Document of The World Bank FOR OFFICIAL USE ONLY Report No: RES18428 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF WESTERN INDONESIA NATIONAL ROADS IMPROVEMENT PROJECT LOAN IBRD-80430 26-May-2011 TO THE REPUBLIC OF INDONESIA {February 2016} TRANSPORT & ICT 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. ABBREVIATIONS AND ACRONYMS DGH Directorate General of Highways EA Environmental Assessment ESMF Environment and Social Management Framework LARAP Land Acquisition and Resettlement Action Plan MPW Ministry of Public Works PDO Project Development Objective RPF Resettlement Policy Framework Regional Vice President: Axel van Trotsenburg Country Director: Rodrigo A. Chaves Senior Global Practice Director: Pierre Guislain Practice Manager/Manager: Michel Kerf Task Team Leader: Elisabeth Goller, Amilia Aldian 2 REPUBLIC OF INDONESIA Western Indonesia National Roads Improvement Project CONTENTS A. SUMMARY 5 B. PROJECT STATUS 6 C. PROPOSED CHANGES 6 ANNEX 1: RESULTS FRAMEWORK AND MONITORING 11 3 DATA SHEET Indonesia Western Indonesia National Roads Improvement Project (P090990) EAST ASIA AND PACIFIC Transport & ICT . Report No: RES18428 . Basic Information Specific Investment Project ID: P090990 Lending Instrument: Loan Regional Vice President: Axel van Trotsenburg Original EA Category: Partial Assessment (B) Country Director: Rodrigo A. Chaves Current EA Category: Partial Assessment (B) Senior Global Practice Pierre Guislain Original Approval Date: 26-May-2011 Director: Practice Manager/Manager: Michel Kerf Current Closing Date: 31-Dec-2017 Elisabeth Goller,Amilia Team Leader(s): Aldian . Borrower: Ministry of Finance Responsible Agency: DGHW - MPW, . Restructuring Type Form Type: Full Restructuring Paper Decision Authority: Country Director Approval Restructuring Level: Level 2 . Financing ( as of 16-Feb-2016 ) Key Dates Approval Effectiveness Original Revised Project Ln/Cr/TF Status Signing Date Date Date Closing Date Closing Date P090990 IBRD-80430 Effective 26-May-2011 14-Dec-2011 12-Mar-2012 31-Dec-2017 31-Dec-2017 Disbursements (in Millions) % Cancelle Disburse Undisbur Project Ln/Cr/TF Status Currency Original Revised Disburse d d sed d P090990 IBRD-80430 Effective USD 250.00 250.00 0.00 50.14 199.86 20 . Policy Waivers Does the project depart from the CAS/CPF in content or in other significant respects? Yes [ ] No [ X ] 4 Does the project require any policy waiver(s)? Yes [ ] No [ X ] . A. Summary of Proposed Changes The changes proposed under this restructuring include (i) the cancellation of road work packages 9 (Rantau Tijang - Kota Agung) and 18 (Mukomuko - Batas Sumbar) as well as the Way Taau bridge from component 1, which reduces the total number of packages from 21 to 19; (ii) the cancellation of component 3 on road sector institutional development; (iii) the addition of a new activity on slope protection design and management under component 2; (iv) the modification of two intermediate project end targets related to road and bridge improvement, the replacement of the indicator related to the road sector institutional development component with an indicator related to the new slope protection activity, and some other minor adjustments to the results frameworks to facilitate project monitoring and evaluation; (v) the reallocation of funds between disbursement categories; (vi) an adjustment in the disbursement estimates; (vii) name changes in the implementation agencies due to the recent reorganization within the Ministry of Public Works and Housing (MPWH) and the Directorate General for Highways (DGH); and (viii) other minor changes to the procurement arrangements. There will be no partial cancellation of funds because the anticipated cost of road works is significantly higher (close to 50% higher) than estimated at appraisal and thus will absorb the balance freed by this restructuring and the gains from the devaluation of the Indonesian Rupiah vis-a-vis the US$ (for details see section on Appraisal Summary below). Change in Implementing Agency Yes [ ] No [ X ] Change in Project's Development Objectives Yes [ ] No [ X ] Change in Results Framework Yes [ X ] No [ ] Change in Safeguard Policies Triggered Yes [ ] No [ X ] Change of EA category Yes [ ] No [ X ] Other Changes to Safeguards Yes [ ] No [ X ] Change in Legal Covenants Yes [ ] No [ X ] Change in Loan Closing Date(s) Yes [ ] No [ X ] Cancellations Proposed Yes [ ] No [ X ] Change to Financing Plan Yes [ ] No [ X ] Change in Disbursement Arrangements Yes [ ] No [ X ] Reallocation between Disbursement Categories Yes [ X ] No [ ] Change in