PDAM TIRTA GEMILANG KAB MAGELANG PRE FIN FEASBLT ANLSS OF INVES PRPSL by ESP Indonesia

PDAM TIRTA GEMILANG KABUPATEN MAGELANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

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

Photo credit: Beny Djumhana. Puluhan Water Resources in Magelang District, East Java.

PDAM TIRTA GEMILANG KABUPATEN MAGELANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

Title:

PDAM Tirta Gemilang Kabupaten Magelang Preliminary Financial Feasibility Analysis of Investment Proposal

Program, activity, or project number:

Environmental Services Program, DAI Project Number: 5300201.

Strategic objective number:

SO No. 2, Higher Quality Basic Human Services Utilized (BHS).

Sponsoring USAID office and contract number:

USAID/Indonesia, 497-M-00-05-00005-00.

Contractor name:

DAI.

Date of publication:

July 2006

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

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

ANALYSIS OF HISTORICAL PERFORMANCE (2001-2005) ...................................2 2.1. PRODUCTION AND DEMAND .........................................................................................................2 2.2. FINANCIAL PERFORMANCE ..............................................................................................................4 2.2.1. Revenues ..............................................................................................................................................4 2.2.2. Recurrent Costs ...................................................................................................................................5 2.2.3. Tariff .....................................................................................................................................................5 2.2.4. Accounts Receivable............................................................................................................................8 2.2.5. Inventory Management ......................................................................................................................8 2.2.6. Current Ratio and Cash Flow ............................................................................................................8 2.3. OUTSTANDING LOANS AND DEBT-SERVICE CAPACITY ..................................................................9

BUDGET FOR 2006 ...............................................................................................10 3.1. 3.2. 3.3.

OPTIONS FOR THE EXPANSION PROGRAM ....................................................12 4.1. 4.2.

ORIGINAL INVESTMENT COST AND FINANCING PLAN ................................................................. 12 PRELIMINARY FEASIBILITY ASSESSMENT ......................................................................................... 14

THE SELECTED OPTION: INVESTMENT PROGRAM FOR 2007-2010 ................15 5.1. 5.2. 5.3.

WATER PRODUCTION AND DEMAND ......................................................................................... 10 REVENUE AND EXPENSES .............................................................................................................. 10 OTHER PERFORMANCE INDICATORS ............................................................................................ 11

COSTS .......................................................................................................................................... 15 TARGETS ...................................................................................................................................... 16 FINANCING PLAN ......................................................................................................................... 16

HIGHLIGHTS OF THE FINANCIAL PROJECTION ..............................................18 6.1. ASSUMPTIONS .............................................................................................................................. 18 6.1.1. Cost of Capital..................................................................................................................................18 6.1.2. Projected Production and Demand ................................................................................................18 6.1.3. Recurrent Costs ................................................................................................................................20 6.1.4. Tariff Analysis ...................................................................................................................................20 6.2. FEASIBILITY INDICATORS............................................................................................................... 21 6.3. FINANCIAL RESULTS ..................................................................................................................... 22 6.3.1. Income Statement............................................................................................................................22 6.3.2. Sources and Applications of Funds ................................................................................................23 6.3.3. Balance Sheet ...................................................................................................................................25

CONCLUSIONS AND RECOMMENDATIONS ....................................................26 7.1. 7.2.

CONCLUSIONS ............................................................................................................................. 26 RECOMMENDATIONS ................................................................................................................... 26

ANNEXES .............................................................................................................28 ANNEX A – NOTES ON THE MEETING WITH PDAM KABUPATEN MAGELANG - JUNE 10, 2006 .......................................................................................................................................................... 29 ANNEX B – NOTES ON THE MEETING WITH PDAM KABUPATEN MAGELANG JUNE 14, 2006

.................................................................................................................................................................. 33

ANNEX C – CALCULATION OF WATER DEMAND AND CAPITAL EXPENDITURES FOR THE BLAMBANGAN SUB-SYSTEM ............................................................................................................... 37 ANNEX D – SUMMARY OF INCOME STATEMENT .......................................................................... 43 ANNEX E – SUMMARY OF SOURCES AND USES OF FUNDS ......................................................... 46 ANNEX F – SUMMARY OF BALANCE SHEET..................................................................................... 49

LIST OF TABLES TABLE 1 BREAKDOWN OF INVESTMENT COST (IN RP MILLION, EXCEPT %) ................................................... VII TABLE 2 FINANCING PLAN AND INDICATIVE LOAN-DISBURSEMENT SCHEDULE (IN RP MILLION, EXCEPT %) VII TABLE 3 FEASIBILITY INDICATORS .................................................................................................................. VIII TABLE 4 EXTRACT INCOME STATEMENT (IN RP MILLION, EXCEPT RATIOS) .................................................. VIII TABLE 5 EXTRACT SOURCES AND APPLICATIONS OF FUNDS (IN RP MILLION, EXCEPT RATIOS) .................... IX TABLE 6 EXTRACT BALANCE SHEET (IN RP MILLION, EXCEPT RATIOS) .......................................................... IX TABLE 7 BREAKDOWN OF PRODUCTION CAPACITY ........................................................................................2 TABLE 8 PRODUCTION CAPACITY, CAPACITY CONSTRAINTS AND WATER LOSSES ........................................3 TABLE 9 CONNECTION AND WATER DEMAND ...............................................................................................4 TABLE 10 PROFITABILITY (IN RP MILLION, EXCEPT %) ......................................................................................4 TABLE 11 PDAM UNIT COSTS (RP PER M3 OF WATER SOLD AT CONSTANT 2005 PRICES) ...........................5 TABLE 12 COMPARISON OF EXISTING AND FUTURE TARIFFS ............................................................................7 TABLE 13 HISTORICAL RELATIONSHIP OF TARIFF TO COST (PER M3 OF WATER SOLD AT CONSTANT 2005 PRICES) .....................................................................................................................................................8 TABLE 14 COLLECTION EFFICIENCIES ...............................................................................................................8 TABLE 15 CURRENT RATIO AND CASH FLOW .................................................................................................9 TABLE 16 INDICATORS OF DEBT-SERVICE CAPACITY .......................................................................................9 TABLE 17 COMPARISON OF WATER PRODUCTION AND DISTRIBUTION IN 2005 AND 2006 ....................... 10 TABLE 18 COMPARISON OF UNIT COST PER M3 OF WATER SOLD FOR 2005 AND 2006 (AT CONSTANT 2005 PRICES) ......................................................................................................................................... 11 TABLE 19 PERFORMANCE INDICATORS FOR 2006 ......................................................................................... 11 TABLE 20 BREAKDOWN OF THE ORIGINAL INVESTMENT COST (IN RP MILLION) ......................................... 13 TABLE 21 PROPOSED FINANCING PLAN FOR THE ORIGINAL INVESTMENT PROGRAM (IN RP MILLION) ........ 13 TABLE 22 BREAKDOWN OF INVESTMENT COST OF THE SELECTED OPTION - BLAMBANGAN SUB-SYSTEM (IN RP MILLION) .......................................................................................................................................... 15 TABLE 23 SCHEDULE FOR INSTALLING NEW CONNECTIONS ........................................................................ 16 TABLE 24 COMPARISON OF INVESTMENT COST AND INDICATIVE BENEFITS .................................................. 16 TABLE 25 FINANCING PLAN AND INDICATIVE LOAN DISBURSEMENT SCHEDULE FOR THE SELECTED OPTION BLAMBANGAN SUB-SYSTEM (IN RP MILLION) ........................................................................................ 17 TABLE 26 LOAN AMORTIZATION SCHEDULE (IN RP MILLION) ...................................................................... 17 TABLE 27 COST OF CAPITAL ......................................................................................................................... 18 TABLE 28 PROJECTED PRODUCTION CAPACITY, CAPACITY CONSTRAINTS AND WATER LOSSES ................ 19 TABLE 29 PROJECTED CONNECTIONS AND WATER DEMAND...................................................................... 19 TABLE 30 ANALYSIS OF PROJECTED TARIFF (RP PER M3 OF WATER SOLD AT CURRENT PRICES) .................. 21 TABLE 31 FEASIBILITY INDICATORS ................................................................................................................ 21 TABLE 32 SUMMARY INCOME STATEMENT (IN RP MILLION) .......................................................................... 22 TABLE 33 SUMMARY SOURCES AND APPLICATIONS OF FUNDS (IN RP MILLION, EXCEPT RATIOS) ................ 24 TABLE 34 SUMMARY BALANCE SHEET (IN RP MILLION, EXCEPT RATIOS) ...................................................... 24

EXECUTIVE SUMMARY INTRODUCTION This report presents an assessment of the expansion program of PDAM Kabupaten Magelang. 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 resources from the domestic financial market for implementing the said expansion program. For the foregoing purpose, a 20-year financial projection was prepared based on assumptions agreed upon with PDAM management and using the following references: 1. Audited Financial Statements of PDAM Kabupaten Magelang for the years 2001 to 2004 2. Un-audited results of operation in 2005 3. Work Plan and Budget for 2006 4. Corporate Plan (Rencana Pengembangan Usaha) 2005-2009 5. System expansion plan (Proposal: Rencana Pengembangan Jaringan Air Bersih di Daerah Pelayanana PDAM Kabupaten Magelang) prepared by the PDAM in 2004 and updated in 2006.

ANALYSIS OF HISTORICAL PERFORMANCE (2001-2005) PDAM Kabupaten Magelang has the enviable advantage of having access to cheap springwater sources, 57 of them as of last count, with combined potential yield of over 9,400 liters per second (l/sec). Out of this total, 14 are presently being tapped with combined potential yield of 1,555 l/sec, out of which only 403.5 l/sec are used by the PDAM. Household consumption was on an uptrend, from 106 liters per capita per day (lcd) in 2001 to 114 lcd in 2005. Volume of water sales increased, although at a tamed average annual rate of only 2%, from 8.1 m3 in 2001 to 8.9 m3 in 2005. Service was 24 hours in most of the coverage area. Non-revenue water (NRW) ranged between a low of 26.9% in 2004 to a high of 38.9% in 2001. Plant utilization factor reached 116% in 2001 before going down to between 103% and 104% thereafter. Connections increased by only 806 per year. Thus, out of the estimated total kabupaten population of 1.179 million in 2005, only 16.7% was served by household connections. Tariff revenues expanded at a rate of 32% per year, reaching Rp 10,726 million by the end of 2005. Total connection fees averaged Rp 615 million per year or Rp 764 thousand per new customer. Net income posted a yearly average growth of over 22%%. Based on un-audited figures, net income in 2005 amounted to Rp 1,056 million. Return on assets averaged 4.5%, while return on equity was at a more robust rate of over 9.1%. Of the Rp 925 million in total operating expenses in 2005, over 48% or Rp 446 million was allocated to personnel. Administrative expenses averaged about 65% of personnel cost and ate up 31% of the total, or almost Rp 291 million, in 2005. Power and chemicals accounted for insignificant portions of respectively 1.8% and 0.1% of total operating expenses. The amount paid for raw water showed the fastest rate of growth at an average of over 79% a year followed by personnel and administrative expenses at respectively 21% and 20%.

PDAM TIRTA GEMILANG KABUPATEN MAGELANG : PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

Weighted average tariff rose by an annual average of 28% in nominal terms. It stood at Rp 1,204 in 2005, which represented 90% of the PDAM’s full cost as defined under the decree of the Minister of Home Affairs (Permendagri) No. 2/1998 (the sum of O&M, depreciation, and 10% net book value of assets). Accounts receivable went down from 113 days in 2001 to 62 days in 2005. Bad debts written off averaged only 0.49% of water sales. Consumables inventory averaged 23 days cover, while installation inventory was at an inordinately high level of 348 days. Current ratio deteriorated from 2.3 in 2001 to only 1.2 in 2005. Cash averaged a mere 1.7 months of operating expenses. The PDAM’s outstanding loans totaled Rp 4,333 million, representing Rp 1,300 million advance extended by the local government of Kabupaten Magelang in 2004, which is none interest-bearing, and Rp 3,033 million remaining balance of the Regional Development Account (RDA) loan with an interest of 9% per annum, which the PDAM contracted in May 2003. 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 (DSCR) remained at a quite safe level at 2.1 in 2001 and 3.1 in 2005. Debt to total capitalization continued to decline from 41% in 2001 to only 29% in 2005.

BUDGET FOR 2006 The PDAM’s production capacity will remain at 431 l/sec. Actual production is projected at 14.76 million m3, distribution at 13.99 million m3, and water sales at 10.20 million m3. NRW for the year is estimated to increase to 30.9% from 27.6% in 2005. Plant utilization factor is expected to reach 125%. The total number of connections will increase to 36,846 from 35,939 in 2005 and so will the domestic coverage ratio, but only by a negligible rate of 0.2% to 16.9%. An 18% nominal increase in average tariff has been anticipated. The weighted average tariff will only be 82% of that which is required for full-cost recovery. Water revenues are thus budgeted to expand by over 35% to Rp 14,515 million. In contrast, net income is forecast to decline by 3% to Rp 1,022 million. Operating expenses have been budgeted to increase by 32% to Rp 13,401 million. Overhead will reach Rp 529 million or more than 82% above its level in 2005 and will exceed personnel cost by 13%. Significant increases are likewise budgeted for power at 51%, maintenance at almost 33%, and raw water at 10%. Personnel cost, on the other hand, is limited to less than 5% growth. Receivables will be cut from 62 days to only 40 days of sales. Bad debts are likewise assumed to be reined in to a mere 0.19% of water sales. The current ratio will further decline to 1.2, while cash will likewise remain at a precarious level of only one month of operating expenses.

OPTIONS FOR THE EXPANSION PROGRAM The PDAM’s expansion plan consisted of three discrete packages, each one encompassing a complete piped water supply system, or properly a sub-system, to wit: Kali Bening, Puluhan, and Blambangan/Tirtosari. The last was so labeled as the PDAM had yet to decide as to which of the two springs will finally be tapped. A total of 18,856 new connections were hoped to be installed: 11,186 in Kali Bening, 3,659 in Puluhan, and 4,012 in Blambangan/ Tirtosari. ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA GEMILANG KABUPATEN MAGELANG : PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

The base cost of the program was estimated at Rp 135,549 million. At current prices, including all contingencies, the total cost amounted to Rp 163,109 million. By sub-system, the cost was Rp 107,051 million for Kali Bening, Rp 30,389 million for Puluhan, and Rp 25,669 million for Blambangan/Tirtosari. A loan from a domestic commercial bank was proposed to finance almost 68% or Rp 110,284 million of the total investment cost. Almost 18% or Rp 28,639 million was to be covered by a combination of grant (for land acquisition) and fresh equity infusion or an advance from the local government of Kabupaten Magelang. The rest was to be derived from connection fees and the PDAM’s internal cash generation. A preliminary financial feasibility assessment of the expansion program was prepared. The results showed that the tariff increases required to make the program feasible were unaffordable to PDAM customers and the amount of the needed equity infusion was just beyond the financial capacity of the local government. Based on the foregoing conclusions, the PDAM requested that an assessment of two additional options be made, these being the exclusion of the Kali Bening package, as Option 2, and the exclusion as well of the Puluhan package, as Option 3. The results of the assessment of the three options were presented on June 14. The following additional observations were made: 1. Option 2. The required yearly tariff increases are however still almost twice the historical yearly average. Increasing the target number of connections is likewise deemed unrealistic because of the very low population density, especially in the coverage area of the Puluhan sub-system. 2. Option 3. The required tariff increases are the same as the historical yearly average and will therefore be affordable to PDAM customers. The balance of the investment cost that cannot be covered by external financing can be covered by the PDAM’s internal cash generation and connection fees from new customers. On the basis of the foregoing, the PDAM management decided to select Option 3 and designate Blambangan spring, rather than Tirtosari, as the water source for the sub-system.

