International Bank for Reconstruction and Development FOR OFFICIAL USE ONLY INDONESIA FY96COUNTRY PORFOLIO PERFORMANCE REVIEW REPORT OF PROCEEDINGS AND ACTION PLAN East Asia Region Country Department 111 January 4987 International Bank for Reconstruction and Development FOR OFFICIAL USE ONLY INDONESIA FY96 COUNTRY PORFOLIO PERFORMANCE REVIEW REPORT OF PROCEEDINGS AND ACTION PII,AN East Asia Region Country Department XI1 January 11997 ]International Bank for Reconstmction and Development FOR OFFICIAL USE ONLY INDONESIA FY96 COUNTRY PORFOLIO PEW0 ANCE REVIEW mPOWT OF PROCEEDINGS AND ACTION PLAN East Asia Region Country Department 111 J a p l u a ~I997 TABLE OF CONTENTS Pape No. 1 11. SUMMUY ACTION PLAN FOR GC)n/a7rbQUDB m K FOLLOW-UP OF CPPR ISSUES A. Project Performance 2 B. Quality at EntryIProject Preparation 3 C. Procurement D. Technical Assistance E. Counterpart Funds 6 F. Capacity Building 7 G. Disbursement 7 H. Monitoring of CPPR Actions 8 111. PROCEEDINGS OF PkENARy SESSION OF THE 1996 CPPR, MAY 22,8996 A. Opening Remarks by Vice Chairman of BAPPENAS, Ir. Rahardi Ramelan B. Opening Remarks by the Director of World Bank Resident Staff in Indonesia, Mr. Dennis de Tray C. General Issues Related to the World Bank Portfolio in Indonesia by Vice Chairman of BAPPENAS, Ir. Rahardi Ramelan P a ~No. e D, Overview of Sectoral Discusssions 1 (a) Education and Health Portfolio Review, by Samuel Lieberman, Chief, EA3 Population and Human Resources Division I (b) GO1 Comments 2 (a) Agriculture and Natural Resources Portfolio Review, by Mr. Gershon Feder, Chief, EA3 Agricultural Operations Division 3 (b) GO1 Comments 3 (a) Infrastructure Portfolio Review, by Anupam Khanna, Chief, EA3 Infrastructure Division 3 (b) GO1 Comments 4 (a) Industry and Energy Portfolio Review, by Peter Scherer, Chief, EA3 Industry and Energy Division 4 (b) GO1 Comments E. Pro-iect Identification and Preparation Issues 1. Quality at Entry: Strategic Issues, by Prof. Dr. Herman Haeruman, Deputy V, BAPPENAS 2. Quality at Entry: Ten Steps, by Richard A. Calkins, Operations Advisor, EA3 Department Page No. F. Implementation Effectiveness Issues 1. Comments on World Bank CPPR 1996, Effective Supervision of Project Implementation, by Drs. Soekrisno, Ministry of Public Works 2. Implementation Effectiveness Issues, by Anupam Khanna, Chief, EA3 Infrastructure Division 6. ProcurementIssues 1, CPPR Action Plan: Procurement, by Is. Sugeng Rahardjo, Assistant V to Coordinating Minister for Economy, Finance and Development Supervision (EKKUWASBANG) -.7 Comments on Procurement, by Mr. Robert Scouller, Resident Staff in Indonesia 13. Issues on Technical Assistance, by Ir. Sugeng Rahardjo, Assistant V to Coordinating Minister of Coordination for Economy, Finance and Development Supervision (EKKUWASBANG) 1. List of Participants ANNEXES Annex A Summary of Follow-up CPPR Meeting in Bandung, August 29-30, 1996 Annex I3 Proposals of GO1Working Groups Annex C World Bank Operations in Indonesia (Extracts from 1996 CPPR Background Paper) 1. INTRODUCTION I. INTRODUCTION 1. In its second 25 year Long-term Development Plan (1994-20), the Government of Indonesia (GOI) explicitly recognizes that efficient and effective use of development resources will be essential to Indonesia's continued economic and social development. To ensure that development expenditures financed by the World Bank are well used, the GO1 carries out Country Portfolio Performance Reviews (CPPRs) about every two years. These reviews are designed to increase the development effectiveness and sustainability of Bank-financed projects through a review of on-going projects and unresolved implementation issues. In organizing the 1996 CPPR, the Government and the Bank worked to increase its value and the prospects for follow-up by ensuring focus on a manageable number of issues and by enhancing government ownership. 2. The 1996 CPPR was designed around a cascading set of meetings, beginning with project discussions between Bank Task Managers and GO1 line agencies. These were followed in April and May by sector-specific discussions led on the Bank side by Sector Operation Division (SOD) Chiefs. The process culminated in one day Plenary Working Session in May 1996at which key portfolio-wide problems were discussed. 3. As a basis for the Plenary Working Session, the Bank prepared a Background Paper setting out the results of the two previous phases of the CPPR and suggesting areas for further discussion. Following the plenary meeting, the GO1 established internal Working Groups to address in detail each of the six critical issues identified during the Plenary: (i) project implementation performance; (ii) project preparatiodquality at entry; (iii) procurement; (iv) technical assistance; (v) counterpart financing; and (vi) disbursement and technical audit. 4. In August, as the first formal follow-up to the CPPR, BAPPENAS invited the Bank to a two day meeting in Bandung to review and analyze the conclusions and proposals of the Government's Working Groups. The Bandung discussions produced a draft Action Plan, which was then reviewed and cleared by the GOIIBAPPENAS in December, 1996. BAPPENAS also agreed to the publication of those proceeding to reflect the outcome of the 1996 CPPR. 5. Section I1 of this report presents the agreed Action Plan. Section I11 presents complete proceedings of the May 22 Plenary. Annex A summarizes the August Bandung discussions, Annex B presents the action plans proposed by GO1 Working Group, and Annex C provides a summary of World Bank operations in Indonesia until May 1996. 6 The Bank would like to express its gratitude to all GO1officials whose work made the 1996 CPPR a success. Dr. Ir. Budhy Tjahjati Sugijanto Soegijokoand Drs. Suryo Utoro are particularly acknowledged for their leadership in organizing the GPPP. meetings and follow-~p. The commitment and high level participation of governmentpersonnel in the follow-up process has increased substantially the prospects for successful implementation of the Action Plan and subsequent improved portfolio performance. 'The progress on the Action Plan will be reviewed by tke GBI/BAPPENAS and the Bank in February 1997. 11. SUMMARY ACTION PLAN FOR GtOIfV\'OR&DBANK FOLLOW-UP OF' CPPR ISSUES anticipatedbenefits of expenditure and PerformanceIndicators (1) Strengthen project selection and December 1996 targeting process process and golno go decisionswith better concept notelfeasibility review proceduresto be agreed with Bank (2) Strengthenproject preparationand (i) Agreed PreparationPlan (PP) as pre-appraisalprocess and appraisal1 suppiementto concept note (ii) Expanded Pre-Appraisal all project aspects ready and agree successfully completed steps to appraisal for FY97 pipeline technical negotiationsin the presentationto a maximum field) to expediteprojects processing of 10weeks for Loans negotiatedin the field (3) Simplify LoanAgreements and Disbursement Categories required), ma!or land acquisition, EIAs and with Legal Opiniononly TOR draft by appraisallnegotiations; standardizedisbursementcategory definitions; minimize conditionality Implementingunits and key support (i) Key Consultantcontracts consultants (if any) to conduct project signed before launch launchworkshop to includetime for (ii) Launch within 45 days of working groupsto review and finalize effectiveness work plans, indicators and implementation consultants for major projects to review and large equipment contract). assist in review of tenders and TOR of supervision consultants, wherever TORSfor new TA drafted certification of completed works engaged, should include a transparent by EAs and agreed by Bank assistance role in technical analysis of bids for selected priority projects and reporting on contract completion (qualitylserviceability). (4) Establish performance evaluation Effective evaluation reports system stem design report drafted December I996 system for consultants to be designed by BAPPENASfor use (for implementation in (5) Enhancequality and capacity of Domestic Consultant Industry Industry Development Team INDO and other (Tim Pembinaandan rofessional societies PengembanganKonsultan Nasionai -TPPKN) led by ) TPPKN to establish accreditation system for professionallconsultant i) accredited associations to December 1997 establish classification and certification requirements1 criteria for member firms and individuals regarding technical and managerial capacities Project Managers (PIMPRO) of TA projects to strengthen capacities to define, procure CPPR Topic and Responsible Principle lnstrurnents Progress Assessment Improvement Objectives Agencies and Actions TargeltslCriteria DaitelSchedule E. COUNTERPART FUNDS I (1) Expeditebudgeting and funds release BAPPENAS, MOF, Establish Evaluation Team to improve Issuance of budgeting guidelines by and provision of sufficient counterpart MHA, EAs linkage and expedite approval of SPABP and controls to ensure counterpart funds (DIP central projects) & DlPDAs for counterpart funds funds availability (SPABP as per (Rp murni), including: Loan 4017 negotiations minutes) (i) allocation of INPRES budget to provincesldistricts to be informed (both rupiah and foreign assistance- SPABP) every January together with Sectoral "satuan tiga" budget limits (ii) concerned sectoral agencies should inform the amount of foreign assistance which are allocated to the concerned provincesldistricts, every March for following Fiscal Year. (iii) allocation and disbursement of counisrpart budget r7eedsto be done earlier: I a. GoverncrlBupati~sconiirmation could be implemented as SKO, no need to be authorized. b. to prepare Bappenasjuklak (SOP) regarding regularlordinary DIP and DIP for counterpart budget. (iv) concerned provincesldistricts need to be informed about foreign assisted projects during Rakorbang TK 1111and Rakornasbangfor following Fiscal Year (2) Improve Project Land Acquisition BAPPENAS, BPN, FormWorking Group on Better Project Process MOF, MHA LandAcquisition Procedures further to Part 6:Land Policy Review of Land Administration Project (LAP) Primary Non-ProjectTargets (1) Strengthen Provincial BAPPEDAs (i) IDF Grant approved Strategic PlanningCapacity (ii) BAPPEDA Iwork plans for preparing strategic planning with 9 provinces (min.) support of RDPU-BAPPENAS (2) Enhance Local Government accountability for services provision and maintenance December 1996 government finance and central- local financial relations G. DISBURSEMENT approvallrelease for decentralized and released by April each year (same as DIP) see Loan 4017 Minutes of disbursement of project at targeted (FY 97 = 20%) EKKUWASBANG to address systemic identified and remedial disbursementproblems (iv) Further improvementof Special Account (SA)disbursement smaller; and less than 60 days processingprocedures from expendituresto SA replenishmentapplication (v) Simplifying of disbursement (v) Simpler schedule 1of LA categorizationand percentages (also note 2(c) above) ii.MONITORINGOFCPPRACTIONS (1) Increaseimplementationeffectiveness of Implementthis Action Plan by: (i) Exchangeof letbrlnote Bank-GO1loan portfolio (i) Identify staff responsiblefor summary staff assigned follow-up on each action (ii) Joint meetingsto assess: (ii) conduct bi-annualprogress review IIB. PROCEEDINGS OF PLENARY SESSION OF THE 1996CPPR JAURTA, MAY 22, I996 A. OPENING m M Ir. Rahardi.Ramelan Vice Chairman, BABPENAS Distinguished participants, Ladies and Gentlemen, First of all, I would like to convey to all of you the warmest regards and apology from the Minister of State for National Development PlanningIChaiman of Bappenas who is unable to be present today due to his overcrowded schedules. On behalf of him allow me to deliver the opening remarks of this plenary session. It is indeed a great pleasure for me to take this opportunity to convey our thanks and appreciations to the World Bank for the cooperation we have fostered so far which has resulted in a comprehensive, focused concept and in accordance with the needs and priorities of the Indonesian development. The contribution of the World Bank's fund for the Indonesian development is sipificant. Cumulative Bank lending to Indonesia as of March 1995 reached to US$22.6 billion of which US$16,6 billion has been disbursed. The current portfolio, for instance, consists of 63 projects for a total loan amount of about US$8 billion. The loan amount is significant and consequently the GO1 has to be able to meet its obligation to the Bank on time, including to pay back the principle, interest and commitment fee. The loan, therefore, needs to be spent effectively and efficiently. Again today, we are gathering here in the occasion of the Country Portfolio Performance Review. This opportunity should be optimized to develop a better relationship which benefits both of us, as we have a similar interest in improving the project quality in the preparation and in the implementation stage as well. By gathering in this place to share views with common interest in promoting the quality of the Bank's portfolio, proves that cooperation between the Government of Indonesia and the World Bank is considerably improving and progressing. We want to maintain as well as to enhance this degree of relationship. As its name suggests, Portfolio Performance Review is arranged to facilitate point of view exchanges among distinguished participants. Periodic review of the achievements of past and ongoing investrnent programs is vital. Open responses, comments, and even articulated criticism on crucial issues will be valuable contributions to the future improvement of the Bank's supported projects. I do hope with the openness of the discussions, the 1996 CPPR will come up with many useful findings and effective recommendations on how to remedy outstanding and emerging portfolio performance issues. It is expected that at the end of the plenary session we are able to develop an action agenda for the coming months to enhance the design and implementation performance of Indonesia projects financed by the World Bank. The implementing agencies are regarded as the key contributors for the success of such projects. I do believe that the distinguished participants representing various government agencies will contribute to this plenary session with informative as well as valuable inputs. We are here to analyze the situation and identify problems for the interest of both the Bank and the Indonesian Government. Therefore, your active participation as well as your positive contribution are kindly requested so as to find appropriate and applicable recommendations to solve the problems. Improving project performance should be a very high priority of the authorities concerned as well as the Bank. From the Indonesian side, development oe?jectives can only be approached, if not possibly reached, if the authorities and agencies concerned accept constructive criticism coming froin all sides, continuously try to rectify their weakness, and take necessary actions towards improvement. Steps to improve our own project preparation, project implementation and procurement system are not enough by only producing well documented regulations, meniorandilm of understanding, or other documents. The consistent implementation of key actions which should be taken by executing agencies plays an important role in carrying out the projects successfully. The existence of the Bank supervision missions is notable in contributing to the smooth running of the project. Their findings in the field, which include technical, administrative, and policy problems/successes, need to be discussed with all parties concerned immediately. Finally, I do hope this plenary session would benefit both, the Bank and the GOI, which in turn wot~ldbenefit all Indonesian people who are now striving for the enhancement of their prosperity. I invite your active participation in order to make this deliberation fruitful. Thank you and have a healthy discussion. B. OPENING mmWS Dennis de Tray Director, World Bank Resident Staff in Indonesia On behalf of the World Bank, let me welcome participants in this second Indonesia Country Portfolio Performance Review and thank all of those who have been involved in its preparation. The first Indonesia CPPR meeting was held some two years ago. It was designed as a forum in which the Government of Indonesia (GOI) and the Bank could review the perfomance of the current project portfolio, identify key problems impairing project preparation, implementation and development effectiveness, and initiate measures to address them. Today's plenary session continues in that tradition. We, the Government of Indonesia and the World Bank, share a common responsibility to the people of Indonesia because the resources that support World Bank projects belong, in the final accounting, not to the Bank, not even to the Government, but to the people of Indonesia. We must ensure that their money is spent wisely and well. The CPPR meetings are intended as an integral part of -- perhaps a milestone or exclamation point within -- a continuous process of project oversight designed to discharge this important responsibility. Tile Bank's long international experience in the areas of project preparation and implementation highlights the critical importance of government "ownership" to project outcomes. We in the Bank can and do provide extens~veadvice on and support to project implementation, but we cannot alone ensure a project's success. Here in Indonesia we are most fortunate in having a partner with a well-established commltrnent to portfolio quality. Let me emphasize at this point that the Bank has not just recently "discovered" the issue of portfolio quality as one might surmise given the considerable attention and resources that are now being directed at project supervision. However, our new president, Jim Wolfensohn, has certainly raised the profile of portfolio quality within the Bank, and has laid down a clear mandate to staff to ensure that the funds it makes available to member governments are not wasted. It is noteworthy that during his recent visit to Indonesia, Mr. Wolfensohn made a special effort to learn what was being done to deal with "problem projects" in the portfolio. Mr. Wolfensohn's starting point on the portfolio quality issue is that globally, the performance record of Bank-financed projects is good --but not as good as it should be. Indonesia' s portfolio performance has historically been better than the average, but we need to ask ourselves whether being better than average is good enough. As of March this year, the Bank had financed 258 projects in Indonesia, involving some US$22 billion in commitments (the active portfolio comprised 68 projects with a some US$5 billion in undisbursed commitments). Of 167 completed projects so far reviewed by the Bank's Operations Evaluation Department, 29 (17%) were assessed as unsatisfactory. Moreover, performance appears to have worsened in recent times, with 16 (24%) of 64 projects evaluated since 1990being assessed as unsatisfactory. This recent deterioration in performance may be altributable in part to the changing composition of the portfolio, and in particular to the shift away from clearly defined "major infrastructure" projects in favor of decentralized programmatic projects. These new project types pose more complex demands in terms of preparation as well as implementation, as does the increased attention the Bank is paying to environmental and resettlement issues. Decentralized projects will likely continue to account for a growing share of the portfolio. The increasing availability of private capital to finance "big ticket" infrastrucbre in the power, telecommunications, transport and water sectors will enable the Bank's lending to be targeted more narrowly at helping the people, families, communities and regions that have so far been "left behind" by an otherwise very successful development process. The collective challenge for GO1 executing agencies and the Bank in the coming years will be to ensure that these important but difficult-to-implement new operations achieve their intended development impacts and are sustainable. This will involve moving from an "approvals culture" to a "results on the ground culture" in which all actors are more clearly accountable for ensuring that projects are prepared and implemented well. Let me turn now to the strategy for the 1996 CPPR. This year' s CPPR has been structured as a three-level operation, with earlier project level and then sector level reviews providing the foundation for today's review of cross-sector issues. Our purpose throughout this process is not simply to turn-around problem projects--although this is certainly an important item on the agenda--but more generally to improve project performance across the entire portfolio. Where problem projects exist we must work together to put them back on track--or cancel them if they no longer make sense. For the bulk of projects currently evaluated as satisfactory we should be striving to ratings from "satisfactory" to."highly satisfactory." As I indicated earlier, CPPR meetings are milestones within a process designed to ensure that our projects achieve effective results on the ground. We need, therefore, always to keep in mind tliat today's deliberations are not an end in and of themselves. What we do today will ultimately be judged by how the recommendations we come up with are translated into action and by whether those actions improve project performance. The record for the 1994 CPPR is mixed. Those deliberations resulted in important changes on several fronts, most notably the issue of improved procurement regulations (Keppres 1611994). However, on other fronts the scorecard has not been so good and there remains a large unfinished agenda. There are two broad categories of issues for us to consider today. Firstly, there are what can be characterized as "processes in need of fixing". These include unfinished agenda items from the 1994 CPPR Action Plan--such as those relating to the management of technical assistance--together with other issues that have emerged with the new "breed" of decentralized projects. Secondly, there are broader systemic issues that require us to ask and answer more fundamental questions about the Bank's lending to Indonesia. Such questions include: e What the Bank is trying to achieve in partnership with Indonesia is changing - should our approach to project development and lending be