Disbursement Estimates Yes [ X ] No [ ] Change to Components and Cost Yes [ X ] No [ ] Change in Institutional Arrangements Yes [ ] No [ X ] Change in Financial Management Yes [ ] No [ X ] Change in Procurement Yes [ X ] No [ ] Change in Implementation Schedule Yes [ ] No [ X ] Other Change(s) Yes [ X ] No [ ] Appraisal Summary Change in Economic and Financial Analysis Yes [ X ] No [ ] Appraisal Summary Change in Technical Analysis Yes [ ] No [ X ] 5 Appraisal Summary Change in Social Analysis Yes [ ] No [ X ] Appraisal Summary Change in Environmental Analysis Yes [ ] No [ X ] Appraisal Summary Change in Risk Assessment Yes [ ] No [ X ] . B. Project Status This project had a slow start mainly because of the need to hire the project management support (Core Team Consultant - CTC) and engineering design consultants (Design and Supervision Consultant - DSC) before the civil works could be procured. In addition, project implementation in general has been slow for various reasons, including coordination problems between the various entities involved in project implementation, not enough project ownership at all levels, and lengthy discussions to agree on procurement aspects not originally envisaged in the loan agreement, such as the use of post-qualification and e-procurement. This said, a new team has taken over in DGH in June/July 2015, and the implementation progress has picked up considerably. Currently, all civil works are ongoing or in the bidding process. It is expected that all road civil works will be ongoing by March 2016. The Bank team obtained a grant to intensify work supervision and help DGH improve road work quality. In terms of implementation support, the DSC and CTC are both operational, but their performance has not always been fully satisfactory. Measures, such as replacing and adding staff, have been taken to correct shortcomings. Lastly, the contracting process of the slope protection design and management activity is about to start. . C. Proposed Changes . Development Objectives/Results Project Development Objectives Original PDO The Project Development Objective (PDO) is to increase the effective use of selected sections of national roads along the WesternSumatera Corridor by reducing road user costs. Change in Project's Development Objectives Change in Results Framework Explanation: In terms of results framework, the following changes are necessary: (i) clarify how the baseline and target values for the results indicator three on the average annual daily traffic (AADT) are obtained; (ii) modify the target values of the intermediate indicators of component 1 related to the km of roads and meters of bridges to be improved; (iii) provide a definition of "technical audits satisfactorily completed" and "road safety audits" for the intermediate indicators related to component 2; and (iv) replace the indicator regarding road sector institutional development (% of environment unit staff trained and capacitated to mitigate disaster risk related to road network) with an indicator related to the new slope protection activity (satisfactory completion of slope protection designs). (i) For the AADT, the PAD provides some guidance on how the baseline and the target values for the indicator have to be calculated, but this proved to be insufficient. Consequently, this restructuring paper clarifies that the baseline is obtained by calculating the simple average of the AADT of the 19 WINRIP sections, which are taken from page 41 of the PAD. This leads to a baseline value of 8,241 vehicles. 6 The project end target (for 2017) is obtained by using a growth rate calculated by weighting the growth forecasts for four vehicle types found on page 39 of the PAD with the typical traffic composition from the 2010 Master Plan for Arterial Road Network in Sumatra Island (see below). The calculation is as follows: AADT for year i = AADT for year i-1 * (1+x), where x is the growth rate for a given year i and is calculated as follows: x = (M*Cm) + (C*Cc) + (B*Cb) + (T*Ct), where M=growth for motorcycles (12% for years 1-5 and 8% for years 5-25); Cm=traffic composition for motorcycles (54.9%); C=growth for cars (8% for years 1-5 and 6% for years 5-25); Cc=traffic composition for cars (24.6 %); B=growth for buses (3% for years 1-5 and 3% for years 5-25); Cb=traffic composition for buses (2.7%); and T=growth for trucks (6% for years 1-5 and 5% for years 5-25); Ct=traffic composition for trucks (17.8%). For years 1-5, this growth rate is 0.097 and for years 6-25, this growth rate is 0.068. Based on this calculation, the project end target