Document o f The World Bank FOR OFFICIAL USEONLY Report No: 27628-IND PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN INTHE AMOUNT OFUS$67.3 MILLIONAND A PROPOSED CREDIT INTHE AMOUNT OF SDR47.4 MILLION (US$71.4 MILLIONEQUIVALENT) TO THE REPUBLIC OF INDONESIA FOR A THIRD URBANPOVERTY PROJECT April 18, 2005 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 o f their official duties. Its contents maynot otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Exchange Rate Currency Unit = Indonesian Rupiah (Rp) US$1 = Rp8,500 US$0.668879 = SDR 1 FISCAL YEAR January 1 - December31 ADB Asian Development Bank ANDAL Environmental Impact Statement APBD Annual District Development Budget APBN Annual Central Government Development Budget BANGDA Directorate General for Regional Development, M o H A Bappenas National DevelopmentPlanning Agency Bappeda I/II ProvincialiDistrict Planning Agency BI Bank Indonesia BKKBN National Family Planning Board BKM Badan Keswadayan Masyarakat, ward level community organization BOP Overhead Costs BPD Electedbody o f representatives BRI Bank Rakyat Indonesia Bupatimalikota DistricUCity Head CAS Country Assistance Strategy CDP Community Development Plan css Community Self Survey DAK Targeted grant mechanism for local government DLN Directorate o f External Fund, M o F FGD Focused Discussion Group GO1 Government o f Indonesia KabupatenKota DistrictlMunicipality KDP Kecamatan Development Project Kecamatan Sub-district KelurahadLurah Urban sectiodward, comprising on average o f 10 RWs/Head o f kelurahan K P K Poverty alleviation committee, Komite Pengetasan Kemiskinan K P K N Local Office o f National Treasury K S M Community Group, Kelompok Swadaya Masyarakat LKMD Village/kelurahan management group L P M Village/kelurahan management group (new form o f LKMD) M o F Ministryo fFinance M o H A Ministryo fHome Affairs M P W Ministryo fPublic Works N E C National Evaluation Consultant N G O Non Government Organization N M C National Management Consultant oc Oversight Consultant PAPG Poverty alleviation partnership grant PJOK Administrative unit at local level FOROFFICIAL USEONLY P M U Project Management Unit PRSP Poverty Reduction Strategy Paper RPAS Regional Poverty Alleviation Strategy RT Neighborhood unit RW Association o f neighborhood unit (withsome 500 families), RukunWarga SUSENAS National Household Expenditure Survey UKL/UPL Environmental managementimonitoring procedures UPK Financial management unit of BKM UPP Urban Poverty Project VIP Village Infrastructure Project Vice President: Mr.Jenial-ud-din Kassum, EAPVP Country ManageriDirector: Mr.Andrew Steer, EACIF Sector Manager: Mr.KeshavVarma, EASUR Task Team Leader: Mr.George Soraya, EASUR This documenthasa restricteddistributionand may be usedby recipientsonly in the performanceof their official duties. Its contents may not be otherwise disclosed without World Bank authorization. INDONESIA Third Urban Poverty Project CONTENTS Page A. STRATEGIC CONTEXTAND RATIONALE............................................................................ 3 1. Country and sector issues....................................................................................................... 3 2 . Rationale for Bank involvement ............................................................................................. 5 3 . Higher level objectives to which the project contributes ........................................................... 5 B. PROJECTDESCRIPTION........................................................................................................ 6 1. Lending instrument ................................................................................................................ 6 2. Project development objective and key indicators .................................................................... 6 3 . Project components ............................................................................................................... 6 4 . Lessons learned and reflected in the project design .................................................................. 9 5. Alternatives considered and reasons for rejection................................................................... 11 C. IMPLEMENTATION.............................................................................................................. 11 1. Institutional and implementation arrangements ...................................................................... 11 2. Monitoring and evaluation of outcomes/results ...................................................................... 12 3. Sustainability ...................................................................................................................... 12 4. Critical risks and possible controversial aspects ..................................................................... 14 5 . Loan/credit conditions and covenants .................................................................................... 15 D. APPRAISAL S U M M A R Y ....................................................................................................... 15 1. Economic and financial analyses .......................................................................................... 15 2. Technical ............................................................................................................................ 16 3 . Fiduciary ............................................................................................................................ 16 4. Social ................................................................................................................................. 17 5. Environment ....................................................................................................................... 18 6. Safeguard policies ............................................................................................................... 19 7. Policy Exceptions and Readiness .......................................................................................... 20 Annex 1: Country and Sector Background ................................................................................ 21 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies....................... 23 Annex 3: Results Framework and Monitoring........................................................................... 24 Annex 4: Detailed Project Description ...................................................................................... 27 Annex 5: Project Costs............................................................................................................... 39 Annex 6: Imp1ementationArrangements ................................................................................... 40 Annex 7: Financial Management and DisbursementArrangements ......................................... 45 Annex 8: Procurement ............................................................................................................... 51 Annex 9: Economic and Financial Analysis .............................................................................. 62 Annex 10: Safeguard Policy Issues............................................................................................. 64 Annex 11: Project Preparation and Supervision......................................................................... 82 Annex 12: Documents inthe Project File................................................................................... 84 Annex 3: Statement o f Loans and Credits ................................................................................ 85 Annex 4 Country at a Glance................................................................................................... 87 Annex 5: Sample of Sub-project Proposal Format................................................................... 88 Annex 16: Revolving Funds for Microcredit.............................................................................. 91 Annex 17: Monitoringand Evaluation ..................................................................................... 102 Annex 18: Strategy to Reduce Fraud and Corruption............................................................... 109 Annex 19: Strategy to EnsureGender Mainstreaming and Equality........................................ 116 Annex 20: Socialization and Training Program........................................................................ 118 Annex 21: Targeting Strategy................................................................................................... 126 Annex 22: Implementationo f W P program ............................................................................ 132 Map: IBRD33987 INDONESIA THIRD URBANPOVERTY PROJECT PROJECT APPRAISAL DOCUMENT EAST ASIA AND PACIFIC EASUR Date: April 18, 2005 Team Leader: George Soraya Country Director: Andrew D.Steer Sectors: Micro- and SME finance (50%); Sector ManagedDirector: Keshav Varma General water, sanitation and flood protection sector (20%); Other social services (1S%);General transportation sector (1O%);Sub-national govemment administration (5%) Themes: Access to urban services and housing (P);Participation and civic engagement (P);Other urban development (S);Poverty strategy, analysis and monitoring (S) Project ID: PO84583 Environmental screening category: Partial Assessment Lending Instrument: Specific Investment Loan Safeguard screening category: Requires framework Project Financing Data [XI Loan [XI Credit [ ] Grant [ ] Guarantee [ ] Other: For LoansiCreditslOthers: Total Bank financing (US$m.): 138.70 Proposedterms: VSL Financing Plan (US$m) Source Local Foreign Total BORROWEWRECIPIENT 40.77 6.63 47.40 INTERNATIONAL BANK FOR 57.40 9.90 67.30 RECONSTRUCTIONAND I DEVELOPMENT INTERNATIONAL DEVELOPMENT 61.40 10.00 71.40 ASSOCIATION Financing Gap -0.27 0.27 0.00 Total: 159.30 26.80 186.10 1 7Y 2006 2007 2008 2009 2010 2011 0 0 0 innual 25.5 40.2 32.3 23.0 14.7 3.1 0.0 0.0 0.0 kmulative 25.5 65.7 98.0 121.0 135.7 138.7 138.7 138.7 138.7 Does the project require any exceptions from Bank policies? Re$ PAD D.7 Have these been approved by Bank management? I s approval for any policy exception sought from the Board? [ ]Yes [XINO Does the project include any critical risks rated "substantial" or "high"? Re$ PAD C.4 [ ]Yes [XINO Does the project meet the Regional criteria for readiness for implementation? Re$ PAD D.7 [XIYes [ ]No Project development objective Re$ PAD B.2, TechnicalAnnex 3 The project would support: (i) establishment of, or support to, representative and the accountable community organizations that are able to increase the voice o f the poor inpublic decision making; (ii) making local governments more responsive to the needs o f the poor through increased cooperationwith community organizations; and (iii) provision o f funds, the transparently, to community based organizations and local governments to provide basic municipal services to the urban poor. The project would also support implementation o f various communities' poverty plans through provision o f block grants to the wards. Project description [one-sentence stimmary of each component] Re$ PAD B.3.a, Teclzizical Annex 4 Component 1: Community Development and Local Government Capacity Building Component 2: Kelurahan Grants Component 3: Poverty Alleviation Partnership Grant (PAPG) Component 4: Implementation Support Which safeguard policies are triggered, ifany? Re$ PAD D.6, TechnicalAnnex 10 Environmental Assessment (OP/BP/GP 4.01) Cultural Property (OPN 11.03, being revised as OP4.11) Involuntary Resettlement (OP/BP4.12) Indigenous Peoples (OD4.20, beingrevised as OP4.10) Significant, non-standard conditions, if any, for: Re$ PAD C.7 Boardpresentation: None. Loadcredit effectiveness: 1, Adoption, by the Borrower o fthe Project Manual, acceptable to IDA. Covenants applicable to project implementation: None A. STRATEGICCONTEXT AND RATIONALE 1. Country and sector issues The proposed project i s the third in a series o f Urban Poverty Projects (UPP) inIndonesia and i s essentially an expansion of UPP to 14 additional provinces. The first UPP became effective in 1999, with Phase Icompleted in2002, and Phase I1i s under implementation. Based on the success o f UPP, the government proposed an expansion o f the project to 13 provinces, and the second project (UPP2) was approved by the Bank inJune 2002. Subsequently, the government engaged with the Bank in extensive discussions about the potential impact o f the UPP approach on poverty alleviation, community development and local govemance in Indonesia. As a result, and inconjunction with the preparationo f the Poverty Reduction Strategy Paper (PRSP), the government has developed a long-term 10-year program o f urban poverty alleviation, involving the geographic expansion o f UPP, learning, and consolidation. The proposedproject, requested by the highest levels o f government, would further expand the coverage o f UPP to the rest o fthe country to make it a national program. Urbanpoverty alleviation and commtirzity developinent. The concept o f UPP was developed following the 1997 financial crisis, when the problem o f urban poverty in Indonesiawas seen primarily as a lack o f income and employment. There was an urgent need to get financial resources to the poor rapidly. UPP was, therefore, designed to: (i) organize the poor into groups which would receive micro-credit loans for income generation or grants for tertiary level infrastructure; and (ii) promote the development o f community organizations (Badan KeswadayanMasyarakat or BKM) at the ward (kelurahan) level that would receive block grants that the BKMwould manage as a revolvingfund. Inthe first two years alone, the project provided loans/grants to over 670,000 households through 1,298 BKMs, primarily for income generation activities (e.g., petty trade; selling cooked/fresh food; services such as electronics repair, tailoring; small scale manufacturing o f shoes, clothing, handbags, pottery; etc.). Some tertiary level infrastructure investments were also financed, including road/bridge constmctiodimprovements, drainage, water supply, garbage collection, etc. benefiting more than a million people. Over US$53 million have been disbursed to communities, most o f which i s still being revolved, generating more capital for additional loans and for infrastructure improvements. UPP's original goals were surpassed at the end o f Phase I.However, through the large network o f facilitators and field implementers, four observations came to the forefront: (i) income poverty i s a limited view o fpoverty-poor people demand improvements invarious infrastructure and social services in addition to income generation; (ii) even well-run micro- credit systems are not a very effective way to reach the poorest; (iii) although poor communities value loans, the main strength o f the project i s the opportunity it has given them to create an organization that they elect, with leaders that they trust, and an opportunity to discuss issues o f poverty together as a community; and (iv) the relationship between the BKM and local governments needs to be clarified and strengthened. 3 Inresponse to the above, the focus o fUPP2 evolvedinthe followingdirections: (i) developing broad-based community organizations by placing more emphasis on the process o f electing community representatives to the BKM; (ii) assisting communities to formulate Community Development Plans that address the multi-dimensional nature o f poverty; (iii) supporting the formation o f city level federations (BKMForum) which bring together BKMs from all the kelurahans within the city; and (iv) encouraging a partnership between local governments and BKMs through the introductionof the PovertyAlleviation Partnership Grant (PAPG), which finances activities jointly proposed by local government agencies and BKMs. UPP2 hasjust started with consultants mobilized and currently beingtrained. The proposedproject will expand these ideas to new geographical areas. UPP has, in fact, become a key part o f the government's emerging national Poverty Reduction Strategy Paper (PRSP). This project takes a longer-term view o fthe role o fthe BKMas an institution o f community development and poverty alleviation. The vision o f a successfd and sustainable BKMis an organization that is: (i) by and accountable to the community; (ii) to trusted able address poverty issues and the needs o f the community beyond the confines o f the project; (iii) able to carry the aggregated demands o f communities to higher levels o f government and demand better services from the government; and (iv) a legitimate conduit for government and other agencies for delivering services. This project will support the longer-term consolidation o f this vision. Decentralization and local governance. The decentralization laws in Indonesia place local govemments incharge of providing services to their citizens. With limited resources, however, local governments will inevitably face tradeoffs interms o f what they deliver. They will meet the demands o f the population only if officials understand community priorities and are accountable to them. This, intum, will require communities to be organized, to aggregate and prioritize their needs and demands, and to articulate these priorities to government. Thus, for decentralization to work at the local level, two parallel processes need to take place- strengthening community capacity to organize, aggregate and articulate their needs and priorities, and buildingthe capacities o f local governments to respond to and work with communities. Based on leaming from UPP 1 & 2, this project explicitly supports bothprocesses (see Section B and Annex 4, Project Description). Inaddition, the govemment has mandated certain measuresipolicies for a decentralized approach to community development and poverty alleviation that will be supported by the project: (i) the mandated community consultations for kelurahan development (Musbangkel) will be supported under the project through the formulation o f Community Development Plans at the kelurahan level; (ii) Poverty Alleviation Committees (KPK)required at the district level will be strengthened, through participation in project activities and through training; and (iii) development o f Regional Poverty Alleviation the Strategies (WAS) newly required at the district level. Responsibility for service delivery. The UPP concept at its inception called for block grants to communities to enable them to make decisions about their priority needs largely because o f the general lack o f trust between communities and local governments at that time (1998) and the government's failure to deliver what communities needed. However, the concept does not advocate that all community level services should be provided and managed by communities. Many urban services have significant network factors and are best managed at a level higher than 4 the community. InUPPl, the local government role in service delivery was left to a future (beyond project) stage, untilthe BKMwould be strong enough to demand better services on its own from the government. For UPP2 and this project, given the passing o f the decentralization law in2001, the focus has shifted to strengthening both community and local government capacity for service delivery at the same time. Block grants will still be provided to communities for services at the kelurahan level that communities are willing and able to manage. A t the same time, the capacity of local governments to work with communities will be strengthened through: (i)involvementinthedevelopmentoftheBKM;(ii)formulationofWASwiththeparticipation o f BKMs; and (iii) joint implementation of investments ininfrastructure and services with the minimum50% contribution to PAPG funds (see SectionB and Annex 4). Other issues o f governance reform at the local level which also have a significant impact on service delivery such as: procurement and financial management reforms; local economic development policies; and institutional strengthening will be addressed under a separate Bank-financed project being preparedconcurrently, the Urban Sector Development Reform Program (USDRP). As some project cities may participate inboth city and community level programs, a structured exercise will be carried out in a selected city to integrate these complimentary interventions. 2. Rationale for Bank involvement The Bank has gained considerable experience in supporting the government's goals o f more participation in development, more effective governance and better poverty alleviation programs. The three Kecamatan Development Projects (KDP), and UPP1 and 2 introducednew ways o f working with local institutions. They demonstrated that participatory principles can work in Indonesia on a large scale and that community driven projects can meet Bank standards for quality and accountability. K D P and UPP reflect a paradigm shift inthe Bank's-and the governments-approach to poverty alleviation, from traditional government-implemented infrastructure and service delivery projects towards interventions that are owned and implemented by communities, and supported by government. The Bank has been instrumental in converting what started o f f as individual projects, into two national programs, which now form a pillar o f the government's poverty alleviationprogram. Much has been learned from implementationo f the first two UPP projects. The Bank has proven its ability to help government departments to incorporate this learning. In so doing, the Bank has built a strongrelationship with relevant government departments, not only inimplementing UPP, but also in encouraging the goveniment to scale the program up to a national level. Continued Bank support for UPP3 will consolidate these gains and enable the important lessons learned to be internalized inthe program. 3. Higher level objectives to which the project contributes The Bank's latest Country Assistance Strategy (CAS dated October 2003) identifies two primary constraints in further reductions inpoverty: (i) inadequate productive employment opportunities resultingfrom a weak investment climate; and (ii) lack o f quality service delivery to poor the people. Progress in these two areas, inturn, i s compromised by the underlying problem o f weak governance. The CAS aims to address these constraints through four delivery platforms. One o f these i s the Community Driven Development, or CDD platform. Approximately 25% o f Bank 5 lending under this CAS period i s expected to be directed through the CDD platform (namely KDP and UPP). B. PROJECT DESCRIPTION 1. Lendinginstrument The project i s proposed as a Sector Investment Loan, with an IDNIBRDblend o f 5 1.4% and 48.6%, respectively. The possibility o fpackaging the project as an Adaptable Program Loan (APL)was considered but rejectedbecause nationalcoverage will be achieved through this third project, and because no major policy reforms are envisaged. The project will be implemented in two phases to achieve the national coverage. 2. Projectdevelopmentobjective and key indicators The objective o f this project i s to provide improved services for the urban poor and strengthen community and government institutions for responsive service delivery. This objective will be achieved through: (i) establishment or support o f representative and accountable community the (kelurahan) organizations that are able to increase the voice o f the poor inpublic decision making; (ii) making local governments more responsive to the needs o f the poor through increased cooperationwith community organizations; and (iii) the transparent provision o f funds to community organizations and local governments to provide services to the urban poor. Outcome indicators (i) 50% o fpoor households inthe targeted kelurahans receivebenefits and improved services from the project (ii) More than 70% o f the community organizations (BKMs) that have been formed are representative, effective, and operate in a participatory manner (iii) At least 30 local governments implementing the Poverty Alleviation Partnership Grant fund (PAPG) provide their own resources for the implementation o f Community Development Plans (CDPs), independently from the PAPG fund. Annex 3 describes key indicators for each project component. 3. Project components The first two UPP projects cover the islands o f Java, Kalimantan, Sulawesi and West Nusa Tenggara. UPP3 will mainly cover Sumatera, East Kalimantan, Maluku, North Maluku, Papua, Bali, and East Nusa Tenggara- 15 provinces with about 1,736 wards (kelurahan). The project will also provide additional institutional support and grants to further strengthen about 660 BKMs selected inUPP1andUPP2 and innew development areas. Component 1: CoinmuiiityDevelopnierit aiad Local Government Capacity Building Duringimplementation, the project will aim at: (i)broader awareness inthe kelurahans about a the project and its rules; (ii) well functioning community (kelurahan) organizations that are democratically elected and accountable to people; (iii) well functioning community groups 6 (Kelompok Swadaya Masyarakat or KSM) that participate inplanning for development and use the kelurahan grants for productive purposes; and (iv) local governments that are able to work with community (kelurahan) organizations to implement poverty alleviation programs. To achieve these, this component will finance consultants and facilitators to carry out the following activities: (i) an awareness raising process that will encourage communities to discuss the nature o f poverty intheir kelurahan and how it should be addressed; (ii) assistancetothecommunitytocarryoutaCommunitySelfSurvey(CSS) on poverty; (iii) theformatiordconfinnationofanelectedbodyofrepresentatives(BKM)thatis accountable to the community at large and which will act on behalf o f the community for poverty reduction; (iv) the formulation o f a poverty-orientedCommunity Development Plan (CDP) for the kelurahan using a participatory process; (v) organizing and assisting community groups (KSMs) who will submit proposals to the BKMto utilize project resources and implement the programs identified in the CDP; (vi) assistance to BKMs to form associations (BKMForums) and work collectively; (vii) building local govenment capacity to work with BKMs and the BKMForum; and (viii) strengthening the preparationof city level plans for implementation o fRegional Poverty Alleviation Strategy (WAS) programs. The bulk o f this component will involve a long and guided socialization process where groups of facilitators will be trained to work directly with communities inthe kelurahan (at least 4 facilitators will work with 10kelurahan). This socialization process i s expected to take about 6 months and will begin after the project becomes effective. Socialization and training activities will also target local governments, includingparticularly, the city level Poverty Alleviation Committees (see below). Compoizent 2: Keluralzan Grailts Each participating kelurahan will be allocated a grant according to the size o f the population, ranging from Rp.200 million (US$23,550) for kelurahans with less than 3000 people, to Rp.500 million (US$58,800) for kelurahans with greater than 10,000 people. Once the community (kelurahan) organization-BKM has been formalized (notarized with the legal status o f an association) and a CDP has been agreed upon, the BKMwill sign a Grant Implementation Agreement with the government which will lay out the respective roles and responsibilities o f the two parties, the terms o f disbursement, as w e l l as the expectations regarding the use o f funds beyond the project life. The project will also provide additional funds to selected kelurahans from UPP1 and UPP2 where the BKMs are functioning well, to help them provide more services to the poor. For each participating kelurahan, this component will finance specific sub-projects. Sub-projects have to be in accordance with the CDP, and may cover a range o f poverty alleviation activities from an open menu (with a short negative list). There will be different rules and regulations 7 regarding the use of funds depending on the type o f activity being financed. It i s expected that CDPs will generally include the following types o f activities: (i) pre-identified specific investments that are a community priority by consensus (these could be a bridge, a road, school repair, health facility repair or others); (ii) activities that community groups can compete for (any range o f physical infrastructure to services sub-projects-the CDP should indicate clearly what priority sectors or priority groups for that community are likely to be financed); (iii) micro credit loans for community groups which will form the basis o f a revolving fund (withclear rulesiprinciplesfor implementation-see Annex 16); and (iv) grant assistance to the poorest or most vulnerable individuals (this could include scholarships, home improvements, health care, etc. to specific individuals identified by Communities). The ceiling for any single sub-project per group or micro credit loan to a community group (KSM) i s Rp.30 million (US$3,550 equivalent). The allocation to the kelurahan will be disbursed inthree tranches to ensure proper fund use and management, and to encourage better outcomes, Local govemment staff with full support o f facilitators at the kelurahan level will provide technical assistance (including socialization and training). Component 3: Poverty Alleviatiorz Partrzerslziy Grant (PAPG) The Poverty Alleviation Partnership Grant fund (PAPG) will encourage partnerships between local governments and communities and attempt to institutionalize a consultative process between the two for future activities undertaken by local governments usingtheir own funds. It will finance poverty alleviation activities that are too bigto be financed by the kelurahan grants, or that require local government involvement (e.g., networked infrastructure or operations and maintenance); or that cover more than one kelurahan. Initial results from implementing PAPG under U P P l Phase 2 indicate that inorder to reap the fullbenefits o fthis fund, local governments have to be involvedinthe UPP program as a whole and not just in the implementationo f the PAPG component, and that the PAPGneeds to be affiliated with a specific local government structure. Inaddition, the implementation o f PAPG should be based on Regional Poverty Alleviation Strategies (RPAS) at the city level, which will be strengthened under Component 1. The responsibility for preparing the RPAS will fall on local level Poverty Alleviation Committees (Komite Pengetasan Kemiskinanor KPK). To take into account these developments, the following provisions have been incorporated into this component: (i)PAPGwill be carried out by established KPKs; (ii) the K P K s will be involved inthe process o f BKM formation from the beginning and participate in training programs and socialization activities; and (iii) technical assistance will be provided to help KPKs to develop RPAS. These activities will be undertaken in every participating project city. However, PAPGfunds will be allocated competitively to 40 local governments (see Annex 4). PAPGfunds will aim to support the RPAS to the extent possible. The KPKs incities that are eligible to receive funds will be incharge o f forming an independent PAPG Selection Committee who will evaluate proposals and detennine the allocation o f PAPGresources. It i s expected that 8 these design features will build greater ownership o f the UPP approach-and, therefore, the PAPGcomponent-by local governments. Forty local governments will be selected to participateinthe PAPG. Selected cities will be eligible to receive amounts ranging from a total of Rp.4.5 billion (US$529,400) over three years (for cities with less than 15 BKMS), to a total o f Rp.7.5 billion (for cities with more than 25 BKMs). Therewill be an open menufor activities eligible for financing under the PAPG (with a short negative list). Activities could include basic infrastructure works that go beyond one kelurahan (such as roads or drains, or refurbishment o f existing schools or clinics that serve more than one kelurahan); skills training that would benefit more than one kelurahan; non-formal education and health activities. The cost for individual sub-projects i s expected to range from Rp.30 million (US$3,550) to a maximum o f Rp.200 million (US$23,550). PAPG implementation will begin one year after project launch inorder to give cities a chance to familiarize themselves with the BKMs and to develop the RPAS. Component 4: Implenzentation Support The project will be managed by the same Project Management Unit established at the Ministry o f Settlements and Regional Infrastructure(Kimpraswil) as for the other UPPs, assisted by an administrative unit (PIMPRO). The PMUwill hire consultants and facilitators to assist inproject implementation. Technical assistance will be provided through National Management Consultants (NMC) at the central level; Oversight Consultant (OC) Teams at the provincial level, with district offices inthe participating cities; and facilitators and community cadres (volunteers) at the kelurahan level. This component will finance the cost o f the consultants and facilitators. The cost o f government operating expenditures will be covered through counterpart funds. Details o f implementation arrangements are provided inAnnex 6. 4. Lessons learned and reflectedin the project design Many lessons have been learned duringthe process o f implementing UPP1Phase I, were which incorporated in designingUPP2. Key design changes betweenthe original UPP and UPP2 (and this project) include the following: (9 The provision o f services to communities i s ajoint responsibility o f communities and local governments. Local government therefore has to be one o f the key players. (ii) Ittakestimetobuildadialoguewithcommunitiesregardingcommunityissues and to reach a consensus on ways to approach poverty. A longer (four to six month) guided process for awareness raising and socialization i s required. This includes a defined set of community development activities; centrally prepared training for consultants and facilitators to ensure consistency o f messages; and centrally preparedpublicity materials. (iii) RevolvingfundscanberunwellbyBKMs,buttheyneedtofollowstandardized principlesand best practices and need to be accompanied by a support strategy andtraining. Inthis project, ifBKMs choose to runrevolving funds, a standardized program has been designed to: apply best practices and principles; provide more training for iniprovedmanagement o f revolving funds; and 9 distinguish between levels o f investment inrevolving funds and more support and skills training to those BKMs that wish to (and prove to be eligible to) operate a larger, more professional micro credit program. The project continues to take a leaming approach and implementation experiences are continually being incorporated into the implementation processes. Impact of UPPl and UPP2 UPPl did not have a system to measure the welfare andpoverty impact o f the project. There was no baseline survey, and not enough importance was given to collecting project data systematically and accurately across the 1,300 kelurahan. Learning from this, both UPP2 and UPP3 include a systematic impact evaluation system, with a baseline survey, specific indicators to measure impact, and a combination o f quantitative and qualitative methods o f evaluation (see Annex 3, ResultsFramework, and Annex 17, Monitoring and Evaluation). The Management and Information System (MIS) for data collection under UPP1 Phase I1has been strengthened, but it i s too early in the implementation stage to measure impacts. The Govemment carried out an impact evaluation o f UPP1 Phase 11. The findings o f this evaluation will be used to further refine the implementation o f the UPP program. UPP2 has been launched recently, and the consultants and facilitators are just starting their work on the ground, following intensive training. Findings from impact evaluations o f UPP2 will be incorporatedinto UPP3 implementation as they become available (the implementation trajectories o f the UPP program-including UPP1, 2 and 3-are illustrated inAnnex 22). Despite the absence inUPP1o f direct indicators measuring impact, implementation o f Phase 1, and now o f Phase I1(usingthe UPP2 design principles), have yielded strong indirect evidence that the UPP approach i s an effective way o f organizing communities, providing improved services, and promoting partnerships between local govemnents and communities: the number o f households benefiting from UPP1Phase 1 surpassed targets; the majority o f the BKMs created under Phase 1remain inoperation, even though the project ended inPhase 1kelurahan over one year ago; BKMscame together on their own (without any intervention from the project) to form BKM Fora at sub-district and district levels to work together and help each other out; local governments are already usingBKMs (without any intervention from the project) as a conduit for channeling govemment funds for poverty alleviation activities in some areas; an independent post-audit report indicates that misuse o f project funds at the community level i s insignificant; under Phase 11, improved socialization and facilitation processes have dramatically increased participation inthe program, with about 25% o f adults in Phase I1kelurahan participatinginBKM elections and over 18,000 volunteers signed up to work on behalf o f the project from all layers o f the society; and underPhase 11, a demonstrated increase inthe capacity o f the project to recruit and train motivated and high quality facilitators and volunteers locally. 10 5. Alternatives considered and reasons for rejection Duringthe preparation of UPP2, different project altematives were considered (tuming UPP into a local govemment project, having a micro finance project, or doing an APL),but all were rejected as the UPP approach was considered to be the most appropriate means for achieving the project objectives (see UPP2 PAD for details). Inpreparing UPP3, the possibility o f using the existing intergovernmental fiscal framework to channel funds (DAK) was raised. However, since the Government decided to make UPP3 a national program as it i s a national priority, the DAKoption was not exploredfurther. Nonetheless, the DAKmay stillbe an appropriate instrument to support local government inprioritizing poverty alleviation inthe future. Therefore, during the course o f implementation, a study will be carried out to investigate ways o f usingDAK to support the UPP approach inthe future. C. IMPLEMENTATION 1. Institutionaland implementationarrangements As inUPP1and 2, responsibility for coordination, management andmonitoringlies with the Ministry o fPublic Works, successor to the Ministryo f Settlement and Regional Infrastructure (Kimpraswil). The planning ministry, Bappenas, will chair the Project Secretariat Steering Committee (an inter-ministerial coordination committee), which will consist o f representatives from Ministries o f Public Works, Finance, Home Affairs, People's Welfare, Cooperation and Small Medium Enterprises, and Industry and Trade. A Project Management Unit(PMU) already exists at the central level that is currently managing UPP1 and 2. The same PMUwill manage UPP3, including project monitoringand reporting. In consolidating its vision o f UPP as a national program, the government has broadenedthe mandate o f this PMUand has decided to raise the administrative status o f the PMU so that it will now report directly to the Director General o f Human Settlements. The PMUwill be assisted by an administrative unit (PIMPRO). The PIMPRO will hire consultants and facilitators to assist in project implementation, particularly since this type o f a community driven project will require extensive presence inthe field at the kelurahan and district (kotdkabupaten) levels. National Management Consultants (NMC) will be hired at the central level, assisted by Oversight Consultants teams (OCs) at the provincial level to manage and implement the program. Teams of facilitators will also be hired with, on average, 4 facilitators serving every 10kelurahan, to carry out the day-to-day interaction with communities. Facilitators will be supported by volunteers from the kelurahan (community cadres) who will play a key role indisseminating the project objectives and principles, and ensuringthe sustainability o f the community organization beyond the life o f the project. Bappenas as UPP Steering Committee (SC) will hire Evaluation Consultants to carry out performance and impact evaluation studies. The district level Poverty Alleviation Committees (KPK)will be the main interlocutor for the project from the local government side. Coordinating teams will be assigned at different levels to administer the project, with an administrative manager at the sub-district level and at the district level who will respectively sign o f f on the kelurahan grants and the PAPG sub-projects (see Annex 6). 11 2. Monitoring and evaluation of outcomeshesults A comprehensivemonitoring and evaluation system has been set up for the project similar to the system set up under UPP2. This includes a strengthened Management Information System (MIS) managed by the P M U with monitoring indicators as set out inAnnex 3 and Annex 17. In addition, Evaluation Consultants will be hired to do a baseline survey, and carry out other quantitative and qualitative studies to evaluate specific aspects o f the project (see Annex 17, Monitoring and Evaluation). The project will also support local governments to actively monitor and evaluate the project. The UPP consultants shall strengthenthe MIS and provide sufficient support and training to the local government on the MIS application. As inUPP1 and 2, inUPP3, supervision reports, MIS reports, and the evaluation surveys will form the basis for continuous learning. The press will be encouraged to report on the project, and NGOsmay be hired to evaluate specific aspects. The Mid-Term Review and evaluations at the end o f each phase will provide more obvious opportunities to make any design changes necessary. Learning from the concurrent UPP1 (Phase 11) and UPP2 will also provide valuable inputs. 