Document of The World Bank FOR OFFICIAL USE ONLY Report No: 24038-IND IMPLEMENTATION COMPLETION REPORT (CPL-40170; SCL-4017A; SCPD-4017S) ONA LOAN IN THE AMOUNT OF US$142.7 MILLION TO THE REPUBLIC OF INDONESIA FOR A SECOND EAST JAVA URBAN DEVELOPMENT PROJECT 6/27/2002 Urban Development Sector Unit East Asia and Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective 4/15/2002) Currency Unit = Rupiah (Rp) Rp I = US$ 0001041 US$ I = Rp 9600 FISCAL YEAR January I - December 31 ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank APIP Annual Project Implementation Plan ASEM Asia-Europe Meeting (Asian Financial Crisis Response Fund) BAPPENAS National Development Planning Agency BAPPEPROP Provincial Development Planning Agency (formerly BAPPEDA I) CAS Country Assistance Strategy CBUIM Capacity Building for Urban Infrastructure Management (ADB funded) DA-DPD Grant funds channeling mechanism from loan proceeds to local governments DG Cipta Karya Directorate General of Human Settlements, (fornier) Ministry of Public Works EJUDPII Second East Java Urban Development Project EJSRDP East Java Strategic Regional Infrastructure Project (proposed) ERR Economic Rate of Return FRAP Financial Recovery Action Plan FRR Financial Rate of Return GOI Government of Indonesia IPLT Septic Sludge Treatment Plant IUIDP Integrated Urban Infrastructure Development Project KIMPRASWIL Ministry of Settlement and Regional Infrastructure KIP Kampung Improvement Program LARAP Land Acquisition & Resettlement Action Plan LIDAP Local Institutional Development Action Plan MIIP Market Infrastructure Improvement Program MOF Ministry of Finance MOHA Ministry of Home Affairs O&M Operations and Maintenance Padat Karya Small, labor-intensive public works PDAM Water Enterprise owned by local government PFAMS Project Financial Accounting and Monitoring System PFCMU Provincial Financial Coordination and Management Unit PPMO Provincial Project Management Office POMMS Performance-Oriented Maintenance Management System PTCU Provincial Technical Coordination Unit REPELITA National Five-Year Development Plan RIAP Revenue Improvement Action Plan SLA Subsidiary Loan Agreement UPT Unit Pelayanan Terpadu or Integrated Service Unit Vice President: Mr. Jemal-ud-din Kassum, EAPVP Country Director: Mr. Mark Baird, EACIF Sector Director Mr. Keshav Varma, EASUR Task Team Leader: Mr. Stephen Dice, EASUR INDONESIA SECOND EAST JAVA URBAN DEVELOPMENT PROJECT CONTENTS Page No. 1. Project Data 1 2. Principal Performance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry 2 4. Achievement of Objective and Outputs 5 5. Major Factors Affecting Implementation and Outcome 12 6. Sustainability 15 7. Bank and Borrower Performance 16 8. Lessons Learned 19 9. Partner Comments 20 10. Additional Information 20 Annex 1. Key Performance Indicators/Log Frame Matrix 22 Annex 2. Project Costs and Financing 23 Annex 3. Economic Costs and Benefits 26 Annex 4. Bank Inputs 28 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 31 Annex 6. Ratings of Bank and Borrower Performance 32 Annex 7. List of Supporting Documents 33 Annex 8. Environmental Management 34 Annex 9. Loan Funds and Disbursements 37 Annex 10. RIAP Implementation 38 Annex 11. Impact of the Economic Crisis 40 Annex 12. Project's Response to the Crisis 46 Annex 13. Efforts to Promote Good Governance 51 Annex 14. Technical Assistance Assignments 60 Annex 15. Chronology of Efforts to Prepare a Follow-on Program 62 Annex 16. Special Problems and Issues 64 Annex 17. GOI Comments on the Draft ICR 72 Project ID: P039312 Project Name: SECOND EAST JAVA URBAN DEVELOPMENT PROJECT Team Leader: Stephen R. Dice TL Unit: EASUR ICR Type: Core ICR Report Date: June 27. 2002 1. Project Data Name: SECOND EAST JAVA URBAN DEVELOPMENT L/C/TF Number: CPL-40170; PROJECT SCL-4017A; SCPD-4017S Country/Department: INDONESIA Region: East Asia and Pacific Region Sector/subsector: UM - Urban Management KEY DATES Original Revised/Actual PCD: 01/10/1995 Effective: 12/13/1996 Appraisal: 05/15/1995 MTR: Approval: 05/16/1996 Closing: 03/31/2000 12/31/2001 Borrower/Implementing Agency: Republic of Indonesia/MIN. OF SETTLEMENT AND REGIONAL INFRASTRUCTURE; Republic of Indonesia/EAST JAVA PROVINCE Other Partners: STAFF Current At Appraisal Vice President: Jemal-ud-din Kassum Russell Cheetham Country Manager. Mark Baird Marianne Haug Sector Manager: Keshav Varma Anupam Khanna Team Leader at ICR: Stephen Dice Stephen Dice ICR Primary Author: Stephen Dice 2. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN.=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: L Institutional Development Impact: M Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: Yes 3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: The Second East Java Urban Development Project was requested by the Government of Indonesia as a follow-on project to the East Java Bali Urban Development Project (EJBUDP, Ln. 3304-IND). It was meant to provide a continuation of the modest and generally successful efforts of the East Java provincial government and up to 36 participating local governments to overcome current infrastructure and services deficits versus defined basic services standards of GOI. The project was conceived by both GOI and the Bank as a "bridging" operation, to complete the unfinished investment program from the EJBUDP in all local governments, while preparing the next major initiative for cooperation between the Bank and East Java which had been tentatively defined as the East Java Strategic Regional Development Program to focus on major investments in infrastructure, poverty alleviation, cultural heritage and other strategic support to the province and its' local governments in the framework of decentralized economic development and services delivery. The medium-term development objectives of the project were to improve urban infrastructure service delivery, and to develop the necessary financial and institutional capacity in local governments to sustain urban services. The more specific operational objectives of the project included: (a) to improve the provision of urban services to residential communities and economic activities throughout East Java in line with the modest service standards targeted by REPELITA VI, which gave priority to poor and under-served neighborhoods; (b) to continue the institutional development assistance provided for local and provincial government agencies under the EJBUDP , particularly to strengthen local capacities for O&M of urban service systems, and increase the effectiveness of local resource mobilization and management; and (c) to support GOI and East Javan efforts to operationally define the REPELITA VII urban/regional development strategy to include environmental management, land development controls, and private sector participation in an improved planning and infrastructure investment framework for realizing regional development potentials by supporting the preparation of an East Java Strategic Regional Development Program. The project design and the above objectives were fully consistent the current CAS for Indonesia and the GOI five-year development plan (Repelita VI) in addressing basic services delivery capacities and developing local government capacities to plan, budget and implement such investments on a decentralized basis with minimal guidance from central GOI. The project was largely viewed as a "repeater" in the sense that the methodologies and procedures for the project would essentially continue the generally successful EJBUDP processes, but with a stronger emphasis on institutional development at local level. 3.2 Revised Objective: No formal revision of the project objectives was ever agreed between the Bank and the Borrower. However, in the wake of the economic crisis it was agreed that the flexible structure of this project should be used to help mitigate the impact of the economic crisis and to promote good governance. Operationally, this is reflected in four additional programs which are listed in section 3.4. -2 - 3.3 Original Components: Component A: Infrastructure Works Water Supply. This component consisted of increasing service connections and reticulation coverage in 32 urban areas. Some 102,000 new customers were to be connected to piped water. More than 1300 kmn of secondary and tertiary piping were to be installed. The project was also to rehabilitate older service systems installed by the Dutch before World War II. Storage reservoirs were to be provided in 20 towns to improve capacity and water pressure. Urban Roads and Traffic Management. The project was to provide for a program of road improvements, road rehabilitation and maintenance totaling more than 900 km and for the construction of two new by-pass roads. Solid Waste Management (SWM). This component was to address SWM issues in at least 44 towns by providing increased collection coverage and developing a number of solid waste disposal sites as sanitary landfills. The sanitary landfills would be developed together with sludge disposal plants to treat septic tank effluent. Equipment to be procured included bulldozers, dump trucks, containers, arm roll trucks, compactor trucks and hand carts. Human Waste Disposal/Sanitation. This sub-component was to provide expanded service coverage and improved treatment and disposal for human waste. This was to be achieved through additional sludge trucks for the emptying of private septic tanks, through the construction of two community based sewer pipe net-work systems including treatment plants in Malang City and in six other towns, and through the construction of septic sludge treatment plants which would typically be integrated with sanitary landfills. Drainage/Flood Control. This component included the rehabilitation and improvement of primary and secondary drainage canals, normalization of river banks and deferred and incremental O&M channels. KIP/MIIP. This component would improve conditions in over 200 poor neighborhoods encompassing approximately 2700 ha. This would be done by providing footpaths, drainage, sanitation improvements, water supply, road construction and community participation. Markets infrastructure improvements would also be made. Urban Renewal. The city of Malang included sub-projects to improve approximately 10 ha of riverbank flood plain, and to undertake development of a 10 ha sites and services project with preparation of a 5 ha resettlement housing site. Approximately 6000 persons were to be affected. This component also provided detailed engineering design and construction supervision for the above works. Component B: Institutional Capacity Development Strengthening local institutions. This sub-component was to include support to the implementation of the Local Institutions Development Action Plans (LIDAPs) which had been part of the PJMs (Medium Term Action Plans). Increasing local governments' revenues. This sub-component was to support the relevant unit in provincial government in assisting local governments in the identification and effective tapping of potential - 3- tax sources under their jurisdiction. Establishing of a performance oriented 0 & M management system. This sub-component was to further develop the successful initiative of the EJBUDP so that local governments could budget for 0 & M expenditures on the basis of solid data and of systematic, pro-active planning. Component C: Preparation of Strategic Development Program This component was to lay the conceptual groundwork for an integrated urban-regional development strategy for East Java, by expanding the "classic IUIDP approach" 1/ regionally, sectorally, and institutionally. As noted above, this definition of project scope was viewed by both GOI and the Bank as the logical continuation of the EJBUDP program and not particularly innovative or experimental. The participation of the City of Malang, East Java's second largest city, was by far the largest local program proposed and was considered the most notable feature of the appraised program. 3.4 Revised Components: In connection with the efforts to mitigate the impact of the economic crisis, and related socio-political instability, job creation and improved govemance became priority considerations for local govemments' annual programs. The project enabled the following programs in addition to the original sub-components: * a program of small, labor intensive projects, to help reduce the rapidly rising unemployment caused by the economic crisis, * support to PDAMs in their efforts to recover from the economic crisis, and to pursue structural reforms as a step toward good corporate govemance (the PDAM Rescue Program), * two incentive programs for local govemments, in the form of budget for additional projects for well-performiing local governments, as a support to good govemance, and * support to a program for improved administrative service delivery by local govemments (the UPT Development Program), as a support to good govemance. 3.5 Quality at Entry: The QAG did not exist at the time of board presentation. Quality at entry is deemed to have been satisfactory because of the attention to detail and the careful assessments of institutional capacities, and because of the clear priority attached to the project by GOI, the province, and local govemments. The preparation of this project was taken by all parties as an opportunity to improve, streamline and strengthen the IUIDP process and procedures. The updated program manual included clarifications to sub-project design guidance, streamlined O&M programming (simplified POMMS), strengthened safeguards reviews and procdures (particularly for EA screening and for land aquisition/resettlement), as well as a much-improved financial management and monitoring system (PFAMS). The lessons of experience with EJBUDP were fully reflected in these improvements, and provided a project design which both GOI and the Bank regarded as a significant improvement over earlier IUIDP programs. 1/ The term "classic IUIDP approach" is to mean an infrastructure development strategy focusing on urban areas, focusing on the seven sub-sectors water supply, urban roads, drainage, sanitation, solid waste management, KIP, and MIIP (excluding airports, ports, terminals, railway stations, telecommunication facilities, electricity and fuel supply, etc.), and largely limited to government agencies and government owned business entities as main actors. -4 - 4. Achievement of Objective and Outputs 4.1 Outcome/achievement of objective: The achievement of the project objectives is assessed, separately for the four operational objectives (three original, one additional), as follows: (a) the provision of urban infrastructure facilities and services has no doubt improved markedly as a result of the project. The targets set out in the SAR and in the subsequent APIPs have been largely achieved. In the water supply sector, far fewer house connections than planned have been funded from the loan, but PDAMs have made house connections from their own funds, in a number that nearly matches the SAR target. A distinct over-achievement of the SAR targets is registered in the sectors for drainage and KIP / MIIP. The outcome in the water supply sector in Kabupaten Sidoarjo and Malang City is nil, however, and the outcome for the other sectors in Kabupaten Sidoarjo is small, because the participation of these two water utilities and of local government of Kabupaten Sidoarjo was discontinued in 1998 (see also section 5.3 and Additional Annex 16). Intensive surveys and analyses for Project Benefit Monitoring and Evaluation (PBME) have been conducted in nine selected towns. They are: Tuban, Tulungagung, Lumajang, Lamongan, Pacitan, Malang, Jember, Banyuwangi, and Sumenep, representing the project area. Their results suggest that the outcome of the project has been generally satisfactory, with the new infrastructure being adequately used. Some of the main findings are: * in the water supply sector, domestic service coverage has increased from 33% to 43%, non-domestic service coverage from 77% to 92%, and water consumption has increased by a margin of 9% to 38% (except in Lumajang); * in the urban roads sector, the percentage of roads in good condition has increased from 86% to 98%, and average vehicle operating costs have decreased by 3%; * as a result of improved drainage, flooding problems have-decreased in frequency, area, duration, and severity, all by a factor three to four; * in solid waste management, domestic service coverage has increased from 80% to 87%, non-domestic service coverage from 76% to 95%, transport capacity has increased from 68% to 82% of generated waste, and landfill sites can absorb 97% of the generated waste; * in the sanitation sector, the provision of facilities has improved markedly but their utilization is often below expectations; * improvements of kampungs (poor neighborhoods) and markets have covered 1,457 hectares. (b) the capabilities of provincial and local governments to design and implement urban infrastructure development programs have increased. The delegation of primary implementation responsibility to provincial government was a challenge, but the provincial management units have fulfilled their task well, especially in view of the many unforeseen problems caused by the economic crisis. Local governments have generally fulfilled their tasks reasonably well, in terms of physical development including more transparent procurement and in terms of revenue improvement, under sometimes difficult circumstances. O&M, however, is still not managed in a very systematic and pro-active manner but rather in an ad-hoc manner -5 - and depending on the availability of funds. Outcomes under this objective are generally considered to be satisfactory. Despite the economic crisis, the increase in local revenue has been encouraging in most local governments, indicating successful implementation of the RIAPs. Nominally, revenues have increased steadily since FY 1995/96. In real terms, however, revenues of most local governments show an increase from FY 1995/96 through FY 1997/98, then a sharp drop, caused by the extraordinary inflation of about 84.8% in FY 1998/99, then a gradual rise again. Since FY 1998/99, 31 out of 36 local governments have achieved more than 10% average annual revenue increase in real terms, the average being 18%. For more details, see Annex 10. (c) the preparation of a comprehensive follow-on program has not progressed as much as had been hoped and must be considered unsatisfactory. Provincial priorities appear to be more focused on attempts to develop Madura Island and the southem part of East Java as the two most pronounced regional poverty pockets. Also, in 1998 Bappenas expressed its objection to the preparation of a follow-on program as long as the implementation of the other components of the EJUDP II remained unsatisfactory. From early 1999 onward, PPMO worked intensively toward the objectives of Component C, prepared a strategy paper and discussed it with Bappenas and with the Bank. Further initiatives followed but hit snags such as unresolved questions of funding (the envisaged Japanese grant to support the preparation of a follow-on program had expired on March 31, 1999) and of timing (by then, March 31, 2000 was to be the loan closing date). For more details, see Additional Annex 15. Also, it appears that neither the leadership of Bappeprop nor higher provincial authorities really supported the preparation of an integrated urban-regional development strategy as envisaged in the SAR. In view of this, Bappeprop attempted in early 2001 to get at least some geographically and sectorally limited action programs defined, either a program based on the Brantas River Water Quality Management Study which had been prepared under the Surabaya UDP (Ln. 3726-IND), or a regional solid waste management program based on cooperation between Surabaya City, Kabupaten Sidoarjo, and Kabupaten Gresik. However, neither initiative yielded a tangible result. (d) the success of the four additional components listed in section 3.4 has been positive to varying degrees. The labor intensive program no doubt quickly created additional jobs but was discontinued in late 1998, mainly because meanwhile the Indonesian Social Safety Net Program and IDA's Urban Poverty Project (Cr. 3210-IND) had been launched to pursue the same objective. The effective launching of the ASEM-funded PDAM Rescue Program was very much delayed, and little more than a problem analysis and the preparation of recovery action plans for a limited number of PDAMs could be completed before the end of the project, although US$3 million had been reserved for this program. The two incentive programs were successfully implemented and are regarded as effective stimulants for local governments to improve urban management and project procurement The UPT Development Program has shown some success, though less than may have been expected. All in all, the achievement of the project's objectives is rated as satisfactory. 4.2 Outputs by components: COMPONENT A: INFRASTRUCTURE WORKS Of all sub-components of Component A, the sub-component for water supply suffered the biggest - 6- setbacks, with four envisaged SLAs not materializing, including the two biggest ones, namely for PDAM of Malang City (Rp. 33.2 billion, equivalent to approx. US$ 14.7 million at the exchange rate used in the SAR) and for PDAM of Kabupaten Sidoarjo (Rp. 13.3 billion, equivalent to approx. US$ 5.9 million at the exchange rate used in the SAR). Details of this development are described in Additional Annex 16. Furthermore, the SLAs for the water supply sub-component did not materialize in Kabupaten Sampang, in Kabupaten Pame-kasan, and in Kabupaten Bondowoso, Kabupaten Malang, and Kabupaten Nganjuk. Together, these SLAs would have amounted to Rp. 53.5 billion, equivalent to approx. US$ 23.7 million at the exchange rate used in the SAR, or approx. 52% of the amount which the SAR had allocated to the water supply sub-component). However, both Kabupaten Sampang and Kabupaten Pamekasan implemented small water supply programs under grant funding (BPDP in Kabupaten Sampang, and Incentive Program Phase I in Kabupaten Pame-kasan), and PDAM of Kabupaten Bangkalan initiated a SLA which had not been envisaged in the SAR, amounting to Rp. 0.8 billion. With this, 25 PDAMs eventually participated in the water supply sub-component of the EJUDP II. 75 contract packages with a total financial volume of Rp. 72.7 billion were implemented. The SAR had envisaged that 25% of the total project cost would be for the water supply sub-component but in reality it was only 8%. Overall this sub-component achieved unsatisfactory results. In the original APIPs for FY 1999/2000 two major water supply programs had been proposed, namely for Kabupaten Trenggalek and Kediri City. The financial volume of these proposals far exceeded the figures indicated in the SAR, and the Bank demanded that these two proposals be subjected to thorough feasibility studies. These studies eventually concluded that both programs should be substantially reduced in scope. The so-reduced programs were then implemented in FY 2000 and FY 2001. In Kabupaten Magetan, too, the water supply program was implemented only in FY 2001. The number of house connections funded from the loan remained far below the projections of the SAR. This was mainly caused by a general directive of the DG Cipta Karya (the Executing Agency at the beginning of the project) which said that loan funds were not to be used for this purpose. Specific-ally for the EJUDP II, the use of loan funds for the installation of house connections was permitted, though (see aide memoire of the November 1999 supervision mission, para 15). It is remarkable that despite the serious setbacks mentioned above the water supply sub-component of the project reached a substantial portion of the technical targets indicated in the SAR. Several major water supply programs had failed to materialize, but there was substantial over-attainment of the SAR targets in the remaining other water supply programs. Less positive was the outcome of the project's efforts to help the PDAMs become commercially viable water supply utilities. From the outset of the project it had been recognized that this objective could only be achieved if water tariffs were raised significantly, and this was incorporated in the loan covenants. However, falling real average household incomes in the wake of the economic crisis caused mounting socio-political resistance to such tariff increases. As a result, only 13 PDAMs actually adjusted their water tariffs between 1997 and December 2001, and even in those PDAMs the base water price is mostly still less than Rp. 500 per m3. Most PDAMs are in a precarious financial situation: only 3 PDAMs have in the last 3 years consistently registered profits after depreciation, and only 2 PDAMs have in the last 2 years shown Debt Coverage Ratios of more than 1.5. All PDAMs encountered rapidly rising production costs (especially for electricity and for chemicals) but simultaneous sociopolitical resistance to necessary tariff adjustments. Enlargement of the customer base and reduction of water losses are urgently required in nearly all PDAMs. In some areas the easy availability of good groundwater constitutes a serious "competition" to the PDAMs. The tapping of such groundwater resources often requires little more than human labor, and the opportunity - 7 - cost of human labor has decreased significantly since the economic crisis, whilst the real production costs of the PDAMs have in fact increased. The "cost gap" has therefore generally widened to the disadvantage of the PDAMs. Furthermore, there are additional problems for some PD~AMs, such as poor and / or highly fluctuating yields of water sources. Clearly, further investments in water supply will require careful analysis of PDAM viability, including the full application of the effective demand analysis required in the project manual/procedures. The sub-component for urban roads eventually turned out to be the biggest under the project and was generally satisfactory. The SAR had projected that 24% of the project cost would be in this sector but in reality this increased to 39%. 