THE SELECTED OPTION: INVESTMENT PROGRAM FOR 2007-2010 The base cost of the Blambangan package is estimated at Rp 21,219 million. At current prices, including contingencies, the investment cost amounts to Rp 25,669 million. Procurement accounts for of 41.7% or Rp 10,700 million, civil works for 18.0% or Rp 4,609 million, and new connections for 7.8% or Rp 2,005 million. Physical and price contingencies have a combined share of 17.3% or Rp 4,450 million. The program is planned to be implemented within a period of four years, from 2007 to 2010. A total of 4,012 new connections are targeted to be installed within a three-year period. No additional connections are foreseen beyond 2010 in view of the existing production constraints. External financing is assumed to bear an interest rate of 14% per annum with a repayment period of 12 years, including a two-year grace. It will defray 66.6% or Rp 17,108 million of the total investment. The rest will be covered by the PDAM’s internal cash generation (18.8% or Rp 4,834 million), connection fees from new customers (13.1% or Rp 3,357 million), and local government grant for land acquisition (1.4% or Rp 370 million). The yearly debt amortization will amount to Rp 2,086 million starting in 2009 and ending in 2018.

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA GEMILANG KABUPATEN MAGELANG : PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

Table 1 Breakdown of Investment Cost (In Rp Million, Except %) 2007 Procurement Civil Works New Connections Land Acquisition Other Costs

10,700 2,221

2008

2009

2010

Total

% of Total

10,700 4,609 2,005 370 3,535

41.7% 18.0% 7.8% 1.4% 13.8%

2,388 1,488

362

154

370 2,648

783

Total Base Cost

15,939

4,659

436

185

21,219

82.7%

Contingencies

2,926

1,285

158

4,450

17.3%

Total Current Cost, inc. Contingencies

18,866

5,944

593

266

25,669

100.0%

Table 2 Financing Plan and Indicative Loan-Disbursement Schedule (In Rp Million, Except %)

Project Loan Assumed Customer Connections Land/RAP LG Equity PDAM/Other Total

2007

2008

12,947

4,161 1,143

1,529

685

641 5,944

(936) 593

(420) 266

370 5,549 18,866

2009

2010

Total

% of Total

17,108 3,357 370 4,834 25,669

66.6% 13.1% 1.4% 18.8% 100.0%

HIGHLIGHTS OF THE FINANCIAL PROJECTION The weighted average cost of capital (WACC) is computed at 12.67% based on the 14% interest on debt and 10% return on equity for government funds, including customer contributions. Production, distribution, and sales volumes will reach their optimum levels in 2010 at respectively 14.3 million m3, 13.6 million m3, and 11.4 million m3. Water losses are set at 28%. Plant capacity utilization factor will somewhat ease up in 2009 but will rise again and settle at 110% throughout the rest of the projection period. The total number of connections will reach its maximum in 2010 at 41,758, about 90% of which will be domestic. Per capita consumption of household connections is projected to increase to 124 liters. Unit consumption per connection, including non-domestic, is thus estimated to gradually climb to 22.9 m3 per month. With the total kabupaten population projected at 1.244 million, domestic coverage ratio will peak at 18.6% in 2010 and will continuously decline thereafter. The desired personnel-to-connection ratio of 5 per 1,000 is planned to be achieved already starting in 2007. Cost per employee is assumed to increase annually in real terms by 5.0% or about 10.5% in nominal terms. Annual increases in costs of power and chemicals in real terms are set at 15% or 20.5% in nominal terms until 2010. Beginning 2011, costs of these inputs are expected to move based on annual inflation rate. Maintenance materials are assumed at 1.2% of net fixed assets. Overhead will be reduced from 113% to 72.5% of personnel cost starting 2010. The proportion of the cost of raw water to tariff revenues of 9.3% in 2006 is used throughout the projection period. ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

VII

PDAM TIRTA GEMILANG KABUPATEN MAGELANG : PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

The assumed nominal tariff increases applied in the financial projection are as follows: 26.5% per year from 2007 to 2018 and at the rate of annual inflation from 2019 until 2025. At the foregoing yearly tariff adjustment, PDAMâ&#x20AC;&#x2122;s weighted average tariff will consistently be well above that which is required for full-cost recovery. Based on the foregoing assumptions, the investment program is found to be feasible with a positive net present value (NPV) of Rp 4,712 million and a financial internal rate of return (FIRR) of 15.37%, which is well above the hurdle rate o 12.67%. The program remains feasible even assuming a 10% increase in investment and incremental O&M costs, a 10% decrease in incremental revenues or a one-year delay in the realization of incremental revenues. Table 3 Feasibility Indicators WACC = 12.70% NPV

FIRR

Base Case

4,712

15.37%

10% Increase in Investment and O&M Costs

2,418

13.96%

10% Decrease in Incremental Revenues

1,733

13.69%

+10% In Costs and -10% in Revenues

(560)

12.36%

One Year Delay in Incremental Revenues

472

12.92%

The PDAM is projected to continue to generate net income after tax. Similarly, retained earnings will be positive throughout the projection period. Annual return on assets will range between 11% and 17% and on equity, between 18% and 29%. Table 4 Extract Income Statement (In Rp Million, Except Ratios) 2007

2008

2009

2010

2011

2012

2013

2014

2015

Total Operating Revenues

21,70 0

29,12 6

37,30 9

44,485

53,653

67,699

85,466

107,94 2

136,375

Operating Expenses

13,26 5

15,21 4

17,57 9

19,046

20,976

23,088

25,426

28,018

30,895

Income Tax

1,852

3,363

4,133

6,083

8,781

13,056

18,660

25,963

35,436

Net Income Loss

4,350

7,877

9,673

14,222

20,518

30,492

43,570

60,610

82,714

Retained Earnings

1,131

2,048

2,515

3,698

5,335

7,928

11,328

15,759

21,506

Return on Assets

11%

13%

15%

16%

17%

Return on Equity

28%

29%

24%

23%

22%

21%

20%

Positive annual cash flows will be realized every year throughout the projection period. DSCR will remain at a safe level, with the lowest at 3.5 in 2009 when the PDAM starts amortizing the proposed external financing for the investment program. With the accumulation of yearly depreciation and without revaluation, net fixed assets will be negative starting 2018. The current ratio is projected to be always at a safe level, starting at 1.4 in 2007. The ratio of debt to total capitalization will reach its highest level of 52% in 2007 and will progressively decline thereafter. A sharp increase in cash is foreseen starting in 2008, when it will be equivalent to 13 months of operating expenses.

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

VIII

PDAM TIRTA GEMILANG KABUPATEN MAGELANG : PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

Table 5 Extract Sources and Applications of Funds (In Rp Million, Except Ratios) 2007

2008

2009

2010

2011

2012

2013

2014

2015

Total Sources of Funds

23,538

23,363

25,060

32,667

43,768

61,116

84,930

116,112

156,706

Total App. of Funds

21,246

9,750

8,501

7,929

8,283

8,416

10,295

13,079

16,987

Cash Increase (Decrease)

2,291

13,613

16,559

24,738

35,485

52,700

74,635

103,032

139,720

DSCR (Net Revenues)

7.0

11.7

3.5

4.7

7.0

11.2

16.6

24.6

36.4

Table 6 Extract Balance Sheet (In Rp Million, Except Ratios) 2007

2008

2009

2010

2011

2012

2013

2014

2015

Current Assets

6,765

21,215

38,829

64,770

102,136

157,137

234,683

341,396

485,772

Net Fixed Assets

11,982

29,251

34,252

30,966

27,324

23,409

19,494

15,579

11,664

Total Assets

40,568

60,845

75,404

97,684

131,142

182,228

255,859

358,658

499,118

Current Liabilities

4,674

9,386

12,482

16,433

22,090

30,872

43,113

59,650

81,582

Long-Term Debt - Net

15,517

19,652

16,979

14,599

12,514

10,428

8,343

6,257

4,171

Total Liabilities

25,085

33,972

34,466

36,124

39,824

46,705

57,134

71,977

92,370

Total Equity and Liabilities

40,567

60,844

75,404

97,683

131,142

182,228

255,859

358,657

499,118

Current Ratio

1.4

2.3

3.1

3.9

4.6

5.1

5.4

5.7

6.0

Debt to Total Capitalization

51.6%

45.4%

32.4%

21.6%

13.8%

8.5%

5.0%

2.8%

1.5%

CONCLUSIONS AND RECOMMENDATIONS From the foregoing discussions, the following conclusions may be drawn: 1. The PDAM has been able to maintain profitable operations and is projected to be able to do so in the future. 2. Its production capacity appears to be strained in spite of the availability of cheap sources of raw water and the relatively cheaper cost of operating the PDAMâ&#x20AC;&#x2122;s production and distribution facilities. 3. The investment program is found financially feasible. The following recommendations are offered: 1. Exercise more effective cost control. 2. Remedy the prevailing production constraint. 3. Launch a campaign to build constituency around the investment program. 4. Revisit the investment packages that have been excluded.

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

1. INTRODUCTION PDAM Tirta Gemilang of Kabupaten Magelang in Central Java is one of a number of local water supply enterprises across Indonesia participating in the Environmental Services Program (ESP) funded by the United States Agency for International Development (USAID). Included in the scope of ESP technical assistance is to open up access of the PDAM to the domestic financial market for implementing its future expansion program. The technical assistance thus covers the analysis of the PDAMâ&#x20AC;&#x2122;s historical performance and an assessment of the feasibility of the proposed expansion program and its effects on the future operations of the water supply enterprise, especially its capacity to repay any debt that may be incurred, as presented in this report. For the foregoing purpose, a 20-year financial projection was prepared based on assumptions agreed upon with PDAM management and using the following references: 1. Audited Financial Statements of PDAM Kabupaten Magelang for the years 2001 to 2004 2. Un-audited results of operation in 2005 3. Work Plan and Budget for 2006 4. Corporate Plan (Rencana Pengembangan Usaha) 2005-2009 5. System expansion plan (Proposal: Rencana Pengembangan Jaringan Air Bersih di Daerah Pelayanana PDAM Kabupaten Magelang) prepared by the PDAM in 2004 and updated in 2006. In addition, ESP mobilized the services of a short-term Water Supply Engineer to verify water demand and target connections and, on this basis, calculate and determine the yearly breakdown of capital expenditure. The Water Supply Engineer visited the PDAM in mid-May 2006 and submitted his calculations about a week after. These calculations essentially constituted the subject of the financial projection and feasibility assessment. On June 10, 2006, the preliminary results of the financial projection were presented to the PDAM counterpart team composed of all the concerned division heads. During the discussion, constraints were raised as to the ability of the PDAM to implement the expansion plan in its entirety. The forum then identified three options that the PDAM could consider, for each of which ESP was requested to prepare a financial feasibility assessment for presentation to, and final selection by, the PDAMâ&#x20AC;&#x2122;s Managing Director. The notes on the aforementioned presentation are in Annex A. The results of the financial assessment of the three identified options were presented on June 14, 2006. In the discussion that followed, the PDAM management decided on the option to be implemented and the water source to be tapped. The notes on the presentation are in Annex B. The report is divided into the following parts: 1. Historical performance of the PDAM from 2001 to 2005 2. Work plan and budget for 2006 3. Options for the expansion program 4. The selected investment program for 2007-2010 5. Highlights of the financial projection 6. Conclusions and recommendations.

PDAM TIRTA GEMILANG KABUPATEN MAGELANG : PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

2. ANALYSIS OF HISTORICAL PERFORMANCE (2001-2005) 2.1.

PRODUCTION AND DEMAND

What may be considered as the PDAMâ&#x20AC;&#x2122;s biggest asset is the availability of abundant sources of water within the territorial jurisdiction of Kabupaten Magelang. As of the last count, the kabupaten has 57 springs with a combined potential yield of over 9,400 liters per second (l/sec), which can be exploited and distributed at relatively lower cost mostly through gravitation. Out of this total, 14 are presently being tapped with combined potential yield of 1,555 l/sec, out of which only 403.5 l/sec are used by the PDAM, as shown in Table 7. Table 7 Breakdown of Production Capacity No.

Name of Source

Discharge (l/sec)

Used (l/sec)

Unused (l/sec)

Sijajurang

150.00

90.00

60.00

Gadad/Citrosono

250.00

100.00

150.00

Semaren

200.00

68.50

131.50

Sitincat

50.00

25.00

Blambangan

200.00

22.50

177.50

Tlogorejo

65.00

23.00

42.00

Karangampel

200.00

21.00

179.00

Sidosari

50.00

14.00

36.00

Banyu Temumpang

100.00

7.00

93.00

Siprajak

30.00

6.00

24.00

Combrang

80.00

6.00

74.00

Lebak

100.00

6.50

93.50

Sidandang

30.00

3.00

27.00

Sigandulan

50.00

11.00

39.00

1,555.00

403.50

1,151.50

25.9%

74.1%

Total % of Discharge

It needs to be noted, however, that not all the above potential yields are available for exploitation by the PDAM as the same water sources are also used for irrigation and, in some cases, communal water supply systems.] In spite of ample raw water sources, PDAM seemed beset by production constraints. Production capacity barely increased from 419 l/sec in 2001 to 431 l/sec in 2005. (The difference between the actual production capacity of 431 l/sec and the production capacity indicated in Table 7 could not be explained by the PDAM.) Between 2002 and 2005, production and distribution volumes, and as a consequence volume of water sold to ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

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customers, were almost stagnant. Water losses were on a declining trend, from 38.9% in 2001 to 27.6% in 2005, and the figures suggest that slight increases in water sales volume were made possible by water-loss reduction, which is a positive indicator. Still, plant capacity utilization factor was consistently above 100%. An overview of the PDAM’s production capacity, capacity constraints, and water losses is presented in Table 8. Table 8 Production Capacity, Capacity Constraints and Water Losses 2001

2002

2003

2004

2005 (Unaudited)

419

431

13,266

11,845

11,878

11,916

12,298

11,028

10,937

10,962

11,033

11,656

Volume Sold to Consumers (m /year)

8,105

8,546

8,417

8,705

8,905

Water Losses (%)

38.9%

27.9%

29.1%

26.9%

27.6%

Ratio of Production to Consumption

1.64

1.39

1.41

1.37

1.38

Plant Utilization Factor

115.6%

103.2%

103.5%

103.8%

104.2%

Production Capacity (l/sec) 3

Production Volume (m /year) 3

Distribution Volume (m /year) 3

The number of connections increased at a yearly average of 1,181. This included, however, the 1,500 households in the military-academy complex previously connected to one water meter for which individual house meters were installed in 2005 and were then subsequently recorded as individual customers. Discounting this, the average increase in connections would have been only 806 per year. In 2005, household connections comprise 91% or 32,594 of the total number of connections of 35,939. Domestic service coverage ratio was at a relatively low level of 16.7% out of the kabupaten’s total population of 1,144,257. One constraint is geography, with some settlements especially in the rural areas quite scattered for an extension of the piped water supply system to be financially worthwhile. In some areas, residents have easy access to ground- and spring-water sources. Household consumption was generally on an uptrend, from 106 liters per capita per day (lcd) in 2001 to 114 lcd in 2005. At his level, unit consumption per household was at a low 17.1 m3 per month or well below the 21-30 m3 consumption bracket that is usually the most profitable for a PDAM. In contrast, non-domestic consumption declined every year, settling at a mere 1.3 m3 per day in 2005, further depriving the PDAM of relatively more profitable sales. This decline in non-domestic consumption could be regarded as additional manifestation of the PDAM’s production constraint. The PDAM’s connection and water demand situation is summarized in Table 9.