3. Sustainability Institutional sustainability The institutional sustainability o f the BKMindelivery of services will be evidenced inthe following: (i) ifthe BKMis able to address poverty issues andtheneedso fthe community beyond the confines o f the project (e.g., play an advocacy role on behalfo f the poor, or carry the aggregated demands o f communities to higher levels o f government and demand better services from government), thereby demonstrating to the community a role beyond implementation o f project funds; and (ii) ifthe BKMis able to become a legitimate conduit for government and other agencies to deliver services, thereby providing long-term access to funds beyond the project life. Through the activities described above, these roles will be strengthened to the extent possible and monitored duringthe course o f implementation. Institutional sustainability refers also to the sustainability o f the BKM as a representative of the community. The relationship between the elected community institution established through the project (the BKM) and existing (and planned) government structures incommunities i s still evolving. The key government structures affecting the project are the LKMDs or LPMs (the planning and implementing body at the kelurahan and village level) and the BPD (an elected legislative body introduced by the new decentralization laws that i s intended to replace the LKMD). LKMDs are still present inmost kelurahans and, insome cases, are not democratically elected, have little community confidence, and are considered to be an extension o f the government's administrative apparatus. InUPP1most communities have rejected the existing LKMDs infavor of a new, electedBKMas representative o fthe community. However, there are 12 exceptions. In some kelurahans, widely respected members o f the community who were part o f the LKMDhave also been elected to the BKM. BPDs, when instituted under the new decentralization law, will be elected and will be the equivalent o f local level councils. However, the BPD structure has only been approved for the rural areas (desas) under the new laws, and does not yet exist inthe majority o f desas. An equivalent structure to the BPD for urban wards (kelurahans) has not yet been agreed upon. Given the national coverage o fUPP and communities' overwhelmingly positive response to BKMs,the central government has initiateda discussion on the relationship betweenBKMs and BPDs. The experience inUPPl has beenthat where BPDs exist, BKMshave been able to work closely together with them. Inthe long term, the government envisions that the BPD and the BKMwill become one institution with two functions: (i) oversee the execution o f local to government expenditure by the Kepala Desa (village chief); and (ii) to be coordinator and facilitator to deliver community based services as envisaged inUPP. Similar arrangements are envisaged for the kelurahan with the LKMDs. Central government agencies intend to review experiences and best practices o f how BPDs/LKMDs and BKMs function under this project, and prepare relevant legislation accordingly during the course o f project implementation. Teclanicalsustainabilityof sub-projectsfinanced Proposals for both the kelurahan grants and the PAPGwill go through a screening process by project staff and other experts, ifrequired, to ensure their technical feasibility. For micro credit activities, BKMs will receive training on analyzing viability o fproposals for use o f loan funds, and will be supported by micro credit specialists at both the regional level and the central level. Inaddition, an exit strategy hasbeendeveloped to ensure financial sustainabilityo fthe revolving fund function (Annex 16). For infrastructure activities, KDP has developed simple technical manuals for design and supervision o f small works, which will be used to guide UPP3 activities. Since sub-projects will be community driven, there will be a highlevel o f ownership, and communities will therefore have an incentive to maintain and sustain whatever activity they have chosen to finance. Under the PAPG, if any public goods such as infrastructure are financed that require operations and maintenance by either government or communities, both would have full ownership o f all such projects as they will have proposed the sub-projects themselves. All sub- project proposals will be required to set out an operations and maintenance plan (implementation as well as financial arrangements), which will be one o f the criteria for selection o fproposals. Financia1Sustainability The project aims at creating a foundation for communitybased poverty alleviation. It does this through developing community capacity for collective action and the development o f a credible community-based organization. Once UPP3 i s complete, almost half o f the kelurahans inthe country will have such an organization. These communities will not need further support inthis respect. However, ifthe government chooses to expand the program to every kelurahan inthe country, a similar program will have to be carried out with a cost about equal to the magnitude o f this program. The investments indeveloping the BKMwill provide a long-term benefit for the government's national poverty alleviation program. For example, many poverty alleviation programs from sectoral departments such health, education, etc., couldbe targeted more effectively through BKM facilitation. The BKMis, in fact, expected to coordinate these entire programs at the community level through the CDPs. 13 4. Critical risks and possible controversial aspects Risks Risk Mitigation Measure RiskRating with Mitigation T o project development objectives Government intervention in Large investment in long, guided N establishment o f BKMs and their socialization process at community and operations government level Ability o f BKMsto remainimmune to Large investment inlong, guided M being co-opted by local elite or socialization process politicians Quality and realism of Community Capacity building and implementation N Ability o f BKMsto adequately monitor Capacity building and implementation I M use of kelurahan grant funds support; cancel subsequent tranches Ability o f BKMs and local Capacity building and implementation M governments to adequately monitor use support at kelurahan level; cancel future o f funds under PAPG allocations under PAPG to city (kota) Adequate use and maintenance o f Ensuringthat proposals are demand driven N infrastructure/services/activities and communities/LGs contribute to costs; financed under project screening process that ensures O&M To component results Availability o f capable local Funds available to bringininternational M consultants training specialists ifrequired Availability o f qualified kelurahan Training programs M facilitators Availability o f qualified trainers to Fundsavailable to bring inintemational N provide necessary training support ifnecessary Willingness o f local governments and Capacity building at community and local S kelurahan organizations to work govemment level; large investment in long, together guided socialization process; cancel PAPG component Overall RiskRating M Risk mitigation for possible community conflicts. The project will operate inurban areas where the risk o f conflict i s low. The participatory and inclusive nature o f the project i s such that it will promote unity and resolution o f conflicts. The core training o f facilitators and socialization include conflict resolutionmaterials. If adjustments to the guidelines are required to enhance and adapt the specific conflict resolution mechanisms and a strategy to deal with the specific conflict, it will be done with the approval o f PMU and the Bank. Incases where the conflicts interrupts the project processes, or where project staff safety i s at risk, Government o f Indonesia's policy i s temporarily to suspend the operations until favorable conditions re-emerge. A similar approach was takenbythe Government inthe Bank-financed Kecamatan Development Project in conflict areas in2000/1. The phasing o f disbursement at a kelurahan or a city will also allow temporary suspension, and thus reduce the risk o f inefficient deployment o f resources. 14 have consistently demonstrated their willingness to share the cost o f maintenance o f small works. Revolving funds are expected to provide full cost recovery (plus interest) from borrowers. The fiscal impact on local govemment budgets for the kelurahan grants i s therefore expected to be minimal. The only direct expense to local govemment i s the overhead costs (BOP) that will be required for the local coordinating teain and PJOK, which will not have a significant impact on local govemment finances. The PAPGwill only be carried out ina limited number o f local governments selected through a competitive process. The local govemments will be eligible to receive PAPG funds as grants. The fiscal impact on the recurrent budget o f the local govemment will be operations and maintenance (O&M) costs o f any infrastructure and services provided through the PAPG. Since most of these investments will be tertiary innature and will be carried out with the active participation o f the communities, communities will be expected to provide some o f the O&M costs. Thus, the impact on local government finances i s expected to be minimal. The concurrent USDRP project, the Regional Public Expenditure Reviews, and other donor-financed projects focusing on local govemment capacity building are separately examining local government fiscal frameworks and revenue generation. 2. Technical The technical design and approach o f this project has already been tested inUPP1 and 2, and similar approaches tested under the KDP program. The positive results o f these experiences thus far attest to the technical soundness o f the approach. With regard to specific technical issues: (i) CDDapproach: The UPP concept is beingobserved by the CDD Thematic Group o f the Bank as a potential "best practice" in CDD approaches in urban areas. (ii) Infrastructure: Lessons from projects with substantial experience incommunity based infrastructureprovision (KDP and VIP) have been taken into account. (iii) Micro credit: Inorder to have a consistent approach to micro credit across Bank- financed operations in Indonesia and prevent underminingor skewing the micro credit market, the same micro credit expert has been hired to help design the approach to micro credit in UPP, KDP and rural finance projects. (iv) Local government development: The project i s being designed concurrently with broad based local govemment development projects and complementarities between these have been taken into account. 3. Fiduciary The PMUinKimpraswil has considerable experience inprocurement and financial management under UPP1 and 2, and has met the Bank's procurement and financial management requirements. The same PMUwill implement UPP3, but a separate sub-section will be established for UPP3. Training inBank procedures will be provided for key new project staff inthe PMU. The Bank will also carry out extensive supervisionto ensure that risks are minimized (a strategy for Bank supervision i s described inAnnex 11). 16 5. Loadcredit conditions and covenants There are no significant, non-standard conditions for Board presentation or loadcredit effectiveness, except the adoption by the Borrower, o f the Project Manual, acceptable to the IDA. There are no significant non-standard legal covenants applicable to the project. D. APPRAISAL SUMMARY 1. Economic andfinancial analyses As sub-projects are not pre-identified, this project i s considered a framework-type o fproject, and no specific cost-benefit or cost-effectiveness analysis can be carried out apriori. The most important benefit o f the project would be non-quantifiable institutional benefit for better governance; the empowerment o f communities and establishment o f a partnership between communities and local governments that lays the basis for more participatory development planning; the delivery o f local level services that are more responsive to community needs; and greater accountability between communities and local governments. This benefit will trigger positive economic and financial impacts through achieving cost efficiency and better targeting o f investments and better maintenance through increased sense o f ownership by the participating community organizations, Keluralzan grants. Ifkelurahan grants are usedto finance economic activities through revolving funds, the mandatory use o f at least the prevailing commercial interest rates (for one year loans) should provide nominal returns at least that highper year and an expected positive economic return inreal terms. Iffunds are used for training, these should have positive returns as the training should enable unemployedpersons to access jobs requiring more skills. Kelurahan grants used to finance small infrastructure works or environmental improvements generally have positive economic returns. As proven by UPP1 and KDP works, a community approach for infrastructureprovision generally yields lower costs and better quality than the conventional contractor approach. Grant funding i sjustified for public goods because o f the externalities involved and because o f the expected higher number o f beneficiaries than for private economic activities. Poverty Alleviation Partnerslzip Grant. Results from the VIP and KDP projects show economic internal rates o f return (EIRR) for basic infrastructure (such as small roads, bridges, etc.) similar to that which could be funded under PAPG, to be inthe range o f 35-40%. Since the VIP and KDP projects operate inrural areas, it is possiblethat the EIRRs for infrastructure developed under this project may be higher as urban areas are denser and generally have higher economic potential. Although EIRRswere not calculated for social infrastructure such as education, health, and sanitation under VIP and KDP, there are significant non-monetized environmental, health and education benefits to this type o f infrastructure Financial soundness of tlzeproject and main institution. The kelurahan grants are provided to BKMs as a grant from the central government. When the grants are usedto finance infrastructure or other services that are not micro credit loans, they will be passed on from the BKMto the community as grants. Inpast projects such as UPP1, KDP and VIP, communities Procurement. The overall procurement risk i s rated average. Large contracts to be procured consist only o f consulting services including the N M C and OCs, which will be procured by the PMUfollowing Bank procurement guidelines. A Procurement Capacity Assessment Report (PCAR) has been produced and i s summarizedinAnnex 8. The majority o f funds will be provided for sub-projects at the kelurahan level/local government level. The use o f these funds will involve numerous purchases o f small amounts under community participation. General guidelines for procurement using community participationhave been developed and are included inAnnex 8 and intheproject manuals. Financial maizagenzeizt. The Project Manager (PIU) will be responsible for financial management and reporting, and will apply FMR-based disbursements. Financial management capacity at the PMU and PrU level, particularly with an improved and consolidatedManagement InformationSystem (MIS),i s considered adequate. Financial controls at the conzinurzity level. The overall control risk i s assessed as moderate (Annex 7). The Bank i s financing several projects in Indonesiathat directly transfer funds to communities. One of the key issues to reduce fiduciary risks inthese types o f projects i s the need to develop measures to ensure accountability and transparency and to build social controls. Various design features will ensure transparency and accountability in financial management: (i) community ownership o f project funds; (ii) qualified people (UPK)to handle financial hiring management and accounting at the BKM level (on average, each BKM i s expected to handle about Rp.250 million or US$29,400); (iii) a systematic training program for the UPK; (iv) for those kelurahan organizations that choose to use a large proportion o f their funds for micro credit activities, stricter financial management procedures (Annex 16); (v) standardized reporting across BKMs; and (vi) annual audits. Inaddition, greater awareness inthe community for accountability o fthe BKMand increased transparency o f accounts will promote stronger social control. Greater transparency will be obtained through the more intensive awareness raising and socialization activities inthe beginning and throughout project implementation, more structured guidelines for transparency o f accounts, qualified staff to manage funds, as well as through ad-hoc evaluation studies. Annex 18 provides the project's Strategy to Reduce Fraud and Corruption, including examples o f social controls applied when BKM funds were mismanaged inUPP1, 4. Social Community development and einpoweriizeizt. The project aims at bringing about social change by empowering communities to address poverty issues intheir neighborhoods directly. The approach has beentested under UPPl with a positive impact. A longer and more intensive community development process (4-6 months) will try to ensure greater awareness o f poverty issues within the community, and the inclusion o f previously marginalized groups into the election process such that their interests can also be represented inthe BKM. Gender equality. Women's participation inthe community development process i s a key factor inestablishing organizations that truly represent all people inthe community. Itis also important for providing services that respond not only to the community at large, but also to specific needs 17 that women may have. The gender strategy developed under UPP2 to more systematically address gender equality will also be applied to UPP3 (Annex 19). Conflict areas. The project will include areas that have beenrecently subject to conflict, particularly inMaluku. Peace inmany places i s still fragile and it i s not unlikely that over the course o f the project conflict may arise in areas where the project operates. Sensitivity to the issues that have led to the conflicts will be critical inthe facilitation and socialization process. The training program, particularly for facilitators, will focus on promoting reconciliation and reconstructionwithin communities. The training components will also address how to operate in possible conflict situations. The training components will benefit from the experience o f KDP in this area. Stakeholderparticipation. A key goal of the project i s to achieve greater community participation in decision-making and to empower communities by providing funds directly to them. Choices about the allocation o f ltelurahan grants, the PAPG funds and all implementation and procurement arrangements are up to the communities. Socialization efforts will focus particularly on getting the active participation o f the poor, the more vulnerable groups within the kelurahan, women and indigenous people. Local governments will also participate from the beginning. At the design stage, local governments have: (i) participated inworkshops and meetings to discuss the project concept; (ii) committed to the project as a priority activity and agreed to provide operating costs (BOP) and counterpart funds, particularly for the PAPG; and (iii) selected the final list of kelurahan. During implementation: (i) KPKwill receive training, participate inBKM formation and community the activities, and develop the WAS; and (ii) local governments will bejoint implementers o f individual sub-projects under PAPG. Existing NGOs and other civil society organizations will be involved in a variety o f ways: (i) through participation in the regional workshops; (ii) key resource persons for the development as of CDPs where possible; (iii) as members o f the PAPG Selection Committee; (iv) as evaluators on an ad-hoc basis; and (v) as training providers inparticular skill areas. Monitoring of social impact. Monitoringindicators have been designed to measure social development outcomes. A separate team o f Evaluation Consultants will be hired whose responsibility i s to ensure that the project i s on the right track regarding achievement o f these objectives and to provide constructive feedback. NGOs, universities, and other non-government institutions such as independent think tanks, will be hired on an intermittent basis to carry out independent evaluations o f the social impact o f the project. 5. Environment The ceiling for sub-projects under the investment components (kelurahan grants and PAPG) i s low (US$3,550 and US$23,550, respectively). This, combined with the nature o f the investments (mostly tertiary level infrastructure), means that the activities financed are not likely to have any large scale, significant or irreversible impacts. Under UPP Phase I,most o f the infrastructure investments consisted o f minor roadbridge repairs, footpaths, tertiary drainage, 18 and sanitatiodpublic toilets, which have contributed to improving environmental conditions in most cases. For the PAPGcomponent, comparable investments to be undertaken are those implemented under KDP, which generally have not had adverse environmental impacts. Any adverse environmental impacts under UPP3 are therefore expected to be limited and highly localized, and these can be readily mitigated through the project's negative list or through standard operating procedures and guidelines. Environmental Guidelineshave been agreed with the government and included inthe Project ImplementationManual (see Annex loa). During implementation, consultants and facilitators will be trained inthe understanding and application o f these guidelines and will assist the community groups inpreparing their sub-project proposals to comply with the guidelines. 6. Safeguard policies Safeguard Policies Triggered by the Project Yes N o Environmental Assessment (OP/BP/GP 4.01) [XI [ I Natural Habitats (OP/BP 4.04) [ I [XI Pest Management (OP 4.09) [ I [XI Cultural Property (OPN 11.03, beingrevised as OP 4.11) [XI [ I Involuntary Resettlement(OP/BP 4.12) [XI [I Indigenous Peoples (OD 4.20, being revised as OP 4.10) [XI [I Forests (OPIBP 4.36) [ I [XI Safety of Dams (OPIBP 4.37) 11 [XI Projects inDisputedAreas (OPIBPIGP 7.60)* [ I [XI Projects on Intemational Waterways (OPIBPIGP 7.50) [I [XI Safeguard Screening Criteria: SF Environmental Screening Criteria: B Choices about the allocation o f kelurahan grants are up to the communities and BKMs. Communities will participate inthe formation o f the Community Development Plan, and BKMs will evaluate proposals for sub-project from community groups based on the CDP. A committee consisting o f NGOs, government officials and community organizations will determine allocation o f funds under the PAPG. Safeguards policies will be addressed inthe following manner: (i) Sub-projects that are a priori known to have an adverse impact on the environment will not be financed and are included inthe negative list (e.g., protected areas, logging--see Annex 15, Sample Sub-project Proposal Form). Environmental Guidelines (Annex 1Oa) have also been developed to address minor environmental issues that may arise. (ii) Subprojects are not expected to require involuntary vesettlenzent or acquisition o f significant amounts of land. Inthe event they do, however, a Land Acquisition and Resettlement Policy Framework (Annex 1Ob) has been developed in accordance with OP4.12 to ensure application o f the appropriate safeguard policies. * By supporting the proposed project, the Bank does not intend to prejudice thefinal determination of theparties' claims on the disputed areas 19 (iii) Thehighlyparticipatorynatureoftheprojectwillensurethatcommunitieswould be able to identify if any proposed sub-project will have an impact on cultural property and to ensure that these activities do not adversely affect cultural property. Sub-project proposals will require the identification o f any such activities and require the group proposing the sub-project to specify adequate mitigation measures (see Amex 15, Sample Sub-project Proposal Form). (iv) Inareas where IndigenousPeople maybe affected (e.g., Papua), a Frameworkfor the Treatment o f Indigenous People will be applied. This will include a "situational analysis" prior to implementationto determine if any changes would be required inthe project approach and design to ensure that IndigenousPeople are fully included in the project. The TOR will be reviewed and approved by EASES before conducting the study. The above guidelines and frameworks have beenmade available to the public throughthe Bank's Project InformationCenters inJakarta and Washington, and will be published inthe project manuals and be made available to the community organizations/dinases preparing proposals. Kelurahan facilitators and other project staff (OCs) will be trained inthe application o f the guidelines. BKMs and the PAF'G Selection Committee will be trained inhow to apply the safeguards intheir selection process. Communities will be in charge o f deciding all implementation and procurement arrangements, and follow-up on guidelines and approved proposals will be monitored by kelurahan facilitators and OCs. On the environment, an experienced environmental consultant will be required to summarize progress, monitor and measure the impact o f the project on the environment. 7. Policy Exceptions and Readiness No exceptions are sought to any Bank policies for this project. With regard to readiness, the following measures have been taken to ensure that implementation will begin immediately upon project effectiveness: The selection o f the key consultant team has been initiated during project preparation and the National Management Consultants (NMC) will be inplace by the time project becomes effective. The intention i s to hire the same NMC to manage the entire UPP program, thereby reducing the long learning curve for new consultants who caused delays inthe startup o f both UPPl and UPP2. The RFPs for the Oversight Consultants (OCs) have beenreviewed and agreed upon. Fiduciary arrangements will be inplace and P M U staff familiar with the UPP will be assigned for this project. The training and socialization strategies have been tested under UPP1 and 2. To cope with the workload, the PMUand the Project Administration unit will be strengthenedand Annex 22 provides a detailed project implementation schedule. Appropriate safeguards clearances have been obtained and disclosure requirements have been met. 20 Annex 1: Country and Sector Background INDONESIA: Third UrbanPovertyProject 1. Similar to U P P l and UPP2, this project does not take a traditional sector approach. Urban development practitioners recognize that urban development i s a confluence o f many sectors that requires a multi-faceted approach. Inaiming to lay the foundation for poverty reduction inurban areas, this project incorporates three basic assumptions: i)to address poverty requires that specific measures be taken at the central level, even under a decentralized regime; ii)to improve resource allocation, communities are sometimes well placed to decide on certain service priorities and should be involved in decision making; and iii)for improved governance and for decentralization to be effective, communities and local governments need to work inpartnership. 2. Ina time o f transition and scarce budgetary resources, local governments are facing hard decisions as they try to balance their new responsibilities with uncertain budgets. Given the broadrange of issues they now have to tackle, local governments' initial priorities may not be targeted to the poor. The central government has identified poverty alleviation as anationalpriority, and is therefore prepared to provide special grants to local governments for poverty-targeted interventions. Inthe absence o f a functioning targeted grant mechanism for local governments (DAK as envisaged in the new decentralized legislation); the central government has decided to continue to fund selected programs directly. This does not, however, mean that poverty alleviation i s primarily a central government responsibility. It i s with that inmindthat this project has beendesigned with two distinct components. 3. The point o f entry for the project is the community. The project approach i s based on the belief that some local level decisions regardingpoverty reduction should be taken at the community level, and that community-based organizations are able to address various dimensions o f poverty. However, community organizations can only do this well if: (i) they are well organized; (ii) haveresources; they (iii) havethecapacitytomanageandutilizetheresources;and(iv)theyhavetheknowledgeand they confidence to work with and influence local governments to respond to their needs and demands. The project focuses at the ward (kelurahan) level because it i s felt that this i s the right size o f population within urban areas to work with, and that kelurahan level organizations are sometimes the bestplacedto tackle issues of poverty at the community level (the experience o f UPPl supports this). Hereafter, the word "community" in this document will refer to residents living within a kelurahan. 4. A t the same time, however, i t i s evident that all issues o f poverty cannot and should not be solved by communities themselves. Local governments have a responsibility for providing infrastructure and services that cannot be managed independently by communities. These include networked infrastructure, investments that require operations and maintenance by local government, large investments that are too expensive to be financed by communities themselves, and investments that benefit more than one community. To encourage local governments to take on these responsibilities, and to ensure that services are delivered based on community demand, the project has designed a second component, the Poverty Alleviation Partnership Grant (PAPG), which requires a partnership between community organizations and local governments. 5. UPP has become a national program for urban poverty alleviation. The government is developing a long-term strategy for poverty alleviation and sees UPP as a vehicle for implementing this strategy. The government sees the organizations established through UPP (BKMs) as institutions that will grow organically and whose capacity to manage activities will develop over time so that they can increasingly take on more complex poverty alleviation initiatives. In fact, the national government i s considering making BKMs the organizational focal point for a wide range o f local development programs across sectors (health, education, shelter, etc.), in addition to beingthe main vehicle for implementing 21 community level poverty alleviation programs. A t the city level, the Government sees UPP, through its PAPG component, as an instrument for streamlining the local poverty alleviation activities by supporting development o f Regional Poverty Alleviation Strategy and its implementation. Specific IssuesRegardingProvision of MicrocreditThroughUPP 6. As part o f the community empowerment strategy, UPPl provided an open menu o f activities that communities could undertake; with revolving funds for micro credit as one o f the options. Partly due to pressure to channel resources immediately to communities in a crisis situation, and partly due to a project manual that emphasized micro credit over other options, the vast majority o f community funds under UPPl (over 90%) have been usedto provide micro credit. However, the project design did not have a well-articulated system to support micro credit effectively on such a large scale. The result is that, although repayment rates are relatively high (particularly when compared to other govemment runmicro credit programs such as JPS) and borrowers are generally runningprofitable micro-enterprises, the principlesand methodologies for revolving fundmanagement differ betweenBKMs,reporting is difficult to compare across BKMs,and the quality o f technical assistance has not been consistent across the provinces. 7. There is no debate in Indonesia about the need to provide greater access to micro credit, particularly for the poor. A decision was, therefore, made to continue to provide revolving fund through UPP3 but with the following added design features: (i) the awareness-raising and socializationprocess (which will be much longer than under UPP1) will stress that micro credit i s only one o f a range o f poverty alleviation activities that communities can undertake; and (ii) iftheBKMchoosestoruna revolving fund, they will have to follow standardized criteria, rules and principles to ensure sustainable, prudential micro credit services, and there will be a definedprogram o f training and technical assistance to support them (see Annex 16). 8. A second issuewithregard to providingrevolving funds for micro credit relates to the kind of technical assistance that should be provided to micro credit borrowers. Under UPPl, specific Small Scale Enterprise Experts were hired as part o f project implementation teams to provide business specific advice and skills to borrowers to raise the productivity o f their enterprise and the marketability o f their goods, This component o fUPP1has hadlimited success, primarily because o f the diversity and types o f enterprises o f the borrowers. O f over 500,000 borrowers inUPP1, over 60% borrow for petty trading (primarily cooked-foodhawkers, vegetable sellers, rice traders, basic commodity kiosk operators), while less than 15% borrow for service provision (auto/motorcycle repair, appliance repair, tire repair, petty-cab driver), and less than 10% for manufacturing(cottage industries, primarily inthe garment, shoe and accessory sectors). 9. A strategic choice was made inthis project not to embark on a full scale effort at providing business-specific technical assistance for the following reasons: (i)the difficulties o f standardizing support strategies in large projects that have an open menu policy; (ii)the explicit community development objectives of this project rather than the objective o f developing micro enterprises; and (iii) the need to keep project design simple and focused. The project will thus focus on providing basic business analysis andmanagement training to all borrowing groups. Under UPP2, the preparation and implementation o f a micro enterprise development strategy will be piloted intwo cities that will include: (i) analysisoflocalmarketsandproductsandthecomparativeadvantageofspecifictypesof an enterprises, and (ii) development of a program o f tailored advice to increase the productivity o f existing businesses and training innew business ideas. If this i s successful in the UPP2 pilot areas, similar strategies may be developed inUPP3 provinces as well. 22 Annex 2: Major RelatedProjectsFinancedby the Bank and/or other Agencies INDONESIA: Third UrbanPoverty Project Project Sector Issue Latest Supervision (PSR) Ratings Implementation Development Progress(IP) Objective (DO) UrbanPoverty Project Formulation of morerepresentativeand UPP 1 : s UPP 2 : s UPP 1 : s 1 and 2 participatory community organizations; UPP2:S direct transfer of funds to communities; community credit management KecamatanDevelopment Participatory methodologies; K D P 1 : S KDP 1 : HS Project 1, 2 and 3 competitive allocations; NGO/civil K D P 2 : S KDP2:HS society monitoring K D P 3 : - K D P 3 :- Village Infrastructure Fast financial flows outside o f S S Projects (and UPPs) normal fiscal transfer system VIP I1and KDP Feasibility ofprogrammatic rather than S S pre-defined allocations UrbanSectorDevelopment Local govemment capacitybuilding & ReformProgram marketbased instrument for municipal credit SustainingMicro finance Capacitybuilding of the community's Program micro finance units (CMFUs) and participating financial institution (PFIs) in rural areas; Micro finance funds for village (CMFUs) Other development agencies Community and Local Capacitybuilding o f central government Government Support Sector agencies, districts, and villages; I Development Program empowerment o f Community bodies to (CLGSSDP) - ADB (Asian develop public infrastructure Development Bank) NeighborhoodUpgrading and Slumupgrading; local government Shelter Sector Project capacitybuilding; partnershipamong (NUSSP) - ADB (Asian govemment, private sector and Development Bank) community IP/DO Ratings: HS (Highly Sa $factory),S (Satisfactory), U(Unsatisfactory), HU(Highly Unsatisfactory) 23 Annex 3: Results Frameworkand Monitoring INDONESIA: Third Urban PovertyProject Results Framework OutcomeIndicators Use of OutcomeInformation Urban poor receive improved (i)50%ofpoorhouseholdsinthetargetedkelurahan IYear 1-2: determine whether the services and the community receivebenefits and improved services from UPP3 project needs design as well as government - 50% of micro credit recipients haveincreased improvements; provide inputs into institutions have been their income level the preparation ofnationaland strengthened for responsive - infrastructure built 20% cheaper than those i s local poverty alleviation strategies built by govcrnment & meet needs of community (inline with CDP) in 80% of participating I Year 3-5: Assess if more technical - kelurahan assistance is required for BKMs the provision of grant assistance continuesin 70% of participatingkelurahan Yr 5: Feed into broader programs (ii)At least70% oftheBKMsthat havebeenformed and replication for other projects; are representative, effective, and operate in a provide input to formulation of participatorymanner DAK for poverty (iii)30localgovernmentsparticipatinginPAPG provide their own resources for the implementation of the CDP, independently from PAPG fund. IntermediateResults Results Indicators Use of Results Monitoring Comuonent One: Component One: Component One: Organized community groups (i)#ofCommunityDevelopmentPlans(CDPs) 1Assess whether the design o f BKM increasingly voice demands implemented formation and CDP arrangements (ii)%ofadultpopulationvotinginBKMelections need adjustment (iii) %ofBKMForumsformed inparticipatinglocal 1Review whether the poverty governments . reflection gathering should be adjusted Determinewhether the socialization and election processes need to be improved Component Two: Component Two: Component Two: BKMsdeliver improved (i)%ofpoorhouseholdsinthetargetedkelurahan . Determine if additional technical services to the poor utilizing project infrastructure assistance is required in specific (ii) % of poor households in the targeted kelurahan areas accessing micro credit Determine whether participatory (iii) Repaymentrate for micro-credit process for formulation of CDPs (iv) % of poor households in the targeted kelurahan needs to be adjusted receiving grant assistance (v) % of BKMs receiving funds from other agencies Component Three: Component Three: Component Three: Local governmentsdeliver (i) # of Regional Poverty Alleviation Strategies . Determine whether the process of improved services to urban completed preparationneeds to be adjusted poor through partnershipwith [ii) % o f poor householdsin the targeted kelurahan = Assess whether the process ofjoint BKMsandprivate sector receiving services through partnership preparationof proposalsneeds to [iii) % of financing providedby local government and be improved private sector to partnership Assess whether the format and mechanism of partnership needsto be adjusted Component Four: Component Four: Consultantsprovide technical :i)%ofBKMswithcompletedannualfinancialaudits . Gauge whether technical assistance assistanceand implementation :ii)%targetedareasreceivetechnical support and implementation supportneeds support to the project ,... % of OCs providing timely & accurate data to be improved or increased through MIS . Provide timely & accurate data to inform management decisions 24 ..e 6 l l C e eC -* e P c dE dL R 3 c e E :e P y i A b i 8 8 c p N Annex 4: DetailedProject Description INDONESIA: Third Urban Poverty Project 1. The proposedproject is the thirdina series ofUrbanPoverty Projects (UPP) and is essentially an expansion o f UPP to additional provinces. The first UPP became effective in 1999,with Phase I completed in2002, and Phase I1under implementation. Based on the success o f UPP, the govemment proposed an expansion of the project to 13 provinces, and the second project (UPP2) was approved by the Bank inJune 2002. Subsequently, the govemment engaged with the Bank in extensive discussions about the potential impact of the UPP approach onpoverty alleviation, community development and local governance inIndonesia. As a result and in conjunction with the on-going PRSP exercise, the govemment has developed a long-term 10-year program o f urban poverty alleviation, involving geographic expansion o f UPP, learning, and consolidation. The proposed project would further expand the coverage of UPPto the rest o fthe country to make it a nationalprogram. 2. The design features o f UPP3 are similar to UPP2. Some changes have been made, however, based on the continuous leaming froin implementation o f the UPPs. These are mainly in the socialization and training strategies (Component 1), in the design o f the Poverty Alleviation Partnership Grant (Component 3), and in the structure o f some consulting services that support implementation (Component 4). Province Districts Sub Districts Wardshillages Population (kotaikabupaten) (kecamatan) (kelurahaddesa) Covered Covered Covered Sumatera Utara 12 41 177 1,034,204 Sumatera Barat 12 26 107 353,474 Riau 4 6 35 185,379 Jambi 9 13 95 247,707 Selected keluraha 27 Project Components 4. All local governments(kotaikabupaten) inthe project area can participate inthe project. However, ifthey choose to participate inthe project they need to meet the following conditions: (i) agree to the rules o f the project; (ii)establish project offices as required for project coordination and fund disbursement; (iii) provide requiredcounterpart funds; and (iv) develop a list o f target kelurahans according to targeting rules. Meeting the above conditions would allow implementation o f the Capacity BuildingComponent (Component One) and the KelurahanGrant Component (Component Two) inthat local government jurisdiction. These components essentially provide support for community development, local government capacity building and block grants for community sub-projects. Local governments can also participate in another project component, the Poverty Alleviation Partnership Grant (Component Three). This component allows local governments to access matching grants for city level poverty reduction activities. The provision o f the grant i s muchmore competitive, as only 40 local governments can participate. To participate in this component, they would have to meet a few more conditions as described under Component 3 , Project Component 1 US$11.4million - CommunityDevelopment and Local Goveriiment Capacity Building 5. Duringimplementation,the project will aim for: (i) awareness inthe wider community about an the project and its rules (target awareness 70% o fthe adult populationo fthe kelurahan); (ii) well functioning kelurahan organizations that are democratically elected and accountable to people; (iii) well functioning community groups that participate inplanning for development and use the kelurahan funds for productive purposes; and (iv) local governments that are able to work with BKMs to implement poverty alleviation programs. 