PDAM Tirta Dharma Kota Malang, PreFS by ESP Indonesia

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

MARCH 2006 This publication was produced by Development Alternatives, Inc. for review by the United States Agency for International Development under Contract No. 497-M-00-05-00005-00

Photo Credit: Saiful Ely/ ESP Jakarta. Building office of Tirta Dharma Municipal Water Management Company.

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

Title: Program, activity, or project number: Strategic objective number: Sponsoring USAID office and contract number:

PDAM Tirta Dharma - Preliminary Financial Feasibility Analysis of Investment Proposal. Environmental Services Program, DAI Project Number: 5300201. SO No. 2, Higher Quality Basic Human Services Utilized (BHS). USAID/Indonesia, Contract number: 497-M-00-05-00005-00.

Contractor name:

DAI.

Date of publication:

March 2006.

TABLE OF CONTENTS LIST OF TABLES ....................................................................................................................... II EXECUTIVE SUMMARY..........................................................................................................III 1.

INTRODUCTION .............................................................................................................. 1

ANALYSIS OF HISTORICAL PERFORMANCE (2001-2005) ...................................... 3 2.1. PRODUCTION AND DEMAND ..................................................................................................................3 2.2. FINANCIAL PERFORMANCE .......................................................................................................................6 2.2.1. Revenues...........................................................................................................................................................6 2.2.2. Recurrent Costs...............................................................................................................................................6 2.2.3. Tariff...................................................................................................................................................................7 2.2.4. Accounts Receivable.......................................................................................................................................9 2.2.5. Inventory Management.............................................................................................................................. 10 2.2.6. Current Ratio and Cash Flow ................................................................................................................... 10 2.3. OUTSTANDING LOANS AND DEBT-SERVICE CAPACITY ..................................................................... 10

BUDGET FOR 2006 ......................................................................................................... 12 3.1. 3.2. 3.3.

INVESTMENT PROPOSAL ............................................................................................ 14 4.1. 4.2.

WATER PRODUCTION AND DEMAND ................................................................................................. 12 REVENUE AND EXPENSES ....................................................................................................................... 12 OTHER PERFORMANCE INDICATORS .................................................................................................... 13 PHYSICAL TARGETS AND COSTS ........................................................................................................... 14 FINANCING PLAN ................................................................................................................................... 15

HIGHLIGHTS OF THE FINANCIAL PROJECTION................................................... 17 5.1. ASSUMPTIONS ......................................................................................................................................... 17 5.1.1. Cost of Capital.............................................................................................................................................. 17 5.1.2. Projected Production and Demand ......................................................................................................... 17 5.1.3. Recurrent Costs............................................................................................................................................ 19 5.1.4. Tariff Analysis ............................................................................................................................................... 19 5.2. FEASIBILITY INDICATORS ........................................................................................................................ 20 5.3. FINANCIAL RESULTS ............................................................................................................................... 20 5.3.1. Income Statement ....................................................................................................................................... 20 5.3.2. Sources and Applications of Funds ......................................................................................................... 21 5.3.3. Balance Sheet ............................................................................................................................................... 21

CONCLUSIONS AND RECOMMENDATIONS .......................................................... 23 6.1. 6.2.

CONCLUSIONS ....................................................................................................................................... 23 RECOMMENDATIONS ............................................................................................................................. 23

ANNEXES ......................................................................................................................... 25 ANNEX A NOTES ON THE MEETING WITH PDAM KOTA MALANG (FEBRUARY 6-7, 2006). 26 ANNEX B NOTES ON VISIT TO PDAM KOTA MALANG (MARCH 6-7, 2006).............................. 30 ANNEX C SCHEDULE OF AMORTIZATION OF OUTSTANDING LOANS OF PDAM KOTA MALANG ............................................................................................................................................................. 34 ANNEX D INVESMENT PROGRAM OF PDAM KOTA MALANG ....................................................... 35 ANNEX E DETAILED DEMAND FORECAST........................................................................................................ 38 ANNEX F DETAILED INCOME STATEMENT ....................................................................................................... 39 ANNEX G DETAILED SOURCES AND APPLICATIONS OF FUNDS ................................................................... 40 ANNEX H DETAILED BALANCE SHEET PROJECTIONS ..................................................................................... 41

LIST OF TABLES TABLE 0-1 BREAKDOWN OF INVESTMENT COST (IN RP MILLION, EXCEPT %)....................................................... V TABLE 0-2 FINANCING PLAN AND INDICATIVE LOAN DISBURSEMENT SCHEDULE (IN RP MILLION, EXCEPT %) V TABLE 0-3 FEASIBILITY INDICATORS (WACC=14.9%)............................................................................................ VI TABLE 0-4 EXTRACT INCOME STATEMENT (IN RP MILLION, EXCEPT RATIOS)..................................................... VII TABLE 0-5 EXTRACT SOURCES AND APPLICATIONS OF FUNDS (IN RP MILLION, EXCEPT RATIOS) ................... VII TABLE 0-6 EXTRACT BALANCE SHEET (IN RP MILLION, EXCEPT RATIOS) ............................................................ VII TABLE 2-1 BREAKDOWN OF PRODUCTION AND DISTRIBUTION CAPACITY ..........................................................4 TABLE 2-2 PRODUCTION CAPACITY, CAPACITY CONSTRAINTS AND WATER LOSSES .........................................4 TABLE 2-3 CONNECTION AND WATER DEMAND ....................................................................................................5 TABLE 2-4 PDAM UNIT COSTS (RP PER M3 OF WATER SOLD AT CONSTANT 2005 PRICES) .............................7 TABLE 2-5 COMPARISON OF OLD AND NEW TARIFFS .............................................................................................8 TABLE 2-6 HISTORICAL RELATIONSHIP OF TARIFF TO COST (PER M3 OF WATER SOLD AT CONSTANT 2005 PRICES) .................................................................................................................................................................9 TABLE 2-7 COLLECTION EFFICIENCIES ..................................................................................................................... 10 TABLE 2-8 CURRENT RATIO AND CASH FLOW ...................................................................................................... 10 TABLE 2-9 INDICATORS OF DEBT-SERVICE CAPACITY ........................................................................................... 11 TABLE 3-1 COMPARISON OF UNIT COST PER M3 OF WATER SOLD FOR 2005 AND 2006 (AT CURRENT PRICES) .............................................................................................................................................................. 12 TABLE 4-1 SCHEDULE FOR INSTALLING NEW CONNECTIONS .............................................................................. 14 TABLE 4-2 COST OF INVESTMENT PROGRAM (IN RP MILLION)............................................................................. 15 TABLE 4-3 FINANCING PLAN AND INDICATIVE LOAN DISBURSEMENT SCHEDULE (IN RP MILLION) ................ 15 TABLE 4-4 AMORTIZATION SCHEDULE OF THE PROPOSED COMMERCIAL LOAN (IN RP MILLION) .................. 16 TABLE 5-1 WEIGHTED AVERAGE COST OF CAPITAL.............................................................................................. 17 TABLE 5-2 PROJECTED PRODUCTION CAPACITY, CAPACITY CONSTRAINTS AND WATER LOSSES.................. 18 TABLE 5-3 PROJECTED CONNECTIONS AND WATER DEMAND ........................................................................... 18 TABLE 5-4 ANALYSIS OF PROJECTED TARIFF (RP PER M3 OF WATER SOLD)........................................................ 19 TABLE 5-5 FEASIBILITY INDICATORS (WACC=14.9%).......................................................................................... 20 TABLE 5-6 SUMMARY INCOME STATEMENT (IN RP MILLION, EXCEPT RATIOS) ................................................... 21 TABLE 5-7 SUMMARY SOURCES AND APPLICATIONS OF FUNDS (IN RP MILLION, EXCEPT RATIOS) ................. 21 TABLE 5-8 SUMMARY BALANCE SHEET (IN RP MILLION, EXCEPT RATIOS)........................................................... 22

EXECUTIVE SUMMARY INTRODUCTION

This report presents an assessment of the investment program of PDAM Kota Malang. Prepared under the auspices of the Environmental Services Program (ESP) funded by the United States Agency for International Development (USAID), it aims to ultimately serve as basis for mobilizing loans from the domestic commercial banking system to finance the implementation of the said investment program. For the foregoing purpose, a 20-year financial projection was prepared based on assumptions agreed upon with PDAM management, using the following references: • • • •

Audited Financial Statements of PDAM Kota Malang for the years 2001 to 2004 Un-audited results of operation in 2005 Work Plan and Budget for 2006 Corporate Plan (Rencana Pengembangan Usaha) 2005-2009.

ANALYSIS OF HISTORICAL PERFORMANCE (2001-2005)

In 2005 PDAM Kota Malang had in its possession abstraction permits (surat ijin pengambilan air or SIPA) that would allow it to draw water up to 2,058 liters per second (l/sec) from 15 sources. Actual production in 2005 was 40.1 million m3, which translates to a production capacity of only 1,272.12 l/sec. The PDAM’s sources consist of 4.6% groundwater, 18.8% spring, and 76.6% surface water. By location, 68.9% of these are within the administrative boundaries of Kabupaten Malang, 19.4% in Kota Batu, and 11.7% in Kota Malang itself. As a consequence of limited supply, household consumption decreased from 134 liters per capita per day (lcd) in 2004 to only 121 lcd in 2005. Overall, total volume of water sales likewise contracted by 14% to 23.7 million m3 from 27.7 million m3 in 2004. Service is 24 hours in most of the coverage area. Non-revenue water (NRW) ranged between a low of almost 30% in 2003 to a high of 36% in 2001. Plant utilization factor reached 115% in 2005. Domestic coverage ratios in 2005 were 55% for the whole city and 81% for the designated service coverage area. Tariff revenues increased by a yearly average of 15.4%, reaching Rp 61,901 million by the end of 2005. Total connection fees averaged Rp 1,734 million per year for an average of a little over Rp 833 thousand paid by each new customer. Net income posted a respectable yearly average growth of over 14.2%. Based on un-audited figures, net income in 2005 amounts to Rp 11,741 million. Personnel cost accounted for the biggest share of operating expenses, averaging 28.6% of the total during the five-year period. Overhead, power, and maintenance materials had shares of 23.8%%, 20.6%, and 18.2% respectively. In real terms, recurrent costs increased by an average of 8.6% annually. Maintenance materials climbed at the fastest clip, at an average of 27.7% per year, followed by personnel at 17.0%. Overhead topped personnel cost by as much as 73.7% in 2001 before being reined in to average 98.9% during the five-year period under review.

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

In real terms, weighted average tariff declined by 4% in 2002. It recovered, however, to post increases of 13% and 14% in 2003 and 2004. In 2005, the increase was even more significant at 51% for a weighted average tariff of Rp 2,606. Every year, weighted average tariff remained above that which is required for full-cost recovery as defined under the decree of the Minister of Home Affairs (Permendagri) No. 2/1998 (the sum of O&M, depreciation, and 10% return on net book value of assets). Accounts receivable had been increasing every year, from 47 days of sales in 2001 to 60 in 2004, but slightly declined to 59 days in 2005. Bad debts written off averaged 0.63% of water sales. Consumables inventory averaged at an almost negligible level of five days cover. Installation inventory was however in an inordinately excessive level of 1,018 days or almost three years cover. Current ratio improved each year and remained at a safe level, with the lowest experienced in 2001 at 1.5. Cash in terms of number of months of operating expenses, on the other hand, had always been on a precarious level, averaging 0.6 during the last five years. In 2005, outstanding loans totaled Rp 48,182 million consisting of the following: loan from the former Direktorat Dana Investasi (DDI), Rp 4,957 million; shortage in the payment to PT Sumber Kencana Perkasa for the construction of Wendit III production unit, Rp 16,505 million; and loan from Bank Negara Indonesia (BNI), Rp 26,719 million. The amortizations of all these loans are scheduled to be completed by the end of 2011. All through the years, the PDAM has been able to make timely payments on both principals and interests of the aforementioned loans as they fall due. The PDAMâ&#x20AC;&#x2122;s debt service coverage ratio remained at a quite safe level. Debt to total capitalization increased in 2005 to 59% from 40% in 2004.

BUDGET FOR 2006

The PDAMâ&#x20AC;&#x2122;s production capacity will increase to 1,475 l/sec with the full operation of the installed capacity in Wendit III of 240 l/sec. Actual production is projected at 44,849 m3 and the volume of water sales at 28,751 m3. NRW for the year is estimated at 37.6%. Plant utilization factor is expected to decline but will remain at a strained level of 110%. A total of 4,000 connections will be installed during the year. The total number of connections will thus increase to 87,071. Domestic coverage ratios will reach 57.5% for the whole city and 84.8% for the service area. Water revenues are forecast to increase by 18% over the 2005 level, reaching Rp 73,025 million. Average tariff at constant 2005 prices will decline by 1% to Rp 2,408, but will remain 108% of that which is required for full-cost recovery as defined under Permendagri 2/1998. Net income is forecast to decline by as much as 20.6% to Rp 9,316 million. The number of employees per 1,000 connections is assumed to fall below 6 as head count is reduced from 536 in 2005 to 516. In nominal terms, personnel and overhead are budgeted to decline by 6.4% and 11.1% respectively. These decreases are however more than offset by increases in other cost items: power by 10.0%, chemicals, by 80.7%, maintenance materials by 48.4%, and raw water by 207.7%. Overall, recurrent costs are budgeted to increase by 9.6%. Receivables will be cut from 65 days of sales to 55, through the strict enforcement of a disconnection policy on customers with just one month of unpaid water bill. Bad debts are ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

likewise assumed to go down to 0.46% of water sales from 0.69% in 2005. The current ratio will be at 0.9. Cash will be at 0.4 month of operating expenses.

INVESTMENT PROPOSAL

The PDAM’s medium-term investment program consists of three components: extension of the distribution network, construction of reservoirs, and installation of pumps. From 2006 to 2009, a total of 16,759 new connections are hoped to be generated, out of which 4,000 are already expected to be installed in 2006. The program will be implemented during the period 2007-2009. The base cost of the program amounts to Rp 45,701 million. At current prices, and including all contingencies, the investment program will cost a total of Rp 57,472 million. Table 0-1 Breakdown of Investment Cost (In Rp Million, Except %) 2008 2009 2007

Total % of Total

Procurement

4,340

4,531

7,131

16,001

27.8%

Civil Works

2,068

2,274

3,365

7,707

13.4%

New Connections

8,424

7,308

1,183

16,915

29.4%

Total Base Cost

16,685

15,877

13,139

45,701

79.5%

Total Current Cost, inc. Contingencies

19,951

20,033

17,488

57,472

100.0%

A loan from a domestic commercial bank is proposed to finance 70% or Rp 40,230 million of the total investment cost. The rest is to be covered by connection fees and the PDAM’s internal cash generation. Table 0-2 Financing Plan and Indicative Loan Disbursement Schedule (In Rp Million, Except %) 2008 2009 Total % of Total 2007 Project Loan Assumed

13,966

14,023

12,242

40,230

70.0%

Customer Connections

4,476

4,101

4,062

12,639

22.0%

PDAM/Other

1,509

1,909

1,185

4,602

8.0%

19,951

20,033

17,488

57,472

100.0%

Total

HIGHLIGHTS OF THE FINANCIAL PROJECTION

The discussion focuses on the years 2007 up to 2013, the time slice that is considered critical as it corresponds to the period for implementing the investment program as well as for amortizing the PDAM’s outstanding loans and the proposed commercial loan. The cost of capital is computed based on the fund-sourcing mix. The commercial-loan portion will bear an interest of 17.0%. Customer contributions are assumed to be received by the PDAM as revenue and can therefore be considered as PDAM funds, which are expected to yield a return on equity of 10%. On this basis, the weighted average cost of capital (WACC) is 14.9%. ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

Part of the proposed investment program is the installation of two additional pumps in Wendit III to bring the yield from this facility up to its designed capacity of 480 l/sec. Total production capacity, therefore, is projected to increase to 1,715.2 l/sec. NRW is at 34.0% in 2007, and is projected to gradually decline thereafter to settle at 28.0% from 2012 onward. Per capita consumption will be at 121 liters per day throughout the projection period. Unit consumption is forecast to first gradually increase to reach 27.1 m3 per month in 2011, after which it will again decline to settle at 26.8 m3 from 2016 onward. Domestic coverage ratio for the entire city will reach 65.0% in 2013 and will peak at 65.5% beginning 2022. The service coverage ratio, on the other hand, will be 96.0% in 2013 and will reach almost 98% during the last year of the projection period. Plant capacity utilization factor will range within a narrow band of 92% and 96%. The desired personnel-to-connection ratio of 5 per 1,000 is planned to be achieved in 2010 and will be maintained at this level for the rest of the projection period. Cost per employee is assumed to increase annually in real terms by 8.0% or about 13.5% in nominal terms. Annual increases in costs of power and chemicals in real terms are set at 15% or 20.5% in nominal terms up to 2010. Starting 2011, costs of these inputs are expected to move based on annual inflation rate. The cost of maintenance materials is pegged at 3% of net assets. Overhead cost as a proportion of personnel cost will be reduced to 85% by 2010. The cost of raw water posted in 2006 of Rp 143 per m3 at constant 2005 prices is maintained and is adjusted only for annual inflation. The PDAM is at present committed to maintaining the present practice of increasing tariff by 20% in nominal terms every two years. At this rate, weighted average tariff will be at fullcost recovery, except in 2010 when it will be marginally lower at 99% of the required level. The investment program is found to be feasible with a positive net present value (NPV) of Rp 12,326 million and a financial internal rate of return (FIRR) of 20.1%. The program remains feasible even assuming a 10% increase in investment and incremental O&M costs, but does not surmount the other sensitivity tests of a 10% reduction in incremental revenues or the postponement of the realization of these revenues by one year. Table 0-3 Feasibility Indicators (WACC=14.9%) NPV

FIRR

Base Case

12,326

21.1%

10% Increase in Investment and O&M Costs

152

15.0%

10% Decrease in Incremental Revenues

(1,080)

14.4%

One Year Delay in Incremental Revenues

(8,028)

12.0%

The PDAM is projected to continue to generate net income after tax. Retained earnings will be positive throughout the projection period. Return on assets will range between 6% and 13%; return on equity will be between 10% and 31%.