304 contract packages with a total financial volume of Rp. 277.0 billion were implemented, 16 of them by the provincial Dinas Bina Marga office. This sub-component included three projects involving national roads which were implemented by the provincial Dinas Bina Marga office on behalf of central government. They were the construction of new by-pass roads for the towns Nganjuk and in Krian (Kabupaten Sidoarjo) and improvements to the existing by-pass road in Tuban. While the latter two have been completed and are obviously of high benefit, the Nganjuk by-pass has remained uncompleted (for details see Annex 16). The road-and-bridge project Gadang-Bumiayu in Malang City encountered serious problems related to land acquisition and resettlement, specifically in the Gadang wholesale market. A LARAP for the relocation of more than 400 traders there was prepared and legalized, supported by serious efforts from PPMO and from the Bank. However, that LARAP was not implemented consistently, and the Bank repeatedly voiced its concerns. The project was physically completed, and Malang City assured the ICR mission of its determination to complete the few still-outstanding components. The construction of the eastern ring road for Sidoarjo failed to materialize because Kabupaten Sidoarjo was suspended from the EJUDP II (see also section 5.3 and Additional Annex 16). Local government of Kabupaten Sidoarjo is now trying to realize this project from its own resources. The sub-component for drainage was the second biggest under the project in terms of financial volume and was also generally satisfactory. The SAR had projected that about 16% of the total project cost would be for this sub-component, but this increased to 21% in reality. 309 contract packages with a total financial volume of Rp. 135.4 billion were implemented, including 15 projects implemented by Dinas Cipta Karya and 7 projects implemented by Dinas Pengairan. In the original APIP for FY 1999 / 2000 there had been a proposal for drainage works in Kabupaten Kediri (location Pare) whose financial volume far exceeded the magnitude indicated in the SAR, but PPMO decided in March 1999 to reduce the volume of this proposal to the scope envisaged in the SAR. The sub-component for solid waste management retained more or less the percentage of loan funds as had been projected in the SAR (planned as well as realized. 5% of total project cost). Results in most local governments were satisfactory, with the notable exception of the City of Malang. 145 contract packages with a total financial volume of Rp. 38.0 billion were implemented. Major civil works for the establishment of landfill sites and the purchase of equipment for their operation were funded in several locations, such as in Kabupaten Blitar (location Tegalasri near Wlingi), Kabupaten Probolinggo, Kabupaten Malang, and Kabupaten Kediri. In Malang City, it had been planned to improve the Supit Urang landfill site, including civil works and the procurement of equipment. Malang City was unable to complete the procurement of the required equipment before the loan closing date, and this threatens the quality and sustainability of the landfill investrnent However, promises to complete the procurement of necessary equipment were obtained during the ICR Mission. 8- The sub-component for sanitation and waste water management turned out to be much smaller in relative financial volume than the SAR had projected (planned: 5% of total project cost; realized 2%) and results must in aggregate be regarded as unsatisfactory. 66 contract packages with a total financial volume of Rp. 16.0 billion were implemented. Despite the reduced scope, monitoring surveys conducted by PPMO in 2000 and 2001 revealed that the program was apparently still over-sized compared to the real demand for services in this sector. This resulted in many installations, notably sludge trucks and septic sludge treatment plants (IPLT), being grossly under-utilized if not completely idle. Community resistance is often encountered in locations where septic sludge treatment plants were proposed. Therefore such plants are often integrated into solid waste landfill sites. Notwithstanding the general need to improve sanitation, intensive community awareness and public education campaigns are required to make projects in this sub-sector more effective, beneficial, and financially self-sustaining. Also, there is a need to complement the construction of physical installations by staff training, to provide a better legal basis for the operation of facilities (e.g. regional regulations, Peraturan Daerah), and to increase the participation of the affected households (both those benefiting from new facilities and those in the vicinity of sludge treatment installations). The outcome of the pilot project for modular sewerage systems in Malang City (location Mergosono / Ciptomulyo) was somewhat disappointing. That project had been modeled along the lines of a successfully implemented community based sewerage system in the same city, but it turned out to be beset by contractual problems, social probiems caused by insufficient community participation in the planning stage and compounded by a reportedly unprofessional project management by the contractor, poor standards of civil works, and a lower-than-required number of functioning house connections at the end of the project. Substantial additional efforts by Malang City will be required to make this project sustainable. The negative experiences from this project caused PPMO to cancel a planned second, similar project in the same city. Besides that, this pilot project had been meant to be the first of a series of similar projects, whereby the loan amount invested in this project would be considered a seed grant, and the house connection fees collected in this pilot project would be set aside to form a revolving fund for future projects of the same kind. Judging from information gathered so far, it appears questionable whether this financial management model will prove workable, and the sustainability of this project and of the whole approach seems still uncertain. On the positive side, it has been demonstrated that there is a significant degree of awareness, and a substantial willingness to pay, among the intended beneficiaries, including the poor. More details are given in Annex 16. The sub-component for KIP and MIIP (excluding the labor intensive projects which are listed under this sector in some tabulations) became smaller in reality than the SAR had projected (planned: 4% of total project cost; realized: 3%). 109 contract packages with a total financial volume of Rp. 24.0 billion were implemented, covering 1,457 hectares of KIP and 44 units of improved markets and are mostly satisfactory. In the sub-component for urban renewal, only I contract package worth Rp. 1.9 billion was implemented in the Kutobedah area in Malang City. Original project plans had simply envisaged that the riverbank there be cleared of houses and the inhabitants be relocated to more suitable areas. Later on, a more comprehensive development master plan was prepared by Malang City. The preparation and legalization of an appropriate LARAP turned out to be enormnously resource and time consuming, including for PPMO and for the Bank. The eventual implementation of this project encountered many problems, and Malang City was obviously negligent in the implementation of the LARAP which drew the increasingly critical attention of the Bank. The project was not satisfactorily completed by the time of the ICR mission, but Malang City assured the mission of its commitment to finalize the implementation of the LARAP. This -9- sub-component must be rated unsatisfactory based on the continuing difficulties in completing the LARAP. COMPONENT B: INSTITUTIONAL CAPACITY DEVELOPMENT The overall outcome of this component is regarded as satisfactory, but its' impact limited to modest in light of the many other factors influencing local government capacities in Indonesia during the project period. A fairly wide variety of training courses for civil servants, mainly from local governments, was conducted by the provincial training center in Surabaya with support from a consultant team and from the project management units at provincial level (PPMO, PTCU, and PFCMU). Specialized training courses in solid waste and waste water management were implemented by central government at the training center in Bekasi, near Jakarta. Technical assistance assignments primarily aimed at supporting institutional development were those for the development, operation, and propagation of a Project Financial Auditing and Monitoring System (PFAMS), for Revenue Improvement Action Plan (RIAP) implementation support, for the development of a Performance Oriented 0 & M Management System (POMMS), for Technical Auditing and the development of Perfonnance Indicators, and for Advisory Services for Solid Waste Management in Malang City. Also, the Greater Malang Urban Road Network Study and the Greater Malang Traffic Management and Public Transport Study were chiefly meant to enable the involved institutions to develop and implement better plans in the respective fields. See also sections 4.1 and 4.5. COMPONENT C: PREPARATION OF STRATEGIC DEVELOPMENT PROGRAM See section 4.1 Rating: Unsatisfactory ADDITIONAL CRISIS RESPONSE PROGRAMS. The program of small, labor intensive ("Padat Karya") projects was unique insofar as it included projects located in Kalimantan, i.e. outside East Java province. In January 1998, US$ 22.0 million of loan funds in two new disbursement categories had been aside for this program, but the program was discontinued in late 1998 because meanwhile the Indonesian Social Safety Net Program and the Bank sponsored Urban Poverty Project had been launched to pursue similar poverty alleviation and employment creation objectives, and altogether only Rp. 62.4 billion (equivalent to approx. US$ 6.3 million) was disbursed for the 918 contract packages under this program. More details are given in Additional Annex 12. Rating: Satisfactory A PDAM Rescue Program had been envisaged since 1998, with the objectives, to assist the PDAMs in the immediate handling of the impact of the economic crisis, such as soaring costs, e.g. for chemicals and electricity, and to address their fundamental, generic weaknesses, including idle production capacities, high water losses, inadequate water tariffs, poor financial management, and over-staffing. It was envisaged that the PDAMs participating in this program would be granted loans to optimize their technical operations and maximize revenues, provided they had submitted convincing Financial Recovery Action Plans (FRAPs). To finance such loans, the MoF set aside US$ 3.0 million from Loan No. 4017-IND in early 2001. Until the end of 2001, action plans were indeed prepared, and their gradual implementation was monitored by the Bank with assistance from provincial government. However, no loans to PDAMs were granted, and the US$ 3.0 million budgeted for this program have remained completely unutilized. More details are given in Annex 12. Rating: Satisfactory, but very limited results to date. In an effort to promote good governance, the Incentive Program Phase I was conceived in early 1998, and - 10 - a budget of US$ 2.0 million was set aside for it. The program was to reward local governments that had shown good performance in urban management with additional physical projects of their own choice. These projects would be 100% loan funded under a grant to local govemments. The winning 11 local governments eventually implemented 61 contract packages worth Rp. 23.8 billion under this program, largely focused on roads and drainage improvements. More details on this program are given in Annex 13. Rating: Satisfactory Following the positive assessment of the Incentive Program Phase I, GOI and the Bank agreed to launch an Incentive Program Phase H with identical disbursement conditions in 1999, to reward local governments that had shown a high degree of transparency in project procurement. US$1.0 million was budgeted, and the winning 3 local governments eventually implemented 12 contract packages worth Rp. 8.2 billion for additional local infrastructure under this program. More details are given in Annex 13. Rating: Satisfactory The UPT Development Program had been launched by the MoHA independently from the EJUDP II. This program seeks to establish simplified one-stop service systems for the documents and pernits frequently required by the public and by the business community. During the July 1999 supervision mission, the Bank agreed to support this program in East Java from Loan No. 4017-IND. This support began in late 1999 and intensified in the following year when 14 local governments were identified as the definite participants of this program. A detailed strategy and implementation mechanism were developed by a special team at provincial level and approved by the Bank in late 2000, and loan closing date was extended for a second time. The program has been fairly successful in four local governments, and partially successful in another six local governments. More details are given in Additional Annex 13. To date the overall rating must be unsatisfactory, but with the understanding the the province and local governments are continuing to work. 4.3 Net Present Value/Economic rate of return: The SAR establishes Rp. 500 million and Rp. 2 billion (in constant 1994 prices) as the cost threshold levels which separate small, medium-sized, and large subprojects for which different methods of economic analysis are to be applied. The project design required full feasibility studies and economic analysis on "large" subprojects costing more than Rp. 2 billion, with smaller works being assumed feasible if established design criteria were followed. With the observed general inflation rates, the current threshholds are equivalent to approx. Rp. 1.3 billion and Rp. 5.2 billion in 1999 prices. By this standard, there only three large projects under the EJUDP II, namely the incomplete by-pass road for Nganjuk, the by-pass road for Krian, and the water supply program in Kabupaten Tulungagung (contracted in 3 packages). ERR analysis for the Krian by-pass was reviewed by the ICR mission and found to be acceptable with a base case return of more than 30% (see Annex 3 for a summary of this analysis and the Tulungagung FIRR analysis). In its' ICR, GOI presents ERR figures for major projects (with contract values greater dtan Rp. 400 million) in the sectors urban roads and drainage in the nine sample towns (see section 4.1). GOI's ICR states an average ERR of 19% for urban road projects and of 17% for drainage projects in the nine sample towns, which is higher than the 12% threshold which the SAR had used as cut-off level for acceptable projects. The ICR mission discussed these findings with the PPMO and consulting team and found the results reasonable. 4.4 Financial rate of return: The biggest water supply project and only one requiring full FIRR analysis was in Kabupaten - 1 1 - Tulungagung (a "large" project according to the classification found in the SAR). The ICR team has estimated the FIRR for PDAM Tulungagung to be 12.7% under the currently constrained financial environment, with good prospects for improved performance as the economy recovers. (see Annex 3 for a summary of this analysis). The GOI ICR document evaluates 9 PDAMs and finds FIRRs on subproject investments range from 13-29% based on reasonable assumptions regarding operations costs and tarriff increases.However, with no changes in financial parameters, returns could be as low as 2%. Admittedly, the late physical completion of the water supply projects makes the gathering and analysis of actual revenue data difficult. 4.5 Institutional development impact: A significant institutional development impact had been achieved in many local governments, mainly as a result of the challenge and responsibility allocated to them in the project, of the guidance extended to them by provincial units, of intensive technical assistance rendered by consultant teams, and of classroom training conducted either in the field (through formal project management courses) or in the provincial training center which was supported in this activity by the project. However, extensive re-organizations and staff re-assignments in early 2001, in the course of the implementation of Indonesia's ambitious decentralization program, have to a certain extent disrupted established work units and procedures again. Thus, the overall impact of the project must be rated as modest. At provincial level, the institutional development impact has been most pronounced at PPMO, also PTCU, and to a lesser degree PFCMU. The experience and competence of these units has increased markedly, mainly as a result of the challenge and responsibility allocated to them in the project, of intensive technical assistance rendered by consultant teams, and, in some cases, of formal training. The central Executing Agency is gradually adapting to its new role as a primarily policy-making body, as opposed to the project implementation role it had in earlier years, and the implementation design adopted for this project has been a significant factor in providing an example of how this process can function. Most of the technical assistance rendered to central level agencies was intended to support decentralized processes. 5. Major Factors Affecting Implementation and Outcome 5.1 Factors outside the control of government or implementing agency: Indonesia's economic and fiscal crisis, which began in 1997, has had several profound impacts on the project Some of them are described in Additional Annex 11. The trigger of the crisis was an extra-ordinary devaluation of the Rupiah against hard currencies, from about US$ 1 = Rp. 2,400 in mid- 1997, to US$ 1 = Rp. 15,000 in early January 1998, and to around US$ I = Rp. 10,000 from 1999 through 2001 (May 2002: US$ I = Rp. 9,200). This shift of exchange rate caused the loan amount to become significantly over-sized in comparison with the Rupiah denominated implementation program. On the other hand, the extra-ordinary domestic inflation during 1998 caused the Rupiah denominated budgets to become significantly under-sized in comparison with the actual cost of the agreed-upon physical implementation program. In addition, GOI was forced to reduce the provision of counterpart funds, and to request increased disbursement percentages from loan funds. All, these develop-ments required intensive adjustment efforts, including two partial canceliations of loan funds, a change of disbursement percentages, and a thorough revision of numerous contract packages. The crisis also resulted in soaring unemployment, which the project in 1998 tried to mitigate to some extent through the launching of a program for small, simple, labor intensive projects, following a re-structuring of - 12 - the loan amount in January 1998. This increase in unemployment caused a dramatic increase in poverty, which GOI and the Bank have tackled through the Urban Poverty Project since 1998. Lastly, the economic crisis also exposed glaring structural weaknesses in the water supply utilities (PDAMs), triggering immediate preparations for a nation-wide PDAM Rescue Program which was eventually launched in 2001. 5.2 Factors generally subject to government control: The principal decision to delegate the primary implementation responsibility to the province can in hindsight be assessed as prudent and beneficial for the project The province has managed the project fairly well, considering the difficult external circumstances and unforeseen developments. The previous Department of Public Works was restructured twice, out of political considerations: in 1999 it was split into a State Ministry of Public Works and a Department of Human Settlements and Regional Development, but in 2000 the two units were merged again to become the Department of Human Settlements and Regional ifrastructure. The resulting disruptions have had some negative impact on the project (4 different Directors General and 4 different Directors were in charge of the project during its implementation). The local tax restructuring effected by Law No. 18 / 1997 had a temporary negative impact on the revenues of local govemments, as they lost some of their established and lucrative tax bases, while they were not immediately able to fully tap the potential of other tax bases allocated to them in compensation. The policy of decentralization which was authorized with Law No. 22/ 1999 and Law No. 25 / 1999, and whose implementation began in earnest in January 2001, has had some negative impact on the project, because local governments paid a good deal of their attention to the process of internal restructuring, and established working units were often disrupted. This has affected the project in its last year. The additional component "Support to the UPT Development Program" was included upon initiative of the MoHA, as it is outside the scope of IUIDP programs proper. For more details, see Additional Annex 13. The inclusion of this component was one of the main factors in the decision to extend the loan closing date for a second time, from 31 March 2001 to 31 December 2001. On the other hand, it was decided that emphatic efforts toward local institution building (such as the implementation of Local istitutions Development Action Plans = LIDAPs) should be undertaken not so much in the context of the EJUDP II but rather in the context of another, ADB funded project, the Capacity Building for Urban Infrastructure Management (CBUIM) Project which was launched in 2001. S.3 Factors generally subject to implementing agency control: The scope of the EJUDP II was reduced substantially by all local govenmments in response to the crisis and more specifically by the actions of two implementing agencies. The PDAM of Kabupaten Sidoarjo embarked on a PSP scheme based on an unsolicited proposal under procedures that forced the suspension of both the PDAM and local government of Kabupaten Sidoarjo from the EJUDP II, as declared by Bappenas in July 1998. Furthermore, the PDAM of Malang City declared its withdrawal from the EJUDP II in November 1998. For more details regarding these two particular issues, see Annex 16. More information regarding the performance of the implementing agencies in general is given in section 7.6). 5.4 Costs andfinancing: According to the provincial accounting system (PFAMS), a total of Rp. 894.9 billion was disbursed for the -13 - project, including Rp. 309.2 billion of Indonesian funds. Expenditures to be funded from the loan amounted to a total of Rp. 585.7 billion, equivalent to US$ 76.2 million. This would represent 65% of the project cost, while the SAR had envisaged that the loan would cover 58% of the total project cost. This shift was caused by the introduction of several additional programs. which were 100% loan funded, and by an increase in the loan funding percentage for civil works and technical assistance. The average exchange rate between Rupiah and US$ was US$ I = Rp. 7,656 during the project implementation period which is approx. 3.4 times higher than the assumption in the SAR (US$ I = Rp. 2,260). The cost structure of real expenditures during the project's implementation tumed out to be very much different from the cost structure originally envisaged in the SAR in the original Loan Agreement, and even different from the repeated Amendments to the Loan Agreement, as agreed upon between GOI and the Bank. There is, however, a considerable discrepancy between the PFAMS figures and the sum of the disbursement applications subrnitted by the MoF to the Bank. The sum of the disbursement applications accepted by the Bank is US$ 73.4 million. With this, there is an undisbursed balance of approx. US$ 8.8 million left at the end of the project. This undisbursed balance is the result of mainly three factors: (i) documents amounting to a total of approx. US$ 2.3 million were not submitted for disbursement, and in addition an amount of approx. US$ 0.5 rnillion was declared ineligible by the Bank, (ii) the MoF did not at all utilize the amount of US$ 3.0 million which it had allocated under this loan for the PDAM Rescue Program, and (iii) the assumed average exchange rate of US$ 1 = Rp. 7,800 for the disburse-ments during the last year of the project, a crucial assumption for projected disbursement in US$, was unrealistic, with an error margin of approx. 