6. The community development and capacity building component will include the following activities: (i) an extended awareness raising or socialization process that will encourage communities to discuss, through a series o f focus group discussions, the nature o f poverty intheir kelurahan, how it should be addressed, and what i s required to deal adequately with poverty (inthe form o f individual commitment, organization, resources, skills, etc); (ii) assistance to the community to carry out a Community Self Survey (CSS) on poverty; (iii) the formationlconfirmation o f an elected body o frepresentatives (Badan Keswadayan Masyarakat or BKM) that i s accountable to the community at large and which will act on behalf o f the community for poverty reduction; (iv) the formulation o f a poverty oriented Community Development Plan(CDP) for the kelurahan usinga participatory process and based on the results o f the CSS; (v) organizing and assisting community groups (Kelompok Swadaya Masyarakat or KSM) who will submit proposals to the BKMto utilize project resources and implement the programs identified inthe CDP; (vi) assistance to BKMs to form associations (BKMForums) and work collectively; and (vii) building local government capacity to work with BKMs and the BKMForum. 1A. Socialization, social interniediation and formalization of the BKM 7, Socialization. Socialization, or awareness raising, will be intwo forms-socialization to the community about poverty and the need for a community organization to address poverty issues; and socialization to all stakeholders (community, central & local government) about the project concept, goals, values, and the rules of the game. Easy and dependable access to information regarding the goals and rules o f the project i s critical to any community based development initiative. There will be a 28 separate budget for socialization and dedicated staff inthe consultant teams (NMC and OCs-see Component 4) who will be in charge of socialization. Socialization will take place through a variety o f means-the media (radio shows, TV shows, newspaperslmagazines, press conferences), through publications (posters, pamphlets and brochures), and through presentations about the project at workshops, meetings, and focus group discussions at all levels o f the community and government. A recent study under UPPl Phase 2 has demonstratedthat the most effective socialization strategy i s face- to-face interactions, and the use o f existing community communicationmechanisms. Socialization activities will therefore be targeted mainly at the community level, particularly booklets and brochures, and monthly newsletters that will be distributed widely. 8. Facilitation. Facilitators will be the key to socialization and raising awareness inthe communities about poverty and the project. With over 1,700 kelurahans targeted, there will be about 700 facilitators hired by the project. Most will be required to have some experience or background in community development, and will also be trained extensively through the project. A key goal o f the socializationprocess will be to create greater accountability. Through socialization activities, facilitators will assist communities, BKMs, and local governments to clearly lay out their respective roles and responsibilities. An important factor inthese discussions will be ensuring that each knows the role it plays in ensuring accountability of the BKMto communities 9. Streiigtheiziiigthe organizational capacity of the coiiimuiiity. The social intermediation process leadingup to the election of members to the BKM i s expected to take four to six months. In general, this will include: (i)national and regional level public campaign, including use o f the TV, radio, pamphlets, a posters, etc.; (ii)orientation workshops at the provincial level; (iii) workshops at the city level; (iv) a series o f "reflections" on the nature o f poverty, poverty alleviation and leadership at the kelurahanlevel (see below); (v) Community Self Surveys; and (vi) identification and training of volunteers who would be willing to work with project staff inimplementingthe project. Facilitatorswill work inteams (at least four kelurahan facilitator for 10 kelurahan) and with other project staff and government officials at various levels in organizing and facilitating these events. 10. Experience from UPPl Phase 2 has demonstrated the value to the communities o f item (iv) above-a series o f "reflections", which give communities an opportunity to gather together to discuss issues that are common to all, and alternative ways to address them. Inparticular, two types o f "reflections" will be organized-reflections on poverty and reflections on the structure o f community level institutions that can address the problems. (i) Reflectioizs on poverty. The project will facilitate a guidedprocess o f discussions through whichcommunities will discuss the nature and causes o fpoverty intheir kelurahan, identify existing resources in the community, and build consensus on how to strengthen community capacity to overcome poverty. Once these are agreed, groups o f volunteers will carry out a Community Self Survey to identify the poor intheir community (inUPPl Phase 2, there has been tremendous enthusiasm for this activity with over 18,000 volunteers participating). (ii) Rejections on commuizity institutions. These reflections will focus on assisting communities to decide whether they wish to build a new community organization or work with existing community organizations. Communities will be assisted inassessing the capacity and ownership o f existing institutions and their suitability for implementing UPP. InUPPl Phase 2, this exercise has been particularly useful inbringing together different institutionsinthe community and evaluating each other's strengths and weaknesses. IfCommunities choose to create a new organization, facilitators together with trained volunteers, will guide the community on how to elect a kelurahan organization (the BKM) that i s democratic, participatory and inclusive. This will be 29 followed by the notarization o f the BKMas a formal entity. Ifcommunities choose to work through existing organizations, project staff will assist the communities to determine whether that organization was elected democratically and in a participatory manner, and determine if some positions may needto be re-elected or the structure o f the organization modified or strengthened (hereafter, use o f the word BKMwill refer to either newly elected organizations or existing ones that have been confirmed by communities). In evaluating the kindo f institutions that will be best able to address poverty, communities will be invited to discuss the kindo f qualities they would like to see in these organizations. Under UPPl Phase2, communities across 1,300 kelurahan have invariably chosen the following qualities in the leaders they have elected to BKMs: trustworthy, just, and committed to serving their communities. The importance o f ensuring that qualified women are considered for leadership inthe BKMwill also be emphasized. 11. Establishinerat of the coinnaiinity organization (BKM). Inorder to ensure that BKMmembers will practice participatory decision-making and be accountable to communities, facilitators will pay particular attention to assisting the community to develop bylaws for the BKM. The bylaws will be developed through focus group discussions at the community level, which will, intum, raise the awareness o f the community about the legal status, rights and responsibility o f the BKM. The by-laws will include mechanisms such as publicizing o f audits, inter-kelurahan monitoring (where one kelurahan organization visits and reports on others), mechanisms for recall and re-election o fnon-performing members, and other forms o f reporting and accounting to communities. Each notarized BKMwill open a bank account inits name, to which funds will be deposited to finance poverty reduction activities according to a Community Development Plan (see below). IB. Preparation of n ConznzuizitvDevelomient Plan 12. The first task o fthe BKMwill be to formulate a poverty-orientedCommunity Development Plan (CDP) for the kelurahan. The CDP will be a medium temi (three year) plan, and will include a range o f poverty alleviation activities, depending on the needs and priorities o f the community-from revolving funds for micro credit loans to small scale or tertiary level infrastructure to social services or other innovative ideas that the community may have. 13, Based on the results o f Community Self Survey, the BKMwill embark on a participatory planning process to develop the CDP for the kelurahan. The CDP will take into account other non- govemment, govemment and donor-funded programs that are on-going and planned at the kelurahan level, and identify activities that could be financed with the resources allocated to the kelurahanunder the project (incases where kelurahans already have development plans, the BKM and community members would either re-validate or amend these and present these for funding such that new plans would not have to be developed from scratch inevery kelurahan). Ownership o f the program by the community i s the key to the success o fthe CDP. 14. The CDP is expected to be a general document, outlining the basic goals and general direction that communities want to take in addressingpoverty. For example, the participatory planning process and community self-surveymay identify different types o f poor within the community, which would then require a range o f solutions. The menu o f activities that may be proposedunder the CDP would be open, and creative ideas would be encouraged (see Component Two, Kelurahan Grants, for details on activities eligible for financing under the project). For the first year o f implementation, the CDP will identify a more detailed poverty program. 30 15. When complete, the CDP will be reviewedby senior project staff at the Kota level (Oversight Consultants). The CDP will be reviewed not for the content, but for the process usedin its formulation and its focus on poverty. This will be done to ensure that the project staff do not influence the actual decisions made by the community, but ensure that these decisions were made in an inclusive and participatory manner. This will bejudged through the types and frequency of meetings held and an assessment o f the effort placed in including all stakeholders, particularly the poor and vulnerable groups, inthe community meetings and focus group discussions. Input from facilitators andvolunteers about the CDP process in their kelurahan will also be sought. 1C. Capacitv buildiizx for coiizmuiaities and local ~overiinients 16. Capacity building will focus on three types o f activities-training for project staff as well as for communities; assistance for the formation and strengtheningo f federations o f BKMs at the city level (BKMForum); and capacity buildingfor local governments. 17. Training. The project is widely dispersed geographically and relies on many implementers. Thus, training will be key to effective implementation. The following lessons have been learned on how to best manage training under UPP: (i) training should be designed to support particular components or project objectives; (ii) training should be provided on a continuous basis (e.g., refresher courses) throughout the life o f the project; (iii)the training program should have sufficient flexibility to address needs arising during implementation, rather than beingpre-identified; (iv) sufficient budget needs to be allocated for training; and (v) training events geared for communities should be organized on location (within the kelurahan) for efficiency and to optimize the coverage o fparticipants. While training for communities under UPPl and UPP2 was placed under the budget o f the Oversight Consultants, it was found that it i s more effective to allocate the majority o f the community training budget to the facilitator teams. 18. Based on these lessons, a training strategy and program has been designed for UPP3 in support o f each project component. Seven types o f training will be carried out as laid out inthe table below. Some o f these will be offered as a one time training course, some will be repeated, and for some, advanced refresher courses provided. A detailed training matrix, indicating specific training activities, frequency, and target audience i s provided in Annex 20. 2. Awareness raising (about poverty NMC, OC, facilitators Community at large and all stakeholders & aboutthe project) (government, consultants, etc.) 3. Training in leadership Special Training Group/ BKM and community cadres outsourcingto experts 4. Project cycle training NMC, OC, facilitators BKM,KSM,UPK, PjOK, Community Cadres 5. Specific skills training Outsourcing to experts I BKM,KSM,UPK, PjOK, Community Cadres, facilitators 6. Reflections on best practices INMC,OCs BKM,KSM,UPK, PjOK, Community Cadres, (every 3-4 months) I1 facilitators 19. The majority o f the training modules have already beenprepared for UPP2 by the Project Preparation Team o f the P M U (same team for both UPP2 and UPP3). Many o f these have been tested, 31 and it i s clear these new modules are more effective than those usedinUPPl. This team will carry out a Training o f Trainers exercise for the National Management Consultant team (NMC) about the project and i t s implementation. They will also train a Special Training Group (individuals from NGOs, academic institutions, civil society, UPPl and UPP2 best performer) to train communities about leadership. These training sessions will use field experiences from UPPl and UPP2, and will utilize practitioners to the extent possible. The N M C will, intum, train the Oversight Consultant teams (OCs). The OCs, with assistance o f the above-mentioned trainers, will train the facilitators based on standardized training modules prepared by the Preparation Team. Thus, the N M C and OC will directly carry out training regarding project implementation and the project cycle; the Special Training Group will carry out the training on leadership; and the N M C and OC will hire experts from NGOs, academic institutions, and the private sector to implement specific skills training. A series o f audio-visual products o f best perfonning BKMshavebeen developed under UPPl and 2, including a documentary video o fthe various steps under the project have been prepared to help improve the quality o f training. This is expected to significantly improve the quality of training under UPP3. Of particular importance will be training to support the revolving funds that BKMsmay choose to run. As explained in Annex 16, training will be offered to: (i) BKMmembers and the unitincharge ofrunningthe fund inrevolving fund management; (ii)community groups who will borrow the funds (KSMs) in group organization and dynamics; and (iii) KSMs inbasic businessmanagement skills. 20. Streiigtlzerzirzgfederations of BKMs (BKM Forunzs). The project will encourage and support BKMsto form networks or federations at the kecamatan andKota levels to share ideas, exchange experiences, and where they desire, to take collective action regardingpoverty alleviation in their communities. They can also choose to act collectively to influence local govemment planning and investment decisions. Under UPP1, various levels o f BKMForums were formed organically (at the kecamatan level, at the kota level as well as inter-city gatherings o f BKM forums). These have proved to be valuable for strengthening BKMs,improving accountability and giving communities a voice in development issues. UPP3 will support the foimation o f BKMForums and provide training and technical assistance to them to work collectively. This will include training inleadership, management and networking. Technical assistance through the OCs and N M C will continue to be provided to the BKM Forumuntilthe end o f the project. 21, Capacity buildingfor local governiizertts, The central government has embarked on the development of long-term strategy for poverty alleviation (PRSP) and it sees UPP as a vehicle for the implementation o f the PRSP. Inaddition, the central government now expects all local governments to prepare Regional Poverty Alleviation Strategies (WAS) at the city level, and had indicated a clear role for UPP inthe development o f the W A S as well. To coordinate these activities at the city level, govemment policy i s to establish multi-sectoral Poverty Alleviation Committees (KPK) at the city level, to be chaired by BupatiNlialikota. The main interlocutor for UPP3 at the local government level will be these KPKs, who will be involved in the project from the beginning. 22, Capacity building activities will focus on: i)raising the awareness o f the KPK on poverty alleviation through a series o f interactions with the community by means o f visits to BKMs,meetings with community volunteers, and participation in community focus group discussions; ii)providing them with training inparticipatoryplanning, community development and budgeting; and iii)enabling local governments to work with BKMs and BKMForums, particularly in the implementation o f the Poverty Alleviation Partnership Grant. A special training program will be designed to systematically transfer learning gained duringproject implementation. It i s expected that through the participatory preparation, and through implementation o f the PAPG in particular, local government agencies will see the value in working with community organizations and buildup their capacity to engage in a more efficient working relationship. Because the K P K will be an established government entity, building their capacity to work 32 with communities will ensure that they can continue to support BKMsand BKMforums and work on other poverty issues beyond the life o f the project. Project Component 2 USS93.8 million - KelurahanGrants 2A. Funding allocations 23. Each participating kelurahan will be allocated a grant, the value o f which depends on the size o f the population (see table below). This will be usedto finance poverty alleviation activities as defined in the Community Development Plans (CDPs). Those BKMs that perform particularly well may receive additional grants o f up to Rp. 150 million to carry out additional activities under the CDP once their first allocation has been disbursed. This second allocationwill only be provided to those BKMthat meet certain "maturity criteria" that have been established in the project manual. Population Size of allocation <3000 people 3000 - 10,000 people Rp.200 million (US$ 23,550) Rp.300 million (US$ 35,300 ) >10,000 people Rp.500 million (US$ 58,800) 24. To take into account the fact that there mightbe variations inthe concentration o f poor within kelurahan, and in order to benefit the poor more, these allocations may be adjusted according to the following: if there are 300-1,000 poor households in kelurahan with less than 3,000 people, the allocation will be Rp.250 million; and ifthere are more than 1,000 poor households inkelurahan with 3000-10,000 people, the allocation will be Rp.500 million. Because o f the relatively high cost o f living inMaluku and Papua, the minimumallocation for these areas i s Rp.300 million. The ceiling amount o f Rp.500 million (US$58,800) i s slightly higher than in UPP2 mainly due to the higher cost o f living in these areas and to accommodate inflation. 25. Once the BKMhas been formalized (notarized with the legal status o f an association), and the Community Development Plan has been approved, the BKMwill sign a Grant Implementation Agreement with the government (PjOK kecamatan) which will lay out the respective roles and responsibilities o f the two parties, the terms o f disbursement, as well as the expectations regarding the use o f funds beyond the project life. 2B. Conziniinitv Developnzerit Plan and eligible activities 26. For each participating kelurahan, this component will finance specific sub-projects. Funds can be usedaccording to the Community DevelopmentPlan (CDP), and will cover a range o fpoverty alleviation activities with an open menu. There would be a simple negative list of items that cannot be funded including: (i) expenditures intendedfor a military or paramilitary purpose; (ii) works for civil government administrationor religious purposes; (iii)activities that relate to the manufacture or use o f environmentally harmful products (including pesticides, ozone-depleting substances, tobacco or tobacco products, materials containing asbestos, activities producing liquid or gaseous effluents or emissions at harmful levels, arms and drugs); (iv) activities using, producing, storing or transporting hazardous materials and wastes; (v) activities related to logging; (vi) activities inprotected areas; (vii) activities related to fisheries that are not in accordance with standards set by the Borrower's Fishery Service Agency; and (viii) the financing o f government salaries. 33 27. The cost o f activities to be financed under the CDP doesnot have to be limited to the project allocation for the kelurahan. Ifcommunities wish to carry out more activities, they will be encouraged to contribute their own funds to supplement the allocationor leverage additional funds from other community sources or local governments. As part o fthe three-year CDP, the BKMwill identify an investment plan for the first year that would be fundedpartially (or completely) through the BKM allocation from the project. Communities would have freedom to choose whether they want to use their allocation to finance grant activities for the poor or use part o f the allocationto provide micro credit loans. 28. It is expected that CDPs will generally includethe following types o f activities: (i) pre-identified specific investments that are a community priority by consensus (these could be a bridge, a road, school repair, healthfacility repair or others); (ii) activities that community groups can compete for (any range o f physical infrastructure to services sub-projects-the CDP should indicate clearly what are the priority sectors or priority groups for that community that are likely to be financed); (iii) micro credit loans for community groups which will form the basis o f a revolving fund (with clear rules/principles for implementation); and (iv) grant assistance to the poorest or most vulnerable individuals (this could include scholarships, home improvements, health care, etc., to specific individuals identifiedby communities as being most needy). 29. The CDP can identify activities from all four categories or just one category, depending on the communities' circumstances and needs. Category (iv) (grant assistance to individuals), will be limited to 10% o f the allocation in order to minimize leakage. Activities under categories (i), and (iv) are (ii), expected to be provided as grants, while activities under (iii) would consist o f micro credit loans through a revolving fund mechanism. The ceiling for any single subproject per group (KSM)or micro credit loan to a group (KSM) i s Rp.30 million (US$3,550 equivalent). 2C. Iinplenientation of kelurahan praizts 30. Specific irzvestnients. If specific sub-projects are identified by communities as a priority for the . overall community, the BKM will appoint a team from the community to implementthis activity. The following implementation process will be followed: Team fills out a standard fonn, with the assistance o f facilitators, outlining a description o f the sub-project, costs, beneficiaries, operations and maintenance arrangements (where applicable), . compliance with any applicable safeguards, implementation arrangements, the amount o f self financing, etc., (see Annex 15 for sample form). Review by OC for feasibility, technical soundness, and compliance with safeguards (specifically environmental impacts, land acquisition/resettlement, impact on indigenous people and on cultural property). .. . Signing o f ImplementationAgreement betweenimplementing team and BKM. Disbursement to team for implementationcosts. Sub-project implementation according to procurement guidelines with supervision by BKMand OC/facilitator . Completion certificate by OC/facilitator. 3 1. Conipetitive grantproposals. The CDP may provide an allocation o f funds to finance proposals by community groups. Inthis case, the CDP will lay out clearly what the priority areas/sectors/groups are for this allocation. Examples o f different types o f activities that groups could propose for funding include basic infrastructure services; programs for children and youth; family planning education, etc. 34 Community groups will identify sub-projects they want financed, and fill out proposal forms (same as the ones above) with the help o f facilitators where necessary. These will be reviewedby OCs for feasibility, technical soundness and compliance. OCs will specifically screen proposals for environmental impacts, land acquisitioniresettlement, impact on indigenous people and on cultural property, and ensure that adequate mitigation measures are taken. The BKMwill meet to review the proposals first when at least 5 proposals have been submitted, and at least monthly thereafter. The selection o f proposals by the BKM will be made ina meetingpublicized inadvance and open to the public. Selection will bebasedon priorities by clearly ranking proposals and having an open vote. Implementationwill follow the same arrangement as above. 32. Revolvingfwtds. If BKMdecides to runa revolving fund, specific guidelines have been the developed to ensure that funds are usedin accordance with best practices, and apply principles such that there is no distortion o f the micro finance market. Details for revolving fund management, group formation, proposal selection, and terms and conditions for loans are provided inAnnex 16. 33. Grant assistance to thepoorest or most viiliierable iitdividiials. Direct assistance may be provided to individuals ifidentified duringthe participatory process and included inthe CDP. These will be accounted for clearly inthe BKMaccounts, and disbursements made ina transparent manner, A maximum o f 10% of the allocation to the BKMcan be used to finance activities that fall under this category. Facilitators and OCs will verify use o f these funds. 20. Disbursements 34. Fundswill be releasedto kelurahan organizations inthree tranches to ensure proper funduse and management, and encourage better BKMperformance. The first tranche (20%) will be paid upon review o f the CDP by project staff. The next tranche (50%) will be based on proof o f adequate utilization o f funds for implementation of sub-projects according to the CDP, and proper fundmanagement, and will be released at least four months after the disbursement o f the first tranche. This i s to provide enough time to see implementation on the ground prior to disbursement o f additional funds (particularly if funds will be used for micro credit loans). The third and final tranche (30%) will be provided also at least four months after the disbursement of the second tranche, and following a review to assess the future o f the BKM beyondproject life (see Annex 7, Chart 1). ProjectComponent 3 US$64.9 million - PovertyAlleviationPartnership Grant 35. This fund will encourage partnerships between local government and communities and attempt to institutionalize a consultative process between the two for future activities undertaken by local governments using their own funds. I t will finance poverty alleviation activities that are too bigto be financed by the kelurahan grants, or that require local government involvement (e.g., networked infrastructure or operations and maintenance); and that cover more than one kelurahan. 3A. DesiEii Priiiciples 36. Basic principles guiding the Poverty Alleviation Partnership Grant (PAPG) are the following: (i) local governments (kotaikabupaten) will be required to compete for funds; (ii) will be provided for funds sub-projects on a matching fund principle to complement resources from local government agencies (dinases), from communities and possibly from private sponsors; (iii) subprojects to be financed must be jointly prepared, proposed and implementedby BKMsin collaboration with dinases; (iv) subprojects should be for public goods and services providing direct benefits to a large number o f the poor 35 community; and (v) there should be transparent competitive selection o f subprojects by an independent PAPG Selection Committee. 37. Initial experiences with PAF'G under UPP2 have yielded positive results-BKMs were given accesses to dinas' programs to enable them to propose subprojects; dinases have assigned staff to work with BKMsinpreparing subproject proposals; and PAPG Selection Committees comprising representatives from local government, BKMs and the private sectors have been successfully formed. However, most activities identifiedremain conmunity level activities that do not require significant local government involvement. Therefore, the full benefits o f PAPG are not yet being reaped. 38. A number o f design changes have been adopted inthis component with the following objectives: (i) involvelocalgovernmentsmoreintheUPPprogramasawhole(andnotjustintheimplementation to o f the PAPG component) so that they have a better sense o f the larger vision o f UPP; and (ii) to affiliate the PAPG component with a specific local government structure. These changes have beenpossible due to recent developments within govemment. As mentionedunder Component 1, the central government sees UPP as a vehicle for the implementationo f its long-termPoverty Reduction Strategy (PRSP). In addition, the central government now expects all local governments to prepare Regional Poverty Alleviation Strategies (RPAS) at the city level, and has indicated a clear role for UPP in the development o f the W A S as well. To coordinate these activities at the city level, government policy i s to establish multi-sectoral Poverty Alleviation Committees (Komite Pengetasan Kemiskinan or KPK) at the city level. 39. Taking into account these developments, the following design changes have been incorporated into this component: (i) will be affiliated with established KPKs; (ii) KPK will be involved in PAPG the the process o f BKMformation from the beginning and will participate intraining programs and socialization activities; and (iii) this component will supp.ort KPKs indevelopingRPAS through technical assistance. To ensure ownership o f UPP inall local governments, the project will provide technical support for the above to all local govemments participating inthe project inthe first year o f project implementation. K P K members and other local government staff will be encouraged to attend training and to participate in community level activities for the formation o f the BKMs, development o f CDPs, etc. It i s expected that, this systematized learning-by-doing exercise will set the basis for local governments and communities to work together to prepare a participatory Regional Poverty Alleviation Strategy, The WAS will provide the framework for investments that can be:financed under the PAPG. 3B. Selection of ParticipntinaKota/kabuaaten 40. Although all local governments participating in the project will receive technical assistance to work with KPKs and develop the RPAS, only forty local governments will be selected to receive investment funds under PAPG. These cities will be selected on a competitive basis by the central Project Secretariat (with support from the Project Management Unit and the National Management Consultants) based on the following criteria: (i) the extent o f participation o f the KPWother local government staff in the first year o fproject activities; (ii) agreement to follow the rules o f the PAPG; (iii) establishment o f an independent PAPG Committee under the purview o f KPK; (iv) provision o f operational costs from city budget; (v) completion o f the RPAS; and (vi) the existence o f a functioning and active BKMForum. Initially, 20 local governments will be selected, with 20 additional cities selected in the subsequentyear. 3C. Fiiizdina Allocations 41, The PAPGwill be a three-year program for each participating city with gradual increases in the annual allocations as presented in the table below. Participation inthe subsequent years would be determined based on satisfactory performance. The criteria for evaluating performance includes: (i) 36 adherence to PAPG procedures; and (ii) o f partnership between dinases and BKMs. Most local degree governments will be eligible to receive PAPG funds as grants from the central govemment. Year 1 Year 2 Year 3 TOTAL Small cities (<15 BKMs) Rp 1billion Rp 1.5 billion Rp 2 billion Rp 4.5 billion (US$ 529.400) Mediumcities (15-25 BKMs) Rp 1.5 billion Rp 2 billion Rp 2.5 billion Rp 6 billion (US$705,900) Large cities (>25 BKMs) Rp 2 billion Rp 2.5 billion Rp 3 billion Rp 7.5 billion 30. Elipible Activities 42. There will be an open menufor activities eligible for financing under the PAPG, with a short negative list (the same as the negative list for kelurahan grants). The following criteria have to be met: (i) areproposedbyasponsoringdinasincollaborationwithBKMs;(ii)theimpactoftheactivity they affects more than just the one kelurahan; and (iii)it benefits a large number o f poor. Activities could include basic infrastructure works that go beyond one kelurahan(such as roads or drains, or refurbishment of existing schools or clinics that serve more than one kelurahan); skills training that would benefit more than one kelurahan; non-formal education and health etc. This list is not restrictive and creative ideas from communities and dinases will be encouraged. Many dinases may already be carrying out these programs currently and, by collaboratingwith communities, they will be able to access PAPGfunds to expand the programs. Counterpart funding from private sponsors may also be sought whenever possible. 3E. The PAPG Selection Coninzittee 43, The Local Government will establish a PAPG Selection Committee under the purview o f the KPK that will be responsible for evaluating PAPGproposals on a competitive basis (the K P K itself is not expectedto be directly involved ineither the verification o fproposals, disbursement or implementation). The PAPG Selection Committee will be legally established by a decree from the Walikota/Bupati after selection o f its members through a series o f city level meetings. Inthe selection o f proposals, the PAPG Committee will operate as a collective body and no member will have special privileges. The PAPG Committee will consist of representatives from the BKMForum, from the local govemment; and from NGOs or other prominent citizens who are concerned about poverty. The committee will work on a voluntary basis, but its operational costs will be supported by the local government's counterpart contributionsto the project. A secretariat for facilitating the work o f the PAPG will be formed at the KPK secretariat. 44. OCs will support the overall process of selection o f the PAPG Committee and its functions. In order to help the KPK review proposals, the Oversight Consultants will carry out field verifications. However, the OCs will not be allowed to change proposals or decide on winning proposals. Final decisions on funded proposals will be publicized. After completion of the subprojects, the PAPG committee will carry out an evaluation to select the best subprojects for awards o f excellence. Duringthis process, OCs will ensure that the learning generated i s shared with the K P K on regular basis. 3F. Subproject Proposals 45, Selection criteria for sub-project proposals include: (i) level o f partnerships as measured by the the number o f kelurahan organizations and local govemment agencies forming a partnership to propose the subproject; (ii) level o f contributions bythe kelurahanorganizations, private sponsors and local the govemment agencies (minimumo f 50%) towards the subproject cost; and (iii) expected achievements o f 37 the subproject towards poverty alleviation. A subproject proposal can only cover one specific activity. BKMsmay submit different proposals incollaboration with different dinases. The proposal can be at any cost, with a financing plan o f no more than 50% from PAPG funds, and another 50% from the dinas' development budget, BKMs and private sponsors. Proposals with highlevels o f contributions from these other sources will be considered more favorably as this would be an indication o f how important the activity i s for both the local government and the community. Support from PAPG for individual proposals will range from a minimumo f Rp. 30 million (US$3,550) to a maximum o f Rp. 200 million (US$23350) per sub-project. 46. Because proposals will be madejointly with technical agencies o f local govemment, the designs and technical specifications will be in accordance with govemment standards. Where necessary, simplifiedtechnical manuals for small-scale infrastructure that have been developed and tested under the Kecamatan Development Project may also be used. 3G. Inlpleiiientatioiz and Disbursement Arranrrenzents 47. The PAPG allocation to the local govemment will bemade through the regular govemment budgetingprocess to the planning agency (Bappeda) o f the participating Kota. The Bappeda will appoint a PjOK (administrative manager) to administer the allocations. Once approved by the PAPG committee, an implementation agreement will be signed between the PjOK and the representatives o f the proposing dinas and BKMs. They would then be requiredto establish ajoint team to implement the subproject (see Annex 7, Chart 3). 48. Disbursementso f PAPG funds from the project Special Account will be made at the request o f thejoint team as approved by the PjOK, and will be provided intwo equal tranches. Funds from other sources, either from dinases, BKMs, community members or private sponsors, may be handled separately. Inorder to ensure that counterpart contributions materialize as proposed, the conditions for the second payment will include evidence that at least an amount equal to the project funds have been spent on implementingthe sub-project and this has been verified by the OCs. 49. Procurement and use o f P U G funds will have to follow the procedures set in the manual. All procurement decisions will be taken by the team, which will be held accountable to both the local government and communities through the dinas, BKMs and other contributors. After completion, the joint implementation team will prepare a completion repoi-t, which represents its accountability for implementation. This report will be presented to the PAPG Committee, PjOK and OCs and will also be made available for public scrutiny. Project Component 4 US13 million - ImplementationSupport 50. The project will be managed by the Project ManagementUnit (PMU) assisted by an administrative unit (PIMPRO). Both can be headedby the same Project Manager. The PMU will hire consultants and facilitators to assist in project implementation, particularly since this type o f a community drivenproject will require extensive presence in the field at the kelurahanand kotakabupaten levels. Technical assistance will be provided through National Management Consultants at the central level, Oversight Consultant Teams at the provincial level, with district offices inthe participating kotadkabupatens; and facilitators and community cadres at the kelurahan level. This component will finance the cost o f the consultants; the cost o f govemment operating expenses will be covered through counterpart funds. Details o f implementation arrangements are provided inAnnex 6. 38 Annex 5: Project Costs INDONESIA: Third Urban Poverty Project GOVERNMENT TOTAL BANKFIYANCING FINANCING COMMUNITY Project Component !3 Million % $Million YOof cost YOof Bank !3 Million YO $ Million O h A. Community and Local Govt. Cap. Bldg 11.4 6.1% 10.9 5.9% 7.9% 0.5 0.30/0 Salary of Facilitators 8.2 4.3% 8.2 4.4% 5.9% 0.0 0.0% Training 1.8 0.9% 1.8 1.0% 1.3% 0.0 0.0% - Socialization 0.9 0.5% 0.9 0.5% 0.6% 0.0 0.0% Overhead 0.51 0.3%1 0.01 0.0%1 0.0%1 0.51 0.3%1 I B. KelurahanGrant 93.8 50.5% 81.5 43.9% 58.9% 4.1 2.2% 8.2 4.3%, Allocation to KelurahanOrganization 89.7 48.3% 81.5 43.9% 58.9% 0.0 0.0% 8.2 4.3% Overhead (BOP) 4.1 2.2% 0.0 0.0% 0.0% 4.1 2.2% 0.0 0.0% C. Poverty Alleviation Partnership Grant (PAPG) 64.9 34.9% 30.9 16.6% 22.3% 18.5 9.89'0 15.4 8.2%) Allocation to Community sub-projects 61.8 33.3% 30.9 16.6% 22.3% 15.4 8.2% 15.4 8.2% - Overhead(BOP) 3.1 1.7% 0.0 0.0% 0.0% 3.1 1.6% E. Unallocated 0.3 0.2% 0.3 0.16% 0.2% 186.1 100.2% 138.7 74.7% 100.2% 23.8 12.5% 23.6 12.5%) US$million 39 Annex 6: ImplementationArrangements INDONESIA: Third Urban Poverty Project 1. The Ministry of Regional Settlements and Infrastructure (Kimpraswil) has developed significant institutional capacity for implementing UPP through its experience with UPPl and UPP2 so far. As mentioned in the main text, the Govemment sees UPP as a nationalprogram and has taken measures to ensure consistency of approaches and policies, and to manage UPP as a program, rather than as a series o f individual projects with individual PMUs. Key measures include capturing all data into one integrated Management Information System for all three projects; usingthe same National Management Consultant team; and applying the same socialization and training program. The P M U will also be restructured from a specific project management unit into a program management unit covering all three projects (see below). 2. Important lessons have been leamed intenns o f how best to structure the consultant teams, facilitators and volunteers supporting project implementation, and how to structure training to maximize the effectiveness o fthe implementers. These have been incorporated inthe implementation arrangements. By the time UPP3 becomes effective, UPP1 will be largely completed and experienced staff from UPPl will be available for implementation o f UPP3. This will substantially reduce the time required to familiarize and train project staff inthe UPP concept, and thereby facilitate implementation of UPP3* A. ImplementationStructure 3. Project Management Uiait. As mentioned above, UPP will be managed as a program, and, therefore, the same Project Management Unit (PMU) that i s in charge o f UPPl and 2, under the Directorate General o f Human Settlements inthe Ministry o f Settlement and Regional Infrastructure (Kimpraswil), will be in charge o f managing this project. To allow for better program management and coordination, the organizational level o f P M U will be raised a higher administrative level than the existing PMU. In addition to this PMU, the DG for Settlements and Housing o f MSRI, as a coordinator for poverty alleviation for the Ministry,will be also be supported by the project to develop capacity for coordination and integration of the other community based poverty alleviation programs inthe Ministry. This is expected to stream line all the community basedpoverty program o f the Ministry. The P M Uwill be assisted by an administrative unit (PIMPRO). Under the Project Manager, there will be three sub- sections, for UPP1, UPP2 and UPP3, respectively. The P M U will hire consultants and facilitators to assist inproject implementation, particularly since this type o f a community driven project will require extensive presence inthe field at the kelurahan and kota/kabupaten levels (see Chart 1). 