changing? e Are our lending volume goals and the new nature of our projects consistent? * Are projects building institutional capacity through the provision of technical assistance, or are they bypassing and therefore perpetuating weak institutions by providing substitute capacity? This plenary session will not develop specific answers or solutions to any of this daunting range of issues. Our objectives must therefore be more limited if they are to be achievable. Firstly, we should aim today to secure agreement on a limited number of issues or topics that require priority attention by the GO1 and the Bank. Establishing priorities does not imply that all other issues are unimportant or should be ignored, but rather recognizes that action plans with too many priority actions are rarely implemented well. It is for today's meeting to determine the issues to be accorded top priority. On the Bank's side we have taken care in preparing our background document to avoid pre- empting these choices. Secondly, we must agree on a clear and time-bound mechanism for dealing with the priority issues we identify. And thirdly, we should agree on a follow-up mechanism for determining whether we are on track and, if not, why not. With these objectives in mind, I look forward to a day of open and constructive discussions. Thank you. Ir. Rahardi Ramelan Vice Chairman, BMPENAS Ladies and Gentlemen, It is a great pleasure and opportunity for me to raise some important issues which need to be assessed further during this one day meeting. As I have mentioned before in the opening remarks that we have a common interest in promoting the quality of the Bank's portfolio in Indonesia whether in the preparation stage or in the implementation stage, and this meeting has been designed to assist every relevant government officials in pursuing higher level stages of project preparation and implementation. This meeting should also be used to underline the importance of maintaining project sustainability. I will not make a long speech in this session. M a t I am going to say is to highlight some important portfolio performance issues that need to be discussed in this plenary session in order to develop an action agenda for the coming months to enhance the design and implementation performance of projects financed by the World Bank. As this plenary session is the last process of this year's World Bank CPPR, the issues which are becoming my concern are based on the Bank findings which are nicely documented in the Background Paper. In this connection, I would like to thank the World Bank Resident Office in Indonesia for their efforts in develop~ngthe Background Paper. The paper has provided us with valuable data concerning the action plan agreed at 1994 CPPR: Status and Recommendations; a list of Bank assisted projects; a list of active loan portfolio; 1996 lending program; the level of disbursement and so on and so forth. The Background Paper has pointed out many weaknesses on the part of government in carrying out projects. However, I also believed that all of us had tried to do our best. Of course, there is still room for improvement and we always have to strive for a better performance. Therefore, in this occasion, I ask Indonesian colleagues not to be apprehensive about the facts contained in the paper. I prefer to use the constructive criticism as a minor for self correction. My presentation will not cover the technicality of the project nor the success or the failure of the World Bank assisted projects, because we are here with many competent distinguished participants who will elaborate more thoroughly as regard the project from various sector's angle, but as I said before, I would like only to highlight the general issues related to the Bank operation in Indonesia. I would like to pin-point some interesting issues which are now becoming of concern in implementing the Bank's assisted projects. First of all I am going to raise four (4) main implementation issues in which we have identified since the 1994 CPPR and still considered by the Bank as crucial issues; and then I am going to mention some other never ending issues which need to be elaborated. The first main issue is Project Selectiorz and Preparation. "Quality at Entryt' has become the first stepping stone for achieving the project's quality when it is in the process of selection and preparation. "Quality at Entry" requires a mutual action in the sense that it requires participation from all concerned parties from government side as well as from the Bank side. According to the Bank's criticism, the mechanism of project selection in Indonesia does not work well, even it is mentioned that a number of projects in the Blue Book list appear with dubious feasibility criteria and inconsistent with GOT'Sown priorit~es. It is indeed a quite strong criticism but we have scrutinize ourselves, and if it is correct, we have to accept it. I think all of us agree how difficult it is to screen so many proposed projects coming from ~ariousministries and government agencies. Each proposal is developed with the justification that the proposal is based on GBNN (Indonesian State Guidelines) and Repelita (Five Year Development Plan), in the effort to be included in the Blue Book. With the awareness to strengthen the project selection mechanism, the GO1 has issued the Joint Ministerial Decree; the Minister of Finance and the Minister of State for National Development PlanningIChairman of Bappenas No. 185MK.0311995- No. KEP.0311 KET/5/1995 on Procedures of Planning, Irnplementation/Administrationand monitoring of Foreign LoansJGrants in the Implementation of the State Budget which is now available in English. The Decree aims to ensure that the proposed projects coming from line ministrieslagencies are in line with GOI's awn priorities as well as better prepared, The other intention of the Decree is to strengthen the coordination arrangements for project preparation in order to enhance the project ownership. Just to illustrate on how difficult for a project to be considered as a priority, here is a list of steps to evaluate a project. A project proposal should be examined in several stages before it is passed on to the external financial support agencies. The first evaluation is the evaluation done by Bappenas which is then compiled in the Blue Book. The evaluation takes into consideration the conformity of the proposed project with the policies, targets, and programs of Repelita; the feasibility for funding by foreign loanlgrant and other considerations in line with the policies of national development. It is, however, I have to mention here, that sometimes there are executing agencies which are not aware about the importance of Blue Book. The second examination is that prior to submission of proposals to potential lendersldonors, each project shall be subject to scrutiny by Bappenas, the Ministry of Finance, and other associated institutions. Even for projects requiring follow-up preparations with potential lendersldonors will be subject to review by a Team for Evaluation of Project Preparation which consists of representatives from Bappenas, the Ministry of Finance, the "will be" executing agency, and other associated institutions. On one side may be this new process does not conform with the spirit of debureaucratication, but on the other side this new process reflects GOI's prudent project evaluation Policy. In line with what I have just mentioned before, I personally accept the constructive suggestion from the Bank that the executing agency must be actively involved in formulating the project while its preparation is oftenly developed with the help of consultants. In this case, to improve the sense of the project ownership I appeal my Indonesian colleagues to guide, work closely, monitor, and even give warning to consultants who try to develop their own interpretations of the projects. The second main issue I am going to raise concerns with techniccs2l assistance. In this regard, I would like to thank ro the Bank for praising GOI's initiative on the issuance of the Decree of the Minister of State for National Development PlanninglChaiman of Bappenas No. 122/KETl7/94. However, it is sad to learn that according to the Bank observation the implementation of the key actions by executing agencies has generally been lacking. In this case, I am looking forward to hearing response from my Indonesian colleagues and having clarification on this matter. Among other things, Bappenas and Ministry of Finance are urged to review the Joint Circular of February 1996 on "Self calculation of owner estimate", in which according to the Bank creates some confusion among agencies. This is a quite new regulation, so it will be wise to find first the real problem rather than directly condeming the regulation. I am afraid, the problem will be the need to give elucidation to the people in line ministries in order to make them familiar with the new regulations. For the niaximurn utilization of Technical Assistance, I agree with the Bank suggestion that: (i) actions should be taken to enhance quality and capability of domestic industry; (ii) stringent review of consultants shortlists; (iii) consultant rates negotiated over the last few years should be reviewed; and (iv) actions should be taken to reduce delays in recruitment and mobilization of consultants. These suggestions are really valid suggestions. What kind of actions should be taken is then more important, It is expected that this one day plenary session will be able to identify some workable suggestion to improve the TA performance. I use the ward "identify", because I have high regard of the capability and credibility of participants, but the magnitude of the problems that should be solved are quite immense which needs to be assessed thoroughly and a one day seminar will be too short. The other interesting issue is effectivesupervision ofproject inzplementation. The Bank has found that restructuring of projects and cancellation of loan funds at GO1 request increased significantly since 1994 CPPR. The bottom line of all of this is the inadequate project preparation. 1 hope in the future GOI's officials are able to be more anticipative with the possible changing situations which will happen ahead. Regarding to effective supervision of project implementation, it is suggested by the Bank that GO1 may give authority to certify all major completed contracts and advise on all major changes in design and large price variations to consultants who assist in implementation supervision. I am interested with the idea of the Bank for the inclusion of the said supervision role in consultant TOR to guarantee the quality and serviceability of completed contracts. However, 1 invite my Indonesian colleagues to assess the possibility to add supervision role in consultant TOR, including the financially and legally consequences on that matter. Another invention to enhance effective supervision which is offered by the Bank is the establishment of an effective system of technical audits within executing agencies. It is quite difficult to make comment on this since the Ministry of Public Works has started a pilot project on this. The basic idea is good indeed. However, I believe our bureaucratic system has already had experience with such function to technically audit contracts. The problems may be the sfstem does not work effectively which may be caused by inadequate human resource or misplacement of personnel, orjust simple ignorance. What I am trying to suggest here is try first to maximize the utilization of our existing system, and then try to find out the weakness, and gradually try to strengthen the system, while we are implementing our program. As suggested by the Bank, the Ministries' Inspectorate General could be the appropriate structural unit for the purpose of technical audit. I am looking forward to hearing from my Indonesian colleagues on this matter. Have they already been informed about the project, and how far is their understanding concerning the project, also the availability of staff who have the ability to undertake technical audits; are some questions that need to be clarified before making judgment that Inspectorate General is the perfect unit to carry out technical audits. Ladies and Gentlemen. Allow me to continue to deliver my concern on the other issue related to project implementation, that is procurement of goods and services. Although the Bank has already given its compliment regarding the progress on procurement actions taken by GO1 through the issuance of Keppres 1611994, the Bank still wants GO1 to enhance the economy and transparency in procurement. More specifically, GO1 is required to streamline and improve bid evaluation process: reduce procurement time for ICBs; and other time consuming procurement activities. We also have the same interest with the Bank that procurement should be undertaken in a better manner and more transparent. What we have to do is to find every hole to improve this important undertaking. In my experience in the management of Tim Pengadaan, I have seen many efforts to expedite the procurement without ignoring the quality and serviceability of the contracts. It is fair to hear from you all the practice of procurement which has been processed so far. Again, I am looking forward to having your comments as well as your constructive criticism. I think I have mentioned four (4) implementation issues which are crucial for both of us, the Bank and G01. As we are living in a democratic society, those who want to raise other implementation issues it is welcome. Ladies and Gentlemen, allow me to touch some sectoral issues. From the sectoral discussions between Sector Managers of the Bank and the GO1 counterparts, the Bank has listed a number of sectoral problems. Although the problems are enormous, I hope they are manageable. Some of the sectoral problems are old story that we all do not want to listen, but we have to as the probiems appear each year. Land acquisition, for example, is always reported as a problem. It does not mean that GO1 does not do anything on that. The main issue related to the problems is mainly in the form of availability of funds to cover compensation for the people. In this connection, I am looking forward to the Bank comment on the possibility to allocate the Bank's fund in supporting GOI's struggle to give proper compensation to the people. Another old issue which still exists is inadequate or delayed counterpart funds. There should be a remedy to improve this unhealthy situation. When the loan agreement has been signed, it means that GO1 has already committed to pay the commitment fee for the delay of project implementation if it happens. Sometimes bureaucratic procedures create a lengthy process, and I hope this one day exercise could be the great moment to dig out the solution. Let's do an intellectual exercise to find a workable suggestion. A down to earth assessment of GO1 "Daftar Usulan Proyek" process is needed. A technical comment regarding this matter may be given by my colleague from the Ministry of Finance as well as from the Deputy Chairman for Fund Allocation and Implementation Mat~agement. In this regard, the process of the issuance of Legal Opinion also needs to be speeded up. I don't want to mention all sectoral issues, because all of you are already aware of the issues. However, it is interesting to note that monitoring and evaluation is still considered as a point of weakness. In this regard, I want to stress that monitoring and evaluation is crucial for the success of a project, so I appeal my Indonesian side to strengthen this part of project cycle, by giving adequate budget, providing the activity with adequate personnel, and giving adequate management attention: Before I conclude, 1 would like to greatly appreciate to the Bank for its initiative to commence negotiation in Indonesia (for the first time the negotiation of "Capacity Building in Social Sector Project" was taken place in Jakarta last month). I do hope in the near future there will be other projects to be negotiated in Indonesia, among other things to give opportuni'cy to relevant government officials to participate in the negotiation as well as to equip them with better understanding about the content of the loan agreement. In line with what has recently suggested by the President of the Bank - Mr. Wolfensohn, there is also a need to evaluate the performance of some ongoing projects which are 4 or 5 year in implementation in order to update their relevant with the current situation. I think that is all what I am going to say, thank you for your attention and have a fruitful discussion. D. OVERVIEW OF SECTOWE DISCUSSIONS I (a): Sainuel Lieberman Chief, EA3 Population and Human Resources Division On April 19 arid 23, portfolio reviews were held for the education and health sectors, both of which are considered to be in good shape. Projects are being prepared better, are disbursing well, and are having an impact. These projects are helping provinces play a larger role in the delivery of services. There are three problem projects: o, Skills Development Project (Minist~yofnilanpower). The project has been plagued by start-up problems but problem resolution is underway and is working well. LI Water cmd Satzitation Project for Low lizcome Gommu~ities, This project was recently downgraded to Unsatisfactory on implementation progress. We still feel it is an excellent project that has and will contribute to development of the sector. The unsatisfactory rating is due to the slow disbursements and the slow progress of the health and hygiene component. Over the next six month, we are looking forward to seeing progress on the agreed action plan. e Primtrry School l'encher Project. Implementation of the training of teachers has worked well, but teachers are not being hired, Less than one quarter have received jobs after training. The agreed action program involves the Provincial Governors and the State Personnel Administrative Board (BAKN) in enforcing government's required qiialifications for primary teachers, Cross-cutting issues in these sectors include: * Availnhility of counterpc~rtgitnds, Procurement of goods, works and IlrA, especially at the provincial level. o Lack of JZexibility in project implementation. There exists a kind of ""Costab paralysis". PIMPROs tend to be extremely cautious and do not want to experiment with new ideas or approaches not consistent with the detailed project design (or cost tables). There is excessive attention to intermediate objectives rather than long-term goals. Bank projects are not fully used as opportunities to innovate where road maps do not exist. I (b): Prof. Dr. Soekirrnan (LPepuQ Chairman, Ruman Resource Developmeat, ZIIMPENAS) e Agrees that there are implementation problems with the WSSLIC Project, and that these originate from probletns with project management. Efforts are being taken to speed up disbursement. Dra. Mawawati (Executive Secretary, Ministry of Healtla) e Counterpart Buclget. Part of the problem is that those involved in project implementation do not always know what procedure to follow to obtain counterpart funding, and suggests that standard procedures should be clarified and disseminated. e Lack of Flexibility it1 Project lmzplementation. A lor of time in preparation is spend on the development of the project cost tables by Government, and some believe that these targets and budget estimates should then be rigidly followed. The Bank side should better clarify how these pro-iections should be used. Drs. Vudo Swasono (Head, Manpower Planning, Ministp-ylof Manpower) s Skills Developnzent Project. Indicates that the inter-ministerial problems in this project are in the process of being sorted out. 2 (a): Gershon Feder Chief, EA3 Agricultural Operations Division The portfolio of Bank financed projects in these sectors involve five (5) different line agencies, Agriculture, Home Affairs, Water Resources (Public Works), Forestry, and Bank of Indonesia and a total of 16 projects currently under implementation. Of those 16 projects, five (5) are not considered satisfactory. Thus, these sectors account for 33% of all Bank financed projects (16 of 63), but 55% of all problem projects. Of the five projects, two will be soon upgraded to '>atisfactory", problems with the rest are under active discussion. Along with the "problem" projects, there are many good projects in the portfolio. Among the more outstanding projects are the Bio-Collections Project, the Yogyakarta Uplands Agricultural Development Project, and the Agricultural Research Management Project which was recently completed. The principal, cross-cutting implementation issues are: e Coorclination. Some projects are being implemented by three to four different agencies and involve central as well as local governments. To coordinate activities of these projects, Coordination Committees are established. Nevertheless, coordination remains difficult, as the effectiveness of these Committees is reduced as members often have many otherjobs and are not able to devote the time needed to make coordination occur. r Budget nncl Counterpnrt Funds. Problems with lack of budget allocations, including counterpart funds, have negatively affected two of the Unsatisfactory projects, creating delays in project start -up. A second issue is the problem created by the botindary of the Fiscal Year, for which only a short extension is given for the completion of expenditures from a previous year. I suggest that consideration be given to making such extensions longer. s Delays in Corztractingof Consultants. e Mo~zitori~zgnnrl Evaluation. There is a new requirement by the Bank that all Staff Appraisal Reports contain a list of agreed implementation indicators. These indicators should include: (a) medium-term indicators of implementation progress; and (b) indicators of project impact. e Involvenzent (?I"NGOs.We have discovered inany difficulties in involving NGOs in project implementation given problems in thelr meeting established contracting procedures and requirements. 