
Cost of service time per annum ($'000) 1,387 1,387
Waiting to service time ratio 2 0.30
Cost of ship waiting time ($'000) 2,774 416
b
Without the 60-meter expansion in 1992, occupancy would have been 102 percent, and on the assumption that maximum capacity would be
reached at 95 percent occupancy, 7 percent of normal traffic (about 40,000 tons per annum) would have to be lightered. The avoidance of this
lighterage cost would save about $7 per ton, including capital costs of lighterage berths.
c
The revenue per ton on the interisland traffic, which dominates, is only $1 per ton (70 cents from ship dues and 30 cents from
cargo dues).
d
Residual value.
Table 4: Revised FIRR ($'000)
Costs Incremental Net

Investment M&R Revenues Benefits
1988 (950) (950)

1989 (1,500) (1,500)
1990 (2,550) (2,550)
1991 (2,810) (2,810)
1992 (1,940) (50) 40 (1,950)
1993 (50) 40 (10)
1994 (50) 40 (10)
1995 (50) 40 (10)
1996 (50) 40 (10)
1997 (50) 40 (10)
1998 (50) 40 (10)
1999 (50) 40 (10)
2000 (100) (50) 40 (110)
2001 (50) 40 (10)
2002 (50) 40 (10)
2003 (50) 40 (10)
2004 (50) 40 (10)
2005 (100) (50) 40 (110)
2006 (50) 40 (10)
2007 (50) 40 (10)
2008 (50) 40 (10)
2009 (50) 40 (10)
2010 4,800 (50) 40 4,790
FIRR -3 %
Note: The traffic volume assumed to divert to lighters if the

berth had not been built is the overflow after berth
occupancy would have reached 95 percent. Without the
berth extension occupancy would have been 102
percent with normal traffic levels in the year after
construction. Therefore 7 percent, or 40,000 ton p.a.,
would have been lost without the project. The revenue
per ton on the interisland traffic which dominates is
only $1.0 per ton (70 cents from ships dues and 30
cents from cargo dues).
Table A4.4: Banjarmasin
Economic Internal Rate of Return

Benefits ($'000)
Savings Financial Internal Rate of Return
in Ship Avoidance Net Incremental Net
c
Costs ($'000) Waiting of Lighterage Benefits Costs ($'000) Revenues Benefits
Year Investment M&R Timea Costsb ($'000) Investmenta M&R ($'000) ($'000)
1988 (608) (608) (760) (760)

1989 (3,744) (3,744) (4,680) (4,680)
1990 (3,241) (3,241) (4,051) (4,051)
1991 (5,723) (5,723) (7,154) (20) (7,174)
1992 (3,208) (40) 4,242 1,400 2,394 (4,010) (50) 200 (3,860)
1993 (40) 4,242 1,400 5,602 (50) 200 150
1994 (40) 4,242 1,400 5,602 (50) 200 150
1995 (80) (40) 4,242 1,400 5,522 (100) (150) 200 (50)
1996 (40) 4,242 1,400 5,602 (150) 200 50
1997 (40) 4,242 1,400 5,602 (150) 200 50
1998 (40) 4,242 1,400 5,602 (150) 200 50
1999 (40) 4,242 1,400 5,602 (150) 200 50
2000 (80) (40) 4,242 1,400 5,522 (100) (150) 200 (50)
2001 (40) 4,242 1,400 5,602 (150) 200 50
2002 (40) 4,242 1,400 5,602 (150) 200 50
2003 (40) 4,242 1,400 5,602 (150) 200 50
2004 (40) 4,242 1,400 5,602 (150) 200 50
2005 (80) (40) 4,242 1,400 5,522 (100) (150) 200 (50)
2006 (40) 4,242 1,400 5,602 (150) 200 50
2007 (40) 4,242 1,400 5,602 (150) 200 50
2008 (40) 4,242 1,400 5,602 (150) 200 50
2009 (40) 4,242 1,400 5,602 (150) 200 50
d b
2010 8,400 (40) 4,242 1,400 14,002 10,500 (150) 200 10,550
EIRR 28% FIRR -3%
EIRR = economic internal rate of return, FIRR = financial internal rate of return, M&R = maintenance and rehabilitation
a
Without the 120-meter berth extension occupancy would have been extremely high from the opening date. The new berth reduced queuing costs from an
estimated $4.2 million at 95 percent occupancy and a waiting to service time ratio estimated at 2:1, to almost zero.
b
Without the new berth, about 18 percent of the cargo would have had to be lightered to keep occupancy down to 95 percent, i.e., about 200,000 tons at
traffic levels in the early 1990s. The cost of lighterage, including capital costs, is about $7 per ton. Average daily ship cost: $1,000.
c
The revenue per ton on the interisland traffic, which dominates, is only $1 per ton (70 cents from ship dues and 30 cents from cargo dues).
d
Residual value.
Table 6: Revised FIRR ($'000)
Costs Incremental Net

c
Investment M&R Revenues Benefits
1988 (760) (760)