20%. Table 1: Loan Fund Structure by Disbursement Category in the Loan Agreement, in Subsequent Amendments, and in Actual Disbursement Disbursement Category Loan Fund Allocation I Disbursement in USS million Orlginal Amend. ~~~~~Amend- OigInal Amendt Amendment Reallocation Amend- ment to Actual LAgemnt menAt to LA by MoU ment to LA LA Disburse- Sept 1996 Jan. 1998 Aug. 1998 Nov. 1998 March 2000 March 200 ment Civil Works - SLA 1(a) 41.400 41.400 25.700 5.100 6.700 6.500 6.095 Civil Works - non SLA 1(b) 45.700 23.700 23,700 72.600 58.500 49,600 46.215 Goods- SLA 2(a) 26.100 26.100 16.100 1.900 2.300 1.500 447 Goods - non SLA 2(b) 11.000 11.000 11.000 3.500 3.000 2.600 1.847 Consultants Central 3(a) 2.300 2.300 2.300 2.300 2.300 2.300 1.924 Gov't. Consultants East Java 3(b) 16.200 16.200 16.200 11.600 7.800 10.200 7.156 Padat Karya East Java 4(a) - 15.000 15.000 15.000 4.000 6.400 5.858 Padat Karya Kalimantan 4(b) - 7.000 7.000 5.000 5.100 3.100 3.854 Total Loan Amount 142.700 142.700 117.000 117.000 89.700 82.200 73.396 - 14 - 6. Sustainability 6.1 Rationalefir sustainability rating: The ICR mission believed that the appropriate rating for the project's overall sustainability is uncertain. However, as this rating is no longer an option under the revised ICR guidelines the project has been rated as likely to be sustainable, but this rating must be conditioned upon the continuation of the very ambitious GOI decentralization initiative and related local instisutional strengthening and clarification of local regulatory frameworks. Among the positive aspects from the project is the fact that most of the physical investment program was completed in a satisfactory manner and has resulted in improved service delivery. This concerns especially the sectors KIP, MIIP, urban roads, drainage, solid waste management, and water supply, the latter subject to the PDAMs ability to maintain a sustainable mode of operation. With a more decentralized government, it can be hoped that local governments will now pay sufficient attention to the necessary 0 & M for these investments, and with the assistance of the RIAP components most localities appear to have the revenue base for basic O&M. On the other hand, the sustainability of many investments in the sanitation sector seems rather unlikely, at least as long as public awareness remains at the current, very low level. Amongst others, the sustainability of the pilot project Modular Sewerage Mergosono/Ciptomulyo will depend on additional interventions, and most PDAMs urgently require a tariff increase for sustainability. Under institutional aspects, the implementation of the RIAPs has been encouragingly successful, in view of the difficult circumstances caused by the economic crisis, but the persistent lack of a systematic approach to an integrated 0 & M management in nearly all local governments is disappointing; i.e. the POMMS approach to O&M programming is not being continued in most local govemments. The project experience gained by many relevant government officials, especially at provincial and local level, complemented by formal training, is likely to increase the institutional competence of their organizations substantially and sustainably, which will benefit possible future, similar programs. The non-attainment of the objectives of Component C (see section 3.3) is irrelevant in the sense that it does not affect the sustainability of the other components. With regard to the additional programs (see sections 3.4 and 4.2), the success of the UPT Development Prograrn in East Java has been mixed, with some UPTs still in early stages of development, but others now functioning fairly well and in an apparently sustainable manner. While the ASEM grant was closed in March 2002, the implementation of the PDAM Rescue Program is still underway with GOI support, and its eventual sustainability cannot yet be assessed. The eventual success or failure of this program, the success or failure of the adaptation and reformation processes of the PDAMs in general, and the degree of political support to PDAMs by local governments and local councils will decide whether or not the PDAMs will prospects of sustainable and financially self-supporting operations in the future, which would be a prerequisite for further financial assistance, including the Bank's proposed Water Supply and Sanitation APL operation for Indonesia. 6.2 Transition arrangement to regular operations: During the ICR mission, agreement was reached between the Bank, GOI, and Malang City that Malang City must guarantee the implementation of corrective action, to rectify the long-standing deficiencies in the implementation of the LARAPs for the projects Urban Renewal Kutobedah and Road-and-bridge Gadang-Bumiayu, as well as the deficiencies in the Modular Sewerage Project Mergosono / Ciptomulyo. GOI itself must guarantee the completion of the unfinished northern ring road for Nganjuk town. The PDAM Rescue Program, currently under implementation, is to address the fundamental structural weaknesses of the PDAMs, in order to enable them to function as sustainable water supply operators. - 15 - 7. Bank and Borrower Performance Bank 7.1 Lending: The Bank's performance in the lending operation is rated as satisfactory. As noted earlier, this preparation effort largely focused on using the lessons of experience gained from EBTBUDP implementation to strengthen, streamline and simplify the GOI IUIDP model. The most distinguishing feature of the preparation was the very participatory approach followed by the Province and the Bank, with extensive consultations being held with local governments on key features and proposed changes. Perhaps the most difficult aspect of the preparation was the introduction of the (then) new Bank guidelines for land aquisition and involuntary resettlement, particularly in light of the fact that several aspects of the Bank's guidelines were inconsistent with prevailing GOI law and regulations. As preliminary discussions in Jakarta revealed GOrs unwillingness to quickly change the national policy framework, this required the development of an adequate land aquisition and resettlement policy for East Java which would then be promulgated to all local govermments by a decree of the provincial Governor. Completion of this policy framework and issuance of the Govemor's decree was successful, but was one of the delaying factors between project approval and effectiveness nearly 7 months later. However, most of the revised project procedures were designed to provide "user-friendly" simplifications to previous processes, including annual program preparation and simplified O&M budgets. While the project has received some criticism for its complexity, it is difficult to evaluate the relative impacts of attempting a comprehensive assistance program and the effects of the crisis and the many complexities it imposed on all project participants. The ICR mission and the provincial officials it met were generally inclined to attribute much of the reason for the problems which arose to being the results of th crisis, and generally had praise for the flexibility and potential responsiveness of the project design to deal with such completely unexpected conditions as arose from 1997 in attempting to implement this program. However, it does appear that the implementing agencies' capacities to undertake such a big and comprehensive program quickly and in line with all relevant regulations had been somewhat over-estimated. 7.2 Supervision: The Bank organized the Project Launch seminars for this project in May 1996 as a major training event for the participating local governments, including project managers, treasurers, procurement teams and safeguard personnel. A total of 12 Bank staff and many provincial personnel who had assisted the preparation as part of the PPMO for the preceding EJBUDP conducted three days of workshops and seminars for project staff and the Mayors/Bupatis from all participating jurisdictions. With more than 400 participants the project launch of this project was the largest attempted by the Bank prior to that time. The initial supervision mission was a limited review of project mobilization and initial procurement shortly after project effectiveness in December 1996. To the dismay of mission members and provincial staff, it became obvious that requirement to utilize standard procurement and contract documents, and to have the first contracts by each implementing unit be reviewed by the Bank to assure compliance, had not been followed or understood by the local government implmenting units. It fact, serious questions were raised regarding the transparency and validity of the contracting processes employed by many of the implementing units. On this basis the Bank refused to finance 56 contracts from various implementing units accross the province, and the resulting turmoil effectively limited project achievement during the remainder of the GOI fiscal year (through March 1997). However, these events served as an effect reminder to the local unit that the Bank was increasingly serious about enforcing irnproved procurement practices in our projects, and no further major procurement problems were experienced during the course of this project. The Barik's supervision missions repeatedly involved the Indonesian Contractors' Association ("Gapensi') in the efforts - 16 - to propagate more competitive and transparent project procurement. The Bank's performance in supervision is rated as satisfactory. Continuity of task management in the Bank was not optimal, with a transfer of responsibility from the first TTL (who had also been the leader of the appraisal mission) to his successor, another member of the appraisal mission, in March 1997, four months after loan effectiveness. In May 2000, responsibility was handed over to a new TTL who was simultaneously TTL of the Surabaya UDP (IBRD LN. 3726-IND). In September 2001, responsibility reverted back to the first TTL. Despite this, an acceptable degree of continuity in substance could still be maintained, because of the intensive involvement of staff from WBOJ, and because of the active participation of GOI, especially of provincial government, in the monitoring and supervision mechanisms. The Bank conducted 12 supervision missions during the project's duration (60 months), i.e. on the average a mission every five months, during the first three years even every four months (the SAR had envisaged a mission every six months on the average). Details are shown in Annex 4. Aide memoires of all supervision missions were prepared, discussed with GOI before the end of each mission, and reviewed and evaluated at the beginning of the following supervision mission. The very active participation especially of provincial government rendered these missions generally fairly fruitful. In addition, there gradually developed a regular information exchange and an improved coordination between provincial government and the Bank. The difficulties in implementing the new land aquisition and resettlement procedures in Malang provided an excellent test of the strengthened guidelines and proved to be a learning experience for all involved (see Annex 16 for additional detail on this matter). The actual disbursement of loan funds was much slower than expected, for several reasons. One reason was the dramatic shift in the exchange rate between the Rupiah and the US Dollar, which caused the loan amount to become significantly over-sized in comparison with the Rupiah denominated implementation program. There were also delays in procurement, caused by delayed release of funds by central government and, specially for FY 1997/98, by the adjustments needed as a result of the extraordinary domestic inflation. The flexibility and creativeness displayed in the Bank's responses to the crisis has drawn praise from many quarters, and the project team deserves much credit for responsiveness and innovation in assisting East Java to deal with the many issues arising from the multiple impacts of the crisis on the original program, as discussed in Annexes 11-13 which include a review of both the positive and negative aspects of the project's and the Bank's responses to the unprecedented dimensions of the Indonesian crisis which is still affecting many aspects of Indonesian life. 7.3 Overall Bank performance: The Bank's overall performance in this project is rated as satisfactory, both in lending and in supervision. Borrower 7.4 Preparation: The Borrower's performance in project preparation is rated as satisfactorv. The adequacy of the project's preparation is difficult to judge, considering the profound changes that have occurred in several fields during the project's duration. It appears that the project, if held against a hypothetical "what-if-not" scenario, had been prepared with due diligence and in a satisfactory quality. The project appears to have been fairly well thought-out in terms of physical scope, of financial scope, and of principal institutional - 17 - arrangements. The institutional capacities to launch such a big and comprehensive program quickly and in accordance with all relevant regulations may have been over-estimated, but there were no other obviously unrealistic assumptions in the project plans. 7.5 Government implementation performance: Central government's perfonmance in project implementation is rated as satisfactory. The Executing Agency has handled its tasks adequately, considering the fact that it only had an overall responsibility and that primary implementation responsibility had been delegated to the province. The Executing Agency has by and large adequately supported the province in the implementation of the project and in the various adjustments which became necessary during the project's duration. During the implementation of the project, there was a significant shift in the proportion of loan funding and grant funding to local governments. In the original Loan Agreement, physical works were to be funded by US$ 67.5 million in on-lending and US$ 56.7 million in grant funding; in the last Amendment to the Loan Agreement, however, the amounts were changed to US$ 8.0 million in on-lending and US$ 52.2 million in grant funding. For more details, see Table I on page 13. With this, central government has eventually agreed to shoulder the main burden for the financing of the project. In most fiscal years during the project's implementation, the release of central government grants (SPABP, DA-DPD, DIPP) by the MoF was very much delayed and beset by administrative hurdles. This was a generic problem not limited to the EJUDP II. It has adversely affected the implementation progress of physical projects as well as of technical assistance, and thus the disbursement of loan funds. Similarly, the processing of SLA applications at the MoF was rather time consuming and, -from local governments' point of view, disappointingly cumbersome. Furthermore, the insufficient availability of counterpart funds from central government was one of the main problems in the implementation of the by-pass road for Nganjuk town. Apart from that, the MoF and Bappenas have been very accommodating for the needs of the project, especially in repeated changes to the loan amount, the loan structure, and the loan closing date. 7.6 Implementing Agency: The implementing agencies' performance in project implementation is all in all rated as satisfactory. Provincial government has managed Component A of the project fairly effectively through its three working units PPMO, PTCU, and PFCMU. These units have generally performed well in handling their respective tasks, such as detailed annual planning on the basis of the SAR, regular reporting, and regular implementation monitoring including Bank supervision missions. However, they have not established a clear mechanism for the definition and monitoring of priority targets and performance indicators for local govemments, nor systematically followed up the findings of the financial and technical audits. On the other hand, the provincial level units, especially PPMO and PTCU, have to be credited with having handled a very high worload, far in excess of the assumptions made during the project preparation. This includes the enormous amount of adjustments which were suddenly required during the early phases of the economic crisis, the repeated changes to the size and the structure of the loan, and the preparation, implementation, and monitoring of several additional programs ( see below). The provincial level agencies Bappeprop and Dinas Permukiman have made available substantial resources for the management of the project, including the secondment of crucial staff from the latter to the first. - 18 - The implementing agencies (mostly local governments, but also some provincial agencies) have generally implemented their physical projects (numbering more than 1,000) reasonably well, and there is only a relatively small number of physical projects with grave deficiencies. A strikingly high number of them is to be found in Malang City, namely the Urban Renewal Project Kutobedah, the Road-and-Bridge Project Gadang-Bumiayu, the Modular Sewerage Project Mergosono / Ciptomulyo, and the procurement of civil works and equipment for the new waste disposal site at Supit Urang. Another physical project with grave problems is the as yet unfinished northern ring road for Nganjuk town, whose construction was managed by the provincial Dinas Bina Marga office on behalf of central government. For more details, see Additional Annex 16. In Component B, the implementation of the LIDAPs was largely deferred and transferred to the ADB funded CBUIM project (see section 5.2). In hindsight, this may turn out to be a more effective solution, bearing in mind that many local institutions had been reorganized and their staff reassigned in early 2001. Local governments' performance in increasing local revenue was generally satisfactory (see also section 4.1 and Additional Annex 10). Their performance is establishing a POMMS, however, was largely unsatisfactory in the sense that they do provide funds for 0 & M but largely on an ad-hoc basis and depending on the availability of residual funds from their development budgets, rather than on the basis of solid data, systematic planning, and budgeting under the routine budget The preparation of a follow-on program (Component C) has made only disappointingly poor progress, as a result of various unfortunate circumstances but mainly as a result of political indifference on the part of provincial government as a whole (neither Bappeprop alone, nor PPMO), and the performance of provincial government in this component was clearly unsatisfactory. In contrast to this, provincial government has all in all shown a satisfactory performance in the management of the additional programs. Provincial government mobilized substantial additional resources to handle the extra work required to prepare, implement, and monitor the labor intensive projects program, the Incentive Programs Pbase I and Phase II, and the UPT Development Programn, and to support the PDAM Rescue Program. The performance of local governments is not be assessed on a one-by-one basis. PPMO has attempted to analyze the performance of all participating local govenment in various fields, but a clear picture of consistently well performing and consistently poorly performing local governments does not emerge. In general, the perforrnance of local governments can be rated as satisfactory, with two notable exceptions. The performance of local government of Kabupaten Sidoarjo can not be rated because it was suspended from the EJUDP II in 1998. The performance of local government of Malang City is rated as unsatisfactory, on the grounds of the numerous problems encountered during project implementation there (for details see Annex 16), and of strong signs of lacking political commitment, such as insufficient budgeting for land acquisition and resettlement, and a lack of follow-up to the specific studies that had been undertaken for solid waste management and traffic related problems in Malang. 7.7 Overall Borrower performance: With this, the Borrower's overall performance is rated as satisfactorv. 8. Lessons Learned I. The possibility of external shocks, and their likely impact on project implementation, should be - 19 - incorporated specifically in the risk analysis of future projects. 2. The decentralized approach used in this project has proven superior to centralized management and should be fostered and maintained wherever adequate human resources are available. 3. GOI and provincial government should try to identify the main reasons for the generally disappointing project implementation performance of Malang City, and draw conclusions for the future. 4. GOI, provincial government, and the Bank should cooperate in defining a strategy for future financial assistance to East Java, to fit with GOI's and provincial priorities, and with the Bank's CAS. 5. GOI and the Bank should try to identify a more promising approach in the sanitation sector, because many investments made under this project do not seem to show the desired sustainability. 6. GOI and the Bank should continue to cooperate in designing a viable water supply policy for Indonesia, including the carefully monitoring of the institutional development of the PDAMs, and should jointly decide on the appropriate criteria for defining of further financial assistance to them. 7. GOI should design a simplified yet more stringent mechanism for the processing and implementation of SLAs, with the intention to encourage local govemnments to borrow for necessary investments. 8 GOI and provincial government should define more stringent mechanisms to ensure that audit results are put to use and that loan covenants are adhered to. 9. Partner Comments (a) Borrower/implementing agency: GOI-Ministry of Settlements and Regional hIfrastructure and East Java Province were given the opportunity to review a draft of this ICR and both have submitted conmments attached as Annex 17. (b) Cofinanciers: Not applicable. (c) Other partners (NGOs/private sector): There were no comments to this ICR from other parties. However, one should take note of the repeated submissions of protests and / or critical reports which were submitted by individuals or by community based organizations, mostly from Malang City, pointing to serious deficiencies in selected physical works, in community participation, and / or in the implementation of the LARAPs. 10. Additional Information The IUIDP concept envisages that local governments prepare and implement medium-term infrastructure development plans (PJMs) and update and adjust them in a "rolling-plan" mechanism, provided that the basic logic of the original plans was retained. The implementation of these PJMs should then be programmed to synchronize with the fiscal and institutional capacities of the local government, as they are improved through the RLAP and LIDAP results. It was further intended that annual programs would begin with the funding of needed O&M expenditures for existing infrastructure assets (as estimated by the - 20 - POMMS program). This ambitious approach to local development program management was quite challenging even prior to the confusion and uncertainties created by the crises which enveloped Indonesia from 1997. The government officials who were active in program management at provincial level during the implementation of the EJUDP II have very much adhered to the concept of the IUIDP and have shown laudable degrees of both professionalism and pragmatism in appraising project proposals from local governments, in the implementation of the core program as well as of the additional programs during the difficult process of project execution. - 21 - Annex 1. Key Performance Indicators/Log Frame Matrix Outcome I Impact Indicators: ;, ; -. *~Indlator/Mirl . "X;- . . iProj t d antlisR, ?:.p .,vActialL -- (a) The percentage of urban households in REPELITA VI was abandoned by GOI in East Java Province receiving the REPELITA 1998 due to crisis impacts and these targets VI targeted levels of urban services; were not monitored by the project See Annex 10 for RIAP discussion; LIDAP (b) Number of parUcipating local and POMMS targets were not systematically govemments attaining agreed targets for monitored/reported for Dv project local revenue improvement (RIAP), institutonal strengthening (LIDAP), and operations/maintenance expenditure (POMMS); (c) Percentage attainment of "priority targets" Province and local govemments deemed the defined in participating local govemment *priority targets system to be unworkable in APIP/MPPT documents; and pracice - see note below (d) Conformance with agreed schedule for Preparation suspended; see section 4.1 and preparation of East Java Strategic Regional Annex 15 for additional discussion Development Program. Output Indicators: None defined or monitored for project End of project The SAR envisaged that the performance of local governments in the gradual implementation of the program be measured through the attainment of annual priority targets which were to be stated in the APIP for each local government and to be evaluated during the APIP preparation for the following year. In reality, this planned implementation monitoring system has turned out to be somewhat impractical, for several reasons. The main reason is that the availability of funds for physical implementation was generally very much delayed. During most fiscal years, the grant funds from central government had been barely released (if even that) by the time the APIPs for the following year were to be prepared (see also section 7.5). The availability of SLA funds often encountered even greater delays. As a consequence, physical implementation had often not even started, let alone shown any tangible results, at the time of APIP preparation for the following year. Thus, the evaluation of priority targets was only carried out in two year steps, i.e. for the first year during the APIP preparation for the third yea, and for the second year during the APIP preparation for the fourth year. Also, the provincial program mnanagement units had to reduce the attention to implementation monitoring because they had to handle, with given resources, substantial additional tasks not foreseen in the SAR, especially the wide range of necessary responses to the economic crisis, and the preparation and implementation of several additional