2 (b): GO1 Cornmenas Dr. Pr. M, Anwar Wardhani mead, Bureau of Agriculture and Forestq, BMPENAS) Agriculture Extendon. The concept of agricultural extension has to be improved, to be based on experiences with such programs as Integrated Pest Management. It should be decentralized and include more active participation of farmers, as is now under consideration in the new Decentralized Agricultural Extension Project. Ir. Soeparmono (Birector General, DG ,MinistryofPublicWar&) e Coord'ination. The problem of coordination needs to be solved. We have tried to promote coordination at local levels by the BAPPEDAs, but not all BAPPEDAs function well in this job. e 7;1 Consultnnts. We have tried since the 1994CPPR to speed up the mobilization Drs. PI. Feisal Tarnin (Idireetor General, BANGDA, Ministny of Home Affairs) Locnl Capacity. The problem with provincial implementation of projects is that they have less experie~lce,and the BAPPEDAs TK 1& I1 need to be strenghened. These levels should also be responsible for coordinating NGO involvement. Counterpart Budget. In the determination of the counterpart budget, it is difficult to identify how much is to come from the local budget. In addition, there is a move to reduce the requirements for financing from local sources. Is it under consideration [by the Bank] to give loans to provinces? More financing should be directed to Eastern Indonesia. 3 (a): Infrastructure Anupam Khanna Chief, EA3 Infrastructure Division The Infrastrncture Division is handling a current portfolio of 17 projects involving loans totaling US$2.3 billion and total costs of around US$4 billion. The portfolio is generally performing well and producing acceptable results, with some projects performing excellently. This reflects GOI's strong commitment to economic and social development, the long-standing relationships between the core executing agencies and the Bank, and the competence and commitment of the personnel who manage these agencies, While the overall diagnosis is good, the goal of today's review is to identi-fjf how to do better. Our principal concern therefore is with "projects at risk", and how to transform these into successful projects. The key problems and issues impairing the preparation and implementation of projects within the Infrastructi~reportfolio are: B) Land Acquisition/Resettlement and Environment. The problems in these areas now relate primarily to issues of organization and programming rather than to policy. e Planning Framework. Planning approaches need to be adapted to evolving circumstances, and in particular to the much expanded role now expected of the private sector (project preparation is often disrupted by unsolicited private project proposals). * Inter-Agency Coordination, The increasing complexity of the new breed of decentralized urban projects is exposing weaknesses in inter-agency coordination, both among central government agencies and between central and regional agencies. * Local Capacity. The capacity of many regional agencies, particularly at the Tingkat I1 level, is relatively weak both in terms of role definitions and of staffing. e Technical Assistance Effectiveness. The effectiveness of technical assistance in the areas of institution building and policy formulation is impaired by poor management and supervision, and in particular by insufficient counterpart participation and poor follow-up of recommendation. * fiocurement. Keppres 1611994 has established much improved procurement regulations and eliminated many areas of conflict between the GO1 and Bank rules, but its implementation is less than satisfactory (for example, there are many instances of lowest evaluated bids being rejected for extremely trivial reasons). s Counterprrrt Funds. Implementation of many projects, and particularly decentralized urban projects, is still being impeded by the delayed release of counterpart Rupiah funds, and by shortage of counterpart funds in instances where costs--and especially land acquisition costs--have escalated significantly. HnfrarsrtsnetlarePoPTrfolio Composition Loan Amount US$ Million Trans~ot-tation - Third Kabupaten Roads - Eastern Indonesia Kabupate~iRoads - Fifth Kabuapten Roads - Second Highway Sector Investment Inte_~rated/DecentralizedUrban - East JavafBali Urban Development - Sulawesi Irian Jaya Urban Development - Surabaya Urban Development - Semarang-Surakarta Urban Development - Kalimantan Urban Development - Second East Java Urban Development Jabotabek - Jabotabek Urban Development - Second Jabotabek Urban Development - Third Jabotabek Urban Development Other - TA for Private & Public Provision of Infrastructure - Second TA for Private & Public Provision of Infrastructure - Flores Emergency Earthquake Reconstruction - Village Illfrastructure for Java 3 (b): GO1 Comments lr. Soeharsono Martakim (Director General of Highways, Ministry of Public Works) e Appreciate positive statements and generally agree with the comments made. At present, there is one major "bilateral" issue concerning TA procurement requiring resolution, but this needs to be addressed outside this meeting. Drs. Muchtarudin Siregar (Secreta~yGeneral, Ministw of Communications) E) MOC is currently receiving TA support from the Bank, so cannot comment on all of the points covered. a, In general. agree with the issues raised and would like to reinforce concerns regarding capacities of executing agencies. Even at the central level, it is becoming more difficult to attract and retain good staff, and there is a shortage of good project managers. In the absence of good project managers, it will not be possible to have good projects. MOC is now trying to train supervision teams and to enhance the role of local supervision consultants. Other Comments Lack of cleat policy and strategy for urban development is hampering project preparation. Clear guidelines are needed to avoid disruption caused by disputes concerning public and private roles. e Some loan agreements are overloaded with covenants which subsequently cause implementation and disbursement delays. Efforts should be made to address as many issues as possible during preparation and hence to reduce the number of effectiveness and disbursement conditions. Peter R. Scherer Chief, EA3 Industry and Energy Division The Industry and Energy project portfolio still accounts for the major share of Bank lending. Portfolio performance has been satisfactory axcept for projects in the finance and industry sectors. Most projects have been good at entry, and this review therefore focuses mainly on factors that have adversely affected quality at exit. The common theme across the sectors is the critical link between sound sector policies and successful projects. In the Industry Sector, project implementation has been good and disbursements have been in line with or ahead of schedule. However, an inadequate policy environment has diminished development impact: e Iiz~l~istrialRestructuriag Project. Unfinished deregulation reduced the restructuring impact. Fertilizer Restructuring Project. Continuing distortions in fertilizer pricing and marketing arrangements threaten sustainability of investment benefits. Project impact has also been diminished by weaknesses in technical assistance management: Lengthy contracting processes have considerably delayed important studies and policy TA services Follow-up to subsector and fertilizer industry studies has been very limited. * Insufficient cost-recovery of technical assistance services provided to firms. The major actions needed to address these problems include: Strengthen counterpart capacity to manage and support conduct of TA services. e Develop policies for sector structure reform that will enable sustainable fertilizer production. * Commercialize Public Research and Development Institutions and empowerlrequire them to charge for services to clients. In the Telecommunicntions Sector, projects have exceeded their performance benchmarks despite some disbursement problems. In the Gas Sector, PGW's performance has been impressive. However, project implementation and impact has been impaired by: * The circa two-year delay by Pertamina in supplying gas in East Java. e The circa nine-month delay in commencing the "twinning" TA services. For the future, it will be important to ensure third party compliance with project commitments. Moreover, while PGN now has strong project management capacities, it is impofiant to ensure that these are not weakened by the movement of personnel to other roles. In the Electric Bower Sector, where PLN is the Bank's largest borrower in Indonesia and one of the largest in the World, tlie overall impact of the large project portfolio is impaired by: cs Liquiditylfinancing problems that are constraining PLN's ability to fund its investment program. * Implementation delays in procurement and recruitment of consultants. e External non-commercial impositions by GOI. * Lack of clarity with respect to future sector structure and regulatory oversight within the context of expanding private participation and planned privatization. A comprehensive set of actions is needed to ensure the sound future development of the sector and hence provide a sound framework for the successful preparation and implementation of individual projects: * Rationalization of the PLN tariff structure coupled with an increase in the average tariff level. Relaxation of constraints that inhibit PLN's capacity to finance its investments at reasonable cost, including through debt financing. Relaxation of constraints that inhibit PLN's ability to enter into best practice commercial agreements with third parties. * Improve bid evaluation and contract award procedures so as to reduce the procurement cycle time from 200 to 90 days, and the consultant recruitment time from one year to two months * Establish an effective Directorate for Sector Regulation within the Directorate General for Power and Energy Development. 69 Initiate the requisite preparatory actions prior to proceeding with the planned partial privatization of PLN. * Enhance the Bank's supervision arrangements, inter alia through the institution of an annual sector level performance review (in JanuaryRebruary) against appropriate benchmarks, and by improvement of response times for procurement clearances. 4 (b) (On all Sector Presentations) Ir, Rahardi Ramelan (GPeputyChairman, BMPENAS) CP Counterpart capacity would seem to be a common problem across all agencies and thus to be a first priority for attention. Agreed that present monitoring and evaluation approaches focus mainly on disbursement and give insufficient attention to project outcomes, impact and quality at exit. Dr. Pr. Dipo AIarn mead, Bureau for Pndust~yand Mining, BAIPPENAS) * Mr. de Tray highligllted that we are today discussing how the Indonesian people's money is being used. Other speakers have also touched on the importance of project ownership and on the need for effective monitoring and evaluation. However, it would seem that monitoring and evaluation approaches are not yet assessing performance from the standpoint of the ultimate owners.. The issue of ownership is of particular relevance with regard to technical assistance. The ineffectiveness of much TA can be traced to lack of ownership. There is a strong feeling among executing agencies and among consultants--particularly foreign consultants--that they are working for the Bank rather than their client agency. Dr. Ir. Richard Claproth (Plead, Bureau of Electric Power and Energy Development, BAPPEPJAS) Agreed with Mr. Dipo Alam's comments about projects involving the use of the Indonesian people's money. Foreign loans should therefore bring benefit the nation, including through increasing local content. However, despite the long period over which Indonesia has been borrowing from the Bank, the country still has few world class contractors and consultants. Financiers should consider the liquiditylf nancing sirnation of PLN before lending more money to them. PLN has too much debt and its revenue growth is slow. The solutions proposed by the Bank are the easy ones. Attention should be directed at the other variables in the ROR equation, namely costs and the asset base. Other Comments The commercialization of R&D institutes will require MOF support. Prof. Dr. Ir. Werrnan Haeruman JS Deputy, Regional and Provincial Development, BAPPENAS First, let me express my sincere appreciation to the World Bank's Resident Staff in Indonesia far their thoughtfill comments on the wide range of issues covered in the section of the CPPR on "Quality of Entry". The Action Plan developed collaboratively by the Bank and the GO1 in the 1994 to increase the development effectiveness of Bank-funded projects has been extremely helpful in guiding changes in project preparations procedures followed by the GOI, and we remain in 1996committed to continued efforts to realize its objectives. Obviously, tliere are legitimate concerns on the part of the Bank that the "geographically dispersed investments which are increasingly managed by weaker agencies found at the subnational level" is adversely affecting the quality of new additions to its portfolio. From the standpoint of the GOI, such an observation has direct relevance to progress toward implementing a centerpiece of national development policy, namely decentralization of responsibility and decision-making to subnational governments. As Indonesia implements its decentralization initiatives, whicl~cover a variety of sectors, there will need to be carefirl attention by responsible central government agencies, such as Bappenas, not only to the pre-implementation stages of funded projects, but a sustained and proactive effort by the whole of the GO1 to strengthen local caAnacitiesto manage effectively these projects. For that reason, the issues raised in the CPPR have direct relevarice to our own self-assessment and our priorities for future action. As I see it, there are several key concerns raised in the CPPR related to Quality of Entry that warrant comment and clarification. These I would group under the four general headings of: (1) Project Ownership; (2) Project Financing; (3) Project Planning and Organization; and (4) Project Externalities. All are directly linked with project preparation. Let me briefly comment on these in the hopes of clarifying the GO1 position on the Project Preparation aspects of the CPPR. Bappenas regards "Project Ownership" not only on the part of the GO1 but especially at the provincial and local levels as the key to project implementation effectiveness. Projects that are initiated, or at least embraced, by local authorities, are more effective, based not only on experience here but as modeled by successful infrastructure projects elsewhere. The extent to which projects are screened in accordance with the objectives of Repelita is certainly an important step towards minimizing the extent to which projects are "consultant driven". Annual program discussions would facilitate links between Bank lending and GO1 priorities. But the identification step also needs to take into account, to the extent possible, a sense of more local priorities. Linking project identification to local planning, such as preparation of the PJMI, would undoubtedly increase the sense of ownership since GO1 initiated projects would more directly relate to locally defined needs. As the GO1 improves the PJIvf preparation process to take into account both local priorities for development, as well as local capacity to handle the costs of development through cast recovery, the overall project preparation process will be improved. I will return later to the topic of cost recovery as a component of project financial preparation, but I wanted to be sure to link it initially to the "Project Ownership" factors. "Ownership" and information are in many respects synonymous. In Urban Development Project (UDP) preparation, it is especially important for local government and enterprises, to be fully aware upfront of the implications of the loan package for their own operations. Full information, easily understood, is an important basis for ownership. For example, local governments need to understand counterpart budget requirements, the interest rate that will be used on the loan, required tariff increases, and specific regulations and conditions related to Subsidiary Loan Agreements (SLAs). Compared to the experiences at the start of IUIDP, project preparation under the current UDPs has involved far more financial transparency, increased involvement by subnational entities in city selection and determining priority components of projects, and in managing the activities. All of this translate into a greater sense of "ownership" with central government taking on the complementary role of assisting in institutional strengthening and overall guidance of project preparation and implementation. One problem, however, is that the currently used planning timeframe of five-year plans does not lnatcli well with the planning and implementation timeframe of infrastructure projects and the changing conditions in cities. This situation linked closely with development of consistetzt objective. Efforts to remedy this situation is underway in the form of development of SARLITA. Given that infrastructure projects frequently consumed at least three (3) years from the PJM planning to implementation, the plans are outdated even before the projects are completed. Infrastructure projects are better planned using a border timeframe, perhaps 10 years rather than the 5 years of the Repelita, so as to effectively anticipate future demand. One alternative strategy is to use a "rolling PJM" and "rolling Repelita" whereby there is a continuous updating of the plans to reflect changing demands. Of course, that will reqilire a stronger planning function overall, but given the volume of investment in infrastructure, such an enhanced planning effort is worthwhile. This is just one dimension of the "planning and organization" problems. One other very obvious problem is shortage of qualified staff to oversee these complex projects. Very oflen, within Bappenas and the sectoral ministries, there is handful of staff with experience and training to effectively oversee mutlisectoral infrastructure projects. What happens is that this small staff is requested to handle an increasingly larger load of projects without concomitants staff increases. This can adversely affect so many aspects to project preparation that cannot be overcome in the implementing stages. Obviously, the quality of consultants will determine the effectiveness of project preparation, but it is only the permanent staff working on projects that can ensure effective coordination and timely mobilization of consultants. There are also an array of "Project Financing" issues that affect project preparation and initiation, one of the most important of which is the coordination of central government borrowing for projects with provision by the local governments of counterpart funds. As noted above, project financing is also related to "ownership" of project, since the ability of local governments to mobilize funds for infrastructure projects is also related to the extent that they have been consulted in project inception stages. Coordinating local and central government financial systems with those of the Bank (and other lenders) will remain a continuing challenge. One way tlie GO1 is making it easier for local governments (Dati TI) to identify and plan for the needed counterpart funds is by expanding the general use grants under the Inpres program, and making those grants available at the beginning of the fiscal year (April 1). In tlie past, there have been delays in securing these funds for use in various projects, as well as fluctuations in the amount of tlie grants, thereby making it difficult to plan. A consistent level of funding for Inpres general use grants based upon a well- understood allocation formula is taking a lot of the mystery and uncertainty out of the local finance systern. The pricing of services that are provided through Bank-financed pro-jects remains one area of continuing challenge for the GO1 and subnaticnal governments. Here it should be stressed that there are non-economic implications that we must balance against the need to raise tariffs. The schedules established within the loans related to tariffs must take into account not only "ability to pay" but also "willingness to pay". Tariff increases for basic services like water, wastewater, electricity and transportation, to name just a few, are extremely sensitive matters. The extent to which there is balance between tariff increases and overall improvement in local resource mobilizatio~ithrough greater efficiency in collection and creativity in financing will result in less pressure to simply raise tariffs to provide cost recovery. And this, in turn, will mitigate conflicts and produce better services with more effective handling of debt obligations. One recnrring problem in project financial preparation is the limited database regarding the financial capability of local governments. This situation is being addressed on several fronts, including improved training for local government officials, more systematic financial reporting requirements (e.g. for PDAMs) and overall enlargement of the Local Government Finance Database available to central government (and donors) to determine financial capability. Where it is less difficult to calculate costs is in the whole area that I refer to "project externalities." that is the aspects of project initiation that involved costs beyond the actual construction. While the CPPR appropriately suggests that the GO1 has been giving "greater attention at an early stage on resettlement, environment, land acquisition and policy agenda matters," we recognize that large multisectoral urban-based projects must elevate these "externalities" to a central place in the project inception process. Were again, as in the case of "project ownership," tile role of community participation from an early stage in the planning process can help to more accurately identify externalities (and the costs associated with addressing them), as well as to help identify alternative project strategies to mitigate negative impacts. Most of "externalities" that fail to be assessed in the project preparation influence the quality at entry. These externalities are macro-economic and sectoral policy framework identifying higher hierarchy of goal and objectives, environmental impacts and risk assessment, sustainability arid behavior of beneficiary and non-beneficiary in the project sites. Assessment of potential cost recovery rnay involve actions beyond project scope. The role of the RSI's Environmental