4. Expert Team. Because the government sees UPP as a long-termnational poverty alleviation program, it needs to ensure consistency o f approach among all the UPPs. The govemment i s also keen to ensure that the learningtaking place on the ground will be systematically captured and fed into policies and the decision making process. Some individuals will, therefore, be recruited under the P M U to form an Expert Team. In addition to the above functions, this team will serve as resource persons for all consultants and facilitators, and they will be expected to continue to enhance the project concept based on experiences on the ground, and to adjust the project manuals and procedures as required. 5. National Manageiiieiit Consultants (NMC). The P M U will utilize the existing National Management Consultants (NMC) at the central level to assist with project management, monitoring and reporting. There will be thematic teams inthe N M C incharge of micro credit activities, grant activities, training/socialization/ capacity building, PAPG activities, project monitoring and reporting, and 40 complaint handling. The N M C will supervise the work of the Oversight Consultants at the provincial and district (kota/kabupaten) levels. 6. Oversight Coizsultarzt T e a m (OC). There will be one Oversight Consultant team designated for every province 100-150 kelurahans, with technical teams for every participating Kota and kabupaten. At theprovincial level, there will be a provincial coordinator and staff in charge o f micro credit activities, community development (including socialization and training), project monitoring (including MIS), and Public Relations/complainthandling. Other expertise will be recruitedlcontracted out on an as-needed basis. The provincial OC team will work with a provincial Coordination Team assigned by the government (with the planning agency, Bappeda Province) to coordinate project activities at the provincial level. 7. At the kota/kabupatetzlevel, there will be one KotaKabupaten Coordinator and a small group of technical staff. For Kota that i s selected for the PAPG, there will be at least one staff inthe team to manage the PAPG. The OC teams will be in charge of: (i) coordination, support and supervision o f kelurahan facilitators; (ii)technical assistance to the BKMs and community groups (KSMs); (iii) consolidationo f reports from facilitators into kota reporting; (iv) promoting the PAPG and facilitating the partnerships between BKMs and dinases; (v) facilitating the establishment o f the PAPG Selection Committee; and (vi) sub-project verification and oversight. The Kota level OC team will work with a Coordination Team assigned by the local government (with the local level planning agency, Bappeda) to coordinate project activities. The Coordination Team will include an assigned PjOK who will sign off on sub-project proposals under the PAPG. OC teams will be procuredby the PMU, with the participation o f provincial govemment in the selection process, and will report directly to the NMC. 8. Keluraharzfacilitators. Facilitators will be key to the implementation o f the project since they will be the primary interface between the project and communities. Facilitators will be in charge o f promoting the project within the kelurahan, carrying out the community development activities, assisting inthe process of electionof the kelurahan organization, organizing the community into groups and assisting with proposal preparation, etc. Learning from the experience o fUPP1, instead o f having one facilitator for every kelurahan, there will be facilitator teams, with 4 kelurahan facilitators for every 10 kelurahan. Working inteams will enable facilitators to support each other in a more integrated manner, to share experiences betweenkelurahan, and bringin greater quality control. One facilitator will have higher qualifications and be designated the Senior Facilitator to lead the team. The teams may be larger according to the size o f the kelurahans and their remoteness. At least 1/3 will be women, and they will be required to reside inthe kotas where they work. At the kelurahaddesa level, facilitators will coordinate with the Lurah or the Kepala Desa. Facilitatorswill be hiredby Oversight Consultantteams and report directly to them (the cost o f hiring facilitators i s included under Component One, Community Development and Capacity Building, as the cost o f social intermediation). 9. Conzrnunity volunteers (cadres). Learning from the UPP1Phase2 experience, muchmore emphasis will be paid to engaging community cadres, or volunteers from the kelurahan, to work closely with the kelurahan facilitator duringthe course o f the project. InUPPl Phase 2, there are over 18,000' cadres who have volunteered to work with the project without any financial incentive. Similar numbers will be encouraged for UPP3 and additional budget (more than inUPP2) will be allocated for training cadres to support the facilitators' work. At the end o f the project, it i s expected that these community cadres will continue to facilitate and promote the interests o f the poor with the BKM. UPPl Phase 2 January 2004 Management Inforniation System. 41 B. Project Staging 10. The project will be implemented intwo stages. The first stage will cover community building and kelurahan grant components inall provinces. The second stage covers the PAPG component. OCs will support BKMs inall project areas for four years, gradually decreasing the level o f support duringthe third year and fourth years. For the PAPG, technical support will be provided to all local governments in the first year. Inthe second year, 20 cities will be competitively selected to receive PAPG funds. An additional 20 cities will be selected inthe subsequent year. C. Monitoring and Evaluation 11. A similar approach to UPP2 will be taken for monitoring and evaluation o fUPP3. Evaluation Consultants independent from the N M C will be hiredto carry out the evaluation but monitoring will be retained as an essential role of the N M C and OCs. Because there are three UPPs in operation at the same time, a team will be set up within the P M Uto integrate and synchronize the Management Information System. The Evaluation Consultants will be hired on a periodic basis, first to carry out a baseline survey, and subsequently to carry out follow up surveys and evaluation studies at least three times over the project period. There will also be an allocation o f funds to hire local NGOs, universities or qualified individuals to carry out ad-hoc evaluations or surveys on an as-needed basis. Details on project monitoring and performance evaluation are provided inAnnex 3. 42 Chart 1 IMPLEMENTATION STRUCTURE PROJECT COMMUNITY GOVERNMENT NATIONAL POVERTY ALLEVIATION COMMITEE I I I l . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . UPP SECRETARIAT I I I I I ........................... I ................... ............................................................................................................ ........................................................................... ............................................ I I I I kecamatan level ........................ I I I I keluralzaii level + line of control -. -. + line of facilitation ------ line of coordination 43 UPP Secretariat Consisting of reps o f Bappenas (National Planning Board), Ministry o f Home Affairs, Finance andKimpraswil KIMPRASWIL Ministry o f Settlements andRegionalInfrastructure as Executing Agency PAPG Poverty Alleviation PartnershipGrant allocatedto kotaikabupaten PJOK PAPG Administrative Unit for PAPG at KotaiKabupaten(District) PJOK KelurahanGrant Administrative Unit for KelurahanGrant stationedat Sub-District PMU Project ManagementUnit NMC National ManagementConsultants oc Oversight Consultants BKM Conmunity organization KSM Community group cc Community cadre 44 Annex 7: FinancialManagementand DisbursementArrangements INDONESIA: Third Urban PovertyProject 1. Summaryofthe FinancialManagementAssessment Projects (UPP1 - Cr.3210 and UPP2 - Cr3658/Ln. 4664). The existing projects have satisfied the Bank's This project will use a similar financialmanagement system as the one usedinthe existing UrbanPoverty minimumfinancial management requirement as stipulated inOP/BP 10.02. The Management Information System (MIS) under UPP1has been improved and includes financial reporting aspects and related standards and formats for the project financial statements. The same MIS used for UPP2 will be used for UPP3. Duringappraisal o f UPP2, a review o f the M I S confirmed that the system would enable the P M U to apply FMR-based disbursement. Given the current decentralized environment, studies such as the CFAA and Fiduciary Review indicate that the country i s a highrisk regarding public financial management. The project will mitigate this risk intwo ways: (i) greater accountability by and to communities by having participatory planning o f subprojects at the community level and implementationby locally elected community organizations (BKMs); and (ii) provision o f technical assistance, support and oversight to each BKM. Inorder to ensure that communities and the public will have control over project implementation, the project will set mechanisms for accountability and transparency, which are included in the manual, and ensure that project rules are adequately enforced. The overall control risk is therefore assessed as moderate. 2. Audit Arrangements The Project ManagementUnit (same as the one incharge o fUPPl and UPP2) will prepare and produce consolidated project accounts. Independent auditors acceptable to the Bank will carry out the audit for the project accounts, including the Special Accounts. The annual audit reports will be furnished to the Bank no later than six months after the end o f the govemment fiscal year. The P M U has agreed to appoint BPKP to audit the project in accordance with the Terms o f Reference for the audit o f special purpose financial statements, with a similar TOR to the one for UPPl and UPP2. The auditor will also audit the attainment of objectives according to the agreed performance indicators. There are no outstanding Audit Reports under UPPl or UPP2. Inaddition EachBKMwill berequiredto prepare a financial statement and appoint public accountants or eligible institutions (such as the accounting department o f a university for kotas or kabupatens that do not have adequate qualified public accounting firms) to audit the BKM'sbooks. The Terms o f Reference for BKMaudits that have been agreed upon and usedinUPPl and UPP2 will be used inUPP3. During implementation, OCs will assist BKMs to select the firm. The audit fee will be financed by BKM. 3. DisbursementArrangements FZow of Funds. The PMUwill be responsible for the administration process o f consultants (NMC, OCs and EvaluationConsultants) that are hired centrally. PjOKs at the sub-district (kecamatan) level will be responsible for the administration process on the kelurahan grants, while PjOKs at the district (kota/kabupaten) will be responsible for the Poverty Alleviation Partnership Grant (PAPG). PMU/PjOKs will submit payment requests (SPP) to the relevant Treasury Office (KPKN) o f the Ministryo f Finance (MOF) at the district level. K P K N will issue payment remittance orders (SPM) to their respective bank that will transfer the money to the intendedbeneficiaries and make the arrangement to debit the project special account (see figure below). 45 Kelurahan Grants. The first withdrawal on the kelurahan grants (20%) will be supported by a Grant Implementation Agreement signed by the PjOK and the BKM, and an approved Community Development Plan as verified by the OC. For the second tranche (50%), withdrawal will be supported by evidence o f adequate financial management by the BKMand implementationprogress in accordance with the CDP (as verified by the OC). Withdrawal for the third tranche (30%) will be based o n a review o f the BKM'ssustainability and implementationprogress. Poverty Alleviation Partnership Grants. The first withdrawal (50%) will be made upon signing o f the Implementation Agreement between the PjOK and the BKMs and the Dinas. The second tranche (50%) will be based on a satisfactory progress report and evidence o f the use of counterpart funds o f at least an equal amount as the project disbursement. Accounting and reporting. The accounting system and procedures at the central level (PMU)will follow the government accounting system. At the BKMlevel, expenditures made by the BKMwill be accounted for in a simple report. The specific accounting procedures will be included inthe project manual. The PMU,PjOK, BKMs andjoint BKMIDinasteams will maintain separate accounting records on a cash basis. At the kelurahan level, the BKM(withthe help o f the facilitator) will prepare and submit a financial report and progress report to the OC (kotaidistrict level) on a monthly basis. The OCs who will submit them electronically to the PMUthrough the M I S in a timely manner will summarize these reports. Based on these M I S reports, the PMUwill consolidate all the information from all project unitsat the district and kelurahan levels into a Financial Monitoring Report (FMR) consisting o f a financial report, progress report, and procurement report, using similar formats used inUPPl and UPP2. The FMR will be submitted to the Bank within 30 days after the end o f each quarter, along with a withdrawal application to replenish the project special account through Directorate General o f Budget o f the MOF. Special Account. GO1will establish a Special Account (SA) at Bank Indonesia or other commercial bank denominated inUS dollars, under the name o f the Directorate General of Budget (DGB), Ministry of Finance. The DGB shall provide copies o f the weekly bank statements o f the SA to the PMU. Disbursementto the Special Account would be for the six months project expenditures, following the FMR-based disbursement procedures. 4. Allocation of Loadcredit Proceeds The table below shows the allocation o f loadcredit proceeds by category and the disbursement percentages for each category. The estimated disbursements per year and cumulative i s shown as part o f the Project Financing Data elsewhere in the document (in the cover page). It i s based on the assumption that the proposed Bank loadcredit would become effective in July 30,2005 and would close o n March 31, 2011. 46 Table: Allocation of Loanand Credit Proceeds Expenditure Category IBRD IDA FinancingPercentage US$Million US$Million by Bank (1) Kelurahan Grants and Sub-loans 25.1 56.4 100% of Grants and Sub-loans disbursed (2) PAP Grants 30.9 -- 50% o f Grants disbursed I(3) Consultants' Services 8.3 15.0 100% (4) Unallocated 1 2.66 I -- I I (5) Front-end fee 0.34 -_ Total 67.3 71.4 47 Chart 1 Third Urban PovertyProject Flow of Funds and Reporting Mechanism I I SA statements ............................................................................................................................................................................. Bl/Statebank II --- SA state- I I report Circular Letter II debit note SPM transfer kel.grants Kelurahan - Note: ___-------fund -b +reporting transfer ...................................bmemorandum DLN Directorate External Fund, MOF PJOK Administration Unit at District and sub-District KPKN Treasury Office, MOF BKM Community Organization PMU Project Mgmt Unit, Kimpraswil Dinas Functional Local Government Unit NMC National Management Consultant 81 Central Bank OC Oversight Consultant WA-FMR Withdrawal Application based on Financial Monitoring Report (FMR) 48 F!,r-.; Chart 2 , FLOW OF FUNDSMECHANISM FORKELURAHAN GRANTS INDIVIDUAL KSM PROPOSAL VERIFIED BY OC &APPROVED FACILITATOR BY BKM PAYMENT REQUEST OC VERIFICATION 1. 20% DISBUSEMENT CDP FORMULATED BASED ON PARTICIPATORY ASSESSMENT& 1 AGREED BY COMMUNITY 2. 50% DISBURSEMENT- PROGRESS FEPORT SUBMITTED & EVALUATED 3. 30% DISBURSEMENT SUSTAINABILITY CRITERIA FULFILLED LOCAL BASK PJOK (SELECTED BRANCH OF NAT. OFFICE OF BI/ PAYMENT ORDER LOCAL STATE OFFICE BANK flow of fund flow of payment requestiorder line of coordination line of facilitation DLN Directorate of External Fund, MOF PMU Project Management Unitof UPP project PJOK Administrative Unit BKM Community Institution CDP Community Development Plan (medium term plan / 3 years) BI Bank of Indonesia(Central Bank) 49 Chart 3 FLOW OF FUNDSMECHANISMFOR POVERTY ALLEVIATION PARTNERSHIP GRANT (PAPG) - - - - - Implementation agreement JOINT TEAM ACCOUNT submission o f KPK paymentrequest. approved suhnroiect NAT. TREASURY paymentorder OFFICE OF BI / LOCAL STATE Note: -b flow of funds ------ flow of payment requestiorder line of coordination _._.- b line of facilitation DLN Directorate of External Fund, MOF PMU Project ManagementUnit OC Oversight Consultant at city level (OC kota) PJOK Administrative Unit BKM Community Institution CDP Community Development Plan (mcdium term plan / 3 years) B I Bank o f Indonesia (Central Bank) or other commercial Bank 50 Annex 8: Procurement INDONESIA: Third Urban Poverty Project EXECUTIVESUMMARY 1. This is a third of a series o fUPP, and UPPl and UPP2 are under implementation. Through this project the govemment intends to scale up this program to a national programwith national coverage. The main intent through this project i s to add new locations. Thus the time frame o f this project will overlap with UPP2 and the existing P M U for UPP2 will also manage this project. 0 The overall procurement arrangements consist entirely o f (i) Selection o f consultants; and (ii) Community ParticipationProcedures for sub-projects and grants. No N C B or I C B i s envisaged under the project. The main challenge in the selection o f consultants i s to select qualified consultants from the current pool, because familiarity with the project i s essential, and keep the costs low. Therefore, the selection procedures will follow mostly LCS. The project manual fixes the approach and methodology under the assignment and, thus, the consultants i s required only to provide the proper staffing. The cost estimates will be based on the average costs from the previous assignments under UPP 1 and 2. 2. For procurement involving the community, the main challenge i s to have a "contract" with the community for the delivery of certain outputs/products based on the agreed ceiling amounts and technical specifications with a control mechanism. The control mechanism from within the community for procurementprocesses (as currently applied under UPP 1 and 2) will be included in the project manuals. 3. The overall management framework i s supported by the main consultants' contracts. The P M U inJakarta will assign a National Management Consultants (NMC) to provide assistance for overall project management, monitoring and reporting, including the supervision o f the Oversight Consultants (OC). There will be OC at the regional level providing assistance to the community live1inpreparing and implementingthe project, in addition to assessing the quality and readiness o f particular community incarrying out the project. The contracts for the OCs will include the selection andhiringofkelurahan facilitators and other training and socialization activities that are not included inthe NMC contract. Evaluation consultants will also be hired to regularly provide input to the P M U on project implementation and progress towards achieving its objectives. There will also be as many as five individual consultants hired by the P M U as technical advisors. The consultant packages are shown inthe table below. 51 N o of Estimated Package Contract Amount Selection N o Description of Services Packages (US$ m) M e t h o d 1 National ManagementConsultant 1 2.50 LCS 2 lOC - East Kalimantan 1 0.5 LCS 3 lOC-N.Aceh Darussalam 1 3 4.3 LCS 4 ~ O C N.Sumatra - 1 2 1 1.5 LCS --- 12 MainEvaluationConsultant 4 1.801 _____ LCS 13 Other Evaluation Consultant 4 0.40 CQIIndividual 14 Other - Individual Technical Advisors 5 1.oo Individual PROCUREMENT CAPACITY ASSESSMENT 4. The last Country Procurement Assessment Report for Indonesia was carried out inFebruary 2000, with the final report being issuedin February 2001, after which a new Keppres 8012003 was issued to replace Keppres 1812000. A detailed comparison and update betweenthe two Keppres was provided separately inthe Procurement Capacity Assessment Report (PCAR), which was conducted particularly for this project. The PCAR also resultedinthe following findings and recommendations: 5. This is the thirdproject ina series o f similar projects. The following lessons have been drawn from implementation o f UPP1and 2 with regardto procurement and have been taken into consideration inthe designofUPP3: Communities carry out a considerable amount o f simple procurement. Their capacity needs to be improved. Recordkeepingrelated to handling o f procurement and complaints needs to be strengthened. Therefore, it i s proposed that under UPP3, a contract with communities be signed and agreed upfront to carry out certain assignments and activities. Unitrates should be agreed upfront, and the community will be responsible for technical delivery o f the agreed output. For this purpose, assistance should beprovided to the communities under the project. The P M U deals with a relatively small number o f large value consultant contracts. All the contracts were multiyear and in stages, and the selection process followed QCBS procedures. The resultwas that highcosts were observed inmany ofthe contracts. Effective price competition did not occur since, during the technical evaluation, there was always the possibility o f a firm getting significantly higher technical scores than others by proposing over-qualified staff (who also cost significantly more). To remedythis, it i s suggested that the selection method be adjustedto give more weight to the financial score, and ifpossible, follow QCBS procedures with a ceiling. The TOR should be re-written to clearly describe the assignment and expected outcome, and the estimated cost should be more carefully reviewed. In addition, there i s a need to expand the shortlist and ensure that only qualified firms are included. Ifnecessary, good, 52 qualified firms from previous assignments should be identified and encouraged to participate. For thispurpose, a review ofperformance offirins under UPPl and 2 will be coizducted by the PMU and submitted to the Bankprior tofinalization of the shortlist. e The National Management Consultant (NMC) was critical ingetting UPP1 and 2 moving on the right track. The qualifications and capability o f the N M C is extremely important to the success o f the project. Experience under UPPl and 2 demonstrated that not many firms have the kind o f experience and knowledge required for this contract. It i s anticipated that it would be difficult to come up with a large pool o f qualified shortlist or satisfactory technical proposals for the N M C contract from the existingpool in the country. On the other hand, this package i s not attractive to foreign firms since large numbers o f experts with local knowledge are required (however, foreign individuals with international experience may have added value as part o f the N M C team). The N M C selection process will be completed prior to loan effectiveness, using the Least Cost Selection procedures. With this kindo f arrangement, it is expected that the package could be procured more efficiently, and result in a better technical proposal and more qualified people at more reasonable costs to implement the project. e There were significant procurement delays under UPPl and 2, especially at the start up o f the project. This was mostly due to delays in some administrative process in initiating the preparatory work for the selection process. It i s proposed that under UPP3, the procurement plan should be submitted and agreed upfront, and be strictly followed. In addition, there should be staff proficient inprocurement hired under the project that have the power to pushthe procurementprocess in a timely manner, so that the selection process can be initiated early enough. Delays in the budgetingprocess are a national issue, not only applicable to Bank financed projects. It would be difficult for the Bank to influence the improvement o f this process unless the disbursement o fproject funds can be made directly to the Project accounts, which would be unlikely inthis case. The only thing that may be possible would be to obtain a commitment from MOF, as part o f the Minutes o f Negotiation, to provide the budget ina timely manner. 6. It is expected that the existing Project Management Unit (PMU) will manage UPP3 for UPPl and 2. Additional staff will be hired to work full time on UPP3 only. The TORSfor staffing will be the same as the ones inprevious projects. The P M U will be fully staffed prior to loan effectiveness. 7. Itwas also agreed that the existingUPP2 team would be employed for UPP3 to carry out necessary project preparation work prior to the formal establishment o f the PMUPIMPRO for UPP3. This includes the selection process for the National Management Consultants and the Oversight Consultants (including preparingthe shortlist and issuing the RFP). It i s expected that these consultants will be hired prior to loan effectiveness. 8. As National Competitive Bidding will not be applied for this Project, there i s no major conflict with national procedures, including ones involving community participation. It was agreed that the selection o f consultants would follow the Bank's Consultant Guidelines. With the effectiveness o f Keppres 80/2003, it i s expected that the following actions will be more effectively implemented under the project: (i) transparency inthe procurement process, including mandatory announcement o f award o f contracts inthe public domain; (ii) sanctions and enforcement against collusive practices, both for consultantshidders and for the government officials; and (iii) sanctions and enforcement against poor performance o f consultantshidders. These requirements will be stated inthe project manuals. In addition, the implementingagencies have an option to follow the "Pemilihan Langsung" procedures as described inKeppres 8012003 to satisfy the Bank's shopping procedures, subject to clarifications which will be included inthe project manuals. 53 9. The preparation o f the General Guidelines and Technical Guidelineshas been initiated during project preparation, and will serve as the project manuals. These basically will follow the existing documents, with a few improvements to make them clearer, and include requirements on transparency and enforcing sanctions against irregularities. The General Guidelines have been finalized, and the Technical Guidelines will be finalized prior to effectiveness. These guidelines should include, but not be limited to, all applicable procurement, procedures, and monitoring and reporting requirements. 10. A training program on the project manuals, including on procurement, has beendeveloped and approved by the Bank, and provided to all the project stakeholders. A special training program on selection o f consultants will be provided to key project staff at the PMU. 11. The Assessment found that the overall procurement risk is average. The prior review thresholds, as indicated inthis Annex, are based on this capacity assessment. A. Guidelines 12. Procurement o f consultants follow on the Guidelinesfor Selection and Employment of Consultants by WorldBank Borrowers dated May 2004 (the Consultant Guidelines). Procurement o f works, goods, and related services funded wholly or partly by the World Bank inthis Project shall follow the Guidelinesfor Procurement under IBRD Loans and IDA Credits datedMay 2004 (the Procurement Guidelines). B. Procurement Plan and StandardDocuments 13. The agreed project Procurement Plan (including contracts with community) for the first 18 months o f the project will be agreed prior to negotiation, and will be included inthe PIP (Project ImplementationPlan). The procurement plan will be updated annually, and should obtain the Bank's no objection by the end of September for the following government fiscal year. 14. The standard Request for Quotations (for works and goods), and the Bank's standard Requestfor Proposals (RFP) and contracts for the selection o f consultants (July 1997, Revised April 1998 and July 1999 and March 2002) will be used The W P s required duringthe first year o f implementation were agreed during appraisal. C. Procurement of Subprojects under KelurahanGrants (US$93.8million equivalent, including contingenciesand overhead) and the Poverty AlleviationPartnershipGrants (US$64.9 million equivalent,includingcontingencies and overhead). 15. About 70% of Bank financing will be for subproject proposals made by communities either independently (for the kelurahangrants) or jointly with local governments (for the Poverty Alleviation Partnership grants). These will consist o f contracts between the government and the respective communities to deliver certain outcomes. Therefore, the rates under the contracts shall bejustified and agreed at the time o f approval of the community proposals. To enhance transparency, the list o f vendors and their corresponding committed/paid amount will be disclosed in the public domain, at least on the information board and inthe public accountability meetings. After signing the contracts, procurement will be managed and executed by communities usingforms and procedures that have beentested and reviewed as adequate by the Bank under UPPl and UPP2. These will be contained inthe project manuals. OCs will ensure that regular quality assurance and supervision will be enforced. These procedures will be included in the project manuals and the contracts with each community group. 54 16. Under the kelurahan grants, each community group (BKM) may receive up to a total o f Rp.500 million (US$ 58,800 equivalent) per kelurahaddesa to finance subprojects and micro credit sub loans. The ceiling for any single subproject (to K S M groups) or micro credit sub loans (to K S M groups) i s Rp.30 million (US$3,550 equivalent). Individual procurements will be small and widely dispersed. Procurement procedures will therefore consist o f special procedures using Community Participation, and the assignment o f Individual Consultants. These procedures are defined below and will be detailed inthe project manual. 17. The PAPG will finance subprojects that are preparedjointly by BKMs and local govemment (through their dinas offices). The amount o f PAPG for individual subproject will range from Rp.30 million (US$3,550 equivalent) up to Rp.200 million (US$23,550 equivalent). These funds will constitute up to 50% of the total cost ofthe subproject, as communities, dinas or other private sponsors will be required to provide the other 50% as matching funds. The subprojects must be inthe form of development o f public facilities/infrastructure/services that will directly benefit the community and that can be completed within 6 months. Individual procurements will be small and widely dispersed. Procurement and selection procedures will therefore consist o f special procedures usingCommunity Participation. These procedures are definedbelow and will be detailed inthe Project Manual. a) CommunityParticipationfor Works under the sub projects 18. For the development o f infrastructure and other small works (less than US$50,000 equivalent), works may be conducted through contributions from communities, which may be inthe form o f labor and materials, but may also include land. For contribution o f labor, communities may choose to include full or partial labor cost in the proposals and/or pay salaries for work done on the project. Construction using a labor-intensive arrangement with community members i s subject to the following provisions: The architectural plans and engineering designs for the above very small civil works shall be based on Government-approved plans and designs 0 The implementatiodsubprojectagreement covering these works shall include the following: (i) specified lump-sum,fixed price amount based on a written estimate o f work to be rendered by identified laborers from the community; and (ii) description inreasonable detail, including basic specifications, required completion date, and relevant drawings where applicable. 0 The wage rate for community labor shall follow Government standards for the location and type of labor as established by the Ministry o f Settlement and Regional Infrastructure (Kimpraswil) 19. Inareas where the community does not have the capacity to construct works themselves, the community may (with GO1prior agreement as established inthe subproject implementation agreement) procure small civil work contracts (for individual contracts less than US$ 50,000 equivalent) following procurement of small works procedures. These contracts will be contracted under lump sum, fixed price contracts awarded on the basis o f quotations obtained from three qualified contractors inresponse to a written invitation. The invitation includes basic specifications, requiredstart and completion dates, an agreement format acceptable to the Bank, and relevant drawings. The quotations will be opened inpublic accountability meetings and read aloud. The award will be made to the contractor who offers the lowest price quotation for the works. No restriction on participation inthe bidding i s allowed. b) Community Participationfor Goods under the sub projects 20, Goods procured under the Kelurahan Grants or PAPG include purchase of goodsiequipment as agreed inthe subproject implementation agreement. Goods shall be procured through comparison o f prices from at least three reputable local suppliers. The request for quotation includes a basic description and quantity o f the goods, required date and place of delivery, and an agreement format acceptable to the 55 Bank. The quotations will be opened inpublic accountability meetings and read aloud. The award will be made to the supplier who offers the lowest price quotation. No restriction on participation inthe bidding is allowed. For subprojects located inremote areas where it is not economical to obtainprices from suppliers located far from project sites, less than three quotations i s acceptable, as i s direct contracting. The group proposing the subproject, however, needs to justify these methods, and verifications by project staff must be placed on record. 21. Goods valued at less than Rp.15 million each (USS1,800 equivalent) may be purchased from local suppliers/stores after conducting a price comparison `survey' by visiting at least three local suppliers. Price comparisons o f less than three are acceptable whenever there i s a lack o f altemative suppliers. The price survey shall be conducted by two members o f the community who are trustedby the community as having the required independence and integrity. 22. Subprojects may also include the purchase o f goods provided/installedby the community or other community groups (acting as "suppliers"). These shall have reasonable rates as compared to prices of similar goods obtained from other stores nearby. The K S M shall provide acceptable technical specifications to the "suppliers" and allow adequate time for delivery and installation. 23. Subprojects may also include the purchase o f goods provided/installed by the community or other community groups (acting as "suppliers"). These shall have reasonable rates as compared to prices o f similar goods obtained from other stores nearby. The K S M shall provide acceptable technical specifications to the "suppliers" and allow adequate time for delivery and installation. c) CommunityParticipationfor Selectionof Consultantsunder the sub projects 24. Procurement o f consultants under Kelurahan/PAF' Grants may involve hiringo f individual experts/engineers or firnis through service delivery contracts. These will be very small contracts (up to US$20,000 equivalent per contract); therefore, competition has no added value. Individuals will be hired following the Selection of Individual Consultants, and Single Source Selection procedures for firms. D. ConsultingServices for ImplementationSupport and Capacity Building(US$24,4million equivalent, including contingencies,of which Overhead for PMU (USU.2 million) is not Bank financed) 25. The remainder ofprocurement actions will be for consulting services, which will be managed centrally by the Government (the Project Management Unit). The main consulting contracts are the National Management Consultants (NMC), Oversight Consultants (OCs),and Evaluation Consultants (EC). Overall, there will be 20 main consultant service packages selected at the central level (1 NMC, 15 OCs, and 4 Evaluation Consultant packages) as well as some ad-hoc evaluation studies to be procured on an as-required basis duringthe implementation period. A few individual consultants (about 5 contracts) will also be hiredunder the project as the technical advisors. National Management Consultants (US2.5 millioi? including contingencies). 26. The P M UinJakarta will assign a National ManagementConsultants (NMC) to provide assistance for overall project management, monitoring and reporting. This NMC package will be procured based on the LCS procedures with thejustification mentionedinthe paragraph Executive Summary above. This total contract will be subject to annual performance review, based on which, the Client may have the right to terminate the contract at any time ifperfonnance i s unsatisfactory. 56 27. The following actions will be taken to minimize risks related to corruption: (i)TheTORforthisassignmenthasbeenpreparedtobequiterigid,suchthattheconsultantswill only need to propose qualified individuals and their best estimates o f travel and other reimbursable expenses. (ii)BasedonthesurveyoftherelatedcoststothisassignmentinthepreviousUPPs(including comparison o f costs associated to relevant items as proposed by OC and NMC), the average cost for N M C in executing this assignment can be estimated, such that the cost survey will serve as the reference for negotiatingthe total contract cost. (iii) socializationandtrainingactivities(bothforOCandotherskilledtraining) willbepre- The determined inthe TOR, and will be regularly modified by the Client based on an annual review. 28. The NMC contract included inthis amendment scenario will initially be for a 3 year period, with a provision for a possible extension untilproject completion subject to satisfactory performance and with prior approval from the Bank. The possibility o f such an extension shall be clearly outlined inthe TOR and RFP (including in the Special Conditions o f Contracts), and shall be factored during the evaluation. 29. The NMC contract amount will consist o f the following: e The feedunit rates for individuals involved to support this assignment; 0 The reasonable fees, with breakdown, to cover the consultant's efforts inmanaging and coordinating the socialization and training activities. The estimated costs for these activities will be provided, such that the consultant would be functioning as the "fund manager" only; and e The actual reimbursable to cover travel and other expenses. 30. To enhance their capacity in carrying out the above assignment, the consultants may associate with other consultants/providers in accordance with para 1.12 o f the Bank Consultant Guidelines. Insuch cases, the submitted proposal shall be clearly identify and describe this association. Oversiaht Consultants (US$I7.6million) 3 1. There will be 15 Oversight Consultant (OC). As described for the NMC, the TOR for this assignment have been prepared to be quite rigid, such that the consultants will only need to propose qualified individuals and their best estimates for travel and other reimbursable expenses. Based on experiences inUPPl and 2, the average cost for OCs in executing this assignment can be best estimated, such that the OC will be procured following the LCS procedures with a budget ceiling. 32. The estimated cost for each single contract packageranges from US$0.4million to US$1.7 million. OCs will be hired for a 2-year period with a provision o f a possible extension until project completion subject to satisfactory perfomiance and with prior approval from the Bank. The possibility o f such an extension shall be clearly outlined inthe TOR and RFP (including in the Special Conditions o f Contracts), and shall be factored during the evaluation. 33. The contracts for the OCs will includethe selection and hiringo fkelurahan facilitators and other training and socialization activities that are not included inthe NMC contract. Facilitators will be hired by OCs based on the required qualifications as described inthe TOR and agreed contract terms and conditions. The facilitators are key to the supervision o f the Project at the community level. They consist of local individuals who are familiar with the physical and social conditions of the respective Kelurahan/Community where the Project i s beingimplemented. Their role i s mainly to assist the 57 community inpreparing and implementing the project, in addition to assessing the quality and readiness o f particular Community incarrying out the project. 