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

Table 0-4 Extract Income Statement (In Rp Million, Except Ratios) 2007

2008

2009

2010

2011

2012

2013

Total Operating Revenues

112,769

126,190

158,842

160,896

193,075

203,634

244,474

Operating Expenses

71,921

85,924

102,959

121,614

130,596

143,637

158,910

Income Tax

19,544

8,576

11,809

7,723

15,452

16,109

25,500

Net Income Loss

19,544

20,253

31,232

16,532

33,655

34,063

53,997

Retained Earnings

5,082

5,266

8,120

4,298

8,750

8,856

14,039

Return on Assets

13%

11%

13%

11%

10%

13%

Return on Equity

31%

22%

23%

10%

16%

13%

16%

The PDAM will continue to enjoy positive annual cash flows. DSCR will remain at a safe and increasing level starting at 2.5 in 2007 and reaching 8.8 in 2013. Table 0-5 Extract Sources and Applications of Funds (In Rp Million, Except Ratios) 2007 2008 2009 2010 2011 2012 2013 Total Sources of Funds

61,346

69,695

86,377

60,080

75,707

84,717

112,951

Total Applications of Funds

45,557

53,166

56,888

50,719

38,006

40,300

35,411

Cash Increase (Decrease)

15,789

16,529

29,489

9,361

37,700

44,417

77,539

DSCR (Net Revenues)

2.5

3.2

3.3

2.0

3.5

5.5

8.8

Current ratio is projected to improve to 1.2 in 2007 and will remain at a safe level every year thereafter. The ratio of debt to total capitalization will sharply decline to 33% in 2007 and then to a mere 5% by 2011. A sharp increase in cash is foreseen, from 2.9 months of operating expenses in 2007 to 17.6 months in 2013. Table 0-6 Extract Balance Sheet (In Rp Million, Except Ratios) 2007 2008 2009 2010 2011

2012

2013

Current Assets

34,614

51,462

82,661

91,101

131,417

176,673

257,557

Net Fixed Assets

70,438

93,900

119,445

143,937

145,094

145,497

145,920

Total Assets

145,025

188,992

246,456

257,304

298,894

345,474

427,755

Current Liabilities

27,718

39,694

50,086

51,244

54,107

60,684

64,450

Long-Term Debt, Net

31,325

33,594

35,229

20,040

10,020

Total Liabilities

82,050

96,470

108,681

94,930

87,922

84,782

88,854

Total Equity and Liabilities

145,025

188,992

246,456

257,304

298,894

345,473

427,755

Current Ratio

1.2

1.3

1.7

1.8

2.4

2.9

4.0

Debt to Total Capitalization

33%

27%

20%

11%

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

VII

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

CONCLUSIONS AND RECOMMENDATIONS From the foregoing discussions, the following conclusions can be derived: • • • • •

PDAM Kota Malang will be able to maintain a sound financial footing. Production capacity will however continue to exert pressure on the PDAM’s ability to achieve its performance targets. In view of the foregoing, the proposed investment program becomes even more urgent. On the basis of the assumptions, the proposed investment program is financially feasible. The investment program is financially affordable to the PDAM.

The Following Recommendations are Offered: • Implement measures to properly control installation inventory. • Formulate and implement an action plan for reducing overhead. • Take a more aggressive and proactive stance toward generating new connections. • Conduct a comprehensive real demand survey. • Develop stronger coordination between the marketing and planning departments. • Conduct a performance audit of existing production facilities. • Formulate a plan for utilizing excess cash most effectively. • Institute safeguards for ensuring the validity of the assumptions used in the financial projection. • Institute of safeguards against the adverse scenarios used in the sensitivity analysis of the investment program.

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

VIII

1. INTRODUCTION This report presents an assessment of the investment program of PDAM Kota Malang. Prepared under the auspices of the Environmental Services Program (ESP) funded by the United States Agency for International Development (USAID), it aims to ultimately serve as basis for mobilizing loans from domestic commercial banking system to finance the implementation of the said investment program. The report uses as references the following: • • • •

In addition, a visit was made to the PDAM offices during the third week of November 2005, during which discussions were held with officials from its finance and planning divisions. Interim results of operations in 2005 (up to the end of October) and the investment program for 2006-2009 were obtained. It was also learned that two parallel efforts were ongoing to improve the PDAM’s performance: •

•

A non-revenue water reduction program, which is likewise supported by ESP, focusing primarily on portions of the transmission and distribution system that were constructed during the Dutch colonial era (around the 1920s) The preparation of a distribution master plan, with the assistance of a local consulting firm, aimed at equalizing water pressure at all points of the PDAM’s service coverage area.

These parallel efforts are not covered in this analysis. The report examines how the investment program will affect the future operation of the water enterprise mainly from the financial standpoint. For this purpose, a 20-year financial projection was prepared. On 7 February 2006, the preliminary results of the financial projection were presented to PDAM management. In the discussion that followed, the assumptions underlying the projection were either confirmed or modified, with the overall conclusion that a revised projection will have to be prepared. The un-audited results of operation for 2005 and an updated investment program were obtained. The notes on the aforementioned presentation are presented as Annex A. In a subsequent presentation on 7 March 2006, the revised financial projection and analytical report were approved for finalization by the PDAM management. Notes on this presentation are presented in Annex B.

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

The report can be divided essentially into the following parts: • • • • •

Historical performance of the PDAM from 2001 to 2005 Work plan and budget for 2006 Investment program for 2007-2009 Highlights of the results of the financial projection, including indicators of the feasibility of the investment program Conclusions on the proposed investment program and recommendations on the future operation of the water supply enterprise.

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

2. ANALYSIS OF HISTORICAL PERFORMANCE (2001-2005) In the presentation that follows, figures for 2001-2004 are based on the PDAM’s audited financial statements. Those for 2005 are based on the un-audited operating results made available by PDAM management.

2.1. PRODUCTION AND DEMAND In 2005 PDAM Kota Malang had in its possession abstraction permits (surat ijin pengambilan air or SIPA) that would allow it to draw water up to 2,058 liters per second (l/sec) from a total of 15 sources. Through the years, the PDAM installed production capacities to exploit such sources, the most recent of which is Wendit III with a rated capacity of 480 l/sec. Actual production in 2005 was around 40.1 million m3, which translates to a production capacity of only 1,272.12 l/sec. Wendit I and Wendit II remained the backbone of the PDAM’s production capacity with combined contribution of 62% of total production in 2005. These facilities are however old: Wendit I was installed in 1982 and Wendit II in 1992. Each had an original design capacity of 480 l/sec, but their yields, which could be reflective of the other production facilities as well, had deteriorated through the years to only 400 l/sec for Wendit I and 388 l/sec for Wendit II. Wendit III was completed in, and became operational only at the start of the last quarter of, 2005. Thus, its contribution to production was only an equivalent of 36.9 l/sec. At its present state, the facility can have a maximum yield of only 240 l/sec as only two of the required four pumps, each with a capacity of 120 l/sec, have been installed. Again based on actual production in 2005, the PDAM’s sources consist of 4.6% groundwater, 18.8% spring, and 76.6% surface water. By location, 68.9% of these are within the administrative boundaries of Kabupaten Malang, 19.4% in Kota Batu, and 11.7% in Kota Malang itself. A more detailed breakdown of PDAM Kota Malang’s production volume and capacity is presented in Table 2-1.

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

Table 2-1 Breakdown of Production and Distribution Capacity Production Distribution Type of No. Name of Facility (m3) (m3) Source 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Binangun Pipa Lama Binangun Pipa Baru Karangan Sumbersari Wendit I Wendit II Wendit III Banyuning Badut I Badut II Badut III Sumbersari I Sumbersari II Istana Dieng TPA Supit Urang Total

2,817,454 4,712,685 1,176,649 457,273 12,604,053 12,246,695 1,164,240 3,080,435 51,382 454,425 574,470 83,374

2,676,581 4,477,051 1,117,817 434,409 11,973,850 11,634,360 1,106,028 2,926,413 48,813 431,704 545,747 79,205

Spring Spring Surface water Surface water Surface water Surface water Surface water Surface water Groundwater Groundwater Groundwater Groundwater Groundwater 484,943 Groundwater 174,634 Groundwater

510,466 183,825 40,117,426

Location Kota Malang Kota Batu Kab Malang Kab Malang Kab Malang Kab Malang Kab Malang Kota Batu Kota Malang Kota Malang Kota Malang Kota Malang Kota Malang Kota Malang Kota Malang

38,111,555

Capacity (l/sec) 89.34 149.44 37.31 14.50 399.67 388.34 36.92 97.68 1.63 14.41 18.22 2.64 0.00 16.19 5.83 1,272.12

As a result of the foregoing supply limitation, household consumption decreased from 134 liters per capita per day (lcd) in 2004 to only 121 lcd in 2005. Overall, therefore, total volume of water sales likewise contracted by 14% to 23.7 million m3 from 27.7 million m3 in 2004. Service is 24 hours in most of the coverage area. For lack of reservoirs, however, water pressure is uneven, with connections nearest to or tapping main pipes getting steady supply. Non-revenue water (NRW) ranged between a low of almost 30% in 2003 to a high of 36% in 2001. Plant utilization factor reached 115% in 2005, a clear indication that additional production and distribution facilities are urgently needed. Data on the PDAMâ&#x20AC;&#x2122;s production capacity and related aspects are shown in Table 2. Table 2-2 Production Capacity, Capacity Constraints and Water Losses Production Capacity (l/sec) Production Volume (m3/year) Distribution Volume (m3/year) Volume Sold to Consumers (m3/year) Water Losses (%) Ratio of Production to Consumption Plant Utilization Factor

2001

2002

2003

2004

2005 (Unaudited)

1,514 38,926 36,980 24,964 35.9% 1.56 93.8%

1,514 38,953 37,005 26,365 32.3% 1.48 93.8%

1,514 39,573 37,594 27,722 29.9% 1.43 95.3%

1,558 40,731 38,694 27,731 31.9% 1.47 95.3%

1,272 40,117 38,112 23,749 32.3% 1.69 115.0%

Kota Malang had a total population in 2005 of 848 thousand with a projected annual growth rate of 1%. The service area population stood at 575 thousand with the same growth rate as that of the entire cityâ&#x20AC;&#x2122;s.

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

On average, connections have grown by a mere 2.5% annually since 2001, with the highest increase of 4.2% recorded in 2002. Toward the optimal utilization of the newly operational production capacity, the PDAMâ&#x20AC;&#x2122;s corporate plan targets 5,000 additional connections in 2005, 8,000 each in 2006 and 2007, 7,000 in 2008, and 5,000 in 2009. There is an ongoing distribution-network extension program to support this. In the budget for 2005, the target has been tempered to between 3,000 and 4, 000 new connections. By the end of the year, however, only 1,808 new connections have been generated. A PDAM official also related a case wherein a pipe-laying work, which had already been included in the 2005 budget and was ready for tender, had to be postponed as the required minimum number of connections could not be reached, even if this had already been lowered from 500 to 250 and then again to 150. Household connections represented nearly 94% of total connections and 85% of consumption in 2005. PDAM calculates its service coverage on the basis of 6 persons per household connection. Those with access to public taps and similar facilities are excluded in the computation inasmuch as, according to PDAM management, such facilities are already being phased out. On this basis, domestic coverage ratios in 2005 were 55% for the whole city and 81% for the designated service coverage area. The coverage ratios thus improved by only one percentage point for both the entire city and the designated service coverage area from the levels achieved in 2004. The designated service area is also nearing full saturation, indicating the necessity for the water supply enterprise to redirect its attention to other areas in its future extension/expansion programs. Domestic consumption increased continuously between 2001 and 2004, from 127 liters per capita per day (lcd) in 2001 to 137 lcd in 2004, but, as mentioned, declined to 121 lcd in 2005. Data pertaining to connection and water demand are presented in Table 2-3. Table 2-3 Connection and Water Demand Household Connections (No.) Unit Consumption (lcd) Non-Domestic Connections (No.) Unit Consumption (m3/day) Total Connections Annual Change (No.) Domestic Service Ratio-Kota Malang (%) Domestic Service Ratio-Serv. Area (%)

2001

2002

2003

2004

2005 (Un-audited)

71,063 127 2,219 1.2 75,302

73,525 131 2,857 1.3 78,450 3,148 54.1% 80.3%

74,510 134 2,910 2.0 79,466 1,016 54.0% 80.4%

76,174 134 3,024 1.7 81,263 1,797 54.4% 80.3%

77,854 121 3,141 2.9 83,071 1,808 55.1% 81.4%

53.1% 80.9%

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

2.2. FINANCIAL PERFORMANCE 2.2.1. REVENUES Tariff revenues increased by a meager 1.4% in 2002. Respectable double-digit increases were however achieved during the succeeding years for a yearly average growth of 15.4%. Tariff revenues reached Rp 61,901 million by the end of 2005, a 29.34% expansion over the 2004 level, as the reduction in the volume of water sales was more than offset by the tariff adjustment implemented starting April. Still, however, the figure was short of the forecast in the corporate plan of Rp 63,407 million. Total connection fees averaged Rp 1,734 million per year for an average of a little over Rp 833 thousand paid by each new customer. The PDAM had maintained profitable operations each year during the period under review. Net income declined, however, by as much as 28.1% in 2002 in spite of the tariff increase implemented in 2001. It recovered during the following years to post a respectable yearly average growth of 14.2% from 2001 to 2005. Based on un-audited figures, net income in 2005 amounts to Rp 11,741 million, or an improvement of 52.5% compared to what was reported in 2004. On the whole, the creditable profit performance in 2005 could be attributed to the aforementioned tariff increase. At the same time, however, the PDAM started to institute efficiency-improvement measures to control cost and improve revenue generation. Among the measures cited were: the shutdown of some water pumps during off-peak demand hours, the closer scrutiny of the results of meter reading, and the return to the warehouse of excess connection-installation materials for use in other new connections. In any case, each department head has been enjoined to come up with cost-cutting measures for his/her department. For ensuring sustained performance improvement over the long-term, regular training courses are conducted targeting all levels of the PDAMâ&#x20AC;&#x2122;s organizational hierarchy. The PDAM is also encouraging and subsidizing staff to attain higher educational levels: all elementary school graduates to finish junior high school and all assistant managers to pursue masterâ&#x20AC;&#x2122;s degrees. The PDAM expects to already reap some of the benefits of the foregoing measures in 2006, while others will be realizable only in small and thus almost intangible increments, over the long term.

2.2.2. RECURRENT COSTS Personnel cost accounted for the biggest share of operating expenses, averaging 28.6% of the total during the five-year period. Overhead, power, and maintenance materials likewise had significant shares of 23.8%%, 20.6%, and 18.2% respectively. In real terms, recurrent costs had been increasing at an average rate of 8.6% annually. Maintenance materials climbed at the fastest clip, at an average of 27.7% per year, followed by personnel at 17.0%. Moderate increases were recorded for power, chemicals, and raw water at respectively 13.1%, 6.0%, and 10.6%. Of concern was overhead. Although registering an average yearly decline of 0.1%, it topped personnel cost by as much as 73.7% in 2001 before being reined in to average 98.9% during the five-year period under review, a proportion that is nonetheless way above the commonly accepted level of one-third or about 33% of personnel cost.

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

The PDAMâ&#x20AC;&#x2122;s historical recurrent costs are shown in Table 2-4. Table 2-4 PDAM Unit Costs (Rp per m3 of Water Sold at Constant 2005 Prices) 2001

2002

2003

2004

2005 (Un-audited)

% of Total in 2005

Ave. Inc./(Dec.)

Personnel

307

465

460

494

545

28.6%

17.0%

Power (Operational)

206

241

256

268

333

20.6%

13.1%

Chemicals Maintenance Materials Overhead Raw Water Total % Year-on-Year Change

0.3%

6.0%

114

219

18.2%

27.7%

534

346

374

384

477

23.8%

-0.1%

8.5%

10.6%

100.0%

1,190

1,175

1,215

1,290

1,626

-1.24%

3.36%

6.17%

26.05%

8.58%

2.2.3. TARIFF As mentioned, tariff was adjusted effective 1 April 2005. A comparison of the old and new tariff structures is presented in Table 2-5.