and Social Impact Unit (ESIU) is an essential support to this effort, although as I stated earlier, the GO1 planning processes must incorporate these concerns on a continuing basis. The objective of simplicity in project design is enhanced to the extent that community participation is an early and meaningful component of project preparation. I would like to emphasize that in developing countries, change is development. Change is occurring very often. To accommodate these changes in the project preparation is improving quality of entry. The only way to do it is flexible design and financing scheme, providing options and frequent review with more participants. As I hope I have suggested in these brief remarks, the GO1 is in general concurrence with the CPPR on virtually all of the issues raised. Overall, the GO1 response to the 1994Action Plan has been to underscore our efforts to be more proactive in our involvement in the projects, to convey the skills and resources to the subnational governments to enable them to be more proactive and responsible, and to better link complicated infrastructure initiatives more directly to the major priorities for national development. We still need to improve the monitoring mechanisms at the project preparation stage and improve communication between the technical level staff and policy-makers so as to strengthen the interaction process of top-down and bottom- up project planning and implementation. And we can make continued improvement in our efforts to involve corninunity and tile private sector in the urban development process. My reading of tlie CPPR leaves the strong impression that the Bank regards the GO1 is responsive to our jointly-derived initiatives in the project preparation phases. In closing, I would merely reiterate our continued commitment to the identified initiatives so as to achieve our national development objectives in the most effective fashion. Richard A. Calkins Operations Advisor, EA3 Department Consistency with Development Goals and Strategy Clarity of Project Objectives and Key Performance Indicators The Consideration of Alternative Project Design Fiscal Impact and Cost Recovery Sound Cost-Benefit Analysis (or Other Selection Criteria) Quantitative Sensitivity and Risk Analysis Institutiollal Assessment and Capacity Building Poverty Reduction and Other Social Impacts Environmental Impact and Risk Analysis A Detailed Implementation Plan Richard A. Calkins Operations Advisor, EA3 Department Over the past several years the Bank has focused increasing attention on the performance of country portfolios, since the Bank's real success is determined not by the number of loans we approve but by the benefits achieved "on the ground" -- in terms of sustainable development impact. "Quality on Entry" into the portfolio is a critical determinant of success in project outcomes. Specific factors vital to project success must begin to be addressed right from the beginning of project identification. These factors must feature throughout project preparation, and be fully reflected in the detailed project implementation plan. What are these critical success factors, and how important are they? According to a recent analysis of past Bank projects, there are 10 key elements to "quality on entry". These have been defined in terms of a framework for project analysis, a lists of key questions which need to be carefully considered, in order to avoid serious problems in project implementation and to minimize the risk of failure in achieving the intended development impact. These 10 key elements are the focus on this presentation. Their importance can be seen in the fact that those Bank projects that have not followed this framework of analysis have a much higher probability of failure than those where the key questions have been carefully asked and answered: After three years of implementation, for example, the probability of being rated unsatisfactory in terms of meeting develop~~lentobjectives is seven (7) times as large for projects where the Task Team failed to answer the questions adequately than for those where they did. And after four years of implementation, the probability of an unsatisfactory rating was 17 times as large. So these factors do make a difference. Most of these questions are a matter of common sense, and most are routinely asked of Bank projects in Indonesia -- by Government officials and by the Bank's Task Team. The issue is: how well are we, and GOI, doing in answering these questions? In all honesty, and this is clearly reflected in recent analysis of completed projects, both the Bank and the Government can -- and must -- do better. Let's turn, briefly, to these questions. Project identification should begin with a clear diagnosis of the problem(s) to be solved through the project, consistent with the country's development goals and objectives, the Government's strategy for achieving those goals and objectives, and the Bank's Country Assistance Strategy. The ke.v auestions to be considered in this area include: * Wow does this project relate to the country's macroeconomic goals and objectives (such as growth, poverty reduction, regional development, etc.)? e How does this project relate to sector-specific (or regional) issues and concerns (normally identified through Bank Economic and Sector Work), and GOI's strategy for development of the sector (or region)? s Is there clear evidence of Government commitment to, and "ownership" of, the project concept (e.g., whose idea was it, is it included in the defined public investment program, and is it considered by senior Government officials to be a high priority project)? a, How does the project relate to the Bank's agreed Country Assistance Strategy, including the linkage to other ongoing and plailned projects, and the priority attached to various macroeconomic and sectoral goals and objectives? * Should the project be in the public or private sector and, if in the public sector, what is tlie rationale for Bank involvement (i.e,, what special contribution or value added does the Bank - as the "lender of last resort" - bring to this project that no other donor/source of funds could provide)? Elaboration Establishing the basis for solid, on-the-ground development impact starts with the identification of a development problem, and the effective diagnosis of the causes of that problem, as a prelude to the design of investment andlor policies aimed at solving it. This means that Bank operations should be firmly rooted in sound economic and sector work that identifies, for high priority sectors, the policy, investment and institutional constraints and opportunities as a framework for discussions with GO1 on possible Bank assistance. One key test of "ownership" is the borrower's leadership of, and participation in, project preparation, including the staffing of the project preparation team and timely action to resolve basic questions of project policy and design. On tlie Bank's side, caution is needed to ensure that the desire to meet annual lending targets does not influence the objective approach needed to project identification and appraisal. Perhaps the most critical aspect of project identification is the specification of objectives and the standards that will be used to determine the extent to which those objectives have been achieved. This is an area that is currently receiving a great deal of attention within the Bank, and instructions have been issued by our Vice President that no project can go to the Board unless its objectives and performance indicators are clearly defined. The relevance of performance indicators for "ex-post evaluation" is clear, but their virtues in project identification and design are often not fully appreciated. Experience to date indicates that the effort to be clear and precise can pay very significant benefits in testing the extent to which all parties concerned understand and agree on the project's basic rationale. Attempting to quantify how we will know if the project has achieved its objectives also imposes a useful discipline on "overly ambitious" development goals. More importantly. for improving portfolio management, we expect the new performance indicators to help GOI, project implementing authorities and the Bank to monitor progress and results on the ground while there is still time to deal with any problems, and thus help to ensure that the intended project benefits are actually achieved. The ke-vuztestions to be considered in this area include: * Have the project's objectives been clearly defined, and do they appear to be achievable within the known constraints and risks facing the project? s Have each of the key project objectives been defined in measurable ways (quantitatively andlor qualitatively), and have performance indicators been defined that will lead to a transparent assessment of eventual project success? * Do tlie project indicators cover the key risks identified under the project's sensitivity and risk analysis, as well as tlie key inputs/outputs and (most iniportant) key outcomes of the project? o Are there a manageable number of performance indicators, andlor provision for aggregation of indicators at the sub-project level, so that project managers and Bank supervision missions can easily assess progress toward the key project objectives? * Does the project design and implementation plan include a monitoring and evaluation component that will track (in a cost effective manner) the key performance indicators on a timely basis? Elaboration This is a conceptually simple exercise, but in practice can be quite complex and challenging, requiring considerable thought and analysis. Given its benefits, however, the Bank has agreed to attempt to retrofit our existing portfolio wherever earlier projects do not include clear objectives and monitorable performance indicators. 111. The Consideration of Alternative Broieet Design The preparation of the project should include the consideration of alternative project design, both in terms of other projects that might achieve the same results in a different way, or alternative designs for a given project. This effort should begin with a careful review of the lessons of past experience. The kev qziestioi~sto be considered in this area include: =S What similar kinds of projects have been completed in the past, what went well in those projects (that should be repeated), and what went less well (that should be avoided or corrected in project design)? * How else could the basic problem diagnosed in 11, above, be resolved (through alternative projects or through alternative designs of the proposed project)? * In particular, what are the prospects that the private sector might be involved in solving this problem (the "private sector counter-factual"), especially if the Government were not involved, or under "enabling conditions" that could be established by Government more cost-effectively than using scarce fiscal resources to invest directly? D On the basis of this assessment, which should be rigorous and (normally) quantitative, is the proposed project the least cost solution to the problem? * Is there any way to reduce the complexity of the project, especially in terms of the liumber of agencies involved in implementation and the number of different project coinporients (both of which are statistically correlated with uusatisfactory project outcomes)? Elaboration Under current Bank policy, the "private sector counter-factual" is a critical aspect of the consideration of alternative design, and the burden of proof is now on the Task Team to establish that private sector participation would not be appropriate. The pressure to add components to a project will always be greater than the pressures to subtract components, but those pressures must be resisted. One way to do so is to agree on the design of a multi-year, multi-project (programmatic) approach to Bank support within a given sector. This should provide for broader coverage of the key sectoral constraints (policy, investment and institutional) without over burdening a single project. Such an approach could also include a series of regional projects (e.g., for Secondary Education expansion) within the framework of an agreed policy framework and strategy for Bank assistance to a given sub-sector, with considerable potential efficiency gains for GO1 and the Bank. Since most Bank projects provide direct support to public sector projects, it is important to understand not just the economic impact of the project, but also its impact on the Government's budget. To the extent that these costs represent a significant share of government revenues and expenditures, the sustainability of the project may depend on provisions for cost recovery, either directly through project-related fees or indirectly through taxes or other indirect charges. Thus, the fiscal implications, the potential for cost recovery, and the willingness of beneficiaries to pay for the benefits should be taken into account. The kev auestions to be considered in this area include: ca What is the project's overall fiscal impact, and what is the timing of that impact, in terns of public sector revenues and expenditures? e Does this impact, in terms of investment and/or recurrent costs, represent a significant share of existing Government revenue and expenditures (for the sector, at that level of Government)? Is cost recovery appropriate under the project, and -- if so -- what methods of cost recovery would be used? * Is the project financially sustainable on its own (i.e., are beneficiaries both willing and able to pay), or will continued subsidies be required? ca If subsidies would be required, to what extent are these subsidies "transparent"? * Who would benefit from the subsidies, and how does this relate to Government policies and strategies for poverty alleviation and the reduction of income disparities by different groups and/or regions? Elaboration Bank projects must take fully into account the fiscal implications of project implementation and, especially, subsequent operations and maintenance. Failure to do so will jeopardize the sustainability of project benefits. An understanding of budget administration, including the allocation, release and use of recurrent and development funds, will be critical for the design of a realistic project implementation plan, and this will be especially important for Bank projects that will be implemented at the provincial and local level. The scarcity of budget funds, and the fact that most projects involve private benefits, would argue for cost recovery wherever feasible, if not private provision of basic services. V. Sound Cost-Benefit Analysis {or Other Selection Criteria) The purposes of economic analysis (particularly cost-benefit or least-cost analysis) include: (a) determining the extent to which a project contributes to a country's welfare; (b) to identify bad projects (that should be rejected); and (c) to improve project design (e.g., through sensitivity analysis that can highlight opportunities to increase the expected value of future benefits. The essential questio~iis what would happen with and without the project, in terns of the flow of related costs and benefits. For some projects, however, the nature of costs and benefits may make quantification difficult, and thus a different approach is required -- based on an assessment of alternative approaches to achieving the same results, an evaluation of the costs of each approach. and the selection of the least cost approach. The ke.v qzrestions to be considered in this area include: D What is tile Net Present Value of the project (the discounted value of a project's cost and benefit streams, using an agreed discount rate), or the Internal Economic Rate of Retrtrn (the discount rate at which the present value of benefits and costs are equal, which is then compared with a "cutoff' rate of return)? Has this rate of return been calculated using nominal (current market prices) or real prices (i.e., taking into account "opportunity cost" principles)? Has the project used "conversion (shadow) prices" for certain factors, or a standard conversion factor, and if so, how have these been calculated? Elaboration Forinal cost-benefit analysis does not apply to all sectors, and even where it does apply, it is not an adeqrrate substitute for a careful assessment of alternative project designs (i.e., the rate of return calculation is a rather more narrow assessment than that required to ensure optimality on a rnacroeconornic and sectoral basis). Even for sectors where formal cost-benefit analysis does not apply, projects (and project components) must be subject to "least-cost1'analysis, to ensure optimality of project design and selection. Increasingly, however, we are "stretching the boundaries" of project cost and benefit valuations in order to expand our appreciation of the real impact of Bank projects (e.g., in health and education). Properly done, at the feasibility stage, rate of return and least-cost analysis should result in changes in project design; it should not be seen as an end-of-process, ex-post rationale for an investment already prepared. The main purpose of project sensitivity testing is to identify those factors to which the project's rate of return is the most sensitive. These factors can include an increase in project investment or operating costs, delays in project implementatioil, lower prices than anticipated hr project outputs, etc. Some of these factors may be entirely outside the control of the project's sponsors, but all must be identified so that they can at least be monitored. Where a project's rate of return is seriously dependent on one of more key factors, project design should also inciude mitigation plans to offset the risks of those factors occurring. At the same time, the rate of return calculation should reflect the expected outcome of the project, taking into account both the sensitivity of the NPV or IERR to project risks, and the probability of those risks occurring. Hence, the real rate of return should be the "most likely" one, taking these risks into account, not the rate of return that would be achieved "if everything goes according to plan". The ke,vauestions to be considered in this area include: e Was project preparation included an attempt to identify the underlying or causal factors that introduce risk into the project's potential outcome(s)? What type of sensitivity/risk analysis has been used, and how detailed and meaningful is this analysis? a, Does the analysis determine if variations in key underlying variables have an important impact on the NPV or IERR? r Have these risks been clearly presented, and is there a risk mitigation or contingency plan for each of the major risks as a part of project design? r Does the project implementation plan i~icludea provision for monitoring and evaluation of the underlying risk factors facing the project? r Were "switching values" calculated (those values for the risk factors that would result in an unacceptably low NPV or IERR)? Elaboration All too often, sensitivity analysis is approached mechanically (plus or minus 10% and 20% of investment costs, a one or two year delay in project implementation, etc.) rather than as a true search for the factors that are most important to determining the final outcome "on the ground" of the project's costs and benefits. The key project risks should be build into project design, at a minimum through provisions in the project implementation plan for monitoring and evaluation. Major risks should also be the subject of well-thought-out mitigation and/or contingency plans. VIIX. Institutional Assessment and In most projects that fail, institutional shortcomings -- including difficulties of inter- agency coordination -- are a major contributing factor. This is often cited as one of the "lessons of experience" and should be taken into account in the design of future projects. And yet, institutional stren@hening is one of the most challenging areas of development, perhaps least well understood by Bank Task Managers. To minirnize overall project risks, therefore, special attention may be required. The key uzrestions to be consider& it1 this area include: * Has the project preparation team adequately assessed the demands the project wilt make on the implementing agencies, their current capacities, and the extent to which further institutional strengthening is required? r Does the project design include a coherent, sensible, and cost-effective plan for institutional strengthening (taking into account the current "baseline" and the absorptive capacity of the relevant organizations)? * Does the project design and implementation plan provide for effective monitoring and evaluation of the institutional strengthening program, and plans for mid-course assessmentslcorrections? Have the risks of failing to achieve the institutional strengthening objectives of the project been factored into the overall rate of return (or least cost assessment) of the project, and -- taking the results into account -- does it still make sense to go ahead with the project? Elaboration While issues and concerns about weak institutional capacity are frequently cited in the "lessons learned" sections of Bank appraisal reports, the corresponding risks to achieving the project's intended development objectives are not always incorporated in the quantitative assessment of project risks. Mitigation plans generally include the provision of technical assistance for "institutional strengthening", but performance indicators (including baseline measures of capacity and targets for improvement) are often missing. As a result, monitoring and evaluation of institutional strengthening components may not be provided for in the project's implementation plan, and thus the achievement of intended results in this area are generally weaker than for the overall project impact. This factor will be increasing important to the success of the Bank's portfolio in Indonesia, given the increasing number of projects implemented by regional and local government agencies. It is increasingly recognized that the design of a lending operation should be based on a good understanding of the problems, needs and interests of those who are to benefit from it, and -- more importantly -- those who might be harmed by it. The virtues of a participatory approach can be seen in the record of more effective implementation