value is 14,947 vehicles. (ii) The two indicator targets related to the km of roads and meters of bridges improved are changed to reflect the cancellation of road packages 9 and 18 and the fact that the road sections lengths of packages 1, 2, 4, 5, 6, 11, 13, 17, 19 and 21 are slightly different from what was indicated in the PAD. The original target of improving 715 km of roads and replacing 194 m of bridges is replaced by the new targets of 640 km of road improvements and 160 m of bridge improvements. (iii) For the purpose of project monitoring and evaluation, "technical audits" refers to the inspections carried out by the team of consultants hired under TF0A018 to support DGH in the improvement of road work quality. "Satisfactory completion of these audits" means that DGH provided a follow-up report on the inspection findings satisfactory to the Bank. "Road safety audits" mean audits carried out during the design phase of the road works by CTC. . Financing Reallocations Explanation: The reallocation of funds between disbursement categories is necessary because of the cancellation of component 3 and the inclusion of an additional activity under component 2. The funds available in the disbursement category "Unallocated" will likely be used for price escalation and possible contract modifications. The Borrower will request the reallocation of these funds once the final costs for all road packages are known. Current Category of Disbursement % Ln/Cr/TF Currency Allocation Expenditure (Type Total) Propose Current Proposed Current d IBRD-80430 USD LN 8043-CW PT 1 220,400,000.00 220,400,000.00 70.00 70.00 LN 8043-GO, Non CS, 16,000,000.00 17,000,000.00 100.00 100.00 CS & IOC PT2 LN 8043-GO, Non CS, 1,000,000.00 0.00 100.00 100.00 CS PT3 7 LN 8043-GO, Non CS, 0.00 0.00 100.00 100.00 CS & IOC PT4 UNALLOCATED 12,600,000.00 12,600,000.00 0.00 0.00 Designated Account 0.00 0.00 0.00 0.00 Total: 250,000,000.00 250,000,000.00 Disbursement Estimates Change in Disbursement Estimates Explanation: The disbursement estimates are adjusted to reflect the delays in project implementation. Fiscal Year Current (USD) Proposed (USD) 2011 0.00 0.00 2012 30,000,000.00 0.00 2013 50,000,000.00 2,207,915.00 2014 50,000,000.00 4,055,695.62 2015 50,000,000.00 17,427,962.73 2016 30,000,000.00 41,384,275.00 2017 20,000,000.00 80,000,000.00 2018 20,000,000.00 104,924,151.65 Total 250,000,000.00 250,000,000.00 . Components Change to Components and Cost Explanation: The changes to the components consist of (i) the deletion of work packages 9 (Rantau Tijang - Kota Agung) and 18 (Mukomuko - Batas Sumbar) as well as the Way Taau Bridge from component 1 and the consequent reduction of the originally envisaged road improvement of 715.6 km to approximately 640km and the originally envisaged bridge replacement from approximately 195 m to 160 m, (ii) the cancellation of component 3, and (iii) the inclusion of an additional activity on slope protection design and management under component 2, which includes the consulting services for the design of the road improvement works. The need for the cancellation of the two road packages and the bridge from component 1 arises from the fact that the respective road links were resurfaced with local funds and are now in good condition. Consequently, intervening on these links to widen the respective roads would have been an inefficient use of funds. In a first stage, DGH proposed two alternative road packages. However, the work implementation for those proposed packages would have gone beyond the closing date and the loan funds would have been insufficient to cover all packages because of the increase in road work costs. Component 3 was meant to strengthen the Environment and Road Safety Unit, also in charge for disaster management, which was created when this project was prepared. Since then this Unit has been growing and has 8 recently been put under the Road Development Directorate, which gives it much more visibility. This Unit has been carrying out capacity strengthening and has been working on disaster management related national norms and standards. They have also been carrying out studies on disaster analysis and mapping in various parts of Indonesia. In 2012, they completed a disaster risk assessment and mapping for the project area (“2012 Disaster Risk Analysis on National Roads for Sumatra�). Since they had local resources to carry out their work, it has taken them until the end of 2014 to come up with the terms of reference for the activities to be financed under the project. These included disaster risk assessment