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Table 9 Connection and Water Demand 2001

2002

2003

2004

2005 (Un-audited)

Household Connections (No.)

30,286

30,433

31,179

32,071

32,594

Unit Consumption (lcd)

106

112

107

110

114

Non-Domestic Connections (No.)

595

1,230

1,291

1,332

2,961

Unit Consumption (m /day)

6.31

3.39

3.22

3.09

1.28

Total Connections (No.)

31,215

31,998

32,809

33,785

35,939

783

811

976

2,154

15.8%

16.0%

16.6%

16.7%

Annual Change (No.) Domestic Service Ratio (%)

2.2.

15.8%

FINANCIAL PERFORMANCE

2.2.1.

REVENUES

Tariff revenues increased by a yearly average of 32%, reaching Rp 10,726 million by the end of 2005. Total connection fees averaged Rp 615 million per year, translating to about Rp 764 thousand paid by each new customer. Net income posted a respectable yearly average growth of over 22%%. Based on un-audited figures, net income in 2005 amounted to Rp 1,056 million. Return on assets averaged 4.5% over the five-year period under review, while return on equity was at a more robust rate of over 9.1%. Return on sales averaged 10% per year, as shown in Table 10. Table 10 Profitability (In Rp Million, Except %) 2001

2002

2003

2004

2005 (Un-audited)

Tariff Revenues

3,651

5,498

6,558

9,200

10,726

Total Operating Revenues

5,275

5,903

7,259

10,246

11,899

Operating Expenses

2,598

3,141

4,465

6,953

8,220

Non-Operating Income/(Loss)

Net Profit Before Tax

683

885

957

1,219

1,466

Income Tax

187

311

388

432

410

Net Income Loss

496

574

569

787

1,056

Return on Assets

Return on Equity

10%

13%

Return on Sales

14%

10%

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2.2.2.

RECURRENT COSTS

Of the Rp 925 million in total operating expenses in 2005, over 48% or Rp 446 million was allocated to personnel. Administrative expenses averaged about 65% of personnel cost and ate up 31% or almost Rp 291 million in 2005. With transmission and distribution mostly by gravity and with a high quality of raw water, power and chemicals accounted for insignificant portions of respectively 1.8% and 0.1% of total operating expenses. Expenses for chemicals in fact exhibited an average decline of almost 4% during the five-year period under review. For raw water, the PDAM compensates the local government of Kabupaten Magelang at 15% of the volume of water sold multiplied by the basic tariff; an additional 5% computed on the same basis is paid to the village where the water originated. Compensation for raw water totaled Rp 112 million or 12% of total operating expenses in 2005. It also posted the fastest rate of expansion at an average of over 79% a year followed by personnel and administrative expenses at respectively 21% and 20%. The PDAMâ&#x20AC;&#x2122;s historical recurrent costs are shown in Table 11. Table 11 PDAM Unit Costs (Rp per m3 of Water Sold at Constant 2005 Prices)

Personnel

2001

2002

2003

2004

2005 % of Total (Un-audited) in 2005

Ave. Inc./ (Dec.)

212.8

224.2

294.2

386.3

446.4

48.3%

20.9%

11.1

14.6

18.2

16.3

1.8%

11.5%

Power (Operational) Chemicals

1.4

1.0

0.8

0.9

0.1%

(3.7%)

Maintenance Materials

56.5

56.4

51.7

82.4

58.6

6.3%

5.5%

Overhead

151.1

132.7

172.4

264.4

290.7

31.4%

20.3%

Raw Water

15.8

18.3

58.8

94.9

111.7

12.1%

79.2%

Total

437.6

443.7

592.7

847.0

924.7

100.0%

1.40%

33.59%

42.91% 9.17%

% Year-onYear Change

2.2.3.

21.77%

TARIFF

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: 1. Biaya rendah (low cost), which recovers only O&M (including salaries) and overhead costs 2. Biaya dasar (basic cost), which recovers biaya rendah plus debt service (principal and interest) 3. 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.

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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. Through Regulation No. 55/DPRD/2003, from January 2003 to December 2006 the PDAM is allowed to increase tariff by 10% every six months, with each adjustment effective on January 1 or July 1. On this basis, the tariff structure presently in effect and that which will be implemented during the second half of 2006 are presented in Table 12. Weighted average tariff increased by an annual average of 28% in nominal terms. The PDAM had thus been able to gradually improve cost recovery. From a mere 70% of full cost in 2001, the average tariff of Rp 1,204 in 2005 represented 90% of the PDAMâ&#x20AC;&#x2122;s full cost of Rp 1,333 per m3 of water sold. Reckoned based on the alternative definition included in this report, average tariff had been above full cost from 2002 onward. The historical relationship of average tariff to recurrent and other costs is shown in Table 13.

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Table 12 Comparison of Existing and Future Tariffs TYPE OF CONNECTION/CUSTO MER

GROUP I

GROUP II

GROUP III

GROUP IV

1 JANUARY 2006-30 JUNE 2006

1 JULY 2006-31 DECEMBER 2006

(In Rp)

0-10 m3

11-20 m3

21-30 m3

Social A (General)

>30 m3

0-10 m3

11-20 m3

21-30 m3

760

>30 m3

% INCREASE 0-10 m3

11-20 m3

21-30 m3

840

>30 m3 11%

Social B (Special)

570

760

950

1,140

630

840

1,050

1,260

11%

Household A (Low Income)

570

950

1,330

1,710

630

1,050

1,470

1,880

11%

10%

Household B (Middle to High Income)

760

1,140

1,520

2,090

840

1,260

1,670

2,300

11%

10%

Government Offices

950

1,330

1,710

1,050

1,470

1,880

11%

10%

Commercial A (Small)

1,330

2,090

2,860

1,470

2,300

3,140

11%

10%

Commercial A (Large)

2,090

2,860

4,000

2,300

3,140

4,400

10%

Industry A (Small)

1,330

2,090

2,860

1,470

2,300

3,140

11%

10%

Industry B (Large)

2,570

4,000

4,760

2,830

4,400

5,230

10%

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Table 13 Historical Relationship of Tariff to Cost (Per m3 of Water Sold at Constant 2005 Prices) 2001 Nominal Increase in Average Tariff (%)

2002

2003

2004

2005 (Un-audited)

43%

21%

36%

14%

Weighted Average Tariff

623

784

882

1,125

1,204

Low Cost Recovery Tariff

443

448

600

850

923

Basic Cost Recovery Tariff

662

621

754

981

1,059

Full Cost Recovery Tariff: Permendagri 2/1998 (Rp)

896

828

968

1,259

1,333

Extent of Full-Cost Recovery (%)

70%

95%

91%

89%

90%

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

782

721

849

1,080

1,153

Extent of Full-Cost Recovery (%)

80%

109%

104%

105%

2.2.4.

ACCOUNTS RECEIVABLE

Accounts receivable had been improving, going down from almost four months (113 days) in 2001 to just a little over two months (62 days) in 2005. Similarly, bad debts written off averaged only 0.49% of water sales; a negative entry was realized as a previous write-off was paid in 2005, as shown in Table 14. Table 14 Collection Efficiencies 2001

2002

2003

2004

2005 (Un-audited)

Days Accounts Receivable

113

Bad Debts as % of Water Sales

0.94%

0.53%

0.86%

0.25%

-0.13%

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 23 days cover during the five-year period under review, or considerably better than the benchmark of 30 days. Installation inventory, on the other hand, was in an inordinately excessive level of 348 days, or five times the normal level of 70 days cover.

2.2.6.

CURRENT RATIO AND CASH FLOW

Current assets had consistently exceeded current liabilities, with the lowest ratio at 1.2. Cash expressed in terms of number of months of operating expenses was however always below the generally regarded safe level of three months, becoming especially precarious in 2005 at only one month.

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The PDAM’s historical current ratios and cash flows are presented in Table 15. Table 15 Current Ratio and Cash Flow 2001

2002

2003

2004

2005 (Un-audited)

Current Ratio

2.3

2.1

1.5

1.4

1.2

Cash = No. of Mo. of Op. Exp.

1.0

2.0

1.5

2.8

1.0

2.3.

OUTSTANDING LOANS AND DEBTSERVICE CAPACITY

In 2005, the PDAM’s outstanding loans totaled Rp 4,333 million, representing Rp 1,300 advance from the local government of Kabupaten Magelang, which is none interest-bearing, and Rp 3,033 million remaining balance of the RDA loan with an interest of 9% per annum, which the PDAM contracted in May 2003. The local-government advance is to be fully repaid in 2008, with annual amortizations of Rp 200 million in 2005, Rp 350 million each in 2006 and 2007, and Rp 400 million in 2008. The RDA loan is scheduled to be fully retired in May 2011 with half-yearly amortization of Rp 293.9 million. 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 (DSCR) remained at a quite safe level, which, based on net revenues, stood at 2.1 in 2001 and 3.1 in 2005 compared to the statutory minimum of 1.5. Debt to total capitalization continued to decline from 41% in 2001 to only 29% in 2005. The indicators of the PDAM’s debt-service capacity are shown in Table 16. Table 16 Indicators of Debt-Service Capacity 2001

2002

2003

2004

2005 (Un-audited)

DSCR Based on Net Revenue

2.1

2.3

2.5

3.1

Debt to Total Capitalization

44%

42%

38%

39%

34%

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3. BUDGET FOR 2006 3.1.

WATER PRODUCTION AND DEMAND

With no planned expansion, the PDAM’s production capacity will remain at 431 l/sec. Actual production is projected at 14.76 million m3, distribution at 13.99 million m3, and water sales at 10.20 million m3. Non-revenue water (NRW) for the year is estimated to increase to 30.9% from 27.6% in 2005. Plant utilization factor is expected to reach 125% from 104% in 2005, indicating an increasingly serious inadequacy in the PDAM’s production and distribution capacities in spite of the availability of ample water resources. A total of 907 new connections will be installed during the year, almost all domestic. The total number of connections will thus increase to 36,846 from 35,939 in 2005. The domestic coverage ratio will increase, but only by a negligible rate of 0.2% to 16.9%. The PDAM’s water production and distribution targets for 2006 are presented in Table 17. Table 17 Comparison of Water Production and Distribution in 2005 and 2006

3.2.

2005 (Un-audited)

2006 (Budget)

Production Capacity (l/sec)

431

Production (000 m3)

12,298

14,757

2,460

Distribution (000 m3)

11,656

13,987

2,331

Water Sold to Customers (000 m3)

8,905

10,201

1,295

Water Losses (%)

27.6%

30.9%

3.3%

Plant Utilization Factor (%)

104.2%

125.0%

20.8%

Change

REVENUE AND EXPENSES

An 18% nominal increase in average tariff has been anticipated based on the pre-approved rates of adjustment. Even at this level, however, the weighted average tariff will only be 82% of that which is required for full-cost recovery under Permendagri 2/1998. Water revenues are thus budgeted to expand by over 35% above the 2005 level to Rp 14,515 million. In contrast, net income is forecast to decline by 3% to Rp 1,022 million. The decline in net income can mainly be explained by the over 32% increase in operating expenses, which is budgeted at Rp 13,401 million in 2006. The biggest increase of 86% is foreseen for the cost of chemicals, which would however remain an insignificant component of the total. The main contributor to the said increase, rather, will be overhead, which will

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reach Rp 529 million or more than 82% above its level in 2005, thereby exceeding personnel cost by 13%. Significant increases are likewise budgeted for power at 51%, maintenance at almost 33%, and raw water at 10%. Personnel cost, on the other hand, is limited to less than 5% growth, even when the ratio of employees to connections deteriorates to 5.4 per 1,000 from 5.2 in 2005. A comparison of the PDAM’s recurrent expenses in 2005 and 2006 is in Table 18. Table 18 Comparison of Unit Cost Per m3 of Water Sold for 2005 and 2006 (At Constant 2005 Prices)

3.3.

2005 (Un-audited)

2006 (Budget)

Increase

Personnel

446

467

4.7%

Power (Operational)

51.0%

Chemicals

86.1%

Maintenance Materials

32.5%

Overhead

291

529

82.1%

Raw Water

112

123

10.4%

Total

925

1,224

32.4%

OTHER PERFORMANCE INDICATORS

Receivables will be cut from 62 days to only 40 days. Bad debts are likewise assumed to be reined in to a mere 0.19% of water sales. The current ratio will further decline to 1.2, while cash will likewise remain at a precarious level of only one month of operating expenses. DSCR will remain at a safe level at double the statutory minimum. The ratio of debt to total capitalization will further decline to just 28%. A snapshot of the PDAM’s targeted financial results in 2006 is in Table 19. Table 19 Performance Indicators for 2006 2005 (Un-audited)

2006 (Budget)

Change

Water Sales (Rp Million at Current Prices)

10,726

14,515

3,788

Net Income (Rp Million at Current Prices)

1,056

1,022

-35

Days Accounts Receivable

-22

Bad Debts as % of Water Sales

-0.13%

0.19%

0.32%

Current Ratio

1.2

1.1

-0.1

Cash = Mo. Of Operating Expenses

1.0

0.6

-0.4

Debt Service Coverage Ratio

3.1

3.0

-0.1

Debt To Total Capitalization

34.1%

27.5%

-6.6%

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4. OPTIONS FOR THE EXPANSION PROGRAM 4.1.