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

Table 2-5 Comparison of Old and New Tariffs TYPE OF CONNECTION/ CUSTOMER

GROUP I SOCIAL

GROUP II HOUSEHOLDS

GROUP III INSTITUTIONS GROUP IV COMM’L GROUP V INDUSTRY

WATER TANK

BULK WATER

IA Public water facilities IB Social institutions IC Assoc., schools IIA Very low cost IIB Low cost IIC Middle- class IID Along main roads, exclusive complexes IIE Mixed residential-business IIIA Tertiary educational institutions IIIB Gov’t offices and hospitals IVA Along tertiary roads IVB Along secondary roads IVC Along main roads IVD Big establish-ments IVA Small to medium IV B Large

Group 1 Group 2 Group 3 Group 4 Group 5 0-50,000 M3 >50,000 M3

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

OLD TARIFF (1 August 200131 March 2005) In Rp 11-20 0-10 m3 >20 m3 m3 630 720 765 630 765 810 630 810 900 900 1,100 1,200 1,300 1,500 1,300

1,400 1,500 1,750 1,900 2,000 1,900

2,000 2,250 2,475 2,750 3,850 3,150

2,350 3,950 4,000 4,450 5,300 6,000

2,925 4,450 5,350 6,250 5,800 6,975

4,450 5,625 6,250 6,975 7,450 8,500

0-10 28,800 56,000 76,000 117,000 232,000

>10-20 30,600 80,000 126,000 158,000 240,000

NEW TARIFF (As of 1 April 2005) In Rp 11-20 0-10 m3 >20 m3 m3 1,050 1,150 1,250 1,050 1,250 1,300 1,050 1,300 1,600 1,300 1,600 1,750 1,900 2,150 1,600 1,900 3,400 5,700 5,800 6,450 7,650 8,650

Distance (km) >20 0-10 34,200 42,000 110,000 52,000 166,000 76,000 178,000 136,000 298,000 306,000

2,050 2,150 2,550 2,750 2,900 2,550 2,750 4,250 6,450 7,750 9,050 8,400 10,100

2,900 3,250 3,600 4,000 5,550 3,650 4,550 6,450 8,150 9,050 10,100 10,750 12,250

>10-20 46,000 82,000 110,000 170,000 336,000

>20 50,000 116,000 182,000 258,000 430,000 1,300 1,950

% INCREASE

67% 67% 67%

11-20 m3 60% 63% 60%

44% 45% 46% 46% 43% 23%

46% 43% 46% 45% 45% 34%

45% 44% 45% 45% 44% 16%

45% 44% 45% 45% 44% 44%

45% 45% 45% 45% 45% 45%

45% 45% 45% 45% 44% 44%

46% -7% 0% 16% 32%

50% 2% -13% 8% 40%

46% 5% 10% 45% 44%

0-10 m3

>20 m3 63% 60% 78%

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

A decree of the Minister of Home Affairs (Permendagri 2/1998) stipulates annual tariff adjustments to compensate for annual inflation, without the need for an approval from the local legislative council, plus a cyclical adjustment when significant additional investment is required. The methodology produces three types of tariff categories: • Biaya rendah (low cost), which recovers only O&M (including salaries) and overhead costs • Biaya dasar (basic cost), which recovers biaya rendah plus debt service (principal and interest) • Biaya penuh (full cost), which recovers biaya rendah plus depreciation on the economic (useful) life factor applied against revalued fixed assets plus a 10% return on the book value of revalued assets. No PDAM has however revalued its assets as under existing regulations any realized surplus is immediately taxable as capital gains. An alternative definition of full-cost is thus included here to mean the sum of O&M, debt service, and 10% return on equity. PDAM Kota Malang has maintained the practice of adjusting tariff every two years. This review, therefore, encompasses three adjustments, in the years 2001, 2003, and the latest in 2005. In real terms, weighted average tariff declined by 4% in 2002, causing the aforementioned plunge in net income by 28% and thus indicating the inadequacy of the tariff increase of the previous year. It recovered, however, to post increases of 13% and 14% in 2003 and 2004. In 2005, the increase was even more significant at 51%. Every year during the five-year period under review, weighted average tariff remained above that which is required for full-cost recovery, both as defined by Permendagri 2/1998 and under the alternative definition offered in this report. The relationship of tariff to cost from 2001 to 2005 is presented in Table 2-5. Table 2-6 Historical Relationship of Tariff to Cost (Per m3 of Water Sold at Constant 2005 Prices) 2005 2001 2002 2003 2004 (Un-audited) Nominal Increase in Average Tariff (%) -4% 13% 14% 51% Weighted Average Tariff (Rp) 1,929 1,632 1,707 1,837 2,606 Low Cost Recovery Tariff (Rp) 1,200 1,185 1,225 1,304 1,644 Basic Cost Recovery Tariff (Rp) 1,250 1,226 1,262 1,338 1,767 Full Cost Recovery Tariff 1,599 1,576 1,596 1,747 2,466 Permendagri 2/1998) (Rp) Extent of Full-Cost Recovery (%) 121% 104% 107% 105% 106% Full Cost Recovery - O&M+ Debt 1,374 1,330 1,363 1,445 1,906 Service + 10% Equity) Extent of Full-Cost Recovery (%) 140% 123% 125% 127% 137%

2.2.4. ACCOUNTS RECEIVABLE Accounts receivable had been increasing every year, from 47 days of sales in 2001 to 60 in 2004, but slightly declined to 59 days in 2005. Bad debts written off averaged 0.63% of water sales, as shown in Table 7. ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

Table 2-7 Collection Efficiencies 2001 Days Accounts Receivable Bad Debts as % of Water Sales

2002

47 0.53%

2003

57 0.57%

2004

57 0.60%

60 0.76%

2005 (Un-audited) 59 0.69%

2.2.5. INVENTORY MANAGEMENT PDAM keeps consumables on the current assets side of the balance sheet and classifies investment materials as long-term assets. The consumables inventory accounting is based on the FIFO system. This averaged at an almost negligible level of five days cover during the five-year period from 2001 to 2005. Installation inventory was however in an inordinately excessive level of 1,018 days or almost three years cover.

2.2.6. CURRENT RATIO AND CASH FLOW The PDAM’s current ratio has improved each year but only very slightly. It however remained at a safe level, with the lowest experienced in 2001 at 1.5. Cash, on the other hand, had always been on a precarious level, averaging only 0.6 month of operating expenses from 2001 to 2005, as shown in Table 2-8. Table 2-8 Current Ratio and Cash Flow 2001 Current Ratio Cash = No. of Mo. of Operating Exp.

1.5 1.3

2002 1.7 0.5

2003 1.9 0.5

2004 2.5 0.7

2005 (Un-audited) 1.7 0.3

2.3. OUTSTANDING LOANS AND DEBTSERVICE CAPACITY In 2005, PDAM Kota Malang had total outstanding loans of Rp 48,182 million consisting of the following: •

Loan from the former Direktorat Dana Investasi (DDI) of the Ministry of Finance under contract No. RDA 60/DDI/1991 with an original amount of Rp 10,056 million. The loan had a payment term of 30 years, including a five-year grace, and an interest of 9% per annum. The balance in 2005 was Rp 4,957 million of which about Rp 3,685 million is principal and Rp 1,272 million, accumulated interest. The loan is expected to be fully repaid by 1 November 2011.

Shortage in the payment to PT Sumber Kencana Perkasa for the construction of Wendit III production facility amounting to Rp 19,245 million, for which the two parties agreed that the PDAM pays the amount in installment beginning December 2005 with an interest of 11% per annum. The said installment is scheduled to be completed by the end of 2008. The loan outstanding at the end of 2005 amounts to Rp 16,505 million.

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

Loan from Bank Negara Indonesia (BNI) amounting to Rp 26,719 million with an interest rate of 15.5% per annum and a repayment period of 93 months, including 21 months of grace period. This loan is projected to be fully amortized by 2011. The loan was disbursed in two tranches, the first amounting to Rp 13,500 million, with the disbursement of the first made in 2004 and the other in 2005. The repayment of this loan will commence in 2006. From the notes to the financial statements accompanying the PDAM’s budgets for 2005 and 2006, the purpose for which this loan was contracted has not been clarified. It can be surmised, however, that it was for the construction of ancillary facilities for Wendit III. The schedules for amortizing PDAM’s outstanding loans are presented in Annex C. All through the years, the PDAM has been able to make timely payments on both principals and interests of the aforementioned loans as they fall due. The PDAM’s debt service coverage ratio remained at a quite safe level, although it declined from 16.8 in 2004 to 9.0 in 2005. The ratio of debt to total capitalization increased significantly in 2005 to 59% from 40% in 2004, as shown in Table 9. Table 2-9 Indicators of Debt-Service Capacity 2001 DSCR Based on Net Revenue Debt to Total Capitalization

16.8 27%

2002 14.3 24%

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

2003 15.1 20%

2004 18.6 40%

2005 (Un-audited) 9.0 59%

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

3. BUDGET FOR 2006 3.1. WATER PRODUCTION AND DEMAND The PDAM’s production capacity is planned to be increased to 1,475 l/sec with the full operation of the installed capacity in Wendit III of 240 l/sec. Actual production is projected at 44,849 m3 and the volume of water sales at 28,751 m3. NRW for the year is estimated at 37.6%, representing a deterioration of over five percentage points from the 2005 level. Plant utilization factor is expected to decline but will remain at a strained level of 110%. Based on the investment program prepared by the PDAM’s technical department, a total of 4,000 connections will be installed during the year. The total number of connections will thus increase to 87,071, about 93.7% of which will be for households. Domestic coverage ratios will thus reach 57.5% for the whole city and 84.8% for the service area.

3.2. REVENUE AND EXPENSES Water revenues are forecast to increase by 18% over the 2005 level, reaching Rp 73,025 million, as the tariff increase in 2005 is applied over the entire year. Average tariff at constant 2005 prices will decline by 1% to Rp 2,408. It will however remain 108% of that which is required for full-cost recovery as defined under Permendagri 2/1998. Net income is forecast to decline by as much as 20.6% to Rp 9,316 million. The number of employees per 1,000 connections is assumed to fall below 6 as head count is reduced from 536 in 2005 to 516. In nominal terms, personnel and overhead are budgeted to decline by 6.4% and 11.1% respectively. These decreases are however more than offset by increases in other cost items: power by 10.0%, chemicals, by 80.7%, maintenance materials by 48.4%, and most significantly raw water by 207.7%. Overall, therefore, recurrent costs are budgeted to increase by 9.6%. These increases signify the effects of the PDAM’s growing reliance on surface water, for which it has to pay a relatively high compensation and which has to be treated before distribution to customers. The PDAM’s budgeted cost figures for 2006 are shown in Table 3-1. Table 3-1 Comparison of Unit Cost Per m3 of Water Sold for 2005 and 2006 (At Current Prices) 2005 (Un-audited)

2006 (Budget)

Increase/ (Decrease)

Personnel Power (Operational) Chemicals Maintenance Materials Overhead Raw Water

545 333 3 219 477 49

510 366 6 325 424 151

(6.4%) 10.0% 80.7% 48.4% (11.1%) 207.7%

Total

1,626

1,782

9.6%

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

3.3. OTHER PERFORMANCE INDICATORS The PDAM plans to improve its collection efficiency, with receivables being cut from 65 days of sales to 55, through the strict enforcement of its disconnection policy on customers with just one month of unpaid water bill. Bad debts are likewise assumed to go down to 0.46% of water sales from 0.69% in 2005. The current ratio will be at a dangerous level of 0.9. Cash will improve, but only very slightly, to 0.4 month of operating expenses, which is precisely the level assumed in the corporate plan. Indicators of debt servicing and carrying capacities will be maintained at safe levels, with DSCR at 1.5, or just equal to the statutory minimum, while debt in relation to total capitalization will decline to 43% from 59% in 2005.

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

4. INVESTMENT PROPOSAL 4.1. PHYSICAL TARGETS AND COSTS The investment program consists basically of three components: extension of the distribution network by a total length of 126,113 m; construction of a total of eight reservoirs with combined capacity of 8,250 m3; and installation of four pumps with combined capacity of 395 l/sec. Based on the data made available by the PDAMâ&#x20AC;&#x2122;s technical planning department, a total of 18,523 connections are targeted for the five-year period from 2005 to 2009, a portion of which have already been installed in 2005. It is thus assumed that the remaining 16,759 new connections will be generated during the ensuing four years from 2006 to 2009, as indicated in Table 4-1. Table 4-1 Schedule for Installing New Connections 2006 2007 2008 Yearly Increase 4,000 4,754 4,129 Cumulative 4,000 8,754 12,883

2009 3,876 16,759

The investment program provided by the PDAMâ&#x20AC;&#x2122;s technical department, which includes physical targets and their corresponding costs, is provided in Annex D. Due to inadequate internal cash generation and in the absence of external sources of financing, the PDAM has decided to postpone the implementation of the program to 2007, without sacrificing its connection program. The implementation period has thus been shortened to three years, from 2007 to 2009, with the investment for 2006 carried over to the succeeding two years and its cost correspondingly reallocated. The base cost of the program is estimated to amount to Rp 45,701 million. At current prices, and including all contingencies, the investment program will cost a total of Rp 57,472 million. Procurement accounts for 27.8% or Rp 16,001 million and civil works for 13.4% or Rp 7,707 million. New connections will cost Rp 16,915 million or 29.4% of the total. The yearly breakdown of the investment program by cost component is presented in Table 4-2.

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

Table 4-2 Cost of Investment Program (In Rp Million) 2007 2008 Procurement 4,340 4,531 Procurement – Connections 5,892 5,114 Civil Works 2,068 2,274 Civil Works – Connections 2,532 2,194 Land Acquisition Design Supervision Administration 371 353 Taxes and Duties 1,483 1,411 Total, Base Prices 16,685 15,877 Physical Contingencies 972 929 Financial Contingencies 2,294 3,228 Total, Current Prices Incl. All 19,951 20,033 Contingencies

2009 7,131 887 3,365 296

Total 16,001 11,893 7,707 5,022

% of Total 27.8% 20.7% 13.4% 8.7%

292 1,168 13,139 767 3,582

1,016 4,062 45,701 2,668 9,104

1.8% 7.1% 79.5% 4.6% 15.8%

17,488

57,472

100.0%

In addition, it is also assumed that the PDAM will implement a replacement program budgeted at 5.5% of the value of assets in operation and a sustained connection program over and above the foregoing three-year investment program that will generate 1,000 new connections per year from 2010 onward.

4.2. FINANCING PLAN A loan from a domestic commercial bank is proposed to finance 70% or Rp 40,230 million of the total investment cost. Terms of the loan are based on the most recent experience of PDAM Kota Malang in tapping a similar funding source. The repayment period is seven years, including a two-year grace. The interest rate has however been adjusted upward to 17% in view of the higher benchmark rate of 12.75% imposed by Bank of Indonesia during the later part of 2005 and which is expected to prevail in the foreseeable future. The disbursement of the loan is assumed to start in 2007 simultaneous with the start of the implementation of the investment program. The rest of the investment cost is assumed to be covered by customer contributions and the PDAM’s internal cash generation, as presented in Table 4-3. Table 4-3 Financing Plan and Indicative Loan Disbursement Schedule (In Rp Million) 2007 2008 2009 Total % of Total Project Loan Assumed 13,966 14,023 12,242 40,230 70.0% Customer Connections 4,476 4,101 4,062 12,639 22.0% PDAM/Other 1,509 1,909 1,185 4,602 8.0% Total 19,951 20,033 17,488 57,472 100.0%

Based on the assumed terms, the schedule for amortizing the loan is as presented in Table 4-4.

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

Table 4-4 Amortization Schedule of the Proposed Commercial Loan (In Rp Million) 2007 2008 2009 2010 2011 2012 2013 Cumulative Disbursement 13,966 27,989 40,230 Amortization 8,046 8,046 8,046 8,046 8,046 Loan Balance 13,966 27,989 32,184 24,138 16,092 8,046 Commitment Fee + General 3,566 5,115 4,787 3,420 2,052 684 1,187 Interest, unadjusted Up-Front Charge Total Interest, adjusted 1,187 3,566 5,115 4,787 3,420 2,052 684 Accumulated Interest 1,187 3,566 5,115 Balance of Accumulated 1,187 4,753 7,894 5,921 3,947 1,974 Interest Repayment of Accumulated 1,974 1,974 1,974 1,974 1,974 Interest Total Amortization

15,134

14,807

13,439

12,071

10,704

In view of the longer implementation period (during which loan financing will be required) compared to the grace period, the loan may have to be packaged in at least two tranches with an amortization schedule established for each tranche.

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

5. HIGHLIGHTS OF THE FINANCIAL PROJECTION The discussion focuses on the years 2007 to 2013, the time slice that is considered critical as it corresponds to the period for implementing the investment program as well as for amortizing the PDAM’s existing loans and the proposed commercial loan.