and significantly greater sustainability of project benefits, especially for projects in the social sectors and those implemented at the local level (such as Kampung Improvement or village water supply). In the case of potentially negative impacts, such as projects involving involuntary resettlement, project design and implementation must be consistent with Bank policies and procedures. The kev auestions to be considered in this area include: Wlzo, exactly, would benefit from the project, and who might lose? s What are the incomes of project-affected people, and what is likely to be the poverty reducing effect of the project? e If land acquisition is required, will this involve involuntary resettlement (in which case, Bank Operational Directives may require a Resettlement Action Plan)? s What procedures will be put in place to ensure that the incomes/livelihoods of those negatively affected by the project will be fully restored (a basic tenet of Bank policy)? s Will the project impact on "indigenous peoples" (in which case, Bank Operational Directives may also require an indigenous peoples action plan)? s To what extent have other cultural factors of the affected population been taken into account in project design (e.g., gender roles in agricultural production, and alternative approaches to extension activities targeted to women farm workers)? To what extent is a participatory approach required in project identification? In project preparation? In project implementation? At each stage, is participation primarily one of consultation, or does it also include decision making? Elaboration While a highly participatory approach is not required for every project, it is likely to be an increasing feature in the design of effective regional development projects. Resettlement costs are a relatively small part of total project costs, provided that resettlement is properly planned and implemented, but can increase exponentially if not planned and implemented effectively. As a matter of policy, all Bank projects are subject to an environmental screening which results in a proposed "category" of environmental impact and risks -- from "A" for substantial environmental impacts and risks, to "c" for projects with no significant environmental impact or risks. All "A" rated projects must have a thorough Environmental Impact Assessment completed prior to appraisal of the project by the Bank. The kev questions to be considered in this area include: s Does the pro,ject require a full Environmental Assessment (either project specific, sectoral or regional)? o Have alternative project designs been considered that might reduce the potential environmental impacts .and/or risk? r Has an acceptable environmental mitigation, monitoring and management plan been completed, and fully reflected in project cost and risk analysis? Have the potential environmental impacts been evaluated from an economic perspective (e.g., project "externalities") and, if quantifiable, have they been incorporated in the economic rate of returdnet present value calculation? s In the case of programmatic operations, are there adequate provisions subsequent review and approval of environmental impacts of sub-projects? Elaboration Given the need for "baseline" measurements, which can take months to obtain if not already available, proper environmental assessments should begin at the earliest stage of feasibility analysis. EAs should not be considered an "add on" analysis, but should be an integral part of the feasibility study, most especially in the early consideration of alternative project design, and particularly in the consideration of alternative project locations and layout. The EA process will not live up to its potential if it is completed too late in the project cycle. Implementation plans, and supervision plans by the Bank, must take fully into account the need to monitor and evaluate potential environmental impacts and the success of mitigation and management plans. These plans are sometimes not fully understood by project implementation staff, and are sometimes not fully supervised by visiting Bank missions. Greater attention should be given to sectoral and regional environmental assessments, and greater support is needed to Government plans for improving spatial planning at the regional and local levels. F. EFFECTIW SUPERVISION OFPRrDECT ImklCMIENTATION Drs. Soekrisno Expert Staff, Ministry of Public Works It is really a great honor for me to participate in these deliberations and to exchange with you some observations and ideas about the issues affecting the effectiveness of Project Implementation with particular reference to the Ministry of Public Works. I hope this exchange would contribute to our joint efforts to ensure that all our projects are cost effective and sustainable and yield their expected return to the economy of the country and to the beneficiaries. MPW started to focus some years ago on improving the quality of projects implementation as de~nonstratedby the current organization of MPW where more emphasis is given by each Director General to effective implementation an a regional basis. The current initiative to introduce quality assurance is another step to ensure the effective implementation of public works projects. At the project level we have also introduced a series of training programs for the project managers and their staff so that they can keep abreast of the requirements related to their functions and responsibilities. There are also overriding concerns regarding the environmental impacts of projects and capacity building, and MPW is committed to finding adequate initiatives during the planning or preparatory stage and solutions during the implementation stage to overcome these concerns. I will endeavor to limit my remarks to three of the six issues which have been identified by our colleagues in tlie World Bank as those which presenily affect the effectiveness of project implementation and supervision. I shall deal later in short with the other issue particularly about the role of Secretariat General in providing assistance to expedite and streamline project implementation through monitoring of budgeting and disbursements. Let me consider firstly, the role of supervision consultants during the implementation stage. We are all agreed, that in most projects for the construction of public works infrastructure, there are important activities of a specialized nature, requiring the use of appropriately qualified consultants. However, we presently recognize shortcomings in the recruitment and management of the high quality expertise we aim to employ through these consulting services. We appreciate also that a significant proportion of resources are allocated for consulting services. Efforts to reduce the proportion of costs allocated to consulting services, without proper care and attention being given to the likely consequences, may well result in much higher overall project costs although the proportion of the cost of consulting services to total cost may appear to be lower. It is our common task to find practical and effective ways to optimize tlie use of consultants and to introduce greater accountability for the task which are assigned to them, without in any way diminishing the wider responsibility assumed by our Project Managers. Supervision consultants are essentially our partners in ensuring that we achieve the triple objectives related to project completion namely that projects are implemented on time, to the best achievable quality, and within planned budget. We wish to see a more active role by our project managers to ensure that program and project objectives are achieved with optimal consideration of the expert opinions, technical innovations, and implementable solutions suggested by the supervision consultants. With this mechanism in place, we anticipate also a good contribution to building-up in-house capacity of counterpart personnel. We concur with the view that here shoi~ldbe more explicit definition of the roles and responsibilities of the consultants, with the creation of the right contractual relationships and authoriq for the consultants to assume their responsibilities in a conducive atmosphere and without fear of repercussions. We would very much like to ensure that the certification process with respect to compliance with the design, and ensuring standards of quality, costs and serviceability of completed works are all included in the detailed consultants Terms of Reference. The TOR should therefore elaborate in greater detail the scope of works, specialization of the expertise required and the mechanisms for giving instructions to the contractor and especially the clear relationships between the consultants and the Project Manager. The latter will be responsible to establish the essential linkages between the various contracts and sub-contracts so that at the end infrastructure facilities perform as desired. The Project Managers should have more regular meetings with their consultants to discuss current issues faced by the projects and to make necessary decisions in a timely manner based on the best professional advice. The Bank is well aware of our commitment to strengthening our construction industry and to encourage the greater use of locally manufactured products. To this end supervision consultants should not only find fault or instances of non-compliance with specifications, standards and the like, but also establish the necessary mechanisms to avoid the acceptance of poor quality work, give guidance on good construction practice and if necessary introduce adhoc training activities to improve the performance of contractors where they have specific shortcomings. This may sound rather unusual to those accustomed to traditional contractual relationships. I-Iowever, we must view this in the context ofthe strides which have been made in the capacity of our national contractors to handle contract works of wide variety and increasingly larger volumes as compared to only twenty years ago. In line with strengthening the capability of the national construction industry, we are now in the process of tabling a comprehensive construction law which will set out clear principles for what each party namely Owner, Consultant and Contractor contributes to a design, construction and supervision and also sets out their powers and responsibilities. We hope that this and the later implementing regulations will provide a fairer basis for contracts and a realistic foundation for contractual accountability, an area that is often not respected in Indonesia today, I am sad to say. As mentioned in the World Bank 1996 CPPR document, the Ministry of Public Works is piloting the use of technical audits as part of effective supervision of project implementation. This program is assisted by the Bank. We are conscious of the fact that comprehensive audits must cover administrative and financial aspects as well as matters which are more technical in nature, covering the efficiency of performance and effectiveness of programs. We appreciate that with the increase in the proportion of disbursement being undertaken through SOE procedures, the Bank would like to see these audits extended on a random basis to activities covered by SOE payments. MPW's Inspectorate General is introducing technical audits for selected projects, including those financed under SOE mechanisms. In doing so, there is a need to assure a common understanding at central government results of the technical audits. This should be folloxved by dissemination of adequate information and exchange of views with all levels of the respecti\,e agencies including pro\fincialand project officials and the development of appropriate standards arid guidelines to be applied in evaluating efficiency of implementation and effectiveness of the pro-ject. This has the consequence that institutions should be strengthened and training should be conducted so that those ~vhoaudit and those \\,hose performance is being audited have the samc perceptions regarding the objecti\zes of the audit, Our econom) is becoming more di\-ersified and public works infrastructure has to be provided to keep pace wit11 sue11 dynamic de\*eiopment programs. In this context \I1e appreciate veq. much the Bank's efforts to instill greater attention to the efficiencj. of all investments made in specific sectors. I \\auld like to express our hope that the Bank would continue to assist our Inspectorate General in extending the coverage and in improi,ing the quality of technical audits uhich will enhance the efficiency and effecti\reness of the increasingly more challenging MPW projects and programs. If we can now turn to the issues of timely and adequate availability of counterpart funds we can identify areas which need attention. Firstly decentralization and budget commitments by local governments, follo~vedby integration of long term planning and programming more directly with annual budgets and project finding releases and thirdly the reflection of this in the allocated needs based budgets and their assured and timely application to programmed expenditure. On this occasion. 1 would like to limit my remarks regarding the above aspects to the Bank Assisted Urban Development Projects, I am, of the opinion, that local governments and their leaders will wholeheartedly commit themselves to meet all their obligations including the financial responsibilities, as long as they are fully convinced that the projects are in line with the priorities of their perceived needs. At the current level of decentralization we need to make a greater effort to sensitize their views to consider these projects as investments which have important multiplier effects for their regional economy, rather than to be viewed as unnecessary imposition. Today, there is a perception in some quarters, which 1 hope is wrong, that funding for urban development projects is orchestrated by linear thinking based on considerations which are more in line with central government views. For example, loans for Jabotabek I1 and I11 may be viewed as linear progressions from Jabotabek I. A similar perception may apply to other urban development loans. The most effective way to counter this is to solicit much more stakeholder participation in the formulation, prioritization and funding of projects with necessary support and guidance from the Central Government. We need to engender a greater feeling of ownersllip by the stakeholders not only in the overall project objectives but also in each individual component. They shall also be fully aware of how the investment will accelerate economic developnlent in their regions. With a better sense of ownership, I am sure that the related appropriations in the annual budget and especially that emanating from the regional budget will no longer be a . .. problem. We can also see that the management style and leadership qualities within each region has an importarlt bearing on the implementation of urban development projects. For example, I an1 informed that the dynarnistn of urban managers it1 East Java is so great that they can absorb much more funds than was originally earmarked, while there are other regions in which the absorptior~capacity has been muc11 lower than planned. These differences in management style should be taken into consideration under current decentralization process for effective project implementation. Longer ter~nplanning based on the programmatic approach implies the need for clearer definition of arlnual work programs and budgeting resources during the course of implementation. We must recognize that there are several different sources of funding related to the iniplemcr~tationof urban dcirelopment projects. These are APBD (local govcmmeI1t budget). APBN (national budget). Sub-loan (on-lending from Central Government). Domestic borro\ving. SPABI' (Central government loan converted as a grant to local government). and INPRES. With full understanding of the n~echanismof allocation of these different sources of funding. urban managers will be in a position to provide the required matching budgets at the beginning of the financial year. I am also informed that the delays in the use of SPABP as mentioned in tile Bank report \\.as partly due to the late announcement of such allocation which led to delays in internal processing ~vl~ichinvolves discussions with the local government parliament. In discussing the counterpart fund, we have also to consider the increasing reliance on private sector investment \\41ich also mean increased reliance by the private sector on timely public investment. This is another reason for us to address wider issues raised by the Bank's point on availability of counterpart funds. The final point I wish to raise regarding counterpart hnds is the provision of budgets for land acquisition. We appreciate that urban leaders are oftenlf faced with high land prices due partly to the activities of speculators. Therefore we support the idea now being developed that sale or transfer of land designated for development purposes should be frozen as soon as the development plan has been \veil identified. Where there is a clear diriculty for urban leaders to meet the funds required for land acquisition, then' it is necessary for the central government to consider ways to facilitate the provision of such hnds, since under the current allocation of taxes there still a long term requirement for a large proportion of Central government sourced fund in most components of development expenditures. On the issue of guidelines from Line Ministries to projects, to my knowledge, MPW has already issued guidelines with respect to procurement procedures, standard bidding documents, \vithdra\val mechanisms and procedures and standard documents for progress reports. We have also improved the role of Kanwil, as program and project coordinator of MPW projects including the related supervision activities, by providing them a complete understanding of the prevailing guidelines, standards and procedures. We expect that this involvement by Kanwils will help to resolve some of the issues addressed in the Bank's 1996CPPR document. Let me close these remarks with my sincere thanks to Bappenas for giving me this opportunity to share in these deliberations and my grateful appreciation to the Bank for their continuing support. I look forward to the discussions to improve the effective implementation of projects. Thank you. Anupam Khanna Chief. EA3 Infrastructure Division For successful project implementation, it is first important to have a high quality of project design at entr?.. After that, the following issues are most important: c Project Start-up. This was also discussed by the 1993 CPPR. Of primary importance is the definition of the organizational arrangements. D Counterpart Fun&. The issues of counterpart funds include: (a) their availability: (b) timeliness of availability during the year; (c) problems of insufficient funds created by unforecasted cost escalations for major works; and (d) lack of targeting for available funds on project areas. e Infer-agency Coordination. Local Insfitutio~~nlCapacitJ?. * Teclrrzical Assistance. It is necessary that the management and supervision of consultant services be tightened so that: (a) consultant work that does not adequately fitlfill the TOR is rejected by government; (b) counterpart personnel from Government are assigned to work with the consultants; and (c) a results-oriented approach is taken to ensuring the consultants' work is productively used. e Supevision of Contracts. The supervision of contracts should be tightened by using consultants to assist in this work. o Beneficiary Parficipafionand CommunilryConsulfafion. e Performance Monitoring. There should be a set of "early pointers" that would allow project managers to very quickly assess the quality of project implementation. Monitoring should address project inputs, outputs, outcomes, and impact. The first areas (inputs and outputs) should be the focus of early monitoring activities, and with a growing emphasis placed on monitoring outcomes and impact as the project progresses. ." s Flaibilify, Rcdaign, and Resfrucfuring. It is important that projects support a program approach, and are used to experiment with the best strategies for achievenzent longer term program goals. * Qualilq'Assurance and Audit. Bappenas' role in this area should be strengthened. For example, Bappenas should work with line agencies to encourage the adoption of technologies that are tztore sustainable and cost effective. 