ORIGINAL INVESTMENT COST AND FINANCING PLAN

As mentioned, the PDAM’s expansion plan was first documented in the Proposal: Rencana Pengembangan Jaringan Air Bersih di Daerah Pelayanana PDAM Kabupaten Magelang prepared by the PDAM in 2004 and updated in 2006. The plan consisted of three discrete packages, each one encompassing a complete piped water supply system, or properly a sub-system, with its own source, transmission and distribution networks, and target service-coverage area. Each one was identified by the spring-water source to be used, to wit: Kali Bening, Puluhan, and Blambangan/Tirtosari. The last is so labeled as the PDAM had yet to decide as to which of the two springs will finally be tapped. The Water Supply Engineer mobilized by ESP firmed up the targets of the plan and translated it into a yearly capital expenditure program. The expansion plan and its various components can be summarized as follows: 1. Kali Bening Sub-System • Production capacity (140 l/sec) • Transmission pipeline (15,000 meters) • Distribution network (202,900 meters) • Reservoir • New connections (11,187 domestic and non-domestic) 2. Puluhan Sub-System • Production capacity (45 l/sec) • Transmission pipeline (4,380 meters) • Distribution network (70,852 meters) • Reservoir • New connections (3,659 domestic and non-domestic) 3. Blambangan/Tirtosari Sub-System • Production capacity (45 l/sec) • Transmission pipeline (8,754 meters) • Distribution network (68,254 meters) • Reservoir • New connections (4,011 domestic and non-domestic) The base cost of the program was estimated at Rp 135,549 million. At current prices, including all contingencies, the total cost amounted to Rp 163,109 million. Of the total, almost 48% was to be devoted to procurement, almost 15% to civil works, and a little less than 6% to the generation of new connections. Portions allocated to physical and price contingencies accounted for respectively 4.3% and 12.6%.

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The cost breakdown of the original expansion program is presented in Table 20. Table 20 Breakdown of the Original Investment Cost (In Rp Million) 2007 Procurement Procurement – Connections Civil Works Civil Works – Connections Land Acquisition Design Supervision Administration Taxes and Duties Total, Base Prices Physical Contingencies Financial Contingencies Total, Current Prices Incl. All Contingencies

2008

2009

44 20 8 82 908 75 321

77,481 5,654 24,326 3,769 1,511 6,809 2,935 967 12,097 135,549 6,966 20,593

% of Total 47.5% 3.5% 14.9% 2.3% 0.9% 4.2% 1.8% 0.6% 7.4% 83.1% 4.3% 12.6%

1,305

163,109

100.0%

2010

77,481 5,654 13,068 1,341

1,674

755

1,511 5,487 2,345 742 9,657 108,481 5,000 14,742

1,179 526 201 2,177 24,146 1,724 4,968

99 44 16 182 2,015 167 562

128,222

30,838

2,744

11,258

Total

By sub-system, the investment cost was estimated at a total of Rp 107,051 million for Kali Bening, Rp 30,389 million for Puluhan, and Rp 25,669 million for Blambangan/Tirtosari. On average, each new connection required an investment of almost Rp 8.5 million or a little over Rp 1.4 million per additional beneficiary at the assumed average household size of 5. For comparison, in PDAM Kabupaten Bogor and PDAM Kota Malang, both of which had been covered by similar studies by ESP, the costs were respectively Rp 6.4 million and Rp 3.4 million per connection or Rp 1.2 million and Rp 0.6 million per new beneficiary. A loan from a domestic commercial bank was proposed to finance almost 68% % or Rp 110,284 million of the total investment cost, with an interest of 14% per annum and repayment period of 12 years, including a two-year grace. Almost 18% or Rp 28,639 million was to be covered by a combination of grant (for land acquisition) and fresh equity infusion or an advance from the local government of Kabupaten Magelang as the sole owner of the water supply enterprise. The rest was to be derived from connection fees and the PDAM’s internal cash generation. The proposed financing plan for the original expansion program is as shown in Table 21. Table 21 Proposed Financing Plan for the Original Investment Program (In Rp Million)

Project Loan Assumed Customer Connections GOI Construction Grant GOI TA Grant (APBN) GOI PPN Grant Land/RAP LG Equity Other LG Equity/Advance PDAM/Other Total

2007 88,698

1,511 27,128 10,886 128,222

2008 21,587 5,364

3,887 30,838

3,360

Total 110,284 15,787

% of Total 67.6% 9.7%

(2,055) 1,305

1,511 27,128 8,399 163,109

0.9% 16.6% 5.1% 100.0%

2009

2010

7,063

(4,319) 2,744

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4.2.

PRELIMINARY FEASIBILITY ASSESSMENT

As mentioned, a preliminary financial feasibility assessment of the expansion program was prepared based on the calculated capital expenditures, financing plan, and other assumptions on revenue and cost. The main conclusions derived from the said assessment are as follows: 1. The program can be rendered feasible only at very high tariff increases, at rates that are almost three times the historical yearly average. 2. An alternative to steep tariff adjustments is an increase in the target number of new connections by around 10,000, an assumption that the PDAM counterpart team was not confident of adopting as the planned coverage areas, especially for the Kali Bening and Puluhan sub-systems, are still predominantly rural. 3. The PDAMâ&#x20AC;&#x2122;s internal cash generation will be sorely inadequate to finance the balance of the investment cost that will be covered by external financing. The alternative of huge additional equity infusion is anticipated to be beyond the financial capacity of, and will most likely be unacceptable to, the local government. 4. Among the three packages, the one for Blambangan/Tirtosari proves the most robust in terms of net present value (NPV) and financial internal rate of return (FIRR). Based on the foregoing conclusions, the PDAM requested that an assessment of two additional options be made, these being the exclusion of the Kali Bening package, as Option 2, and the exclusion as well of the Puluhan package, as Option 3. As mentioned, the results of the assessment of the three options were presented on June 14. The following additional observations were made on the second (Puluhan and Blambangan/Tirtosari) and the third (only Blambangan/Tirtosari) options: 1. Option 2. The required local-government equity infusion is at a much lower amount of under Rp 5 billion. The required yearly tariff increases, although not as high as in Option 1, are however still almost twice the historical yearly average. The alternative course of increasing the target number of connections is likewise deemed unrealistic because of the very low population density, especially in the coverage area of the Puluhan sub-system. 2. Option 3. The required tariff increases are the same as the historical yearly average and will therefore be affordable to PDAM customers. The package remains feasible even assuming increases in investment and O&M costs or reductions in expected incremental revenues. The balance of the investment cost that cannot be covered by external financing can also be easily covered by the PDAMâ&#x20AC;&#x2122;s internal cash generation and connection fees from new customers. On the basis of the foregoing, the PDAM management decided to select Option 3 and designate Blambangan spring, rather than Tirtosari, as the water source for the sub-system.

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5. THE SELECTED OPTION: INVESTMENT PROGRAM FOR 2007-2010 5.1.

COSTS

The details of the calculation of connections, water demand, and capital expenditures for the Blambangan package made by ESP’s Water Supply Engineer are presented in Annex C. The base cost of the Blambangan package is estimated at Rp 21,219 million. At current prices, including contingencies, the investment cost amounts to Rp 25,669 million. Procurement is the biggest component, with a share of 41.7% or Rp 10,700 million. Civil works comes in second, accounting for 18.0% or Rp 4,609 million. The cost of generating the targeted new connections is estimated at Rp 2,005 million or 7.8% of the total. Physical and price contingencies have a combined share of 17.3% or Rp 4,450 million. The program is planned to be implemented within a period of four years, from 2007 to 2010. The first year will be devoted to detailed engineering design, tendering, procurement, preparatory activities, and start-up of construction; the second year for the completion of civil works and start-up of the installation of new connections; and the remaining two years primarily to the installation of additional new connections. The breakdown of the cost of implementing the Blambangan package is presented in Table 22. Table 22 Breakdown of Investment Cost of the Selected Option Blambangan Sub-System (In Rp Million) 2007 Procurement Procurement – Connections Civil Works Civil Works – Connections Land Acquisition Design Supervision Administration Taxes and Duties Total, Base Prices Physical Contingencies Financial Contingencies Total, Current Prices Incl. All Contingencies

2008

2009

2010

10,700

Total

% of Total 41.7% 4.7% 18.0% 3.1% 1.4% 2.9% 1.9% 1.7% 7.2% 82.7% 4.4% 12.9% 100.0%

1,203 2,388 286

362

154

370 558 372 332 1,385 15,939 757 2,169

163 109 97 415 4,659 327 958

15 10 9 39 436 36 122

6 4 4 16 185 15 65

10,700 1,203 4,609 802 370 743 495 442 1,855 21,219 1,136 3,314

18,866

5,944

593

266

25,669

2,221

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5.2.

TARGETS

A total of 4,012 new connections are targeted to be installed within a three-year period: 1,429 in 2008, 1,813 in 2009, and 770 in 2010. No additional connections are foreseen beyond 2010 in view of the existing production constraints and the modest additional production capacity that is included in the investment package. The schedule for installing new connections, including those planned by the PDAM in 2006 and 2007 which are not covered by the investment program, is presented in Table 23. Table 23 Schedule for Installing New Connections 2006

2007

2008

2009

2010

907

830

1,317

1,671

710

Very Poor Households

Public Tap

Commerce

Industry

Water Tankers

Other Households

Yearly Increase

907

900

1,429

1,813

770

Cumulative

907

1,807

3,236

5,049

5,819

Total Connections Due to Investment Program

1,429

3,242

4,012

The investment required for generating each new connection comes up to almost Rp 6.4 million, which is almost identical with the figures obtained in Kabupaten Bogor. Per capita, the investment for extending piped water supply service amounts to a little over Rp 1 million, as shown in Table 24. Table 24 Comparison of Investment Cost and Indicative Benefits Total Cost (Rp Million)

25,669

Number of New Connections

4,012

Number of People to be Served

24,579

Cost per Connection (Rp)

6,398,056

Cost per Capita (Rp)

1,044,349

5.3.

FINANCING PLAN

External financing, via an outright commercial loan or other debt instruments (such as a corporate-bond issue), is set at 70% of the yearly outlay. This external financing is assumed to bear an interest rate of 14% per annum with a repayment period of 12 years, including a two-year grace. On the basis of these terms, only the capital expenditures for the first two years will be eligible for external financing.

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The proposed financing plan for implementing the investment program is presented in Table 25. Table 25 Financing Plan and Indicative Loan Disbursement Schedule for the Selected Option - Blambangan Sub-System (In Rp Million) 2007

2008

12,947

4,161 1,143

2009

2010

Total

% of Total

685

17,108 3,357

66.6% 13.1%

370

1.4%

Project Loan Assumed Customer Connections GOI Construction Grant GOI TA Grant (APBN) GOI PPN Grant Land/RAP LG Equity Other LG Equity/Advance PDAM/Other

5,549

641

(936)

(420)

4,834

18.8%

Total

18,866

5,944

593

266

25,669

100.0%

1,529

370

As shown in the foregoing table, external financing will defray 66.6% or Rp 17,108 million of the total investment. The rest will be covered by the PDAMâ&#x20AC;&#x2122;s internal cash generation (18.8% or Rp 4,834 million), connection fees from new customers (13.1% or Rp 3,357 million), and local government grant for land acquisition (1.4% or Rp 370 million) Yearly amortization will amount to Rp 2,086 million starting in 2009 and ending in 2018, as shown in Table 26. Table 26 Loan Amortization Schedule (In Rp Million) Yearly Disbursement Cumulative Disbursement Amortization of Principal Loan Balance Commit. Gen. Interest Up-Front Charge Total interest, adjusted Accumulated Interest Balance of Acc. Interest Repayment of Acc. Interest Total Amortization

2007

2008

12,947

4,161

12,947

17,108

2009

2010

2011

2012

2013

2014

2015

17,108

1,711

12,947

18,208

19,146

17,060

14,974

12,889

10,803

8,717

6,632

1,100

2,648

3,175

3,077

2,723

2,368

2,014

1,659

1,305

1,100

2,648

3,175

3,077

2,723

2,368

2,014

1,659

1,305

1,100

2,648

1,100

3,749

3,374

2,999

2,624

2,249

1,874

1,499

1,125

375

2,086

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6. HIGHLIGHTS OF THE FINANCIAL PROJECTION The discussion focuses on the years 2007 to 2018, 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 external financing for the implementation of the investment program.

6.1.

ASSUMPTIONS

6.1.1.

COST OF CAPITAL

The cost of capital is computed based on the fund-sourcing mix. As mentioned, external financing will bear an interest of 14.0%. Customer contributions are assumed to be received by the PDAM as revenue and can therefore be considered as PDAM funds. Customer contributions, the local government’s proposed grant, and the PDAM’s own funds are expected to yield a return of 10%. The weighted average cost of capital (WACC) is thus computed at 12.67%, as shown in Table 27. Table 27 Cost of Capital Comm'l Loan

Gov't Funds

Weight

66.65%

33.35%

Nominal Cost

14.00%

10.00%

Weighted Component of WACC

9.33%

3.34%

WACC

12.67%

6.1.2.

PROJECTED PRODUCTION AND DEMAND

Production, distribution, and sales volumes will reach their optimum levels in 2010 at respectively 14.3 million m3, 13.6 million m3, and 11.4 million m3. Water losses are set at 28% throughout the projection period. Plant capacity utilization factor will somewhat ease up in 2009 at 106%. Thereafter, it will rise again and settle at 110% throughout the rest of the projection period, an indication that production constraints will likely persist in the future. The PDAM’s projected production, capacity constraints, and water losses are presented in Table 28.

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Table 28 Projected Production Capacity, Capacity Constraints and Water Losses 2007

2008

2009

2010

2011

2012

2013

2014

2015

Prod. Cap. (l/sec)

430

475

Prod. Volume (m3/year)

14,757

15,022

13,869

14,271

Dist. Volume (m3/year)

13,987

14,252

13,189

13,590

Volume Sold (m3/year)

10,320

10,627

11,056

11,397

11,499

Water Losses (%)

28.0%

27.9%

27.8%

27.9%

Ratio of Production to Consumption

1.43

1.41

1.25

1.24

Utilization Factor

125.0%

115.2%

106.4%

109.5%

The total number of connections will reach its maximum in 2010 at 41,758, about 90% of which will be domestic. Per capita consumption of household connections is projected to increase by 10 liters from the 2005 level to reach 124 liters. Unit consumption per connection, including non-domestic, is thus estimated to gradually climb to 22.9 m3 per month in 2011 and thus enter the third and most profitable consumption bracket. With the total kabupaten population projected at 1.244 million, domestic coverage ratio will peak at 18.6% in 2010. Thereafter, it will be on a gradual decline in the absence of new connections and in the face of continuing population growth estimated at 0.9% per year. The projected connections and water demand are shown in Table 29. Table 29 Projected Connections and Water Demand 2007

2008

2009

2010

2011

2012

2013

2014

2015

Household Conn. (No.)

34,355

35,712

37,433

38,164

Unit Cons. (lcd)

124

Non-Domestic Conn. (No.)

2,996

3,053

3,124

3,155

Unit Cons. (m3/day)

1.50

1.49

1.50

1.51

Total Conn. (No.)

37,746

39,175

40,988

41,758

Annual Change (No.)

900

1,429

1,813

770

Domestic Service Ratio (%)

17.2%

17.7%

18.4%

18.6%

18.4%

18.3%

18.1%

17.9%

17.8%

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6.1.3.