components (see section 3.4). -22 - Annex 2. Project Costs and Financing Project Cost by Component (in US$ million equivalent) Appraisal Actual/Latest Percentage of Estimate Estimate Appraisal US$ million US$ million A. Infrastructure Investment 1. Water Supply 60.4 8.0 13% 2. Urban Roads 58.0 36.2 62% 3. Drainage 38.2 19.5 51% 4. Solid Waste Management 12.4 4.7 38% 5. Sanitation and Sewerage 12.0 1.8 15% 6. KIP and MIIP 9.9 9.1 92% 7. Urban Renewal 2.2 - 0% Subtotal 193.1 79.4 41% B. O & M 1. Incremental O&M on existing Infrastructure 19.5 13.8 71% 2. Incremental O&M on new Infrastructure 6.7 - 0% Subtotal 26.2 13.8 53% C. Implementation Support 1. Local Management & Administration 13.8 4.7 34% 2. Technical assistance 11.1 9.9 89% Subtotal 24.9 14.6 59% Total Proiect Cost. 244.2 107.7 44%/o Other urban investment 36.2 - 0% Current level O&M 62.2 - 0% Interest During Construction IBRD Loan 3.8 - 0% Interest During Construction Domestic 10.9 - 0% Total Financina Requirement 357.3 107.7 30% Note: estimasi kurs untuk GOI, 1 US$ = Rp.9800 sesuai APBN 2001 estimated exchange rate US$1 = Rp 9800 per GOI FY2001 budget - 23 - PROCUREMENT ARRANGEMENTS (USS million) Appmisd ( Docient SAR) AciW Procuremnent Procedures Total Pocurement Procedures Total ICB NCB Oier NBF ICB NCB Olher NBF CMi Works 105.7 1.0 10.6 117.3 10.8 10.8 (86.3) (0.8) - (87.1 (54.5) (92) - (63.7) Goods 15.0 26.5 1.0 2.8 45.3 1.3 1.3 (13.8) (22.5) (0.8) - (37.1) (2.7) (2.7) Contaded enbedng dcEsn and upviVs 8.7 8.7 0.0 0.0 (8.6) (8.6) (2.5) (2.5) Tednical assistance 10.3 10.3 0.1 0.1 (9.9) (9.9) (7.3) (7.3) incrementa O&M 25A 25A 13.8 13.8 Land. Taxes. Dulies 23A 23A 1.2 12 Local Maagerent ard Admrnnstration 13.8 13.8 4.3 4.3 Total ProjedCost 150 132.2 21.0 76.0 244.2 12.1 0.1 19.3 31.6 (13.8) (108.8) (20.1) - (1427) - (572) (19.0) - (762) Oter wban Ivestmnt 36.2 36.2 Current OM 622 62.2 IDC 14.7 14.7 Tol Finandna R 15.0 132.2 21.0 189.1 357.3 - 12.1 0.1 19.3 31.6 (13.8) (108.8) (20.1) - (142.7) (57.2) (19.0) - (76.2) Fgures In aretm are amounts Itnacd by IBRD el Indcudes natonal sppirg. slmpi d porment procdures for small works and seledlon of consubnts fooig IBRD gukdelnes - 24 - Aepraisal (Document SAR ) Actual Own IBRD Loan Total %of Total Own IBRD Loan Total %of Total Sources Project Cost Sources Project Cos Local Govemments 51.2 31.9 83.1 34% 23.1 37.6 60.7 56% Water Enterprises (PDAMs) 28.5 35.7 64.2 26% 6.9 1.9 8.8 8% Provincial Govemments 11.2 0 11.2 5% 1.0 15.5 16.5 15% Central Govemment 10.1 75.1 85.2 35% 0.6 21.3 21.9 20% Community Centribution 0.5 0 0.5 0% 0.0 0 0.0 0% Total Prolect Cosb 101.5 142.7 244.2 100% 31.5 76.3 107.8 100% % of Total Project Cost 41.6% 58.4% 100.0% 29.2% 70.8% 100.0% Other urban investment 36.2 0 36.2 0.0 0 0.0 Current Level O&M. local govermments 38.4 0 38.4 0.0 0 0.0 Current Level O&M. PDAMs 23.8 0 23.8 0.0 0 0.0 IDC and Commitrent fees, local govemments 6.7 0 6.7 0.0 0 0.0 IDC and Commitment fees, PDAMs 4.2 0 4.2 0.0 0 0.0 IDC and Commitment fees, central govemment 3.8 0 3.8 0.0 0 0.0 Total Financing Requirement 214.6 142.7 357.3 31.5 76.3 107.8 % of Total Financing 60.1% 39.9% 100.0% 29.2% 70.8% 100.0% -25- Annex 3. Economic Costs and Benefits PDAM Kabupaten Tulungagung FINANCIAL INTERNAL RATE OF RETURN Incremental Revenue Incremental Costs Sensitivity Tcsts Increme Tariff Conn. Fee & Total ntal Total Net Cash 4% 4% 4% Adm&Meter Increase in Decrease in Increase Revenue Fees Revenue Investments O&M Casts Flow Costs Revenue in Costs Decrease in Revenue (Rp. Year (Rp 1016) (Rp L0A6) (Rp 1016) (Rp 1016) 106) KRp 10^6) (Rp IOV6) (Rp 106) (Rp 106) (Rp 1016) 1998 - - 1999 4,087 4,087 (4,087) (4,250) (4,087) (4,250) 2000 1,990 1,990 (1,990) (2,070) (1,990) (2,070) 2001 1,032 1,032 (1,032) (1,073) (1,032) (1,073) 2002 3,232 1,545 4,777 659 1,203 1,863 2,914 2,839 2,723 ,648 2003 936 513 1,449 256 482 738 711 681 653 623 2004 1,052 459 1,511 171 467 637 873 848 813 87 2005 1,134 481 1,615 171 06 677 939 912 874 847 2006 1,401 555 1,955 171 70 741 1,214 1,185 1,136 1,107 2007 1,525 589 2,114 171 SI 821 1,293 1,260 1,208 1,175 2008 1,904 692 2,596 171 43 913 1,683 1,646 1,579 1,542 2009 2,051 733 2,783 171 R53 1,023 1,760 1,719 1,649 1,608 2010 2,051 808 2,858 171 915 1,085 1,773 1,730 1,659 1,615 2011 2,051 847 2,897 (2,652) 1,177 (1,475) 4.372 4,431 4,256 4,315 FIRR 12.69% 12.13% 12.10% 11.54% NPV 814 435 403 24 -26 - Economic Evaluation of Krian Bypass Road UMU M _ _ _ _ _ _ __ _ _ _ _ _ _ DislkHpsi Proyek Karakterlsilk Jlan Without With Asunul Propinsl Jawa Timur Panjang )aian (Km) 0.0 7.8 Kec. Rata-rata (Km/jam) 30 KabupaterVKota Sidoarjo Lebar Jalan (M) 0.0 15.0 Har / Tahun 349 Nama Jalan Jalan Ungkar Krian Tipe Jalan (1=2 jalur,2=4 jalur) 0 2 Discount rate 12.0% Jenis Pekerjaan Pembangunan Hamb samping (1=rendah,2T1lnggI) 0 1 O&M / Investment 1.5% Tahun 1999/2000 Kekasaran jalan bad good Rehab / Investment 30.0% Blaya Investasi (Rp. 1,000.000) 13,567 Inflasl 18.4% SURVEY LAW UNTAS Sunvey summare Assum ors Survey dilakukan 2001/20022 Traffic growth in first year (p.a.) 8.0% Benefit hours (BH) / day 12 Traffic growth after first year (p.a.) 8.0% Traffic survey hours / day 16 Dlverted / Induced traffic 0.0% Beneflt hours / survey hours 84% Constructlon year - Survey year 1 ADT(trafflc In survey hours) Vehiclesl Pcar Minibus UV Bus LGV Trud M/C 48,570 1 6,876 6,231 7,342 400 11,876 8,124 7,721 KEUNTUNGAN BERSIH (Rp 1.000.000) Item 1999/2000 2000/01 2001/-98 2002/03 2003/04 2004/05 Benefits ADT in benefit hours 0 56,652 61,184 66,079 71,365 77,074 VOC savings (Rp /vehicle ki) 50 40 30 20 10 VOC savings (Rp m) 7,646 6,606 5,351 3,853 2,080 Costs Construction 13,567 0 0 0 0 0 O&M A 2DA 20.A ZAA 2DA Total costs 13,567 204 204 204 204 204 Net benefits -13,567 7.442 6.402 5,147 3.649 1.877 KRITERIA EVALUASI_ Kriteria Base Zero Double case _ rowth growth First-year rate of return (FYRR) 54.9% 54.9% 63.5% Beneflt / cost ratio (BCR) 1.5 1.3 1.8 Net present value (NPV) 4,669 2,182 7,348 Economic internal rate of return (IRR) 30.3% 20.8% 40.3% Economically feasible (y / n) ? yes yes yes ANALISA SENSITIVITAS ADT / Net benefits i 1999/2000 2000/01 2001/-98 2002/03 2003/04 2004/05 Zero growth before first year 1 48,570 52,456 56,652 61,184 66,079 VOC savings (Rp /vehicle kmi) 6,555 5,664 4,587 . 3,303 1,784 Net benefits | -13,567 6,352 5,460 4,384 3,099 1,580 Double growth before first year 65,356 70,584 76,231 82,329 88,916 VOC savings (Rp /vehicle km) 8,820 7,621 6,173 4,444 2,400 Net benefits L -13.567 8,617 7,417 5,969 4,241 2,197 - 27- Annex 4. Bank Inputs (a) Missions: Stage of Project Cycle No. of Persons and Specialty Performance Rating (e.g. 2 Economists, I FMS, etc.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation March/April 1995 7 1 urban planner, I institutional specialist, I financial analyst, I environmental specialist, I municipal engineer, I operations officer (engineer), I social scientist Appraisal/Negotiatfon July/August 1995 9 I urban planner, I management specialist, 1 urban specialist, 2 operations officers (I municipal engineering background, I transport), I social impact specialist, I environmental specialist, 1 financial specialist Supervision May 1996 12 I urban planner, I lawyer, 2 S S procurement specialists, 2 disbursement analysts, 2 municipal engineers, 2 environmental specialists, 2 financial analyasts December 1996 3 1 urban planner, I municipal S S engineer, I procurement specialist March 1997 10 2 operations officers, I urban S S environment specialist, I municipal engineer, I resettlement specialist, 1 urban planner, 2 financial analysts, I environmental specialist, I human resources development specialist July 1997 6 1 urban environment specialist, I S S municipal engineer, I resettlement specialist, I urban planner, I operations officer, I financial analyst November 1997 10 I municipal engineer, I S S resettlement specialist, I urban - 28 - planner, I operations officer, I financial analyst, 2 environmental specialists, 3 water & sanitation specialists February 1998 7 1 urban planner, I operations S S officer (municipal engineer), I financial analyst, I urban environment specialist, I social scientist, I urban development specialist, I water & sanitation specialist July 1998 8 1 urban planner, I operations U S officer (municipal engineer), I financial analyst, 1 resettlement specialist, 2 water & sanitation specialists, I urban transport specialist, I environmental specialist November 1998 7 1 urban planner, I operations S S officer (municipal engineer), I financial analyst, I resettlement. specialist, I water & sanitation specialist, I environmental specialist, I social specialist March 1999 8 2 urban planners, I operations S S officer (municipal engineer), I financial analyst, I resettlement specialist, I environmental specialist, I water & sanitation specialist, I social specialist July 1999 7 1 urban planner, I operations S S officer (municipal engineer), I financial analyst, I resettlement specialist, I environmental specialist, 1 water & sanitation specialist, I social specialist NovembeT 1999 8 1 urban planner, 2 operations S S officers (municipal engineers), I financial analyst, I resettlement specialist, I environmental specialist, I water & sanitation specialist,. I social specialist December 2000 6 2 operations officers (municipal S S engineers), I financial analyst, I environmental specialist, I social specialist, I water & sanitation specialist July 2001 3 1 financial analyst, I S S environmental specialist, I operations officer (municipal engineer) ICR 5 I urban planner, I S S -29 - April 2002 municipal engineer, I social specialist, I urban specialist, I financial analyst, I program management specialist (b) Staff: Stage of Project Cycle Actual/Latest Estimate No. Staff weeks US$ ('000) Identification/Preparation 37.0 89.1 Appraisal/Negotiation 50.5 150.8 Supervision 253.6 597.2 ICR 14.4 49.0 Total 355.5 886.1 Dollar costs incurred before FY2000 are adjusted upward by 15% to reflect direct cost values. - 30 - Annex 5. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating El Macro policies O H OSUOM O N O NA El Sector Policies O H OSUOM O N O NA 3 Physical O H OSUOM O N O NA El Financial OH OSUOM O N O NA EO Institutional Development 0 H O SU O M 0 N 0 NA El Environmental O H OSUOM O N O NA Social O Poverty Reduction OH O SU O M O N O NA El Gender OH OSUOM ON ONA Oli Other (Please specify) OH OSUOM ON O NA El Private sector development 0 H O SU O M 0 N 0 NA CL Public sector management 0 H 0B SU 0 M 0 N 0 NA E Other (Please specify) O H OSUOM ON O NA - 31 - Annex 6. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6.1 Bankperformance Rating Ol Lending OHS*S OQU OHU El Supervision OHS Os OU OHU El Overall OHS OS O u OHU 6.2 Borrowerperformance Rating El Preparation OHS * S O U O HU El Government implementation performance O HS O S 0 U 0 HU El Implementation agency performance O HS OS O U 0 HU O Overall OHS OS Q U O HU - 32 - Annex 7. List of Supporting Documents 1. ICR Mission aide memoire 2. Final Implementation Completion Report and PBME Report, prepared for the Ministry of Settlements and Regional Infrastructure by PT. Bina Asih Consultants (bilingual) 3. Laporan Khusus Pasca Closing Date IBRD Loan No. 40 l7-IND, prepared for PPMO by PT. Tritunggal P. Konsultan 4. Quarterly Reports, Annual Reports, and Special Reports published by PPMO (bilingual) 5. Assignment Completion Report for Urban Development Program Management Support, by PT. Tritunggal P. Konsultan (bilingual) 6. Assignment Completion Report for Advisory Services to PPMO, by Doxiadis Associates (bilingual) 7. Assignment Completion Report for Advisory Services to PTCU, by PT. Kogas Driyap Konsultan Assignment Completion Report for Urban Development Program Region 1, by PT. Parama Artha Santika 8. Assignment Completion Report for Urban Development Program Region 2, by PT. Tritunggal P. Konsultan 9. Assignment Completion Report for Urban Development Progarn Region 3, by PT. Seecons 10. Assignment Completion Report for Urban Development Program Malang City, by Kogas Driyap Konsultan 11. Implementation Completion Report for Urban Development Program Region 1, by PT. Parama Artha Santika 12. Implementation Completion Report for Urban Development Program Region 2, by PT. Tritunggal P. Konsultan 13. Implementation Completion Report for Urban Development Program Region 3, by PIT. Seecons 14. Implementation Completion Report for Urban Development Program Malang City, by Kogas Driyap Konsultan 15. Annual Technical Audit Reports, prepared by ItWilProp East Java (later renamed Badan Pengawasan) 16. Annual Financial Audit Reports, prepared by BPKP 17. Project files, containing full records of preparation and supervision activities - 33 - Additional Annex 8. Environmental Management Diagram: Flow Chart of Deterniining Necessity of Environmental Documentation START Project Memorandum zC KepMenLH : 3,9/1996 ? i AMDAL Study IFls under\ < KepMenPU of XJeCz Ei \ ,~~~~01 / E Fls under < Kiteria Satgas No | ~~~~~~~~~~~Preparation of lE UKL / UPL -34- Tabli : Required and Available Environmental Compliance Reports Local Government I ECR available PDAM Project to be Documented by April 2002 Loc. Gov. Kabupaten Road Betterment Project Jalan Halim yes Bangkalan regional regulationnakusuma PDAM Kabupaten Bangkalan Water Supply Program yes POAM Kabupaten Water Supply Program Banyuwangi yes Banyuwangi Loc. Gov. Kabupaten Road Betterment Project no Boj onegoro Loc. Gov. Kabupaten Blitar Final Waste Disposal Site Tegalasri I no Wlingi Loc. Gov. Kota Blitar Water Supply Program Blitar yes Loc. Gov. Kabupaten Jember Final Waste Disposal Site no Loc. Gov, Kabupaten Road Betterment Project yes Jombang Loc. Gov. Kabupaten Kediri Final Waste Disposal Site no Loc. Gov. Kabupaten Kediri Sludge Treatment Plant (IPLT) Kediri yes POAM Kota Kediri Water Supply Program yes Loc. Gov. Kabupaten Market Infrastructure Improvement yes Lumajang Project Jogotrunan I Srangin PDAM Kabupaten Lumajang Deep Well Development Project yes Purwosono Loc. Gov. Kota Madiun Final Waste Disposal Site yes Loc. Gov. Kabupaten Sludge Treatment Plant (IPLT) no Magetan Magetan PDAM Kabupaten Magetan Water Supply Program Magetan no Loc. Gov. Kabupaten Malang Final Waste Disposal Site yes Loc. Gov. Kabupaten Malang Sludge Treatment Plant (IPLT) Batu yes Ljc Gov. Kabupaten Ubalan Well Development Project yes M ojokerto _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Loc. Gov. Kabupaten Drainage & Access Road to Final Mojokerto Waste Disposal Site Mojosari yes Loc. Gov. Kabupaten Ngawi Final Waste Disposai Site no - 35 - Road Betterment Project Jalan Lurah Loc. Gov. Kabupaten Nganjuk Surodarmoyes PDAM Kabupaten Pacitan Water Supply Program yes Loc. Goy. Kabupaten Pacitan Road Betterment Project Jalan A. Yani yes etc. Loc. Gov. Kabupaten Drainage Project no Pasuruan Loc. Gov. Kabupaten Drainage Project yes Pamekasan Loc. Gov. Kabupaten Road Betterment Project yes Pamekasan PDAM Kabupaten Water Supply Program Pademawu yes Pamekasan Loc. Gov. Kabupaten Road Betterment Project Jalan A. Yani yes Ponorogo etc. Loc. Gov. Kabupaten Road Betterment and Bridge yes Probolinggo Construction Project Dringu III Loc. Gov. Kabupaten Probolinggo FinalWaste Disposal Site Seboro yes Loc. Gov. Kabupaten Final Waste Disposal Site Tigasan yes Probolinggo Wetan Loc. Gov. Kabupaten Road and Bridge Construction Project yes Sampang Tanglok Loc. Gov. Kabupaten Access Road to Final Waste Disposal yes Sumenep Site Sumenep- Loc. Gov. Kabupaten Tuban Road Betterment Project Jalan Letda. yes *Sucipto etc Loc. Gov. Kabupaten Road Betterment Project Jalan Brigjen. yes Trenggalek Sutran etc Loc. Gov. Kabupaten Final Waste Disposal Site Tulungagung yes Tulungagung Loc. Gov. Kabupaten Construction of Waste Transfer Depots yes Tulungagung Loc. Gov. Kabupaten Sludge Treatment Plant (IPLT) yes Tulungagung Tulungagung - 36 - Additional Annex 9. Loan Funds & Disbursement Diagram: Development of Loan Fund Amount and Loan Fund Composition by Disbursement Category 160,000 - 140,000 _ Padat Karya O 120,000 - _ 1l | l *CoKalimantan 120,000 __ __ ____ ____Padat Karya East Java O 0 000 * Consultants to O 100,000 mU urn ~~~~~~~~~~~~Provincial and o EU EU EU ~~~~~~~~~~~~~Local Gov'mt aooo * fl lf Consultants to -80,000-*-- Central °- lX ll, l 1|1 *Governm ent 0 _ 111111 *Goods Other 60,000 ii 40,000 Goods SLA 20,000 II II II II ECivil Works 20,000 - *- * Other 0 Civil Works 0 I 4 Document - 37 - Additional Annex 10. RIAP Implementation The sustained improvement of local government revenue is one of the comerstones of the IUIDP concept. In the context of the EJUDP II, the expected development of local government revenue has been presented in the SAR. However, some unforeseen developments, most notably Indonesia's national economic crisis, have had a profound impact on the realization of these expectations. Other factors were Law No. 18 / 1997 which restructured Indonesia's tax system and reallocated some of local governments' most important tax bases to central govemment. On the other hand, Law No. 25 / 1999 on fiscal decentralization has allocated some important revenue sources to local govem-ments. Local governments, however, have often not been able to tap these newly allocated sources to maximum effect. Table 10.1 shows the development of own source revenue in all 36 local govem-ments' in nominal terms2 from FY 1995/96 through FY 20013. Nominal revenue shows a steadily rising trend in almost all local governments. Obviously, though, it is more important to know local revenue in real terms, i.e. corrected for inflation. After such correction, revenue of most local govem-ments shows an increase from FY 1995/96 through FY 1997/98, then a sharp drop, caused by the extra-ordinary inflation of about 84.8% during that year, then a gradual rise again. This implies that calculations of growth trends for the whole period from FY 1995/96 through FY 2001 would give a distorted picture. A more realistic picture, i.e. a picture which results in a sensible figure for average annual increase and which allows some sort of projection for the near future, can probably obtained if the review is limited to the period from FY 1998/99 through FY 2001. Again, the table presented below shows more details. Average annual growth rates have been calculated by applying the best-fitting exponential growth curve to each cluster of available data. As can be seen, the average annual revenue increase of all local governments in real terms was 18.2% during the period from FY 1998/99 through FY 2001. Several local governments have achieved at least 25% average annual increase of their revenue in real terms during the period under review; they may however not be always able to sustain such increases in the long run. On the other hand, some local governments- have shown a tendency of very low increases or even decreases of their revenue in real terms. In some cases- this may be caused by a certain sluggishness of the local bureaucracy rather than by a lack of local revenue potential as such; in other cases though, there may really be such a lack of local revenue potential that the local governments concerned will find it very difficult to meet the obligations allocated to them in the context of decentralization. All in all, the RIAP component of the EJUDP II can be considered fairly successful, given the external circumstances: 31 out of 36 local governments have achieved more than 10% average annual revenue increase in real terms since FY 1998/99. This gives rise to the hope that they will have at least the financial means to cover the 0 & M cost of the physical infrastructure created under the EJUDP II. I/All local governments of East Java except Kota Surabaya. 2/ It has to be noted that FY 2000 comprised only 9 months (I April through 31 December 2000); the nominal figures for FY 2000 have therefore been multiplied by 1.33, to simulate a full 12 month-fiscal year. 3/ For some local governments, the figures for FY 2001 are still target figures, not actual realization. 4/ Or FY 1998/99 through FY 2000, depending an data availability. 5/ Kabupaten Magetan, Kabupaten Sumenep, Kabupaten Trenggalek, and Kota Probolinggo. 6/ Kota Malang, Kabupaten Malang, Kabupaten Jember, Kabupaten Sampang, and Kabupaten Pamekasan. 7/ Such as in Kota Malang, Kabupaten Malang, and Kabupaten Jember. 8/ Such as in Kabupaten Sampang and in Kabupaten Pamekasan. - 38 - Table 10.1 Revenue lfmpI.menatlon Actioni Plan (RiAP) Performance, FY 199611997 - FY2001, iri rm Pie LOCA.L Realizatin RiAP PROJECT ION OF SA RIAP PR)JECTION %fG=n REALIZAIION OF RIM I_R ___ATI_ AV. G imin No. OVERNME=N 19951199 r Y FY 4m F F Y QSI PrF Pr FY A r F r FuUu - ________ ~~~thhun dn, im l $97is"6 1984) (1m MM) 321 ito FM IM I~ es!9 OM4 O3rh(%j SM 2X FY I 1101 2225 2S 3.1300) 430.0D. 26% _3_1 3 0 ,740 13%- 2300 3.183J 2771 8% 31845 4)88.0 5=80 18% 2 .a .u 331.0 4.116M 5A26. 11% 7.110 7.135.0 11.2263 22% 4.2220 4AS3.0 5.5321. 16% 731 5. .3 11,226.9 22% 3 n3.413 3M D 05.20) 61130o la 5,1113 &1290 8282 10% 4S4-0 418756 4,3861 8% 4.884J 8.312-0 180J 19% 4 ~ , 10,740 11.1940O 12.7811 1430M 10% i88 9,2&20 25.986O i6% 13,269D 17,214.0 19.131. 21% 17.01 22 0S 27,097.1 17% S 2.2l06 2.16511 2,M 3.1980 13% 3,11W 0 3,404. 40744 15% 2.7180 3300J 3,1456 13% 2,99 4.8830 04J140 IN% * nw 22431 2A 2,9770 34840 1W. 2.8754 3m eOsi7 201% 22820 3848. 27M 7% 303 38.7 7A19A 22% 7 Z=230 3A0180 3.5050 4.1160D 12% V,670 3,2250 10.064 21% 3,9500 3.090 2.776 -2% 3.106. 4,7893 6.062 19% I ga 229 2224.0 2.540 23070 9% 4.2404 45040 7,230A 21% 2,0130 -3.134 263A 9% 4,248 88720 7327.7 22% 2 mwU 81 5.7000 OMi. 83570 10% 12348. 12*82.0 17.wd 21% 8.084 7.788 14AI2 2% 12.281 133040 18093A 22% 3 6Wr 4,114 33000 41.610 6,300 16% 6.1840 6.1900 10.61 17% 4.2800 5.76& 6237.1 15% 6.84- 84M. 1.51.3 * 17% - 4 co o 320 30j -0 4644.0 7%L 5.23 2420 1100A in% 36.0t 8484 5010A 12% em 1 .8530 IZ8482 24% S sorn 238 2296 2.7310 3131170 12% M.87 4,11.0 6911j 1% 2.10 310 3 3.7UI 17% 4.147 5S90 95673 23% 6 ma1O.189.2 8.70O Mt77 11740 4% 18.08 1387.0 3141769 20% 16*2 14AS61 15.1484 14%o *10.29 20m.7 32,847 21% 7 ~ie 10.710 10.869 12030 14.7880 11% 23.7570. 27*5 23274 14% 150480D 13207t 17.408 16% 2506 222880 26*7 -18% 6 ~~~~~~~~ ~6.22D 6MU720 M.013 10.145. 16% 1233701 14.2840 21.M13. Z3% 6*0 9M96. I11. 101 21% 15.03D. 1753.3 3197.7 3% 9 efll 681~~~~~~AS 510e rie 62860 9% 156 1153. a toA 17% 760 393.0 "Il 18% 0.34d 15017821.1l 18% 1 0 an ON8 3.72U 4.23.0 45620 1% 1.5350 144.0 14.776A 28 4.787.0 4025. .816 10% 65744 8.4 11526.5 26% 1 1 ur 4,33 4.7280J 6.41680 8S740 16% 6.1980 922.0 11,898 18% 5.1950 WU0 7P4.0 18% 9,784 10.712.0 15,76. 24% * 12 at. 53 3M 4.2820D 5,130U 2% 3.54 4988.0 4014A 8% 34780 4028 3.1 98A 3% 4.224,1 8.3120 4*14*' 8% ( ~ 13 UV3.8 2.127.0 312801 31 06% 6.648Z 6.491t0 16.87 33% 3,044.0 30J75 3.522a 5% 5M096 10487.7 17rns 34% Co 14 OJ, B 9190 11=10 13230J 13% 1 20,2D.0 21,315A 15% 10.590 10620 1603m 19% 18812 17=0 21.315-4' 15%4 1 5 5571 587M &6981.0 8.167.0 14%- IOW 1230LO 13e.0? 18% 5307.0 8,217A 6.184 14% 11,7841 15307.3 15.301.2 18% 18 r~~~~~~~~ ~5.1123 6,21 20 6,071 A 7.1650D 12 awm 7,7 10.0 53.g 18% 6)7480 80430 5002 3% 7,69 I0OWA. 18.45.1 21% 17 ~~~~~ ~~~~~2988 2 3 2.9804 338 4% 4.08D U*56.0 9884o 22% 328" 32830 3806 10% .3*231 5.818,7. - 84D' 22 16 ~~~~~~ 471~~~e 2200 Z,961.0 4024.0 104% 3.4030 3.5310 7,994.l 6% 2.239.0 2.0420 3.311 92% 3,396 5E.97 7.894.0 60% 1 0 aeEasam 2j7 24,0 3043 418860 16% 4,020 426,0 78492 1S% 370 450a 4534 19% 3,798 658440 7 2' 14% 20 a~i6M3 53230 5.6411) als 6 WA50 ____ 17,147.0 32,3711 30% 9.480-0 9,2850 14.42i0 26% 16.81411 24,512-0 A420OA 35 21 crnag 2,984 34260a 3,600i 43050 17% 6.684A 63030 14,925 31% 3,18711 3,1290D 5003. 24% 6257- 8,032 14.282 28% 22 UN~g 28 3870 4,1153.0 43R680 8%- 5.230 5028. 7.8114 2% 35500 3.731,0 40D135 19% 5.0584 8.98 7*011.5* 22% 23 aig1.35 1 0480 2.3 2MU9 25% Z,419.0 23957.0 3.123 15% 1589. 1.961 2AM4 21% 2098.- 3.31323 3.1Z3A' 16% 24 I* 20,100 19 23J 3 0,7490 15% 37 0 39.20.0 87218 2% 277870) 30 970 3.00A 21% 8483 55602 67~2180' 22% 25 ~huu3.102 3.1310 3.RD0 41.4120 12% 4.247-0 4A310O 7.71 1116% 33150 33I-01 308B ft 4041 k9.