Status of Procurement Although not called for in the Action Plan to mitigate “high risks” in procurement, the PMU and CTC-1 have analysed Bid Evaluation Reports and supporting materials for every bid provided by provincial or kabupaten Tender Committees, looking for evidence of collusion. Evidence of collusive and fraudulent practices have been found, and 7 tenders are recommended to be re-bid without the concerned contractors. Exchange Rate and Price Escalation Scenarios An exchange rate of Rp. 8,500 per US$ was assumed in the PAD and Loan negotiations. The Rupiah has been unstable recently, falling to 11,300 per US$ on 30 August 2005 before recovering to around Rp. 9,500 per US$. The long-term direction is quite uncertain. Six exchange rate scenarios are enclosed, from Rp. 8,000 to Rp. 10,000 per US$, together with an Estimated Project Cost at Rp. 9,000 per US$. These tables are now updated monthly, after contract and disbursement data is entered. Within the original Loan amount of $200 million, contingencies were US$ 26.76 m., including $9.69 m. of physical contingencies (7.5% of the base cost) and $17.08 m. of price contingencies (13.22% of base cost). These were only applied to civil works. Large fuel price rises (around 100%) on 1 October 2005 will affect contracts bid before then. The Government has issued a regulation providing for escalation of contracts which were ongoing as of 1 October 2005, based on price indices before and after the event. A provision of 15% has been made for escalation of contracts ongoing at 31 December 2005. The identity of such contracts and amount of escalation will be determined by each Provincial Implementation Unit in line with guidelines being prepared by Bina Marga. Future prices are also likely to increase over estimates made a year ago. A provision of 22% future price escalation has been made. This is a very rough estimate made based on observation of a small sample of recently revised Owner’s Estimates, for projects not yet tendered. The combined impact of ongoing and future price escalation due to fuel price rises on the Loan Amount is about US$ 25.2 million (at Rp. 9,000 per US$), already exceeding the Loan provision for contingencies. Reduction in AWP3 is needed of about 27%, after assuming all contingencies are used for civil works. CTC-2 began by updating the Second Annual Works Program (AWP2), to submit to World Bank in March. The updated AWP2 is used in the Loan Status estimates below. The cost of Consultant Services is likely to exceed the Loan allocation of $34.47 m, due to Loan estimates being made at the low end of the range of billing rates, and little price competition in some components. The projected deficit of about US$ 11.0 million assumes that all the Loan’s Unallocated provision will be used for price escalation of civil works (see overleaf). | 