RECURRENT COSTS

The assumptions on recurrent costs are as follows: 1. Personnel and personnel cost: The desired personnel-to-connection ratio of 5 per 1,000 is planned to be achieved already starting in 2007 inasmuch as this had been the historical average. Cost per employee is assumed to increase annually in real terms by 5.0% or about 10.5% in nominal terms, which is the same as the increase budgeted for 2006. 2. 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 petroleumbased fuel and electricity. 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. 3. Maintenance materials: These are assumed at 1.2% of net fixed assets, which is lower than the average during the period 2001-2005 of almost 2%. The PDAM is of the opinion that the target is achievable through more stringent control measures. 4. Administration: These are defined as general and administrative expenses minus wages, interest payments, bad debts allowances, and maintenance and depreciation costs related to general and administrative fixed assets. The PDAM management has committed to reduce this cost item from 113% to 72.5% of personnel cost starting 2010. 5. Raw water. As mentioned, the total compensation for raw water that the PDAM uses is 20% of basic tariff multiplied by the volume of water sold. Since future basic tariffs will still have to be set, the proportion of this cost item to water revenues in 2006 of 9.3% is used throughout the projection period.

6.1.4.

TARIFF ANALYSIS

The assumed nominal tariff increases applied in the financial projection are as follows: 1. 2007-2018: 26.5% per year 2. 2019-2025: yearly adjustment equal to the rate of inflation. The assumed yearly nominal tariff increase from 2007 to 2018, the time slice in the financial projection that is considered critical, is equal to the historical average yearly increase of the PDAMâ&#x20AC;&#x2122;s weighted average tariff from 2002 to 2006. The increase is therefore viewed by PDAM management as affordable to existing and prospective customers and can be strongly justified to local government authorities at the executive and legislative branches who will have to agree to, or at least scrutinize, such increase. With no debt burden starting in 2019, the PDAM will just need to factor in its tariff increases the effects of inflation on operating costs. At the foregoing yearly tariff adjustment, PDAMâ&#x20AC;&#x2122;s weighted average tariff will consistently be adequate for full-cost recovery. In fact, in later years, weighted average tariff is projected to rise to more than twice that which is required for full-cost recovery both as provided for under existing regulations and as alternatively defined in this report. The underlying reason, however, is not so much that tariff is increased beyond what is necessary, but rather the inability of the PDAM under the prevailing taxation regime to generate accruals that constitute full cost.

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The analysis of projected tariff as it relates to cost, which may be used by the PDAM as a guide in future tariff-setting exercises, is presented in Table 30. Table 30 Analysis of Projected Tariff (Rp per m3 of Water Sold at Current Prices) 2007

2008

2009

2010

2011

2012

2013

2014

2015

Weighted Average Tariff

1,800

2,277

2,880

3,644

4,609

5,831

7,376

9,331

11,803

Nominal Inc. (%)

26.5%

Low Cost

1,314

1,285

1,432

1,590

1,671

1,824

2,008

2,211

2,437

Basic Cost

1,467

1,404

1,546

2,133

2,183

2,269

2,395

2,568

2,762

Full Cost (Permendagri 2/1998)

1,742

1,879

2,258

2,597

2,869

3,304

3,933

4,777

5,896

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

1,555

1,798

2,503

2,723

3,063

3,574

4,296

5,255

Permendagri 2/1998 (%)

103%

121%

128%

140%

161%

176%

188%

195%

200%

O&M + Debt Service + 10% Equity

116%

146%

160%

146%

169%

190%

206%

217%

225%

Extent of Cost Recovery

6.2.

FEASIBILITY INDICATORS

Based on the foregoing assumptions, the investment program is found to be feasible with a positive net present value (NPV) of Rp 4,712 million and a financial internal rate of return (FIRR) of 15.37%, which is well above the hurdle rate o 12.67%. The program remains feasible even assuming a 10% increase in investment and incremental O&M costs, a 10% decrease in incremental revenues or a one-year delay in the realization of incremental revenues. It does not surmount, however, the other sensitivity test of a combined 10% increase in costs and 10% reduction in incremental revenues. The indicators of feasibility of the investment program under the base case and under certain adverse scenarios are shown in Table 31. Table 31 Feasibility Indicators

Base Case 10% Increase in Investment and O&M Costs 10% Decrease in Incremental Revenues

WACC = 12.67% NPV FIRR 4,712 15.37% 2,418

13.96%

1,733

13.69%

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WACC = 12.67% NPV FIRR +10% In Costs and -10% in Revenues One Year Delay in Incremental Revenues

6.3.

(560)

12.36%

472

12.92%

FINANCIAL RESULTS

6.3.1.

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 0.5% 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. Annual return on assets will range between 11% and 17% and on equity, between 18% and 29%. A summary of the PDAMâ&#x20AC;&#x2122;s income statement for the period 2007-2018 is presented in Table 32. Detailed income statements are presented in Annex D. Table 32 Summary Income Statement (In Rp Million) 2007

2008

2009

2010

2011

2012

2013

2014

2015

Tariff Rev.

18,575

24,199

31,845

41,528

53,002

67,048

84,815

107,291

135,724

Total Op. Revenues

21,700

29,126

37,309

44,485

53,653

67,699

85,466

107,942

136,375

Operating Expenses

13,265

15,214

17,579

19,046

20,976

23,088

25,426

28,018

30,895

Non-Op. Income/(Loss)

123

249

997

1,908

3,269

5,221

8,119

12,224

17,891

Net Profit Before Tax

6,202

11,241

13,806

20,304

29,300

43,548

62,230

86,574

118,151

Income Tax

1,852

3,363

4,133

6,083

8,781

13,056

18,660

25,963

35,436

Net Income Loss

4,350

7,877

9,673

14,222

20,518

30,492

43,570

60,610

82,714

Other Payments

3,219

5,829

7,158

10,524

15,184

22,564

32,242

44,852

61,209

Retained Earnings

1,131

2,048

2,515

3,698

5,335

7,928

11,328

15,759

21,506

Return on Assets

11%

13%

15%

16%

17%

Return on Equity

28%

29%

24%

23%

22%

21%

20%

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6.3.2.

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 level, with the lowest at 3.5 in 2009 when the PDAM starts amortizing the proposed external financing for the investment program. A summary of the sources and applications of funds is presented in Table 33, while the details are in Annex E.

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Table 33 Summary Sources and Applications of Funds (In Rp Million, Except Ratios) 2007

2008

2009

2010

2011

2012

2013

2014

2015

Gross Int. Cash Gen.

8,558

14,161

20,727

27,347

35,946

49,831

68,159

92,148

123,370

Equity

932

2,393

4,333

5,320

7,822

11,285

16,771

23,964

33,336

Borrowing

14,047

6,809

Total Sources of Funds

23,538

23,363

25,060

32,667

43,768

61,116

84,930

116,112

156,706

Capital Expenditures

19,966

8,593

593

266

Debt Service

1,229

1,211

6,003

5,836

5,119

4,454

4,099

3,745

3,390

Operations

-53

1,905

1,827

3,164

3,962

6,196

9,334

13,596

Total Applications of Funds

21,246

9,750

8,501

7,929

8,283

8,416

10,295

13,079

16,987

Cash Increase (Decrease)

2,291

13,613

16,559

24,738

35,485

52,700

74,635

103,032

139,720

DSCR (Net Revenues)

7.0

11.7

3.5

4.7

7.0

11.2

16.6

24.6

36.4

Table 34 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 Days Accounts Receivable Cash = Months of Op. Exp.

2007

2008

2009

2010

2011

2012

2013

2014

2015

2,999 3,767 6,765 11,982 40,568 4,674 15,517 25,085 15,482 40,567 1.4 52% 74 2.7

16,611 4,603 21,215 29,251 60,845 9,386 19,652 33,972 26,872 60,844 2.3 45% 69 13.1

33,170 5,659 38,829 34,252 75,404 12,482 16,979 34,466 40,938 75,404 3.1 32% 65 22.6

57,908 6,862 64,770 30,966 97,684 16,433 14,599 36,124 61,559 97,683 3.9 22% 60 36.5

93,394 8,742 102,136 27,324 131,142 22,090 12,514 39,824 91,318 131,142 4.6 14% 60 53.4

146,093 11,044 157,137 23,409 182,228 30,872 10,428 46,705 135,523 182,228 5.1 8% 60 75.9

220,728 13,954 234,683 19,494 255,859 43,113 8,343 57,134 198,724 255,859 5.4 5% 60 104.2

323,761 17,636 341,396 15,579 358,658 59,650 6,257 71,977 286,680 358,657 5.7 3% 60 138.7

463,480 22,292 485,772 11,664 499,118 81,582 4,171 92,370 406,748 499,118 6.0 2% 60 180.0

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6.3.3.

BALANCE SHEET

Capital expenditures are forecast to be completed in 2010. 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 and construction preliminaries and demobilization expenses are treated as deferred expenses and amortized at 10% per annum on the outstanding balance. The projections assume 60-day accounts receivable, and 30-day accounts payable. The inventory point for chemicals and maintenance materials is 30 days and for installation inventories, 70 days. With the accumulation of yearly depreciation and without revaluation, net fixed assets will be negative starting 2018. The current ratio is projected to be always at a safe level, starting at 1.4 in 2007 and increasing every year thereafter. The ratio of debt to total capitalization will reach its highest level of 52% in 2007 and will progressively decline thereafter. A sharp increase in cash is foreseen starting in 2008, when it will be able to cover 13 months of operating expenses or over four times the safe level. The highlights of the balance sheet are presented in Table 34. The detailed balance sheet projections are in Annex F

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7. CONCLUSIONS AND RECOMMENDATIONS 7.1.

CONCLUSIONS

From the foregoing discussions, the following conclusions may be drawn: 1. The PDAM has been able to maintain profitable operations and is projected to be able to do so in the future. The net income being generated each year, however, may be considered as below the desired levels in terms of returns on assets and equity due to the inability of the PDAM in the past to apply full-cost-recovery tariff. 2. Its production capacity appears to be strained in spite of the availability of cheap sources of raw water and the relatively cheaper cost of operating the PDAMâ&#x20AC;&#x2122;s production and distribution facilities. The plant utilization factor has in the past always exceeded 100%, and the constraint is expected to persist in the future in the absence of any clear remedial or improvement measures. This may give rise to widespread customer dissatisfaction as probably already indicated by cases related by PDAM officials of a switch of a number of industrial and commercial establishments from PDAM connections to other sources of water, such as shallow and deep wells. 3. The investment program is found financially feasible. It is likewise projected that the PDAM will be able to fulfill the financial obligations occasioned by the program. It has to be noted, however, that the program will have to be implemented at a much shorter period of time than what the PDAM had been used to. For instance, the number of connections to be generated annually is twice the historical average.

7.2.

RECOMMENDATIONS

The following recommendations are offered: 1. Exercise more effective cost control. As pointed out in the preceding discussions, cost-control measures are especially required to tame the surging overhead cost, which is budgeted at 113% of personnel expenses in 2006, and installation inventory, which is found to be at an inordinately high level, unnecessarily tying up financial resources that could otherwise be used for more productive purposes. 2. Remedy the prevailing production constraint. This gains urgency in view of what the PDAM detects as the tendency of sales per customer to decline, which could be a symptom of growing dissatisfaction with PDAMâ&#x20AC;&#x2122;s service, particularly its inability to ensure adequate water supply. For this reason, the planned addition to production and distribution capacity needs to be reviewed and revised, if found inadequate ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA GEMILANG KABUPATEN MAGELANG : PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

3. Launch a campaign to build constituency around the investment program. The campaign should target existing and prospective customers as well as local government authorities. Also an important constituency to build is the community surrounding the water source that will be tapped, including competing users such as farmers. 4. Revisit the investment packages that have been excluded. As mentioned, the PDAMâ&#x20AC;&#x2122;s entire expansion program consisted of three packages, which, aside from the Blambangan sub-system, also includes the Kali Bening and Puluihan subsystems. A household census, a joint endeavor of the PDFAM and ESP, will shortly be undertaken. If the results of the census indicate brighter prospects for the aforementioned sub-systems, then the PDAM should consider reviving them and undertake steps toward their eventual implementation. 5. Formulate plans for using excess cash. The projection shows that execess cash will be generated starting in 2008. The PDAM will thus have to be ready to handle this. A possibility is to have it earmarked for implementing the investment packages that have been temporarily shelved.

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PDAM TIRTA GEMILANG KABUPATEN MAGELANG : PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

8. ANNEXES ANNEX A NOTES ON THE MEETING WITH PDAM KABUPATEN MAGELANG JUNE 10, 2006 ANNEX B NOTES ON THE MEETING WITH PDAM KABUPATEN MAGELANG JUNE 14, 2006 ANNEX C CALCULATION OF WATER DEMAND AND CAPITAL EXPENDITURES FOR THE BLAMBANGAN SUB-SYSTEM ANNEX D SUMMARY OF INCOME STATEMENT ANNEX E SUMMARY OF SOURCES AND USES OF FUNDS ANNEX F SUMMARY OF BALANCE SHEET

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PDAM TIRTA GEMILANG KABUPATEN MAGELANG : PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

ANNEX A – NOTES ON THE MEETING WITH PDAM KABUPATEN MAGELANG - JUNE 10, 2006

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PDAM TIRTA GEMILANG KABUPATEN MAGELANG : PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

Date Time Place

: : :

June 10, 2006 8:30 AM – 3:00 PM PDAM Kabupaten Magelang

BACKGROUND PDAM Tirta Gemilang of Kabupaten Magelang in Central Java is one of a number of water supply enterprises across Indonesia participating in the Environmental Services Program (ESP) funded by the United States Agency for International Development (USAID). Included in the scope of ESP technical assistance is to provide access to the domestic commercial banking system for financing the PDAM’s future expansion program. Part of the assistance was the verification of the costs 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. The PDAM’s available investment program was prepared way back in 2004. On May 17-18, 2006 ESP mobilized a short-term Water Supply Engineer to verify the components and costs of, as well as the water demand and target new connections associated with, the program. The results of this verification can be summarized as follows: 1. The PDAM’s proposed expansion program consists of three discrete packages, each one encompassing a complete piped water supply system, or properly a sub-system, with its own source, transmission and distribution networks, and target servicecoverage area. 2. Each one is identified by the spring-water source to be tapped, to wit: Kali Bening, Puluhan, and Blambangan/Tirtosari. 3. The combined base cost of the program has been estimated at Rp 135,549 million. At current prices, including all contingencies, the total cost amounts to Rp 163,109 million. 4. By sub-system, the investment cost is estimated at a total of Rp 107,051 million for Kali Bening, Rp 30,389 million for Puluhan, and Rp 25,669 million for Blambangan/Tirtosari. 5. Through the expansion program, a total of 18,856 new connections are hoped to be installed by 2010, based mainly on the estimates of PDAM officials: 11,186 in Kali Bening, 3,659 in Puluhan, and 4,012 in Blambangan/Tirtosari. A preliminary 20-year financial projection was prepared and summarized in a slide presentation, which were then discussed on Saturday, June 10, with members of the counterpart team previously designated by the PDAM’s Managing Director.

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

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PDAM TIRTA GEMILANG KABUPATEN MAGELANG : PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

PARTICIPANTS The meeting was opened by the Head of the Personnel Division. Others in attendance were heads of the Divisions of Finance, Planning, Distribution, and Internal Audit. ESP was represented by Ramon H. Hagad.