~0 7,471.0'- 16% 28 uZ, .79 23270O 2,2010 2,780A0 % 3.248,0 3149.0 13.17 30% 284.0 3,620b 3,7201 18% 2919 .O. 13,A179.8 30% 27 *.dk 2.1M 23920 2.8480 33390 18% 3.8810 3827.0 8.884 27% 23030 21Di0.0 30591 12% 3778d 5.1173 9096.1 29% 28 u 450 4.4120O 5.380A 6213.0 6% I1IA5,0 I3.876.0 25.062J 31% 5.331.0 75401 11.613 33% 14.107 M24.80 MM.93 34% 29 ~ 03 3.2H 4.18401, 6191.0 19% WU 7flw 1083- 24% 1 3m40D 4.9780 55761 25 ? *0 11.0m80 VA% Lf~~~Z~~51 18~~6,2308 168,321 196,2510 243.104 13%I 3006,0840 3334310 62770W. 21% 212.61l 239,2880, 27l05U .17% 324,05D0 422,784.0 74,613.7 2311 'Earnhftd 12 MoE. kftl bnWd En B Mo. rMiZMfin Additional Annex 11. The Impact of the Economic Crisis' The Development of Exchange Rates From the late 1980s until 1996, Indonesia, just like most other nations in Southeast Asia, had enjoyed a period of unprecedented economic growth, with GDP growth rates of around 8% annually. The exchange rate of Indonesia's currency, the Rupiah, against hard currencies, especially the US Dollar, was fairly stable with only a slight tendency toward gradual depreciation. The typical exchange rate in 1996 was US$ 1 = Rp. 2,250 to Rp. 2,350. However, there were already indications of latent structural weak-nesses as well as of social and political problems which had a potential of undermining the nation's stability. The chain of events now commonly called "the Asian crisis" began in Thailand when the national currency there experienced a sharp drop of its exchange rate against hard currencies, beginning in early July 1997. Beginning in September 1997, the Rupiah's exchange rate gradually began to deteriorate as well, and by October the Rupiah had dropped to about Rp. 3,500 to the dollar. At the same time, the stock markets of Southeast Asia began a period of strongly bearish trends. In Malaysia, this trend had already begun in March 1997. A big psychological blow to investors in the region was the collapse of South Korea's stock market in late October 1997, and the grave economic difficulties which that country experienced since then, including a rapid depreciation of its national currency. The Rupiah's exchange continued to deteriorate in November 1997, and in early December 1997 it entered a period of wild fluctuations. These fluctuations were connected to a number of uncorroborated rumors circulating in the country. There was a rumor that one of Indonesia's richest businessmen had died in Singapore, and there were even rumors that the president had died. On each of these occasions, the Rupiah's exchange rate fluctuated wildly, from Rp. 4,000 to almost Rp. 6,000 to the dollar, changing significantly from hour to hour. It was then that a strong feeling of nervousness, if not panic, began to spread in the Indonesian public, with ordinary people suddenly beginning to continuously monitor the exchange rate over TV or radio. In January 1998, the collapse of the Rupiah's exchange rate reached its peak, with quoted figures varying from Rp. 14,000 to Rp. 17,000 to the dollar. Currency trading became so frantic and obviously speculative that significantly different rates were quoted at the same time in different locations or by different traders. This added to the general feeling of insecurity and panic. By March and April 1998, the exchange rate had recovered to about US$ 1 = Rp. 7,000, but then mass demonstrations, riots in Jakarta, and the resignation of President Soeharto on 21 May 1998 led again to a deterioration of the exchange rate, to figures of about US$ 1 = Rp. 14,000. With the taking-over of power by Prof. Habibie, the hoped4for speedy recovery of the Rupiah's exchange rate did not immediately materialize, but a positive trend began to appear in September 1998, and by late October 1998 the exchange rate had reached a level of about US$ 1 = Rp. 7,600 again. In late 1998 and early 1999, it generally hovered around US$ I = Rp. 8,000, recovered for a short while up to about US$ 1 = Rp. 6,700 after the election of a new president in October 1999, then gradually fell to a low of about US$ I = Rp. 11,000 by mid-2001, and finally recovered again to a level of US$ 1 = Rp. 8,800 by end of May 2002. - 40 - General Consequences of the Exchange Rate Shift 1. Prices for imported goods increased, and terms of payment changed An immediate consequence of the drop in the Rupiah's exchange rate was that the (Rupiah de-nomi-nated) prices for all imported goods and components rose substantially. This also hurt many businesses which were basically export oriented but were still relying on imported raw materials or other imported compo-nents. Not only did the price for such imported materials increase significantly, there were reportedly also changes in the terms of payment: suppliers, who had previously often given a generous credit line, were now in-sisting on immediate payment, if not advance payment, and/or on payment in hard currency. 2. Domestic interest rates rose, and financing problems increased In order to stem the tide and prevent an even faster collapse of the Rupiah's extemal value, the Bank of Indonesia embarked on a course of raising interest rates. This, however, hurt many busines-ses some of whom had apparently so grown accustomed to credit lines conceded by suppliers and/or easy and cheap bridge financing from banks that they had neglected the need for the accumulation of suf-ficient working capital of their own. With foreign credit lines drying up and domestic credit becoming much more ex-pen-sive than before, if not downright unavailable, these businesses faced enormous problems in bridge financing their operations. Therefore, even many businesses that should, theoretic-ally, have thrived on their increasingly competitive export prices, could not sustain their operations. The most hard-hit economic sectors were those most dependent on calculable long-term and medium-tenn finan-cing, particularly the property sector. With rapidly rising costs for many items, rapidly rising prob-lems and costs of funding, and with ever gloomier prospects for eventual sales or even rentals, the real estate and property develop-ment sector faced a severe slump. Many projects had to be cancelled or at least suspended. 3. Unemployment rose, and average household incomes fell The fact that many construction projects and other businesses came to a halt caused severe problems of unemployment, especially among the poorly paid unskilled workers who were laid off in large numbers and within a short period of time. In other sectors, too, workers were laid off in large numbers, including in the textile, garment, and shoe industries, and in many, if not all other sectors of the economy. The resulting loss in incomes and purchasing power triggered more problems, e. g. in retail trading and related sectors. With this development, the awareness that a major economic crisis was at hand spread to all social strata, including the lower classes in urban as well as rural environ-ments who previous-ly had hardly noticed, let alone been concemed over, fluctuations in exchange rates or prices of imported goods. 4. Domestic inflation rose Whilst the drop in the Rupiah's external exchange rate had immediately affected mainly im-ported goods and services payable in foreign currency, it was only a question of time that domestic price esca-la-tion for virtually all goods was triggered. A major factor was the increase in fuel prices (petrol and diesel fuel for vehicles as well as kerosene for cooking), effected in May 1999. At the same time, all spare parts for motor vehicles drastically increased in price. The ensuing increase of all transportation costs did of course affect all goods in the country. Prices for electricity were increased, too. Powdered milk and chicken meat were among the foodstuffs whose prices rose quickly and sharply, as a result of their high content of imported com-ponents. A ban on palm oil exports was effected, in order to protect local markets from the competing -41 - export markets and to ensure supply to domestic buyers (in 1999, the domestic oil price was considerably below the world market price). The sudden surge in inflation did not spare building materials either. In August and September 1998, even the rice price increased sharply, partly on the grounds of increased costs for fertilizers and pesticides, partly as a result of a poor harvest due to drought, and partly as a result of increasing short-short-comings in distribu-tion. In addition, smuggling may have contributed to the shortages (like for oil, the world market rice price was appreciably higher than the domestic price). Rice price inflation, always a point of highest social and political relevance, reached dramatic levels in August 1998, with an increase of 60% in just over one month. 5. Social and political problems emerged and came to a boil By early 1998, the country was headed for a stagflation of unimaginable proportions, with soaring unemployment, rapidly falling average household incomes, and skyrocketing inflation, all at the same time. The previously existing social problems, especially are very skewed distribution of wealth and income, now developed into rapidly rising public discontent, student demonstrations (in April and May 1998), and mass rioting in Jakarta and other large and medium-sized cities (in May 1998). Eventually, President Soe-harto was forced to resign on 21 May 1998, and former Vice President Prof. Habibie became the new president. Demonstrations out of political discontent subsided thereupon, but the economic problems including their social implications remained. 6. Public revenue decreased With more and more businesses collapsing or at least suspending their operations, with the loss of pur-chas-ing power among the general public, and with an expanding downward trend for all regional economies, central goverunent and local governments lost a good deal of their estab-lished tax base and thus of their revenue. For local governments, the situation was aggravated by legis-lation, initiated before the financial crisis, which provided for a re-structuring of tax revenue distribution, with local governments losing some important components of their previous tax revenue. At the same time, local governments (as well as their water supply enter-prises, the PDAMs) faced increasing political resistance from their impoverished urban population whenever they attempted to adjust the charges for infrastructure services to cover actual costs. The failure to raise these charges, however, resulted in increasing need for subsidies, straining local government finances even further and impeding the PDAMs' development toward a healthier financial status. Implications for the Implementation of the EJUDP 11 While the national economic, social, and political upheaval did of course impede the working atmo-sphere and project implementation in general, the following points were particularly relevant for the project's implementation progress: 7. The extraordinary inflation required a review of all contracts, resulting in time loss With the extraordinary inflation, most construction con-tracts could not possibly be implemented at the price which had been envisaged in previous owner estimates, budget allocations, or even contractually agreed prices. Since the budget allocations could not be simply increased to accommodate the increased prices, most contracts had to be reviewed with the objective of reducing their physical volume so that the total cost of the contract could remain more or less unchanged even though higher unit prices were applied. Obviously, such renegotiations for a large number of contracts were extremely time-consuming. This process was an al-most complete re-doing of an ac-tivity done already previously, namely defining all physical components, both individually and as parts of a whole, assuring that the sum of all individ-ual components was still a somehow sensible entity, de-termining the new unit prices, and calculating the new -42 - contract value. Such a process is in fact more dif-ficult than the "free" calculation of the value of a new contract, because in the first case the final figure which the contract value must reach is already given. In a nutshell, the resulting time loss was so great that the number of con-tracts which could be finalized and implemented during a given time span decreased significantly. 8. Measured in foreign currency, the value of all contracts decreased As the exchange rate between local currency (almost all contracts are denominated in local currency) and the US Dollar (in which the Loan Agreement is denominated) had altered so much, the (constant) price of each local contract, if measured in US Dollars, represented a much smaller amount than had been projected in previous planning documents. 9. Implementation of fewer contracts with reduced Individual values slowed down loan disbursement Loan disbursement (in foreign currency) is a function of both the number of con-tracts which can be im-plemen-ted in a given time span, and their average value (in foreign currency). Thus, loan disburse-ment must obviously decrease enormously if both that number and that average value (in foreign curren-cy) de-crease sharply at the same time. This is what has been observed in the EJUDP H (in fact, in nearly all Indonesian projects, during FY 1997/98 and especially FY 1998/99. 10. Project tendering was slowed down Both local governments and contractors were aware of the extraordinary inflation and there-fore silently agreed that there was little point in starting a ten-dering procedure before speedy pay-ment was assured. Whilst in previous years a contract could be tendered or ne-gotiated, then signed, per-haps even partly implemented while funding was still under processing, this was not pos-sible any longer under the prevailing circumstances. If budgeted funds only become available with a delay, then either implemen-tation would have to be delayed (compared to the time schedule envis-aged during tendering), or payment could only be made a considerable time after implementation. In the worldng environment of, say 1999, how-ever, neither solution was feasible. If implementation was delayed, pri-ces would have risen so much over the levels on which the tendering was based that the pro-fit-ability of the project for the contractor was no longer assured. If payment was made only a significant time after im-plementation, the cost of prefinancing by the contractor, in a high-interest environment, would be so high that again profitability was en-dangered. The only solution to this dilemma was, to wait with the tendering process until the client had the budgeted funds available in cash. This again slowed down project preparation and implemen-tation, com-pared to original plans. 11. Labor Intensive ("Padat Karya") projects were designed During the implementation of the EJUDP H, adjustments were made to the effect that a program of labor inten-sive projects ("Padat Karya" projects) should be executed. This included the need for a re-allocation of the total loan amount, and this was effected in January 1998. The padat karya projects, which previously had not been a program component, were allocated US$ 22 million whereby this amount was reduced from the allocation for non-SLA financed civil works. The planning and design of the padat karya projects was done under great time pressure, and a number of shortcomings could be observed. For one, it had been envisaged that these projects should be concentrated in those regions where the surge in unem-ploy--ment as a result of the economic crisis was most severe. In reality, however, the projects were fairly evenly scattered over the province, and a number -43 - of them were found even in locations where the rise in unemployment had been only small. Another problem was that it was difficult to provide jobs which would replace the jobs that had been lost as a result of the crisis. The economic crisis led to the closure of many textile, garment, and shoe factories where a large number of young women had been employed. The work opportun-ities offered by infrastructure con-struction projects, however, were hardly suitable for that group. 12. Agreed-upon Subsidiary Loan Agreements (SLAs) fell short of technical requirements With the general surge in inflation, the cost estimates for all projects designs became increasingly obsolete. This had a special effect on those budgets which had been fixed in Rupiah, including the Sub-sidiary Loan Agreements between central government and local governments or PDAMs. As the crisis went on, it was found that in many cases the SLA amounts would no longer be sufficient to fund the envisaged project packages. On the other hand, many project packages had been designed in such a manner that they would make economic sense only if they were implemen-ted as a whole. If any one major com-ponent were to be left out, the envisaged system might not be functional, leaving local govem-ments with unfinished systems which would not significantly increase the level of urban services so that little, if any, additional income from retributions or similar charges could be created. This would constitute a mis-investment with deplorable financial consequences for local govenmments. 13. Central govemment had to offer topping-up for insufficient SLA amounts To avoid such situations where local govemments might be stuck with unfinished programs which would be a financial burden and a loss to the whole national economy, central govermment decided that it would top up insufficient SLA amounts to the level required to complete the originally envisaged program in the technical sense but with the increased cost which resulted from the extra-ordinary inflation. Such topping-up would be in the form of a grant from central to local govem-ment, pro-vided that local govemment had fully used their SLA ceiling but could provide evidence that additional funds were needed to bring about a functional system resulting from a completed packages of projects and components. 14. Repayability of SLAs became endangered The deteriorating financial situation in many local governments raised increasing doubts about their ability to repay SLAs that had been envisaged and concluded under more favorable circum-stances. This led to the question whether local govemments should really fully use the ceilings allo-cated to them under a SLA or rather reduce their borrowing to the levels of their likely future repay-ments capacity and cancel part of the SLA in order to avoid paying unnecessary commitment fees. 15. Local Institutions' financial situation had to be re-assessed The general trend of decreasing local govemment revenue (see para 6) required a re-assess-ment of their finances, including and especially the projections of the future repayment capabilities. This was done first in the form of a sample exercise, executed for PPMO by the project's UDP consultants. This sample re-assess-ment focused on local governments which were perceived to represent more or less an average picture of local government finances in East Java. PPMO was aware that some local govem-ments were sig-nificantly better off than this "guesstimated" average, some others signific-antly worse. This re-assess-ment, executed in August and September 1998, concluded that about half of East Java's local gov-em-ments would have to reduce their borrowing amounts substantially, if a pro-jected Debt Coverage Ratio (DCR) of at least 1.5 was to be retained throughout the repay-ment period. - 44 - In addition to this rapid financial appraisal, a more thorough analysis was done, in the form of extended financial projections and the preparation of extended RlAPs for all local governnents. It was found that indeed many local governments would not be able to maintain the originally envisaged debt coverage ratios. For the PDAMs, a corresponding exercise of re-assessing their current and likely future finan-cial status was carried out. Specially for PDAMs whose only genuine own revenue is from water sales, the level of charges for water and thus of their revenue will heavily depend on political decisions which will have to take the social situation into account Conclusion Indonesia's national economic and fiscal crisis has assumed proportions not seen in the country for decades. A reasonably complete assessment of all its economic, social, and political implica-tions is not even remotely possible at the time of writing (May 1999). Certainly, though, the implementation of the EJUDP II has been very adversely affected, and planning for future, similar projects will have to be based on very different assumptions and projections. 1/ This paper, written in May 1999 by the team leader of the PPMO Advisory Team and slightly revised for this ICR, attempts to present some basic aspects of the national financial and economic crisis which hit Indonesia from the second half of 1997 onward, and the most important effects of this crisis on the implementation of the EJUDP II, as far as they were known by May 1999. It does not claim to be a scientifically sound analysis, and it does not deal with general economic and political problems. 2/ This was announced by the Director General Ciptakarya during his visit to the EJUDP II on 20 July 1998. -45 - Additional Annex 12. The Project's Response to the Crisis Section 1: The Program of Labor Intensive Projects General Strategy With the onset of Indonesia's economic crisis, GOI and the Bank agreed in January 1998 to revise the loan fund structure to the effect that US$ 22.0 million were cut from the disbursement category "non-SLA funded civil works" and re-allocated to two newly created disbursement categories, namely Padat Karya (labor intensive works) projects in all 37 local governments of East Java, including Kota Surabaya, (US$ 15.0 million), and Padat Karya projects in all 4 provinces of Kalimantan (US$ 7.0 million). It was agreed that for these two new disbursement categories 100% loan funding would be applicable, and no counterpart funding would be required. These Padat Karya projects were supposed to be small civil works projects of simple nature, which could be quickly launched and could provide jobs, especially for unskilled labor. It was intended to focus on regions where the job losses as a result of the economic crisis had been most acute. Of then allocated funds, Rp. 26.7 billion (equivalent to roughly US$ 2.6 million at the then exchange rate) were allocated in the budget for FY 1997/98, and virtually this whole amount had been contracted by July 1998. All in all, the Padat Karya program for FY 1997/98 comprised 685 contract packages, allocated to 685 different contractors, at an average contract value of Rp. 39 million (equivalent to less than US$ 4,000). With this average package volume, it would have taken more than 5,000 contracts to absorb the amount of US$ 22.0 million. This would probably have overtaxed the institutional capacities of all local and provincial governments concemed. Total labor force absorbed was reported to be about 372,000 person days, i.e. more than 540 person days per contract package on the average. However, the number of persons employed did not correlate very closely with the value of each contract package. Implementation Problems PPMO and PTCU had difficulties in shouldering the quality assurance responsibility, as their monitoring resources did not suffice to cope with an unforeseen additional workload of such magnitude. Kanwil PU, as the agency responsible for the planning of the program, had allocated only Rp. 289 million (equivalent to about US$ 28,000) for management support, barely over 1% of the program's total cost, or an average of Rp. 422,000, equivalent to US$ 40, per contract package. The close involvement of PPMO and PTCU, as demanded by the Bank in the aide memoire of the March 1998 supervision mission, thus encountered grave difficulties. For the activities implemented in Kalimantan, the responsibility for quality assurance etc. had obviously been given to the agencies there. PPMO had no direct evidence on how far the Bank's stipulation has been met, namely that the program be carefully targeted toward those areas where the unemployment problem was most severe. During the Bank Supervision Mission in July 1998, a number of Padat Karya projects were inspected (in Kabupaten Sidoarjo, Mojokerto, Jombang, Bangkalan, Sampang, and Pamekasan). Apart from technical imperfections which are not specific to Padat Karya projects, some serious flaws were detected in design and implementation, and in fact in the whole approach. They included: Flaws in regional targeting: it appeared that all the projects implemented in Madura contributed little to -46 - addressing the problem of rapidly increasing unemployment. Even a quick survey of the region conveys the impression that agriculture, trade in agricultural produce and daily goods, and the public sector are the mainstays of the island's economy. None of these sectors had been particularly hard-hit by the economic crisis. Inquiries from residents also confirmed that relatively very few jobs had been lost in recent months. This is also reflected in the comparatively high wage level used in the Padat Karya projects. When asked about this, the sub-project manager explained that such high wage levels were adequate in view of other job opportunities in agriculture, notably in tobacco production. This leads to the conclusion that Padat Karya projects actually competed with other available jobs for less-than-abundant manpower, which is not what they were supposed to do. Apparently, it had been provincial government's desire to let all local governments enjoy a share of those projects, without a really clear focus on those areas where recent job losses and a rise in unemployment had been most severe. Flaws in social targeting: from inquiries made in Mojokerto it became evident that most job losses there had occurred in the shoe manufacturing sector, affecting mainly young women. These women, however, could hardly be absorbed in the Padat Karya projects which comprised mainly manual labor in road and drainage construction, activities for which young women are hardly suitable nor inclined. This is reflected in the relatively small number of local workers (from the particular village where each project is implemented). In other words, the Padat Karya projects have only been moderately successful in reaching those population groups suffering most from job losses, and ways will have to be found to achieve an improvement (perhaps outside the P3KT sector). Flaws in groiect design: several cases with serious design flaws were found: in Mojokerto, a MIIP project, namely the construction of walkways between the market stalls, was designed without any regard for drainage, so that in fact a previously reasonably well drained market area may now feature large pools of stagnant water because the elevated walkways block the water run-off totally. The excuse that local government would later construct some drains is not convincing as it is not at all clear when that would happen, and it would in any case imply that the walkways would have to be partly removed again. In the same project, a temporary storage site for solid waste was built in a place totally inaccessible for motor vehicles, making removal of the waste impossible. Again it was said that local government would build an access lane later, but the storage site will be totally idle