5.1. ASSUMPTIONS 5.1.1. COST OF CAPITAL The cost of capital is computed based on the fund-sourcing mix presented in the financing plan. As mentioned, the commercial-loan portion will bear an interest of 17.0%. Customer contributions are assumed to be received by the PDAM as revenue and can therefore be considered as PDAM funds. PDAM funds are expected to yield a return on equity of 10%, which is consistent with the alternative definition of full-cost recovery discussed earlier. On this basis, the weighted average cost of capital (WACC) is 14.9%, as shown in Table 15. Table 5-1 Weighted Average Cost of Capital Commercial Loan Weighting Nominal Cost Weighted Component of WACC

PDAM Funds

70.00% 17.00% 11.90%

30.00% 10.00% 3.00%

Total 100.0% 14.90%

5.1.2. PROJECTED PRODUCTION AND DEMAND Part of the proposed investment program is the installation of two additional pumps in Wendit III to bring the yield from this facility up to its designed capacity of 480 l/sec. Total production capacity, therefore, is projected to increase to 1,715.2 l/sec or 240 l/sec more than the capacity in 2006 of 1,475.2 l/sec. NRW is at 34.0% in 2007, and is projected to gradually decline thereafter to settle at 28.0% from 2012 onward. As mentioned, the installation of new connections to be generated through the investment program will be completed by 2009. Thereafter, additional connections will be generated through the PDAM’s sustained connection program. Per capita consumption, as estimated by the PDAM’s management, will be at a relatively low 121 liters per day throughout the projection period. Unit consumption is forecast to first gradually increase to reach 27.1 m3 per month in 2011, after which it will again decline to settle at 26.8 m3 from 2016 onward. Domestic coverage ratio for the entire city will reach 65.0% in 2013 and will peak at 65.5% beginning 2022. The service coverage ratio, on the other hand, will be 96.0% in 2013 and will reach almost 98% during the last year of the projection period. There is thus ample room for system expansion within the city boundaries. ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

Plant capacity utilization factor will range within a narrow band of 92% and 96% mainly because of the conservative assumption on consumption and the expectation of lower nonrevenue water. At this level of plant capacity utilization, sales volume has to be held constant from 2010 onward, with supply to new connections basically taken away from existing ones. Supply will therefore remain at critical levels, with capacity of existing production and distribution facilities always in danger of being over utilized by an increase in demand and non-realization of NRW targets. The PDAMâ&#x20AC;&#x2122;s projected production, capacity constraints, and water losses are presented in Table 5-2. Table 5-2 Projected Production Capacity, Capacity Constraints and Water Losses 2007 Production Capacity (l/sec) Production Volume (m3/year) Distribution Volume (m3/year) Volume Sold to Consumers (m3/year) Water Losses (%) Ratio of Production to Consumption Plant Utilization Factor (%)

2008

2009

2010

2011

2012

2013

1,715

45,340

43,568

44,410

44,646

44,345

44,033

44,383

43,073

43,524

44,366

44,602

44,301

43,989

44,339

32,370

35,051

37,447

38,156

34.0%

32.1%

31.2%

30.1%

29.1%

28.0%

1.40

1.24

1.19

1.17

1.16

1.15

1.16

96.4%

92.6%

94.4%

94.9%

94.3%

93.6%

94.4%

Data on projected connections and water demand until 2013 are in Table 5-3. Table 5-3 Projected Connections and Water Demand Household Connections (No.) Unit Consumption (lcd) Non-Domestic Connections (No.) Unit Consumption (m3/day) Total Connections Annual Change (No.) Domestic Service RatioKota Malang (%) Domestic Service RatioService Area (%)

2007

2008

2009

2010

2011

2012

2013

86,608

90,737

94,613

95,613

96,613

97,613

98,613

121

3,141

3.2

91,825

95,954

99,830

4,754

4,129

3,876

100,83 0 1,000

101,83 0 1,000

102,83 0 1,000

103,83 0 1,000

60.3%

62.6%

64.7%

64.8%

64.9%

65.0%

88.9%

92.3%

95.4%

95.6%

95.7%

95.8%

96.0%

Details of the demand forecast are presented in Annex E.

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

5.1.3. RECURRENT COSTS Assumptions on recurrent costs are as follows: •

Personnel and personnel cost: The desired personnel-to-connection ratio of 5 per 1,000 is planned to be achieved in 2010 and will be maintained at this level for the rest of the projection period. Cost per employee is assumed to increase annually in real terms by 8.0% or about 13.5% in nominal terms.

•

Power and chemicals: Distortions in the prices of power and chemicals are expected to be gradually corrected during the next five years, or up to 2010, concurrent with the progressive elimination of government subsidies for petroleum-based fuel and electricity. Their prices are therefore anticipated to post significant real annual increases in the interim. Based on the results of operations for 2004 and 2005 and the budget for 2006, annual increases in costs of power and chemicals in real terms are set at 15% or 20.5% in nominal terms. Beginning 2011, costs of these inputs are expected to already reflect market prices and will therefore move based on annual inflation rate.

•

Maintenance materials: These are assumed at 3% of net fixed assets, which is the same as the average during the period 2001-2005.

•

Administration: These are defined as PDAM general and administrative expenses minus wages, interest payments, bad debts allowances, and maintenance and depreciation costs related to general and administrative fixed assets. The proportion of this cost item to personnel cost will be reduced to 85% by 2010.

•

Raw water. The cost of raw water posted in 2006 of Rp 143 per m3 at constant 2005 prices is maintained and is adjusted only for annual inflation.

5.1.4. TARIFF ANALYSIS The PDAM is at present committed to maintaining the present practice of increasing tariff by 20% in nominal terms every two years, with effect starting the seventh month of the year the tariff increase is approved. At this rate, weighted average tariff will always be at full-cost recovery, except in 2010 when it will be marginally lower at 99% of the required level as provided for in Permendagri 2/1998 and as alternatively defined in this report. The assumed yearly average tariff and those required for different levels of cost-recovery, as recognized under existing regulations, are presented in Table 5-4. Table 5-4 Analysis of Projected Tariff (Rp per m3 of Water Sold) 2007

2008

2009

2010

2011

2012

2013

Constant 2005 Prices Assumed Weighted Average Tariff

2,430

2,303

2,489

2,359

2,549

2,416

2,611

Low Cost (O&M Expenses)

1,966

2,056

2,186

2,402

2,445

2,549

2,673

Basic Cost (PFCR MOHA Guideline)

2,408

2,368

2,557

2,834

2,803

2,763

2,853

Full Cost (Permendagri 2/1998)

2,590

2,729

2,946

3,171

3,279

3,437

3,669

Full Cost (O&M + Debt Service + 10% Equity)

2,580

2,590

2,850

3,155

3,198

3,226

3,423

Current Prices ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

2007 Assumed Weighted Average Tariff

2008

3,102

Nominal Increase of Assumed Tariff (%)

3,273

2009 3,936

2010 4,153

2011 4,994

2012

2013

5,269

6,337

20%

2,222

2,451

2,749

3,187

3,423

3,764

4,165

Basic Cost (PFCR MOHA Guideline)

2,721

2,823

3,216

3,760

3,923

4,081

4,445

Full Cost (Permendagri 2/1998)

2,927

3,253

3,705

4,207

4,590

5,076

5,716

Full Cost (O&M + Debt Service + 10% Equity)

2,915

3,087

3,584

4,186

4,476

4,764

5,333

Extent of Full-Cost Recovery: Permendagri 2/1998 (%)

106%

101%

106%

99%

109%

104%

111%

Extent of Recovery: O&M + Debt Service + 10% Equity (%)

106%

110%

99%

112%

111%

119%

Low Cost (O&M Expenses)

Cost-Recovery Indicators

5.2. FEASIBILITY INDICATORS Based on the foregoing assumptions, the investment program is found to be feasible with a positive net present value (NPV) of Rp 12,326 million and a financial internal rate of return (FIRR) of 20.1%, which is well above the hurdle rate. The program remains feasible even assuming a 10% increase in investment and incremental O&M costs. It does not surmount, however, the other sensitivity tests of a 10% reduction in incremental revenues or the postponement of the realization of these revenues by one year, for example because of implementation delays. The indicators of feasibility of the investment program under the base case and under certain adverse scenarios are shown in Table 5-5. Table 5-5 Feasibility Indicators (WACC=14.9%) NPV 12,326 Base Case 152 10% Increase in Investment and O&M Costs (1,080) 10% Decrease in Incremental Revenues (8,028) One Year Delay in Incremental Revenues

FIRR 21.1% 15.0% 14.4% 12.0%

5.3. FINANCIAL RESULTS 5.3.1. INCOME STATEMENT The tariff and connection revenues are carried from the revenue calculation into the income statement by converting 2005 constant-price revenues into current prices through the application of the annual GDP inflator. A bad debts allowance of 0.6% is assumed for tariff revenues. Profits are taxed at the corporate rates currently prevailing in Indonesia. The PDAM is projected to continue to generate net income after tax. Similarly, retained earnings will be positive throughout the projection period. Return on assets will range between 6% and 13%; return on equity will be between 10% and 31%. A summary of the PDAMâ&#x20AC;&#x2122;s income statement for the period 2007-2013 is presented in Table 5-6. Detailed income statements are presented in Annex F.

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

Table 5-6 Summary Income Statement (In Rp Million, Except Ratios) 2007 2008 2009 2010 2011 Tariff Revenues 100,414 114,710 147,391 158,445 190,562 Total Operating Revenues 112,769 126,190 158,842 160,896 193,075 Operating Expenses 71,921 85,924 102,959 121,614 130,596 Non-Operating 11,278 15,677 14,412 12,940 11,346 Expenses Net Profit Before Tax 27,908 28,920 44,605 23,605 48,066 Income Tax 19,544 8,576 11,809 7,723 15,452 Net Income Loss 19,544 20,253 31,232 16,532 33,655 Other Payments 14,463 14,987 23,112 12,234 24,905 Retained Earnings 5,082 5,266 8,120 4,298 8,750 Return on Assets 13% 11% 13% 6% 11% Return on Equity 31% 22% 23% 10% 16%

2012 201,043

2013 241,794

203,634 143,637

244,474 158,910

11,348 48,649 16,109 34,063 25,207 8,856 10% 13%

8,438 77,126 25,500 53,997 39,958 14,039 13% 16%

5.3.2. SOURCES AND APPLICATIONS OF FUNDS The PDAM will continue to enjoy positive annual cash flows throughout the projection period. DSCR will remain at a safe and increasing level starting at 2.5 in 2007 and reaching 8.8 in 2013. A summary of the sources and applications of funds is presented in Table 5-7, while the details are in Annex G. Table 5-7 Summary Sources and Applications of Funds (In Rp Million, Except Ratios) 2007 2008 2009 2010 2011 2012 2013 Gross Internal Cash 41,356 57,882 42,903 66,614 66,207 94,216 41,070 Generation Equity 5,124 10,749 11,139 17,178 9,093 18,510 18,735 Borrowing 15,153 17,589 17,356 Total Sources of Funds 61,346 69,695 86,377 60,080 75,707 84,717 112,951 Capital Expenditures 32,675 36,664 37,656 15,792 15,908 16,829 17,804 Debt Service 16,148 13,024 17,478 21,855 19,103 12,071 10,704 Operations -3,266 3,477 1,754 13,072 2,995 11,399 6,904 Total Applications of 45,557 53,166 56,888 50,719 38,006 40,300 35,411 Funds Cash Increase (Decrease) 15,789 16,529 29,489 9,361 37,700 44,417 77,539 DSCR (Net Revenues) 2.5 3.2 3.3 2.0 3.5 5.5 8.8

5.3.3. BALANCE SHEET Capital expenditures are forecast to be completed in 2009. All new investments are carried as work-in-progress in the year of expenditure and capitalized in the following year. Depreciation is calculated on the useful life basis for tariff purposes and at the fiscal rate for accounting purposes. Fixed assets are carried throughout the forecast at historical cost, as is the current PDAM practice. The provisions of the Decree of the Minister of Finance (KepMenKeu) No. 507/KMK/.04/1996 and other relevant pieces of legislation treat revaluation surpluses as capital gains, with the tax payable immediately. The PDAM is therefore not expected to consider revaluation of its fixed assets while this decree is still in effect. Capitalized interest ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

and construction preliminaries and demobilization expenses are treated as deferred expenses and amortized at 10% per annum on the outstanding balance. Balance sheet projections assume 30-day accounts receivables, again due to the existing disconnection practice, and 30-day accounts payable. The inventory point for chemicals and maintenance materials is 30 days and for installation inventories, 70 days. After breaching the required minimum in 2006, the current ratio is projected to improve to 1.2 in 2007 and will remain at a safe level every year thereafter, reaching 4.0 in 2013. The ratio of debt to total capitalization will sharply decline to 33% in 2007 and then to a mere 5% by 2011 as the PDAM retires its outstanding long-term loans. A sharp increase in cash is foreseen, from 2.9 months of operating expenses in 2007 to 17.6 months in 2013. The highlights of the balance sheet are presented in Table 5-8. The detailed balance sheet projections are in Annex H. Table 5-8 Summary Balance Sheet (In Rp Million, Except Ratios) Cash and Deposit Current Assets, net of Cash Current Assets Net Fixed Assets Total Assets Current Liabilities Long-Term Debt, Net Total Liabilities Equity Total Equity and Liabilities Current Ratio Debt to Total Capitalization No. of Days Accounts Receivable Cash = No. of Months of Operating Exp.

2007 17,680

2008 34,209

2009 63,698

2010 73,060

2011 110,760

2012 155,177

2013 232,717

16,934

17,253

18,962

18,042

20,657

21,496

24,841

34,614 70,438

51,462 93,900

82,661 119,445

91,101 143,937

131,417 145,094

176,673 145,497

257,557 145,920

145,025 27,718 31,325 82,050 62,975

188,992 39,694 33,594 96,470 92,522

246,456 50,086 35,229 108,681 137,775

257,304 51,244 20,040 94,930 162,374

298,894 54,107 10,020 87,922 210,972

345,474 60,684

427,755 64,450

84,782 260,692

88,854 338,901

145,025

188,992

246,456

257,304

298,894

345,473

427,755

1.2

1.3

1.7

1.8

2.4

2.9

4.0

33%

27%

20%

11%

2.9

4.8

7.4

7.2

10.2

13.0

17.6

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

6. CONCLUSIONS AND RECOMMENDATIONS 6.1. CONCLUSIONS From the foregoing discussions, the following conclusions can be derived: •

PDAM Kota Malang will be able to maintain a sound financial footing. Net income will be generated each year of the 25-year projection period. Other financial indicators are likewise positive. Two aspects will need special attention, however: the excessively high installation inventory and overhead. Both have historically exceeded the accepted benchmarks.

•

Without any significant improvement, production capacity will continue to exert pressure on the PDAM’s ability to achieve its performance targets. The non-realization of NRW-reduction targets could very well put water revenue targets at risk. Limited supply could also give rise to customer dissatisfaction.

•

In view of the existing limitations on production capacity, the proposed investment program becomes even more urgent. The investment program includes, among others, the installation of additional pumps to bring up Wendit III to its full production potential.

•

On the basis of the assumptions on costs and incremental revenues, the proposed investment program is financially feasible. The financial feasibility assessment yields a positive NPV and an FIRR that exceeds the WACC.

•

The investment program is financially affordable to the PDAM. While a relatively high proportion of debt financing is assumed, the financial projection shows that the PDAM will be able to repay such debt with a room to spare for additional borrowing based on a DSCR that is consistently higher than the statutory minimum.

6.2. RECOMMENDATIONS The following recommendations are offered to ensure the validity of the foregoing conclusions: •

Implement measures to properly control installation inventory. Perhaps a proper beginning would be to analyze how this reached an excessive level of over 1,000 days cover in light of the assumed future levels of only 70 days. What this indicates is a gross failure of purchasing and inventory management policies, systems, and procedures. In anticipation of the issue that bankers may raise, the PDAM needs to state in more specific terms how it intends to achieve the aforementioned sharp reduction.

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

•

Formulate and implement an action plan for reducing overhead. Excessive level of overhead in relation to personnel cost could be an issue that prospective lenders may focus on and may require the PDAM to commit to a specific and time-bound reduction strategy.

•

Take a more aggressive and proactive stance toward generating new connections. The new connections are needed both for defraying a substantial part of the investment cost and for generating the assumed incremental revenues. Such a stance is a must in view of the ambitious targets set, at least during the next four years, compared to the PDAM’s track record in generating new connections.

•

Conduct a comprehensive real demand survey. The results of the survey would serve to validate the targets in the investment program and should be able to provide more realistic budgeting assumptions for the coming years.

•

Develop stronger coordination between the marketing and planning departments. The incident related earlier wherein a pipe-laying work had to be postponed because of the failure to generate the minimum number of connections, although anecdotal, is a clear indication of the functional discontinuity between the aforementioned departments. Had a market study or survey been made and the planning department took its results into account, the said incident could very well have been avoided.

•

Conduct a performance audit of existing production facilities. The audit is meant to focus on, among others, how to reduce the cost of operation and maintenance and how to increase the yields from these facilities. The results of the audit should then form the basis for formulating and subsequently implementing a rehabilitation and/or optimization program. The preparation of production master plan similar to and linking with the recently completed distribution master plan may also be contemplated.

•

Formulate a plan for utilizing excess cash most effectively. The PDAM may be faced in the immediate future with a problem of a different kind - that of having too much cash on its hands. One option is to reserve excess cash to finance the investments resulting from the NRW reduction program, the water distribution master plan, and/or the rehabilitation of existing production facilities.