6. PROCUEMENTISSUES lr. Sugeng Rahardjo Assistant R4inister. EKKUWASBANG Good afternoon, ladies and gentlemen. It is my pleasure to present the Govenlment of Indonesia's (GOI) response to the "Courrtry Portfolio Perfarmance Review (CPPR)" Action Plan concerning Government Procurement. The GOI's response was originally scheduled to be presented by Bapak Drs. Muhammad Abduh, MA, the Executive Secretary to the Coordinating Minister for the Economy, Finance and Development Supervision (EKXUWASBANG). Bapak Abduh traveled to Washington last week and expected to be able to attend this important CPPR meeting. Unfortunately, he was detained on an urgent matter. As assistant to the Coordinating Minister, and on behalf of Bapak Abduh, I was invited to provide the GOI's response. We will provide the World Bank a copy of the prepared remarks Bapak Abduh planned to give. I think his presentation traces the significant process the GO1 has made to improve the efficiency, transparency and openness of Indonesia's government procurement system. His presentation also suggests additional ways the World Bank and GO1 could work together to accelerate the implementation of World Bank-financed development projects. Please permit me to focus my remarks upon the "Status and Recommendations" sections of the CPPR Action Plan on Procurement. However, I would like to open my remarks on a somewhat personal note. Last month, my colleague, Bapak Drs. Syamsuddin, Expert Staff to the Coordinating Minister, traveled to Washington, D.C. to consult with procurement experts concerning several additional improvements the GO1 is considering. Of course, key procurement officials Bapak Syarnsuddin considered consulting were employed by the World Bank. Mr. Aftab Raza, RSI Jakarta, assisted him to schedule appointments with: Mr. Richard Calkins (Office of the Director), Mr. Preben Jensen (Regional Procurement Advisor), Ms. Francoise Bentchikou (Principal Counsel, Legal Department) and Mr. John Fringer, Jr. (Sr. Procurement Specialist). Each of these professionals kindly took the time from their busy schedules to consult with Bapak Syamsuddin. Their inputs and, in particular, the "Business Process Templates for Project Implementation" provided by Mr. Calkins were very helpful. We would like to thank each one for their assistance. Recn~71mer1datio11 "771e good efforts accomplished so far ought to be sustained and fine tuned b\- PRC/PRPAG. GOI/EKKUWASBANG to include in SBDs of ci\.il works the pr-oxpisionof interest paJ,tnent to contractors on delayed paJrments and eligible compensations to contractors for events beyond their control." Since the last CPPR. the GO1 has worked diligently to improve the efficiency. transparency and openness of the Indonesian goxlerninent procurement system. During tliis period, the GO1 adopted six he\, procurement regulatioiis to increase the efficienc~of the o~~erall procurement sJsstem and encourage free and fair co~~~petitioiithroughout the procurement process. As to increasing the g~@c~enev of the overall procurement system, these key regulations: (a) provide greater flexibility in tendering procurements; (b) further decentralize the procurement function to implementing line ministries; (c) strengthen the GO1 procurement oversight and management function; (d) provide an improved method of selecting capable contractors; and (e) permit the consolidation of procurements into multiyear awards. With respect to encouraging competition, they: (a) require public and limited tenders to be widely advertised; (b) require a clearly defined criteria for selection of contractors; (c) establish the framework for a more equitable relationship with go\wmnent contractors; and (d) provide greater certainty in the interpretation of procurement policies into procedures and practices. The six primary procurement regulations adopted are: r On 22 March, 1994, the President of the Republic of Indonesia signed Presidential Decree No. 16 of 1994 (more commonly referred to as "Keppres 16" the Indonesian abbreviation of "Keputusan Presiden") to regulate the acquisition of services and supplies for those bodies, agencies and enterprises that are funded, in whole or part, by the budgets of the state or regional government. * On 4 August, 1994,the National Development Planning Board (Bappenas) and the Ministry of Finance issued an interministerial regulation, Surat Keputusan Bersama Menteri No. KEP-27/MK.3/8/1994 KEP-166/KET/8/1994, to disseminate a new Government Procurement Manual. * On 4 July, 1994, the State Minister for the National Development Planning Board (Bappenas) signed Ministerial Regulation No. KEP.l22/KETI7/1994 (more commonly referred to as "Kepmen 122" Keputusan Mcnreri) to regulate the teridering and contracting-for consulting sert-ices. 4) 011 7 September, 1994, the National Development Planning Board (Bappenas) and the Ministry of Finance issued a joint circular, Surat Edaran Bersama No. SE- 130/A/31/1994, (revised on 14 February, 1996) to disseminate baseline rates for consulting services. e On 2 February. 1995. the President signed Presidential Decree No. 6 of 1995 to reorganize the team created by Inpres No. 1 of 1988 by establishing an irlteministerial Procurement Evaluation Team (commonly referred to as "Tim Evai'uasi Petrgadaatr " or "TEP", chaired by the Coordinating Minister for Economj~, Finance and Development Supervision) to evaluate large value contracts before award by the proposing implementing ministries. On 28 April, 1995. the President issued Presidential Decree No. 24 of 1995 ("Keppres No. 24") to amend Keppres No. 16 and implement a more efficient, transparent and open Indonesian go\.ernment procurement system. The new procurement regulatory framework is being woven inro a more cohesive, uniform government procurement system. Regarding the SBDs, the GO1 agrees \vith the M'orld Bank recommendation concerning tirneIv pqijnrenf to corrtractors and pro13isiotr "for.force n~qieurecot??*~ensation; howe\~er,certain portions of the SBD provisions conflict with Indonesia's Treasury Law. As we have written to Mrs. Haug, the GO1 is considering draft provisions of a new Treasury Law to overcome these impediments. In the meantime, we have requested implementation of these two provisions be deferred to Ms. M. Haug, the GO1 is considering draft provisions of a new Treasury Law to overcome these impediments. In the meantime, we have requested implementation of these &\lo provisions be deferred. 2. Prequaltpcnfions fiecornrnei~dation. "NCB prequalifications standard vary among provinces, but are improving. Exclusion of non-performing contractors is still rarity and should be enforced as appropriate." Bapak Abduh, in his presentation, detailed the GOI's efforts to engrain the new regulations into a cohesive, uniform government procurement system. He also explained ways the World Bank and GO1 can work together to accelerate this effort. The GO1 is considering ways to develop an ongoing, comprehensive procurement training program to be offered to all government procurement personnel. This is neither an easy nor inexpensive undertaking. The details of the envisioned program are contained in Bapak Abduh's presentation. I invite the World Bank's comments to the suggestions contained in Bapak Abduh's presentation; particularly as they relate to providing technical assistance at the beginning of project implementation and the development of a Procurement Institute. 3 . Bid EvnlrratiodAward . "Assign competent procurement personnel as member of Tender Committees. Institute permanent Directorate General level review committee. GO1 to issue'griiaelines to require commencement of the practicelreview committee when such is not established. " Likewise with the prequalification procedures, the GO1 is considering additional guidance to help all agencies to assign trained, competent procurement personnel to perform Bid Evaluations. Also in his presentation, Bapak Abduh explained that an ongoing, comprehensive procurement training program (offered to all govenlment procurement personnel) would develop better trained GO1 procurement personnel more capable of performing bid evaluations in accordance u ith Keppres No. 16 of 1994. M'e agree that only competent procurement personnel should perforrn these tasks. Again, referring to Bapak Abduh's presentation. I invite the World Bank's comments to his suggestions: particularly as they relate to providing technical assistance at the beginning of project irnplernentation and developing a Procurement Institute to conduct ongoing procurement training. Regarding the institution of a permanent Directorate General-lexlel revie\%.we are concerned about hvo aspects: sloming down project implementation and being able to assign a sufficient number of trained. and capable procurement professionals to undertake this level of review. In the spirit of "Reinventing Government", the GO1 is considering a variety of means to speed-up project implementation. Instituting a permanent Directorate General-level review will be among those means considered. Recommendation. "TOR of consultants engaged for supervision/implementation assistance, must include this provision to cover all major procurement (those above prior review)')?. The GO1 agrees with the recommendation. We plan to require agencies to utilize supervision consultants to assist the tender committees to help select responsible bidders oEering the lowest priced bid or proposal responsive to the government's requirements. 4. Reduce Procrtremenf Cycle Time . "Retain in 1996 CPPR Action Plan and project agency/Bank TM to monitor closely as a routine (also essential to minimize delays in completion)". The focus of our efforts to improve Indonesia's procurement system was to increase efficiency. Of course, the GO1 concurs with the comment to reduce the time to implement important development projects. Again, Bapak Abduh, in his presentation, detailed the GOI's efforts to improve project implementation. He also explained ways the World Bank and GO1 can work together to accelerate this effort. . "Turnaround time for NOLs for ICBs should not exceed four (4) weeks; and where this is not possible for certain reasons, Bank should soonest inform project agencies on receipt of documents for NOL". The GO1 agrees that the "Bank [should] expeditiously respond to request for no objectionFToaward wittlin'two weeks fo'r LCBs and maximum of four weeks for ICBs from receipt of documents." Thank you for affording me the opportunity to present the Government of Indonesia's (GOI) response to the "Country Portfolio Performance Review (CPPR)" Action Plan concen~ing Government Procurement. Robert Scouller Senior Project implementation Specialist, World Bank There are six (6) main points that I wish to address from the Bank side in the feu minutes I haw available. Let me highlight these first. 1. Strearl~liningthe Bidding Evaluation Process. 2. Supenrision Role for Consultants. 3. Harmonizing Indonesia SBD with World Bank requirement on: (a) interest rates on delayed payments; and (b) compensation for evens beyond the contractor/consultant's control. 4. A need to shorten the procurement time for ICB contracts. 5. Increased attention to SOE contracts Random Ex-Post Review. 6. Packaging - ICB/NCB/SOE. 1. Streamlining ilre Bid EvnIuation Process Tender docun~entsmust spell out clearly what will be the basis for bid evaluation and subsequent contract award - technical requirements, financial detail, price or a component mixture. Often, we see bids being "disqualified" unreasonably on minor technicalities, which should only be "ground for clarification". 2. Supervision Rolefor Consultants The Bank strongly recommend using consultants, especially supervision consultants to assist in reviewing bids for construction on goods supply. The consultants "review of bids" report should be attached to the Bid Evaluation Report sent to the Bank. Intematiotlal consuItants often have extensive experience in bid evaluation reporting. This sllould be included in their TOR and would be both in line with best professional practice, and would help to reinforce integrity of bid evaluation. 3. Hnrmoni,-ingIrrlionesian and WortdBank Standard Bid Docrsmnf Whilst the agreements of the last CPPR, and the KEPPRES 16 document have done much to ensure cornmonali~'between Indonesia and the World Bank Standard Bid Documents (SBD), there still remains two (2) major outstanding points: (a) interest on overdue/outstanding payments; and (b) compensation to contractors/consul~s/suppliersfor events beyond their control. Contracts behveen two parties are supposed to represent a fair and equitable agreement between two (2) parties for the execution of a measured quantity of work (or supply of goods) in return for ajust reimbursement. A contractor expects payments on a due date for the services executed. This can (and should be) specified in the contract documents - 30 days/60 days or whatever. The conh-actor can design his cash flow accordingly. Late payment effects this cash flow and unjustly penalizes the contractors. We are ail required to pay interest if we are late paying our Citibank Visa Card each month - as much as 3% per month. The conh-actorlconsultant is likewise entitled to such compensation if payment is later than expected, and the Government should be obliged to pay this interest (penalty) if they are late. Similarly, the contract signed by two (2) parties represents an agreement for a foreseen and agreed scope of works. Events which are outside the contractor control should be compensated for example. Delays in providing access to a workplace, and the government has a moral obligation to provide this compensation. 4. SIzortening ICB Procurement Time From the Bank side, the Bank has a desire to see the procurement time for ICB contracts, shortened, especially larger ones, which historically have taken 2-3 years before signing. More precise terms of reference better packaging, improved procurement planning, and speedy processing of tenders well all improve the time of award resulting in considerable savings to the economy. 5. Bank Ex-Post Review of SOE Contracts SOE contracts now constitute as much as 40% of the Bank annual disbursement in Indonesia (in FY 1995 US$430 million representing over 6000 contracts). To meet the World Bank audit requirements, and to ensure that these contracts are awarded to the lowest evaluated bidder, and in accordance with standard Bank procedures"RS1 will increase its ex-post review of these contracts to in excess of 10% across all sectors. This review will include not only the contractual administrative side but also the review of the physical implementation of the contract, its timeliness, quality and efficiency. These ex-post reviews will be conducted both during regular Bank supervision missions and separately in specific SOE contract reviews. 6. Packaging The split of work into a single large (ICB) package, smaller local (hlCB) package or numerous (SOE) packages is also important and requires close consideration. 1 trust that these points, plus those interesting aspects raised by Mr. Syamsuddii~\xrill lead to some interestins discussions. Thank you. Ir. Sugeng Rahardjo Assistant Minister, EKKUWASBANG Technical Assistance (TA) accounts for relati\ely small amount of the total cost. but have \ l e ~high influence on the success of the project. The GO1 has been including TA \\ithin the national system of procurement. Hoivever, in practice, there are so many problerns as TA differs substantially from goods and other sen~ices,such as construction services. These problems, among others. are the efficient use of consultants and the relatively lo\%>quality of domestic consultants. Being part of the National Procurement System this response is an integral part of GO1 response on Procurement. For the purpose of efficiency, allow me to respond according to the issues presented in the Action Plan of CPPR 1996. 2. Size of TA and itsModalities To optimize the use of technical assistance, Bappenas will reject proposal from Executing Agencies to use consultant for relatively simple and routine jobs. The quantum of TA in loans on new projects has declined only slightly. As essential requirernenfcould be reiained in 1990Action Plan. It has been GOI's intention to optimize the use of TA. It is shown in the Table that expenditure on Consultancy is 15.6% to Loan Amount. The relatively high figure is due to, among others: r The estimated number of man-months required is specified in SAR, while the general practice is to use up the number of man-month. GO1 should seek the cooperation and assistance from appraisal missions. r "Projects stages a& not orderly sequenced. " Construction works do not follow immediately, requiring engineering design to be revised to suit the changing situation. Such practice happened in most, if not all, urban development projects. * ICB is required even for relatively simple projects and technical proposal is the main criteria for evaluation. There is very little room for domestic consultant to win the contract. Man-months of Foreign Consultants are decreasing, but due to the relatively high Billing Rate, the reduction is not significant. * Howeser, the figures s h o ~ ~innthe table needs further explanation. The general practice is to cover 100% of TA in the proceed of the loan. Therefore. it \?auld be more appropriate lo compare the figure with the Total Project Cost. By doing so. the result is 5.38% instead of 15.6%. However. this approach may not reflect the real ratio as several projects are cofinanced by other sources. 2.2 The Cost @Soft X4 Thus reflects GO1 concerns. Bappenas has issued a Ministerial Decree (No. 122/ET/7/94) for the selectio~iof consultants which among others encourages appropriate involvement of local consultants/uni-\~ersities,also essentially needed for decentralized project. This Decree is closely in line wit11 Bank's Guidelines on Use of Consultants. Retain in 1996 CPPR Action Plan. Bank to consider GOI/flTmrDOrequest to assist enhancerne~ztof the quality of the Domestic ConsultingIndustry. Related with Domestic Consulting Industry since the early seventies GO1 has made efforts to develop its quality. The efforts were translated into training programs, regish-ation and billing rates adjustments, especially related to ICB projects. International cooperation has been expected to be able to raise their qualities to international level, but to our disappointment, up-to- date very -- very few contract were awarded to domestic consultant, if any. Indeed, GO1 has been trying very hard and we are still waiting for the responses from professional associations, which will be invited to participate more actively in the new system and procedure concerning accreditation and registration (refer also to 4.1). Development of performance standards and mastering of English language as well as achieving international standards will be essential steps to follow. However, GO1 does not expect to achieve the objective in the very near future. 3.1 Tire Scope, Structure and TOR of TA TOR written by GO1 agencies are ofien inadequate and frequently generated by consultants who may have vested interest. These must be revioc~edcritically by employing agency and the Bank staff and Bappenas. Retain in 1996Action Plan, essenrialfor GOI/Bankto monitor major TA confracts. It must be admitted that preparing TOR for TA, especially in English, is very difficult for most agencies. GO1 would like to see that this can be achieved, but it will need some times. 3.3 C7onsultant'sAppointment aper EvdMation Very serious problems in many cases and a major cause of project start- uplimplernentation delays. The problems rest entirely in the project agencies and/or Depa~iments.Bappenas is related in Form I1 requirements (please note corrections). Relain i17 1996 CPPR Acrio17 Plarz. Bapyei7a.s fo issue 6?strucrio)z/GuideliI?esfor str.eamlining the process by iinplementing agencies. Projecr agencies, in close consultatiorzs 14~ith Bank, to ii?7plententthese Instructions. Recommendations is agreed as this is in line with GO1 objectives 3.4 Tlte TA should be Effectively Managed Ineffective in practice. Refain i71 1996 Aciion Plan and GOI/Bank monitor effective implementation. Bank supen~isionreports to routinely monitor the eflectiveness andperformance of major TA. This is a very essential issue for Management of TA. The Actions agreed in 1994CPPR is very ideal, however, it is proven to be very ambitious. The project managers are appointed within executing agencies and most of them are not familiar enough with project management. Project Launch Workshops are very useful, however, they are too short to prepare competent project managers. GO1 needs to further analyze the situation. 4. Selection Of Consultants 4.1 GO1nttd Donor Agencies GOI is preparing new system and procedures concerning the accreditation and registration of local and foreign consultants'. Bank would be willing to cooperate with GO1on this exercise. it will require its TM to critically review the short listfor major (international) TA services and even reject a short listed Jirds or?justiified grounds $such is essentially needed. GO1 is de\eioping the system in\~itingassociations to participate. Refer also to 2.3. t-Io\vevcr. cons~dei-rng111e number of consulting firms and indi\,iudal professionals, it will need sometimes to de\ elnp a workable detailed system and procedures. 4.2 Letter ~ f l n ~ ~ i f a t i o n GO1 IS not In favor of such forced association of foreign finns 1%it11 pre-derermincd domestic fir-rns. hlosl Executing Agencies now submit short list of local and foreign consultants. and Jet firms to reair?l i pt7>, thernsel\ cs. Incidence is getting lesser since 1993. Rerain iri 1996 CPPR Action Plan, also a Bank accepzed good practice. PIh@ROs and Bank TMs 10 erwure tl~arrlzis essential requirenrent isfaitI~fillyinzplemented. It is also the interest of GOI, however, dissemination of such good practice needs continuous effort and support. 4.3 Renzovnl of Billirzg Rate Ceilings ReguZntion Bappenas Ministerial Decree No. 122/KET/7/1994 abolished Billing Rate Ceilings. Subsequently, a Joint BappenasPNOF Circular for self-calculating owner estimates has created some misunderstanding among project agencies and also causing excessivelunaffordable negotiated contract prices in many cases. Thejoin! Bappenas/MOF Circular (updated in February 1994) ought to be revised and simplrjkdfor cost-eflective selection and utilization of TA. Bappenas and B~~IMRSItofollo~c?on his aJier the CPPR GO1 believes that development is a process which should accommodate improvements and amendments. Therefore, improving regulations to support development is very natural as it has happened wit11Keppres 16of 1994 which was amended with Keppres 24 of 1995. 4.5 Evalrtation Criteria Not in practice. Retain irr 1996 CPPRAclion P/an. Bank TMsalso to fake note. Since the issuance of Keppres 16 of 1994. GO1 has been analyzing and ~ i n tog improve evaluation criteria. especiall!. related with T.4. Indeed it is a x8epcomplex issue because it must be an integral part of the n.hole system. Our aim is simpler criteria. but effective to achieve the complex objectives. 4.6 Pies~ricfiorzsor1 Single Source Alr)7aintmenfs Single source of recruitment of consultant should be used in on]! special cases e.g continuit) of ongoing project of works. or high11 sophisticated morh etc. but In practlce uncontrolled often an expedient! grounds. 