until then, and in any case it seems very inefficient to build an access lane which is to be used by only three to five vehicles a week. - In Pamekasan, a newly built, concrete-lined tertiary drain of considerable gradient and capacity was found to connect to a secondary drain consisting only of a very simple earth ditch of much lesser gradient and capacity, so that there are bound to be flooding problems were the two connect. It could not be explained when and how the capacity of the secondary drain shall be adjusted to match that of the tertiary drain. Flaws of work planning and implementation: in one case in Pamekasan, a newly completed neighborhood lane was damaged by the trucks bringing more building materials to the site. This happened because the lane was constructed beginning from the main road into the settlement area so that delivery trucks had to pass over the newly, but lightly, built lane. It would have been more practical to start construction at the far end of the lane. - In another location, the sides of a neighborhood lane dam had been made only from coarse coral stones without adequate lining, resulting in sand getting washed out from under the pavement blocks which will result in serious damage within a short time. It was not clear whether this was more a design flaw or more a short-coming of implementation and supervision. - In Sidoarjo, a drain was found with good-looking concrete lining on the upper parts of the walls, but no lining on the lower parts. It was stated that this should follow later, but such a work organization would require a second mobilization of the work force (the project was presented as completed). There remained the impression that this was rather a case of poor supervision (the design drawings clearly showed that the lining was to cover the whole wall -47 - surface). General: The percentage of each project's total budget spent on labor was found to be much less than had been expected, if not downright disappointing, ranging from about 17% to about 33%, with 20% to 25% being typical (this could be calculated from the stated number of man-days used, the wage scale, and the known total project budget). This raised the question as to whether these projects could be considered labor intensive at all, compared to other projects without that label which have, as a rule, a similar cost structure. Reaction In reaction to these findings, the Bank suggested that regional and social targeting of the program be improved, to make sure it really addressed the problem of unemployment where it was most acute. The Bank also suggested that detailed project planning and implementation be improved, specifically the involvement of the local community be considerably strengthened. Thus, each local governnent was to form a body for this purpose, involving representatives of local government itself, of local institutions of higher education, and of local NGOs. Thereupon, PPMO and their advisory team prepared the required imnprovements for project implementation during FY 1998/99. These improvements were to include: * institutional aspects, such as criteria for the selection of personnel for project implementation; * establishment of proper work procedures; * definition of criteria for selection of pro-ject type and location; * strengthening of project implementation units through intensive training. For FY 1998/99, it was envisaged to implement projects worth about Rp. 48 billion in 35 local government areas throughout East Java in the fields of kampung improvement, market improvement, improvements to drains, and improvements to fishermen's villages. These projects were to pay increased attention to the general objectives of the program, i.e. alleviation of unemployrment where it was most acute, creation ofjob opportunities for the worst-affected population groups, and transparency of project planning and implementation. To support this program, PPMO and the provincial training center (Pusdiklat) were to implement a training for the executive officers from each local government. Additional intensive training was to be carried out by the PPMO Advisory Team. However, during the Bank's November 1998 supervision mission it was decided that the implementation of labor intensive projects under EJUDP II should not be continued, bearing in mind that in the meantime numerous other programs had been launched with a specific focus on combating poverty. With letter of 15 December 1998, Bappenas suggested that the remaining funds allocated to Padat Karya projects be re-allocated to other projects, especially those which experienced difficulties in counterpart funding, under the condition that they were "labor based". Thus, the planned training activities were cancelled, and no firther Padat Karya projects were implemented under the umbrella of the EJUDP II. Section 2: The PDAM Rescue Program Background 1. Rescuing the PDAM was first initiated in 1999, when Bappenas requested Bank's assistance for -48 - the Utility rescue program. The Bank responded to the request and confirmed the support for the development of a Water Utility Rescue Program, by applying ASEM (the Asian-European Meeting Funds) to implement the program. The objectives of the PDAM Rescue Program are: (a) to assist water utilities (PDAMs) in surviving the crisis; and (b) to improve the PDAM's operational and financial efficiency, consistent with the overall direction indicated in the Bank's Indonesia Urban Water Supply Policy Framnework Paper of 1997, and the GOI's Water Supply and Sanitation Policy Framnework for Urban and Rural Areas (Draft, August 2001). 2. Six PDAMs in East Java Province joined the PDAM Rescue Program. These are: Blitar, Kab. Tulungagung, Kab. Bangkalan, Madiun, Kab. Malang, and Kab. Lumajang. The first five PDAMs have completed their Financial Recovery Action Plan (FRAP), approved by the respective Bupati/Mayor/DPRD and submitted to MOF to obtain approval for debt rescheduling. MOF has accordingly approved debt rescheduling for all five PDAMs. PDAM Kab. Lumajang, the' last PDAM under the second batch program, has also forwarded its FRAP to MOF for debt'rescheduling which is presently being processed. Implementation of the Program 3. During the period of June 2001 to March 2002, the Bank visited cities with PDAMs under the Program (Blitar Kab. Malang, Bangkalan, Tulungagung, Kota Madiun and Kab. Lumajang). At most of the PDAMs, the mission found generic issues which are widespread, with varying degrees of magnitude: service interruption and declining service quality; low tariffs; inefficient collection method and timing; high UfW; idle capacity; inefficient distribution of supply; poor water quality; slow connection growth; weak management; low coverage; overstaffing; dividend payrnent to Pemda, sometimes even if the PDAM did not have a net income, The FRAP, prepared by each PDAM with the assistance of the PDAM Rescue Consultant, addressed these problems by suggesting some rehabilitation, optimization of existing water sources, acceleration of new connections, tariff increases, improvement of collection period, etc., 4. From the five PDAMs in East Java (excluding Lumajang), the following facts and figures were noted (in Rp. Million): Original Debt Service Amount paid under Investmnent Loan Arrears the Program Needed 24,451 5,741 6,994 16,676 From the original loan of Rp. 24.4 billion, Rp. 7.0 billion or about 29% have been paid to MOF. Only two out of five PDAMs (Kab. Tulungagung and Malang) have debt service arrears that are not yet due. The investments agreed under FRAP for these PDAMs amounted to Rp. 16.7 billion. Some of these investments were to be financed by the local government (Kab. Bangkalan and Madiun). In Blitar the financially weakest PDAM that participated in the Program obtained full financial assistance from the City in the amount of Rp. 1.1 billion. 5. The Mayor of Blitar was invited to participate in a video conference between WB-Jakarta and WB headquarters since Blitar was the first PDAM to implement the Program. The participants was impressed with the Mayor's positive outlook and the financial support provided to the PDAM, and felt that Blitar can be a model for other PDAMs. 6. Simplified FINfRPO Model. Prior to preparing FRAP, all PDAMs were asked to prepare a financial projection using the simplified FINPRO model developed by the Bank. The PDAM Rescue Consultant provided support and assistance in preparing the FINPRO. Now, the finance unit in most PDAMs haves been provided with the basic FINPRO principles and some of them are now able to prepare and update the FINPRO on their own. - 49 - Debt Rescheduling 7. On January 14, 2002, MOF launched a policy to allow for debt rescheduling on a case-by-case basis, depending on a PDAM's track record of paying its obligations, even if it is being consistently responsible for only a portion of its debt service. Under this policy, the PDAMs will be grouped into two categories: (i) those who have made regular payments for obligations, even if these were only partial payments; and (ii) those who have never paid their obligations. For the first category, the following will apply: (i) the administration fee interest and penalty up to an agreed date will be paid on a pro-rata basis of equal payments until the end of the repayment period, with no imposed interest; (ii) administration fees accumulated up to the due date during the rescheduling period will be paid based on amounts agreed during approval of the application for rescheduling. Penalty will be imposed on payments not made as committed. Any unpaid balance will be paid in equal payments for the remaining repayment period. For the second category, the following will apply: (i) administration fee is interest unpaid as of cut-off date; it will be capitalized and will be added on to the principal, meaning that there will be imposed interest again; (ii) penalty up to cut-off date is written off; and (iii) administration fee interest during the rescheduling period will be paid based on amounts agreed during approval of the application for rescheduling. Penalty will be imposed on payments not made as committed. Any unpaid balance will be capitalized and added to the principal amount and will be imposed interest again accumulated up to the due date. Until now, the MOF is still looking for fair approaches on debt rescheduling. The Cabinet meeting in March 2002 has initiated discussions and identified this issue as a national affair. Meeting with PDAMs 8. During the ICR mission, a separate meeting was held with some PDAMs. Present were PDAMs Madiun, Kab. Malang, Kab. Tulungagung, Kab. Bangkalan, Kab. Lumajang and Kab. Pacitan (only Pacitan is not under the Rescue Program). The meeting noted that all PDAMs under the Rescue Program have implemented the FRAP. However, some PDAMs have to revise and update the FRAP and FINPRO due to unexpected changes within or beyond the control of the PDAM. As the ASEM consultant has been demobilized, the PDAMs have to do the revision of FRAP and FINPRO by themselves. This is not very likely for some of them as they have problems beyond their control, particularly associated with natural disasters (floods in Bangkalan). Kab.Malang and Kota Madiun were noted to have implemented the FRAP successfully. In Madiun, the PDAM was able to finance an additional connection as a result of debt rescheduling. In Kab. Malang, production capacity was increased, and tariff was increased to Rp. 880/m3 which is much higher than planned. The investment program has progressed by about 30% and will be completed in March 2003. Revenues have increased significantly. 9. Management.inefficiency is one of many reasons for poor performance by most PDAMs. The PDAMs indicated that there are other reasons beyond their control that have also contributed to their unfavorable financial status. The high cost of operation due to increases in power, fuel and material could not be covered by the present tariff. Too little intervention/support by local executive and legislative authorities is also considered as a reason for declining PDAM performance. 10. The PDAM representatives strongly felt that government should urgently devise very structured policies aimed at remedying these issues. All agreed that the implementation of the Second East Java UDP has been effective in improving services. However, basic policy changes, as proposed in the Bank's Water Supply Policy Framework in 1997, and later on updated by the Government in August 2001, following the International Seminar in May 2001, have not been fully implemented. With increased capacity of the financial staff of PDAM in preparing FRAP and FINPRO, the respective PDAMs will be in better position to access to the Urban Water Supply and Sanitation Project, now being prepared by Kimpraswil, to be proposed for Bank financing. - 50 - Additional Annex 13. Efforts to Promote Good Governance Section 1: The Incentive Program Phase I During FY 1997/98 the idea was conceived to offer, besides the fixed Program of EJUDP II, additional funds amounting to a total of US$ 2 million for the funding' of special projects under an innovative approach labeled as "Incentive Program". On the basis of an outline paper prepared by PPMO and their advisory team in early 1998, PPMO initiated the process of selecting local governments eligible for the incentive Program, i.e., local governments2 that had demonstrated a good performance in the implementation of IUIDP projects. During and after the Bank's supervision mission in July 1998 it was decided that the assessment of good performance should be based on a number of criteria which would essentially cover the following fields of urban management: 1. Urban Development Planning, 2. Project Preparation and Coordination, 3. Project Implementation Supervision, 4. Functionality and Benefit of Projects, 5. Financial Management, 6. Organizational and Personnel Management, 7. Management of Private Sector and Community Participation, 8. Environmental Management, 9. Community Perception. To increase efficiency, the assessment was divided into various phases: (a) self-assessment in writing by each local government, using a questionnaire prepared under the guidance of PPMO (for all 35 local governments then participating in the project); (b) desk analysis, i.e., evaluation of such self-assessment, and incorporation of appraisal by provincial government (such as deduction of points for known deviations from standard procedures), under the guidance of PPMO (for all local governments that had submitted the questionnaire mentioned under, (c) field visits to selected local governments, for verification of local governments' self-assessment, and for incorporation of local communities' perception (for 12 local governments shortlisted in; (d) Identification of local governments eligible for the Incentive Program (combination of findings under (b) and (c)). It had been agreed with the Bank that the assessment team should comprise not only members from provincial government but also from Gapensi (the contractors' association), from the universities, and from local NGOs. This is reflected in the relevant decree issued by the Chairman of Bappeda Tk. I. The design of the questionnaire was done, very intensively, in August and September 1998. Twenty-seven completed questionnaires were received form the 35 local governments that had been approached to participate. The desk analysis of these 27 questionnaires, and the incorporation of additional aspects, were - 51 - conducted in September and October 1998. It resulted in 12 local governments being short-listed for field visits, which then took place in October and November 1998 and yielded the following results3: Table: Result of local government performance assessment, and allocation of Incentive Program funds Allocated Incentive Ranking Kabupaten/Kotamadya Final Score Program Funds (in million Rupiah) 1 Kabupaten Pacitan 454.287 2,200 2 Kabupaten Nganjuk 443.016 2,200 3 Kabupaten Tuban 425.981 1,800 4 Kabupaten Tulungagung 423.457 1,800 5 Kedin City 421.691 1,800 6 Kabupaten Magetan 413.641 1,800 7 Kabupaten Trenggalek 411.561 1,800 8 Kabupaten Bojonegoro 407.210 1,800 9 Kabupaten Pasuruan 394.303 1,600 10 Kabupaten Pamekasan 389.192 1,600 11 Kabupaten Mojokerto 384.889 1,600 The Incentive Program was welcomed quite enthusiastically by most local governments and assessed positively by the Bank. Therefore it was decided that another Incentive Program would be implemented, based on an assessment specifically of the transparency of the project procurement process. The preparations for that Incentive Program Phase II began towards the end of FY 1998/99. Section 2: The Incentive Program Phase II Following the positive experiences under Incentive Programn Phase I, it was decided that a second phase of this Program would be launched, based on an assessment of the transparency of the project procurement process. Another US$ 1.0 million was allocated by the Bank for this purpose, with disbursement conditions identical to those of the first phase. The preparations for this Incentive Program Phase II began towards the end of FY 1998/99. During FY 1999/2000 the assessment of transparency was carried out with considerable use of resources in all local governments except in Kabupaten Sidoarjo, whose participation in the EJUDP II has been suspended, and except in Kabupaten Kediri whose local government declined to have its procurement procedures evaluated. This assessment process identified five l6cal govermments which had shown the highest degree of transparency in their project procurement. The evaluation committee suggested that the top three of these be rewarded with an amount of some US$300,000 each, proportional to their point score in the evaluation. - 52 - The evaluation results and proposed Incentive Program fund allocations are as follows: Table: Evaluation Results and Proposed Fund Allocations for the Incentive Program Phase n Allocated Incentive Ranking KabupatenlKotamadya Final Score Program Funds (in '000 Rupiah) * 1 Kabupaten Malang 3,378 2,700,500 2 Kabupaten Tulungagung 3,090 2,437,500 3 Kabupaten Bondowoso 3,068 2,362,500 * The allocated funds of US$ 1.0 million had been converted at to Rupiah at an exchange rate of US$ I = Rp. 7,500; the total Rupiah denominated budget was thus Rp. 7,500 million The general fnding during the transparency appraisal process was, that for tenders among contractors in class A and B, there was normally a fairly clean and competitive procurement process, at least as far as the tender committees' work is concerned. Bid manipulations, if any, originated mainly from among the contractors themselves. For tenders among contractors in class C, on the other hand, there is considerable evidence that the tender committees frequently handled the tendering process in a manner that resulted in noncompetitive contract awards. The projects proposed by the winning three local governments were appraised in the second half of 2000 and implemented from late 2000 till mid-200 1. Section 3: The UPT Development Program The UPT- Development Program seeks to simplify and re-organize permit issuing procedures and other documentation procedures at local government level, by establishing one-stop service offices which would take over from the technical agencies a large part of their permit issuing activities, also the issuing of birth, death, and marriage certificates etc. The development of UPT is therefore not merely a mechanism of putting the permit application and issuance in one office, improving the permit system, and computerizing the permit process. It inherently requires restructuring of the institutional arrangements and changes in the mind-set of the executives, legislatives as well as the public (customers) to achieve better management and services. The UPT development is one of the efforts towards good governance and management in public service delivery, particularly the permit issuing system, and it is thus a long-term process requiring strong commitment from all parties. Furthermore, it is inevitable that the development of UPT offices involves political dynamics between line agencies, and between legislative and executive. The Bank also sees that the commitment of local government including the local legislature towards a demand-responsive permit system varies, - 53 - During the Bank's supervision mission in July 1999 it had been decided that the UPT Development Program was to be financially supported by the Bank with an amount of US$ 2 million from Loan No. 4017-IND. The Bank's letter dated 13 September 1999 defined more clearly the support which the Bank was willing to give to this Program, and the conditions under which it would lend this support. The intention to continue rendering support to the UPT Development Program had been the main reason why GOI and the Bank agreed to seek a second extension of the loan closing date, this time from 31 March 2001 to 31 December2001. Conceptual and Organizational Preparations As a first step, the Chairman of Bappeprop East Java wrote in late 1999 to all local govemments and invited them to submit proposals. In early 2000, 25 proposals were received but none of them met the specifications that had been given in the Chair-man's letter. It was therefore concluded that the whole Program needed a clearer focus. This was achieved by intensive discussions, complemented by several study visits, amongst others to Gianyar (Bali) and to Sukoharo (Central Java). A special UPT Development Team was formed, comprising representatives of PPMO, of the PPMO Advisory Team, of PTCU, and of the Bureau for Organization in the Provincial Secretariat. As a next step, this UPT Development Team defined a clearer and more realistic UPT Development Strategy. This strategy was presented to the decision-makers in July 2000 and accepted as the basis for further work. PPMO the had some intensive communication with the Bank regarding the most suitable approach for providing the necessary input and assistance to local governments, coupled with adequate supervision. This concemed mainly the following aspects: * Procurement of computer hardware and software, including the Bank's review procedure; * A study into the possibility of abolishing / combining / simplifying certain permits and decentralizing the permit issuing procedure; * Customization of the UPT standard software that had been developed by the MoHA for the newly defined system of permits at each local government; * An awareness-raising campaign directed at UPT managers, Dinas heads, and selected members of local parliaments (local legislature); * A technical training regarding operation and further adjustment of the UPT software. PPMO considered that the local government agencies in charge of procurement of computer hardware and software for the UPT would not have prior experience in Bank funded procurement. Therefore, such procurement would have to be classified as "first contract" and fall under "Bank's Prior Review" procedures. However, it was agreed that PPMO would prepare a standard bidding document for all local governments under the UPT Development Program, that the Bank would clear this standard bidding document, and that this procedure then permitted local governments to go ahead with the tendering. The PPMO Advisory Team considered several altemative options of providing the required technical assistance to the participating local governments, as follows: I. all participating local governments would procure and implement the required technical assistance individually and fund it from their own resources; - 54 - 2. all participating local governments would procure and implement the required technical assistance individually, and such technical assistance would be funded from the loan; 3. provincial government would procure and implement the required technical assistance centrally and such technical assistance would be funded from the loan. The PPMO Advisory Team presented to PPMO and to the Bank that option No. 3 was probably most appropriate, with a minimnum of procurement administration, optimum synergy effects between the sub-teams looking after each participating local government, and an optimum of supervision possible. Option No. I would make an effective quality control and assurance nearly impossible, and Option No. 2 would imply a rather cumber-some procurement procedure, combined with impeded supervision and badly reduced synergy effects. PPMO, the PPMO Advisory Team, and the Bank discussed these options and their implications in a meeting on 27 October 2000 in Jakarta. The Bank decided (as documented in the Bank's letter to PPMO, dated 14 November 2000) that option No. 2 was to be implemented, with the argument that this was consistent with the national drive toward decentralization, and that a certain degree of technical inefficiency would presumably be more than offset by the commitment of local governments. In hindsight, though, on the basis of all information obtained, including from the formal super-vision and controlling of the implementation, there are some indications- that the Bank had over-estimated the commitment of local govemments, and that the various inefficiencies and implementation deficiencies had been very much underrated. Technical Preparations Technical preparations for the UPT Development Program were made in parallel to the organizational preparations. An important element was, to define clearly the theoretical technical specifications for the required computer hardware and software. PPMO prepared these specifications which then formed the basis of a Technical Meeting which was implemented in August 2000. That Technical Meeting yielded specific Bills of Quantities for the computer hardware and