34. Based on previous experience under the Indonesian environment for projects involving communities, the facilitators are normally recruited from a certain pooligroup o f people within the 1ocalKelurahan areas. Those facilitators normally maintain their own network such that any project will compete for facilitators from the same pool. In addition, any difference in facilitator salaries (with the same qualifications) may create social problems within the facilitators' network. Therefore, facilitator salaries will be pre-determined as established by a market survey in local areas by the Government carried out by the Project Preparation Team and acceptable to the Bank. The cost component for the OCs will therefore include the facilitators' salaries (estimated at US$6.2 million), the cost o f training conducted by OCs (estimated at US$6 million), and socialization costs (estimated at US$3.1 million). To enhance their capacity incarrying out the above assignment, the consultants may associate with other consultants/providers inthe form o fjoint ventures in accordance with para 1.12 of the Bank Consultant Guidelines, inwhich the expressionof interest shall be submittedby this association. Evaluation Consultants KJSa2.2nzillion) 35. There will be four main packages for Evaluation Consultants for a total estimated contract amount o f US$I.88 million. The first package will be to carry out a base line survey shortly after loan effectiveness, and the three consecutive contracts will be for evaluation at three different stages during project implementation. The consultants for each contract package will be procured by the PMU, following QCBS procedures. The consultant who has been hiredunder the previous contract package may be allowed to participate to compete for the following and subsequent packages subject to meeting the eligibility requirement, and as long as the P M U ensures that para 1.10 of the Consultant Guidelineson "Unfair Competitive Advantage" will be exercised. Inaddition, there may be evaluation studies required (a total aggregate amount o f US$0.4 million) which may be assigned to a firm or NGO, or to Individual Consultants. Each contract for a firnV"G0 i s expected to be small (less than US$lOO,OOO up to an estimated aggregate amount o f US$200,000), and, therefore, will be selected following Selection Based on Consultants Qualification (CQ) procedures. Each individual consultant contract i s estimated to be small (less than US$25,000 up to an estimated aggregate amount o f US$lOO,OOO) and the selection will follow the Selection o f Individual Consultants. Technical Advisors (US$l.O nzillioni 36. There will some individual experts hiredby PMU. These individuals are expected to assist PMU inmonitoring the project on the technical aspects, as well as providing technical and policy advice o fthe necessary actions that will be required to enhance the performance o f the project. They will also assist the P M U to continue enhance the concept o f the UPP. Furthermore they are expected to assist DG Human Settlement to strategize the integration o f all community poverty alleviation programs in Kimpraswil. It i s expected that the individuals, who are currently working for the project for UPP 1 and 2 will bepart o f these technical advisors. 58 Table A: ProjectCosts by ProcurementArrangements (US$millionequivalent) ProcurementMethod ExpenditureCategory ICB NCB Other2 N.B.F. Total Cost 1. Works 0.00 0.00 0.00 0.00 0.00 2. Goods 0.00 0.00 0.00 0.00 0.00 3. Services: Implementation 0.00 0.00 23.26 1.16 24.42 Support and Capacity Building 0.00 0.00 (23.26) 0.00 (23.26) 4. KelurahanGrants Subprojects 0.00 0.00 89.73 4.08 93.80 and Sub loans 0.00 0.00 (81.57) 0.00 (81.57) 5. Poverty Alleviation 0.00 0.00 61.76 3.09 64.85 Partnership Grant Subprojects 0.00 0.00 (30.88) 0.00 (30.88) Unallocated I1 0.00 0.00 2.7 0.0 2.7 0.00 0.00 (2.7) (0.0) (2.7) Front end fee 0.00 0.00 0.3 0.00 0.3 0.00 0.00 (0.3) 0.00 (0.3) , Total 0.00 0.00 177.7 8.4 186.1 0.00 0.00 (138.7) 0.0 138.7 1/ Figures in parentheses are the amounts to be financed by the Bank. All costs include contingencies. 21 Includes civil works and goods to be procured through procurement o f small works, community participation: national shopping, consulting services, services o f contracted staff o f the project management office, training, technical assistance services, and incremental operating costs related to: (i) managing the project, and (ii)re- lending project funds to local government units. 59 Consultant SelectionMethod Services QCBS QBS SFB LCS CQ Other N.B.F. Total Cost1 A. Firms 0.00 0.00 0.00 21.86 0.40 0.00 0.00 22.26 0.00 0.00 0.00 (21.86) (0.40) (0.00) 0.00 (22.26) B. Individuals 0.00 0.00 0.00 0.00 0.00 1.oo 0.00 1.oo 0.00 0.00 0.00 0.00 0.00 (1.OO) 0.00 (1.OO) Total I 0.00 0.00 0.00 21.86 0.40 1.oo 0.00 23.26 0.00 I 0.00 I 0.00 I (21.86) I (0.40) I (1.00) 1 0.00 I (23.26) I 1\ Including contingencies Note: QCBS = Quality- and Cost-BasedSelection QBS = Quality-basedSelection SFB = Selectionunder a FixedBudget LCS = Least-CostSelection CQ = SelectionBased on Consultants'Qualifications Other = Selectionof individual consultants(per SectionV of Consultants Guidelines) and SSS under Community Procurement(CP) as defined inthis Annex. N.B.F. =Not Bank-financed Figures inparentheses are the amounts to be financed by the Bank . Prior review thresholds It is expected that about 12% o f total expenditures would be subject to prior review. The Ministryo f Finance has issued a decree to state that the exchange rate to be used for determining the threshold for prior review i s IDR 9,50O/US$. This understanding will be updated from time to time with Bank's prior agreement. The following prior review thresholds have been established: e Works: U S $ 50,000 e Goods: US$20,000 0 Consultant Services: U S $ 100,000 (firms) and US$ 50,000 (individuals), and TORSfor all contracts. Contracts which are subject to prior review shall be determined from procurement plans acceptable to the Bank that are updatedby end o f September each year for implementation for the following GO1fiscal year. The OCs are required to randomly review, prior to countersigning, contracts implemented by community which are NOT subject to the Bank's prior review. The following issues should be addressed regularly during supervision: e The capacity o f project staff in implementing procurement. .The level of enforcement o f the agreed procedures and documents. e The effectiveness o f provinces/districts in solving procurement problems, including complaint resolution. An assessment o fthe effectiveness o f the Borrower's monitoring and supervision implementation with respect to procurement. 60 Table B: Thresholds for Procurement Methods and Prior Review1 ContractValue ContractsSubjectto Threshold Procurement Prior Review Expenditure Category (US$thousands) Method (US$ millions) 1.Works 50,000 NIA NIA ~ 2. Goods 20,000 NIA NIA 3. Services 100,000 (firm) LCSIQCBSICQ 23.26 50,000 (individual) IC 4. Kelurahan Grants Small works (<50,000) CP, PSW 0.00 (subprojectsandsub loans) Goods (<20,000) cpms 5. PovertyAlleviation Small works (<50,000) CP, PSW 0.00 Partnership Grant Goods (<20,000) CPMS Subprojects Total value of contracts subject to prior review: 23.26 Postreview intensity = 3% of total contracts covering 10% of sub projects Overall ProcurementRisk Assessment: Average Frequencyof procurementsupervisionmissionsproposed: One every 12 months (includes special procurement supervision for post- reviewlaudits) Thresholds generally differ by country and project. Consult "Assessment of Agency's Capacity to Implement Procurenient" and contact the Regional ProcurementAdviser for guidance. 61 Annex 9: Economic and FinancialAnalysis INDONESIA: Third UrbanPoverty Project 1, The objectives of the project will be achieved through three components. First,the project will support the development o f community organizations in each kelurahan (Community Development and Local Govemment Capacity Building). Second, these community organizations will receive block grants that they will use to provide services to the members o f the community according to the community's preferences (Kelurahan Grants). These preferences will be revealed through the process o f preparation o f the Community Development Plan. Third, these community organizations will partner with local governments to develop and deliver secondary level public services (Poverty Alleviation Partnership Grant). All three steps will be supported by project investments. Traditional, ex ante economic analysis for all three investments i s either not possible or their credibility i s no more than the assumptions made. However, an analysis o f the possible outcomes does provide an opportunity to carry out an indicative analysis regarding the economic benefits o f the investments. Community Development and Local Govemment Capacity Building 2. The first component o f the project helpsbuildcapable and resilient community organizations. The essential goal i s to buildcapacity for collective action incommunitiesthat leads them towards collective action and allows them to aggregate and prioritize their demands. Higher community capacity for collective action i s a positive outcome inand o f itself. The stream o f benefits that flow from collective action goes much beyondproject investments. For example, an organized community i s able to pressure local government to respond to their needs or be accountable to them or help in conflict resolution. The overall benefits o f increasing community capacity for collective action are not possible to capture through a cost-benefit analysis. 3 . However, community involvement in design and delivery o f public services has two other direct economic benefits. First,public investments that systematically respond to aggregated community demand are more effective. Top-down, supply-drivenservice provision often over-supplies services that people do not want, and under-supplies services that people really want, causing a waste o fpublic resources, Furthermore, when communities are able to aggregate and articulate their collective priorities, it becomes possible for local governments to develop more efficient and focused plans to address the concerns at a city level. Second, public investmentinurban services that involve community involvement in design and delivery are more efficient. Services delivered in this fashion are not only able to stretch every dollar invested by substantial community contribution, but are also more sustainable. This process of service provision and c o q u n i t y contribution increases ownership o f the services delivered, This inturn creates incentives for communities to manage and maintain infrastructure created for the services appropriately. Such local management of infrastructure allows the services to be available duringthe true design life o f the investment. In the Indonesiancontext, where operations and maintenance o f even primary infrastructure i s minimal at best, premature failure o f infrastructure i s widespread. Sustainable infrastructure, inrelative terms, i s highlyeffective public investment. Thus, economic benefits accrued through investments usingthe above process generally have higher economic benefitcompared to traditional practices o f service provision. The specific investments and their respective economic benefits are discussed below. Kelurahan Grants 4. The second component o f the project providesblock grants to communities to finance sub- projects for service provision at the community level. The project follows an open-menu policy for decisions regarding use o f these grants, meaning that communities will choose how they want to use the funds. Hence, actual investment choices are impossible to predict accurately at this time. However, 62 experiences from UPPl and K D P l suggest that most communities choose a package o f services that includes small infrastructureimprovements (roads, drains, water, sanitation, etc.) and revolving funds for providing micro-credit services to community members. 5. There i s extensive experience inIndonesia regarding investments in small community level infrastructure improvements. The World Bank supported these investmentsunder the Kampung Improvement Programs (KIP). KIP delivereda package o f basic infrastructure to neighborhoods as required. A simplified approach o f measuring land values was usedto quantify the economic benefits. Land values in kampungs which were improved, and those o f similar kampungs which were not improved, were compared. Appraisal and completion reports o f these projects indicated 20% to 70% economic internal rate o f return (Implementation Completion Report, Ln.3246-IND). OED's KIP Impact EvaluationReport (June 1995) confirmed this by re-evaluating the impact o f KIP invarious Bank projects. OED found that the EIRRs under these projects ranged from 26% to 31% over a usefullife o f 15 years. 6. Ifcommunities choose to invest inarevolvingfund, it is expected that these wouldprovide loans for productive economic activities to community members. The assumption i s that access to credit with lower transaction costs and no collateral requirement will allow petty traders and small manufacturers to be more productive or encourage the unemployedor underemployedto start profitable small enterprise. The requirement o frepayment o f credit with prevailing commercial interest rate for one-year loans (currently between 24-33%), should provide nominal returns at least that highper year and an expected positive economic returns inreal terms. The project returns will be higher the faster the revolving proceeds. The project assumes a one-year loan period, often for small loans, and shorter cycles are common. The assumptions have provenmostly true inUPPl. The project so far has about 550,000 loans out o f which 60% are for small trade, 15% for services and about 10% for manufacturing. A survey o f sample businesses shows that most borrowers (72%) experienced an increase in income and repaid their loans from income from their enterprise (92%). The repayment rate for UPP1, though relatively good, can be substantially improved. This project will ensure better repayment rate by ensuring: (i) better support to communities to prepare sensible and profitable business proposals; (ii) UPKs inappraisal train o f loan applications so that they make loans to people that they think would be able to pay back; and (iii) make loan information more transparent to community members to enhance social pressure for repayment I Poverw Alleviation Partnership Grant 7. The third component o f the project will allocate funds competitively to finance sub-projects jointly proposed by local government agencies and community groups. The project will follow an open menufor this component as well. The project assumesthat most ofthese investments would bephysical infrastructure (e.g. roads, bridges, drains, and water, outside or betweenkelurahans) or social infrastructure (e.g. school repairs). Experience from VIPI and I1and KDP I, which have similar investments, show relatively highEIRRs. Extensive economic analysis was carried out prior to the appraisal o f both VIPI and VIPII. The main investments in these projects displayed an EIRRranging from 22%-90% with the mean o f 35%-40%. InK D P Iindividual villages and project proponents chose their own subprojects from an open menu, similar to UPP3. Nevertheless, about 50% villages chose all- weather roads and bridges, and inthese cases the technologies and methods were the same as those inVIP projects. These investments had EIRRsranging from 20%-40%. Similarly, K D P 2, which also follows an open menu at the kecamatan level, assumes an average EIRRo f 25%. The overall objective o f this component i s to ensure that local governriients partner with communities inthe provision o f urban services. The objective i s also to encourage local governments to continue this relationship in other investmentsbeyondthe project investments. As a result, a growing number o f city level investments will be more responsive to the needs o f the community. 63 Annex 10: SafeguardPolicyIssues INDONESIA: Third Urban PovertyProject Introduction This project is an expansion ofUPPl and UPP2 to new provinces inthe country. UPPl and UPP2 were Category B projects with regard to environmental issues. They also triggered the Bank policy on Involuntary Resettlement. Therefore, Environmental Guidelines and a Land Acquisition and Resettlement Policy Framework were agreed with the government for bothprojects, and procedures put in place for their application should the need arise. InUPP2, with the expansion o f the project to Kalimantan, a Framework for the Treatment o f Indigenous People was also agreed with the government. Implementationi s complete for Phase 1 o fUPP1. Phase I1i s under implementation, with sub-projects currently beingdiscussedby BKMs and community groups (but not yet implemented). UPP2 has just started, but BKMs have not yet been formed, and there i s no activity on the ground yet. The safeguard measures put inplace have so far been adequate to mitigate any safeguards issues. The following summarizes the experience under Phase 1 o f UPPl with regard to safeguard policy issues: EnvironmentalIssues 0 About 5,600 infrastructure sub-projects have been financed, at a total cost o f US$lO million, indicating an average size o f sub-project o f US$1,800 (Rp.15 million). These have consisted mainly o f tertiary roads and bridges improvement (64%), drainage activities (22%), public toilets (lo%), sanitation activities (9%) and water supply (5%). The table below provides a breakdown of a sample o f 63 kelurahan 0 The small size and nature o f these activities have meant that there have been no adverse environmental impacts, and standard operating procedures for environmental mitigation (as per the Environmental Guidelines) have proved to be adequate. LandAcquisition andInvoluntaryResettlement 0 N o involuntary resettlement has occurred under the UPP Phase 1 or 2 thus far. 0 For infrastructure projects (which constitute less than 10% o f total disbursements under Phase l), there has been a highlevel o f voluntary contributions from communities inthe form cash (towards investmentcosts), in the forni o f labor, and inthe form o f land. Inthese cases, 64 contributions have beenrecorded inthe project proposals, which have beenreviewed by the OCs and ratified by the BKM.Since the average cost o f sub-projects i s so low (US$1,800), voluntary contributions have also beenminor, mainly for alignment o f roads. Thus far, there have been no land related complaints or grievances. 0 With the PAPG introducing slightly larger sub-projects (though evenPAPG sub-project ceilings are fairly l o w at US$23,SSO), monitoring of voluntary contributions o f land will need to be enhanced. IndigenousPeoples 0 Ithas not been necessary to use this framework yet under UPP2 as activities have not yet started on the ground. Because UPP3 focuses on urban areas, it i s unlikely that the project will have a significant impact on indigenouspeoples. Ina few islands like Papua and Kalimantan, Indigenous Peoples (IPS) like native Papuans and Dayaks, may be affected by the project. The nature o f the project, with its emphasis on community development, empowerment and participation, and i t s use o f local facilitators and volunteers for implementation, i s such that there is unlikely to be a negative impact on IPSdue to project activities or that IPSwould be deprived o f benefits. Therefore, a specific Indigenous People's Development Plan was not considered necessary for UPP3. 0 However, due to socio-political sensitivity and the history o f conflict inthese islands, IPSmay need special attention to ensure that their voices are heard and that they are included in decision- making. As a result, the Framework for the Treatment o f IndigenousPeople developed for UPP2 will also be usedinUPP3. Because the dynamics o f the sensitivity will be different and specific to local circumstances, a "situational analysis" will be carried out prior to implementation o f the project in Papua particularly, to determine whether any design changes may be necessary. Any requiredchanges will be incorporated inthe ImplementationManual. Feedback will also be sought from the Kecamatan Development Project operating inthe same areas to determine the most effective way o f ensuring the full participation o f Ips inthe project. The Environmental Guidelines, the Land Acquisition and Resettlement Policy Framework, and the Framework for the Treatment o f Indigenous or Isolated Vulnerable People are attached as Annexes 10A, 10B and 1OC. 65 Annex 10A: EnvironmentalGuidelines Introduction 1. As a highly decentralized project, UPP3 will support a large number of small sub-project investments inurban areas. It i s expected to provide micro loans for income generating activities, and finance small-scale infrastructure and other services (the ceiling for individual sub-projects or micro loans per group i s Rp.30 million or US$3,550), through the kelurahangrants. Through the Poverty Alleviation Partnership Grant, the project i s expected to finance small-scale infrastructure and services (the ceiling for individual activities i s Rp.200 million or US$23,550). The low ceiling for individual activities, combined with the types o f activities expected to be financed (roadibridge improvements, tertiary drainage, water supply to individual households, garbage collection through handcarts) indicate that none o f these investments i s expected to have any large scale, significant or irreversible impacts. Environmental impacts would come mostly from poor site management duringthe project construction activity. 2. Theproject has been classified as a Bank environmental category B. This annex outlines the environmental screening procedures and guidelines to ensure to identify, review, and "red-flag'' procedures to ensure that problems are corrected. Indonesia's environmental review procedures are generally consistent with the Bank's and will form the framework o f UPP3's approach to environmental management. Basic Principles 3. The basic environmentalprinciples are: (i) proposals should avoid or minimize negative environmental impacts, and they should have explored viable alternative designs to minimize any negative environmental impact; (ii) the proposal should fit into the General Spatial Plan (RUTR)and avoidprotected areas so designated by the Ministry o f the Environment (see below). (iii) Any proposal entailinga negative environmental impact shall be complemented by an environmental plan to mitigate the impact. EnvironmentalScreeningCriteria 4. Subprojects will be checked against Government o f Indonesia (GOI) screening criteria to ensure that no project would necessitate a fdl environmental assessment. Inan initial screening, the project type, scale, location, sensitivity, and the nature and magnitude o f potential impacts, will be identified to classify the proposal inone o f 4 categories: (0 Those that requireANDAL (full Environmental Assessments) for which the Ministryo f Environment has set criteria (see below). These will be eliminated from consideration for UPP3 financing. (ii) Thosethatrequireenvironmentalmanagementandmonitoringplans(UKLandUPL) based on limited but site-specific studies. The Ministry of Public Works has set criteria to determine the need for UKL/UPL (see below). It i s expected that o f the proposals submittedunder either the PAPG or kelurahan grants would fall under this. criteria. (iii) Thoseforwhichstandardoperatingprocedures(SOP)suffice,wheregenericgood practice would protect the environment adequately. The DGHuman Settlements and Urban and Rural Development have SOP guidelines for some types o fprojects (including 66 measures to control dust, noise and traffic at construction sites; specifications for backfilling and revegetating disturbedareas to preventerosion; and procedures to control negative impacts at solid waste transfer stations; etc.). It i s expected that some sub- projects may fall under this category. (iv) Those that require no environmental study, where no construction, disturbance of land or water or discharge o f pollutants are involved. It i s expected that some sub-projects may fall under this category. Government EnvironmentalScreening Criteria (by Decree o f the Ministero f State for the Environment o f the Republic o f Indonesia) Sectors and Proiects Units ANDAL UKL/UPL Water Supply Raw water intake LIS 250 -250-50 Transmission (large towns) km 10 10- 2 Distribution (large towns) ha 500 -500- 100 Medium Towns I more than or equal to 2 Upgrading I ha 1 5 I more than or equal to 1 Sources: KEP-l7/MENLH/ZOOIfor ANDAL (Concerning Types ofBusinesses Activities Required to Complete an Eiiviroriiiieiital Impact Assessment); arid KEPMEN PU- 17/KPTS/M/2003 for UKL/UPL (Concerning Decisioizs on Types of Activities in the Field of Public Works that are Required to Prepare UPL arid UKL). 5. Special screening will be applied on the following cases: (i) Fisheries. Standards from the Fishery Service Agency (Dinas Perikanan) will be applied to all fishery subproject proposals. (ii) Pesticide, ozone-depleting substances, tobacco or tobaccoproduct. N o subprojects using or producing these materials will be financed. (iii) Asbestos. N o asbestos-containing materials will be financed. Special mitigation measures to address any issues with existing asbestos inany proposed sub-project (e.g., renovation o f school buildingsthat may have used asbestos) will be applied. (iv) Sub-projects that produce liquid or gaseous ejjflzieizts or emissions. N o manufacturing or processing operations will be financed that would produce pollutant-bearing effluents or 67 emissions unless: (i) operations are small-scale; and (ii) cognizant Bapedalda the the reviews the design and certifies that it meets applicable water and air pollution control standards. Hazardous inaterials and wastes. No sub-project will be financed that uses, produces, stores or transports hazardous materials (toxic, corrosive or explosive) or generates "B3" (hazardous) wastes. Logging. Sub-projects involving logging operations or procurement o f logging equipment will not be financed. Developinent onprotected areas. The Decree or the Minister o f the State for the Environment o f the Republic o f Indonesia Number KEP-l7/MENLH/2001, entitled Concerning the Types of Businesses Activities Required to Complete an Environmental Impact Assessment, prescribes that any business or activity that is located in a protected area or that may change the purpose and/or designation o f a protected area shall be required to prepare an ANDAL (see above). This includes: forest protection area; river edges; marinelfreshwater conservation areas; nature tourism park; peat areas; areas surrounding lakes and reservoirs; coastal mangrove areas; water catchment areas; national parks; coastal edges; forest parks; cultural reserves; areas surrounding springs; scientific research areas; nature conservation areas; and areas susceptible to natural hazards. No new settlement or expansion of settlements will be supported in protected areas under theproject. Where settlements already exist, and if it is the policy o f the local government to allow the settlement to remain, proposals for funding under UPP 3 m a y be used by the existing residents using standard UPP2 procedures and in compliance with any local regulations on land management which are defined by the protected area management plan. No road construction or rehabilitation of any kind will be allowed inside delimited or proposed protected areas. 6. Design specifications including environment management consideration for water supply, public toilets, urban roads, TPS, markets and bridges will be applied to UPP3 inthe form o f Standard Operating Procedures. Since these types of activities are most likely to be financed under the PAPG, the SOP used by the participating local government will be applied. EnvironmentalScreeningProcess Kelurahan Grants 7. Community groups (KSMs) will prepare a subproject proposal o n a standard fonnat provided by the kelurahan facilitator, signed by the group members. The standard format will include all items identified above that are not eligible for financing as part o f the negative list. The proposals will include a description o f the activities proposed and compliance with any applicable guidelines o n environmental impacts (as well as landasset acquisition and impact o n indigenous people). Project staff for their feasibility, technical soundness, and compliance with guidelines will review all proposals, before they are considered by the kelurahan organization (BKM). Project staff will specifically screen proposals for any environmental impacts based o n the guidelines above, which will be included inthe project manuals. These will include special screening for all sub-projects involving land and water use changes (Le., reclamation, irrigation); economic projects with environmental impacts to be sure that alignment, effluent, etc., meet best practice standards. BKMs with the assistance o f facilitators will ensure that adequate mitigation measures are taken. The selection o f proposals by the BKM for the kelurahan grant shall be made in a meeting publicized in advance and open to the public. 68 Poverty Alleviation Partnership Grant (PAPG) 8. Proposals for the Poverty Alleviation Partnership Grant will be evaluated by a PAPG Selection Committee established by the local govemment (with the assistance o f project staff) consisting o f a panel of representatives from the local govemment, the BKM Forum, and NGOs/universities/privateindividuals concerned about poverty issues. Sub-project proposals will be prepared on a standard format that will include the negative list. The Selection Committee can seek the help o f technical experts from the Oversight Consultant (OC), from other government offices or hire outside experts to carry out technical reviews of proposals ifnecessary. All proposals will be screened for any environmental impacts based on the guidelines above that will be includedinthe project manuals, and the OC will be in charge o f ensuring that adequate mitigation measures are taken. The process o f selection o f proposals by the PAPG Selection Committee will be transparent, with clear criteria for selection. Reporting 9. Facilitators and OC staff will aggregate and review environmental reports and flag them in their quarterly reports. The project manual will include a matrix o f likely environmental impacts and steps with which to address them. An experienced environmental consultant will be hiredto summarize progress, monitor and measure the impact o f the project on the environment as part o f the performance evaluation o f the project. 69 Annex 10B: LandAcquisition and ResettlementPolicy Framework I. ProiectCharacteristics 1, A s a highly decentralized project, UPP3 will support a large number o f small sub-project investments, mainly inurban areas. Through the Kelurahan Grants component, the project i s expected to provide micro loans for income generating activities, and to finance small-scale infrastructure and other services (the ceiling for individual sub-projects i s US$3,550 or Rp.30 million). Through the Poverty Alleviation Partnership Grant (PAPG) component, the project i s expected to finance small-scale infrastructure and services (the ceiling for individual activities i s US$23,550 or Rp.200million). None o f the sub-projects i s expected have a significant impact due to land acquisition andor resettlement. 2. UPP3 i s also a community-based demand-driven project. Sub-projects will not be identified in advance. The identification o f the number o f people affected by a sub-project can thus only be defined once sub-project proposals are evaluated by the community organization (BKM) for the Kelurahan Grants, or by the PAPG Selection Committee for the Poverty Alleviation Partnership Grant. 3. Since participatory planning and decision making form the basis for the project, the entire project approach should guarantee that people affected by the project will be involved in the decision making process. 4. Should any sub-project involve any land acquisition or resettlement, this Policy Framework provides procedures and guidelines for agreeing o n compensation for those persons w h o are affected by the sub-project in order to ensure that they are not unfairly treated by being given l o w compensation, or benefit unfairly by being given compensation that i s significantly higher per square meter than other owners who sell similar nearby land on the free market. 11. Definitions 5. The definitions used inthis Policy Framework are: "Census" means the head count o f those persons under a proposed Sub-project that qualify as Displaced Persons. The date o f the Census is the latest cut-off point to record the persons in the Sub-project area that will receive compensation, resettlement and/or removal and rehabilitation assistance. "Compensation" means the compensation at replacement cost as determined in Section V o f this Framework given in exchange for the taking of land and building, in whole or in part, and all fixed assets on the land and buildings and crops and trees. "Land acquisition" means an activity that requires obtaining land, buildings or other assets from Displaced Persons for purposes o f the sub-project against provision o f compensation and assistance. "Displaced Persons" means persons who, on account o f the involuntary taking o f land and other assets as part o f the execution o f the Sub-project resulting in a direct economic and social adverse impact, whether or not said Displaced Persons must physically relocate, had or would have their: (i) standard o f living adversely affected; (ii) title, right, interest in any house, land (including premises, agricultural and grazing land) or any other physical asset acquired or possessed, temporarily or permanently, adversely affected; (iii)access to productive assets adversely affected, temporarily or permanently; or (iv) business, occupation, work or place o f residence or habitat adversely affected; and "Displaced Person" means any o f the Displaced Persons; 70 "Physically DisplacedPersons" means persons who are forced to move from their previous location because (i)ll or a significant portion (50% or more) o f their land or a buildings are affected by the sub-project; or (ii) than 50% o f their land or buildings less are affected by the sub-project ifthe remaining portion is not economically viable or habitable. "Rehabilitation Assistance" means the provision o f cash or assets or other forms o f support to enable Displaced Persons without legal rights to the assets taken by the Project to at least equal or improve their standard o f living, income levels and production capacity to the level prior to the project. "Resettlement" means an effort /activity to relocate the Displaced Persons into a good new settlement as mentioned in section Vb so that they can develop a better life. "Involuntary Displacement'' means any o f the following actions, when they occur without the DisplacedPerson's informed consent or power of choice; (a) the taking o f land resulting in: (i) relocation or loss o f shelter; (ii) assets or access to assets; or (iii) lost loss o f income sources or means o f livelihood, whether or not the DisplacedPerson must move to another location; or (b) the involuntary restriction of access to legally designated parks and protected areas resultinginadverse impacts on the livelihoods o f the displaced. "Sub-project" means a specific infrastructure investment project carried out with funds from Kelurahan Grant or PAPG components o f the project. 111. BasicPrinciples 6. Involuntary resettlement may cause severe long-term hardship, impoverishment, and environmental damage unless appropriate measures are carefully planned and carried out. For these reasons, the overall principles for this Framework are the following: Sub-project proposals should minimize land and asset acquisition and involuntary displacement. Groups proposing sub-projects should have explored viable alternative designs to minimize displacement. The group proposing the sub-project will use a transparent and participatory process to ensure that all Displaced persons agree on any proposed sub-project that involves land acquisition or resettlement. The group proposing the sub-project will have to agree to incorporatethe costs for land acquisition andor any involuntary resettlement intheir sub-project proposals as part o f sub-project costs. The compensation costs will be covered through the communities' own funds or government funds (World Bank Loan proceeds shall not be usedto finance compensation). Inaccordance with traditionalpractice, community members may elect to voluntarily contribute land or assets and/or relocate temporarily or permanently from their land without compensation. Voluntary in this context will mean the donation or granting o f land and other assets with the full knowledge o f the purposes for which the asset i s being made available and the economic, social and legal consequences that such an act would have on the person providing the asset and which act i s exercised freely and voluntarily, without any type o f cohesion. Displaced Persons shouldbe assisted in their efforts to improve their livelihoods and standards o f the living or at least to restore them, inreal terms, to pre-displacement levels or to the levels prevailing prior to the beginning o f the project implementation, whichever i s higher. 71 IV. Framework 7. Inthe event that a sub-project proposal requires any land acquisition, buildings, crops, trees, and/or resettlement, the sub-project proposals have to indicate the need for land acquisition, the number and names o f persons affected, and the estimated budget required for compensation. 8. Proposals that would affect 200 persons or more would normally entail long lead times, and are expected to be beyondthe scope o f the project. Inthe highly unlikely event that more than 200 persons will be affected and require compensation, the Oversight Consultant will ensure that the proposal is complementedwith a full Land Acquisition and Resettlement Action Plan (LARAP). The L A R A P will include: (i) survey to identify the socio-economic characteristics o f the DisplacedPersons including a a census; (ii)a comprehensive plan for the acquisition o f land and/or resettlement; and (iii) compensation a package in accordance with the compensation guidelines set out in Section V and acceptable to the Displaced Persons and the groups proposing the sub-project (under the PAPG component, this would be the BKMs and a district level local government agency). The sub-project proposal will also indicate the budget source for the required compensation (Bank funds cannot be used for compensation). The OC/NMC shall seek the Bank's approval o f the LARAP and budget, and seek modifications incase the Bank finds they are needed. Further details on the LARAP are provided inthe attachment to this annex. 9. For any sub-project that requires resettlement o f less than 200 persons, the BKM, supported by the OC staff assisting with proposal preparation, will ensure that the following steps are followed: The group proposing the sub-project carries out a Census o f the persons that would be affected by the proposed sub-project and that would qualify as Displaced Persons. The Displaced Persons agree on the sub-project proposal, and have negotiated agreement on either voluntary or compensated contribution with the group proposing the sub- project. The agreement i s made through a participatory and transparent process. Displaced Persons are made aware that they have the right to compensation and/or other assistance according to the compensation guidelines provided in Section V. Incaseswhere voluntary contributions ofland or assets are indicated, these are clearly agreed with all Displaced Persons; the name(s) o f the contributor(s) and details o f the contribution(s) are included in the agreement; and these are verified by the Oversight Consultants. A simple format on the agreement is incorporated inthe sub-project proposal. This agreement should clearly indicate individual land plots needed for land acquisition and/or resettlement, the number and names o f the affectedpersons, scheme o f compensation and/or resettlement, and estimated cost for land acquisition and/or resettlement compensation. Inthe case o f voluntary contribution, the agreement should state the rationale for it and the fact that the person had the choice o f not providing the asset, and inthe case ofinvoluntary contribution, the manner followed for valuation o fthe assets whichmustbe incompliance with Section V below. The agreement should indicate that any compensation would come from the community or government's contribution to the sub-project. It would be possible to use World Bank Loan proceeds to construct small works and initiate employment opportunities for the group members who are to be resettled. This has to be agreed by the group proposing the sub-project and put in the agreement (see assistance guidelines in Section V). However World Bank Loan proceeds cannot be usedto finance payment o f cash compensation or land acquisition. 72 The details o f the agreement will be verified by the OC/facilitator incharge o f the affected communities prior to consideration by the BKM or the PAPG Selection Committee for financing. Inthe event that no consensus has been reached on the form and amount o f compensation, the sub-project will not be considered for financing. No DisplacedPersons shall have their land or other assets taken before they have received the compensation and the resettlement site, ifthat i s the case, as agreed upon and detailed inthe sub-project proposal. Payment o f compensation, displacement o f people, or preparation o f a resettlement site as agreed upon should be completed before the construction o f the respective sub-project i s started. A monitoring and evaluation system for compensation will be introduced to ensure that DisplacedPersons have receivedtheir compensation as agreed upon. The monitoring will be undertaken by the Oversight Consultant and will be a full survey or sample survey depending on the number o f households affected. A report on the results and recommendations will be publishedby the OC and disseminated to the community and the NMC. V. Guidelinesfor Compensation,Resettlementand Other Assistance 10. Based on agreements reached duringthe negotiation, Displaced Persons can choose to receive cash compensation, resettlement, or other options. Other options include serviced sites, land [swap] o f equal size or equal productive capacity, low cost housing, apartments, real estate housing with credit facilities, or other schemes. Among those options, Displaced Persons will be provided the opportunity o f having a resettlement site where they do not have to pay more than their present routine expenditure. In all cases, the amount o f compensation, resettlement or other options must be sufficient to achieve the objectives o f improving or at least maintaining the pre-project level o f standard of living, income generation and production capacity o f the Displaced Person. a. Compensation 11. Displaced Persons have the right to receive real replacement cost compensation. Real replacement cost means: (i> for land in urban areas, the pre-displacement market value o f land o f equal size and use, with similar or improved public infrastructure facilities and services and located inthe vicinity o f the affected land, plus the cost o f any registration and transfer taxes; (ii) foragriculturalland,thepre-sub-projectorpre-displacement,whicheverishigher,market value o f land o f equal productive potential or use located in the vicinity o f the affected land, plus the cost of land preparation to levels similar to those o f affected land, plus the cost o f any registration and transfer taxes; and (iii) forhousesandotherstructures,themarketcostofthematerialstobuildareplacement structure, or to repair a partially affected structure, plus the cost o f transporting building materials to the construction site, plus the cost o f any labor and contractors' fees, plus the cost o f any registration and transfer taxes. Indetermining the replacement cost, depreciation o f the asset and the value o f salvage materials are not taken into account, nor the value o f benefits to be derived from the sub-project deducted from the valuation o f an affected asset. Compensation for trees, crops and other assets will be based on the replacement value usingexisting market prices per tree preparedby relevant agencies. 