•

Institute safeguards for ensuring the validity of the assumptions used in the financial projection. The local economy has been jolted recently by the partial withdrawal of fuel subsidies. As an aftermath of the recent increase in fuel prices, inflation has remained over 17%. Another threat is the ongoing discussion of an increase in electricity tariff. It is therefore necessary to revisit the assumptions underlying the projected levels of recurrent expenses, taking into account actual inflation data and the insights of PDAM management on how these will ultimately be reflected in the PDAM’s operating costs. Quite aside from being the main determinant of the feasibility of the investment programs, assumptions on tariff should automatically be adjusted in line with the projections on expenses.

•

Institute safeguards against the adverse scenarios used in the sensitivity analysis of the investment program. The sensitivity analysis showed that the investment program cannot withstand a 10% reduction in, or a one-year delay in the realization of, incremental revenues.

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

7. ANNEXES ANNEX A NOTES ON THE MEETING WITH PDAM KOTA MALANG (FEBRUARY 6-7, 2006) ANNEX B NOTES ON VISIT TO PDAM KOTA MALANG (MARCH 6-7, 2006) ANNEX C SCHEDULE OF AMORTIZATION OF OUTSTANDING LOANSOF PDAM KOTA MALANG ANNEX H DETAILED BALANCE SHEET PROJECTIONS ANNEX G DETAILED SOURCES AND APPLICATIONS OF FUNDS ANNEX F DETAILED INCOME STATEMENT ANNEX E DETAILED DEMAND FORECAST

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

ANNEX A NOTES ON THE MEETING WITH PDAM KOTA MALANG (FEBRUARY 6-7, 2006) Date : Time : Place :

February 6-7, 2006 8:30 – 10:30 AM PDAM Kota Malang

BACKGROUND The Environmental Services Program (ESP) funded by the United States Agency for International Development (USAID) is currently assisting PDAM Kota Malang in mobilizing a commercial loan for financing the implementation of its medium-term investment program. Part of the assistance was the verification of the costs of the program’s various components, analysis of its feasibility, and assessment of how it will affect the future operations of the PDAM as a whole. A preliminary 20-year financial projection and a corresponding narrative analytical report were prepared and submitted, and were to be presented to PDAM management on Monday, February 6. During this day, however, members of the PDAM’s top and middle management had to attend the opening of a training course for unit heads held in the neighboring city of Batu and were available only starting at noontime. The presentation was thus postponed for the following day, and the day of February 6 was instead spent on discussions with the Director for Finance and Administration and the Assistant Manager for Financial Analysis. During these discussions, matters that are salient to the financial projection were brought up, and views of the aforementioned officials were again raised for confirmation during the presentation. Such views are included in these notes.

PURPOSE The purpose of the meeting was to present and discuss the results of the preliminary financial projection and to validate the assumptions used.

PARTICIPANTS The meeting was presided by the PDAM’s Managing Director and attended by the Technical Director and the Director for Finance and Administration, as well as all department managers and assistant managers. ESP was represented by Messrs. Nugroho and Ramon H. Hagad. The list of participants is in the Annex.

PROCEEDINGS ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

ESP made a brief PowerPoint presentation of the highlights of the assessment of historical performance and the financial projection. This was followed by a discussion focusing on the issues raised during the presentation. ESP clarified that these issues were being raised not so much for its interest, but to prepare the PDAM in handling inquiries of prospective commercial-loan providers. A summary of the discussion follows. Results of Operations in 2005 and Budget for 2006 The year 2005 turned out to be another profitable year for the PDAM with net income, based on the un-audited financial statements, exceeding Rp 11 billion. ESP was furnished a copy of the un-audited financial statements as reference for the revision of the financial projection. The servicing of existing debts had however exerted strong pressure on cash flow, which is expected to linger up until 2006. Salaries were increased by 15% on average effective February 2006, which is anticipated to exert additional pressure on cash flow. As a result, personnel cost may exceed the amount already budgeted for 2006. Aside from this, however, the approved budget for 2006 remains valid. To control cost and improve revenue generation, the PDAM has instituted efficiencyimprovement measures. Among the measures cited were: the shutdown of some water pumps during off-peak demand hours, the closer scrutiny of the results of meter reading, and the return to the warehouse of excess connection-installation materials for use in other new connections. In any case, each head is now being enjoined to come up with cost-cutting measures for his/her department. PDAM hopes that the savings realized from these measures could offset a significant portion of the salary increase. For ensuring sustained performance improvement over the long-term, regular training courses are conducted targeting all levels of the PDAM’s organizational hierarchy (the training course being conducted for unit heads mentioned earlier will be followed by another course for assistant managers). The PDAM is also encouraging and subsidizing staff to attain higher educational levels: all elementary school graduates to finish junior high school and all assistant managers to pursue master’s degrees. Investment Program The cost of the investment program as captured in the financial projection is deemed realistic. The estimated number of connections is however quite low. According to the planning department, the total number of new connections targeted for the four-year period 20062009 is 18,000 as opposed to 11,900 previously given to ESP and used in the financial projection. The PDAM’s assistant manager for technical planning promised to furnish ESP with the latest information to be sent by fax the day after the presentation. Because of the cash-flow pressure being experienced at present, which the PDAM foresees to ease up only in 2007, the ideal timing for the implementation of the investment program and for contracting a new loan to finance it is starting 2008. The investment program does not include those pertaining to the ESP-assisted NRWreduction program and the implementation of the recently completed water distribution master plan. Assumptions for the Financial Projection Accounts receivables: 30 days of water sales since disconnection is now done on customers with just one month unpaid water bill. Current ratio: to be maintained at between 1.75 and 2 with excess cash channeled to routine investment. Cash: 2 to 3 months of operating expenses. ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

New connections: almost 100% for households with those classified under social and institutions maintained at below 20, since these are now being reclassified under commercial or industry, and no significant growth is forecast for each of these categories. Average water consumption: 25-26 m3 per connection per month. Tariff: nominal increase of 20% every two years (although this can be adjusted based on preliminary results of the financial projection as in reality previous tariff increases averaged up to 40%). Proportion of personnel to number of connections: 6:1,000 up to 2008 and 5:1,000 beginning 2009 onward. Non-revenue water: 32%, as assumed in the financial projection, is deemed realistic. This can go down to 28% with the implementation of the ESP-assisted NRW-reduction program. The targets and costs pertaining to the program are however not yet available, and in their absence NRW will be maintained at 32%. Operating expenses: Personnel: 15% nominal increase every two years Power: 15% real increase or between 25% and 21% in nominal terms every year up to 2010, and at the rate of inflation every year thereafter Chemicals: at constant 2005 prices adjusted every year at the rate of inflation Administration: at the average proportion to personnel cost during the period 2001 to 2006 Raw water: Rp 25/m3 of water sold plus Rp 60/m3 of water sold compensation for water originating from sources within the territorial jurisdiction of Kabupaten Bogor (with percentage these sources account for in annual production used as well for volume of water sold in computing the yearly total amount of compensation). Watershed Conservation Fund The Rp 60/m3 compensation paid annually to Kabupaten Bogor is supposed to be for watershed conservation/protection. PDAM Kota Malang is however not involved in determining how this money is used.

CONCLUSIONS The following conclusions were arrived at during the meeting: The financial projection will need to be updated to reflect the actual results of 2005 operations and the budget for 2006, as well as the new assumptions agreed upon during the presentation. The PDAM will furnish ESP with the schedule for installing new connections during the years covered by the investment program. The PDAM will likewise furnish ESP with physical targets and costs of investments pertaining to NRW-reduction and the implementation of the water distribution master plan if the intention is to include these in the proposed investment program.

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

FOLLOW-UP ACTIONS AND TENTATIVE SCHEDULE The following actions, with indicative dates of performance/completion were, agreed upon: 1.

PDAM Kota Malang furnishes ESP with latest data on investment targets and costs as well as target new connections.

February 8-9, 2006

ESP revises the financial projection and analytical report.

February 8-13, 2006

ESP submits the financial projection and analytical report.

February 16, 2006

PDAM Kota Malang convenes a meeting with ESP to discuss the revised financial projection and analytical report.

February 27, 2006

ESP finalizes the financial projection and analytical report.

February 28-March 1, 2006

ESP submits the final financial projection and analytical report.

March 4, 2006

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

ANNEX B NOTES ON VISIT TO PDAM KOTA MALANG (MARCH 6-7, 2006) Date : Time : Place :

March 6-7, 2006 9:00 â&#x20AC;&#x201C; 11:30 AM PDAM Kota Malang

BACKGROUND The Environmental Services Program (ESP) funded by the United States Agency for International Development (USAID) is currently assisting PDAM Kota Malang in mobilizing a commercial loan for financing the implementation of its medium-term investment program. Part of the assistance was the verification of the costs of the programâ&#x20AC;&#x2122;s various components, analysis of its feasibility, and assessment of how it will affect the future operations of the PDAM as a whole. A preliminary 20-year financial projection and a corresponding narrative analytical report were prepared and submitted, and were presented to PDAM management Tuesday, February 7. During this presentation, assumptions underlying the financial projection and the analysis were either confirmed or modified with the overall conclusion that revised financial projection and analytical report will have to be prepared. ESP subsequently prepared revised financial projection and analytical report.

PURPOSE The purpose of the meeting was to present and discuss the results of the revised financial projection and analytical report and to secure approval from PDAM management for the finalization of the said outputs of the ongoing technical assistance.

FIRST DAY: MEETING WITH ASST. MANAGER FOR FINANCIAL ANALYSIS The presentation was originally scheduled for March 6, the first day of the visit. The Managing Director was however called for an emergency meeting with the local legislative council (DPRD). In consultation with the Director for Finance and Administration, the presentation was postponed for the following day, March 7. The first day was instead spent to discuss and verify certain elements of the financial projection with the Assistant Manager for Financial Analysis, as follows:

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

Amortization of Long-Term Debt This was an issue raised in the analytical report. In the financial projection, the net long-term debt in the balance sheet, based on the amortization schedule provided in the PDAM’s Corporate Plan 2005-2009, does not zero out at the end of the amortization of existing as well as proposed loans in 2013, which means an overstatement of the loan balances during the prior years. An updated loan amortization schedule was obtained from the Assistant Manager for Financial Analysis, which provides for higher debt repayments for 2005 and 2006. On this basis, the financial projection was corrected. Basically, the effects were a lower loan balance in 2006, a lower net income for this year than that which has been projected in the annual budget in view of higher interest payments, and improved gearing (debt to total capitalization) ratios from 2006 onward. Water Production and Distribution The volume of water production, distribution, and sales all declined in 2005. Unit consumption of household connections also declined significantly, by almost 10%, from 134 liters per capita per day (lcd) to 121 lcd. The issue then was raised as to whether this was caused by a decline in demand or the PDAM’s supply limitation. The latter was especially baffling as the PDAM has a reported production capacity of 2,058 liters/second (l/sec) as of 2005 with the completion of the Wendit III production facility, which has a design capacity of 500 liters/second. On this basis, the PDAm’s plant utilization factor would only be 71% in 2005 and thus there should not have been a constraint on the supply side. The following clarifications were obtained: •

• • • •

•

• • • •

The 2,058 l/sec reported capacity actually represents the total of water abstraction permits (surat ijin pengambilan air or SIPA) now in the possession of the PDAM. The PDAM can draw this much water for as long as it has the necessary facilities. The existing production capacity was approximately equal to the production volumes of the PDAM’s 15 production facilities for 2005 converted to l/sec. One of the facilities was inactive. On the basis of the foregoing, the production capacity in 2005 was only 1,272.12 l/sec, a far cry from the reported 2,058 l/sec. Wendit III actually came into operation only during the last three months of 2005 and had a minuscule production contribution equivalent to 37 l/sec. Wendit III can draw water only up to a maximum of 480 l/sec, not 500 l/sec, as its four pumps each have a capacity of only 120 l/sec. Two of the pumps have already been installed, and the other two are included in the proposed investment program. For 2006, the assumption is that the production capacity for each of the existing facilities, except Wendit III, is already as its maximum. The increase would thus be provided by Wendit III with the full operation of its two installed pumps to yield 240 l/sec. Production capacity in 2006 would thus be 1,475 l/sec. Production capacity from 2007 onward assumes the installation and operation of two additional pumps in Wendit III to bring up its capacity to the maximum of 480 l/sec. Production capacity from 2007 onward would thus be 1,715.2 l/sec. Wendit I and Wendit II remained the backbone of the PDAM’s production capacity with combined contribution of 62% of the total production in 2005.

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

• •

These facilities are however old, with Wendit I constructed in 1982 and Wendit II in 1992. Both had original design capacities of 480 l/sec, but had deteriorated through the years to only 400 l/sec for Wendit I and 388 l/sec for Wendit II. The PDAM also suspects that O&M cost for the two aforementioned facilities, including repairs which have become more and more frequent, has increased significantly through the years.

A more detailed analysis of the PDAM’s production capacity is presented in the following table:

Name of Production Facility Binangun Pipa Lama Binangun Pipa Baru Karangan

Sumbersari

No.

Type of Source

Location

Production Volume in. 2005 (m3)

Production Capacity in 2005 (l/det)

Est. Prod’n Capacity in 2006 (l/det)

Est. Prod’n Capacity in 2007 (l/det)

Spring

Kota Malang

2,817,454

89.34

Spring

Kota Batu

4,712,685

149.44

Surface water

Kab. Malang

1,176,649

37.31

Surface water

Kab. Malang

457,273

14.50

Wendit I

Surface water

Kab. Malang

12,604,053

399.67

Wendit II

Surface water

Kab. Malang

12,246,695

388.34

Wendit III

Surface water

Kab. Malang

1,164,240

36.92

240.00

480.00

Banyuning

Surface water

Kota Batu

3,080,435

97.68

Badut I

Groundwater

Kota Malang

51,382

1.63

Badut II

Groundwater

Kota Malang

454,425

14.41

Badut III

Groundwater

Kota Malang

574,470

18.22

Sumbersari I

Groundwater

Kota Malang

83,374

2.64

Sumbersari II

Groundwater

Kota Malang

0.00

Istana Dieng

Groundwater

Kota Malang

510,466

16.19

TPA Supit Urang

Groundwater

Kota Malang

183,825

5.83

40,117,426

1,272.12

1,475.20

1,715.20

1 2

Total

On the basis of the foregoing production figures, the financial projection was revised with the following effects: The under-capacity utilization in 2005 and 2006 of 71% and 83% is reversed to over-capacity utilization of respectively 115% and 111%. For 2007 onward, capacity utilization will be in the neighborhood of 94% with full capacity utilization reached in 2020. In view of relatively low assumed per capita consumption of 121 liters per day and optimistic projected NRW of 28%, the recommendation of speeding up the generation of additional connections was stated with a strong caveat. Instead, the recommendation that PDAM considers installing additional capacity or rejuvenating existing ones was emphasized. The PowerPoint presentation was likewise revised accordingly.

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

SECOND DAY: PRESENTATION As mentioned, the presentation was made on March 7, from 9:00 to 11:30 AM. Participants The meeting was presided by the PDAMâ&#x20AC;&#x2122;s Managing Director and attended by the Technical Director and the Director for Finance and Administration, as well as all department managers. ESP was represented by Ramon H. Hagad. Proceedings ESP made a brief PowerPoint presentation of the highlights of the revised financial projection. A summary of the ensuing discussion follows. Revised Assumptions The revised schedule of loan amortization is correct and should be used for the financial projection. A lower estimate of net income for 2006 because of higher interest payments was confirmed. The analysis of PDAMâ&#x20AC;&#x2122;s production capacity for 2005 and the resulting projected production capacities for 2006 and 2007 are fairly accurate. Investment Program The proposed investment program becomes even more urgent now in view of the critical production-capacity levels. The PDAM will also consider a detailed performance audit of its production facilities and come up with a rejuvenation/optimization program, especially for the old ones. At the same time, the PDAM will verify the costs of the proposed investment program and, if necessary, include the cost of a rejuvenation/optimization program before the proposed meeting with prospective lenders. Conclusions Notwithstanding the aforementioned verification of the investment program, the financial projection and analytical report, based on the presentation, can already be finalized. Refinements may however be integrated after the meeting with prospective lenders based on probable costs of borrowing.

FOLLOW-UP ACTIONS The following actions were agreed upon: ESP will initiate the meeting with prospective lenders based on a list of commercial banks that have already been vetted by USAID/DCA. In the meanwhile, the PDAM will firm up the components and costs of its proposed investment program and thus the amount of external financing it will need for implementing such program.

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

ANNEX C SCHEDULE OF AMORTIZATION OF OUTSTANDING LOANS OF PDAM KOTA MALANG 2005 Loan from DDI Loan Balance Amortization of Principal Interest Payment Repayment of Accumulated Interest Loan from PT Sumber Kencana Perkasa Loan Balance Amortization of Principal Interest Payment Loan from BNI Loan Balance Amortization of Principal Interest Payment

2006

2007

2008

2009

2010

2011

4,355 670 382

3,685 670 321

3,015 670 260

2,345 670 199

1,675 670 137

1,005 670 76

335 335 15

231

116

17,505 1,005 637

16,500 6,000 1,985

10,500 6,000 1,118

4,500 4,500 271

26,719

26,719 4,000 4,153

22,719 4,400 3,470

18,319 4,400 2,753

13,919 4,400 2,020

9,519 4,800 1,270

4,719 4,719 479

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

ANNEX D INVESMENT PROGRAM OF PDAM KOTA MALANG PENAMBAHAN JARINGAN PIPA No. A.