1996 Acrion Plan to repeat GOI/Bank ro re~~ie+c/agreesuch requesr, porn executing agencies, criricallj*and pur it srrictlj' under con~ol. In principle. GO1 discourages single source appointment. It is clearly stated in Keppres 16 of 1995. Such appointment needs thorough analysis and justification. In large projects. lvhich need approval from Procurement Evaluation Team, mostly single source appointments \\!ere rejected. if it happened in smaller contracts, then GO1 needs to remind the agencies. Finally. in concluding my response, let me again stress the complicacy of issues related to Technical Assistance. GO1 does nor intend to address on point-to-point basis. The above responses. prepared on point-to-point basis following the CPPR format, shows clearly the inter- relation among all points. We prefer a more comprehensive approach, involving actively, as far as practicable. all related participants. It will take time and greater commitment but realizing the importance of Technical Assistance we will do our best to achieve our development objectives. Thank >-oufor your patience and attention to this presentation. Technical Assistance Long Processing Time of TA (Some Examples) Cont~-;ictPrice IIIR i 1.00 Billion 3588 1Groundwater Dev. ImplementationlSPN 04107193 12/30193 09/26/94 i.JS$3.95 Million 3732 1Kabupaten Roads V ImplementationlSPN 08116193 09128194 1 1/08/94 NLG 5.15 Millio~lf :Ir. SugengRahardjo 1. LIST OF PARTICPrnTS BAPPENAS s Ir. Rahardi Ramelan Vice Chairman Prof. Dr. Ir. Herman Haerurnan JS Deputi V Prof. Dr. Soekirman, MPH, SKM Deputi Bidang Surnber Daya Manusia Ir. Firmansyah Rahim Kepala Biro Administrasi, Kerjasama Q Ekonomi Luar Negeri a Mr. Raldi Koestoer r Dr. Edeng Halim Abdurachman Kepala Biro Kependudw, KB, Peranan Wanita & Pernuda Mr. Bastian Biro PPT * Drs. Widjojo, MSc. Kepala Biro Pariwisata, Pos dan Telekomunikasi o Mr. Danyll Ichwan A. Biro Adm, Pembangunan o Mr. Freddy Tulung Kepala Biro, Analisa Satuan Warga * Dr. Fasli Jalal Kepala Biro Kesejahteraan Sosial, Kesehatan d m Gizi e Ir. Rusnadi Ridwan, MSc Kepala Biro Pernantauan Pelaksanaan Kerjasama Ekonomi Luar Negeri a Prof. Dr. Mustopadidjaja AR, SE, MPIA Deputi Bidang Administrasi .r Dr. Ir. M. Anwar Wardhani Kepala Biro Pertanian & Kehutanan r Ir. Bambang Panudju, MPWil Staff Ahli Bidang Pengembangan Usaha Konstniksi & Konsultan Nasional Ir. Noh. Sayid Subchan, MSc. Kepala Biro Pengairan & Irigasi e Dr.Ir.DipoAlam;WM . '"Xepa1aBiro"lndusttin * & Perdagangan Dr. Ir. Alirahman Kepaia Pusdiklat Perencanaan Pembangunan Q e Dr. Ir. Hidayat Syarief Kcpala Biro Agama, Pendidikan, Kebudayaan & Olahraga Ir. P.P. Simatupang Staff Ahli Menteri PPN, Bidang Tata Ruang & Q Pertanahan o Ir. Soeharsono Martakim Direktur Jenderal Bina Marga r Mr. Sumaryanto Kasubdit Perencanaan Urnum c Ir. Syarifuddin Alambai Director of P l d n g Bc Programing (Direhar Bipran) DG Cipla K q a ir. Ruslan Zaris Kasubdit ABLN (Adrn. Bantuan LN) DeparZment of Manpower r Mr. Yudo Swasono Head of Planning e Ms.DiahW. Depadment of Rllines 8:Energy DG Electricity and New Energy * Ir. Bambang Staff PLN c Ms. Azwani Head, Corporate Pl&g Division Mr. Heny Soesanto Roeslan BS DG BUDGET r Ms. Peni Nasution e Mr. Edi Karsanto o Mr. M.T. Nurhasmy ' Mr. Hatomi r Drs. A. Darsjah Direktur Jenderal Anggaran EmWT'PISBmG * Drs. Sjarnsuddii~ Staff AhIi Menko Ekku dan Wasbang, Bidang Pengawasan s Xr. Sugeng Rahardjo, MSc. DIEPAWTRBhT OF GOflZRmTCAII?IONS * Drs. h4uchtamdin Siregar Secretary General DEPmmmWTOF&BUSTRY * Ir. Hardoyo R.D. s Mr. Sutijono s Ms. Ratna Djuwita Wahab, Biro of Planning Mr. K.H. Sitohang, BPPIP e Mr. Sudarmanro * Ir. Sudarmadji e Ms. Euis QF mALm a Ir. Mawarwati, Depkes BOD ASIAN DEWLOPMEW B e Mr. T.C. Patterson Resident Representative s Mr. Dieter Lepper Sr. Project ImplemenlationOfficer Mi. Dennis de Trap r Mr. Gershon Feder r Mr. Peter Scherer * Mr. Jim Hanson h'tr. David Mawes Ms. Andrea Silverman e Ms. Nadereh Chamlou Mr. Oscar de Bruyn Kops * Mr. Guy Le Moigne r Mr. Anuparn manna hlr. Samuel Lieberman s Mr. Soemardjo Mr. Bob Scouller Mr. Ben Fisher e Mr. Aftab Raza o Mr. William Wardi * Mr. Ilham Abla * Mr. Richard A, Calkins s Ms. Teresa Genta Fons Mr. Marsoedi Soedjak e Mr. George Soraya e, Mr. Kunrat Wirasubrata Mr. Christopher Smith B Mr. E. Is\vandi Mr. Basilius Bengoteku * Mr. Yogana Prasta * Mr. Thamrin Nurdin REGIONAL WATER SUPPLY ON PRQGUM * Mr. Jerry Silverman A m E X A SUNLMWY OF FOLLOW-UP CPPR mETmTGIN BAS_&TDUMG AUGUST 29-30,1996 1 . The abo\c Rcrrcat. sponsored b:, GOI/Bappcnas. was held at the Horison Hotel. Bandung. The purpose \\.as to discuss Action Plan proposals arid a range of portfolio related issues, highlighted at the May 22 CPPR Plenary Session, to ensure effective follow-up on specific areas of concern, including: coiisultant sen ices (TA): procurement: counterpart funding; other implementation issues (project performance and disbursement): technical audits; and project preparatio~ilqualityat entv. GO1 appointed six high level inter-ministerial task forces to review and refine its position before meeting the Bank team to define an actionable and monitorable time-bound Action Plan. The GO1 team, led by Mrs. Budhy Tjahjati Sugijanto Soegijoko. comprised about 35 persons niostly members of the six task teams and BappenaslMOF officials. It consisted generally of Echelon XI (Director level) officials, but included the follo\ving Echelon I officials; Messrs. M. Abduh and Syamsuddin (Ekkuwasbang), Widodo Gondo\vardjojo (Cabinet Secretariat), h4rs. Budhy Tjahjati Sugijanto Soegijoko and Mr. Manuwoto (Bappenas) and Mr. Komar Ishak (MPW). Oficials came from Bappenas, MOF, BPKP, MP\7i7,MHA and Cabinet Secretariat. 2. The Bank team comprised Messrs. Raza (team leader), Fisher, Dice, Scouller, Prasta, Bengoteku and Mrs. Silverman. This high level GO1 participation (task teams and retreat) and the quality of GO1 presentation and responses clearly reflected that GO1 has progressively taken a larger ownersliip of the CPPR since the first CPPR in February 1994. The intensive discussions and exchange of views on key issues at the Retreat were frank and candid. At the end, GO1 and Bank teams reached consensus on most of the issues and actions (including those presented by the Bank side). However, there were a few points which one or the other party could not agree readily. It will take some time to reconcile the differences; hence, they were recorded as "issues" to be reviewed together behveen the Bank and GO1 in due course. The Bank received final proposals of the task forces in November 1996. These have been incorporated in the agreed Action Plan (Section I1 of the main text). It was agreed that as of February 1997, joint (GOIIBappenas-Ekkuwasbang and Bank/RSI) review of the progress on Agreed Action will be carried bi-annually. This will include, as a key agenda item, a report on the status of probleni projects and those critical bottlenecks in the Remedial Action Plan of a problem project which require attention at the apex level of State Ministries - Ekkuwasbang, Cabinet Secretariat, MOF, Bappenas, MHA. 3. At the Bandung meeting, the GO1 team, representing the "Owners," expressed its commit~nerztto the following key objectives: (a) Improvii~gthe management of problem projects to reduce the incidence of problem projects in future, inter-alia: (i) major restructuring of problem projects not achieving remedial action plan targets; (ii) stronger focus on "quality at entry" of new projects entering the portfolio; and (iii) introductionluse of performance monitoring indicators (PMI) for all new and existing projects to monitor development impactleffectiveness and to take corrective actions where found necessary. This is expected to bring down the number of "'US" projects within the next 12 months; (b) SJ?or-~cnrn~[lie SPABP appl-o~~al tirnely release of approbed funds to decentralized and PI-ojects.This airns to achie\,e a radical improvement in 199'7-99 DIP of G01. Wo\vever. tile ~nsufficienc~~of counterpart funds from APBD may remain a problem for sometime to come ( ~ o ~ n ~ n eBanh LEN n~issionsto critically examine the financial capabilities n t : and cornmitl~~entsexpected from local sources): (c) Expedirrng tJ?epace qfdr.shun~en~ei~/~~ accomplish better disbursement ratio than and to acliie\red last year. u.hich could be difficult: (d) Efec/n,e fccJ7i7icafaudirs of SOE corltracts (not only procedural requiremenzs but also the qualit~~/serviceabili~of the \vorks, goods and scnrices in relation to the contract objecti~es)starting DIP Year 1997198. This will be carried in-house b!* Irlspectorate Generals of Ministries and/or pro\,incial gorrernmentsconcerned in line \\.it11the system piloted b]. MP\V. \~~hichwould be extended to other ministries; and (e) St7-ei~gtt'zeizir~grhe pl-ocesses i77 Bappenasfor project selection - Blue Book screening - and for GOMO-GO decisions on project preparation. GOI/Bappenas has already decreed regulations for this purpose, A task force is preparing Guidelines for this. The IDF Grant, requested by GO1 for this purpose will be processed quickly, hopefully by end of January 1997. 4. In addition, GO1 reported 011its priorities and plans in three key areas. These plans were later integrated in the agreed action plan: (a) TerhirricnlAssisfnnce fTA). In its instirutibnal development agenda GO1 is giving due priority to: (i) strengthening of the quality and capability of the domestic consulting industry in Indonesia; and (ii) increasing the effectiveness of the use of TA for development projects. The strategy for the former (i) is under intensive review internally in GO1 by a task force (Bappenas/GOI officials, professional societies, Inkindo). RSIIBank has been invited to informally participate on deliberations (advice, guidance and seminar) of the task force. Bank proposals for "Enhancing Effectiveness of TA" was accepted; GO1 added a few points of its own for the final action plan. (b) Procirrctneitt: GO1 strongly favor enhancing transparency in bid evaluation and contract awards. It reiterated the need for establishment of a Procurement Institute. However, Ekkuwasbang expressed that changes in Treasury Laws, to meet hvo stipulations in SBDs, is nor feasible until after the new People's Assembly is installed. GO1 proposed some radical actions with which we could not readily agree; these issues will be discussed separately between Bank and Ekkuwasbang and MOF. (c) . A GO1 team led by Mr. Widodo Gondowardjojo will (internally) look into feasible options within GO1 regulations, after reviewing various ongoing initiatives by GO1 to enhance participation of NGOs in publicly financed development programs. Bappenas agreed to furnish ttic team's report to KSI. ANNEX B Gs8I GPPR ACTION PROPOSALS PRESENTED AT FOLLOFV-UP CPPR MEETmG IN BANDUNG AUGUST 29-30,1996 Program: Design and Initiate Program Strategies for Strengthening the Domestic Consulting Industries I IssuesJProblcr~sfDiscussions 1 Action Plan I I ~ilort-~'crm I Improve Quality of Domestic Consultant To formulate concept of national consultant Accreditation ancl certification of development, will be establishect Tim Penibinaan dan riatiorla1consultant nectis to be Pengembangan Konsultan Nasional (TPPKN) which implemented soon. consist of Bappenas, Ekkuwasbang, 'Technical AgeneiesDepartments, Professional Association and Association of Consultant Firm. On August 6, 1996, Vice Chairman of Bappenas invited Sekjens, Deputies and Chairmen of the said institution to have their comments on the establisliment of the TPPKN and support have been obtained. In the near f~~ture,Vice Chairman of Bappenas will formrllatc implementation of establishment of TPPKN. Professional Association and Association of Consultant Firm will be accredited by TPPKn based on requirementslcriterias of classification set by TPPKN. Accredited Professional Association competent or have the right to determineldecide the requirernents/critcrias of classification arid certification to tile members and have to improve its members' technical and managerial capabilities. formulating criteriaslrequirernents of Classificatiot~& Certification as well as quality of improvet~~ent.By the end of 1996,PI1 woiild be able to authorize certification of 1000Professional Engineer on Civil, Meclianical, Electrical and Chemical. Bappenas and World Bank will discuss a concept to improve national consultant and arrange cotnparativc study of TPPKN members to several countries which has developed its national consultant succcssf~~lly,such as Mexico, Philippines, erc. It is hoped that Vice Chairman of Bappenas would be responsible on the improvement of national consuttancy quality assisted by: Ir. Bambang Panudju M. Phil., Ir. Firmansyah R. and Drs. Freddy Tulung MUA. Enhance the utilization of the consultant Review regallations related to the selection of consultant which were issued by Depdagri, Technical Department, Bappenas, Local Government and the World Bank as well, in connection with the improvement of Keppres No. 1611994 carried out by a team lead by Mr. M. Abduh (Sesmenko Ekkuwasbang). Improvelupgrade capability of Pimpro to forrnulate TOR, to formulate requirements to select consultant and to control consultant activity. Pimpro should be involved from beginning in process of TOR Evaluation and selcction of norninatccl consultant. IssueslProbIemslDiscussions Action Plan Short-Term Pimpro and consultant? main counterpart should be working full-time on the pro-ject. Pimpro should admonish consultant of their duty when the consultant carry-out their duty is notit1accordance with the contract, and should report this to their superior. t SK Menteri PPNlKetua Bappenas regarding The issue would be discussed more detail during the remuneration ("billing rate") interpreted as a review of SEB No. 9011D.V112196 and "ceiling" by the executing agency. No. SE-161A121/02/96 in 1997. Bappenas' team (Ir. Bambang Panudju M. Phil, Ir. Firmansyah, Drs. Freddy Tulung MUA) who are responsible on consultant regulations will discuss with the World Bank particulat-ly on the remuneratioti of consultant, referring to Keppres 1611994, Kepmen PPNlKa Bappenas No. 1221Ketl7/1994and the Bank guidance. Regulations on TOR formulation, I-IPS and requirements to select consultarit would be disserninated by the said Rappenas' team. Articles in Loan Agreement regarding foreign and local consultant should be replaced by Professional, Semi- Professional and Technician. Program: Streamlining the Budgeting of Funds for Subnationallnational Project Components Issues/Problems/Discussions Action Plan Short-Tcrm kfcdium-Term Tile tcclinical central agencies/institutions, Allocation of devclopmcnt budget to provincesldistricts slow in informing the amount of foreign (Inpres) should be informed earlier, both rupiah budgct assistance to the concerned and foreign assistance, which possibly could be done provinces/districts. .- every January together with sectoral "satuan tiga". Concerned sectoral agencies should inform the amount of foreign assistance which are allocated to the concerned provincesldistricts, every March of the Fiscal Year. Allocation and disbursement of counterpart budget needs to be done earlier: a. GovernorlBupati's cotifirmation could be implemented as SKO, no need to be authorized. b. To prepare Bappenasjuklak (SOP) regarding regularlordinary DIP and DIP for counterpart budget. Program: Pertanahan (Land Acquisition) IssueslProblemslDiscussions Action Plan Short-Term I Land acquisition for ddvelopment Arrange a meeting to discuss the problems, inviting concerned agency such as: I . Ditjen Anggaran. 2. BPN (Deputy I1 and III), Asmen I Meneg Agraria. 3. Bappenas (Deputy V, VI and VII). 4. Depdagri (Ditjen PUOD). The team will studylreview land acquisition for development utility. ' Prepare a letter to Meneg AgrarialKettia BPN that the said meeting is important, particularly related to the study of Land Administration Project. Program: Procurement (Problems and Action Plan) Issues/Problems~iscussions Action Plan Short-Term Medium-Term I Improvement of the regulation of state/govemment treasury in line wit11the World Bank's Standard Bidding Document (SBD) Improve UU Perbendakaraan Negara. GO1 and the World Bank need to reconsider the procedures that relate to the disbursement. NOL needs to be issued earlier and nutnbcriquantity of NOL needs to be reduced. Plan to establish ~rocuiementInstitute Planning to establish Procurernent Institute is supported by Depkeu and Bappenas. Training of Trainer (TOT) conducted by Kantor Menko Ekkuwasbang and LAN needs to be continued. LAN should formulate a concept in establishing Procurement Institute (not Reinventing Covertlment) soon. Program: NGO Participation (Position Paper) Issues/ProblemslDiscussions Action Plan Short-Term I Mcdinm-7'ernl Strengthening NGO's participation in Inputs and findings to improve Keppres 1G should be Ilow to iti~proveNGO participation in development identified in October 1996,especially related to the dcvelopr~icnttlceds to be identified regulation of NGO's role in development processes. soon, in line with the World Bank requirements. Relation between NGO participatiori arid Kepprcs 16 needs to be reviewed. Sekretariat Kabinet, Depdagri ant1 BIA-ABRI sl~ouldcooperate to identify qualified NGOs that could participate in project i~nplerrlentatioti. Regulations or laws to accommodate NGO's participation in development, need to be fort~iuiated. Preparing possibilities/cl~arlcesto accomrnotlate NGO's participation into Loan Agrcei~~cntarid Staff Appraisal Report. Program: Disbursement and Monitoring of Foreign Assisted Project Action Plan Short-Term Slowness of disbursement Monitoring of project impletnentation included project disbursement should bc done with a format, which are .. issued by Bureau of PP KELN. Quantitylnumberof an appropriatclreal "back-log" and duration of replenishment process, needs to be reviewed. Projects which perform unsatisfacatory should be reviewed every six months by each unit of organization structure that relate to the projects. Considering GOT'S experiences in foreign assisted project implementation and advance capacity in financial management, quantity of NOL which are needed for each contract and supporting data in replenisllmentprocess, need to be reviewedlevaluated leads to a reduction number of NOLs. Program: 1 IssueslProbIenis/Discussions 1 Action Plan 1 1 Short-'Term I 1 i Technical Audit in Department of Public Imple~nentationof Technical Audit model of MPW Formuintc a inodel of audit for-non- Works (MPW) needs to be considered in other departments. physical prqjccts. IModels/types of audit needs to be discussed. Providing Control Management of each project. Strengthening supervision/controlling role, related to the GOI's decree of supehisor/controIler as a functional official (jabatan fungsional) in April 1997. Program: Project Preparation Stage Issues/Problems/Discussions Action Illan Short-Term Blue Book Provide a particular meeting to discuss procedures and requirement.^ to include project proposals into the Blue Book, Lending Program and also to irnplet.nent the projects. Provide three (3) kind of documents: a. "Light-blue" book consist of project proposals for a certain fiscal year. b. "Dark-blue" book consist of project proposals which already listed in Lending Program. c. "Green" book consist of pro-jectlist that donorsllenders interest in. Program: - Issues/Problems/Discussions Action Plan Short-'Tertn Relation between ~rojkctMonitoring & Provide guidance of Performance Evaluation by Monitori~lgand evalnatioti unit should Performance developing Performance Indicator. develop performance evaluation by For that purpose, SK Meneg PPNlKa Bappenas will be developing performance indicator in issued. The process of the formulation of the decree is each clcpartr~~er~tlager~cy,both in coming into the final step. ccntral and regional level. Provide the World Bank assisted project list including Establistit~~ct~tof Perfortnance its problems. For that purpose, Bureau for PP KELN Monitoring Institutio~ishor~ldbe should identify and collect information from Executing considcrcd. Agencies. Ensure that budget allocation for '"maintenance and operation cost" of the completed projects. Indicator Performance and benefits which would be Establish "Institutional Developtnent" achieved by projects should already be listed in in technical clepartrnents to evaluate DUPiDIP process. benefits of projects. ANPdEX C WOmD B A W OPEIRATIONS EN 1PcTIE)OmSIA @XTRAGTSF W M 1996GPPR BAaCMGRO PMER) WORLD B m K LEND%i"iGTO Tr"rDOQ.;ESM I~r&~dud-ion, Lendrng to bndonesia began m heal year 1969'1with a modes; a)A credt in the amount of US$5 d i o n to sup par^ iniganon rehabilimon Total lending in tim year amomtd US551 miIIion The lending pro e comq conmued to increase and peaked in 1990 ;u USS1.6 biUion and has since b w USS1.4 billion in 1995. As of end of FU1995, USS22.6 billion, of h c h USS16.6 biliion has b m & b m d and USS1.5 baon -cell& $,ha 7).3, Table Nij;tora. Loans w the energy and industry sears, tekom*mons, represent 37 percent of total disbursements. tirban-ad amsport) and agriculture loans come second with 22 pe three sectors together c o d m e more 130percent of the Bank's Xndonesia The re g is resource (including projects in the ducafion, hd$I and popuidon sectors), environment and sector adjusaent low. See Table 1.1 below. WOmSLQ:Co&ma% and Disbursemms 11969-1995(in US$million) TechnicalAssistance 1) as of June 30. 