73 12, The extent of the compensation will depend on the tenure situation o f the Displaced Person as set out in Section VI. 13, Displaced Persons whose: (i)remaining land and buildingcannot be used for housing or workplace; or (ii) whose remaining land i s less than 60 sq meters; or (iii)whose remaining agricultural land is less than 50% of its initial size or i s not economically viable; or (iv) whose remaining building IS less than 2 1 s q meters; have the option o f being included as Physically Displaced Persons and compensated for the taking o f the affected asset. Displaced Persons whose remaining land i s less than 60 sq meters and remaining buildingi s less than 2 1 sq meters, will have an option to move to a new lot o f 60 sq meters and buildingof 21 sq meters. They will be provided with compensation for the difference in area between what they lost and what i s beingprovided to them. b. Resettlement Sites 14. The resettlement site provided for the DisplacedPersons will include infrastructure and public facilities so that it i s good for living and enables the development o f a good social and economic life, including: (i) road or footpath as necessary; (ii)drainage system; (iii)water supply (if a piped water distribution network i s not available, there should be shallow wells that comply with health standards); (iv) electricity; (v) health facility, education facility, work places, religious services, and sport facilities, inaccordance with the size o f the new community; and (vi) public transport facility to perform a good life. 15. The Displaced Persons will move to the new site after the infrastructure and facilities at the resettlement site are completed and feasible to live in as confirmed by the OC and the BKM. The Displaced Persons will be informed o f the completion o f the resettlement site at least one month before displacement, and they will be invited to survey the new site. The resettlement site would be available prior to the start-up o f works under the relevant sub-project. 16. The location reserved for resettlement will be widely publicized so that the general public will be informed. c. Other Assistance 17. Displaced Persons who lose their income sources or means of livelihood as a result o f the sub- project will receive assistance to restore it. The types o f assistance will be defined by the BKM and local government (in case of the PUG) and confirmed by the OC. Training and assistance that can be provided include: motivation development; skill and vocational training; assistance to start and develop small businesses; small scale credit; marketing development; assistance duringtransition period; and strengthening o f community based organization and services. In implementing the assistance, care should be taken to harmonize the newly resettled people and the host community inthe resettlement area through assistance and integration efforts. The assistance can be linked to existing programs and resources. VI. Eligibility Criteria of Displaced Persons 18. Displaced Persons can be grouped into the following categories: (i) those who have legal land certificate, girik, or adat title; (ii)those who, under domestic law, have a right to occupy land in a residential, commercial, or industrial zone inthe Project area, or occupy land on infrastructure or public facility sites such as rivers, roads, parks or other public facilities in the Project area, but do not hold a certificate or legal title; (iii)those who have n o right to occupy land in a residential, commercial or industrial zone in the project area or publicly owned land and publicly owned facility sites but who were occupying such land at the time o f the Census undertaken or at the time o f the pre-feasibility study o f the 74 sub-project; (iv) those who are renters; (v) those whose jobs are lost because o f the taking of land; and (vi) those who have no right to occupy land ina residential, commercial or industrial zone inthe project area, or publicly owned land and publicly owned facility sites and whose occupancy o f such land begins after the Census. Compensation will differ according to these groupings. (i) Persons with Land Certificate, Girik or Adat Title 0 DisplacedPersons who have land certificate, girik, or adat title will receive compensation for the land, building, and fixed assets. 0 DisplacedPersons who are displaced by the Project can choose to receive cash compensation or the other options as described in paragraph 10. 0 The lots at the resettlement site will have land title o f the same level or higher than they previously had, and the certificate will be issued within 1year after displacement o f the Displaced Persons. Displaced Persons will receive transport allowance to move their belongings. 0 Displaced Persons will also receive assistance and training as provided in paragraph 17 (ii) Persons who under domestic l a w have recognizedrights to occupy land in a residential, commercial or industrial zone inthe Project area but who do not hold a Land Certificate or legal documents, as well as those who occupy publicly owned land and publicly owned facility sites under customary rights at the time o f the Census: 0 Displaced Persons will receive compensation for their land, building and fixed assets, as well as for crops and trees at market value. Displaced Persons can choose to receive cash compensation or the other options as described inparagraph 10. The lots at the new site will have H a k Paltai or a higher land title, and the certificate will be issued within 1year after the displacement. 0 Displaced Persons will receive transport allowance to move their belongings. Displaced Persons will also receive assistance and training as provided in paragraph 17. (iii) Persons who have n o right to occupy land in a residential, commercial or industrial zone inthe project area or publicly owned land and publicly owned facility sites inthe project area, but who were occupying such land at the time o f the Census undertaken or at the time o f the pre-feasibility study of the sub-project: Displaced Persons will receive rehabilitation assistance in any of the forms provided for inparagraph 10 instead o f compensation for the land occupied in an amount sufficient to achieve the objectives o f this Framework, and compensation at real replacement cost for the building, and fixed assets as well as for crops and trees at market value Displaced Persons can choose to receive cash compensation or the other options as described inparagraph 10 The lots at the new site will have H a k Paltai or a higher land title, and the certificate will be issued within 1year after the displacement. Displaced Persons will receive transport allowance to move their belongings. Displaced Persons will also receive assistance and training as provided in paragraph 17 75 Persons who are renters: Displaced Persons who are renters will be assisted with an allowance o f six months rent calculated on the basis o f average rent levels for similar houses or agricultural land within the same area. Displaced Persons who are renters will also receive assistance and training and transport allowance to move their belongings Persons whose jobs are lost because o f the taking o f land where they work and gained their income will be assisted with the forms o f assistance described inparagraph 17. Persons who have no right to occupy land in a residential, commercial or industrial zone inthe projectarea or publicly owned land and publicly owned facility sites and whose occupancy o f such land begins after the Census will receive no compensation or rehabilitation assistance for the land or for the structures built and crops planted therein. VII. Consultationand Complaint Resolution 19. This general framework will be included inthe Project manuals and guidelines, and OC staff and facilitators trained inits implementation. The overall project approach inenabling transparency and consultation should allow solutions to local problems locally, quickly, and effectively. If any Displaced Persons or other community members have a complaint regarding the framework or its application in practice, the project has an established systemo f complaint handling at the kelurahan and kota/kabupaten as well as provincial and national levels, with dedicated staff incharge o f handling and following up on complaints. Complaints which cannot be solved locally through the BKMcomplaint system will be referredto the OC, and, ifnecessary to the N M C and the PMU. However, inthe event that the deliberations have been repeatedly conducted over a long period o f time, but not exceeding one year, to reach a consensus butno consensus has been reached on the form and amount o f compensation, dispute resolution will follow Presidential Decree No. 55 o f 1993. The Decree stipulates that after failure to reach agreement with sub-project group, the owner has the right to object to the Governor (see clause 20(1)), who may conduct further negotiations (see clause 20(2)). Ifthe owner i s still not satisfied, the governor must refer the case to the Minister o f Home Affairs and Ministero f Justice (see clause 21 (1) and (2)), for consideration and referral to the President o f the Republic o f Indonesia for a final decision (see clause 21 (3) and (4)). 20. The progress o f implementationo f any requiredland acquisition, resettlement, and assistance will be reported to the Bank regularly by the O C B M C . Ifrequired, an independentreviewer may be retained to carry out extemal monitoring and evaluation o f the implementation o f specific LARAPs. Such an agency or agencies will have qualified and experienced staff and terms o f reference acceptable to the Bank. 76 Annex 10B: Attachment 1 Requirements for a LandAcquisition and ResettlementAction Plan (LARAP) for sub-projects under the Poverty AlleviationPartnershipGrant affecting more than 200 persons 1. Ifa sub-project proposal indicatesthat more than 200personswillbe affected by the sub-project, the groups proposing the sub-project (BKMs and district level local government agency), assisted by the Oversight Consultant, will be requiredto conduct a Census and socio-economic survey to: (i)determine the number ofpersons involved; (ii) collect data about the social and economic condition ofthe people, to and the physical condition o f the Project area; and (iii)to determine the potential impact o f the sub- project. 2. The date o f this SurveyKensus will be the latest cut-off point to recordthe persons inthe sub- project area that will receive compensation, resettlement and/or removal and rehabilitation assistance. 3. The detailed census and socio-economic survey (hereafter referredto as the socio-economic survey) will cover among others: (i) the size, condition, legal status o f land and buildings (listed in impact groups o f 0-25%1, 25-50%, 50-75%, 75-100% affected); (ii) the number o f Displaced Persons and households; (iii) relevant social characteristics o f the Displaced Persons (age, gender, education, etc) (iv) relevant economic Characteristics o f the DisplacedPersons such as livelihoods (including, as relevant, production levels and income derived from both formal and informal economic activities); standards o f living (including health status) (v) the magnitude o f the expected loss - total or partial - o f assets, and the extent o f displacement, physical or economic; and (vi) information on vulnerable groups or persons for whom special provisions may have to be made 4. Based on the results o f this socio-economic survey, the Oversight Consultant will assist the groups proposing the sub-project to prepare a comprehensive plan on the taking o f assets for purposes o f the sub-project, and the provision of compensation, resettlement, and rehabilitation assistance for the Displaced Persons in accordance with the principles o f this Policy Framework. This will be described in a LandAcquisition and Resettlement Action Plan (LARAP) to be furnished to the Bank for approval. 5. The scope and level o f detail of the LARAP will vary with the magnitude and complexity of the resettlement, The plan will be based on up-to-date and reliable information about: (i) proposed the resettlement and its impacts on the DisplacedPersons and other adversely affected groups; and (ii) the legal issues involved inresettlement. The following list defines the matters that should normally be included LARAP and it should be regarded as general guidance inthe preparation o f a LARAP. When any matter listed i s not relevant to Project circumstances, it should be noted in the resettlement plan: (i) Description o f Sub-Proiect Impact and Analyses Description o f the sub-project and identification o f the sub-project area. 0 Identification o f (i)the sub-project coniponent or activities that give rise to resettlement; (ii)the zone o f impact of such component or activities; (iii) the alternatives considered to avoid or minimize resettlement; and (iv) the mechanisms established to minimize resettlement, to the extent possible, during implementation. 77 The main objectives o f the resettlement program. The findings o f the socioeconomic studies. The findings o f an analysis o f the legal framework. The findings o f an analysis o f the institutional framework. The definition o f Displaced Persons and criteria for determining their eligibility for compensation and other resettlement assistance, including relevant cut-off dates. (ii) MethodologiesandProcedures 0 The methodology to be used invaluing losses to detennine their replacement cost; a description o f the proposed types and levels o f compensation under local law and such supplementary measures as are necessary to achieve the real replacement cost for lost assets A description o f the strategy for consultation and participation o f resettlers and hosts inthe design and implementation o f the resettlement activities including; a summary o f the views expressed and how these views were taken into account inpreparing the resettlement plan; 0 a review o f the resettlement alternatives presented and the choices made by Displaced Persons regarding options available to them, including choices related to forms o f compensation and resettlement assistance, to relocating as individuals families or as parts o f preexisting communities or kinship groups, to sustaining existing patterns o f group organization, and to retaining access to cultural property; institutionalized arrangements by which displaced people can communicate their concerns to Project authorities throughout planning and implementation, and 0 measures to ensure that groups such as isolated vulnerable people, the landless, and women are adequately represented. (iii) CompensationPackage 0 Description o f the packages o f compensation and other resettlement measures that will assist each category o f eligible Displaced Persons to achieve the objectives o f the Policy Framework. Compensation will be calculated based o n Section V o f the Policy Framework. (iv) Alternative Relocation Institutional and technical arrangements for identifying and preparing relocation sites, whether rural or urban, for which a combination o f productive potential, locational advantages, and other factors i s at least comparable to the advantages o f the old sites. Estimated time needed to acquire and transfer land and ancillary resources; Any measures necessary to prevent land speculation or influx o f ineligible persons at the selected sites. Procedures for physical relocation under the sub-project, including timetables for site preparation and transfer. Legal arrangements for regularizing tenure and transferring titles to resettlers; Plans to provide, or to finance resettlers' provision o f housing, infrastructure and social services (which ensure comparable services to host populations); and any necessary site development, engineering, and architectural designs for these facilities. 78 A description o f the boundaries o f the relocationarea; and assessment o f the environmental impacts o f the proposed resettlement and measures to mitigate and manage these impacts (coordinated as appropriate with the environmental assessment o f the main investment requiring the resettlement). Measures to mitigate the impact o f resettlement on any host communities. Implementation o f resettlement The organizational framework for implementing resettlement, including identification o f agencies responsible for delivery o f resettlement measures and provision of services. An implementation schedule covering all resettlement activities from preparation through implementation, including target dates for the achievement o f expected benefits to resettlers and hosts and terminating the various forms o f assistance. Costs Detailed cost o f the full compensation package, resettlement costs and all associated implementation costs. Identification of sources o f financing (Bank funds cannot be used to finance cash compensation or land acquisition.). Monitoring and grievance procedures Arrangements for monitoring o f resettlement activities by the implementing agency, supplemented by independent monitors as considered appropriate by the Bank. Description o f grievance procedures. 6. There will be regular consultations with all Displaced Persons, and all other stakeholders including non-governmental organizations throughout the design and implementation o f the LARAP 7. The LARAP described above will be preparedjointly by the BKM(s) and local government agencies proposing the sub-project, with the assistance o f the Oversight Consultants and will thereafter be provided to the Bank through the O C N M C for approval. Once Bank approval i s obtained, it will be issued as a Decree o f the head o f the district level local government (the Bupati or Walikota). Once the Decree has been issued, the O C and relevant government offices to the Project Affect Persons will disseminate it. 8. Issuance o f approval for contract signing for a sub-project that requires a LAI2AP will be considered by the Bank after receipt o f a progress report from the OC/NMC that indicates substantial implementation o f the LARAP, including acquisition o f all land incritical locations. 9. The LARAP,including all its maps and annexes, will be publicly displayed at the NMC and relevant O C office, the office o f the relevant kelurahan(s), and the office o f the relevant BKM(s). 79 Annex 1OC: Frameworkfor Treatment of Indigenous or Isolated VulnerablePeoples Objectives 1. ' The design o f this project i s structured to ensure the participation and inclusion o f various groups within communities inlocal level decision making over resource allocation. However, the project recognizes that Indigenous People form a particular group that merits a different approach and specific support. Therefore, in accordance with OD4.20, the following framework for addressing indigenous people will be adopted for the project. 2. The objectives of this framework are to: (i) Ensurethat indigenous people participate inand benefit from the project; and (ii) Avoid or minimize potentially adverse effects o f the project on indigenouspeople. Definition 3. "Isolated vulnerable peoples" i s the term used officially by the Indonesian Government to describe groups that have the characteristics of "indigenous peoples" as usedin O D 4.20. This document will hereafter use the term "isolated vulnerable peoples". 4. For the purposes o f this project, isolated vulnerable peoples are defined as those that present varying degrees o f the following characteristics: (i) acloseattachmenttoancestralterritoriesandtothenaturalresourcesintheseareas; (ii) self-identificationandidentificationbyothersasmembersofadistinctculturalgroup; (iii) anindigenouslanguage,differentfromthecommonregionallanguage(e.g.Javanese); (iv) the presence o f customary social and political institutions; and (v) primarily subsistence-oriented production Framework 5. Isolatedvulnerable people are not prevalent in all the project sites-they are likely to be found in particular kotakabupaten o f particular provinces. The following steps will be taken to ensure that, where isolated vulnerable groups exist, the project caters to their specific needs. (1) Duringthe facilitator training, facilitators will be trained inthe identification of isolated vulnerable people. Through the Community Self Survey exercise and poverty reflections, facilitators will identify the presence and numbers o f isolatedvulnerable groups inthe community and report this to the OCs. (ii) Fortheareaswhereisolatedvulnerablegroupsareidentified,OCswillorganizean orientation training for relevant facilitators in how to work with isolated vulnerable groups ina useful way to identify mechanisms for effective participation, and address specific challenges in workmg with such groups, for example, how to deal with groups that may be in conflict with the larger community, etc. (iii) Sincefacilitators willbehiredlocallytotheextentpossible,theyareexpectedtobe familiar with such groups. They will also be rotated as necessary to ensure that those that have been trained inworking with isolated vulnerable groups, or have specific skills that would be beneficial in working with such groups, are made available in the rightplaces. Management o f facilitators will be handled by the OCs. 80 (iv) Where isolated vulnerable groups are identified, efforts will be made to ensure that at least one Community Cadre i s from the group and able to communicate easily with the group. (v) Where the isolatedvulnerable group speaks a language different from Bahasa Indonesia, relevant brochures and documents will be translated inthe appropriate language. Provision has been made inthe project budget to allow for additional translations o f relevant project documents. 6. These steps will be aimed at ensuringthat isolated vulnerable people participate fully inthe project, are aware o f their rights and responsibilities, and are able to voice their needs duringthe Community Self Survey exercise and in the foimulation o f the Community Development Plan. In addition, they will be encouraged to submit sub-project proposals that cater to their group's needs. Monitoringand GrievanceProcedures 7. The Terms o f References for the OC and N M C include the responsibility for monitoring the treatment o f isolated vulnerable people in the project. Where isolated vulnerable people are identified, the OCs will berequiredto report on their participationinthe project. Provisionswill be made inthe MIS systemto monitor the involvement ofisolated vulnerable people. This will be followed bythe NMC as well as monitored during supervision missions. 8. The project has a complaint systemthat allows community members to raise issues or complaints at various levels-at the kelurahan level, at the OC level (either at kota/kabupaten or province level), and at the national level. There are designated staffs at the OC and N M C responsible for following up on complaints and ensuring that they are handled adequately. Where isolated vulnerable people are concerned, the facilitatoriOC will ensure that grievance redress mechanisms are developed in culturally appropriate ways in close collaborationwith the relevant group. 9. Project evaluation studies will include monitoring and evaluation o f the impact o f the project on isolated vulnerable people. 81 Annex 11: ProjectPreparation and Supervision INDONESIA: Third Urban Poverty Project ~ ~~~ ~ Planned Actual PCNreview September 2003 September 4,2003 Initial PID to PIC October 6, 2003 Initial ISDS to PIC October 6, 2003 Appraisal March7,2004 March 10, 2004 Negotiations April 1, 2005 Board/RVP approval May 25,2005 Planneddate of effectiveness July 30, 2005 Planneddate of mid-termreview February25,2008 Plannedclosing date March 3 1, 2011 K e y institutions responsible for preparation o f the project: Ministryo fHuman Settlements andRegional Infrastructure. Bank staff and consultants who worked on the project included: Name Title Unit George Soraya TTL, Sr. Municipal Engineer EASUR ,Aniruddha Dasgupta Senior Poverty Specialist, Infrastructure EASUR Sector Coordinator. RumanaHuque Sr. Urban Specialist Yogana Prasta Disbursement, Institutional Development osu Specialist Parwoto Sugianto Comniunity Development Specialists Consultants, EASUR EviHermirasari Jana H.Uno R. Kumala Farida Zaituni Environment Specialist osu Isono Sadoko Social Specialist Unggul Suprayitno Financial Management Specialist osu Joanne S. Nickerson Operations Analyst ISU,EAP RizalRivai Procurement Specialist osu Vivi Alatas EconomistsiPoverty Specialists Menno Pradhan Vijayendra Rao Peer Reviewers DEC Christine Kessides TUDUR Thomas Jeffrey Ramin SDV Bank funds expended to date o n project preparation: 1, Bank resources: $215,000 2. Trust funds: $0 3 . Total: $215,000 Estimated Approval and Supervision costs: 1. Remaining costs to approval: $100,000 2. Estimated annual supervision cost: $90,000 82 Supervision Strategy 1. The large number o fkelurahan covered under the project and their geographically dispersed locations require an innovative approach to supervision. The presence o f the Bank team inthe field office inJakarta is critical, and this teamwill be incharge of supervision. Since three similar projects are in operation, a programmatic supervision approach will be used usingthe same team members to ensure consistency o f strategy and policies amongst the projects. 2. The first two years of implementation are the most critical. Duringthisperiod, the Task Team will field at least two full supervisionmissions for the entire UPP program. Inbetween, the Task Team in the field office will carry out two brief supervision follow up visits to various areas o f the project. Key issues that supervision missions will focus on will be consultant management and performance), and activities at the kelurahan level. The strategy will be to visit as many kelurahanand OCs as possible duringthe critical part of the project implementation. It is expected that annually, the team will carry out a thorough review of all OCs, at least 30 local governments, and 120 BKMs,and interview about 1,100 poor households. At least 3% o f the total participatingkelurahanwill be visited annually, and over 15% o f kelurahanby the end o f the project. 3 . This approachhas beentested duringUPP 1Phase 2 and has been found to be effective. The Bank i s proposing to open new field offices in the regions. A member o f the Task Team could potentially be located inthe proposed Maltasar office to supervise the eastern regions under the project. This will be further assessed during implementation. The Task Team intends to collaborate with other Bank supervision teams such as K D P to carry out joint supervision missions. 4. At the central management level, a monthly meeting will be carried out betweenthe Task Team with the PMUand the NMC to review the status o f the agreed actionplan as well as progress o f the program based on the monthly update o f the MIS. 5. The Task Team will also establish a network with NGOs at the central and local level. Under UPP1, the Task Team hiredan NGO with a large network in the regions, to carry out random supervision inabout 100ltelurahans. The outcome was extremely useful,particularly inre-orienting the direction of UPP and giving rise to the new approaches applied under UPP2. This strategy will continue under UPP3. Human Resources Required 6. The Task Team will consist mainly of Bank staff located inWBOJ and one HQstaffthat will provide strategic assistance on technical matters and evaluation. In addition, at least five short-term national consultants will be hired annually to carry out various specific activities o f the project. They will include a community development specialist, poverty expert, data analysis expert and micro credit expert. On an annual basis, an expert from ESSD will be invited to provide a technical review o f the project. This will be carried out within the context o f Bank funded CDD projects across Indonesia. For the impact evaluation, an expert from the Development Research Group (DEC) will be included as part o f Task Team. 83 Annex 12: Documentsin the Project File INDONESIA: Third Urban PovertyProject 1. PROJECT IMPLEMENTATION PLAN Draft October 2003 2. BANK STAFF ASSESSMENTS Procurement Capacity Assessment Report, April 2002 Financial Assessment Report, March 2002 Mid-TermReview o fUPPl, April 2001 Aide Memoire o f UPP 1, October 16-30, 2001 Aide Memoire ofUPP 1, May 30-June 12,2002 Aide Memoire o f UPP 1, September 19-October 24,2002 Aide Memoire o f UPP 1, February 24-March 18,2003 Aide Memoire o f UPP 1, May 20-June 17,2003 Aide Memoire o fUPP 1, August 1l-September 8,2003 Aide Memoire o f UPP 2, November 19-26, 2001 Aide Memoire o f UPP 2, May 24-June 5,2002 Aide Memoire o f UPP 2, March 17-Apr 4,2003 Aide Memoire o f UPP 2, September 23-October 1, 2003 Aide-Memoire o f UPP3 preparation mission, October 21-November 6, 2003 Aide-memoire o f UPP3, appraisal mission, February 27, March 15, 2004. Back to Office Report: Mission to Indonesia to review Urban Poverty Program, September 29-October 9, 2003, C. Fallert Kessides. Draft Paper "A Leaming-Implementation Model for Scaling Up Poverty Alleviation: The Indonesia Urban Poverty Projects", September 2003. Back to Office Report -Thomas Jeffrey Ramin, Senior Social Development Specialist, CDDiSDV February 24,2004 3. OTHER Draft Project Manual (General Guidelines and Technical Guidelines) Draft Handbooks for Project Implementers Terms of References for NMC, OC, kelurahan facilitators, and community cadres EvaluationReports for UPP1 (carried out by Monitoring and Evaluation Consultants) Final Report o f UPP 1 Phase 1 Draft Report o f Study on `Capacity for Collective Action and Poverty Alleviation' (Qualitative Evaluation o f UPP 1 Phase 1in Java, Sulawesi, and Kalimantan) 84 Annex 13: Statement of Loans and Credits INDONESIA: Third Urban Poverty Project Difference between expected and actual Origiiial Amount in USS Millions disbursements Pioject ID FY Purpose IBRD IDA SF GEF Cancel Undisb Orig Fim Rev'd PO59931 2003 Water Resources& In Sector Mgt Pgm 45.00 25.00 0.00 0.00 0.00 70.09 0.00 0.00 PO63913 2003 ID-Java-BallP w Sector & Strength 141.00 0.00 0.00 0.00 0.00 141.OO 0.00 0.00 PO73772 2003 ID-Health Workforce & Services 31.10 74.50 0.00 0.00 0.00 106.80 0.00 0.00 PO79156 2003 Third Kecamatan Development Project 204.30 45.50 0.00 0.00 0.00 249.38 0.00 0.00 PO76271 2003 ID-PPITA 17.10 0.00 0.00 0.00 0.00 17.10 0.00 0.00 PO40578 2002 ID-Eastem Indonesia Region Transport 200.00 0.00 0.00 0.00 0.00 135.62 16.62 0.00 PO72852 2002 ID-URBAN POVERTY I1 29.50 70.50 0.00 0.00 0.00 102.33 2.94 0.00 PO73970 2002 ID-GLOBAL DEV LEARNrNG (LIL) 2.66 0.00 0.00 0.00 0.00 2.13 0.85 0.00 PO40528 2001 ID-W JAVA ENVMT MGMT 11.70 5.75 0.00 0.00 0.00 16.35 7.26 0.00 PO49539 2001 ID-PROVINCIAL HEALTH I1 63.20 40.00 0.00 0.00 0.00 102.40 40.46 0.00 PO73025 2001 ID-KDP2 208.90 1 11.30 0.00 0.00 0.00 312.46 -17.88 0.00 PO68949 2001 ID-LIBRARY DEV PROJECT- LIL 0.00 4.15 0.00 0.00 0.00 3.1 1 I.46 0.00 PO68051 2001 ID-GEF-W JAVA ENVT MGMT 0.00 0.00 0.00 2.54 0.00 2.63 3.61 0.00 PO49545 2000 ID-PROVINCIAL HEALTH I 0.00 38.00 0.00 0.00 0.00 24.28 7.90 0.00 PO59477 2000 ID-WSSLIC I1 0.00 77.40 0.00 0.00 0.00 70.62 -9.28 0.00 PO59930 2000 DECNT AGRJC/FOREST EXTENSION 13.00 5.00 0.00 0.00 0.00 9.29 3.30 0.00 PO03967 I999 ID-FIFTH HEALTH PROJECT 44.70 0.00 0.00 0.00 5.01 15.56 19.51 0.00 PO40196 1999 ID-SUMATRA BASIC EDUCUATION 54.50 20.10 0.00 0.00 0.00 28.49 19.91 0.00 PO63732 1999 ID-CORPORATE RESTRUCTRG 3 1SO 0.00 0.00 0.00 24.50 1.11 25.61 0.57 PO64118 1999 WATSAL 300.00 0.00 0.00 0.00 0.00 150.00 150.00 150.00 PO36049 1999 ID-EARLY CHILD DEVELOPMEKT 2ISO 0.00 0.00 0.00 10.65 3.89 14.37 14.37 PO55821 1999 ID-URBAN POVERTY 0.00 100.00 0.00 0.00 0.00 22.03 23.05 8.44 PO41895 1999 ID-SULAWESI BASIC EDUC 47.90 15.93 0.00 0.00 0.00 32.81 29.54 0.00 PO36048 I998 CORAL REEF MGM REHAB 6.90 0.00 0.00 4.10 0.00 2.46 2.46 1.78 PO48715 1998 Indonesia - IIDP 34.50 0.00 0.00 0.00 8.50 4.19 12.69 4.19 PO36956 1998 ID-SAFE MOTHERHOOD 42.50 0.00 0.00 0.00 9.15 8.43 17.58 11.58 PO39644 1998 ID-W JAVA BASIC EDUCATION 103.50 0.00 0.00 0.00 3.76 17.23 -8.51 0.00 PO40061 1998 BENGKULU REGIONAL DEV 20.50 0.00 0.00 0.00 5.00 10.48 13.75 8.48 P040062 I998 CORAL REEF MGMT REHA 0.00 0.00 0.00 4.10 0.00 0.55 0.47 1.41 PO03993 1998 ID-SUMATRA REG'LRDS 234.00 0.00 0.00 0.00 50.00 44.70 75.45 -0.90 PO03987 I997 ID-CENTRAL INDONESIA SEC EDU 104.00 0.00 0.00 0.00 0.00 17.59 17.59 0.00 PO36047 1997 ID-BAL1URBAN INFRA 110.00 0.00 0.00 0.00 36.03 15.81 51.84 1.33 PO04026 1997 ID-Railway Efficiency 105.00 0.00 0.00 0.00 47.33 32.02 79.35 9.37 PO49051 1997 BEPEKA AUDIT MOD PROJECT 16.40 0.00 0.00 0.00 0.90 6.45 7.35 6.45 PO42540 1997 ID-IODINE DEF CONTROL 28.50 0.00 0.00 0.00 9.70 3.27 12.97 10.47 PO40195 1997 ID-QUALITY OF UNDERGRAD EDUC 71.20 0.00 0.00 0.00 9.89 10.95 20.04 10.29 PO41894 1997 ID-SUMATRA SEC EDUCATION 98.00 0.00 0.00 0.00 0.23 9.16 9.39 0.00 PO03700 1997 ID-Solar Home Systems 0.00 0.00 0.00 24.30 16.82 0.90 19.99 0.33 PO04008 1996 NUSA TENGGARA DEV 27.00 0.00 0.00 0.00 4.90 0.04 4.94 0.04 PO37097 1996 ID-EJAVA SEC EDUC 99.00 0.00 0.00 0.00 3.63 12.01 15.65 0.00 Total: 2,568.56 633.13 0.00 35.04 246.00 1,815.72 692.23 238.20 INDONESIA STATEMENT OF IFC's HeldandDisbursedPortfolio InMillions ofUSDollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 2003 Buana Bank 0 00 15.00 0.00 0.00 0.00 15.00 0.00 0.00 1994 KDLC Bali 0 00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0 LYON-MLF-Ibis 2 01 0.00 0.00 2.01 2.01 0.00 0.00 2.01 1985 Manu1ife 0 00 0.32 0.00 0.00 0.00 0.32 0.00 0.00 2002 P.T. Gawi 1 1 50 0.00 0.00 10.00 5.35 0.00 0.00 4.65 1997 PT AdeS Alfindo 0 00 6.98 0.00 0.00 0.00 6.98 0.00 0.00 I989 PT Agro Multo 0 00 2.20 0.00 0.00 0.00 2.20 0.00 0.00 1997 PT Aliimindo I O 61 0.00 0.00 6.00 10.61 0.00 0.00 6.00 I989191194103 PT Astra 0 00 2.98 0.00 0.00 0.00 2.98 0.00 0.00 0 PT Astra Graphia 0 00 2.00 0.00 0.00 0.00 2.00 0.00 0.00 0 PT Astra Otopart 0 00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1993196 PT BBL Dliarmala II29 0.00 0.00 21.34 11.29 0.00 0.00 21.34 I995 PT Baltrie Pipe 33 24 0.00 0.00 0.00 33.24 0.00 0.00 0.00 1997/00/02 PT Bank NISP 0 00 3.59 0.00 0.00 0.00 3.59 0.00 0.00 I997 PT Berlian 6 77 20.00 0.00 15.48 6.77 16.65 0.00 15.48 0195 PT Grahawita 0 00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 ol90191195199 PT Indo-Rama 0 00 3.09 0.00 0.00 0.00 3.09 0.00 0.00 1992194196 PT KIA Keramik 16 51 0.00 0.00 53.49 16.51 0.00 0.00 53.49 1995 PT KIA Seipih 15 00 0.00 0.00 49.50 15.00 0.00 0.00 49.50 1997 PT Kalimantan 20 00 15.00 0.00 3.13 20.00 15.00 0.00 3.13 0100 PT Makro 0 00 1.35 0.00 0.00 0.00 0.79 0.00 0.00 1998 PT Megaplast 5 25 2.50 0.00 0.00 5.25 2.50 0.00 0.00 0193 PT Nusantara 763 0.00 0.00 5.93 7.63 0.00 0.00 5.93 1996 PT Pramindo Ikat 0 00 2.54 0.00 0.00 0.00 2.54 0.00 0.00 1993 PT Samudera 0 00 5.00 0.00 0.00 0.00 5.00 0.00 0.00 1997 PT Sayap 5 83 0.00 0.00 2.00 5.83 0.00 0.00 2.00 2001 PT Sigma 0 00 3.00 0.00 0.00 0.00 3.00 0.00 0.00 1992195 PT Viscose 17 19 0.00 0.00 17.50 17.19 0.00 0.00 17.50 1997 PT Wings 5 06 0.00 0.00 2.13 5.06 0.00 0.00 2.13 2003 SMM 12 00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2001 Sunson 12 41 0.00 0.00 7.85 12.41 0.00 0.00 7.85 2003 Verdaine I 4 00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Total portfolio: 206.30 85.55 0.00 196.36 174.15 81.64 0.00 191.01 Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic. 2003 PT SPA 8.00 0.00 0.00 0.00 Total pendingcommitment: 8.00 0.00 0.00 0.00 Annex 14: Country at a Glance INDONESIA: Third Urban PovertyProject Technical notes East POVERTY and SOCIAL Asia & Low- indonesia Pacific income IeveloDment diamond' 2002 Population, mid-year (millions) 26.7 1,826 2,511 Life expectancy GNI per capita (Atlas method, US$) 690 900 430 GNI (Atlasmethod, US$ billions) 149.9 1,649 1069 - Average annual growth, 1996.02 Population (%) 16 11 19 Labor force (%j 2.5 13 2 3 ;N I Gross er +- 4 primary M o s t recent estimate (latest year available, 1996-02) apita enrollment Poverty (%of population beiow nationalpoverty line) 6 Urban population (%of totalpOpUlatiOn) 43 37 31 Life expectancyat birth (years) 66 69 59 1 Infant mortality (per lo00 live births) 39 36 76 Child malnutrition (%ofchildren unUer5) 34 12 Access to imoroved watersource Access to an improvedwater source (%ofpopulation) 76 74 76 Illiteracy(%ofpopulatlon age 151) P 14 37 Gross primaryenroilment (%Of SChOOl-agepOpUlatlOn) 0 8 6 7 96 .-L-(- Indonesia Male 16 0 6 6 3 __ Low-incomegroup Female 0 6 6 0 88 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1982 1992 2001 2002 Economic ratios` GDP (US$ billions) 94.7 139.1 1413 i72.9 Gross domestic investmentlGDP 27.8 30.5 218 20.2 Exports of goods and serviceslGDP 25.3 27.9 42 3 35.4 Trade Gross domestic savingsiGDP 29.0 33.4 29 2 27.1 Gross national savingsiGDP . 29.4 26 9 23.4 Current acco unt balanceiGDP -5.6 -2.0 4 9 4.2 Interest paynentsiGDP 16 2.7 4 2 2.7 Total debtiGDP 26.5 63.3 94 7 75.1 Total debt servicelexports 43 8 49.7 Present value of debtlGDP Present value of debtiexports Indebtedness 1982-92 1992.02 2001 2002 2002-06 (average annualgrovdhj GDP 6.9 2.5 3.4 3 7 4.1 - e - Indonesia GDP percapita 5.0 0.9 19 2.2 2 9 Exports of goods and sewices Low-income group 6.9 3.1 19 -1.2 5.5 STRUCTURE o f the ECONOMY 1982 1992 2001 2002 Growth o f investment and GDP (Oh) (%of GDP) Agriculture 23.9 17.5 i7.O 7 5 20 Industry 37.9 36.3 45.6 44 5 0 Manufacturing 119 8.1 25.0 25 0 Services 38.2 46.3 37.5 38 1 -20 Private consumption 59.5 57.8 63.0 64 7 General government consumption 115 8.8 7.0 8 2 , Imports of goods and services 24 1 25.0 34.9 28 5 1982-92 1992.02 2001 2002 _____________ (average annualgrovdh) Growth o f exports and imports (%) Agriculture 3.8 16 1.0 17 1 40- industry 9.2 3.2 3.3 3 7 Manufacturing P.6 4.7 4.1 4 0 Services 6.5 2.3 4.6 4 4 Private consumption 4.6 5.0 4.4 4 7 General government consumption 4.9 0.4 9.o 728 -60 87 Annex 15: Sample of Sub-projectProposalFormat INDONESIA: Third UrbanPovertyProject ~~ Format 7-c KSMProposalfor InfrastructureDevelopment - A. LISTOFKSM 1 No I Name ] MIF I Age I Household size 1Address 2 1 I I I I I B. PROPOSEDSUB-PROJECT 1. Descriptionof the sub-project Type ........................................................................... Volume ........................... ................................ Reason ........................... ............................ Location ..................................................... Construction : [ ] mutualhelp [ ] partialhelp [ ] Land .......................................................................... 3. equipment 4. technical assistance 5. other costs Implementation schedule Starting date ................................. Completion date ..................................... Implementationarrangements Teamresponsiblefor implementation : Name : 1. ......................................................................... n Procurementplan No 1Items to be procured (goods, works or skilled labor) I IIProcedure I (note: see procurementsection in the Technical Guidelines) 88 6. Operations and maintenance No. I Activities I 1IFrequency IIIncharge IIcost ISource of funds I C. SCREENING AGAINST NEGATIVE LIST Does the proposed activity or sub-project involve, in one way or another, any activities listed below as prohibited to be financed by the UPP3 funds? No 1 Item I Yes I No I I I 2 I I 3 4 Government administr,,,,,, Dulol I I 5 Environmentally harmful products such as pesticides,ozone - depleting I substances; tobacco or tobacco products; materials containing asbestos; activities producing liquid or gaseous effluents or emissions at harmful levels; activities using, producing, storing or transporting hazardous materials and wastes; logging activities in protected areas; or fisheries sub-projects that are not in accordance with standards set by Dinas Perikanan 6 I1 Illegal activities such as arms, harmful drugs or others D. SAFEGUARDS 1, I s it possiblethat the sub-projectwill have any adverse environmental impact? [ 1 Yes [ 1 No ............... (Note :see environniental guidelines described in Aiinex 2 of General Guidelines) 2. I s there any land acquisition involved? I. I Yes I 1 No ---- Whose land ? ............... Ifyes, pleasedescribe the following: Have the owners been consulted? ..................................................................... What are the compensationarrangements? .... Who will finance the compensationcost? ............................................................ I s there any resettlementor eviction involved? [ 1 Yes [ 1 No - How many people will be affected? ............ Ifyes, please describe the following: (please provide names and addresses as attachment) -- What are the compensation arrangements? - Have they been consulted? ..................... Who will finance the compensationcost? ............................................................ (Note: see land acquisition and resettlement policy franieworlc described in Annex 3 of General Guidelines) 89 I s there any voluntary land contribution? [ 1 Yes [ 1 No -- How much land will be contributed? ................................................................... Ifyes,pleasedescribethefollowing: How many people will be affected? ................................................................... - Have they all agreed to contribute this land voluntarily? .............................................................................. (please provide names and addresses as attachment) 3. Does the proposed activityisub-projecthave any adverse impact on any cultural property? [ 1 Yes [ 1 No Ifyes, pleasedescribe the impact: ................................................................................................................. ................................................................................................................ What measures are proposed to mitigate the impact? ................................................................................................................. ................................................................................................................. ........................,..................,200 ...... IN o I Name I Position I Signature 2 1 I Member 3 1 I Member Endorsementbv Facilitator Coordinator Community Cadre 90 Annex 16: RevolvingFunds for Microcredit INDONESIA: Third Urban Poverty Project Increasingthe outreach of prudentialmicro credit services for low-income groups through community organizations 1. How to ApproachBKMMicrocreditinUPP3 Like in the Second Urban Poverty Project (UPP2), the entry point and focus o f the UPP3 approach i s the BKM. Aiming at contributing to improving the welfare of the urbanpoor, UPP3 focuses on enabling BKM and communities to deliver and utilize services that are responsive to the needs and demand of the poor. Based on the identification o f beneficiaries and their needs, BKMs may choose to provide micro credit to low-income groups and a revolving fund for this purpose. Ifthis choice were made, UPP3 successwould hingeon the capacity ofBKMto manage credit and revolving funds, and on the capacity of credit groups and their members to plan and manage loan use. Whether or not the BKMcan sustain its revolving fund will depend on credit quality and financial management capacity. UPP3 gives BKM and community groups the opportunity choices among various poverty reducing activities. Zf BKM and community groups opt for micro credit, however, UPP3 will require them to observe project rules and prudential micro credit standards. The UPP3 micro credit approach will focus on ensuring the quality of both the lender and the borrower side. On both sides the approach has two entry points: (i) clearly defined eligibility criteria for BKM,the manager o f any revolving fund operation (an UPK designated by the BKM), and Community groups to start credit activities; and (ii) project support to strengthen BKM,U P K and community groups in their function to manage credit activities. UPP3 rules and support services will reflect different organization and management needs depending on the size o f revolving funds. The approach makes a pragmatic distinction between BKMwith revolving funds smaller than IDK 100 million (=BKMA) and BKMwith revolving funds larger than IDR 100million(=BKMB). 2. Objectives and Support Strategy BKMshould aim at decreasingthe demand-supply gap of institutional micro finance. This requires that low-income groups without access to institutional micro finance are well targeted and provided with services that reflect their real demand. Therefore, the development objective o f the UPP3 micro credit support strategy will be: BKM have increased outreach to low-income groups with prudential credit sewices and revolvingfund nzanagenzent. The direct target group o fthe micro credit support strategy is the BKWUPK. The indirecttarget group are low-income groups to which BKMAJPK provide credit services. The target group definition of the micro credit strategy is: Low-income groups withprofitable business opportunities and adequate repayment capacities who have no current access to institutional credit providers or other prograin credit. To ensure that the micro credit development objective will be achieved, project implementation will focus on producing five micro credit support outputs: 0 Project support for BKMrevolving fund management i s prepared. 91 BKMare eligible andpreparedto usekelurahan grants for revolvingfundactivities. 0 Credit groups and members are eligible and prepared to use credit effectively. BKM/UPK capacity to manage credit and revolving funds is strengthened. BKM/UPK information and supervision system is well functioning. 3. Approach for Targeting Low-income Groups in UPP3 While UPP3 targets poorer kelurahan, it provides room for flexible community "self-targeting" o f project beneficiaries. This approach will be generally maintained, but credit targeting requires unmistakable information, guidelines and eligibility criteria to ensure increasing outreach to and preventing negative effects for low-income borrowers. The definition of "low-income borrowers" mustbepragmatic and easy enough to serve as a guideline for "self-screening" by community members, and it must be broad enough to include access poor with business opportunities who do not fall under the poverty line o f the extremely poor. The definition proposed here is: Borrowersfrom households with ala aizizualper capita income plus savings lower than the value of 1,000 kg rice per capita calculated at localprices. The UPP3 credit targeting approachwill consist of credit eligibility criteria and three indirect targeting steps: (i) Identifying community members for new credit group formation: information disseminated about credit functions, target group and eligibility criteria; potential credit group membersidentified through community self-screening process; eligible candidates select their peers to start with the credit group formation process. (ii)Screeningcrediteligibilitythroughcreditgroupformation.Creditgroup formation (both new and existing groups) will be about supplying evidence for credit eligibility. This includes a) becoming capable o f analyzing and planning household economy, businesses and credit, and b) ensuring that groups and members are eligible for submitting loan proposals. (iii)Indirecttargetingthroughlendingpolicies.Discourageborrowersoutsideofthe target group by lendingpolicies: loan approval dependent on compliance with credit eligibility criteria; maximum loan ceiling for first time borrowers to IDR 500,000 and for subsequent loans to IDR 2 million; maximum loan term o f 12 months but in line with loanuse; at least monthly installment frequency and interest payments; interest rates that reflect current rates o f local banks, operating and loan loss costs, and the need to sustain the net value o f capital. 4. Principles of the UPP3 Microcredit Approach 4.1 Revolving Fund Governance and Management 0 Clear ownership: revolving funds as institutional capital 0 Bylaws determine objectives and regulations o f this institutional capital. 0 Objective: increasing outreach to low-income groups without access to institutional credit through prudential micro credit services. Revolving fund management separated from other BKM activities; operational autonomy for UPIC. 0 Credit procedures in one hand and credit decisions subject to prudential micro credit standards, not participative deliberation and voting inpublic meetings. Direct lender-borrower relationships in all credit procedures. 92 0 U P K managers are capable persons and graduated from training courses. 0 UPKs have standard accounting and financial reporting system. UPKs are supervised, internally by supervisory body, externally by capable consultancy & supervision institution. 4.2 Credit Access, Services and Management Potential borrowers are aware of credit functions, procedures and eligibility criteria. 0 Credit groups meet eligibility criteria and are capable o f analyzing and planning of the businesses and household economy of their members. 0 Credit access only for borrowers with profitable businessopportunities and repayment capacity, but without access to institutional or program micro credit. 0 Borrowers pledge guarantees, i.e., measurable efforts o fjoint responsibility and collateral savings, to get access to credit. 0 Gradual access to credit based on track records. L o w maximum loan ceiling for first time borrowers, higher maximum ceilings for well performing borrowers. 0 Well performing borrowers have sustained access to credit. 0 Loan amount and terms reflect real credit demand and repayment capacity. 0 No loan for purposes other than business development. 0 Interest rates reflect local market rates; cover operating and loan loss costs, and sustain the net value o f revolving fund capital. 0 Incentivefor timely repayment as part o f the interest rate composition. 0 Discourage UPK from mobilizing savings from the public. Encourage credit group membersto develop regular savings habits. 4.3 MicrocreditSupport System and Exit Strategy Micro credit support strategy based on logical framework. 0 Project M&E separated from UPK M&E and supervision. 0 Standardized accounting systemo f U P K as basis o f UPK M&E and supervision. 0 Improved quality o f U P K information system as part of supervision function. 0 All project activities related to the micro credit support strategy management by central micro credit team and regional micro credit experts. 0 Each project region cooperates with extemal consultancy & supervision providers. 0 UPK and credit groups graduated from training before starting credit operations. 0 Focus on improving the quality o f credit and revolving fundmanagement. 0 Discourage BKM without adequate management capacity to establish large loan funds. 0 Assist sound and potentialUPK to prepare institutional development plans and sustain access to consultancy & supervision services. Ensurethat profitable BKMLJPK with large and growing revolvingfunds gradually take over the costs for technical assistance and supervision. 5. Eligibility Criteria 5.1 BKM The decision to set up a revolving fundi s democratically legitimated, based on real credit demand, and reflected inthe Community Development Plan. 93 Separated revolving fund management from other operations section for BKMA (Selcsi Kredit Micro or SKM); organizationally separated unit for BKM B (Unit Kredit Micro or UKM). Agreed upon bylaws for revolving fund operations: as part o f BKM(A) bylaws; separate UKMbylaws for BKM(B). Bylaws define revolving fund allocations as institutional capital to be used for serving low-income borrowers with profitable business opportunities but without access to institutionalcredit providers. SKMAJKM has personnel with adequate experience and background, graduated from the basic and, for UKM,the advancedrevolving fundtraining course. SKM/UKMhas standard UPP3 accounting and financial reporting systems, separated from other BKMtransactions. BKM(A) has assigned amember ofits managementboardto supervise its SKM, or (B) has establisheda separate supervisory board for its UKM. Qualified external SKM/UKM supervisor i s available and accepted by the BKM. 5.2 Credit Groups Credit group menibers: trust each other and are able to work together; regularly deposit savings; participate in-group meetings to analyze and plan household economy, business opportunities and credit demand. come from low-income households; have profitable business opportunities; and have no access to institutional credit or to credit programs. Credit groups: have a legitimate and active management committee; have agreed upon group objectives, activities and rules; carry out regular group meetings to plan and monitor activities; have a basic group and financial administration; have loan passbooks for each member; and submitted joint responsibility agreement signed by all members. 6. UPP3Microcredit Support Services 6.1 BKM (i)InceptiontrainingcourseforBKMleaders,including: (i) microcredit UPP3 approach; (ii) substance o f eligibility criteria; (iii) identification o f credit demand for preparing the community development plan; and (iv) revolving fund organization and management. The one-day course will be carried out by OC staff, especially the micro credit expert. (ii)TechnicalassistancewillbeprovidedbytheOCandextemalconsultancyservice provider for setting up an adequate revolving fund organization and management. (iii) Supervision/M&E refers to inspecting whether the BKMhas met all eligibility criteria for setting up a revolving fund. This inspection will be carried out by the OC and will be documented inthe BKMrevolving fund eligibility form. 94 6.2 SWUKM (i)Basictrainingcourseon:UPP3microcreditapproach;basicaccountingsystem; credit groups functions; loan proposal planning; credit group supervision; credit analysis and procedures; financial reporting; consultancy and supervision services. The 5-days course will be carried out by the OC micro credit expert and outside training providers based on modules prepared at the central level. Both S K M and UKMstaffhave to graduate successfully (certificate) from this course prior to credit operations. (ii)AdvancedUKMtrainingcourseon:organizationmanagement; advanced accounting system; financial management; product development; UKMdevelopment planning. The 5-days course will be carried out by the OC micro credit expert and outside training providers based on modules prepared at the central level. The UKM manager and loan officers have to graduate successfully (certificate) from this course within3 months after the volume of the revolving fund exceededIDR80 million. (iii)Technicalassistanceto SKMAJKMwillbeprovidedbyexternal consultancyhpervision (CS) providers. It will comprise the initial setup and monthly routine visits to solve current problems. Resultswill be documented in monthly CS reports that focus on problem analysis and follow-up recommendations. The report will be made available to BKMand OC. (iv) Supervision o f SKM/UKM will be carriedout by external CS providers on the basis o f standard instruments through monthly off-site supervision based on financial reports submittedby SKM/UKM. Supervision results and advice will be documented inmonthly CSreports, quarterly on-site supervision, and a comprehensive inspection o f SKM/UKMmanagement, accounting, and credit services. The supervision report will include a rating o f the SKMAJPK soundness. The report will be made available to BKM and OC. (v) Phasing-outsupport will be provided duringthe last six months prior to project termination. Based on an evaluation o f SKMAJKM soundness and development potentials, sound and potential UKMwill be assisted to prepare basic conditions for becoming sustainable micro credit institutions. Sound and potential S K M will be assisted to sustain revolving fund operations. Sound and potential SKMAJKM will be assisted to buildhtrengthensecondary structures (association) for proving support services to their members and to gradually take over costs o f consultancy and supervision services. 6.3 Credit Groups (i)Inceptiontrainingcourseon:creditfunctions andeligibilitycriteria; businessand household economy planning; loan proposal procedures; credit management functions o f the group. The training course will take 2 days (effective) and i s carried out by ltelurahan facilitators, community cadres and outside resource persons. (ii)Practicaltrainingin-groupmeetingsaspartofthegroupformationprocessoras part o f preparing existing groups: transforming inception training into practice. This will take at least three group meetingsand will result ina business and household economy plan for each group member. The training will be carried out by community cadres and will be attended by SKMAJKMstaff. (iii) Technical assistance will be provided, i.e., for loanproposals preparationby Community cadres and SKM/UKM staff who will participate inall group meetings prior to loan disbursement. Community cadres and SKMAJKMstaff may seek external resource persons, if needed for solving special problems. 95 (iv) Supervision/M&E comprises two approaches: participation ingroup meetings and credit supervision. Community cadres and SKM/UKM staff will evaluate whether group members supply evidence for their credit eligibility. Results will be documented in one credit group eligibility form. Credit supervision by SKMLJKM includes on-site inspection o f loan use and off-site monitoring o f loan repayment. 7. Implementation Process of the UPP3 Microcredit Support Strategy 7.1 Preparation Phase Central level UPP3 micro credit support strategy i s agreed upon; UPP3 general and technical manual prepared in line with strategy; 0 Central micro credit team active; Revolving fund management instruments prepared; Handbooks for SKM/UKM and credit groups prepared; Handbooks for BKM and project staff inline with micro credit strategy; 0 Training system, modules and training implementation plan prepared; Consultancyisupervision system and implementation plan prepared; and SKM/UKM monitoring and evaluation system computerized. Relsional level 0 Regional stakeholders informed about micro credit strategy; OC micro credit expert active; Implementation o f micro credit support system planned; Extemal consultancy/supervision providers identified and assigned; Project staff trained; and SKM/UKM monitoring and evaluation system computerized. Kelurahanlevel Community informed about micro credit strategy and eligibility criteria; BKMinceptiontrainingcarried out; Credit demand identified for community development planning; BKMdecidedupon: revolving fund allocation, SKM/UKM organization and staff; SKMKJKMstaff graduated from UPP3 training courses; SKM/UKM organization and administration set up; and SKM/UKM prepared cash flow and activity plans; and BKMeligibility evaluated. Credit group level Members informed about micro credit strategy and eligibility criteria; Credit group training carried out; Members assisted to analyze and plan businesses and household economy; 0 Groups assisted to meet credit eligibility criteria; Loan proposals prepared; and Credit group eligibility evaluated. 7.2 SWUKM Operation and Support Phase SKM/UKM Receive loan proposals, re-check credit eligibility, analyze proposal feasibility; Loan decision and agreement; 96 0 Loan disbursement; Loan supervision and group monitoring; 0 Financial administration, analysis and reporting; and 0 Monthly reports submitted to consultancy and supervision institution. Consultancy and supervision provider 0 Monthly consultancy visits to SKMAJKM; 0 Monthly off-site supervision and data inspection; 0 Quarterly on-site supervision and ranking o f SKMAJKM soundness; 0 Monthly consultancy and supervision reports to SKMLJKM; and 0 Monthly consultancy and supervision reports to OC micro credit expert. OC: micro credit expert and database operators 0 Analysis o f consultancy and supervision reports; 0 Monthly meetings with consultancy and supervision provider; Data inspection and entry; 0 M&Eofmicro credit support basedon logical framework & implementation plan; 0 Recommendations for follow-up actions to regional project management; 0 Monthly monitoring reports and data submitted to central micro credit team; and 0 Quarterly analytical report submitted to central micro credit team. Central micro credit team and database operators 0 Analysis o f OC reports and evaluation o f SKMAJKM soundness; Data inspection and entry; M&Eof support activities based on logical framework & implementationplan; 0 Quarterly meetings with OC micro credit experts; 0 Recommendations for follow-up actions to central project management; 0 Monthly monitoring reports submittedto central project management; and Quarterly analyticalreport submitted to central project management. Central and regional project management 0 Policy decisions and enforcement o f compliance with project rules. 7.3 MicrocreditSupport TerminationPhase Centralproiect management / micro credit team 0 Policy and implementationplan for phasing out project support prepared; and 0 Support services for revolving fund sustainability on request. OC / micro credit team 0 Evaluation o f SKMAJKM soundness and development potentials; Classification o f SKMAJKM according to soundness, development potentials; 0 Identification o f additional technical assistance needs o f potential SKMAJKM; and Implementation plan for phasing out project support prepared. Consultancy and supervision provider Technical assistance for sound and potential UKMto prepare future as sustainable micro credit providers; 0 Technical assistance for sound and potential S K M to sustain revolving fund operations; 97 Technical assistance for less sound but potential UKMto improve performance; and 0 Final evaluation o f soundness and development potential. Sound and potential SKMLJKM 0 SKMLJKM gradually take over costs o f consultancy and supervision; and 0 S K M i U K M builds secondary structures (association) to sustain support services for their members after project termination and to network with thirdparties. Central and regionalproiect management Liquidate SI 1 installment is less than 10% CS reports of the total loan portfolio in 80% of the BKMIUPK. OUTPUT 1 1. National micro credit team and OC micro credit expert MIS reports Project support for B K M active. MIS reports revolvingjrnd manngeinent 2. BKMIUPK training, consultancy and information is prepared. systems ready. MISreports 3 . All project staff informed about the micro credit strategy and trained in accordance with their functions. MIS reports 4. M C implementation plans at national, provincial and district level available. MISreports 5. External BKMIUPK consultancy and supervision institutions mobilized OUTPUT 2 1. Community and BKM are informed about the micro MIS reports BKM start credit B K M are eligible and credit strategy. disbursement after all prepared to useproject 2. B K M meets all eligibility criteria for revolving fund MIS reports eligibility criteria are grants for revolvingfund management. Eligibility form met. activities. 3. BKM agrees to comply with projectrules and accept MISreports supervision by external instihition. Agreement OUTPUT 3 1. Group members are informed about the micro credit MIS reports Continued group Credit groups and their strategy. activities and members are eligible and 2. Groups and potential borrowers meet all eligibility MISreports coherence. prepared to use credit criteria for getting access to credit. Eligibility form eflectively. 3. Credit group (rainingfinalized before loan MIS reports disbursement. OUTPUT 4 1. Credit products designed to meet demand of and to CS reports SKMIUKM complies SKM/UKM copacity to deepen outreach to loa-income groups. with project provisions inanage credit and revolving 2. Loan approval aiid conditions retlect loan use and CS reports and consultancy I funds is strengthened. repayment capacity. supervision 3. Borrowers with good track records have sustained CS reports recommendations. access to credit. 4. SKMIUKMstaffhas intimate knowledge of borrowers CS reports and loan use. 5. Loan portfolio quality i s improved or good quality i s CS reports maintained. 6. Interest income increasingly covers financial CS reports intermediation costs. OUTPUT 5 1. SKMIUKM advised how to improve performance MIS reports SKM/UKM inforinntion ond through monthly consultingvisits and reports. supervision systern is 2. SKMIUKM submits on time monthly financial reports MIS reports functioning. to the external supcrvisor. 3 . SKMiUKM soundness rated based on financial reports MISreports and quarterly on-site inspections. 4. SKMIUKM supervisors submit on time inspected credit MIS reports data and supervision results to the OC. 5. Credit data and supervision results are analyzed by MIS reports UPP3 micro credit experts, and are reported to project stakeholders in monthly briefs and quarterly reports. 101 Annex 17: Monitoring and Evaluation INDONESIA: Third Urban Poverty Project 1. Monitoring and evaluation i s a key feature o f projects that are community driven and widely dispersed. A number o f important lessons have been learned through the experience with monitoring and evaluation inUPP1. The two main issues in UPPl were the following: (i) Independent monitoring and evaluation consultants (M&E consultants) were hired for the duration o f the project. The National Management Consultant (NMC), which was in charge o f project management, was also assigned monitoring tasks. This created some confusion on who was responsible for project monitoring. The N M C relied on the M&E consultants to monitor performance, and since there was little ownership by N M C o f the results, monitoring reports were not consistently usedby the NMC to make management decisions. (ii) The N M C was in charge o f setting up a computerized Management Information System (MIS). The Oversight Consultants (OCs),who came onboardprior to the NMC, had already developed their own monitoring systems by the time the M I S was set up, with the result that some OCs had dual monitoring systems. This sometimes made it difficult to obtain consistent data for project monitoring. 2. These lessons have been incorporated into a revised M&E system for UPP3. Like in UPP2, in UPP3 the monitoring and evaluation tasks will be separated, with monitoring made the responsibility o f NMC, while evaluation tasks will be contracted out to separate consultants on a task-by-task basis. ImplementationMonitoring 3. InUPP3,project monitoringwill be the full responsibility of the NMC. The N M C will be hired prior to the OCs, and the OCs trained by the NMC, including training inthe use o f the MIS. Monitoring will be done with a view to analyzing and improving project management and the results used to make management decisions. 4. The MIS systemhas been redesignedfor UPP2 to streamline data collection and the method o f collection o f the UPP1. Because there will three projects operating at the same time, the M I S for all these projects will have to be integrated and standardize. A team under PMUwill be established to integrate the M I S under UPP1, UPP2, and UPP3. Currently, the team i s developingthe integrated MIS. Monitoringinfonnation will be entered into the system usingweb-based data entry screens (a paper-based system will also exist as a backup and for areas that do not have easy access to Computerized systems). Facilitatorswill enter kelurahan specific information into the system, for which they will receive training. Community cadres and BKMs will also be assisted in usingthe monitoring systems, which they will be able to continue to use once the project has concluded. The information will be transferred electronically to the OC and NMC. OCs will provide assistance to facilitatorsiBKMs to operate the system and, where technical resources are insufficient, enter the information provided by the facilitators/BKM into the system. OCs will also enter their process implementation monitoring data into the system. Monitoring data will be available at all levels, allowing for BKMs to benchmark their performance with those o f their neighbors. The systemwill be set up so that it can generate reports for local governments at each level. 5. The monitoring system will take account o f the open menunature o f the project while, at the same time, generating comparable information for investments which are frequently chosen by BKMs. For instance, if the BKM chooses to allocate part o f their funds as a revolving fund for micro credit, they 102 will be requiredto fumishmonitoring information for this component using the centrally designed system. The thematic teams in the hTMC in charge o f the project components (community development, micro credit activities, the PAPG, and socialization and training) will utilize the information generated through this system. Project Evaluation 6. Project evaluation will consist o f a series o f impact evaluation studies and a number o f studies to be determinedover the course o f the project. Evaluation Consultants will be hired on a periodic basis, first to carry out a baseline survey, and subsequentlyto carry out follow-up surveys and evaluation studies at least three times over the project period. The surveys will investigate the project-govemance-poverty linkinaddition to the project-investment-povertylink. A control group o furbankecamatans which are not included in UPP3 will be included in the surveys. The objective o f the studies i s to determine the effectiveness o f the intervention and the underlying causes. A combination o f data from the Management Information System and the above- described surveys will be used to provide an analysis o f the impact o f the project. The studies are scheduled such that they can feedback into the project design. 7. The studies will aim at measuring the impact o f the UPP intervention on local level governance and poverty. A control group o f urban sub-districts will be included inthe survey to obtain the counterfactual. The 2003 village census data will be usedto find similar control sub-districts. Although the excluded sub-districts are excluded because they score the highest on a welfare indicator (also constructed from the village census) it i s expected that it will be possible to find matches which are similar to the treatment group. The reason i s that the exclusion o f the richest sub-districts was done by district. So also in poor districts, some sub-districts have been excluded increasing the likelihood that we are able to find appropriate control group sub-districts for poor treatment sub-districts. Any remaining selection bias will be dealt with by applying differences in differences and possibly instrumental variables. The advantage o f having a baseline survey i s that one i s able to apply difference in differences and, inaddition, test for the validity o f instrumental variables to be used in later impact studies. 8. The instruments and methodology to be applied will be developed inclose cooperation with the P M U and the World Bank. The Evaluation consultant will needto obtain approval from these institutions before fielding the surveys. 9. There will be a separate allocation o f funds to hire local NGOs, universitiesor qualified individuals to carry out ad-hoc evaluations or surveys on an as-needed basis. An example could be case studies to study the reasons for success o f the best performing BKMs. The project will also seek to establish independent "watchdogs" for the project, for example, newspapers which could be contracted to write articles about how UPP3 operates on a regular basis. This has been done successfully in KDP. The project will provide full access to monitoring, financial and evaluation data to these "watchdogs". 103 Annex 17: Attachment 1 DraftTerms of Referencesfor EvaluationConsultants 1, National Evaluation Consultants (NEC) will be charged with carrying out a baseline survey at the beginning o f the project, and 3 impact evaluations, before the mid-term review, after the mid-term review, andjust before project completion. Evaluations will focus o n measuring project impact o n the ground. Consultants will b e hired initially for the baseline survey with a provision for sole sourcing for the subsequent contracts depending o n their Performance. 2. The responsibilities o f NEC are to: (i) Conduct a baseline survey and study (early 2005). (ii) Conduct subsequent follow-up impact evaluation survey and studies (3 over a 5 year project cycle) NECwill be independent and hire its own staff. It will not rely on project staff for implementation. 3. The objective o f the UPP project is to increase the capacity for collective action inurban communities and to increase the level o f urban services. The studies will investigate the success o f the three components o f the UPP project, that is: (i) community development; (2) the kelurahan grant program; and (3) the PAPG program. The success i s evaluated by: (i)the targeting o f the program (did the program reach the poor?); (ii) impact o f the program (did the beneficiaries benefit from the the program?); and (iii)expected sustainability o f the component. Sustainability will be measured by investigating whether the UPP interventions has an impact o n local level governance and community empowerment (outside o f the UPP project). 4. Besides measuring the impact, the studies will also: (i) describe the level o f the performance indicators. A set o f easily quantifiable performance indicators i s listed at the end o f this TOR. Inaddition, a second set i s provided o f indicators which are more subjective for which the consultant will need to develop an appropriate measure: (ii) collect and analyze the factors which may effect the impact o f the UPP interventions; (iii) collect and analyze data regarding the implementation o f the UPP project (for pre-mid temi review and project completion impact evaluation); (iv) analyze the causal factors o f the impact results; and (v) provide recommendations for improvements inproject design and implementation. 5. The studies will be based on data from the project management information system and surveys to be designed and fielded by NEC. NEC may use existing statistical data sources collected by the bureau o f statistics. 6. The surveys will also collect information from a control group o f urban kecamatans from the same provinces as where the UPP3 operated but which did not enter into the project. The control group kelurahans should be selected o n the basis o f similarity pre-intervention characteristics with the kecamatans which will participate in UPP. 104 7. NEC will make all reports, completed questionnaires, survey design, training documents, documented data files and programs used for the study available to the PMUupon completion o f the assignment. Baseline survey 8. The objective ofthe baseline study is to document the levels ofpoverty at the start o f the project as measured by the performance indicators. The consultant i s expected to develop questionnaires to measure the indicators in close cooperation with the PMU and the World Bank. Before each survey, the N E C will submit the instruments and a methodology document to the PMUand the World Bank. The N E C will need to obtain approval from these institutions before fielding the surveys. 9. It is expected that the survey will apply both structured questionnaires as well as participatory methods. Inaddition to the performance indicators, the survey will collect information on background characteristics which could also influence the performance indicators, historic ability to obtain credit and grants from other programs and presence and participation in existing community programs. Households and key informants will be interviewedto assess the voice that the poor and community organizations have inlocal decision-malting. 10. The baseline survey will also sample from households innon-UPP3 (and non-KDP) urban kecamatans inthe provinces where UPP3 operates, This sample will form the control group. 11. The baseline survey will collect information from 3,300 households living in 110 kelurahans. The sample will be drawn according to the following stratificationrules. 22 strata are defined by the kotas and other urban areas ineach o f the provinces where UPP3 will be active. From each o f the strata 2 kecamatans inwhich UPP i s active will be selected. In each o f the kecamatans 2 kelurahans will be randomly selected. Inaddition, from each o f the strata 1 control group kelurahanwill be selected. Ineach kelurahan 30 randomly selected respondents will be interviewed. The survey will also survey 2 key informants ineach kelurahan. This will add about 220 people to the sample size. Impact Evaluation Studies 12. Subsequent impact evaluation studies (approximately every 1.5 years) will collect the same information as the baseline survey. In addition, the survey will collect information on the implementation o f UPP and the beneficiaries o f the kelurahan grant activities. It will also collect infonnation on the success o f the PAF activities to that date. The consultant will work from the questionnaires which were developed for the baseline survey with additions for the new coniponents. New components will be developed to interview grant and credit beneficiaries. The questionnaires will also be adjusted to measure the success o f the implementationo f the UPP components. The surveys will be developed in close cooperation with the PMU and World Bank and approval needs to be obtained from these institutions before fielding the survey. 13. The surveys will be fielded in the same kelurahans as the baseline survey. The survey will interview the key informants which were also included in the baseline. Inaddition, one UPP facilitators a BKMmemberwill be included a key informant. As inthe baseline, the survey will sample 30 households ineachkelurahan. The samplingwill be adjusted to the broadened scope by selecting household as follows: (i) 10 households drawn at random from the kelurahanpopulation; (ii) 10 households drawn at random from those who have obtained micro credit; and (iii) 10 households drawn at random from those who directly benefited from demand driven grant activities. 105 14. For the final survey, prior to project completion, households will be re-sampled (possibly also beneficiaries). The design o f the questionnaire will be adjusted by the consultant to collect information on expected sustainability o f the project. Specialist Required 15, To successfully conduct the above tasks, the MEC requires the following: a. Team Leader (4 mm x 4 studies) MinimumS-1 with experience inleading a consultant team, and at least 5 years relevant work experience insocio-economic surveys and analyses 0 Fluency in the Englishand Indonesian languages, both oral and written 0 Musthave the capability to leadexperts team, and able to cooperate with other team, either with government, consultants, community in doing the obligation. 0 Able to demonstrate intellectual leadership in analyzing local institutional development inrelation to a governance issues and impact evaluation studies. 0 Demonstrated ability to plan and to implement surveys that focus governance issues. b. Evaluationexperts (3 x 4mm x 4 studies) 0 Reputable social scientists with extensive experience in evaluating and researching either poverty alleviating or community development programs; evaluation experts will each focus on: 0 baseline and impact evaluation; 0 indicators and in-depth studies; 0 random sample surveying for verification; 0 minimumS-1 inrelevant field and had at least 5 years inrelevant work experience; and experienced in evaluating community development and poverty alleviation programs c. Statistician and Data Management Specialist; ( 4mm x 4 studies) MinimumS-1 from Information System, Statistics, Economy, or Technical Bacltground. 0 At least 5 years inrelevant work experience Skilled in various computer applications such as SPSS, Access, SQL, generic database, and spreadsheet Possess expertise and experience in statistical analyses of surveyidata 0 Capable to develop an information system support, easy and friendly to access, and up-to-date d. SeveralAssistants 0 Minimal S-1 with relevant background 0 At least 2 years inrelevant work experience, especially inresearch e. Various outsourcingsub-contracts as neededwith local universities,NGO's, and/or individuals for specific locations, studies, and/or surveys. 106 Schedule 16. NEC's initial contract for baseline survey should begin pre-project implementation in early 2005, and will continue for 6 months. First impact evaluation study will take place prior to the mid-term review, also for 4 months. The second impact evaluation study will take place 8-12 months after the completion o f the mid-termreview, also for 4 months. Finally, 4 months before the project completion date, a final impact evaluation study will be undertaken, also for 4 months. Presentations, briefings 17. NEC will present finding and results o f each studyisurveyto the P M U and other UPP3 stakeholders in a 1-day briefing, presenting findings, as well as possible solutions to any problems identified. Reports 18. For each separate survey/study, the NEC i s responsible to prepare and submit an inception report, mid-termstudy/survey progress report, and a final report o f work completed to the client. a. Survey/study Inception Reports (40 exp. At each survey round) 0 This report explains the NEC survey instrumentsand study methodology and consultant team work planning. The report needs to be approved by the client and the World Bank before field activity proceeds. b. Report on field test (40 exp., at each survey rounds) 0 Report on the field-testing o f the survey, problems encountered and adjustments made. c. Final Report (40 exp., at each survey rounds) 0 This report contains a detailed summary o f the execution o f the NEC studyisurvey, including all tasks and final results. This report will should be submittedto the client to longer than 60 days after the execution o f the survey. The final report will also contain the levels o f the performance indicators. d. Executive Summary (50 exp., at each survey round) This report is a summary o fthe Final Report, submittedintwo languages, Indonesian and English. Performance to be measured and evaluated 19. Easily quantifiable performance indicators: (i) Percentage o f poor kelurahanpopulation that attended at least one socialization meeting. (ii) Percentage o f kelurahan population aware of UPP3 and its objectives. (iii) Percent o f kelurahan population aware o f Community Development Plan. (iv) Percentage increase in credit at market interest rates to householdsimicro enterprises. (v) Percent o f households whose income increased after having received UPP credit. 107 (vi) Percentage poor among direct beneficiaries o f other services provided under kelurahan grant mechanismi percentage poor inkelurahan population. (vii) Percentage o f kelurahan population aware o f PAPG inPAGparticipating cities. (viii) Percentage o f poor among directbeneficiaries o f other services provided under PAPG/ percentage poor in city population. 20. More subjective performance indicators: Established mechanism for the poor to express their needs and aspirations in local decision-making, measured through. % households able to articulate problems & discuss nature o f poverty in their neighborhoods. % households living inward (lteluralian) with a community organization that i s effective; representative; participatory; accountable; and trusted by communities, and which i s able to influence local decision making. Improved efficiency o f kelurahan investments through increased accountability and increased community participation. Increase inthe number o f community organizations that are represented by federations at the city level that are capable o f increasing local government responsiveness. Established mechanism for the poor to access services, measured through: % households that receivedskills training or advice which increased their earning ability % households that directly benefited from infrastructure improvements. % households that experienced improvement inaccess to basic services All measured according to welfare levels. Continued involvement o f community organizations in local government decision-malting measured through. amount o f local government's own funds allocated through similar processes during the course o fproject and after. Amount o f local govemment funds channeled to ltelurahanorganizations in addition to project funds. % households aware o f PAPG allocation decisions. % households that directly benefitedfrom infrastructure improvements. % households that experienced improvement inaccess to basic services Measured according to welfare levels. 108 Annex 18: Strategy to Reduce Fraud and Corruption INDONESIA: Third Urban Poverty Project I.ExecutiveSiininzavy 1. The objective o f the UPP 3 Anti-Corruption Action Plan is to identify corruption risks and mitigation measures beyond the standard control systems employed by the Bank. While more detailed, program specific control systems are outlined in Annex 7: FinancialManagement & Disbursement Arrangements and Annex 8: Procurement Arrangements, this Action Plan: (i) potential risks o f maps corruption; and (ii) presents program activities to address these risks inthe form of an Action Plan. 2. The project follows a learning approach and implementation experiences will be continually incorporated into the implementationprocesses. The Anti-Corruption Action Plan should therefore be seen as a starting point and not an all-inclusive list o f mitigation measures. 