5. THE BALI STRAIT FISHERY

5.1 Background

The Indian oil sardine (Sardinella longiceps) is the major fishery in the Bali Strait and contributes about 80 % of the total fish landings in this area. The fishery has expanded to a fleet of 300 fishing units with 190 based at Muncar, East Java. The most commonly used gear is the purse seine, introduced in 1970.

The installation of chilled sea water (CSW) was introduced in 1983 on board some of the vessels, and currently 69 purse seiners have been fitted with CSW tanks.

Sardine quality from traditional vessels varies considerably, especially if a fishing trip has to be extended, and the market price is very sensitive to quality. Auction prices can vary between Rp 50 and 200 per kilogramme. The provision of insulated fish holds for chilled sea water handling on board purse seiners has improved the quality of sardine considerably, thus commanding the higher prices and setting the standards for the canneries.

The location of fishing operations changes throughout the year, involving some longer trips with landings in Bali and transshipment by road to Muncar. The use of CSW during this period allows retention of good quality.

Good quality sardines are usually canned, medium quality used for boiled salted products (pindang), and poor quality converted into dry salted fish or meal.

In Muncar and its vicinity there are 6 canneries, 50 pindang units, 60 dry-salt fish producers and 6 fish meal plants. There are also 3 canneries and some fish processors on Bali.

The oil sardine is very important to the economy of the area, employing about 40 % of the local people.

5.2 Technological Development

Installation of CSW tanks on board purse seiners has increased the quality and yield of oil sardines. There is evidence of additional demand, at high price levels, for more oil sardine so the objective for further technological development is to increase the high quality supply and enhance the incomes to fishermen.

The introduction of CSW technology has taken place at a rapid rate since its introduction, i.e., 69 vessels in three years. The tank installations on traditional vessels have varied in accordance with several factors, but the motivation and finance have been readily available. At the current rate of development, an accelerated programme of conversions by the provision of external finance appears to be inappropriate.

The technological need for the future is to incorporate CSW facilities within an efficient new vessel design that can be used as a replacement for the older traditional vessels reaching the end of their life.

5.3 The Pre-feasibility Study

This study assumes that the level of fishing effort cannot be increased by expanding the fleet and therefore the way forward is to replace old traditional vessels leaving the fleet with new CSW vessels.

The official statistics of 190 fishing units and a total catch of 10 000 t are incompatible with the quoted number of trips and seasonal catch rates. An examination of limited statistics suggested that the number of active units is about 120 and the total catch is nearer 15000 t per year. On this basis, the number of trips per year is around 60 for traditional fishing units and for the 69 units converted to CSW storage probably 90 trips per year.

The investment profile takes 120 units as the base and assumes replacements of 5 new CSW vessels per year over a ten-year period. Such a development programme results in an increase in landings from 15 000 t to around 17 000 t per year over the period involved, whereas without replacement, the fleet would decrease to 70 active units with a reduction in landings from 15 000 t to 10 500 t per year.

The benefits that would be gained from the development programme have been calculated on the potential increase of sardine supplies to the canneries, rising from 74 % of current catch to 99 % of future catch.

Recent investment in cold storage in Muncar will bring the total available capacity to at least 1 000 t and this will be adequate. There is also sufficient chill store, over 40 t, obviating the need for CSW storage on shore. Freezing capacity of 30 t per day has recently been installed. Ice is currently delivered by truck and although there is a local demand for ice, the project can be contemplated without investment in a local ice plant.

5.4 Financial Analysis

The project provides 50 new vessels incorporating CSW storage as a basic design feature rather than add-on tanks over a ten-year period. These are replacement vessels at a total cost of Rp 850 million. It is assumed that loans could be secured at 12% interest over 10 years with a 3-year grace period on capital and interest repayments.

Financial analysis shows that the project, based on the assumptions for prices and inputs, is financially viable with an internal rate of return (FIRR) estimated at 25.6%. The repayment of loans does not present any difficulty and the sensitivity analysis indicates that the FIRR is more sensitive to variations of revenues than either investment or operating costs.

5.5 Economic Analysis

The economic analysis is based on financial data modified in the following way:

1. prices for capital goods have been adjusted by a factor of 90% to exclude the estimated duty and tax component;

2. no adjustments have been made for foreign exchange as the current rate of exchange for the rupiah against the US dollar reflects the true value of the rupiah;

3. the price for diesel oil has been adjusted by a factor of 80% to eliminate duty;

4. licence fees and levies have been eliminated;

5. this investment will not change the level of employment on vessels significantly and also does not allow for a change in the porterage system. There should be a marginal increase on shore in the processing sector but the cost of labour has not been adjusted.

The economic internal rate of return (EIRR) for the project investment is estimated at 38.8%. A 10% reduction in benefits would reduce the EIRR to 17.6% while a 10% overrun in investment cost would reduce the rate to 34.3%.

Over the period of the investment, there will be additional benefits as there will be an increase in the supply of fish. This will give additional benefits to fishermen and these will be enhanced by an increase in prices. The increase in the proportion of supply to the canneries will give a higher value-added and additional employment in the processing sector.

5.6 Conclusions

This is a classic case for a fishery where there is a statistical incompatibility between the number of boats, the catch rates, the fishing time and the total catch. The baseline data represent the best estimates that can be obtained from this fishery but they are to some extent speculative. The evidence is that the total catch is near its upper limit and any increase would be marginal. The analyses show reasonable financial and economic rates of return and the actual investment in the fishery supports positive values. This investment has resulted in CSW conversions rather than in increased fishing effort and this appears to be a national trend that will continue.

The limit on the total catch does mean that the primary objective of providing large volumes of low cost fishery products from this fishery is not attainable but employment can be maintained at a high level and probably be increased beyond the current 40% contribution. There can also be an improved contribution to GNP and some import saving from increases in supply to the canneries where the owners are confident of improved market potential. Increased supplies to the canneries imply a reduction in the supply of pindang but this could be alleviated by a re-allocation of fish destined for the fish meal plant. However, this has not been incorporated into the analysis as this would involve undue speculation.

This pre-feasibility study is dependent upon some assumptions that need verification before the project identification phase can be regarded as complete. Progress is possible in this fishery by investment in a pilot scheme to introduce a fishing vessel with CSW storage as an integral feature of the basic design. This would allow an investigation of the areas of greatest risk for the project and prove the assumption that the rates of return are robust with respect to the continuance of the total project.

5.7 Brief Description of Analysis Tables for Bali Strait

Financial Unit = Rp 1 million

Monthly analysis for year 10