LOKASI

VOLUME

ESTIMASI BIAYA ( Rp.)

JADWAL PEKERJAAN 2005

2006

2007

2008

2009

KETERANGAN

KECAMATAN LOWOKWARU Kelurahan Jatimulyo 1.

Jl. Kenongo

2,650

149,270,000.00

Jl. Vinolia

2,200

145,910,000.00

3,325

215,365,000.00

149,270,000.00 145,910,000.00

Kelurahan Mojolangu 1.

Jl. Simp. C. Panggung

215,365,000.00

Kelurahan Tungulwulung 1.

Jl. Akordion

4,005

255,167,000.00

Jl. Pohpayung

14,250

787,617,500.00

Jl. KH. Yusuf

5,375

326,662,500.00

Kelurahan Tunjungsekar

Perum. Tunjung Sekar

7,620

1,017,606,000.00

Jl. Ikan Tombro

3,525

162,865,000.00

1,017,606,000.00

Jl. Simp. Piranha Atas

2,270

87,621,000.00

Kampung Beringin

4,560

323,122,000.00

162,865,000.00

KECAMATAN BLIMBING Kelurahan Pandanwangi

Jl.Simp. Teluk Grajakan

2,493

150,018,000.00

Pandan Wangi

4,350

235,825,000.00

150,018,000.00

Proses SPK 235,825,000.00

KECAMATAN KEDUNG KANDANG Kelurahan Sawojajar 1.

Jl. D. Kerinci

650

336,830,000.00

Jl. D. Paniai

357

77,790,300.00

Jl. D Jonge

375

49,870,100.00

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

336,830,000.00

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

PENAMBAHAN JARINGAN PIPA No.

LOKASI

VOLUME

ESTIMASI BIAYA ( Rp.)

JADWAL PEKERJAAN 2005

2006

2007

2008

2009

KETERANGAN

Kel. Bumiayu - Kel. Arjowinangun 1.

Jl. Kaparseh - Babatan

2,670

350,289,000.00

Puskopad Bumiayu

2,675

107,062,500.00

Arjowinangun

3,680

230,959,000.00

18,235

2,035,740,500.00

3,750

258,096,000.00

3,450

184,945,000.00

5,106

4,759,924,000.00

230,959,000.00

Kel. Madyopuro - Lesanpuro â&#x20AC;&#x201C; Kd. Kandang 1.

Kel. Madyopuro Lesanpuro -

Puri Cempaka Putih

2,035,740,500.00

Kd. Kandang 258,096,000.00

Kelurahan Tlogowaru 1.

Kel. Tlogo Waru

184,945,000.00

Kel. Lesanpuro - Kedung Kandang 1. D.

Kel. Lesanpuro - Kd. Kandang ( Transmisi )

4,759,924,000.00

KECAMATAN SUKUN Kel. Gadang - Kebonsari 1.

Tandon Buring - Gadang IX

4,610

1,204,519,000.00

Gadang IX - Kb. Agung

2,100

280,770,000.00

Gadang - Satsuit Tubun Kb. Agung

1,300

47,220,000.00

835

50,822,000.00

3,110

136,859,000.00

Proses SPK

953

48,995,000.00

Proses SPK

Kelurahan Ciptomulyo 1. E.

Kolonel Sugiono Gg II

KABUPATEN MALANG Kelurahan Mangliawan 1.

Jabon

Kedoyo

Wendit Barat

8,419

549,795,000.00

Sudah terpasang

Wendit Timur 2 lokasi

4,115

214,652,000.00

Sudah terpasang

Pasar Gadang - Segaran

3,100

205,336,000.00

Jumlah Pengembangan Jaringan 126,113

14,987,523,400.00

4,047,804,505.00

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

1,783,140,906.00

1,686,447,007.00

674,474,508.00

6,795,666,509.00

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

TANDON No. I.

LOKASI

VOLUME

ESTIMASI BIAYA ( Rp.)

JADWAL PELAKSANAAN 2005

2006

2007

2008

2009

KETERANGAN

Mojolangu

II.

Mojolangu IV

1,000

1,900,000,000.00

Mojolangu V

1,000

1,900,000,000.00

1,000

1,900,000,000.00

IV.

Dinoyo IV

950,000,000.00

Sudah dimulai

950,000,000.00

Sudah dimulai

Buring 1.

Buring II

1,000

1,900,000,000.00

Buring III

1,000

1,900,000,000.00

Buring IV

1,000

1,900,000,000.00

1,500

2,850,000,000.00

750

1,425,000,000.00

950,000,000.00

1,900,000,000.00 1,900,000,000.00

Betek 1.

1,900,000,000.00

Dinoyo ( Tlogomas ) 1.

III.

1,900,000,000.00

Betek II

2,850,000,000.00

Bangkon 1.

Bangkon I Jumlah Tandon

15,675,000,000.00

712,500,000.00 2,612,500,000.00

Sudah dimulai 1,900,000,000.00

3,800,000,000.00

4,750,000,000.00

POMPA No. I. II.

LOKASI

VOLUME

Wendit III Mojolangu

ESTIMASI BIAYA ( Rp.)

110

lt/dt

547,365,000.00

110

lt/dt

547,365,000.00

100

lt/dt

530,134,000.00

lt/dt

452,369,000.00

Jumlah Pompa

2005

2006

2007

2008

2009

KETERANGAN

547,365,000.00 547,365,000.00 530,134,000.00 452,369,000.00 999,734,000.00

547,365,000.00

Jumlah Tandon + Pompa

17,752,233,000.00

2,612,500,000.00

3,142,634,000.00

2,899,734,000.00

4,347,365,000.00

4,750,000,000.00

Jumlah Pengembangan Jaringan

14,987,523,400.00

4,047,804,505.00

1,783,140,906.00

1,686,447,007.00

674,474,508.00

6,795,666,509.00

Total

2,077,233,000.00

JADWAL PELAKSANAAN

530,134,000.00

32,739,756,400.00 6,660,304,505.00 4,925,774,906.00 4,586,181,007.00 5,021,839,508.00 11,545,666,509.00

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

ANNEX E Detailed Demand Forecast

PDAM KOTA MALANG

No Asset Revaluati NEW PROJECTS

Maximum Cash and PFC WATER DEMAND AND PRODUCTION PROJECTIONS NEW PROJECTS FUNDED BY OWN FUNDS ONLY ALL OPERATIONS KABUPATEN POPULATION (000) SERVICE AREA POPULATION (000) POPULATION SERVED (000) POPULATION SERVED HC (000) % KABUPATEN POPULATION SERVED % KABUPATEN POP. SERVED HC % SERVICE AREA POPULATION SERVED % SERVICE AREA POP. SERVED HC AVAILABLE CONNECTIONS Domestic Social Services/Institutions Commerce Industry Bulk Water Sub-total, Non-domestic Total Increase in Service Connections PERSONS PER CONNECTION Other Household Very Poor Households Public Tap UNIT CONSUMPTION Domestic Social Services/Institutions Commerce Industry Bulk Water Sub-total, Non-domestic Total Domestic Social Services/Institutions Commerce Industry Bulk Water Sub-total, Non-domestic Total

COMMITTED PROJECTS

51%

2003 Audited 827 556 447 447 54.0% 54.0% 80.4% 80.4%

2004 Actual 840 569 457 457 54.4% 54.4% 80.3% 80.3%

71,063 1,667 353 2,171 48 0 0 2,219 75,302

73,525 1,705 363 2,808 48 1 0 2,857 78,450 3,148

74,510 1,509 537 2,864 45 1 0 2,910 79,466 1,016

76,174 1,508 557 2,978 44 2 0 3,024 81,263 1,797

2005 Forecast 847 574 467 467 55.1% 55.1% 81.4% 81.4% 2% 77,854 1,634 442 3,078 41 22 0 3,141 83,071 1,808

93.72% 1.97% 0.53% 3.71% 0.05% 0.03% 0.0% 3.7% 100.0%

6.0 7.0 100

6.0 6.0 7.0 7.0 100 100 H'hold Demand Based On Income & Price Elasticities 127 131 574 600 130 93 37 39 68 84 #DIV/0! 0 #DIV/0! #DIV/0! 27.6 28.0

(CONTINUED)

REQUIRED PRODUCTION/PURCHASES (000M3/YEAR) Production Losses (%) Distribution Losses (%) Total Losses (%) Distribution Required (000m3/year) PDAM Distribution Capacity (000m3/year) PDAM Production PDAM Distribution Volume purchased from Another PDAM 0 2004 Rp/m3 Volume sold to another PDAM 0 2004 Rp/m3 Net purchases (sales) from/to other PDAMs Volume Sold to PDAM Consumers % Connected Demand Satisfied CAPACITY UTILISATION PDAM Installed Production Capacity (Peak Hour in ltr/s 115% Existing, Not Used by WSSP Existing Used by WSSP Project Project Extensions PDAM Installed Production Capacity (000m3/year) Existing Existing Used by WSSP Project Project Extensions PDAM Plant Utilization Factor R:\4. MUNICIPAL FINANCE\WATER UTILITIES\East Java\PDAM Kt. Mala

, New System

14%

2002 Audited 815 549 441 441 54.1% 54.1% 80.3% 80.3%

TARIFF INCREASE

0.90% growth/year 0.90% growth/year

0.6% 0.6% 0.6% 0.6% 0.6% 0.6%

, Extension

2001 Audited 803 527 426 426 53.1% 53.1% 80.9% 80.9%

15/3/06

134 599 75 41 81 57,041 #DIV/0! 29.1

134 404 92 38 63 20,931 0 28.4

, Extension

-1%

20%

, Extension

20%

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

855 579 491 491 57.5% 57.5% 84.8% 84.8%

862 584 520 520 60.3% 60.3% 88.9% 88.9%

870 590 544 544 62.6% 62.6% 92.3% 92.3%

878 595 568 568 64.7% 64.7% 95.4% 95.4%

886 600 574 574 64.8% 64.8% 95.6% 95.6%

894 606 580 580 64.8% 64.8% 95.7% 95.7%

902 611 586 586 64.9% 64.9% 95.8% 95.8%

910 617 592 592 65.0% 65.0% 96.0% 96.0%

918 622 598 598 65.1% 65.1% 96.1% 96.1%

927 628 604 604 65.2% 65.2% 96.2% 96.2%

935 633 610 610 65.2% 65.2% 96.3% 96.3%

943 639 616 616 65.3% 65.3% 96.3% 96.3%

952 645 622 622 65.3% 65.3% 96.4% 96.4%

960 651 628 628 65.4% 65.4% 96.5% 96.5%

969 657 634 634 65.4% 65.4% 96.5% 96.5%

978 662 640 640 65.4% 65.4% 96.6% 96.6%

986 668 646 646 65.5% 65.5% 96.6% 96.6%

995 674 652 652 65.5% 65.5% 96.6% 96.6%

1,004 680 658 658 65.5% 65.5% 96.6% 96.6%

1,013 687 664 664 65.5% 65.5% 96.7% 96.7%

81,854 1,634 442 3,078 41 22 0 3,141 87,071 4,000

86,608 1,634 442 3,078 41 22 0 3,141 91,825 4,754

90,737 1,634 442 3,078 41 22 0 3,141 95,954 4,129

94,613 1,634 442 3,078 41 22 0 3,141 99,830 3,876

95,613 1,634 442 3,078 41 22 0 3,141 100,830 1,000

96,613 1,634 442 3,078 41 22 0 3,141 101,830 1,000

97,613 1,634 442 3,078 41 22 0 3,141 102,830 1,000

98,613 1,634 442 3,078 41 22 0 3,141 103,830 1,000

99,613 1,634 442 3,078 41 22 0 3,141 104,830 1,000

100,613 1,634 442 3,078 41 22 0 3,141 105,830 1,000

101,613 1,634 442 3,078 41 22 0 3,141 106,830 1,000

102,613 1,634 442 3,078 41 22 0 3,141 107,830 1,000

103,613 1,634 442 3,078 41 22 0 3,141 108,830 1,000

104,613 1,634 442 3,078 41 22 0 3,141 109,830 1,000

105,613 1,634 442 3,078 41 22 0 3,141 110,830 1,000

106,613 1,634 442 3,078 41 22 0 3,141 111,830 1,000

107,613 1,634 442 3,078 41 22 0 3,141 112,830 1,000

108,613 1,634 442 3,078 41 22 0 3,141 113,830 1,000

109,613 1,634 442 3,078 41 22 0 3,141 114,830 1,000

110,613 1,634 442 3,078 41 22 0 3,141 115,830 1,000

6.0 7.0 100

121 484 80 31 62 8,302 0 27.2

121 484 94 32 63 8,553 0 26.8

121 575 92 38 63 8,553 0 27.1

121 575 92 38 63 8,553 0 27.0

121 575 92 38 63 8,553 0 26.8

121 575 92 38 63 8,553 0 27.1

121 575 92 38 63 8,553 0 27.0

121 575 92 38 63 8,553 0 26.9

121 575 92 38 63 8,553 0 26.8

121 575 92 38 63 8,553 0 26.7

121 575 92 38 63 8,553 0 26.6

121 575 92 38 63 8,553 0 26.5

19,837 2,447 1,672 969 39 0 0 1,008 24,964

21,169 2,616 1,233 1,300 49 0 0 1,349 26,365

21,813 2,308 1,470 1,404 44 684 0 2,132 27,722

22,396 1,556 1,869 1,374 33 502 0 1,910 27,730

20,388 1,944 1,467 1,132 30 2,192 0 3,354 27,153

21,009 2,004 1,512 1,166 31 2,258 0 3,455 27,980

22,320 2,399 1,483 1,420 31 2,258 0 3,709 29,912

23,497 2,399 1,483 1,420 31 2,258 0 3,709 31,089

24,558 2,399 1,483 1,420 31 2,258 0 3,709 32,149

25,204 2,399 1,483 1,420 31 2,258 0 3,709 32,795

25,469 2,399 1,483 1,420 31 2,258 0 3,709 33,060

25,734 2,399 1,483 1,420 31 2,258 0 3,709 33,325

25,999 2,399 1,483 1,420 31 2,258 0 3,709 33,590

26,264 2,399 1,483 1,420 31 2,258 0 3,709 33,855

26,529 2,399 1,483 1,420 31 2,258 0 3,709 34,120

26,794 2,399 1,483 1,420 31 2,258 0 3,709 34,385

27,059 2,399 1,483 1,420 31 2,258 0 3,709 34,650

27,324 2,399 1,483 1,420 31 2,258 0 3,709 34,915

27,589 2,399 1,483 1,420 31 2,258 0 3,709 35,180

27,854 2,399 1,483 1,420 31 2,258 0 3,709 35,445

28,119 2,399 1,483 1,420 31 2,258 0 3,709 35,710

28,384 2,399 1,483 1,420 31 2,258 0 3,709 35,975

28,649 2,399 1,483 1,420 31 2,258 0 3,709 36,240

28,914 2,399 1,483 1,420 31 2,258 0 3,709 36,505

29,179 2,399 1,483 1,420 31 2,258 0 3,709 36,770

5.0% 32.5% 35.9% 36,980 39,442 38,926 36,980 0 0 0 24,964 100%

5.0% 28.8% 32.3% 37,005 39,442 38,953 37,005 0 0 0 26,365 100%

5.0% 26.3% 29.9% 37,594 39,442 39,573 37,594 0 0 0 27,722 100%

5.0% 28.3% 31.9% 38,695 40,588 40,731 38,694 0 0 0 27,731 100%

5.0% 28.8% 32.3% 37,888 33,137 40,117 38,112 0 0 0 23,749 87%

5.0% 34.3% 37.6% 39,043 38,431 44,849 42,607 0 0 0 28,313 101%

5.0% 30.6% 34.0% 41,738 44,678 45,340 43,073 0 0 0 32,370 108%

5.0% 28.6% 32.1% 43,381 44,678 43,568 43,524 0 0 0 35,051 113%

5.0% 27.5% 31.2% 44,861 44,678 44,410 44,366 0 0 0 37,447 116%

5.0% 26.5% 30.1% 45,762 44,678 44,646 44,602 0 0 0 38,156 116%

5.0% 25.4% 29.1% 46,132 44,678 44,345 44,301 0 0 0 38,156 115%

5.0% 24.2% 28.0% 46,502 44,678 44,033 43,989 0 0 0 38,156 114%

5.0% 24.2% 28.0% 46,871 44,678 44,383 44,339 0 0 0 38,156 114%

5.0% 24.2% 28.0% 47,241 44,678 44,734 44,689 0 0 0 38,156 113%

5.0% 24.2% 28.0% 47,611 44,678 45,084 45,039 0 0 0 38,156 112%

5.0% 24.2% 28.0% 47,981 44,678 45,434 45,388 0 0 0 38,156 111%

5.0% 24.2% 28.0% 48,350 44,678 45,784 45,738 0 0 0 38,156 110%

5.0% 24.2% 28.0% 48,720 44,678 46,134 46,088 0 0 0 38,156 109%

5.0% 24.2% 28.0% 49,090 44,678 46,484 46,438 0 0 0 38,156 108%

5.0% 24.2% 28.0% 49,460 44,678 46,834 46,788 0 0 0 38,156 108%

5.0% 24.2% 28.0% 49,830 44,678 47,185 47,137 0 0 0 38,156 107%

5.0% 24.2% 28.0% 50,199 44,678 47,535 47,487 0 0 0 38,156 106%

5.0% 24.2% 28.0% 50,569 44,678 47,885 47,837 0 0 0 38,156 105%

5.0% 24.2% 28.0% 50,939 44,678 48,235 48,187 0 0 0 38,156 105%

5.0% 24.2% 28.0% 51,309 44,678 48,585 48,537 0 0 0 38,156 104%

1514 0 0 1,514 41,518 0 0 93.8%

1514 0 0 1,514 41,518 0 0 95.3%

1558 0 0 1,558 42,724 0 0 95.3%

1272 0 0 1,272 34,882 0 5 115.0%

1475 0 0 1,475 40,454 0 6 110.8%

1715 0 0 1,715 47,030 0 0 96.4%

1715 0 0 1,715 47,030 0 0 92.6%

1715 0 0 1,715 47,030 0 0 94.4%

1715 0 0 1,715 47,030 0 0 94.9%

1715 0 0 1,715 47,030 0 0 94.3%

1715 0 0 1,715 47,030 0 0 93.6%

1715 0 0 1,715 47,030 0 0 94.4%

1715 0 0 1,715 47,030 0 0 95.1%

1715 0 0 1,715 47,030 0 0 95.9%

1715 0 0 1,715 47,030 0 0 96.6%

1715 0 0 1,715 47,030 0 0 97.4%

1715 0 0 1,715 47,030 0 0 98.1%

1715 0 0 1,715 47,030 0 0 98.8%

1715 0 0 1,715 47,030 0 0 99.6%

1715 0 0 1,715 47,030 0 0 100.3%

1715 0 0 1,715 47,030 0 0 101.1%

1715 0 0 1,715 47,030 0 0 101.8%

1715 0 0 1,715 47,030 0 0 102.6%

1715 0 0 1,715 47,030 0 0 103.3%

04:34 PM

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

ANNEX F Detailed Income Statement

PDAM KOTA MALANG

No Asset Revaluati NEW PROJECTS

Maximum Cash and PFC WATER DEMAND AND PRODUCTION PROJECTIONS Maximum Cash and PFC