software required by each local government, in addition to existing facilities. These bills of quantities, together with price estimates, provided the basis for the necessary amendments to the national budget (specifically the DA-DPD documents), and later on for the preparation of the tender documents and the launching of the procurement process. PPMO the prepared the standard bidding documents for the required computer hardware and software, and for the required technical assistance. These documents were approved by the Bank and were consequently used by the participating local governments in the procurement process. The PPMO Advisory Team detected a major technical error on the CDs on which the UPT standard software was distributed by the MoHA. The problem was discussed with the Ministry on 30 March 2001 in Jakarta, and the necessary technical rectifications were initiated by the Ministry. The PPMO Advisory Team procured all the computer hardware and software required to set up a "simulated UPT office" in PPMO's premises. This was done for purposes of testing the standard UPT software supplied by the MoHA and all the other software and hardware that was to be installed at the local UPT offices, and for purposes of simulation, demonstration and training, mainly aimed at the consultant personnel, specifically the IT specialists, who were to be deployed to the participating local governments. The IT specialists of the PPMO Advisory Team successfully carried out this testing, - 55 - simulation, demonstration, and training. Seminars and Study Trips To assist the planning and implementation of the UPT Development Program, PPMO implemented a series of seminars and workshops, from November 2000 till December 2001, with details as follows: 1. in November 2000, a large two-day seminar was staged in Surabaya, for high-ranking representatives of the executive and of the legislative branches of the participating local governments; this workshop was to achieve an increased political awareness, including an awareness of the advantages and the feasibility of a fimctioning UPT unit; the seminar was therefore combined with a two-day comparative study trip to Kabupaten Sukoharjo in Central Java; 2. in late March and early April 2001, three regional seminars were staged in Surabaya, Ngawi, and Situbondo; their objective was, to reinforce the political awareness among the decision makers, to refocus such aware-ness toward the operational objectives, specifically toward the necessary procurement procedures; 3. in late June and early July 2001, three more regional seminars were staged in Surabaya and Tretes; their objective was, to guide the newly contracted 14 PPMO Advisory Teams regarding the technical assistance they were supposed to deliver to the participating local governments, in the conduction of the ACSD studies as well as in the customization of the standard UPT software; 4. in October 2001, three workshops were staged in Tuban and in Batu, near Malang; their objective was, to review the work progress achieved by the PPMO Advisory Teams so far, the implications of their findings, and necessary corrections to their work; therefore, in these workshops local govermments were not grouped by geographical region but according to work progress; 5. in December 2001, after the official end of the assignments of the 14 local government consultants, and just before the loan closing date, three final workshops 1. were staged in Batu; their objective was, to review the work progress achieved by the consultants till the official end of their assignments, the implications of their recommendations, and any further work that needed to be finalized by the consultants before their definite demobilization; also, local governments were required to prepare and present clear plans for follow-up action, e.g. regarding the formalization of legal documents such as the regional regulations ("Peraturan Daerah") and similar, and regarding the provision of adequate operational budget for the UPT offices. The IT professionals and one of the institutional development experts in the PPMO Advisory Team received some special training, as follows: *the two IT specialists received a training in the handling and customization of the UPT standard software, this training was implemented in Jakarta by the MoHA in June 2001 (two days duration); *the senior institutional development expert in the team received a training in legislative drafting which was implemented in Jakarta in July 2001 by the University of San Francisco (two weeks duration). - 56 - Procurement Controlling and Monitoring With its letter dated 14 November 2000, the Bank had decided that the control-ling and monitoring of all procurement (physical as well as non-physical) in the context of the UPT Development Program should be handled by PPMO, including the task to issue No-Objection Letters (NOLs) on behalf of the Bank. The Bank also suggested to use simplified procedures for all procurement (physical as well as nonphysical). The first step of PPMO was, to call representatives of all participating local govermments for an information meeting which was held on 12 January 2001 in the premises of Bappeprop. During that meeting, the local government representatives were told to launch as soon as possible the procurement of computer hardware and software, and of technical assistance, and they were told that they needed to have the technical assistance assignments completed by 30 September 2001. In the following, PPMO provided the participating local govermments with the tender documents approved by the Bank and rendered intensive assistance in the procurement process. This was reinforced by the workshops mentioned above. Even so, the progress in procurement was generally very slow and PPMO grew increasingly alarmed about this, in view of the loan closing date on 31 December 2001. Therefore PPMO felt compelled to issue a letter to all other local governments, informing them that the delay in procurement was nearly unacceptable and that any local governments which had not completed the procurement of computer hardware and software, and of technical assistance, by end of June 2001 would have to be excluded from the Program. Eventually, all procurement was officially completed by end of June 2001. However, the con-sequent intensive implementation monitoring revealed that in several cases the official completion of the procurement and the official mobilization of the consultant had made only negligible impact on the ground. Implementation Controlling and Monitoring As soon as the computer hardware and software had been reported as delivered, the mobilization of the consultant had been reported as completed, and the workshops mentioned under paragraph 3) above had been implemented, PPMO began to conduct intensive monitoring of actual implementation in the field. This was done through field visits which were conducted from late July 2001 onward. The results of these supervision visits were often rather alarning in the sense that the official mobilization of the consultant had rarely resulted in a reasonably continuous and complete presence of professional staff in the field. This had also affected the envisaged examination of the delivered computer hardware and software, which was one of the consultants' tasks. Likewise, a bad delay was observed in the submission of the Inception Reports by the consultants. By 15 August 2001, only 2 out of 14 such Inception Reports had been submitted to PPMO, even though by that date about 30% of the consultants' total assignment period had already passed. Under these circumstances, PPMO felt again compelled to address the problem emphatically and officially, by writing letters to each local government (the Regent or Walikota, the Chairman of the Legislative Assembly (DPR), and the technical agencies concerned). The letters, written in mid-September 2001, warned the local governments of the possible consequences if the implementation of the technical assistance assignments was allowed to be delayed further, namely a cancellation of the loan funding for the UPT - 57 - Development Program in the respective local government The next step of implementation monitoring and controlling were the workshops implemented in October 2001. Following this, another round of field visits was conducted in November 2001. These visits revealed that significant progress had been achieved since September 2001, but they also revealed that there were still substantial delays and deficiencies, both in the work of the consultants and in the preparations for which local governments were responsible. Follow-Up Action The technical assistance assignments at local level contractually expired on 30 November 2001, but a substantial portion of the overall work Program was yet to be finalized. Therefore, PPMO asked local governments to prepare appropriate plans for the required follow-up action. During a last series of work-shops, conducted in December 2001, the participating local governments and their consultants reported on: *the work results they had achieved by then (i. e. after the official expiration of the technical assistance assignments), *the issues that remained to be resolved and on the way this was to be achieved, and *the operational preparations, especially on the available organizational structures, personnel, and budget which were in place to guarantee a smooth operation of the UPT offices from January 2002 onward. The resulting action plans constitute an agreement between Bappeprop and local governments, and their implementation was monitored by Bappeprop from January 2002 onward through a number of field inspections. To provide incidental technical assistance, Bappeprop procured some limited consultant services until the end of May 2002. Field inspections in 5 locations (Bangkalan, Pamekasan, Probolinggo, Situbondo, and Tuban) were conducted during the ICR Mission in May 2002. Outcome by May 2002 The results of Bappeprop's monitoring of the progress of the UPT Development Program are documented in a special report (see Annex 7, No. 3), and its contents were partly verified during the ICR Mission. In 4 local governments (Pacitan, Kediri City, Nganjuk, and Situbondo), the factual improvements achieved as a direct result of this program appear to be negligible : there has neither been any. noteworthy progress in institutional development, nor any noteworthy progress in the installation of computer systems or the development of customized software. 6 more local governments run their UPT offices but with only minor improvements, compared to the pre-project situation, e.g. still manually or with a very limited scope of services. 4 local governments (Tuban, Ngawi, Lamongan, and Probolinggo City) have now established fully operational UPT offices that are significantly improved, compared to the pre-project situation, more or less in accordance with the plans. This includes adequate air-conditioned office facilities and operational computer systems (local area networks with server and client computers, computers with touch screens which give the public access to unambiguous information, and peripherals) and customized software. The administrative requirements, and the cost and time frame for the issuance of documents, are now transparent. In most of these UPT offices, human resources are sufficient in quantity and qualification, and there is sufficient operational budget. Local governments of Lamongan and Tuban have procured additional technical assistance from their own budget, to stabilize and reinforce the outcome of the project. Local govemment of Tuban has introduced a more adequate compensation structure for UPT staff, consisting of - 58 - basic salary and performance based incentives, in an effort to eradicate the charging of illegal fees. With the many activities described above, the Bank and PPMO had anticipated that only few, if any, local governments would be able to satisfactorily complete the whole restructuring process before the loan closing date, i.e. within one year. It was only expected that local governments will finish all basic elements of such a restructuring process, pending further activities to establish a well-functioning UPT. Given new local government structures and functions due to the decentralization policy, with stronger roles of the local legislature and a more critical public, the establishment of a well-functioning UPT needs continuous commitment and efforts. In Gianyar, an often visited positive example of UPT establishment, the process to form an UPT as an office in its own right took no less than eight years. During the ICR mission, the Bank visited the UPT offices in Situbondo, Probolinggo, Bangkalan, and Tuban and was pleased to observe that all local governments except Situbondo had made some progress compared to their situation in December 2001. The Regent of Situbondo will follow-up the agreed action plan soon, although he is aware that it will take some time to realize it as intended. The other three local governments have made efforts to implement the action plans agreed in the December 2001 workshop, despite the continuous difficulties in creating a uniform perception among the relevant line agencies and the with the local legislature. I/ It was agreed that the funding would be 100% loan with no counterpart funding required, like for the labor intensive projects (see separate Annex). 2/ Including their water supply bodies (PDAM). 3/ During the field visits, local government of Kabupaten Sampang could provide only insufficient evidence for its positive self-assessment and was therefore dropped from the shortlist. 4/ Short for Unit Pelayanan Terpadu, literally: Integrated Service Unit. 5/ Such as the sluggish progress of procurement and implementation of the technical assistance assignments. 6/ By 15 May 2001, the only local government which had its consultant mobilized was Kabupaten Lamongan. - 59 - Additional Annex 14. Technical Assistance Assignments tUe of Assign_e DensuIti g Film Actual lDuratlon I R mark Central Level Agencies DED and Supervision for National Roads PT Krda Pratama Apr. 1998 - Dec. 2001 _____ ____ _____ ____ _____ ____ ____ A dhicipta_ _ _ _ _ _ _ _ _ _ _ _ _ _ Advisory Services to the Executing Agency PT. Arkonin July 1998 - Dec. 2001 Development and Training for Modular PT. Infratama Yakti Sept. 1999- Sept. 2000 Sanitation Systems PT. InfatmaYati Set._99-_ep._00 Greater Malang Urban Road Network Study PT Lenggogeni & Dec. 1999 - Nov. 2000 April 2000 - Dec. 2001, for both Project Benefit Monitoring and Evaluation PT. Bina Asih & Assoc. the EJUDP II and the Surabaya UDP (IBRD Loan No. 3726-IND) Advisory Services for Private Sector Cancelled Participation . Cancelled Provincial Level Agencies Sept. 1997- Dec. 2001 Initially Doxiadis & Assignment was combined with Advisory Services to PPMO Assoc., later on PT. the 4 assignments for "Project Advisory ServicestoPPMOA cTritunggal P. Konsultan and Financial Management Support" (see below) and re- tendered in April 2000 Project and Financial Management Support PT. PAS & Assoc. Dec. 1997 - March 2000 Region 1 Project and Financial Management Support PT. Tritunggal P. Dec. 1997 - March 2000 Region 2 Konsultan Project and Financial Management Support PT. Seecons & Assoc. Jan. 1998- March 2000 Region 3 Advisory Services to PTCU PT. Kogas Driyap & Jan. 1998 - Dec. 2001 Assoc. DED & Supervision for Water Supply Projects, PT. Bina Karya & Sept. 1997 - Nov. 2001 Western Region Assoc. - 60 - DED & Supervision for Water Supply PT. Tritunggal P. Sept 1997 - Nov 2001 Projects, Eastem Region Konsultan & Assoc. DED & Supervision for Urban Road Projects, PT. Yodya Karya & Sept. 1997 - Nov. 2000 Westem Region Assoc. DED & Supervision for Urban Road Projects, PT. BIEC & Assoc. Sept. 1997 - Nov. 2000 Eastem Region DED & Supervision for Non-Water Supply, PT. Indah Karya & Sept 1997 Oct 2001 Non-Urban Roads Projects, Eastem Region Assoc. P - . Feasibility Study for Composting of Solid Waste in Malang City Michael Page et. al. July 1998 - Sept. 1998 Project Financial Auditing and Monitoring PT. Pangripta Loka July 1997 - Dec. 2001 Services (PFAMS) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Advisory Services for RIAP -PT. Bina Asih Dec 1997 - Aug. 1999 Advisory Services for POMMS PT. MLD & Assoc. Sept. 1997 - June 1999 Advisory Services for LIDAP Cancelled Technical Audit, Priority Targets and PT Bina Asih Oct. 1997 - March 2001 Performance Indicators . PDAM Performance Monitoring & Evaluation PT. Bumi Prasidi Oct. 1997 - March 2000 (PPME) PT.Bum_ Pasii_Ot.I_97_-Mach_00 Greater Malang Traffic Management and MottMacDonald & Oct. 2000 - March 2001 Public Transport Study Assoc. Training of Civil Servants Assoc. June 1998 - March 2000 Malang City Agencies Project and Financial Management Support PT. Koga Driyap & May 1998 - March 2000 Assoc. Unaccounted-for Water Study Cancelled DED & Supervision for Water Supply Cancelled Projects May 1998 - March 2000 Discontinued because of DED & Supervision for Non-Water Supply PT. Bina Karya & Assoc. consultant's poor performance, Projects remaining works combined with Water Supply Projects, Eastem Region Social and Environmental Studies in the PT. Tiang Lima March 1998- Dec. 1999 Context of Resettlement Advisory Services for Solid Waste and PT. Reka Spasia & Jan. 2001 - March 2001 Sanitation Management Assoc. -61 - Additional Annex 15. Chronology of Efforts to Prepare a Follow-on Program 1995 GOI and the Bank begin to prepare the Second East Java Urban Development Project (EJUDP II) as a bridging program between the previously implemented East Java - Bali Urban Development Project and the proposed East Java Strategic Regional Development Program (EJSRDP). 1995 On behalf of GOI, the Bank requests the Japanese Government to make available a grant fund for the preparation of the EJSRDP. 1996 (?) Japanese Government approves a grant fund of US$ 600,000 for the said purpose, to expire on March 31, 1999. April 1996 The Staff Appraisal Report for the EJUDP II mentions-the preparation of the EJSRDP as one key objective (see Section IV.B. "Project Objectives", para 4.4 (c)). This program is envisaged to begin in FY 1999/2000. 13 Dec. 1996 Loan No. 4017-1ND for the EJTJDP II becomes effective, and implementation begins. 1998 BAPPENAS refuses to approve the launching of preparations for the EJSRDP with the argument that the implementation of EJUDP II was unsatisfactory. Feb. 1999 Provincial Program Management Office (PPMO) for the EJUDP H prepares a strategy paper for the preparation of the EJSRDP; this paper envisaged the utilization of the Japanese grant fund for three technical assistance packages. March 1999 The said strategy paper is discussed in Surabaya between PPMO, BAPPENAS and the Bank. It is agreed that the preparations shall be speeded up. 31 March 1999 The Japanese grant fund expires before being utilized. April / May 1999 PPMO prepares ToR for the three envisaged technical assistance packages even though funding is uncertain. 24 June 1999 The strategy for the preparation of the EJSRDP is discussed in Surabaya with the Director General Cipta Karya. 17 July 1999 During a supervision mission, the strategy for the preparation of the EJSRDP is discussed in Surabaya between the Bank, 0OI, the province, and selected local governments. Aug. 1999 - Dec. The ToR for the three -envisaged technical assistance packages are revised and combined into 1999 one single package. Jan. 2000 BAPPENAS approves the use of funds from Loan No. 4017-IND for the preparation of the -62 - EJSRDP. Feb. 2000 PPMO again revises the ToR for the envisaged technical assistance package with a view to launch some activities as soon as possible. 17 April 2000 Upon request from PPMO, BAPPENAS again requests the Bank to help identify a grant fund for financing the preparation of the EJSRDP. April 2000 PPMO changes the setup for preparation of the EJSRDP, whereby a baseline study will be carried out under a technical assistance assignment funded from Loan No. 4017-IND. 2 May 2000 The preparation strategy for the EJSRDP is discussed again (informally) between PPMO and BAPPENAS. July 2000 - A baseline study focusing on regional manifestations of poverty and unemployment, on March 2001 selected technical topics, and on institutional capacities is carried out under the technical assistance assignment Urban Development Program Management Support, funded from Loan No. 4017-IND. - 63 - Additional Annex 16. Special Problems and Issues Improvements to National Roads The By-pass Road Proiect in Nganiuk A northern by-pass road for Nganjuk was included in the EJUDP II from the start, and it was to be the biggest single project in the program, to be implemented by the central government agency for highways. The project was to provide a dual carriageway by-pass road of just under 7 km length on the northern side of Nganjuk town. On the basis of the original cost estimate, a budget of approx. Rp. 30.2 billion was provided. Later on, however, a more accurate owner estimate was made, and it resulted in a figure of approx. Rp. 19.8 billion only. During the tendering process, the lowest bid for the project was approx. Rp. 12.9 billion (i.e. 65% of the owner estimate, and equivalent to about US$ 1.3 million at current exchange rates), and a contract was made on this basis. With this development, a very substantial residual budget remained, and over time GOI agencies came up with several ideas for the utilization of this budget. Work commenced on 1 July 1999, the contract provided for a completion period of 600 days, and the implementing agency thus set 16 March 2001 as the target date for completion. Soon, however, the project encountered serious problems which slowed down its implementation very seriously. The aide memoire of the December 2000 supervision mission lists the following main reasons for the ever growing delay: "(i) poor detailed design by the consultants (the soil condition is poorer than anticipated in the design and thus the thickness of the sub-base needs to be increased); (ii) delay in the approval of the revised detailed design by central government and by the local irrigation agency; (iii) poor performance of the contractor, and (iv) poor supervisionr." In addition, the project manager reported that there were problems in obtaining the counterpart furds from central government in a timely manner. Throughout 2000, provincial government observed the implementation delays with increasing concern, urged the implementing agency to instruct the contractor to speed up the work, and requested the Executing Agency to seek speedier pro-vision of counterpart funds. However, none of these efforts brought an effective remedy. By 16 March 2001 the project was still far from completed, and a compromise was sought which would provide for at least a partial completion until the loan closing date. The project's completion status by 31 December 2001 was as follows: about 40% of the total alignment length have been completed as a dual carriageway road with tarmac surface and median; about 20% of the total alignment length have been completed as a single carriageway road with tarmac but without median, whereby only the sub-base has been completed for the second carriageway; for the remaining 40% of the alignment length, only the sub-base has been completed for both planned carriageways. Technically, it is possible for vehicles to use the completed sections (60%) of the by-pass, but they have to use a smaller road and revert to the existing main road before the uncompleted section. With this, most transit traffic through Nganjuk town still uses the old road (which is a fairly wide four lane road without congestion problems), and the benefit of the completed section appears to be minimal'. - 64 - The By-pass Road Project in Krian In a design similar to the planned Nganjuk by-pass (dual carriageway with median, about 6 km long), a northern by-pass road for Krian town ( Kabupaten Sidoarjo) was planned under the EJUDP II. This project was implemented without major problems and completed in mid-2000. Some design revisions were made and resulted in contract amendments during implementation. This by-pass is now fully operational and constitutes a very substantial benefit, especially for the transit traffic which now uses this by-pass almost exclusively (the old road through Krian town is now only used for local traffic). However, local government has permitted intensive industrial development to take place along both sides of the new road with direct access to it, and informal, small scale commercial operations are beginning to establish themselves along the road shoulder. These developments may in the future reduce the benefit of the new by-pass road to some extent. The Urban Ring Road Projects in Pasuruan and Probolingao As early as 1999, when it became apparent that there would be a very substantial residual budget from the Nganjuk by-pass road project, Dinas Bina Marga East Java proposed2 two urban ring road projects for the towns of Pasuruan and Probo-linggo, basically as rehabilitation and widening of existing smaller roads, namely a southern ring road in Pasuruan and a northern ring road in Probolinggo. In 1999, the total cost for these two projects together was estimated as approx. Rp. 1.3 billion, but this was later revised to approx. Rp. 4.3 billion. A detailed feas-ib-ility study was submitted to the Bank in November 2000. The cost estimates presented in that study were approx. Rp. 3.6 billion for the southern ring road in Pasuruan and approx. Rp. 2.9 billion for the northern ring road in Probolinggo The main problems were: (i) in Pasuruan, the western section of the proposed road project would cut through a residential area and displace a high number of small furniture makers, and the Bank questioned the feasibility of eventually making this road function as national road, as had been envisaged by Dinas Bina Marga, (ii) in Probo-linggo, the proposed road project would pose social problems for a fishermnen community along the coast, and it would be a dead-end road of nearly no immediate benefit, unless and until another 3 kmn road section would be built by GOI from its own resources. After lengthy communication between the province and the Bank, the June / July 2001 supervision mission paid specific attention to this project proposal, and it was eventually agreed with the Executing Agency that only the eastem part of the proposed ring road in Pasuruan would be implemented. This was done in the second half of 2001 at a cost of about Rp. 3.3 billion, or about 90% of the estimated cost for the whole southem ring road. The feasibility study had projected an average daily traffic of about 6,000 passenger car units on the southem ring road in Pasuruan for 2002, and an annual increase of 6%. The current real traffic volume on this partly completed ring road, however, is much lower. - 65 - The Modular Sewerage Project in Malang City It had been one focus of the EJUDP II to try and spearhead some fundamental improvements to the management of domestic waste water in congested urban areas. Malang City, the biggest urban settlement under the program, seemed to lend itself well for this purpose, especially since there was an example of a purely community driven sanitation project, located in the Tlogomas neighborhood (Kelurahan). In that location, a progressive community leader had over the years persuaded the residents to collect money and build a simple sewerage pipe network and a simple treatment plant equipped with a series of oxidation ponds whose effluent was then discharged into the river. This scheme had become widely known, and the community leader was even invited to the World Bank HQ to present his project. On the basis of that positive example, the EJUDP II envisaged to implement two similar, but larger projects, each one to cover three neighborhoods in a modular approach, i.e. consisting of a number of small pipe networks, each with a connected treatment plant3 the idea was to have these projects implemented on a grant basis but to charge the residents connection fees (Rp. 200,000 per connection) which would be accumulated and form a revolving fund from which new house connections would be funded, leading to full utilization of the treatment plants (whose capacity would only be 30% utilized by the end of the project). Municipal government of Malang City would implement the projects and operate the treatment plants, but the operation and maintenance of the house connections and pipe network would be handled by newly formed community based organizations, the LPPL-. The first of these two schemes was planned in the neighborhoods Jodipan, Mergosono, and Cipto-mulyo, all lower class or lower-middle class income neighborhoods, with a budget of Rp. 4.8 billion. Malang City conducted social preparations, essentially an environmental awareness campaign and the collection of written commitments from residents to connect their houses after the completion of the pipe network. 