1989 (4,680) (4,680)
1990 (4,051) (4,051)
1991 (7,154) (20) (7,174)
1992 (4,010) (50) 200 (3,860)
1993 (50) 200 150
1994 (50) 200 150
1995 (100) (150) 200 (50)
1996 (150) 200 50
1997 (150) 200 50
1998 (150) 200 50
1999 (150) 200 50
2000 (100) (150) 200 (50)
2001 (150) 200 50
2002 (150) 200 50
2003 (150) 200 50
2004 (150) 200 50
2005 (100) (150) 200 (50)
2006 (150) 200 50
2007 (150) 200 50
2008 (150) 200 50
2009 (150) 200 50
b
2010 10,500 (150) 200 10,550
FIRR -3 %
Note: The traffic volume assumed to divert to lighters if the

berth had not been built is the overflow after berth
occupancy would have reached 95 percent. Without
the berth extension occupancy would have been 116
percent with normal traffic levels in the year after
construction. Therefore 18 percent, or 200,000 tons
per annum, would have been lost without the project.
The revenue per ton on the interisland traffic which
dominates is only $1.0 per ton (70 cents from ships
dues and 30 cents from cargo dues).
Appendix 4, page 5
Table A4.5 Environmental Impact
A. Seventh Port ?? The dredged material was discharged in deep

water outside Madura Strait. The port previously
adopted this solution for the spoil from
maintenance dredging, and was aware that it
would not have any significant detrimental
impacts on marine life or seabed contours.
B. Eighth Port ?? There were no significant adverse impacts.

Dredging spoil has been discharged into sea,
about 20 km offshore, for almost 20 years,
without problems.
C. Ninth Port ?? No negative impact on the environment was

reported.
km = kilometer.

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ASIAN DEVELOPMENT BANK PPA: INO 21214

PROJECT PERFORMANCE AUDIT REPORT

Seventh, Eighth, and Ninth Port Projects

$1.00 = Rp1,015 $1.00 = Rp1,631 $1.00 = Rp1,715

Seventh Port Eighth Port Ninth Port

$1.00 = Rp2,010 $1.00 = Rp2,074 $1.00 = Rp2,310

ADB – Asian Development Bank

Operations Evaluation Office, PE-541

II. THEMATIC EVALUATION 1

A. Gateway and Regional Port System 1

III. PERFORMANCE EVALUATION OF THE PORT PROJECTS 1

Seventh Port Project (Loan 688-INO)

Key Project Data ($ million) As per ADB Loan Actual

Key Dates Expected Actual

Key Performance Indicators (%) Appraisal PCR PPAR

Economic Internal Rate of Return 19.1 17.6 17.0

Executing Agency Perum Pelabuhan III

Eighth Port Project (Loan 797-INO)

Project Preparation/Institution Building

TA TA Project Name Type Person-Months Amount Approval Date

Key Project Data ($ million) As per ADB Loan Actual

Key Dates Expected Actual

Key Performance Indicators (%) Appraisal PCR PPAR

Financial Internal Rate of Return 3.9 8.6 —

Borrower Republic of Indonesia

Executing Agencies Perum Pelabuhan III

Ninth Port Project (Loan 951-INO)

Project Preparation/Institution Building

TA TA Project Name Type Person-Months Amount Approval Date

Key Project Data ($ million) As per ADB Loan Actual

Key Dates Expected Actual

Key Performance Indicators (%) Appraisal PCR PPAR

Borrower Republic of Indonesia

— = not calculated, JBIC = Japan Bank for International Cooperation.

The Seventh Project comprised the construction of an international container terminal at

(i) the facilities provided were needed;

The Evaluation Mission undertook a thematic evaluation, in addition to an audit of

Gateway and Regional Ports System

Integration of National Gateway Ports with Other Modes

Strategies for Efficient Rehabilitation and Operation of Secondary Ports

ADB’s Support for Privatization, Port Reforms, and Infrastructure Development

B. Formulation, Objectives, and Scope at Appraisal

1. Seventh Port Project

2. Eighth Port Project

3. Ninth Port Project

14. The Operations Evaluation Mission undertook a thematic evaluation, in addition to a

E. Project Performance Audit Report

A. Gateway and Regional Port System

B. National Gateway Ports and Inland Transport

C. Assistance to Secondary Ports

D. ADB Support for Privatization, Port Reforms, and Infrastructure Development

1. Privatization at Major Ports

2. Port Sector Reforms

3. Port Infrastructure Development

1. Traffic and Port Operations

Table 1: Traffic and Berth Utilization at Major Project Ports

1. Surabaya ICT 1,000 TEU 381 730 66 74

ICT = international container terminal; TEU = twenty feet equivalent unit

Table 3: FIRRs of Project Ports

Project Appraisal PCR PPAR

Table 4: EIRRs of Project Ports

Project Appraisal PCR PPAR

PCR = project completion report, PPAR = project performance audit report.

47. There were no significant technical problems affecting sustainability, except at