COMMITTED PROJECTS

, New System

(CURRENT RP MILLION) Number of Service Connections - '000 Average Consumption - m3/conn/month Volume Sold - 000m3 % Unaccounted-for Water Water Produced - 000m3 Average Tariff - Current Rp/M3 :

-1%

20%

51%

-1%

20%

2001 2002 2003 2004 Audited Audited Audited Actual 75.3 78.5 79.5 81.3 27.6 28.0 29.1 28.4 24,964 26,365 27,722 27,731 36% 32% 30% 32% 38,926 38,953 39,573 40,731 1,395 1,340 1,509 1,726

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

83.1 23.8 23,749 32% 40,117 2,606

87.1 27.1 28,313 38% 44,849 2,579

91.8 29.4 32,370 34% 45,340 3,102

96.0 30.4 35,051 32% 43,568 3,273

99.8 31.3 37,447 31% 44,410 3,936

100.8 31.5 38,156 30% 44,646 4,153

101.8 31.2 38,156 29% 44,345 4,994

102.8 30.9 38,156 28% 44,033 5,269

103.8 30.6 38,156 28% 44,383 6,337

104.8 30.3 38,156 28% 44,734 6,685

105.8 30.0 38,156 28% 45,084 8,029

106.8 29.8 38,156 28% 45,434 8,471

107.8 29.5 38,156 28% 45,784 10,188

108.8 29.2 38,156 28% 46,134 10,748

109.8 29.0 38,156 28% 46,484 12,927

110.8 28.7 38,156 28% 46,834 13,638

111.8 28.4 38,156 28% 47,185 16,402

112.8 28.2 38,156 28% 47,535 17,305

113.8 27.9 38,156 28% 47,885 20,812

114.8 27.7 38,156 28% 48,235 21,957

115.8 27.5 38,156 28% 48,585 26,408

100,414 11,508 0 848 112,769 20,280 22,125 338 4,903 16,781 482 0 7,012 71,921 40,848 8,315 32,534 4,847 27,687 0 221 27,908 27,908 8,364 19,544 932 5,124 838 0

114,710 10,563 0 917 126,190 23,925 27,896 442 5,768 20,171 662 0 7,059 85,924 40,266 9,213 31,053 3,223 27,830 0 1,090 28,920 28,920 8,667 20,253 1,954 10,749 1,759 0

147,391 10,468 0 982 158,842 28,073 35,369 575 6,683 24,077 756 0 7,426 102,959 55,883 11,120 44,763 2,157 42,606 0 1,999 44,605 44,605 13,373 31,232 2,025 11,139 1,823 0

158,445 1,460 0 991 160,896 31,173 42,662 705 7,572 28,446 972 0 10,084 121,614 39,282 13,164 26,118 6,134 19,984 0 3,621 23,605 23,605 7,073 16,532 3,123 17,178 2,811 0

190,562 1,513 0 999 193,075 35,824 44,753 740 7,989 32,689 1,045 0 7,557 130,596 62,478 14,634 47,844 3,914 43,931 0 4,136 48,066 48,066 14,411 33,655 1,653 9,093 1,488 0

201,043 1,583 0 1,008 203,634 41,165 46,936 776 8,428 37,563 1,257 0 7,512 143,637 59,997 15,506 44,491 2,052 42,440 0 6,209 48,649 48,649 14,586 34,063 3,366 18,510 3,029 0

241,794 1,664 0 1,016 244,474 47,299 49,847 824 8,892 43,160 1,326 0 7,563 158,910 85,564 16,406 69,158 684 68,474 0 8,652 77,126 77,126 23,129 53,997 3,406 18,735 3,066 0

255,093 1,752 0 1,025 257,870 54,343 52,937 875 9,381 49,588 1,595 0 7,613 176,331 81,539 17,359 64,180 0 64,180 0 12,917 77,097 77,097 23,120 53,976 5,400 29,698 4,860 0

306,371 1,847 0 1,033 309,251 62,432 56,216 929 9,897 56,969 1,682 0 13,287 201,413 107,838 18,366 89,472 0 89,472 0 17,722 107,194 107,194 32,149 75,044 5,398 29,687 4,858 0

323,221 1,947 0 1,041 326,210 71,720 59,695 987 10,441 65,445 2,020 0 14,110 224,418 101,792 19,432 82,360 0 82,360 0 24,400 106,760 106,760 32,019 74,741 7,504 41,274 6,754 0

388,738 2,054 0 1,050 391,842 82,384 63,387 1,048 11,015 75,176 2,132 0 14,982 250,125 141,717 20,560 121,157 0 121,157 0 31,006 152,163 152,163 45,640 106,523 7,474 41,107 6,727 0

410,119 2,167 0 1,058 413,344 94,628 67,305 1,112 11,621 86,349 2,564 0 15,908 279,488 133,856 21,753 112,103 0 112,103 0 40,472 152,575 152,575 45,764 106,811 10,652 58,587 9,587 0

493,250 2,286 0 1,067 496,603 108,685 71,462 1,181 12,260 99,176 2,705 0 16,891 312,360 184,243 23,015 161,228 0 161,228 0 49,929 211,157 211,157 63,338 147,819 10,681 58,746 9,613 0

520,379 2,411 0 1,075 523,865 124,822 75,872 1,254 12,935 113,901 3,253 0 17,933 349,970 173,895 24,349 149,546 0 149,546 0 63,064 212,610 212,610 63,774 148,836 14,782 81,300 13,304 0

625,860 2,544 0 1,084 629,487 143,346 80,552 1,331 13,646 130,804 3,432 0 19,040 392,151 237,337 25,762 211,575 0 211,575 0 76,235 287,810 287,810 86,334 201,476 14,884 81,860 13,395 0

660,282 2,684 0 1,092 664,058 164,608 85,517 1,413 14,397 150,207 4,127 0 20,213 440,482 223,576 27,255 196,320 0 196,320 0 94,115 290,435 290,435 87,122 203,313 20,148 110,812 18,133 0

794,121 2,832 0 1,100 798,053 189,014 90,784 1,501 15,188 172,477 4,354 0 21,458 494,775 303,278 28,836 274,442 0 274,442 0 112,079 386,522 386,522 115,948 270,574 20,331 111,822 18,298 0

837,798 2,987 0 1,109 841,894 217,024 96,372 1,593 16,024 198,036 5,237 0 22,779 557,065 284,829 30,507 254,322 0 254,322 0 136,052 390,374 390,374 117,103 273,270 27,057 148,816 24,352 0

1,007,619 3,152 0 1,117 1,011,888 249,171 102,299 1,691 16,905 227,371 5,525 0 24,180 627,143 384,746 32,275 352,470 0 352,470 0 160,156 512,626 512,626 153,779 358,847 27,327 150,299 24,594 0

2,222 71% 28% 20% 74,596 0.74 37.1% 37.4%

2,451 75% 25% 5% 82,169 0.72 33.9% 35.2%

2,749 72% 30% 20% 106,672 0.72 39.9% 41.8%

3,187 84% 15% 5% 131,691 0.83 15.2% 17.9%

3,423 75% 25% 20% 144,515 0.76 30.4% 33.3%

3,764 78% 24% 5% 145,296 0.72 29.2% 33.5%

4,165 72% 32% 20% 145,708 0.60 47.0% 52.9%

4,621 75% 30% 5% 146,143 0.57 43.9% 52.8%

5,279 71% 35% 20% 146,599 0.48 61.0% 73.1%

5,882 75% 33% 5% 147,080 0.46 56.0% 72.6%

6,555 69% 39% 20% 147,585 0.38 82.1% 103.1%

7,325 73% 37% 5% 148,116 0.36 75.7% 103.0%

8,186 68% 43% 20% 148,675 0.30 108.4% 142.0%

9,172 71% 41% 5% 149,263 0.29 100.2% 142.4%

10,277 66% 46% 20% 149,881 0.24 141.2% 192.0%

11,544 70% 44% 5% 150,532 0.23 130.4% 192.9%

12,967 66% 49% 20% 151,215 0.19 181.5% 255.6%

14,600 70% 47% 5% 151,935 0.18 167.4% 256.9%

16,436 65% 51% 20% 152,691 0.15 230.8% 335.7%

34,821 2,047 0 435 37,303 5,546 3,714 0 1,737 9,632 184 0 852 21,664 15,639 2,924 12,715 708 12,006 0 (512) 11,494 11,494 3,504 7,989 0 0 0 0 868 66% 33% 28,092 0.81 42.7% 40.9%

15/3/06

, Extension

51%

14%

Tariff Revenues Net Connection Fees Sales of water to other PDAMs Other Operating Revenues Total Operating Revenues Personnel Power Chemical Maintenance Material Administration - General Bad Debts & Write Off Raw Water Purchases Raw Water Retribution Total Operating Expenses Income (Loss) before Depreciation Depreciation 5.5% unrevalued assets Operating Income (Loss) Operational Interest Net Operating Income (Loss) Royalties Non-Operating Income (Loss) - Other Before Tax Income Taxable Income After Losses Carried Forward (5 Years) Income Tax Net Income (Loss) Staff Funds Share of Net Income 10.0% of net income Kotamadya Share of Net Income 55.0% ditto Payment to Staff Funds 90.0% of share Payment to Kotamadya 0.0% of share RATIOS AND COMPARATORS: Ave.Expenses per M3 Sold (Rp) Operating Ratio Before Tax Income/Sales Increases in Weighted Average Tariffs Average Asset's Rate Base (Nom. Rp M.) Assets/Water Sales Operating Income/Assets Before Tax Income/Assets

, Extension

14%

TARIFF INCREASE

TABLE B4 - PROFIT AND LOSS ACCOUNT

R:\4. MUNICIPAL FINANCE\WATER UTILITIES\East Java\PDAM Kt. Malan

, Extension

TARIFF INCREASE

No Asset Revaluation

35,320 2,185 0 609 38,115 10,068 5,217 62 1,984 7,483 203 0 619 25,637 12,478 3,925 8,553 626 7,926 0 380 8,306 8,306 2,560 5,746 0 0 0 0

41,823 800 0 762 43,386 11,269 6,274 63 2,296 9,153 250 0 710 30,016 13,370 4,265 9,105 553 8,552 0 245 8,797 8,797 2,732 6,064 0 0 0 0

47,874 1,830 0 844 50,547 12,883 6,988 86 2,973 10,019 363 0 666 33,979 16,569 5,054 11,514 456 11,058 0 155 11,213 11,213 3,515 7,698 0 0 0 0

61,901 1,808 0 1,620 65,328 12,936 7,909 79 5,195 11,323 424 0 1,168 39,034 26,294 8,581 17,713 1,029 16,684 0 64 16,748 16,748 5,007 11,741 770 4,234 693 0

73,025 2,127 0 1,508 76,660 14,434 10,373 169 9,191 12,002 335 0 4,284 50,788 25,872 6,307 19,565 6,459 13,106 0 484 13,590 13,590 4,273 9,316 1,174 6,458 1,057 0

972 78% 24% -4% 29,318 0.83 27.0% 28.3%

1,083 79% 21% 13% 30,399 0.73 28.1% 28.9%

1,225 77% 23% 14% 30,231 0.63 36.6% 37.1%

1,644 73% 27% 51% 57,140 0.92 29.2% 29.3%

1,794 74% 19% -1% 81,412 1.11 16.1% 16.7%

20%

20% 20%

5% 5%

20% 20%

5% 5%

20% 20%

5% 5%

20% 20%

5% 5%

20% 20%

5% 5%

20% 20%

5% 5%

20% 20%

5% 5%

20% 20%

04:34 PM

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

ANNEX G Detailed Sources and Applications of Funds

PDAM KOTA MALANG

No Asset Revaluati NEW PROJECTS

Maximum Cash and PFC WATER DEMAND AND PRODUCTION PROJECTIONS

COMMITTED PROJECTS

TABLE B5 - SOURCES AND APPLICATION OF FUNDS

, Extension

-1%

20%

51%

-1%

20%

20% 20%

5% 5%

20% 20%

5% 5%

20% 20%

5% 5%

20%

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

12,478 0 380 12,857 0 0 0 0

13,370 0 245 13,615 0 0 0 0

16,569 0 155 16,723 0 0 0 0

55,883 0 1,999 57,882 0 0 0 0 0 0 11,139 11,139

39,282 0 3,621 42,903 0 0 0 0 0 0 17,178 17,178

81,539 0 12,917 94,455 0 0 0 0

107,838 0 17,722 125,560 0 0 0 0

101,792 0 24,400 126,192 0 0 0 0

141,717 0 31,006 172,723 0 0 0 0

133,856 0 40,472 174,327 0 0 0 0

184,243 0 49,929 234,172 0 0 0 0

173,895 0 63,064 236,959 0 0 0 0

237,337 0 76,235 313,572 0 0 0 0

223,576 0 94,115 317,690 0 0 0 0

303,278 0 112,079 415,357 0 0 0 0

284,829 0 136,052 420,881 0 0 0 0

384,746 0 160,156 544,901 0 0 0 0

0 0

40,266 0 1,090 41,356 0 0 0 0 0 0 10,749 10,749

85,564 0 8,652 94,216 0 0 0 0

0 0

40,848 0 221 41,070 0 0 0 0 0 0 5,124 5,124

59,997 0 6,209 66,207 0 0 0 0

0 0

25,872 0 484 26,356 0 0 0 0 0 0 6,458 6,458

62,478 0 4,136 66,614 0 0 0 0

0 0

26,294 0 64 26,358 0 0 0 0 0 0 4,234 4,234

9,093 9,093

18,510 18,510

18,735 18,735

29,698 29,698

29,687 29,687

41,274 41,274

41,107 41,107

58,587 58,587

58,746 58,746

81,300 81,300

81,860 81,860

110,812 110,812

111,822 111,822

148,816 148,816

150,299 150,299

9,641 0 9,641 24,768

0 0 0 12,857

0 0 (1,174) 0 (1,174) 12,441

0 0 12,278 0 12,278 29,002

0 0 29,310 0 29,310 59,902

0 0 0 0 0 32,813

0 13,966 0 1,187 15,153 61,346

0 14,023 0 3,566 17,589 69,695

0 12,242 0 5,115 17,356 86,377

0 0 0 0 0 60,080

0 0 0 0 0 75,707

0 0 0 0 0 84,717

0 0 0 0 0 112,951

0 0 0 0 0 124,154

0 0 0 0 0 155,247

0 0 0 0 0 167,466

0 0 0 0 0 213,830

0 0 0 0 0 232,915

0 0 0 0 0 292,918

0 0 0 0 0 318,260

0 0 0 0 0 395,431

0 0 0 0 0 428,502

0 0 0 0 0 527,180

0 0 0 0 0 569,697

0 0 0 0 0 695,200

0 0 0 0 0 0 0 901 0 901 0 0 0 0 0 901

0 0 5,280 0 0 0 5,280 901 0 901 1,860 2,559 0 0 3,504 14,105

0 0 4,807 0 0 0 4,807 901 0 901 1,239 2,832 0 0 2,560 12,341

0 0 22,198 0 0 0 22,198 901 0 901 (85) (946) 0 0 2,732 24,800

0 0 44,341 1,085 0 0 45,426 1,907 1,019 2,926 1,889 (2,127) 0 693 3,515 52,321

0 0 6,625 10,885 0 0 17,510 10,901 6,459 17,360 (101) (3,245) 0 1,057 5,007 37,588