80% of the households in the envisaged service area committed themselves to this. Physical implementation of this project began in July 1999 and was contracted for completion in early 2000. However, vehement protests in Jodipan (although apparently only from a small minority group led by an NGO) resulted in the cancellation of that component, and local govemment proposed that the physical volume of that component be shifted to the other two sites. That, however, would have implied additional design work, additional social preparations, and an extended period of physical works. To support physical project implementation and sustained operation of the system by the community and the LPPL, the project secured the cooperation of CLEAN-Urban, a project funded by USAID. A MoU was signed between the Mayor of Malang and CLEAN in 1998. A local NGO was mobilized, and it provided. three fulltime comrnunity facilitators who helped develop the LPPL into potentially effective operating institutions. After the expiry of the CLEAN project in 2000, the LPPL were further assisted by NGOs under contract with AusAid, upon an initiative by the Bank. Physical implementation in the locations Mergosono and Ciptomulyo was very much slower than had been expected. Amongst others, in a clear case of poor project management, the contractor found out towards the end of 1999 that essential parts for the construction of the pipe net-work were not available in the market and had to be substituted with similar parts of lower quality, or else the construction of the pipe network would have to be discontinued. On top of that, unforeseen land acquisition problems surfaced in Mergosono. The responsible agency in Malang City reported all sorts of unexpected obstacles, including disagreements with the local communities over the way in which the construction should proceed. Repeated monitoring by provincial government revealed a deplorably poor quality of the civil works, such as pipes that were not properly connected, manholes that could not be opened, and similar. The poor quality of the - 66 - civil works remains the responsibility of the implementing agency of Malang City, and the municipality has indicated its willingness to use its own funds to rectify this. On the grounds of this experience, the envisaged second project was called into question, although the social preparations (supported by a team from CLEAN, a project funded by USAID) had reportedly progressed fairly well. As the implementation delays in the first project grew ever worse, PPMO decided in July 2000 to cancel the second project, fearing that it could not possibly be completed before 31 March 2001 which was the agreed loan closing date at that time. As per 31 December 2001, the first project has only yielded a scheme with much fewer house connections than had been planned. This will not only result in a technically less-than-optimal operation of the treatment plants, but also in a significant revenue shortfall for the LPPL. There is now a danger that, with such a revenue shortfall, the funds collected from connection charges will be used to subsidize 0 & M costs, and that the establishment of the planned revolving fund will not materialize. This would render the whole approach unsustainable. All in all, this project has so far been rather disappointing, in its technical results, and in its likely sustainability. In view of this danger of poor financial and organizational sustainability, Malang City has made available substantial additional funds (Rp. 540 million in FY 2002) to improve the system and support sustainability. The Executing Agency has promised funding for further technical assistance in FY 2003. A local NGO is to provide additional support. The collected connection charges are under the management of the LPPL and will mainly be used for additional house connections. If this project is successful and sustainable it will be one of 34 similar projects in the Malang region. Most of these project have been implemented by the communities themselves with simple technology, and they are seen as appropriate choices for the improvement of poor urban neighborhoods and as possible alternatives to the more expensive and sophisticated large scale sewerage systems. Land Acquisition and Resettlement Problems in Malang City Urban Renewal Proiect Kutobedah Located in Kutobedah, an inner-city low-income neighborhood largely consisting of squatters on an abandoned grave-yard, this project was meant to improve the physical infrastructure in the area, and to clear the Brantas riverbank of illegal settlers in the context of the "Clean River Program" (Program Kali Bersih = ProKaSih). At first it was envisaged that all houses closer than 15 m to the river would be removed but this was later reduced to the row of houses closest to the river. Many but not all of these houses had been built on an unstable and erosion prone slope. The households whose houses were to be removed would be offered either flats or site-and-services plots as compensation. In any case, the households to be resettled were to receive additional cash compensations for the value of their previous house, according to a transparent and uniform standard, and for the cost of moving. In 1998, PPMO urged Malang City to incorporate these resettlement plans into a more comprehensive area development concept. Amongst other things, it was feared that the so-cleared riverbank areas would be quickly re-occupied by new settlers, regardless whether the City considered this permissible or not. Besides that, it was felt that the envisaged project for the provision of basic infrastructure (prasarana bingkai) in this haphazardly developed area needed to be based on some form of comprehensive concept. The City then developed a plan which also envisaged that the cleared riverbank areas would be used for a new access lane -67 - which would improve the quality of the neighborhood so significantly that the residents themselves would protect it from re-occupation. However, several critical issues remained to be resolved. One of them was the availability of land for resettlement. Malang City had assured the Bank during the July 1998 supervision mission that it would secure 3.0 hectares of unoccupied land for resettling the households who chose site-and-services plots. Another issue was the presence of a private housing development which had acquired the land from Malang City some years earlier and would obtain a windfall gain from the public sector funded infriastructure improvements. In March 1999, the Bank dispatched a resettlement specialist to help sort out these questions. The collection of sound information on the area and its population, on the need and the options for resettlement, and on technical, social, and legal requirements, turned out to be much more time and resource consuming than had been anticipated, and it absorbed a significant share of the Bank's and of PPMO's total manpower resources. Eventually, the Mayor of Malang City issued a decree (SK Walikota) which laid the legal basis for the identification of the households to be resettled, and for the mechanisms of resettlement and related compensation. As time went on, however, Malang City turned out to be unable to secure the envisaged area of unoccupied land (see above), and ended up having to acquire back some land from the developer. Besides that, Malang City identified and developed some pockets of suitable land that had originally not been earmarked for resettlement. However, Malang City did not provide sufficient budget for the compensation to resettled households and the land certification, in accordance with the Mayor's decree. In other words, Malang City's bureaucracy failed to implement the decree of its own Mayor consistently. Observing this development over several supervision missions, the Bank grew increasingly concerned. After the July 2000 supervision mission the Bank felt compelled to address the Mayor seriously and in writing, by letter dated 6 September 2000, informing him that continued nonimplementation of his decree by his own administration would endanger the loan funding for this project The December 2000 supervision mission focused very much on these problems and brought them to the attention of Bappenas which in turn caused Bappenas to write to Malang City and express its concem. During 2001, strategies were developed to salvage the project Some of the various deficiencies in basic infrastructure were overcome through intervention from provincial government under the P3P program. Malang City, through its new PMO staff since late 2001, made other efforts to rectify its past failures and assured the November 2001 supervision mission of its seriousness to solve all related problems. Malang City also assured the ICR mission of its determination to solve the remaining problems of relocation, compensation, and land certification for another 44 families before the end of 2002 on the legal basis of another Mayor's Decree, dated 6 May 2002. The elimination of this project from the EJUDP II was thus avoided. Road-and-Bridge Construction Gadang-Bumiavu The road network in Malang City suffers from a lack of east-west connections across the Brantas River. The road-and-bridge link Gadang-Bumiayu was meant to remedy this by providing an additional east-west connection. The project consisted of two contract packages: one for the bridge across the river, and another one for the road to both sides of it. From the start it was known that the project involved problems of land acquisition and resettlement. On the eastern side (Bumiayu) some land needed to be acquired, and several houses and a mosque needed to be removed. On the western side (Gadang) the road alignment would cut - 68 - through the middle of an existing wholesale market, requiring the relocation of a large number of traders. During the November 1998 supervision mission, Malang City described its budgetary constraints and requested to reduce the scope of the project so that on the eastern side (Bumiayu) the road from the bridge would not connect directly to the main road, as had been planned originally, but only to a local road through which traffic would then flow to the main road. The mission approved this modification. Land acquisition, the relocation of houses, and related compensation on the eastem side were done without significant problems. However, there were considerable problems on the westem side. Initial surveys by Malang City resulted in erroneous data because they counted only the traders in major fixed kiosks. However, a double check by the Bank and PPMO revealed that there were hundreds of other traders who would be displaced as well, and Malang City was asked to redo its baseline survey. As soon as this was done the magnitude of required resettlement became obvious, and a Mayor's Decree (SK Walikota) was prepared and eventually issued for this project, too. The provision of substitute trading facilities tumed out to be a very difficult task. Malang City constructed a new market facility but it was far too small and could only accommodate about one third of the displaced traders. Plans were drafted to either create more trading space on the land of the adjacent bus tenninal, or to relocate traders to a more remote section of the existing market. The latter option would require the construction of a better and wider access road for which, in turn, more markets kiosks would have to be removed. Meanwhile, a group of traders submitted a written protest to the City Council, claiming that they not only were given no compensation for their relocation but even asked to pay for the substitute facilities. The Bank and PPMO noted these difficulties with great concern. Like in the case of the Kutobedah project (see above) the Bank felt compelled, after the July 2000 supervision mission, to address the Mayor seriously and in writing, by letter dated 6 September 2000, informing him that continued nonimplementation of his decree by his own administration would endanger the loan funding for this project The December 2000 supervision-mission focused very much on these problems and brought them to the attention of Bappenas which in turn caused Bappenas to write to Malang City and express its concern. Malang City, through its PMO staff appointed in 2001, made efforts to rectify its past failures and assured the November 2001 supervision mission of its seriousness to solve all related problems. Malang City also assured the ICR mission of its determination to complete the still missing physical facilities (access lane, electricity) before the end of 2002. The elimination of this project from the EJUDP II was thus avoided. The suspension of the PDAM and the local government of Kabupaten Sidoarjo from the program According to the plans, local govermnent and PDAM of Kabupaten Sidoarjo should have been two of the most important agencies under the project, in terms of the financial volume of their programs (including two SLA applications of approx. Rp. 12 billion (local government) and approx. Rp. 13 billion (PDAM), equivalent to more than US$ 5 million each at the exchange rate of early 1997, or approx.-US$ 1.3 million each at 2001 exchange rates). However, problems developed out of the plans of PDAM to involve a private investor in a Private Sector Participation (PSP) scheme,without going through the procedures agreed upon between GOI and the Bank. The purpose of this cooperation is, to increase the supply capacity to 200 I/s in Kabupaten Sidoaro ( Kabupaten Sidoarjo borders directly on Surabaya City, absorbs a large part of Surabaya's urban sprawl, and faces a rapidly increasing demand for water). - 69 - Cooperation with that private sector partner began in November 1997, on the basis of the "in principle" approval given to PDAM Sidoarjo by the Minister of Home Affairs in his letter dated 4 July 1997. In the aide memoire of the Supervision Mission of March 1998, the Bank stated that the PSP scheme was likely to affect the repayment of the loans already extended to the PDAM under previous bank projects and that further loan disbursements should therefore be suspended until a full review by the Bank had been made. On these grounds, Bappenas informed local government of Kabupaten Sidoarjo (in their letter dated 10 June 1998) that it was considering to stop the issue and payment of the further SPABPs and SLAs for all components of the EJUDP Il in that regency. Consequently, PPMO held several meetings with PTCU as well as local government and PDAM of Kabupaten Sidoarjo, in order to identify the steps and actions necessary to guarantee that the objectives of the EJUDP II be achieved. PDAM Sidoarjo agreed to submit a comprehensive report about the envisaged PSP scheme, a thorough financial justification demonstrating that the PSP scheme does not affect its repayment obligations from the previous IBRD loan No. 3304-IND, and a formal statement on its further intentions regarding the conclusion of a SLA under the EJUDP II program. During the Bank's supervision mission in July 1998, the Regent of Sidoarjo declared to PPMO and the Bank that his local government intended to stick to the PSP scheme, even at the risk of being suspended from the further program under EJUDP II. Given this position of local government, Bappenas felt it had no other choice than declaring such a suspension, which then became effective in July 1998. With this, the two SLA applications of local government and of PDAM Kabupaten Sidoarjo were frozen, and all other loan fund disbursements were suspended in-definitely as well. This suspension reduced the physical scope and the financial volume of the EJUDP II program quite considerably. The withdrawal of the PDAM of Malang City from the program From the outset of the EJUDP II, the water supply program in Malang City had been the biggest single component of the project, with a financial volume of more than Rp. 33 billion (equivalent to more than US$ 13 million at the exchange rate of early 1997, or about US$ 3.4 million at 2001 exchange rates), to be funded through an SLA. Soon after the start of the project, however, PDAM Malang City engaged in talks with a prospective private investor, to explore the possibilities of a PSP scheme. This, and especially the fact that the selection of the private investor had not followed established guidelines, caused a considerable degree of uncertainty and intensive discussions about the implications which such a move by PDAM might have. The PSP scheme was presented fornally by PDAM Malang City in April 1998 in Bappenas. The presentation of this scheme was chaired by Bappenas and attended by representatives of the Executing Agency, of MoHA, of MoF, and of PPMO. As a result of that meeting, it was agreed that PDAM Malang City would finalize the negotiations with the private sector party by 15 May 1998 and would inform Bappenas about the result before signing the contract with that party. Following the Bank's letter dated on 14 April 1998 which indicated that the Bank would suspend disbursements to PDAM if that PSP scheme materialized, PPMO asked PDAM for a formal statement regarding the status of their proposed SLA. Through their letter of 25 May 1998, PDAM stated to the Bank that they wished to reduce the total amount of their SLA from Rp. 33 billion to Rp. 10 billion, allegedly on the grounds of a consultation with Bappenas. Bappenas, however, denied having agreed to - 70 - such a revision. In his letter of November 1998, the Mayor of Malang City in his capacity as chairman of PDAM Malang City finally declared that PDAM wished to refrain from all major investments, mainly on the grounds of its tight financial situation. PDAM retracted its SLA application and opted out of the EJUDP II altogether. As a consequence of this, the planned two technical assistance assignments related to the water supply component in Malang City had to be cancelled as well. This development reduced the physical scope and the financial volume of the EJUDP II program considerably. I/ Apart from the benefit in the form of an increase in land prices along the by-pass alignment which has not been investigated, neither in terms of quantity nor in terms of factual beneficiaries. 2/ See also aide memoire of March 1999 supervision mission 3/ The treatment plants were to be Upflow Anaerobic Sludge Blanket (UASB) plants. 4/ Short for Lembaga Pengelolaan Prasarana Lingkungan, or Environmental Infrastructure Management Boards (they had originally been named BPPL, Badan Pengelolaan Prasarana Lingkungan). - 71 - Additional Annex 17. GOI and Provincial Comments on the Draft ICR 3FWAlbuor @7 W01& ~:MINIRRY OP! 3LMEME¶S AND RIO! OAL 3fRAMTU MtRS 3L taflhw N. U2 ~uw"uma Bam-bssq lang uS313no TW (Mal 3mBIW, FMa Mi a ()LT Pdf.! 31at M.zoDz lb. KeuuVvanM Sedor ohr Urban bsvelopmnet S Uit Eat Age aid Pacfc Rem I818 H Set H.W. y , ng"i. DXC 204.33 USA. Re $Scauui Iadt Jmv 11o Dwevgpmmt Pu.Jet(amn 4U7-ZNW _Deasum auG "'nent ewdu m of Pci mn Dear Pt. VIav Vww Rdehing to your lellr ded 31 M1a2 20112 h&ewth, we are pleased tI Iwwsrd th Ind,dent Gtwpmnt EvalukrnU Piedt IM*emb for gec=d East . LUrban D OPWM ft*)eCSE3UDP). As It was Atwkd in MIm Dnk's Drt IER thate nd g Xm LbP Is rated s9acrV, the QVweit d InDiruu rouId aset It as wall rd hcppirkg to hae fideMoptpmer for utoheI bMWy orftM Pto We Uwak you ht YWr t Dw = aerao! L Shyw* Yws, BudIiisn *rl4f O0to, Ginr of Uiban and RuraE idepiwtt Ca i. M4r. MN wabd. Counby redtrf Wejr7d 3nk OWffc lniMta 2. Thne twoemo oEaz baa Wvnc 3. Cbhlra of Regbion Dwvidpmuit Ft*rutg bOwsi Ego m fnc .. Pietr of Urbn and Rial Dewdopmentr Bapp mas s. iruief seememn and Lktban Dopmnmt Bppena; o ViteCWr of EEarnuI Fi, h,OF 7 DOlv rf Ca 'e sgi DGIM4, MSPI S Dilkm ef TenkN Dw*1 i DGURD. M J 9 East v PPMo am 'QiJ - 72 - - c] - .~~d~ ..... ...3U .UeetIm #dO nn *fl*6fl . .......... . . .f... ..m... I..a.. - ..., ggkw patalim . t --.-..-.- -~~~ ~~ ~~~~~~~~~~~ - 6 ] RI tumso ao.mmi J3EOVd JNDIdClUAIG WVU'WRAVC IMh GNEXIUS 11d UMOVCVU ZDUKMIMaS DJAMNUd 30 ID ILIi liii! u.~~~f 1!I a.- od ~C ". slt i. It~~~~~~~~~~~~~~0 Ii ~~~~~~i P6~~~~~~~~~~~~~& 8j1 I jf ~~~~ I a~~~~~~~~~~~ Ip 4i~~~u. - ~~~~~16~~~~~ g~~~~~ ~ ~ ~ ~ ~~~j ~~~~44S' Art V_.. ;~~~~~~~j1~~~~~~~~~~u.~ ~ ~ ~ ~ 1 ~~'s4 ~~~~~~ (Ifu~ 2 F3~~~~~~~~ I - CD I g y~~~ r aURA: I~~~~~~~C I _ -I~"A I i~~~~'j ~~~~Jf 'ii ! ii'~~~~~~i 1.111411 ~~~~iiI0~~ i flu- ddthd~AD I Hi ti~~~~' tenj!:I p p ~~~~~INM ~jjfri~ ~Ifr ~ gi1~~I 'lb act~~~~~~~~~~~~~~~~~~~~~~~r WInS 2 .0 s 1 .4 IlL a~~~~~~~~~~~a .1 d~~~~~~~~~a rj ~~~~~~~~~~~~~~~~r I,g~~ 31S.- JFS~~ _ *. m 7j!~ ~~~1 VI~~~~~~~~~~~~~~~~~~~~Ei v~ 113 a ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~O I i i~~~~~~~~~~~'r "I id~~~~3~~ daJt IL.~ ~ I di ri ICL~" In ~ I 6mw~bars~u~tHir* A,im ANNEXA8 40O4I4MU PEZvEUflPRaaN: BAPFEM - 83 - EL N I~~~~~~~~~C 2 ~~~~~~ ~ibj - I$ j~~~¶ii!~Al & £ll ro~~~~~~~- - I~~~~~~~t Itjv,~ 11~~~~~~~i II ~~ oj!..~~~;IcLIII4 I u Compenet DI: G6d tvewnmient Iniciathw In early phme of the i opIentaffn of One-Raof Permit Systenm (UPriNt Peayarnn Perthnan Te%WPdu) rgram, the Prwyince wa ed to se Local Governments' cadtmert to retomn their poiy, espedaSly In skrniftg the pernrts proedue and ddetpung authority tD 1w UPr I pin Woling arid bisw te pert from the fo indat . Il4wever, due to the dimeulie In elablUsing the Loc Goemnment RegLitIwn (Patan Dwuh) to' suppost te UPrr, then the program studks for tHir OPetatim Foaely, S ot of 14 UPT have std their eperation tough thie Petda hea not been baued, but tir peration baned gr OupatMW alw deuee. 3. Lassom losned a. Im genaral, bhe mispom ent In physical Irp1#emenb*Oi1 pts occiued due to ie lak of PIU ad Local Go.rmnens kEwuledge on Ut a pt of thie project; the Ba k's gcukdlnes In prememt nd the 10an 04R0fts OMP, Eawm uu ImpadAsum Ker UK4/UPL. etc.). While the delayed sub-prqects w caused by wd aoculsIm and resItmei* pablems ad the tnm dof Go fund Mxatlon. TeretC Vpr9ject preparwon edm39 PlUs, Land acquitlom and bldlng comrnuiiHly _ tawerm shourd be doe b&me the aloc1iin of tie bdget b. The b;d uie pbrlu'ung sOi be taken into aao f tor all the pa*ts in gorder to *o4 sodal and ertArorrnentail wObleM c. In WMre COM4es, lrlth 0ab/atn to tie Loc1 Prtlaet (DPRb) regard9 r ie eepeet md proLt back gwrld kI so ncssary to sgi2rt a suInuble d*wvpdnti espeftly fgr a pdok n*Ivn proect whdlc need a nrw NCu"s (eitr fymm thr Perda or Poairan Penurb'teh of Cenra Govero r t t upport Rs lmremeatlon. 14 - 87 - 71iRMAGIMG Report No.: 24038 Type: lCR