for some of the remaining parts of the country, conferences and workshops, revision of standards and norms, among others. These activities were basically a continuation of the work they had already been doing earlier. When they started the bidding process in 2015, a new Minister came in and questioned the fact that they planned to use loan resources for activities they had been previously carrying out and financing on their own. He asked for something much more practical with the possibility of an immediate application and suggested to focus on slope protection design/management, an area where DGH's experience is more limited. Consequently, DGH proposed the cancellation of component 3 and the inclusion of a new activity on slope protection design and management under component 2. This activity will focus on the Western Sumatra corridor consisting of flat terrain near the beach and hilly sections called “Bukit Barisan� in other areas, which need to be studied and protected from erosion risks. This change does not affect the achievement of the PDO. In line with the previous change, the cost by component needs to be changed as shown in the table below. Proposed Component Current Cost Proposed Current Component Name Action Name (US$M) Cost (US$M) Betterment and Capacity 314.90 314.90 Revised Expansion of National Roads Implementation Support 16.00 17.00 Revised Road Sector Institutional 1.00 0.00 Revised Development Contingency for Disaster Risk Contingency for Disaster 0.00 0.00 Response Risk Response Total: 331.90 331.90 . Other Change(s) Change in Procurement Explanation: The National Competitive Bidding Annex 2 to Schedule 2 of the Loan Agreement will be updated to reflect the introduction of an amendment to Presidential Regulation No. 54/2010 and some other minor changes. Other Change(s) Explanation: To reflect the new organizational structure of DGH approved in March 2015, the following changes will be needed throughout the loan agreement: “Ministry of Public Works" and "MPW� will be replaced by “Ministry of Public Works and Housing" and "MPWH� and the “Directorate of Planning� and "DOP" will be changed to “Directorate of Road Network Development� and "DRND". 9 . Appraisal Summary Appraisal Summary Change in Economic and Financial Analysis Explanation: As mentioned previously, the cost of road civil works increased by close to 50% since appraisal. This is due to (i) new pavement design standards for roads in Indonesia, which among others, increase the pavement design life from 10 to 20 years, enlarge pavements' and shoulders' widths, enhance drainage requirements, improve pavement structures, and improve the horizontal and vertical alignments to enhence road safety aspects; (ii) delays of two to three years in the completion of bidding processes, which has entailed a cost increase due to road construction cost escalation, and (iii) most likely also because of low quality original cost estimates. Given this large increase of road civil works costs, the Bank team carried out an assessment of the economic impact of those changes. This analysis showed that when leaving all other elements of the original economic analysis constant and only considering a 47% increase of road civil works cost, the Economic Internal Rate of Return (EIRR) of this project would decrease from 30% to 20%. In this scenario without considering any additional benefits due to the new design standards, three road works would have a relatively low EIRR, but still above the reference mark of 6% the Bank is currently considering (package 17: 6.7%, package 5: 7.1%, and package 12: 8.1%). The additional benefits from the improved pavement standards are likely to include reduced expenditures in road maintenance because of the stronger pavements and enhanced drainage structures, road safety benefits because of larger shoulders, and additional road user cost and travel time savings because of less interruptions caused by road works. The team has not quantified these additional benefits because of a lack of reliable data. However, DGH is currently embarking in a nationwide road data collection exercise, and the team is confident that the necessary data will be available by the end of the project. 