0 19,951 0 11,538 0 1,187 32,675 11,301 4,847 16,148 (7,886) (492) 0 838 4,273 45,557

0 20,033 0 13,065 0 3,566 36,664 9,801 3,223 13,024 (6,137) (508) 0 1,759 8,364 53,166

0 17,488 0 15,053 0 5,115 37,656 15,321 2,157 17,478 (8,283) (453) 0 1,823 8,667 56,888

0 0 0 15,792 0 0 15,792 15,721 6,134 21,855 (2,610) (501) 0 2,811 13,373 50,719

0 0 0 15,908 0 0 15,908 15,190 3,914 19,103 (5,417) (149) 0 1,488 7,073 38,006

0 0 0 16,829 0 0 16,829 10,020 2,052 12,071 (5,738) (303) 0 3,029 14,411 40,300

0 0 0 17,804 0 0 17,804 10,020 684 10,704 (10,441) (307) 0 3,066 14,586 35,411

0 0 0 19,925 0 0 19,925 0 0 0 (13,583) (486) 0 4,858 23,120 33,834

0 0 0 21,078 0 0 21,078 0 0 0 (11,940) (675) 0 6,754 32,149 47,365

0 0 0 22,297 0 0 22,297 0 0 0 (18,650) (673) 0 6,727 32,019 41,720

0 0 0 23,588 0 0 23,588 0 0 0 (16,904) (959) 0 9,587 45,640 60,952

0 0 0 24,952 0 0 24,952 0 0 0 (25,262) (961) 0 9,613 45,764 54,106

0 0 0 26,396 0 0 26,396 0 0 0 (22,917) (1,330) 0 13,304 63,338 78,791

0 0 0 27,922 0 0 27,922 0 0 0 (33,408) (1,340) 0 13,395 63,774 70,344

0 0 0 29,537 0 0 29,537 0 0 0 (30,321) (1,813) 0 18,133 86,334 101,869

0 0 0 31,245 0 0 31,245 0 0 0 (43,517) (1,830) 0 18,298 87,122 91,318

0 0 0 33,051 0 0 33,051 0 0 0 (39,472) (2,435) 0 24,352 115,948 131,443

0 0 0 34,962 0 0 34,962 0 0 0 (56,064) (2,459) 0 24,594 117,103 118,136

(1,247) 2,308 1,060 2,212

100 1,060 1,160 2,576

4,201 1,160 2,031 2,907

7,581 1,931 918 3,497

(4,775) 918 1,891 5,679

15,789 1,891 17,680 7,339

16,529 17,680 34,209 8,246

29,489 34,209 63,698 10,036

9,361 63,698 73,060 11,956

37,700 73,060 110,760 12,475

44,417 110,760 155,177 12,976

77,539 155,177 232,717 14,134

87,371 232,717 320,087 14,694

121,413 320,087 441,500 16,784

120,101 441,500 561,601 18,702

172,109 561,601 733,711 20,844

171,962 733,711 905,673 23,291

238,812 905,673 1,144,485 26,030

239,469 1,144,485 1,383,954 29,164

325,087 1,383,954 1,709,041 32,679

326,633 1,709,041 2,035,674 36,707

0.12 9.01 8.64 4.01 52% 37%

0.78 1.52 0.89 0.54 73% 133%

1.64 2.54 1.83 1.21 102% 83%

2.99 3.18 2.17 1.56 97% 108%

4.07 3.31 2.45 1.79 132% 98%

3.80 1.96 1.24 0.76 159% 271%

6.14 3.49 2.65 1.76 337% 293%

12.78 5.48 4.09 2.82 364% 416%

21.42 8.80 7.14 5.04 536% 492%

na na na na 564% 607%

na na na na 709% 414%

na na na na 670% 447%

na na na na 872% 502%

na na na na 829% 551%

na na na na 1057% 614%

na na na na 1007% 669%

na na na na 1264% 739%

na na na na 1206% 800%

0.03 18.55 18.55 8.54 64% 168%

20%

2010

-0.57 15.11 15.11 6.73 126% 154%

20%

2009

0 0 0 18,834 0 0 18,834 0 0 0 (9,554) (486) 0 4,860 23,129 36,783

20%

2008

-0.28 14.27 14.27 6.38 76%

20%

2007

1.47 16.78 16.78 8.86 na

20%

2006

DSCR (SLAP, Cash balance less minimum cash) DSCR (ADB and Perpamsi, Net revenues) DSCR (Cashflow ) DSCR (BPKP, Net Income) Contribution to Investment Contr. to Investment, 3 Yr Average

20%

2005

23,866 (21,559) 2,308 1,880

20%

2004 Actual

CASH INCREASE (DECREASE) Cash Balance, Begining Cash Balance, Ending Minimum Cash Requirement

15/3/06

, Extension

51%

14%

2003 Audited

15,639 0 (512) 15,126 0 0 0 0

APPLICATIONS OF FUNDS: Proposed WSSP Projects Committed/Other Projects Past Projects PDAM Replacement/Connection Programme Master Plan Interest Accumulated Total Capital Expenditures Amortization of L/T Debt Operational Interest of L/T Debt Total Debt Service of L/T Debt Working Capital Needs Other Assets/Liabil. Changes Kotamadya Share of Net Income Other Profit Sharing Income Tax TOTAL APPLICATIONS OF FUNDS

, New System

14%

2002 Audited

2001 Audited

(CURRENT RP MILLION) SOURCES OF FUNDS: Income before Depreciation and Interest Royalties Non-Operating Income (Loss) - Net Gross Internal Cash Generation GOI Construction Grant GOI Feasibility Study Grant GOI Technical Assistance Grant (APBN) PPN Grant RG Equity (Land) Other RG Equity/Advance Reinvestment by Kotamadya Total Equity Borrowing : Proposed Loan Committed Loan Ongoing Loans Interest Accumulated Total Borrowing TOTAL SOURCES OF FUNDS

R:\4. MUNICIPAL FINANCE\WATER UTILITIES\East Java\PDAM Kt. Mala

, Extension

TARIFF INCREASE TARIFF INCREASE

Maximum Cash and PFC

20%

435,862 2,035,674 2,471,536 41,231

438,253 2,471,536 2,909,789 46,422

577,064 2,909,789 3,486,853 52,262

na na na na 1495% #REF!

na na na na 1426% #REF!

na na na na 1751% #REF!

04:34 PM

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA DHARMA KOTA MALANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

ANNEX H Detailed Balance Sheet Projections

PDAM KOTA MALANG

No Asset Revaluati NEW PROJECTS

Maximum Cash and PFC WATER DEMAND AND PRODUCTION PROJECTIONS

COMMITTED PROJECTS

TABLE B6 - BALANCE SHEET

No Asset Revaluation

, Extension

, New System

, Extension

14%

51%

-1%

20%

14%

51%

-1%

20%

2001 2002 2003 2004 Audited Audited Audited Actual 2004 66,835 73,196 77,171 82,098 38,743 42,651 46,916 51,890 28,092 30,544 30,254 30,208 1,080 0 832 18,103 2,308 1,060 1,160 2,031 30 days=target 4,491 5,445 6,505 7,764 (94) (234) (365) (727) 1,066 751 1,139 1,031

2005

2007

2008

2009

2010

TARIFF INCREASE TARIFF INCREASE

Maximum Cash and PFC (CURRENT RP MILLION) Assets in Operation reval after Accumulated Depreciation Net Fixed Assets Work In Progress Cash + Deposits Accounts Receivable - Water 52 Reserve of Bad Debts Provision, Water Past Connection Fees Put To Balance Sheet Receivable - Credited New Connections Inventories 5 5 days=target Other Receivable Piutang (Usaha) non-Air; Piutang Lain Lain Total Current Assets Installation Inventory 1,018 70 days=target Other Assets TOTAL ASSETS Accounts Payable 21 30 days=target Other Payable Other Current Liabilities (Cust. Deposit) Tax Payable 5 4 Turn Ov =Ta Current Matur.Long-Term Debt Total Current Liabilities Deferred Income Meter Reserve Fund Other Liabilities Long Term-Debt - Net Total Liabilities Assets Revaluation Surplus 10 average age initial revaluation Reserves + "Net" Retained Earnings Local Gov't Equity Central Gov't Equity (Inc'l Not Yet Handed Over) Total Equity TOTAL EQUITY AND LIABILITIES Current Ratio Working Capital, exclud. cash Debt Equity Ratio (70/30 = 233%) Total Assets/Total Debt # Days Accounts Receivable % Debt/(Net Fixed Assets +WIP) Cash = # Month Operating Expenses R:\4. MUNICIPAL FINANCE\WATER UTILITIES\East Java\PDAM Kt. Malang

15/3/06

13 1,342 9,125 1,431 2,938 42,667 949 1,577 0 2,190 1,274 5,990 6 1,236 4,689 8,367 20,288 1,955 17,076 2,809 539 22,379 42,667

39 1,923 8,983 1,530 4,261 45,319 1,597 646 0 1,719 1,278 5,239 0 2,842 7,549 7,201 22,832 1,955 16,031 3,962 539 22,487 45,319

31 2,138 10,609 1,818 4,714 48,228 1,424 624 0 2,200 1,293 5,541 0 5,030 6,978 6,012 23,561 1,955 17,211 4,962 539 24,667 48,228

32 0 10,131 2,399 4,082 64,923 202 1,226 0 1,556 1,127 4,111 0 7,254 7,291 18,457 37,112 1,955 19,754 5,562 539 27,811 64,923

144,542 60,471 84,071 0 1,018 9,987 (544) 2,965 (0) 43 3,970 17,439 2,081 5,847 109,438 2,715 1,380 0 5,321 712 10,129 0 9,248 8,871 48,182 76,429 1,955 24,952 5,562 539 33,009 109,438

1.5 2,102 43% 3.0 47 0 1.3

1.7 3,961 38% 2.8 57 28% 0.5

1.9 5,201 30% 3.4 57 23% 0.5

2.5 5,115 70% 2.4 60 41% 0.7

1.7 7,004 148% 1.9 59 58% 0.3

(0)

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

2006

20%

20% 20% 2011

5% 5% 2012

20% 20% 2013

5% 5% 2014

20% 20% 2015

5% 5% 2016

20% 20% 2017

5% 5% 2018

20% 20% 2019

5% 5% 2020

20% 20% 2021

5% 5% 2022

20% 20% 2023

5% 5% 2024

151,167 72,414 78,753 0 1,891 11,008 (560) 4,937 0 52 0 17,328 2,193 5,513 103,787 1,884 1,183 0 5,467 11,301 19,835 0 11,028 11,895 25,974 68,732 1,955 24,698 7,862 539 35,055 103,786

151,167 80,729 70,438 32,675 17,680 11,889 (40) 4,937 79 68 0 34,614 1,785 5,513 145,025 4,205 1,248 0 12,464 9,801 27,718 0 11,028 11,978 31,325 82,050 1,955 47,494 12,986 539 62,975 145,025

183,842 89,942 93,900 36,664 34,209 12,197 (54) 4,937 91 82 0 51,462 1,452 5,513 188,992 5,041 1,316 0 18,015 15,321 39,694 0 11,028 12,154 33,594 96,470 1,955 66,292 23,736 539 92,522 188,992

220,507 101,062 119,445 37,656 63,698 13,893 (62) 4,937 96 98 0 82,661 1,182 5,513 246,456 6,093 1,389 0 26,884 15,721 50,086 0 11,028 12,337 35,229 108,681 1,955 100,406 34,875 539 137,775 246,456

258,163 114,226 143,937 15,792 73,060 13,023 (80) 4,937 48 113 0 91,101 962 5,513 257,304 7,354 1,465 0 27,236 15,190 51,244 0 11,028 12,618 20,040 94,930 1,955 107,828 52,052 539 162,374 257,304

273,955 128,860 145,094 15,908 110,760 15,663 (86) 4,937 24 120 0 131,417 962 5,513 298,894 7,704 1,546 0 34,838 10,020 54,107 0 11,028 12,766 10,020 87,922 1,955 147,333 61,145 539 210,972 298,894

289,863 144,366 145,497 16,829 155,177 16,524 (103) 4,937 12 126 0 176,673 962 5,513 345,474 8,319 1,631 0 40,714 10,020 60,684 0 11,028 13,069 0 84,782 1,955 178,542 79,655 539 260,692 345,473

306,692 160,772 145,920 17,804 232,717 19,874 (109) 4,937 6 133 0 257,557 962 5,513 427,755 9,065 1,720 0 53,665 0 64,450 0 11,028 13,376 0 88,854 1,955 238,017 98,390 539 338,901 427,755

324,496 178,131 146,365 18,834 320,087 20,967 (131) 4,937 3 140 0 346,003 962 5,513 517,677 9,895 1,815 0 63,369 0 75,079 0 11,028 13,862 0 99,970 1,955 287,125 128,088 539 417,707 517,677

343,330 196,497 146,833 19,925 441,500 25,181 (138) 4,937 2 148 0 471,630 962 5,513 644,862 11,285 1,915 0 79,676 0 92,876 0 11,028 14,348 0 118,252 1,955 366,340 157,775 539 526,610 644,862

363,255 215,929 147,326 21,078 561,601 26,566 (166) 4,937 1 157 0 593,095 962 5,513 767,974 12,384 2,020 0 91,776 0 106,181 0 11,028 15,023 0 132,233 1,955 434,197 199,050 539 635,741 767,973

384,333 236,489 147,844 22,297 733,711 31,951 (175) 4,937 0 165 0 770,589 962 5,513 947,205 13,612 2,131 0 114,472 0 130,215 0 11,028 15,696 0 156,940 1,955 547,614 240,157 539 790,265 947,205

406,630 258,242 148,389 23,588 905,673 33,708 (211) 4,937 0 174 0 944,282 962 5,513 1,122,733 14,983 2,249 0 131,618 0 148,850 0 11,028 16,654 0 176,533 1,955 644,961 298,745 539 946,200 1,122,733

430,218 281,256 148,962 24,952 1,144,485 40,541 (222) 4,937 0 184 0 1,189,925 962 5,513 1,370,314 16,518 2,372 0 162,052 0 180,942 0 11,028 17,616 0 209,587 1,955 800,742 357,491 539 1,160,727 1,370,313

455,170 305,606 149,564 26,396 1,383,954 42,771 (267) 4,937 0 194 0 1,431,589 962 5,513 1,614,023 18,238 2,503 0 185,313 0 206,054 0 11,028 18,946 0 236,028 1,955 936,709 438,791 539 1,377,995 1,614,023

481,565 331,367 150,198 27,922 1,709,041 51,441 (282) 4,937 0 205 0 1,765,341 962 5,513 1,949,936 20,168 2,640 0 225,319 0 248,127 0 11,028 20,286 0 279,441 1,955 1,147,350 520,651 539 1,670,495 1,949,936

509,488 358,623 150,865 29,537 2,035,674 54,270 (339) 4,937 0 217 0 2,094,758 962 5,513 2,281,634 22,335 2,786 0 256,111 0 281,232 0 11,028 22,099 0 314,359 1,955 1,333,318 631,462 539 1,967,274 2,281,634

539,024 387,458 151,566 31,245 2,471,536 65,270 (358) 4,937 0 229 0 2,541,614 962 5,513 2,730,899 24,773 2,939 0 308,031 0 335,743 0 11,028 23,929 0 370,700 1,955 1,614,420 743,285 539 2,360,198 2,730,899

570,269 417,966 152,303 33,051 2,909,789 68,860 (430) 4,937 0 241 0 2,983,397 962 5,513 3,175,226 27,518 3,100 0 348,127 0 378,745 0 11,028 26,364 0 416,138 1,955 1,864,494 892,100 539 2,759,088 3,175,226

0.9 6,903 106% 2.1 55 47% 0.4

1.2 (983) 65% 2.7 43 40% 2.9

1.3 (7,120) 53% 3.1 39 37% 4.8

1.7 (15,403) 37% 3.9 35 32% 7.4

1.8 (18,013) 22% 5.4 30 22% 7.2

2.4 (23,430) 9% 9.1 30 12% 10.2

2.9 (29,168) 4% 15.0 30 6% 13.0

4.0 (39,609) 0% 32.0 30 0% 17.6

4.6 (49,163) 0% 37.3 30 0% 21.8

5.1 (62,746) 0% 44.9 30 0% 26.3

5.6 (74,687) 0% 51.1 30 0% 30.0

5.9 (93,337) 0% 60.3 30 0% 35.2

6.3 (110,240) 0% 67.4 30 0% 38.9

6.6 (135,502) 0% 77.8 30 0% 44.0

6.9 (158,419) 0% 85.2 30 0% 47.5

7.1 (191,826) 0% 96.1 30 0% 52.3

7.4 (222,148) 0% 103.2 30 0% 55.5

7.6 (265,665) 0% 114.1 30 0% 59.9

7.9 (305,137) 0% 120.4 30 0% 62.7

(0)

ENVIRONMENTAL SERVICES PROGRAM Ratu Plaza Building, 17th. Fl. Jl. Jend. Sudirman No. 9 Jakarta 10270 Indonesia Tel. +62-21-720-9594 Fax. +62-21-720-4546 www.esp.or.id