PROCEEDINGS 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. 1. Historical Performance and Budget for 2006 • exploited at relatively lower investment and O&M costs. As an example, no more than 30% of the combined potential yield of the 15 springs now being used is distributed and sold to PDAM customers. • The PDAM’s tariff has not yet reached full-cost recovery. Thus, while profitable, the PDAM’s operations generate relatively low returns on assets and equity. There is thus a room for higher tariff adjustment than what has historically been achieved. • Among the financial indicators, administrative expenses or overhead and installation inventory needs to be firmly controlled in the future. In 2006, overhead is budgeted to top personnel cost by 13%, while existing benchmarks usually sets it as a proportion of and is thus lower than the latter. Installation inventory is found to be at almost one-year requirement, while the generally acceptable level is at 70-days. 2. Investment Program • The cost of the investment program as captured in the financial projection is deemed realistic, except for the Kali Bening package which should include a booster pump. • The estimated number of connections is likewise realistic, although the PDAM officials expressed reservations on the targets for the Kali Bening and Puluhan packages. While Kali Bening is planned to cover Mertoyudan district, which borders the city of Magelang and is along the Magelang-Semarag highway, this district is still predominantly rural except for pockets of settlements along the said highway. It seems that it is not yet the right time to implement the package, given the high investment cost occasioned by the long transmission line and the very low number of new connections that will be generated. • The Puluhan sub-system also has a rural target coverage area, and the Puluhan spring itself is located on the slope of Mt. Merapi whose activity will always disrupt the continuity of water supply for the sub-system. • The PDAM officials are of the opinion that the Blambangan/Tirtosari sub-system is the most commercially promising. Its target coverage area of the districts of Muntilan and Ngluwar is the most urbanized in the kabupaten and the location of commercial and small industrial establishments. Both Blambangan and Tirtosari springs have adequate water discharges of up to 200 l/sec each. They are in safer locations far from the slopes of Mt. Merapi and the continuity of water supply for the sub-system could therefore be more easily assured. • Under the assumptions applied in the financial projection, indeed the Blambangan/Tirtosari package is found to be the most feasible, with the highest NPV and FIRR and giving indications of strong resilience against any adverse developments affecting costs and revenues. ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA GEMILANG KABUPATEN MAGELANG : PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

3. Assumptions for the Financial Projection • The 70% assumed tariff increase in 2007 and the 25% increase every year thereafter might not be acceptable to concerned local government authorities. It is likewise highly doubtful if the PDAM’s present and prospective customers will be able to afford them. • The safest is to adopt the historical rate of 15.5% per year. • Assumption on connections as previously stated is already realistic and should be retained. The PDAM expressed doubts as to whether a comprehensive customer survey would positively change the numbers. • Assumptions on increases in operating costs are acceptable. • It will be safer to assume that there will be no equity infusion from the local government of Kabupaten Magelang.

CONCLUSIONS The following conclusions were arrived at during the meeting: 1. In view of the high tariff increases and the large local-government equity infusion required to render the Kali Bening and Puluhan packages financially feasible, the PDAM counterpart team is inclined to limit the expansion program to the implementation of the Blambangan/Tirtosari package. 2. Be that as it may, the final decision rests on the PDAM’s board of directors and ultimately on the local government as the sole owner of the enterprise. 3. The counterpart team deems it necessary that the decision makers be apprised of the three options that are available and the implications of each of them primarily on tariff and the equity contribution of the local government, the three options being: three packages (Kali Baning, Puluhan, and Blambangan/Tirtosari), two packages (Puluhan and Blambangan/Tirtosari) or one package (only Blambangan/Tirtosari). 4. ESP is thus requested to prepare a summary of the results of the financial projection for each of the last two options (as the one for the first option has already been submitted) in the form of a PowerPoint presentation. 5. ESP will have to verify with the head office in Jakarta if such additional work will be allowed.

FOLLOW-UP ACTIONS AND TENTATIVE SCHEDULE The following actions, with indicative dates of performance/completion were, agreed upon: No.

Task

Date

Verification with ESP head office

June 12, 2006

Assuming positive response, preparation of financial projections and presentation materials

June 12-15, 2006

Presentation to PDAM management

June 16, 2006

Finalization of the financial projection and preparation of analytical report

June 19-21, 2006

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PDAM TIRTA GEMILANG KABUPATEN MAGELANG : PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

ANNEX B – NOTES ON THE MEETING WITH PDAM KABUPATEN MAGELANG JUNE 14, 2006

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PDAM TIRTA GEMILANG KABUPATEN MAGELANG : PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

Date Time Place

: : :

June 14, 2006 9:30 AM – 2:30 PM PDAM Kabupaten Magelang

BACKGROUND The results of the preliminary financial feasibility assessment of the PDAM’s investment program were presented to the counterpart team on Saturday, July 10. The conclusions arrived at during the presentation are summarized as follows: 1. In view of the high tariff increases and the large local-government equity infusion required to render the Kali Bening and Puluhan packages financially feasible, the PDAM counterpart team is inclined to limit the expansion program to the implementation of the Blambangan/Tirtosari package. 2. Be that as it may, the final decision rests on the PDAM’s board of directors and ultimately on the local government as the sole owner of the enterprise. 3. The counterpart team deems it necessary that the decision makers, especially the Managing Director, be apprised of the three options that are available and the implications of each of them primarily on tariff and the equity contribution of the local government, the three options being: (1) three packages (Kali Baning, Puluhan, and Blambangan/Tirtosari), (2) two packages (Puluhan and Blambangan/Tirtosari) or (3) one package (only Blambangan/Tirtosari). ESP is thus requested to prepare a summary of the results of the financial projection for each of the last two options (as the one for the first option has already been prepared and presented) in the form of a PowerPoint presentation.

OBJECTIVES The objectives of the meeting are as follows: 1. Present and discuss the results of the financial feasibility assessment of the three options for the service expansion program of the PDAM. 2. Arrive at a final decision as to which of the options will be implemented. 3. Present an overview of the scope of and requirements for conducting a household survey/census.

PARTICIPANTS The participants from the PDAM were as follows: 1. Ir. Djoni Managing Director 2. Hari Purnomo Head of Transmission and Distribution Division 3. Samsul Maarif Head of Gen. Affairs and Customer Relations Division 4. Suryanto Head of Planning and Production Division 5. Wiwik WS Head of Internal Audit Division 6. Sri Wahyuningsi Head of Finance Dvision. ESP was represented by: 1. Afghoni 2. Oni Hartono 3. Ramon H. Hagad

PDAM Adviser PDAM Adviser - Short-Term Technical Adviser (Finance)

PROCEEDINGS ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA GEMILANG KABUPATEN MAGELANG : PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

FEASIBILITY ASSESSMENT OF THE OPTIONS FOR SERVICE EXPANSION ESP presented the results of the financial feasibility assessment of each of the three options for the service expansion of the PDAM. The highlights of the presentation and discussion are as follows: 1. Option 1. This refers to the implementation of the expansion program as originally conceived, consisting of three packages (Kali Beining, Puluhan, and Blambangan/Tistosari). This option is feasible only at tariff increases that are almost three times the historical yearly average increase from 2002 to 2006. Moreover, this option requires an equity infusion from the local government of almost Rp 28 billion, which, according to the PDAM counterpart team, the local government may not be willing to extend. The target coverage area comprising of four districts are, as of now, still predominantly rural, except for the district of Mertuyudan. The required number of connections for making the entire investment program feasible at lower rates of tariff increases could not be generated from this district alone, however. 2. Option 2. Under this option, the Kali Bening package is excluded in view of its large investment cost (Rp 107 billion), and only the Puluhan and Blambangan/Tirtosari are considered. The required local-government equity infusion is at a much lower amount of under Rp 5 billion. The required yearly tariff increases, although not as a high as in Option 1, are however still almost twice the historical yearly average. 3. Option 3. Under this option, only the Blambangan/Tirtosari package will be implemented inasmuch as it has consistently shown robust financial feasibility measured in terms of net present value (NPV) and financial internal rate of return (FIRR). The balance of the investment cost that cannot be covered by external financing can also be easily covered by the PDAM’s internal cash generation and connection fees from new customers. 4. Recommendation. ESP recommended that Option 3 be selected with the additional note that the other two options be reconsidered based on the results of the household census that will be conducted by the PDAM in cooperation with ESP. The two other packages could be revived if there are indications that more new connections can be generated than what is assumed in the financial projections just presented.

HOUSEHOLD CENSUS An overview of the objectives, requirements, and activities involved was presented. It was emphasized that a principal purpose of the census is to confirm the willingness and affordability of households to avail of piped water supply service. Its results could thus serve as a more solid basis for assessing the feasibility of the PDAM’s proposed expansion program and its various components. It was explained that the census is undertaken as a cooperative endeavor between ESP and a PDAM, both in terms of implementation and funding.

CONCLUSIONS The following conclusions were arrived at during the meeting: 1. On the Feasibility Assessment • The PDAM selected Option 3 and ESP will prepare the final assessment report on this basis. ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA GEMILANG KABUPATEN MAGELANG : PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

•

On the choice between Blambangan and Tirtosari springs, Blambangan will be tapped as the water source for the sub-system. • The PDAM will however review the other options or the possibility of implementing the other two packages that have been excluded based on the results of the household census, and may request further ESP assistance in assessing their financial feasibility. 2. On the Household Census • The PDAM agreed to co-finance and co-implement the activity. • The areas to be covered will be basically the same as the areas targeted by the PDAM’s proposed expansion program. • Details on the target respondents and the administrative procedures for co-financing will be discussed during the next meeting.

FOLLOW-UP ACTIONS ESP will prepare the final assessment report and submit it to the ESP office in Jakarta by Friday, June 16. The ESP Jakarta office will take care of translating the report to Bahasa Indonesia and officially submitting it to the PDAM. ESP and PDAM will meet sometime next week to thresh out the details of the household census.

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PDAM TIRTA GEMILANG KABUPATEN MAGELANG : PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

ANNEX C – CALCULATION OF WATER DEMAND AND CAPITAL EXPENDITURES FOR THE BLAMBANGAN SUB-SYSTEM

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PDAM TIRTA GEMILANG KABUPATEN MAGELANG : PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

CONNECTIONS AND WATER DEMAND General Description Area (Ha) Number of Population (Inhabitant) Population Increase (%) Population Density (Inhabitant/Ha) Number of Person per Household Connection (person) Number of Connection Domestic Connection Household (unit) Connection increase (unit) Supplied Population (Inhabitants) Services Coverage (%) Non Domestic Connection Non Household (unit) Connection increase (unit) Total of Connections (unit) Total Increase (unit) Water Consumption per Connection Household (m3/connection/month) (l/cap/day) Non Household (m3/conn/month)

2003 Year -3

2004 Year -2

2005 Year -1

2006 Year 0

2007 Year 1

2008 Year 2

2009 Year 3

2010 Year 4

2011 Year 5

2012 Year 6

2013 Year 7

2014 Year 8

5,105

99,965

100,865

101,773

102,689

103,614

104,546

105,487

106,437

107,395

108,362

109,338

110,322

0.9%

1648 3,476

1669 3,362 (114)

1676 3,248 (114)

3,248

4,548 1,300

5,598 1,050

6,198 600

6,548 350

6,898 350

17,380

16,810

16,240

22,740

27,990

30,990

32,740

34,490

17%

16%

15%

21%

26%

29%

30%

31%

344 0 3,820 0

333 -11 3,695 -125

321 -11 3,569 -125

321 0 3,569 0

450 129 4,998 1429

554 104 6,152 1154

613 59 6,811 659

648 35 7,196 385

682 35 7,580 385

100

3,650

9.0% 361 4,011

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PDAM TIRTA GEMILANG KABUPATEN MAGELANG : PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

General Description Water Consumption (Water Sales) Household (m3/year) Non Household (m3/year) Total Water Consumption/ Water Sales (m3/year) (l/second) NRW on Distribution (%) NRW on Production (%) Total NRW (m3/year) (l/second) Water Demand Average Demand (m3/year) (l/second) Peak Factor Max Day (l/second) Additional Average Demand (l/second)

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Year -3

Year -2

Year -1

Year 0

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

625,680

605,160

584,640

818,640

1,007,640

1,115,640

1,178,640

1,241,640

347,136

335,365

469,593

578,009

639,961

676,099

712,237

984,587

952,296

920,005

1,288,233

1,585,649

1,755,601

1,854,739

1,953,877

23.4%

21.2%

23.6%

23.0%

7.7%

7.4%

5.2%

5.0%

443,684

382,324

373,387

357,780

500,980

616,641

682,734

721,287

759,841

1,428,270 45 1.2 54

1,334,620 42 1.2 51

1,293,392 41 1.2 49

1,277,785 41 1.2 49

1,789,213 57 1.2 68

2,202,290 70 1.2 84

2,438,334 77 1.2 93

2,576,026 82 1.2 98

2,713,719 86 1.2 103

358,907

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PDAM TIRTA GEMILANG KABUPATEN MAGELANG : PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

CAPITAL EXPENDITURES N O A

TOTAL INVESTMENT (000 Rp)

DESCRIPTION Land Acquisition Broncaptering Reservoir Pipe line Pressure Release Chamber Broncaptering Broncaptering Construction Guard House Plumbing Installation Pressure Release Chamber (PRC) PRC Construction Guard House Fence Plumbing Installation Transmission Line PVC Pipe ND 250 mm + Acc. Pipe Bridge 250 mm Bulk Water Meter

2006 Year 0 Eqpt

2007 Year 1 Civil Works

Eqpt

2008 Year 2 Civil Works

370,226

300 500 1

m2 m2 ls

15,000 75,000 260,226

200

20,000

541,604

2009 Year 3

Eqpt

Civil Works

200,000

341,604

296,604

45,000

200,000

398,750

200,000

80 15 200 1

8,754 1 1

Civil Works

2011 Year 5 Civil Works

2012 Year 6 Civil Works

2013 Year 7 Civil Works

2014 Year 8 Civil Works

198,750

m3 m3 m2

120,000 18,750 60,000

200,000

5,487,648

4,790,855

696,793

5,343,818

4,690,174

653,644

143,830

100,681

43,149

Eqpt

2010 Year 4 Civil Works

120,000 18,750 60,000

ls unit

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PDAM TIRTA GEMILANG KABUPATEN MAGELANG : PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

N O E

TOTAL INVESTMENT (000 Rp) 1,121,361

DESCRIPTION Reservoir Reservoir Construction Guard House Warehouse, Workshop & Office Plumbing Installation Pipe Distribution Networks PVC Pipe ND 300 mm + Acc. PVC Pipe ND 250 mm + Acc. PVC Pipe ND 200 mm + Acc. PVC Pipe ND 150 mm + Acc. PVC Pipe ND 100 mm + Acc. PVC Pipe ND 75 mm + Acc. PVC Pipe ND 50 mm + Acc.