10 ANNEX 1: RESULTS FRAMEWORK . . Project Western Indonesia National Roads Improvement Project Project Restructuring Status: DRAFT Name: (P090990) Stage: Team Requesting Elisabeth Goller EACIF Created by: Maria Jose Sala Pelufo on 03-Mar-2015 Leader(s): Unit: Product Responsible IBRD/IDA GTI02 Modified by: Elisabeth Goller on 12-Jan-2016 Line: Unit: Country: Indonesia Approval FY: 2011 Lending Region: EAST ASIA AND PACIFIC Specific Investment Loan Instrument: . Project Development Objectives Original Project Development Objective: The Project Development Objective (PDO) is to increase the effective use of selected sections of national roads along theWesternSumatera Corridor by reducing road user costs. Results Core sector indicators are considered: Yes Results reporting level: Project Level . Project Development Objective Indicators Status Indicator Name Core Unit of Measure Baseline Actual(Current) End Target Revised Increase of AADT on project Number Value 8241.00 12696.00 14947.00 road sections (all vehicle types) Date 31-Dec-2010 31-Mar-2015 31-Dec-2017 Comment Increase of AADT on project Number Value 7837.00 12696.00 14214.00 road sections (all vehicle types) Date 31-Dec-2010 31-Mar-2015 31-Dec-2017 Comment No Change Average vehicle operating cost Percentage Value 0.00 0.00 5.00 for a typical car reduced by at Date 31-Dec-2010 10-Nov-2015 31-Dec-2017 least 5% on project roads (base year operating cost: Comment US$0.19/veh-km) No Change Average vehicle operating cost Percentage Value 0.00 0.00 8.00 for a typical bus reduced by at Date 31-Dec-2010 10-Nov-2015 31-Dec-2017 least 8% on project roads (base year operating cost: Comment US$0.35/veh-km) No Change Average vehicle operating cost Percentage Value 0.00 0.00 10.00 for a typical heavy truck Date 31-Dec-2010 10-Nov-2015 31-Dec-2017 reduced by 10% on project roads (base year operating cost: Comment US$0.65 veh-km) No Change Average passenger travel time Percentage Value 0.00 3.70 20.00 for light vehicles reduced by at Date 31-Dec-2010 10-Nov-2015 31-Dec-2017 least 20% on project roads (base year speed: 51 km/h) Comment For 9 ongoing works only. No Change Average passenger travel time Percentage Value 0.00 -2.17 20.00 for large buses reduced by at Date 31-Dec-2010 10-Nov-2015 31-Dec-2017 least 20% on project roads (base year speed: 46 km/h) Comment For 9 ongoing works only. 12 No Change Average passenger travel time Percentage Value 0.00 -6.53 20.00 for heavy trucks reduced by at Date 31-Dec-2010 10-Nov-2015 31-Dec-2017 least 20% on project roads (base year speed: 40 km/h) Comment For 9 ongoing works only. Intermediate Results Indicators Status Indicator Name Core Unit of Measure Baseline Actual(Current) End Target New Satisfactory completion of Number Value 0.00 0.00 3.00 slope protection designs Date 15-Dec-2015 15-Dec-2015 31-Dec-2017 Comment Revised Number of km of improved Kilometers Value 0.00 134.54 640.00 national roads in the project Date 31-Dec-2010 10-Nov-2015 31-Dec-2017 region as planned Comment Please note that the original value for the indicator's end target below (630 km) has been automatically taken from the ISR and cannot be modified in this table to show the real original target value in the PAD, which is 715.6 km. 13 Number of km of improved Kilometers Value 0.00 68.50 630.00 national roads in the project Date 31-Dec-2010 13-Jun-2015 31-Dec-2017 region as planned Comment Revised Number of meters of improved Meter(m) Value 0.00 0.00 160.00 bridges Date 31-Dec-2010 10-Nov-2015 31-Dec-2017 Comment Please note that the original value for the indicator's end target below (160 m) has been automatically taken from the ISR and cannot be modified in this table to show the real original target value in the PAD, which is 194 m. Number of meters of improved Meter(m) Value 0.00 0.00 160.00 bridges Date 31-Dec-2010 13-Jun-2015 31-Dec-2017 Comment 14 No Change Satisfactory completion of Percentage Value 0.00 16.00 100.00 technical audits for all road Date 31-Dec-2010 10-Nov-2015 31-Dec-2017 projects of component 1 Comment This value corresponds to 3 projects out of 19. No Change Satisfactory completion of road Percentage Value 0.00 100.00 100.00 safety audits for all road Date 31-Dec-2010 10-Nov-2015 31-Dec-2017 projects of component 1 Comment Revised Roads rehabilitated, Rural Kilometers Value 0.00 134.54 640.00 Date 31-Dec-2010 10-Nov-2015 31-Dec-2017 Comment Please note that the original value for the indicator's end target below (630 km) has been automatically taken from the ISR and cannot be modified in this table to show the real original target value in the PAD, which is 715.6 km. 15 Roads rehabilitated, Rural Kilometers Value 0.00 68.50 630.00 Date 31-Dec-2010 13-Jun-2015 31-Dec-2017 Comment Marked for % of Environment unit staff Percentage Value 0.00 0.00 100.00 Deletion trained and capacitated to Date 31-Dec-2010 13-Jun-2015 31-Dec-2017 mitigate disaster risk related to road network (230 staff) Comment . 16