1995 2)asoCM.mil 19% The emphasis of Bank 'lendingchanged slightly in the lasP ten years (Table 1.2).Despite the general decline in Bank-wide lending to the Mcdfttre sector, in Indo&a it has slrovvn a posirliw tren ing Erom USSn in 1986-1WOt~ USS1.130 milli~in 1WI-IW5 eRis not e x p a d to the lending voime in the MculPual decline in the future;. as irrigation projects would development loans w d d increase inn seclors h a dm=& by more &an a hziff in nmber and more &m 20 w e n t in mowg down from USS856 rnillim rn 1986-199Qto USS669 rnilIion in I391-1995. ICNDOmL4: Co merits By Senor, 1986-1990artd 1931 1995 - P o w Telmmuniotians HtmGill Resow R - m U* % Other Illfhm. C m dpo@olia. The ment portfolio consistsof 63 projects fbr a total loan m o m of about USS8 billion The total costs of these projek is esrirnated h g of about USS14 billion or over 60 percent of project three loans to the telwmrmication seaor, together rep total value of the podolio. In contrast, 18 loans to support projects in only 15 percent of the portfolio value. (See Annex 2, Table 4). implemented in two or more provinces including ten covering praaicdy whole country (25-27 provinces). (See Annex 2, Table 5) grounds. This represents 15% of the portfolio, and are marked wi and Skills Development) are facing serious diEdties, in project implementationshould be a very high priority of reverse (action plan or even major resaumring) their decl&g petfo identi+, and clearfy s time.Someadditionalprojects are likely to be down graded from during this yeat. tqmd IM @ d y h k even er away hl;srge, muld be kcretask& sector pamcipmon eas with emphais on rmm%p v e q dleviaiion, oa Tius will be in line 4th 0 1 ' s own priorities. The e s d l e r than before. Project execu~on is moving already to decmerai city) agencies uih greater grass roots pacricipdon Initially, this has crated (and wiIl mneinue to a w e ) diaicdties . . . instinrtiod strm g md capaciy buildin es as part of the projects. been d e in p g regiody focussed en6 projecrs, including fi appro&. W96 lending program for 12 to 13 Board presm~ons,of which seven have been approved, & more negotiared so far (see Amex 2, Table 6). Ar this we we expect a lending volume of about USS1.100 dlion to meridize in W96. DEBUWEMEhW, A M O R T ~ T I O NNET FLOW AND T U N S E E S , Disbursemena d b g 1992 -b995 averaged USS1.IS baoo wrh. Bisbmemenrs last y a p 1 9 9 5 ) codling US$ 1.14 billion, Vcrhile disbunemenr for FYI996 is mgezed zd UUSS1.2 billion, as of March 1996, only USS642 million has been realized However, we expect the actual disbmement in FY96 to be abous USti;1,040 million, the revised mget (see para 45.e). Table 4.1 gives an overview of Indonesia po&Iio bbursement perfoman= for the last three yeas inclu&g the current year. Disbursement for F;U 1994, 1995 and 1996 (InUS3 n/e;xlion) a) Projectionis for N1FYI9%; this is now revised to US%1,040million h nU S1,200 million A number of issues have been identified as constraints to redkition of the -1996 targeted amount. These are: (a) changes in GO1procedures for submission of withdrawal applications and importation of goods; (b) the complications which arose out of the new taxation deaee (which was later cancelled by another decree issued in November 1996); (c) late release of national and local budgets (SPAPB and DPDA) for projects implemented by local governments; (d) increasing number of new implementing agencies at M,go\remmmt weak in - capacity, unfamiliar with Bank procedures, and in-experimced in Bank operations;and (e) the target set for FY96 was simply an over etimatisl-e wtt.l declining lending volume from an average of USS1.5 billion to USS1.2 billion the past four years, we should expect to see a decline in the absolute level ofdisbur~ = ~ o ~Xq s r o ~ atp30 fiawaAo ]yap e sappo~dg x a v .auxlmpox m e ~ W E arp 'nreol luawsatty Jonas(a3q amp) mIC aanp pue 'sueol aneq aM se ' J ~ A ~ M O H 's~ouasasoyt 103 a%.x%~a p p - v g [ ayt ~ J W J pue axw.wojrad snp oa s~oanqguwJ O ~ W aJaM S U ~ ~ S U E ! ~ ayl q w l o ~ d.ogopod arp y sue01 8qsmqsp w 330 a x m y ~ ~ o ~ d q pasmqqun poa 30 p~np-auocn J 5661 166130 P O F J ayt~ fiufma =r - ~ Audit repod coaeplimce: Submss~onof project audrt repom 1s monutored by RSW a momtonng lener IS sent regularly to Bappenas RSI recerves coples of Bappenas comurucatrons uqth lmpiemenmg agencies as follow up to the monrtonng letter About 60 percent of repom received were submr~redto RSVPMlIJ erther on nme or before they became due. About 30 percent was received w r h one to three months after their due dates and the r e m m g 10 percent rece~vedafter SIX months Two causes of delays are identified here. Firsr, many project agencies are not equipped with staff who has the appropriate accoundng ski11to prepare project account and financial repom. Ths is mkpiifiedby the fact that financial reporting is not made an integral par? of daily project accounting process rather it is an activity performed after closing of fiscal year. h m y cases it had led to delays in submission of project financial repon to BPW. Second, delay in preparation of project financial repon has a direct repercussion on BPKP's st& dlocation and scheduling which in some cases forced it to postpone the audt to the EoIlowing fiscal year. SOE (Statement of Expenditures) audits are becoming more important as more disbursements are beins made by using SOE procedure. FY95 data (See Annex 2, Table 2) show SOE disbursements in the amount of US$430M or 38% of total disbursements during the year. h case SOE audit report becomes overdue, the Bank procedure allows Government to complete report within additional 90 days. And if after 90 days rhe report eonhues to be overdue, SOE procedure for disbursements will be suspended. Such suspension(s) would slow down the pace of project implementation on many projects. Most Indonesia projects are required to submit project audit reports within nine m o n h after closing of the Govement's fiscal year and newer projects are requiring six months. Ln d.us regard, it is very i m p o a t to aaudly ensure, during project prepadon, that a 8arcrioGg project acwunhg system is in place. During project implementation, it will be essential to closely monitor if such system continues to function, otherwise submission of project audit reports on time could be in- ordinately delayed The Bank's record shows that of 600 reports submitted since FY93, 92 percent received an "unqualified'''/ audit opinion. However, a further observation on BPKP reportr reveals that there are issues that need to be addressed despite the favorable opinion expr These issues range from inconsistent implementation of Keppres 16/94 in the field; procurement, organizational and managerial matters that led to inefficiency; World Bank processins delay, excess payments to contractors/suppliers; goods/se~cesdelivered not in accordance with contract specifications; and payment for unped-ormed services. Norwithsranding the importance of compliance, in the midst of incraing demand for accounrability and given the nature of issues raised by the auditors, m e tim should paid to follow up BPKP's audit findingparticuiarly an enforcement of remedia! actions asked by the auditors. An "unqualified" audit opinion rcflccts Ihcauditor's asscssmcnt that all financial financial conditionof the auditcd entity. S U M W R Y OF POST EVALUAT9O;d DATA ~s of July 31, 1995, the outcomes of 167completed fndonesiaprojects were evaluated by the Operations Evaluation Department of The World Bank (see Summary in Attachment 1). These evduations show that 138 projects (83 percent) satisfactorily achieved their development objectives and 29 projects (17 percent) were unsatisfactory. In t e r n of total loan comiment (USS11..3 billion) 87% were satisfactory. This record is better than the Bank-wide average of evaluation, but lower than East Asia Region average. The unsatisfacto$' projects are marked in the Table 7 of h e x j and the Evaluation Summary included in Table 9 of Annex 3. Further obsenfationindicates hat the incidence of unsatisfactory rating tends to increase on projects which closed ai'z-er 1989, which is a cause for concern. In terms of sustainability,the rating for Indonesia somewhat reflects that for all East Asia and Pacific (E.4.P). A sample of 93 projects in Indonesia shows 62 percent with "likely" sustainabilit-,, ratings 20 percent with "uncertain" sustainability ratings and 17 percent with unlikely sustainzbi!ity ratings. Ln comparison, the percentageof "likely" projects for EAP is 65%. SUWIMRY OF FIIVDmGS OF PROJECTS EVALUATED SINCE 1990 ary. Evaluation reports from OED (the World Bank's Operations d the Implementation Completion Reports (PCRs/ICRs) completed by Government and the Bank immehately after completion were reviewed in order to extract the most important lessons learned This review focused on 69 evaluations conducted since 1990. Sixteen (23% of total) projects were considered unsatisfa 8 in Agriculture Sector (mostly non- irrigation); 3 in Financial Sector; 2 each in Health and g Sector, and 1 in Water Supply. Onthe other hand, Roads, Power and Education and Telecommwticacion project were rated 100% satisfactory. In terms of institutional development, 35 projects (50 percent) were judged to have achieved "substantial" institutional development, 47 of these projects (70%) were rated "likely" for their sustainability. This shows the relationship between project's performance in achieving its institutional development objectives and the sustainabilityof its achievement. The summary of these evaluations, by sectors, is given in the table below. ' Unsatisfactory projccts arc those with ERR (on cornplc~ion) 1- than War have failed (om- main dcvclopmcnt objcctivcs of a projcctr. Evduation S w q of Projeca Evaluated Since 1990 Bank SODiSecior No. of proiect evaluated 1 AGRICIIZTUE - Imgatlon - Non Ligation 2. ElLJMNVESQbXCE - Health - Educa~on - Other (TI?.,Pop) 3 m s T l t u c n x - RoaOs~Trmspofl - UrSaNater Supply 4 INDUSTRY 61:BERGY - Power - Industrylfinanc~al - Telecom and Other TOTAL Abbreviation: S Satisfactory US Unsatistactory a . Unlikely UC Unceriain NEG NegIigible MOD Moderate Evaludion Finding. The Evaluation Reports include the following among Lhe famrs (barriers)impedingsuccessful project implementation: unwarranted optimism in expecting a Government organized institution to operate commercially (industry sector and cost recovery) dud function of project implementing agency (as advisor to Government and as a commercialentity); low level of priority of the project in Government's investmentp r o g q shortages of counterpartfunds; weak interagency coordination; absence of strong project authority; * poor project preparation and design; 0 complex implementationarrangementwhich had little chance of functioning; procurement delays; deIay in recruitment of consultants and in-effectivenessof Technical Assistance * cumbersome and centralized budgetary and approval processes including revision of DPs; use of single- rather than multi-year contracts; * delays in acquisition of land; over-ambitiousexpectations and limited capacity of implemmting agencies to execute; over-orientation toward quantitative targets rather than performance results and sustainability;and low quality of construction. '- OED . . Indonesia: Eva uation Findings OED has evaluated a total of 167loans to Lqdonesia, m 0 ~ t i n to 511.3 bil11on.The outcome of 87 g percent of the lending amount was rated satisfacto;?., much above the EkAdi-wideaverage, of 73 percent. Sustz;?ability ratings are high (75 percent likely), and institctiona! development is also high (56 percent substantiai).These latter ra&?gs are also well above Zaxk axrerages (55 and 37 percent, respctixre!y). OED Lqdings show &at t ?Bank has been closely associated MTC?severale!ements of hdonesiats -. reaarkable econoinic and soda1tiansformation.Y:ve sectors (a,4culb-e, power, tra,-port, huzlan resources, and stiuctyal adjusment) make u? the bulk (SO percent) of tke evaluated portfolio. ne ~ r o p o d o nof satisfactoryproject outcomes is high for all sectors and rmges from 100pe,rcent iq power and sbctural adjustment, to 95 percent in human resoues, 94 ~ercentin trampor: &?d '75 percent inagiculture. Even the Latter low ratio compares favorablywith a Bai-wide average of slightly below 63percent for ao+cultural projects. Structural Adjustment Indonesia's economic stabilization and adjcsknent program started in 1953 a ~ intensified after d the collapse of oil prices in 1986. Tne main areas of policy refom included public expenditure reskaht, judidous excllange rate management, trade refom, aid fiberzlization of the financial makets and of the foreign invesknent r e m e . B m k lending for adjustznent, evaluated by O m , copsisted of trvo tiade policy l o a s and two private sector development l o w (for a tokl of 512 baon). The outcome of all four operations was rated as satisfactory. important distinb+hing feapae of these l o w was that tie policy nezsures Ltley supported were zznnounced prior to loan appraisal. E s procedure of "ex post condition~ty"wzs justified because: (a)the prior consul&- tion between L\e Bank and Lie GO1rk-URed ktz@easnent on ~kie ustobe taken, @)it a g e d at the beo-:: that these measures were part of a medim-tam adjustiaentproO- m d (c) h e GOI's initialp o k y steps and commitment to their continuation made it clear that the refom w u an ongoing process. In short, the GO1W y "omed" the reform prograa Agriculture * The B& h a been lending for a,piculture since 1968. A total of 62 projects has been evaluated representing 52.9 billion in lending. By value, the proportion of safi$actory project outcomes is75 m.However, in absolute nmbers one half of the unsatisfactoryprojectoutcomes in Indonesia are in the agricultural sector. _- - --_ * Lending for ixigation has been substantial and accounts forabout 40 percent of the projects evalu- ated. This program has been ~-ge_lyYs.ucc_es_~theoutcome of 19out of22 evaluated Ijrojectr was rated satisfactory.However, OED audits frequently noted inadequate operation and maintenance ( O m ) ,wrong assumptionsabout upstream water control and distniution and about farmer efficiencyand, until recentiy, ineffective cost recovery. Recent Bank initiatives to devolverespomi- bility for O&M and cost recovery to water user associations appear to be working. - - . - The Bank participa.ted in Indonesia's hansmi,sration program through five projects although it fi- nanced a small proportion of the program: about 10 percent of total inves~ntehtsduring the 1979- 1969 period covering less than five percent of :he faxllessettled. ~eserthr7less,the Bank's role has * v been contiox-erslal OED rei.lew oi fi1.e Bz,&-_sappor:ec:projects founc !:a:, In general, settler incomes ~ncreased,;\.omen's partiapahon and roies ex?anded, end sacla11nfrzs:ructure irnpro\*ed. E:,\t.eser, l;?:]? a:ten:lon ~ 4 . 2paid :a :he indigen~us;?eople :ha: ii\'ed ~ 122 5~resettlement 2~~2s. They were adversely affectedby the projects .AJso, aEen=lont:, eat-irox~enta]aspects \\-asweak and appiicahon of existing Bank m d governmen: g~iielinesrernziiis a concern. The outcome of two of the fix-eevaluated projects was rated ur,se~sfector)..(CounQr r)e?ermen: Note: The Eank stop?e? s~lr?lcra;l,n~ .. kans?j,cr2hon .=\:DJPC:~L? is?: ) -Ine n , * bz?;, , L?~o!;-ernen:;n; n c ! ~ ? ; l ~ o sCzr,an&;r;;g230;i it.0:;~ 21I k d ~ ~ 10.~50h2.s ?;ovaiced e : coi.,*o\-ers>. f2.m Li~come~i~cieasedsubstt-,tiall:;, b;l: $ye p r o s a n to reseEle c~splacedpeople was poorly planned and Sadly managed. X>eE a ~ also provlaed ionslderable support to aeveiop estate aid smallholder tree cops. Benehts k \%.eres;;Ss:~?r;zl: of the sxteen projects on!: thee hac ~ i x a 3 ~ i a ~ t oo;.:co;nes. The m2~q?li-;sose r ) . of many of L~esepro~ectsv.2~to use zn exskig estate ~ ? d / o rnzxigeslen:: orgrmsahon 2s *he nudeus to develop outlymg areas foi culavzhon by Itidless people, hence crezthg en?lo)ment a i d rafimg L?cones. This ixodel worked we!i cux~_~ :m?lenen:at?on. 5ut io; benehts to be sw- - - tamet, ixoie arienson fi requlred to iehabiiltmce su3s:zndrrd piznzngs and pr3wde erncien; exten- sion to ~ 6 sma!lholders (the iiiensive prolec: 2 mi: s:??ort systezn dcring 5 e invesaen: ?has? cznnor 3e xak,:amed d d g tle operation phase). Brnlc suppor: i ~ p r o v e dthe countiy's 2gricd2~-alresezc'l czpzaty considera5iy. Extension cover- age expmded througll the t a i n i ~ gand visit systerzbut neecis to be improved. Its uniforinity needs to be zdjuted to tie diverse cl?lturzl and socioecono~icenvirorments i~ L~donesia..Qso, hfS1er tunding of ~kteseprogaris, which have relied heaviiy on external L~~~ciiig, a ~izllenge. poses Infrastructure In highways, tile Bank has been Litaxmental irldeveloping a ca~ablehighway adfiskztioi-tand provided substzntizl assistznce in physiczl impro\~ements.Recently, Lhe GoveA?unmtinitiated a kstucturing of the highway ad&&ation, d o s e main a h isdecentralization of decision-mk- ing,wit??Bank support. The Bank also zssisted Lndonesia to irnpleinen: m u~to-datemanagemen: system. In addition, the BaA&has now expmded i s i.n,?.irolvementin multi-mode and ~ ~ b trm- z n port issues, both of which zre auazl. * In urban, a series of projects has contributed si~pificmtlyto long-term $evelopment of urbm set- tlements and local rnimiapzl structures. A housinv sector project assisted the housin,a mortgage 9 bznJc to strea-dine management systems znd introcuce automated operations. It also helped GO1 revise existing regulations a d policies that restricted.access to mortgage b a ~ kloans and expmd the role of private developers LT low-cost housi~g.Projects focusing on kazpung improvement programs, (N.P)-very dense low-income settlements iii urbzn areas-reaped very high economic rates of return. KIPSzlso upgaded the quality of life oi kzmpung residents through infrastmcture improvements and were replicated through successive operations, in urban areas throughout Indo- nesia. * In tvsier and sanitation the outcome of four of the five ei.21uated projects w2s rated sadsfclc:ory. The tevolution of implementation responsibility to the provinces through local agencies ozs an important achievement of project design. The projects found that poverty alleviation strate,pies can be addressed through both c ~ r e htargeting and project design, inciudhg location of public taps, l fasrorabiy priced house connechons and well-directed incenhves to water agencies. L? ports, good project hirung and accompanymg policy reformwere responsible for project ac:"ueve- merits. Tne promulgation of replatory reform accelerated port efficiency improvements mght otherwise hase been harder to zcheve with a project alone. But weak iiistitutions required more Bar& resources than LTIother sectors for Lie supervision of techcal assistance. The outcome of zl! fiiteen evalnated power projects (USS2.2billion in lending, representing 2 5% of the h&'s total evaluated por:ioiio) was rated satkfac:ory. X o u g h these operahons, the Bank made 2 subs:ant.,al cont;-;bution to Lie financing 2nd institutional strengthenirrg of L$e sector since the 1960s. These projects--carried out "through the late 1980s-supported the rapid expa,-sion of the system (with a tnpling of generating capacity during the 1980s alone) and heiped the state utility (PI,&? improve its project mznagernent and operational capacity accordingly. Policy dia- l o p e h at perioci focused rnzk~1-yon sector piarming and tariffs, with reasonabie success. More recent (ongoing)operations have also deal: with private sector participation and sector resmctur- Lrg. Education * Out of tie economic and soda! chaos of the mid-1970s, Lidonesia has achieved one of tie most si,hficznt transformations in education in the developing world. The Bank has lent more for edu- cation to Indonesia thm to m y other country, com.xninin:: over 52.2 billion for 35 projects shce W 1 . All 19evaluated projects in this diverse portfolio had successful outcomes. * Early Bank assistance was designed to educate and train the future work brce through secondwry and post-secondary vocational and technical kaining. Indonesia's rapid economic develop- ment, the scope of these investments has broadened over the years to include professional and scientific research h a i n i ~ gin polytechnics and universities. supported by reforms aimed princi- pally to improve quality, cost effectiveness, management effiaency and a greater involvement of the private sector. * A second generation of Bank projects began to focuson widening access and improving quality in primary and general secondary education, foliowing the COUI~IY'S success in building primary schools across the nation. Ongoing operations target the children of the poor in rural areas. Anota- ble success story is in the still ongoin5 assistance to poor and illiterate adults who have benefited from nonfomal programs designed to impart income-generating skills alongside lit era^. * Evaluation findings show that the objective of expanding access at all levels has been achieved: Policy, structuraland institutional reform has succeeded unevenly and more slowly, but there have been some notable successes (e.g., in teacher training). The increased participation of girls in poly- technic training is noted in a recent audit. - Health and Population Indonesia isamong the most active clients in the population, health and nutrition secton. reflecting the country's strong political and administrative commitment to improving human resources and to equity in the distribution of social sector services. - The tending program in population shows a strong record of success, with the outcome of all four completed projec& rated as sahsfactory and susbinable. Connibu~ngfactors to eh~ssuccess in- clude the sbong mshhlhonal capaciy of the lead lrnplemenrurtgagent)? (the Nahonai Famil? Plan- rung Coordinatcng Board, or 6I;);EK) and the development, through hme, ofeffec3x.e systems for shmulahng and mantainmg com~nnityinvolvement in farmly planning and health achvlhes. A fifth popula~onproject des~gnedto barn village level midwives and target services to hard-to- reach populations is nearing successful completion. Projects in the healthsector present a good example of development learning.The hrst h-oprojecb prodxced nixed results, and their outcorne wrs ;r:ed unsaksfzctory, lzrgely ice to i~,pler?.enta- hon difficultiesresulhng from construction delays, 2nd diffimities L? ssengthenmg local, diskict level capacity and accountabiliv A subsequent project overcame these difficulties &throughdevel- oping more explicit institutionzl development goals and adapting cornunity development les- sons horn the family planiiing progam experience to hezltb program design- - Tne nutrition project, the fiicst stmd alone project in the Bank's nutrition portfolio produced viilu- able lessori on organizational arrmpements for the management of ntltrition education efforts which are now incorporated into ongoing health projects which include nutrition objectives. Two on-oing projects in the health sector focus on improvement in h e quality of local health sen-ices : m a on resouris mobilization for 612sector. Microenterprise and Small Scale Industry Lending * While the outcome of several finmual intermediation projects was rated satisfactory,threeprojects addressed to small-scale enterprises (SSE)were designed to increase capacity and employment, as well asimprove the administration of the SSEprogram,but they failedto do SO. Credit subsidization undermined finanaal disapline by the borrowers. Many of the funds ended up refinancing exist- ingloansrather &an increzsingcapaaty. Theproject outcomeswere thusrzted unsatisfactory.Having leaned from this experience, however, a new type of project wzs designed by the Bank (MJPEDES, approved in FY87), which provides unsubsidized credit to small borrowers, thereby en~ourz~ging savingsby poor small entrepreneurs.The KUR??~ESproject outcome was highly satisfactory and is now being replicated by the private sector. INDONESIA ACTlVE LOAN PORTFOLIO AS OF FEBRUARY 1996 - &corn SectorMadmization # Project tatrxi unsatisfactory in hplcmcntation kogrcss #* Project ntcd unsatisfactory in Meting DcvclopmentObjcctivc