2006 Year 0 Eqpt

2007 Year 1 Civil Works

Eqpt

2008 Year 2 Civil Works

Eqpt 137,611

2009 Year 3 Civil Works 983,750

Eqpt

Civil Works

420

840,000

18,750

100

125,000

137,611

7,759,897

5,371,995

2,387,903

4,254

1,198,752

971,188

227,563

19,200

2,864,333

2,082,240

782,093

19,200

2,053,267

1,388,160

665,107

25,600

1,643,546

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930,406

2010 Year 4 Civil Works

2011 Year 5 Civil Works

2012 Year 6 Civil Works

2013 Year 7 Civil Works

713,139

2014 Year 8 Civil Works

PDAM TIRTA GEMILANG KABUPATEN MAGELANG : PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

NO G

TOTAL INVESTMENT (000 Rp)

DESCRIPTION New Connections Household Non Household

3,650 361

SUB TOTAL OF LAND AND PHYSICAL WORKS

unit unit

2006 Year 0 Eqpt

2007 Year 1 Civil Works

Eqpt

2008 Year 2 Civil Works

Eqpt

2009 Year 3 Civil Works

2,004,500 1,733,750 270,750

Eqpt

Civil Works

1,202,700 1,040,250 162,450

17,683,987

370,226 10,700,461

2010 Year 4 Civil Works 285,573 247,000 38,573

2011 Year 5 Civil Works 230,655 199,500 31,155

2012 Year 6 Civil Works 131,803 114,000 17,803

2013 Year 7 Civil Works 76,885 66,500 10,385

2,220,897

1,202,700 2,387,903

285,573

230,655

131,803

76,885

222,090

238,790

28,557

23,065

13,180

7,688

253,720

144,983

84,573

253,720

144,983

84,573

Physical Contingency 10%

1,768,399

37,023

1,070,046

SUB TOTAL 1

19,452,386

407,249

11,770,508 2,442,986 1,322,970

2,626,693 314,130

350,143

233,429

175,071

116,714

175,071

116,714

233,429

175,071

116,714

175,071

116,714

Non Physical Works Environmental Study Public Campaign and Socialization Capacity Building and Institutionalization Engineering Pre Contract, Tendering, Project Administration

0.50%

97,262

0.10%

19,452

0.10%

19,452

6.00%

1,167,143

1.00%

194,524

SUB TOTAL 2

1,497,834

233,429

447,405

GRAND TOTAL 1 + 2 (FIXED COST)

20,950,219

233,429

447,405 640,677

2014 Year 8 Civil Works 76,885 66,500 10,385

120,270

97,262

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

11,945,579 2,559,701 1,498,041

2,743,407 314,130

PDAM TIRTA GEMILANG KABUPATEN MAGELANG : PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

ANNEX D – SUMMARY OF INCOME STATEMENT

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PDAM TIRTA GEMILANG KABUPATEN MAGELANG : PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

ANNEX D

36%

14%

18%

27%

TABLE B4 - PROFIT AND LOSS ACCOUNT (CURRENT RP MILLION)

2001 Audited

2002 Audited

2003 Audited

2004 Actual

2005

2006

2007

2008

2009

2010

2011

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

31.2 21.6 8,105 39% 13,266 451

32.0 22.3 8,546 28% 11,845 643

32.8 21.4 8,417 29% 11,878 779

33.8 21.5 8,705 27% 11,916 1,057

35.9 20.6 8,905 28% 12,298 1,204

36.8 23.1 10,201 31% 14,757 1,423

37.7 22.8 10,320 28% 14,757 1,800

39.2 22.6 10,627 28% 15,022 2,277

41.0 22.5 11,056 28% 13,869 2,880

41.8 22.7 11,397 28% 14,271 3,644

41.8 22.9 11,499 28% 14,271 4,609

Tariff Revenues Net Connection Fees Sales of water to other PDAMs Other Operating Revenues

3,651 508

5,498 337

6,558 503

9,200 938

10,726 791

14,515 2,723

18,575 2,629

24,199 4,371

31,845 4,842

41,528 2,306

53,002

1,115

198

107

382

709

496

557

622

651

Total Operating Revenues

5,275

5,903

7,259

10,246

11,899

17,947

21,700

29,126

37,309

44,485

53,653

Personnel Power Chemical Maintenance Material Administration - General Bad Debts & Write Off Raw Water Purchases Raw Water Retribution

1,247 8 331 885 34

1,573 78 7 395 931 29

2,188 109 7 384 1,283 56

3,161 149 6 674 2,164 23

3,976 145 8 522 2,589 (14)

5,107 269 18 849 5,785 27

6,218 324 20 661 4,411 88

7,162 373 23 699 5,140 112

8,316 376 23 740 6,037 146

9,402 427 26 783 6,057 193

10,415 451 28 826 6,709 251

128

438

776

994

1,346

1,543

1,705

1,941

2,159

2,296

Total Operating Expenses

2,598

3,141

4,465

6,953

8,220

13,401

13,265

15,214

17,579

19,046

20,976

2,676 1,321 1,356 693 662

2,762 1,315 1,446 625 822

2,794 1,311 1,483 556 927

3,293 1,592 1,701 489 1,212

3,679 1,887 1,792 419 1,373

4,546 2,517 2,029 631 1,398

8,435 2,065 6,371 291 6,079

13,912 2,697 11,215 223 10,992

19,730 3,592 16,138 3,329 12,808

25,439 3,880 21,559 3,163 18,396

32,677 3,907 28,771 2,740 26,031

21 683 683 187

64 885 885 311

30 957 957 388

7 1,219 1,219 432

93 1,466 1,466 410

122 1,520 1,520 498

123 6,202 6,202 1,852

249 11,241 11,241 3,363

997 13,806 13,806 4,133

1,908 20,304 20,304 6,083

3,269 29,300 29,300 8,781

496

574

569

787

Income (Loss) before Depreciation Depreciation 6.3% 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

No Asset Revaluation

unrevalued assets

Net Income (Loss) Staff Funds Share of Net Income Kotamadya Share of Net Income Payment to Staff Funds Payment to Kotamadya

10.0% 55.0% 90.0%

TARIFF INCREASE

of net income ditto of share of share

1,056

1,022

4,350

7,877

9,673

14,222

20,518

79 433 71

106 581 95

102 562 92

435 2,393 392

788 4,333 709

967 5,320 871

1,422 7,822 1,280

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

321 74% 19%

R:\4. MUNICIPAL FINANCE\WATER UTILITIES\Central Java\PDAM Kb. Mag4/7/06

02:36 PM

10,296 2.82 6.4% 6.6%

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

368 75% 16% 43% 10,023 1.82 8.2% 8.8%

530 80% 15% 21% 9,787 1.49 9.5% 9.8%

799 83% 13% 36% 10,447 1.14 11.6% 11.7%

923 85% 14% 14% 12,033 1.12 11.4% 12.2%

1,314 89% 10% 18% 13,411 0.92 10.4% 11.3%

1,285 71% 33% 27% 12,905 0.69 47.1% 48.1%

1,432 61% 46% 27% 20,617 0.85 53.3% 54.5%

1,590 57% 43% 27% 31,752 1.00 40.3% 43.5%

1,671 52% 49% 27% 32,609 0.79 56.4% 62.3%

1,824 46% 55% 27% 29,145 0.55 89.3% 100.5%

51% 21%

19% 42%

40% 56%

17% 18%

35% 63%

28% -1%

30% 15%

32% 16%

30% 8%

28% 10%

PDAM TIRTA GEMILANG KABUPATEN MAGELANG : PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

ANNEX D

27%

TABLE B4 - PROFIT AND LOSS ACCOUN 2012 (CURRENT RP MILLION)

27%

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

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

41.8 22.9 11,499 28% 14,271 5,831

41.8 22.9 11,499 28% 14,271 7,376

41.8 22.9 11,499 28% 14,271 9,331

41.8 22.9 11,499 28% 14,271 11,803

41.8 22.9 11,499 28% 14,271 14,931

41.8 22.9 11,499 28% 14,271 18,888

41.8 22.9 11,499 28% 14,271 23,893

41.8 22.9 11,499 28% 14,271 25,207

41.8 22.9 11,499 28% 14,271 26,593

41.8 22.9 11,499 28% 14,271 28,056

41.8 22.9 11,499 28% 14,271 29,599

41.8 22.9 11,499 28% 14,271 31,227

41.8 22.9 11,499 28% 14,271 32,945

41.8 22.9 11,499 28% 14,271 34,756

Tariff Revenues Net Connection Fees Sales of water to other PDAMs Other Operating Revenues

67,048

84,815

107,291

135,724

171,690

217,188

274,743

289,854

305,796

322,615

340,359

359,078

378,828

399,663

651

Total Operating Revenues

67,699

85,466

107,942

136,375

172,341

217,839

275,394

290,505

306,447

323,266

341,010

359,730

379,479

400,314

Personnel Power Chemical Maintenance Material Administration - General Bad Debts & Write Off Raw Water Purchases Raw Water Retribution

11,537 476 29 871 7,432 321

12,780 502 31 919 8,233 406

14,157 529 33 969 9,120 513

15,683 559 34 1,023 10,103 649

17,372 589 36 1,079 11,191 821

19,244 622 38 1,138 12,397 1,039

21,318 656 40 1,201 13,733 1,314

23,615 692 43 1,267 15,213 1,663

26,159 730 45 1,337 16,852 1,754

28,978 770 47 1,410 18,668 1,851

32,100 813 50 1,488 20,679 1,952

35,559 857 53 1,570 22,907 2,060

39,391 904 56 1,656 25,376 2,173

43,635 954 59 1,747 28,110 2,292

2,423

2,556

2,696

2,845

3,001

3,166

3,340

3,524

3,718

3,922

4,138

4,366

4,606

4,859

Total Operating Expenses

23,088

25,426

28,018

30,895

34,091

37,645

41,603

46,016

50,595

55,646

61,220

67,371

74,161

81,656

44,610 Income (Loss) before Depreciation 3,915 Depreciation 40,695 Operating Income (Loss) 2,368 Operational Interest 38,327 Net Operating Income (Loss) Royalties 5,221 Non-Operating Income (Loss) - Other 43,548 Before Tax Income Taxable Income After Losses Carried Forward (5 Y43,548 13,056 Income Tax

60,040 3,915 56,125 2,014 54,111

79,924 3,915 76,009 1,659 74,350

105,480 3,915 101,565 1,305 100,260

138,251 3,915 134,336 950 133,386

180,194 3,915 176,279 596 175,684

233,792 3,915 229,877 241 229,636

244,489 3,915 240,574 32 240,543

255,852 3,915 251,937

267,620 3,915 263,705

279,790 3,915 275,875

292,358 3,915 288,443

305,318 3,915 301,403

318,658 3,915 314,743

251,937

263,705

275,875

288,443

301,403

314,743

8,119 62,230 62,230 18,660

12,224 86,574 86,574 25,963

17,891 118,151 118,151 35,436

25,575 158,961 158,961 47,680

35,861 211,545 211,545 63,455

49,492 279,128 279,128 83,730

67,419 307,962 307,962 92,380

87,350 339,288 339,288 101,778

108,942 372,646 372,646 111,785

132,370 408,244 408,244 122,465

157,807 446,250 446,250 133,866

185,427 486,830 486,830 146,040

215,406 530,149 530,149 159,036

Net Income (Loss) Staff Funds Share of Net Income Kotamadya Share of Net Income Payment to Staff Funds Payment to Kotamadya

30,492

43,570

60,610

82,714

111,281

148,090

195,398

215,582

237,510

260,861

285,780

312,384

340,790

371,113

2,052 11,285 1,847

3,049 16,771 2,744

4,357 23,964 3,921

6,061 33,336 5,455

8,271 45,493 7,444

11,128 61,205 10,015

14,809 81,450 13,328

19,540 107,469 17,586

21,558 118,570 19,402

23,751 130,631 21,376

26,086 143,474 23,478

28,578 157,179 25,720

31,238 171,811 28,115

34,079 187,434 30,671

2,008 40% 65% 27% 25,367 0.38 151.1% 171.7%

2,211 34% 73% 27% 21,452 0.25 252.2% 290.1%

2,437 30% 81% 27% 17,537 0.16 424.0% 493.7%

2,687 26% 87% 27% 13,622 0.10 736.0% 867.4%

2,965 22% 93% 27% 9,707 0.06 1374.1% 1637.6%

3,274 19% 97% 27% 5,792 0.03 3033.3% 3652.5%

3,618 17% 102% 27% 1,877 0.01 12235.3% 14872.3%

4,002 17% 106% 5% (2,038) (0.01) -11801.8% -15109.5%

4,400 18% 111% 5% (5,953) (0.02) -4232.0% -5699.2%

4,839 18% 116% 5% (9,868) (0.03) -2672.3% -3776.2%

5,324 19% 120% 5% (13,783) (0.04) -2001.5% -2961.9%

5,859 20% 124% 5% (17,698) (0.05) -1629.8% -2521.4%

6,449 21% 129% 5% (21,613) (0.06) -1394.5% -2252.5%

7,101 21% 133% 5% (25,528) (0.06) -1232.9% -2076.7%

27% 10%

27% 11%

5% 11%

5% 10%

6% 10%

5% 10%

6% 10%

5% 10%

R:\4. MUNICIPAL FINANCE\WATER UTILITIES\C27% 10%

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA GEMILANG KABUPATEN MAGELANG : PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

ANNEX E – SUMMARY OF SOURCES AND USES OF FUNDS

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA GEMILANG KABUPATEN MAGELANG : PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

ANNEX E

TARIFF INCREASE

36%

14%

18%

27%

TABLE B5 - SOURCES AND APPLICATION OF FUNDS (CURRENT RP MILLION)

2001 Audited

2002 Audited

2003 Audited

2004 Actual

2005

2006

2007

2008

2009

2010

2011

2,794

3,293

3,679

4,546

8,435

13,912

19,730

25,439

32,677

SOURCES OF FUNDS: Income before Depreciation and Interest Royalties Non-Operating Income (Loss) - Net

2,676

2,762

122

123

249

997

1,908

3,269

Gross Internal Cash Generation

2,697

2,826

2,824

3,300

3,772

4,669

8,558

14,161

20,727

27,347

35,946

GOI Construction Grant GOI Feasibility Study Grant GOI Technical Assistance Grant (APBN) PPN Grant RG Equity (Land) Other RG Equity/Advance Reinvestment by Kotamadya

433

581

562

2,393

4,333

5,320

7,822

Total Equity

433

581

932

2,393

4,333

5,320

7,822

12,947

4,161

43,768

Borrowing : Proposed Loan Committed Loan Ongoing Loans Interest Accumulated

370

5,584

(588)

712

Total Borrowing

5,584

(588)

712

TOTAL SOURCES OF FUNDS

8,281

2,236

4,013

APPLICATIONS OF FUNDS: Proposed WSSP Projects Committed/Other Projects Past Projects PDAM Replacement/Connection Programme Master Plan Interest Accumulated

2,826

4,205

5,250

21,219 1,220

1,613

2,879

1,100

2,648

14,047

6,809

23,538

23,363

25,060

32,667

18,866

5,944

593

266

1,100

2,648

938 631

19,966 938 291

8,593 988 223

593 2,673 3,329

266 2,673 3,163

2,380 2,740

1,207 716 (1,509)

1,569 (195) 399

1,229 (449) (90)

1,211 (2,190) (107)

6,003 (2,040) (128)

5,836 (3,042) (135)

5,119 (4,071) (128)

388

71 432

95 410

92 498

392 1,852

709 3,363

871 4,133

1,280 6,083

Total Capital Expenditures Amortization of L/T Debt Operational Interest of L/T Debt

21,219 588 693

1,220 588 625

1,613 588 556

2,879 588 489

788 419

Total Debt Service of L/T Debt Working Capital Needs Other Assets/Liabil. Changes Kotamadya Share of Net Income Other Profit Sharing Income Tax

1,281

1,213 (259) 157

1,144 (126) (746)

1,077 (760) (149)

187

311

TOTAL APPLICATIONS OF FUNDS

22,501

2,518

2,196

3,435

917

2,278

21,246

9,750

8,501

7,929

8,283

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

295 (70) 225 323

307 225 532 363

40 532 572 467

1,058 572 1,631 669

(1,030) 1,731 701 786

6 701 707 1,247

2,291 707 2,999 1,208

13,613 2,999 16,611 1,369

16,559 16,611 33,170 1,965

24,738 33,170 57,908 2,074

35,485 57,908 93,394 2,175

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

0.92 2.10 2.10 0.39 7%

1.14 2.33 2.33 0.47 125%

1.09 2.47 2.47 0.50 139% 142%

1.89 3.06 3.06 0.73 95% 135%

0.93 3.13 3.13 0.88 na #N/A

0.66 2.98 2.98 0.65 na #N/A

2.46 6.96 6.96 3.54 39% 44%

13.59 11.69 11.69 6.50 179% 157%

6.20 3.45 3.45 1.61 2890% 3232%

10.57 4.69 4.69 2.44 9413% 9743%

18.82 7.02 7.02 4.01 na #N/A

R:\4. MUNICIPAL FINANCE\WATER UTILITIES\Central Java\PDAM Kb. Mag4/7/06

02:36 PM

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA GEMILANG KABUPATEN MAGELANG : PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

ANNEX E

27%

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

44,610

60,040

79,924

105,480

138,251

180,194

233,792

244,489

255,852

267,620

279,790

292,358

305,318

318,658

TABLE B5 - SOURCES AND APPLICATION2012 (CURRENT RP MILLION) SOURCES OF FUNDS: Income before Depreciation and Interest Royalties Non-Operating Income (Loss) - Net

5,221

8,119

12,224

17,891

25,575

35,861

49,492

67,419

87,350

108,942

132,370

157,807

185,427

215,406

Gross Internal Cash Generation

49,831

68,159

92,148

123,370

163,826

216,055

283,284

311,908

343,203

376,561

412,159

450,165

490,745

534,065

GOI Construction Grant GOI Feasibility Study Grant GOI Technical Assistance Grant (APBN) PPN Grant RG Equity (Land) Other RG Equity/Advance Reinvestment by Kotamadya

11,285

16,771

23,964

33,336

45,493

61,205

81,450

107,469

118,570

130,631

143,474

157,179

171,811

187,434

Total Equity

11,285

16,771

23,964

33,336

45,493

61,205

81,450

107,469

118,570

130,631

143,474

157,179

171,811

187,434

61,116

84,930

116,112

156,706

209,319

277,260

364,734

419,378

461,773

507,192

555,633

607,344

662,556

721,499

2,086 2,368

2,086 2,014

2,086 1,659

2,086 1,305

2,086 950

2,086 596

2,086 241

Total Debt Service of L/T Debt Working Capital Needs Other Assets/Liabil. Changes Kotamadya Share of Net Income Other Profit Sharing Income Tax

4,454 (6,481) (185)

4,099 (9,330) (274)

3,745 (12,855) (392)

3,390 (17,277) (545)

3,036 (22,865) (744)

2,681 (29,959) (1,002)

2,327 (38,981) (1,333)

32 (42,597) (1,759)

(40,642) (1,940)

(39,784) (2,138)

(39,775) (2,348)

(40,453) (2,572)

(41,695) (2,811)

(43,406) (3,067)

1,847 8,781

2,744 13,056

3,921 18,660

5,455 25,963

7,444 35,436

10,015 47,680

13,328 63,455

17,586 83,730

19,402 92,380

21,376 101,778

23,478 111,785

25,720 122,465

28,115 133,866

30,671 146,040

TOTAL APPLICATIONS OF FUNDS

8,416

10,295

13,079

16,987

22,307

29,416

38,796

56,992

69,199

81,232

93,139

105,159

117,475

130,238

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

52,700 93,394 146,093 2,295

74,635 146,093 220,728 2,460

103,032 220,728 323,761 2,647

139,720 323,761 463,480 2,857

187,012 463,480 650,492 3,094

247,845 650,492 898,337 3,361

325,938 898,337 1,224,275 3,661

362,386 1,224,275 1,586,661 3,837

392,573 1,586,661 1,979,234 4,216

425,960 1,979,234 2,405,194 4,637

462,493 2,405,194 2,867,687 5,102

502,185 2,867,687 3,369,872 5,614

545,081 3,369,872 3,914,953 6,180

591,260 3,914,953 4,506,213 6,805

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

33.29 11.19 11.19 6.85 na #N/A

54.24 16.63 16.63 10.63 na #N/A

86.75 24.61 24.61 16.18 na #N/A

136.86 36.39 36.39 24.40 na #N/A

214.26 53.97 53.97 36.66 na #N/A

334.80 80.58 80.58 55.23 na #N/A

525.62 121.76 121.76 83.98 na #N/A

49676.19 9788.91 9788.91 6765.80 na #N/A

na na na na na #N/A

Borrowing : Proposed Loan Committed Loan Ongoing Loans Interest Accumulated Total Borrowing TOTAL SOURCES OF FUNDS 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

R:\4. MUNICIPAL FINANCE\WATER UTILITIES\C

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA GEMILANG KABUPATEN MAGELANG : PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

ANNEX F – SUMMARY OF BALANCE SHEET

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA GEMILANG KABUPATEN MAGELANG : PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

ANNEX F

36%

14%

18%

27%

TABLE B6 - BALANCE SHEET (CURRENT RP MILLION)

No Asset Revaluation

2001 Audited

2002 Audited

2003 Audited

2004 Actual

2005

2006

2007

2008

2009

2010

2011

Assets in Operation Accumulated Depreciation

reval after2004

20,749 10,454

21,496 11,746

22,853 13,030

25,678 14,609

29,491 16,496

32,840 19,013

33,060 21,078

53,026 23,775

61,619 27,367

62,212 31,246

62,478 35,153

10,296 75 375 1,123 (59)

9,750 548 682 1,285 (88)

9,824 804 572 1,760 (144)

11,070 858 1,731 1,901 (167)

12,996 235 701 1,818

13,827 220 707 1,581

11,982 19,966 2,999 3,732 (14)

29,251 8,593 16,611 4,567 (18)

34,252 593 33,170 5,623 (24)

30,966 266 57,908 6,827 (32)

27,324 93,394 8,713 (41)

3 21 5

10 28 3

2 38 0

2 266

2 231

1,908 418 886

2,229 404 963

3,506 1,146 954

2,787 600 1,035

2,521 504 1,431

6,765 424 1,431

21,215 356 1,431

38,829 299 1,431

64,770 251 1,431

102,136 251 1,431

13,510

Net Fixed Assets Work In Progress Cash + Deposits Accounts Receivable - Water Reserve of Bad Debts Provision, Water Past Connection Fees Put To Balance Sheet Receivable - Credited New Connections Inventories Other Receivable Total Current Assets Installation Inventory Other Assets

TARIFF INCREASE

days=target

209 23 30 days=target 29 Piutang (Usaha) non-Air; Piutang Lain Lain, 348

days=target

TOTAL ASSETS Accounts Payable Other Payable Other Current Liabilities (Cust. Deposit) Tax Payable Current Matur.Long-Term Debt

1,678 429 826 13,303

14,224

17,533

17,653

18,503

40,568

60,845

75,404

97,684

131,142

1 137 9 Turn Ov =Target 2 588

5 181 60 84 588

614 153 121 588

79 1,131 454 101 788

1 1,090 82 189 938

57 1,045 84 99 938

572 1,102 86 1,926 988

653 1,163 89 4,808 2,673

749 1,227 94 7,739 2,673

777 1,294 95 11,887 2,380

847 1,366 95 17,696 2,086

736

919

1,476

2,554

2,299

2,222

4,674

9,386

12,482

16,433

22,090

241 281 4,996

826 356 4,408

1,502 363 3,820

2,045 502 4,333

2,882 709 3,395

4,276 609 2,457

4,276 618 15,517

4,276 658 19,652

4,276 728 16,979

4,276 816 14,599

4,276 944 12,514

Total Current Liabilities Deferred Income Meter Reserve Fund Other Liabilities Long Term-Debt - Net Total Liabilities Assets Revaluation Surplus 10 Reserves + "Net" Retained Earnings Local Gov't Equity Central Gov't Equity (Inc'l Not Yet Handed Over)

6,254

6,508

7,161

9,434

9,286

9,565

25,085

33,972

34,466

36,124

39,824

1,018 4,126 1,904

972 4,126 1,904

1,033 4,126 1,904

1,329 4,126 2,644

1,597 4,126 2,644

2,168 4,126 2,644

7,779 5,059 2,644

16,777 7,451 2,644

26,510 11,784 2,644

41,811 17,104 2,644

63,748 24,926 2,644

7,048

7,002

7,064

8,099

8,367

8,938

15,482

26,872

40,938

61,559

91,318

average age initial revaluation

Total Equity TOTAL EQUITY AND LIABILITIES

13,303

13,510

14,224

17,533

17,653

18,503

40,567

60,844

75,404

97,683

131,142

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

2.3 1,154 79% 2.3 113 1 1.0

2.1 895 71% 2.5 86 49% 2.0

1.5 769 62% 3.0 99 41% 1.5

1.4 9 63% 3.1 76 43% 2.8

1.2 724 52% 3.5 62 33% 1.0

1.1 530 38% 4.6 40 24% 0.6

1.4 80 107% 2.4 74 52% 2.7

2.3 (2,110) 83% 2.6 69 59% 13.1

3.1 (4,150) 48% 3.7 65 56% 22.6

3.9 (7,191) 28% 5.5 60 54% 36.5

4.6 (11,262) 16% 8.4 60 53% 53.4

R:\4. MUNICIPAL FINANCE\WATER UTILITIES\Central Java\PDAM Kb. Mag4/7/06

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ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM TIRTA GEMILANG KABUPATEN MAGELANG : PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

ANNEX F

27%

TABLE B6 - BALANCE SHEET (CURRENT RP MILLION)

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

Assets in Operation Accumulated Depreciation

62,478 39,068

62,478 42,983

62,478 46,898

62,478 50,813

62,478 54,728

62,478 58,643

62,478 62,558

62,478 66,473

62,478 70,388

62,478 74,303

62,478 78,218

62,478 82,133

62,478 86,048

62,478 89,963

23,409

19,494

15,579

11,664

7,749

3,834

(81)

(3,996)

(7,911)

(11,826)

(15,741)

(19,656)

(23,571)

(27,486)

146,093 11,022 (53)

220,728 13,942 (67)

323,761 17,637 (84)

463,480 22,311 (107)

650,492 28,223 (135)

898,337 35,702 (171)

1,224,275 45,163 (216)

1,586,661 47,647 (273)

1,979,234 50,268 (288)

2,405,194 53,033 (304)

2,867,687 55,949 (321)

3,369,872 59,027 (339)

3,914,953 62,273 (357)

4,506,213 65,698 (377)

103

109

115

121

128

135

142

150

Total Current Assets Installation Inventory Other Assets

157,137 251 1,431

234,683 251 1,431

341,396 251 1,431

485,772 251 1,431

678,673 251 1,431

933,966 251 1,431

1,269,325 251 1,431

1,634,143 251 1,431

2,029,328 251 1,431

2,458,043 251 1,431

2,923,443 251 1,431

3,428,695 251 1,431

3,977,011 251 1,431

4,571,684 251 1,431

TOTAL ASSETS

182,228

255,859

358,658

499,118

688,104

939,482

1,270,926

1,631,830

2,023,099

2,447,900

2,909,385

3,410,721

3,955,122

4,545,880

Accounts Payable Other Payable Other Current Liabilities (Cust. Deposit) Tax Payable Current Matur.Long-Term Debt

923 1,441 95 26,328 2,086

1,006 1,520 95 38,406 2,086

1,097 1,604 95 54,768 2,086

1,197 1,692 95 76,512 2,086

1,307 1,785 95 105,064 2,086

1,427 1,883 95 142,253 2,086

1,559 1,987 95 190,419

1,705 2,096 95 235,194

1,864 2,211 95 278,173

2,040 2,333 95 320,415

2,233 2,461 95 362,776

2,445 2,596 95 405,948

2,679 2,739 95 450,501

2,937 2,890 95 496,912

Total Current Liabilities Deferred Income Meter Reserve Fund Other Liabilities Long Term-Debt - Net

30,872

43,113

59,650

81,582

110,336

147,744

194,060

239,090

282,344

324,883

367,565

411,085

456,015

502,834

4,276 1,128 10,428

4,276 1,403 8,343

4,276 1,795 6,257

4,276 2,340 4,171

4,276 3,085 2,086

4,276 4,086

4,276 5,419

4,276 7,178

4,276 9,118

4,276 11,255

4,276 13,603

4,276 16,175

4,276 18,987

4,276 22,054

Total Liabilities

46,705

57,134

71,977

92,370

119,783

156,106

203,755

250,543

295,738

340,414

385,444

431,536

479,278

529,164

Assets Revaluation Surplus Reserves + "Net" Retained Earnings 96,668 Local Gov't Equity 36,211 Central Gov't Equity (Inc'l Not Yet Handed Over) 2,644

143,098 52,982 2,644

207,091 76,945 2,644

293,823 110,281 2,644

409,903 155,774 2,644

563,753 216,979 2,644

766,098 298,428 2,644

972,744 405,897 2,644

1,200,250 524,467 2,644

1,449,743 655,098 2,644

1,722,724 798,571 2,644

2,020,789 955,750 2,644

2,345,639 1,127,561 2,644

2,699,077 1,314,996 2,644

Total Equity

135,523

198,724

286,680

406,748

568,321

783,376

1,067,170

1,381,286

1,727,361

2,107,485

2,523,940

2,979,184

3,475,844

4,016,716

TOTAL EQUITY AND LIABILITIES

182,228

255,859

358,657

499,118

688,104

939,481

1,270,926

1,631,829

2,023,099

2,447,899

2,909,384

3,410,720

3,955,121

4,545,880

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

5.1 (17,743) 9% 13.4 60 53% 75.9

5.4 (27,073) 5% 21.6 60 53% 104.2

5.7 (39,928) 3% 35.4 60 54% 138.7

6.0 (57,205) 2% 58.1 60 54% 180.0

6.2 (80,070) 1% 94.8 60 54% 229.0

6.3 (110,029) 0% 152.2 60 54% 286.4

6.5 (149,010)

6.8 (191,607)

7.2 (232,249)

7.6 (272,033)

8.0 (311,809)

8.3 (352,262)

8.7 (393,957)

9.1 (437,362)

234.5 60

227.4 60

221.9 60

217.5 60

213.9 60

210.9 60

208.3 60

206.1 60

353.1

413.8

469.4

518.7

562.1

600.2

633.5

662.2

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