3. CorruptionMapping. The matrix includedinthis action plan identifies some potential risks o f corruption and specifies some appropriate mitigation measures that have been agreed to by Kimpraswil (see table below: Corruption Mapping Matrix). The mapping exercise i s repeated during the lifetime o f the project to incorporate innovations and lessons learned. 4. The Action Plan. The strategy of anti corruptionhas been developed for two separate entities, i.e., one at the central level (involving Kimpraswil as the Executing Agency), and one at the community level (as the beneficiaries o f the Project as well as the implementing units o f the sub projects). Community level participation and empowerment are crucial to the success o f the project. Together, these factors will inspire greater accountability and better governance. This Project empowers the community (the beneficiary o f this Project) to officially manage the sub projects and be responsible for the technical quality o f deliveries and output at the Kelurahan level. The design o f the project incorporates careful socialization and transparent management techniques that enable the necessary participation and empowerment. Active participation from within the members o f the community i s requiredinplanning and developing sub projects. Inaddition, the Program provides funds channeled directly to the community, i.e., to the BKMaccount inthe case o f Kelurahan Grants and to the Dinas/BKMjoint account inthe case o f the Poverty Alleviation Partnership Grant. Once the beneficiaries fulfill the draw down conditions, the fLnds are remitted from the Special Account within a few days. Simple, standard formats are used for recording and reporting the use o f funds. This simplification reduces the need for special skills whilst malting the system more transparent and accountable. Through active participation, there i s a greater likelihood o f communities to demand services o f the urban local governments and ensure that resources earmarked for effective management and to iniprove their livelihoods are transparently accounted for. 5. Some o f the most important aspects o f the anti corruption action plan can be summarized into the five key elements that follow. Undeqinning each o f these elements is the careful consultative process that ensures participation and empowerment. A) EnhancedDisclosureProvisions and Transparency. The program will take the Bank's new disclosure provisions one step furtherby simplifying disclosed material and making them readily available through public information centers. Salient information will be made readily available to communities by a range o f other means, including public meetings and notice boards. Specific disclosure measures will include, but not be limited to: 109 Public disclosure o f annual procurement plans and schedules (and their updates), bidding documents and requests for proposals. Disclosure to all bidders o f the summary o f the evaluation and comparison o f bids, proposals, offers, and quotations, after the successful bidder i s notified. 0 Disclosure o f audit reports. B) Civil Society Oversight. The programrecognizes that greater oversight by civil society i s likely to reduce the risk o f corruption and misuse o f power. The program involves a highdegree of formal participationby community groups within the areas o f beneficiaries, the private sector, and traditionalladat and religious leaders, through the monitoring o f the projectdend results, memberships of the tender committee, and the evaluation o f the quality o f delivery procured services/products. 0 Existing NGOs and other civil society organizations will be involved in a variety o f ways, inter alia: (i)through participation in the regional workshops; (ii) as key resource persons for the development o f CDPs where possible; (iii) members o f as the PAPG Selection Committee; (iv) as evaluators on an ad-hoc basis; and (v) as training providers inparticular skill areas. C) Mitigating Collusion,Fraud & Nepotism, Opportunity for collusion and fraud exist in any project. However, since the central theme of this project i s improved and more responsive governance, many o f the possible risks are mitigated as a result o f the design. Transparent and well-advertised procurement under the program with appropriate oversight will reduce this form o f corruption. Additional auditing and procurement procedures are proposed, such as oversight by technical assistance and capacity building TA procurement and financial management specialists mappedto eachregion. At the central level, there will be a committee to be formed to regularly evaluate the performance o f the consultants who are hired under the Project, and make the results circulated to the relevant technical parties. Cases o f collusion, fraud and nepotism will be reported directly to the authorized agency mandated under the Indonesianlaw, which i s the attorney general office. Inthe case o f collusion, fraud and nepotism within the community, the cases will first be reported, discussed, and decided at the community meeting (RembugWarga) prior to their submission to the attorney general office. Experience in other CDD projects indicates that many risks can be mitigated by the threat and use o f community-based sanctions such as those used under UPP Iand 11. D) Complaints HandlingMechanism. Complaint handlingprocedures as currently defined inthe Keppres 80/2003 will be strictly followed by also assigning authorizedofficials to be responsible for maintaining a database o f complaints and the follow up actions. While the program i s designed to encourage local complaint resolution through formal channel, as well as the pressure from public, in some cases local elites mightmisuse power and program activities. For these cases, an altemative system has been established through a feedback mechanism at the national level. A special unit designated for handling o f complaints will be made available inthe NMC and OCs. The complaint-handling unit will investigate and facilitate the resolution o f complaints and problems. The database o f complaints, follow-up actions being taken, and sanctions applied will be publicized to increase participants' involvement and to increase the likelihood o ftheir lodgingprotests, thereby raising the social costs o f misuse o f funds. This mechanism handles complaints brought to their attention. These complaints will be acted upon in a professional and timely fashion, and without risk o f reprisal to 'whistleblowers'inthe public. The complaint handling mechanism developed under the Project also provides wider access 110 for the community for raising and monitoring the complaint through the establishment o f an address to mail complaints, which will be posted in the kelurahan's signboards. 6. Sanctions & Remedies. Clear sanctions andremediesare important final steps inthe effort to fight corruption. As already exercised inUPP 1and 2, this program has a low tolerance for corruption. Communities are encouraged to impose reasonable sanctions on citizens who abuse the power that has been entrusted to them. There i s an increasing wealth o f anecdotal evidence suggesting that such sanctions can be more easily applied and more effective than protracted legal proceedings, especially in smaller cases o f corruption. The project does not endorse vigilantism or extreme community sanctions, but inmany cases the communities can reach amicable resolutions without resorting to the slow and over- burdened legal system (see box for example). That said, fomial sanctions might also be applied. For example, any official (government, non-government, etc.), community members, or private sector entity participating inthe project can be prosecuted if sufficient evidence i s available. In all procurement contracts, evidence o f corruption, collusion or nepotism will result intermination o f the relevant contract, possibly with additional penalties imposed (such as fines, blacklisting, etc.) in accordance with Bank and Government regulations. Draw down o f funds from the project Special Account to BKMs will be suspendedincases where significant misuse o f funds is suspected. At a larger scale, entire Kota (s) may be excluded from participation inthe subsequent phase ifmisuse o f funds i s suspected to occur widely in the respective Kota (s). Information regarding successful cases, where lessons are learned and funds are retrieved, will be widely disseminated. ~~ ~ Box 1: typicalexample of community action against corruption Inone recent case the community decidedto holdamotorcycle, owned by the local treasurer, as collateral untilmissingfunds (Rp.3 Million or $375) were accountedfor andretumed. The treasurer was given a week to returnthe funds. This was far faster than entering into a legal battle that might well cost far more than the missing amount and take months to resolve. II,CorruptionMappingMatrix 7. Limitingthe occurrence o fcorruption inthis Project starts with identifying potential riskareas - this is called corruption mapping. This corruption incentive mappingand identification o f opportunities for corruption will be repeated at least every six months as the project progresses and lessons are leamed. CORRUPTION Opportunity Mitigation Action MAPPIKG AREA of Risk for Corruption PROCUREMENT Capacity of the Pimpro MEDIUM Non-independentjudgment o f - Independentprofessionals included as part o f the and TenderiEvaluation (Central) the consultant evaluation consultants' proposal evaluation team Committee process.The decisionstend to - Capacity building for all actors involved in bias towards consultantsas procurement, including certification of staff in "instructed" by the higher-level accordance with Keppres 8012003 officials or other parties. - Development of Project Management Manual to streamline all procedures and sanctionicomplaint handling mechanism Proposalevaluation MEDIUM -Delay in evaluation process that - The Procurement Plan, with detailed timeline, will would benefit exclusive be binding in the Legal Agreement, and will set as consultants the basis for any procurement actions. - Proposalsare rejecteddue to - The Bank would declare misprocurement for any reasons unrelated to the unjustified extension of validity of proposals capacity of consultantsin - QCBS procedures with budget ceiling will be carrying out of the followed 111 CORRUPTION Level Opportunity Mitigation Action MAPPING AREA of Risk for Corruption contractsiservices . The estimated budgetfor eachcontractpackage - Significantly high technical will be based on actual experiencedetermined scores allocated to the through the extensive survey of similar packages "preferred" consultants such that are currently underway in UPP 1 and 2 that no other consultants can effectively beat their proposals regardlcss of the prices, which could result to significantly - False infonnation about the high prices infomiation providedby the consultants Award of Contract MEDIUM - The conimittee may call the - The TOR will be designed to be quite rigid prospectivewinner and negotiatethe contract amount - Mandatory disclosure of contract awards - Collusion and nepotism in awarding the contract Quality of delivered MEDIUM - The delivered services are of -Involvement of civil society oversight and services lower quality than the ones supervisory consultants (for example: NMC in the specified in the TOR, and the case of OC, and EC in the case of NMC) inthe officials may take kickback the delivered services through the difference - inspection of - Significant changes o f key staff - Involvement of community groups in monitoring Enhanced complaint handling mechanism o f consultants at the early stage quality of the consultants' deliverables of the assignment -the r Enforce rewardpunishment system as defined in - Intentionally low quality of Keppres 8012003 supervision of contracts, and kickback from the consultants MEDIUM Risk ofkickback, and budget Mandatory review by the Bank of Procurement Procurement Planning. markup Planning, and disclosure of Procurement Plan in including the onefor public domain, including disclosing the contract the sub projects amount Overall Procurement MEDIUM Risk of kickback, collusive - Enhanceddisclosure, complaint handling, and practices to "award" the contract as defined in Keppres 8012003 to "preferred" consultants, and -sanctions Enhancedcapacity for the officials involved in lower quality of services procurement decision, including hiring of -consultantsthe control system (internal and extemal) Enhanced including involvement of professional members of civil society in the procurement decision actions -- Development of Project Manuals Tighten Bank supervision The final list of MEDIUM - Risk of un-sufficient caDacitv . The criteria and perforniance indicators of Project CPMU, PMU and PIU of CPMU, PMU and PI'U staff. Manager, Treasurer, planning staff, procurem&t staff with their (I) staff, and financial staff. Staff of CPMU, PMU and experiences in PIU agreed by the Bank have been incorporated in handlingdonor the PMM and will be used as the basis of the financing project and annual performance review of the relevant staff (11)history of project . Requirement of POM as aguideline for project management and or iniplementation. treasury training taken - Requirement of Government Project Management, 112 CORRUPTION Level Opportunity Mitigation Action MAPPING AREA of Risk for Corruption Treasury and POM training for CPMU, PMU and PIU staff. Annual Training agreed by the Bank on CPMU, PMU and PIU staff. Audit Report MEDIUM Risk of unavailability o f f i e implenienting agency will (and the World Bank Publication information on the progress and :an) make publicly available promptly after receipt result of project implementation iffinal audit reportspreparedin accordancewith the (including misuse, collusive and oanicredit agreement, and all formal response of the nepotismpractice if any). 3ovemment Local Accountability MEDIUM Lack of local experience may The project design includes oversight and Mechanisms result in communities missing cases of abuse. supervision to minimize risks. 3KMs will meet regularly to make collective jecisions on strategic issues, and to review the UPK's accounts regarding the use of funds. The BKM will also hold annual meetings with the general :ommunity to account for its activities during the year. Local accountants will audit BKM finances each year. Audit results will be reported to the community at the end-of-year BKMaccountability meeting. Ideally, each B K M should be visited at least twice per annum by the NMC. In order to enhance the quality of consultants' supervision under the project, facilitators are required to regularly check the BKM and UPK books. They will also need to sign and file a "representation statement" regularly, confirming that they have checked the books and found them satisfactory. The OCs at higher level would randomly check the facilitators' statements and will also be required to sign and file similar representation statements. A mechanismfor checking and applying sanctionswill be developed for those filing false statements (sanctions may includejob separation). Limited dissemination LOW Information IS kept limited to Socialization will be carried out through meetings, of information related certain circulation or group of workshops and focus group discussions at the to the Program people only suchthat non kelurahan, kecamatan, kota and provincial levels. It qualified proposalscould be will also include a campaign through newspaper expected spots and radio programs. The socialization strategy i s geared towards making cominunities aware of the project's goals, and its rules and regulations. These are aimed to ensure that stakeholders know what their respectiveroles and responsibilities are, and how to hold each other accountable for their actions. 113 ISelection of BKM LOW Non transparent process of BKM The selection process of BKM members will be members members which result to low conductedthrough a transparent and fair election integrity process, with significant participation from the members of the community Channeling of funds MEDIUM Kick backs for the govemnient UPP3 funds go directly to communities, i.e. to the officials BKM account in the case of Kelurahan Grants and to the DinasiBKMjoint account inthe case of the Poverty Alleviation Partnership Grant. Once the beneficiaries fulfill the draw down conditions, following a request from the PJOK (after verification by the Oversight Consultants), the funds are remitted from the Special Account within a few days. The procedures, size and criteria for defining grants, eligibility criteria for beneficiaries, and conditions for draw down are all simplified and defined upfront to ensure that stakeholders can understand them easily. For the Kelurahan Grants, the conditions for draw down of funds to BKM are linked to performance rather than inputs, with the first draw down of 20% based on satisfactory completion of the BKM's Community Development Plan; the second 50% based on indicators of satisfactory utilization of funds and financial management, and the third 30% based on indicators of BKM sustainability. Since communities know how much they should be receiving, it should be harder for officials to engage in rent seeking. Implementation of the MEDIUM Misuse of funds by the BKM and KSMs are requiredto prepareand submit reports on sub project investments KSM progress and their use of project funds to the BKMs. All financial information i s made public and displayed in the kelurahans. Minutes of meetings, BKMs' monthly financial status, ,and names and amounts of funded proposals are posted on signboards that are displayed around the kelurahan. Discretion of actors i s limited by setting rules that all financial transactionsrequire at least three signatures, two from the elected B K M members and one from the project's OC. For purchases above Rp.15 million each, the project requires the BKM to conduct a limitedbid whereby quotations mustbe read out in public. For snialler purchases, local shopping must be carried out by two persons who will seek quotations from local suppliers. Local accountantswill audit B K M finances each year. Audit results will be reported to the community at the end-of-year BKM accountability meeting. 114 Examplesof how corruptionwas handledin UPPl BKM KotaBaru, Bekasi,and West Java: The BKMinthis kelurahanwas not formed ina democratic manner. The BKMchairmanwas "elected" by manipulation of the head of the kelurahan (the Lurah). The Chairmanrana business which neededcash, so fake KSMswere formed and the money channeledto the Chairman's business. A young community resident discoveredthis malpractice who informed the facilitator. The facilitator tried to set up a community meeting with the BKMbut was vetoedby the BKMmembers. The Oversight Consultantintervenedand a community meeting was held. The BKMchairman confessedand the money is being returned. New elections produced a new set of BKMleaders truly electedby the community. BKM Bintoro,Demak: The identity cardof some villagers hadbeenborrowedby the members of BKM. The reasonwas not explainedto the villagers. Some BKMmembersusedthe cards to create a fictitious KSM called Amana inorder to siphonhnds for themselves. Amana owed a debt of Rp. 56 millionto the BKM, almost 60% of all delayedmicro-credit repaymentsinthe kelurahan.Members of the board usedthe money for their own purposes-for instance, the treasurer Zaenuri claimed that he had lent Rp 10million to some friends to start a business trading inginger. A group of community members decidedto form a team-Tim PenyelamatDanaP2KP or `Team to safeguard UPP Funds' . Their primary objective was to remove the old BKM. One strategy was to socializethe problemto the broader community and gainer their support to this end. A second strategy was pushing for the support o f the Bappeda, the chair of the Government Coordinatioii Team for UPP. After a series of meetings at the Bappeda, the old chaimian BKMagreedto step down. BKMCipadung,Bandung:The treasurer was accusedof embezzlingaroundRp. 100millionofthe funds. The money was usedto buildaprivate Islamic school. The treasurer created two fictitious KSMs,markingup the amountsrequestedby the KSMs,andhoarding repayments. The community formed a Tim PenyelamatDanaP2KP (Teamto SafeguardUPP Funds). This team with the help of the facilitator, acted as a pressure group to solve this case. However, the problemcould not be solved at the community level. Eventually, the case was formally reported to the police and the suspect was detained. 115 Annex 19: Strategyto Ensure Gender Mainstreamingand Equality INDONESIA: Third Urban PovertyProject Women's participation in the community development process is a k e y factor in establishing organizations that truly represent all people in the community. It i s also important for providing services that respondnot only to the community at large, but also to specific needs that women m a y have. The following gender strategy has been developed for UPP3 to more systematically address gender mainstreaming and equality. Activities Measuresto Ensure Gender Mainstreaming andEquality 1 Socialization and Explain and discuss how important women's participation i s for dissemination at each poverty reduction level (national, Explain gender goals o f project within its poverty strategy provincial to kelurahan) The communications strategist is responsible for determining the best ways for ensuring that women at all levels receive the same information as the men, using whatever media and language is appropriate, for example; posters, plays, radio, leaflets Regular rapid evaluations by facilitators should identify the effectiveness o f the materials used and also identify those that are not receiving information inthe villages so that new initiatives can be introduced 2 Consultants and Advertisements for all new project staff should state that facilitators `women are strongly encouraged to apply ` Ifthere are bothmaleand female eligible candidates for positions, females should get priority It is expected that a minimumo f one third o f consultants and facilitators per province would be women Maternity leave will be according to the laws in force at the current time. Additional costs o f providing maternity benefits should be included inthe social costs o f the contracts with consultants and facilitators should clarify the provisions. 3 Training o f consultants Include gender-related issues (meeting techniques, timing, and facilitators facilitation, specific culture local women identification, etc) 4 Simple gender manual Identify local specific and acceptable ways to i)ensure women can participate in all aspects ofihe program; and ii)to - disseminate information to women. 5 Meeting for selection of At least 30% o fparticipants shouldbe women community cadre Equal opportunity for women in cadres' selection At least 30% o f selected community cadres should be women 6 Community cadre Include gender-related issues (meeting techniques, timing, training facilitation, specific cultural issues, local women identification, - etc.) 7 Focus Group Discussion Hold special focus group discussions for women (separately specially on poverty from men) identification, and local Ensure that gender sensitive approacheslmethods are used that institutions analysis match local conditions (place, timing, facilitation techniques, etc.) 116 Activities Measuresto Ensure - Gender Mainstreaming and Equality 8 Participants selection for Try and ensure during socialization that 50% of community self survey (Survey participantsare women Swadaya) and participatory At least one third of the Survey Swadaya members - planning training shouldbe women 9 Developing LembagaMasyarakat Try and ensure that 40% of the meetingparticipants are (BKM)process from women RTiRWiDusun to kelurahan Ensure through socialization that communities are aware that women have equal oppoitunity to be elected as BKMmembers. 10 Selectingthe UPK Ifthere are bothmale and female candidates eligible, - females should get priority 11 KSMproposal writing Ensure that women KSMproposals are written by themselves (with assistance from community cadreifacilitator if needed) 12 Defining proposals priority by Ensure women KSMwho propose can come to meetings `rembuk masyarakat' meeting (Le. be carehl with place and timing of meetings to allow women to participate given their local conditions) Give priority to women's proposal ifthey meet the - criteria accordingto the verificationteam 13 Monitoring and evaluation Ensure formats for monitoring and evaluationscollect formats information on women's participation in all aspects of the project, including meetings, women beneficiaries, etc. to improve performance ifneeded. Disaggregateregular MIS data by gender Strategies for ensuring transparency must ensure that women have easy access to the informationand that they understandtheir responsibilities for monitoring the use o f the funds. Use participatory methods for monitoring at village level. 117 Annex 20: Socialization and Training Program INDONESIA: Third Urban Poverty Project Timing Activities Participants Frequency/ Duration Organizer/ Venue Conducted by A. National Package Prior to Project Launching Related l x Few hours Project actual Ministries Management activities of Unit (PMU) the Project -----One day Seminar 5-10 Media I X Fewhours PMU PressRelease 3-5 TVS PressConference 25 Journalists 50 Leaflet disseminated 50 Booklet disseminated Pressrelease Public Before and after Few hours PMU a strategic event Month 1 Web site online Public Continuous Continuous PMU Month 1 Coordination meeting ,411echelon I 1 x Few hours DGHS conductedby Coordinating relatedto at center Minister of Social Welfare poverty alleviation movement - 15 leaflets disseminated Month 1 Central Orientation Workshop 40 person I X Iday PMU (COW) (Kimpraswil at Center staff, Project Staff & NMC 40 Manual project disseminated Month 1 Package A 3 DGsiDeputies 5 x Few hours Hosted by related to UPP At Center DGHS, financed per event by PMU (Informal meeting with (Including related echelon 1 or alike on UNDP officers poverty alleviation movement & selected & UPP) parliament members) Month 1 Package B 4 Directors 6 x Few hours Hosted by related to UPP At Center DGHS, financed per event. by PMU (Informal meeting with (Including head related echelon 2 or alike on oftraining poverty alleviation movement center/BLK) & UPP) Month 1 Training for NMC & Project 30 Project Staff 1 x 6 days PMU under staff (Basic+Project Cycle) and NMC staff at Center NMC contract 118 - N o Timing Activities Participants Frequency/ Organizer/ - Veniie II Duration Conducted by 10. Month 1 Serial informal gathering with Related echelon 1 x 1 2 weeks PMU under (every year) strategic stakeholder to and 2 daylagency NMC contract discuss UPP, PAPG & ND -1 2 o r 3 echelon 1 per event - 3or4 echelon 2 per event _. 11. Month 1 LobbylRoving visit to related Related PMU under agencies for poverty ministries daylagency NMC contract alleviation 100booklet disseminated - - 100 VCD disseminated 12. Month 1 National Orientation 50 I x 1 days PMUunder Workshop (NOW) (Staff of inter- at Center NMC contract ininisterial agencies, DGHS staff, Governor, Prov. Bappeda & Prov. Parliament) - --- 1 Banners 60 Leaflets disseminated 60 Manuals Project Disseminated 13. Month 2 Basic Training for OC & its 125 OC staff 1 x 4 days NMC - firm at Center 14. Month 2 Project cycle training for OC I12OCstaff 1 x 3 days NMC staff ( 1 25-13 ) at Center --- I25 Leaflets disseminated 125 Manuals Project Disseminated 13 VCD each title disseminated 15. Month 2 Workshop with medias to 40pofnews 1 x 1 day NMC introduce UPP paper, TV and at Center radio station, joumalists, etc -- 40 leaflets disseminated 40 booklet disseminated 40 VCD disseminated 16. Package C universities + at Center (Informal meeting with university scholars & researchers per went (1 0 people /event) 50 leaflets disseminated 50 booklet disseminated - -- 50 VCD disseminated 17. Month PackageD 20 participants 1 x Fewhours PMU at Center (Informal meeting with NGO network for poverty --- 20 leaflets disseminated 20 booklet disseminated - 20 VCD disseminated 119 Timing I Activities I Participants I Frequency/ I Duration I Organizer/ I Venue Conducted by Month 3 Training of trainer (basic, 60 Trainers I x 2 weeks PMUunder project cycle, training (Special at Center NMC contact methodology) for selected Training Team) members o f project staff, NMC and OC (Become I I I special training team) -- 1 Banners - 60 Manual training disseminated + 40 training kits 60 Manual Project disseminated Month 9 Field of Gov't CEO s to UPP Gov't CEOs & 3 x per project 3 days PMU under (started) project areas parliament period NMC contract members Month 12 Workshop for Sharing 7 NGOs, 5 1 x at center 1 day NMC contract Experience with other Universities and strategic stakeholders 8 GO1 Month 13 Field visit of 5 national 2 x 5 days PMU under joumalistsimedia journalists NMC contract Month 14 National TV program 3 selected 2 per project 30 hours PMU under National TV period NMC contract stations Month 19 Workshop for Sharing 7 NGOs, 5 1 x at center Iday NMC contract Experience with other Universities and strategic stakeholders 8 GO1 Month 20 Writing best practice o f UPP Independent 4 x in project 2 month PMUunder by independentresearcher researcher period NMC contract Month 22 Orientation workshop on Selected local 1 x at central 2 days PMUunder PAPG& Neighborhood government NMC contract Development to selected local (Bappeda,KPK government DiTKPP etc) Month24 Advance Training for Trainer Team o f As needed 1 week NMC I 4. B. PROVINCIAL PACKAGE I I Month 2 Advertise of community Public facilitator recruitment to facilitate community development in 14 provinces Month 3 Provincial orientation 50- 100 workshop (Mayor/ Bupati, Capital of under OC Bappeda, 3 Province contract Local parliament members) -- 2125 Leaflets Banners disseminated 120 - No - - 33. 34. - 35. - - 36. - -31. 3s. - 39. - 40. - 41. - 42. - 43. - 44. stakeholders .__ 45. Month Strategic Stakeholders 25 Members of S x 1 dayievent KPKD under 6 (started) gathering to discuss the result KPKD + at various places OC contract o f community self survey at Strategic - grass root level stakeholders -46. Month 6 Skill Training for PJOK 60 l x 2 days oc 41. Month 6 - Coaching for Facilitators ( 60 Facilitators 20 x / project 1- 2 oc 24 some issues for problem period at Korkot dayievent - solving - by request ) Office 48. Month 7 Radio talk show on poverty Opinion leaders 1 - 3 x 1 weeks oc (before issues and roles of cadres Local gov't at local radio training of Public station - Cadres) -49. Month I O Radio talk show on Local Opinion leaders 3 - 5 x 1 weeks oc 121 v Activities Participants Freceyeyy/ Duration Organizer/ ~ Conducted by (before Community organization and Local gov't at local radio election of community leaders Public station formation) Radio talk show on PJM I weeks 3C Pronangkis Formation of B K M forum at I weeks 3C city level o f BKM ] Kabupaten Training on Participatory 30 KPKD and 1 1 x at Kotai 4 days 3C Poverty Assessment for Volunteers Kabupaten KotdKabupaten's Volunteers (KVs) Lobbiesiroving visit to related Strategic 2 weeks 3C local institutions and strategic Af institutions KotdKabupaten stakeholders to introduce PAPG Month 25 Formation o f PAPG KPKD, BKM 1 x at Kota / 1 day KPKD & OC (started) Committee Forum and Kabupaten volunteers 16 Training for PAPG committee 30 KPKD and 1 1 x at Kota / $ days oc for selected KotdKabupaten Volunteers FGD on formulation of PAPG 1 day KPKD & OC Committee in the selected city Forum and Kabupaten Workshop on integrationof 2 days KPKD & OC city development plan with PJM Pronangkis DPRD, Caniat, BKM Formation of Partnership BKM,Dinase I1 x at Kota / 2 weeks B K M & OC Committee (Panitia and volunteers Kabupaten Kemitraan) at keliirahanidesa ip level Assessment and prioritizing 1 x at Kota/ 3 days oc joint proposals and Committee Kabupaten dissemination Meeting to discuss 1 x at Kota / 1 day oc community responses to list Committee Kabupaten of priorities Disseminating of the result o f OC, PJOK, 1 x at Kota / 3 days OC & MNC verification on the KPKN Kabupaten performance of Partnership Committee (panitia kemitraan) and implementation of the proposal Disseniinatingbest practice of KPKD and 1 x at Kota / 3 days OC & MNC PAPG Kabupaten Committee I- Training for Neighborhood 4 days oc Development committee for Volunteers Kabupaten ~ selected KotdKabupaten D.KecamatanPackage KecamatanOrientation I x Camat under Workshop (KOW) LurahiKadesI at Capital of I day OC contract Strategic Kecamatan stakeholders Icecamatan) 122 - No Timing Actkities I Participants I Frequency1 I Duration Organizer/ - Venue Conducted by Per Kecamatan 1 Banners - -- 40 Leaflet disseniinated 65. Month I 1 Basic training for UPK. UPS I " 90 UP members BKM & OC - and UPL 66. Month 12 Skill training for UPK I30UPK BKM & OC (Fund management & book Kecamatan keeping, principle of micro I finance)Skill training for - UPK 67. Month 12 Skill training for UPS 30 UPS 1 x at Capital of 6 days BKM & OC - members Kecamatan 68. Month 12 Skill training for UPL 30 UPL Ix atCapitalof 6 days BKM & OC - members Kecamatan 69. Month I6 Refresherisharing experiences BKM & PJOK 3 x at Capital 1 day TF (started) for BKMiPJOK in line with of Kecamatan - trenches 70. Month 16 Refresherisharing experiences CVs 3 x at Capital of 1 day TF - (started) for comm. volunteers Kecamatan 71. Month 12 Sltill training for BKM Some of BKM 1 x at Capital of 4 days TF (Team building, non profit members Kecamatan organization, fund raising, - writing proposal) 72. Skill training on project Some of BKM 1 x at Capital of 2 days oc - appraisal for BKM members members Kecamatan - - Assumption one kelurahan consists of 10 RWs and 1 RW consists of 10 RTs 73. Month 5 Social mapping by facilitator I Kelurahan Il x at Kelurahan I 1 month Team Facilitator - community (TF) 74. Month 5 Kelurahani IImonth TF UPP to ltelurahanidesa infonnal Desa apparatus & strategic leaders, stakeholder prominent - 75. Month 6 Community gathering to 150 participants 1 x at kelurahan Idav discuss UPP 3 (accept or (adult people) / desa reject) - 76. Month 6 Registration of community 50 participants 1 x at Kelurahan 2 weeks TF volunteers - 77. Month 7 Basic training for community 50 participants 1 x Kelurahan , 4 days TF volunteers - 78. Month 7 Coaching on how to facilitate 50 participants Ix 1 day TF - FGD and poverty reflection at Kelurahan 79. Month 8 Implementation ofpoverty 30 p per 1 x RTiRW 1 day CVs & TF reflection smallest unit of community - Community medidnews letter disseminated 80. Month 8 Community gathering to 150 participants Ix kelurahan 1 day CVs & TF discuss the result povcrty idesa - reflection 123 Timing Activities Participants Frequency/ Duration Organizer/ Venue Conducted b Communitymediahewsletter disseminated Month 8 Registrationo f additional 30 participants 1 x 1 weeks coinmunity volunteers Kelurahan Month 8 Coachingon Community Self 50 participants Ix 5 day -I Survey(CSS).leadership& (CSS team) at Kelurahani institutionalarrangements Desa Month 9 CommunitySelf Survey CSS team + I X 2 weeks CVs & TF community Kelurahan I members Month 9 Communitygathering to 150 participants 1 x 1 day discuss the result of CSS & at Kelurahani CVr&TF formation o f implementation =I committee (IC) for BKM Desa ~ Month 9 Coachingto CVs on BKM 50 participants 1 x 1 day formation at Kelurahani Desa Month 10 FGD on BKM formation (by Community continues 2 months IC, CVs, TF law, criteriao f leadership, process election o f RTRW delegation) Month 10 Establishmentof local 200 participants 1 x 1 day IC, CVs, TF communityleadership at Kelurahani institution(BKM) and Desa -7 I election of community leaders Month 11 Basic Trainingfor BKM BKM members l x 4 days at Kelurahan Month 12 Coachingon participatory BKM members I x 1 days z. planning(PJM Pronangltis) Community at Kelurahani Volunteers Desa (CVS) Month 13 Communityreflection on BKM members I X 2 days TF & OC project cycle & lesson leamed Community at Kelurahani volunteers Desa Month 13 Participatoryplanningon Kelurahan 1 x year, at 2 weeks PJMiRentaPionangkis Icommunity Kerlurahan 300 pc Summary of CSS Month 13 Formationof KSM Kelurahan At Kelurahani Continuous coinmunity Desa activities Coachingfor KSMs libadge of at ltelurahan 1 day I 10000people) Rp.500 million(US$58,800) Rp. 500 nillion (US$ 58,800) Second Order Targeting 8. Second order targeting to reach the poor within the ltelurahan will be done by the BKMrather than by project staff or a priori selection. The following measures will be taken to ensure that the BKM targets project benefits towards the poor in communities. CoiiziizunityDevelopnient Plans. Awareness raising/socialization at the community level will be geared towards identifying poor groups within the kelurahan and planningprograms to support them. The CDPs, which will be developed following a Community Self Survey process using participatory planning methods, will be pro- poor and will be evaluated by project staff to ensure that the process used intheir formulation included the voices o f the poor, thus enabling the community to understand the specific nature o f poverty intheir areas. The CDPs will set the framework for the kinds o fproposals that will be eligible for grants and for revolving funds. 0 Revolving F Z ~ I ZRevolving funds will not be targeted directly to the poor. They ~ S . will rather target community groups (KSMs)with profitablebusiness opportunities and adequate repayment capacities, who have no other access to credit. This i s based on the fact that credit may increase rather than decrease the indebtedness o f very poor households who do not have profitable business opportunities. Indirect means will be used to ensure that the poor benefit more from loans by: (i) requiring potential borrowers to form groups for loans, and providing loans on group eligibility rather than only individual eligibility; and (ii)loan terms and conditions to discourage borrowers who may have other access to credit (e.g., restricting loan size to small amounts o f Rp 500,000 or US$ 58 for first time borrowers; loan duration inline with loan use with a maximum o f one year; usually monthly installments; and interest rates that reflect credit interest rates o f local banks as well as the cost of operating and maintaining revolving funds). Grant assistancefor poorest and most vulnerablegroups. The CDP may identify extremelypoor or vulnerable groups (e.g., disabled, widows, elderly) whose needs may not be met through improving infrastructure or micro-credit services. Ifthe CDP identifies specific individuals for special grant assistance (such as 127 medicinesihealth care, scholarships, food supplements, etc.), up to 10% o f the BKM allocation may be used for these targeted populations. e Poverty Alleviation Partnership Grant. This grant will target the partnership committee. The committee i s comprised o f district'municipality offices and community organization (BKM),which are acceptor o f assistance at targeted locations. Targeted location i s districtimunicipality o f implemented UPP location. However, due to the limitation o f funds, only some district/municipality will be targeted by PAPG grant. Since proposals are beingjointly prepared with BKMs,who have already identified priority action for alleviating poverty in their community development plans, it i s expected that proposals for the PAPG will also be o f a pro- poor nature. A key criterion for evaluating proposals for the poverty Alleviation Grant will be the numbers o f poor benefiting from each sub-project. Fiirther streizgtlieizing ojexistiiag BKMs. This grant will be targeted to certain kelurahans, which have fulfilled the qualification o f self-sufficient performance for financing activities in more advance poverty activities. This plan i s targeted the poor through its principle o f pro-poor good governance. It will assist the BKMto implement few reforms at the Kelurahan level affecting the poor and improve various access to the public discussion process, as well advocacy to the rights o f poor o n settlement. 128 r Selection o f Targeted Kelurahan ~~~ Kelurahans innon-KDP kecamatan and lion UPPl & UPP2 districtimunicipality 1 PODES data kelurahans Yes I I Outside 20% richest :o/- No n.." kelurahans Kelurahans >=35% pra Reserve Kelurahans Draft List of Draft List o f Kelurahan 2 sorted based on Kelurahan1 ascending order o f average composite score and lionpra KS Select the most eligible kelurahans from draft list 2 based on funding available Targeted Kelurahans Roadshow (location verification ) i FinalList of Targeted Kelurahans 129 11. Targetingof the selected UPPl and UPP2Kelurahansfor the 2"O grants 9. All the UPPl and UPP2kelurahan were originally selected usinga similar method as for the selection o f kelurahans for the initial grants under UPP3 described above. For the 2'ldgrants under UPP3, which will be offered to selected UPPl and UPP2 kelurahan, the following methodology will be used. Firstorder targeting will be through the selection o f "well performing BKMs" selected usingthe following criteria; BKMhas satisfactory financial performance (regular annual audit) and has undergone second term election (2ndelection) from their o w n initiative, in line with the UPP guidelines, with a minimumo f 20% ofthe adult population inthe kelurahan casting their ballots for BKMelection. 10. Second order targeting, will try to reach poorest kelurahans among the selected kelurahans o f UPPl and UPP2. Any kotaikabupaten selected under the above process with more than five eligible kelurahans will be qualified. It i s expected that about 20% o f the participatingkelurahans o f UPPl and UPP2 or about 660 kelurahans will be selected to receive further technical assistance and the 2'ldgrants. Incase the number of targeted kelurahans resulting from this process is above the available budget, the kelurahans with the highest number o f poor households will be prioritized. 11. The final number o f target kelurahan will depend o n funds available. Each participating kelurahan will receive additional grants o f Rp. 150 million (US$17,650). Diagramof the Selection of Kelurahans for Community Grants (2ndgrants) Participating Kelurahans of U P P1 and UPP2 No BKM has financial audit satisfactory elected with at least 20% adult voters Kota / Kabupaten 2 5 kelurahans -pqNo c Final list o f targeted kelurahans for the 2"d stage grants 130 ProposedLocation of UPP-3 '-3" Ex-UPPl& UPP2 Kelurahansfor the zndgrants Phase-1: Urban area in: Urban area in: Urban area inNorthem Urban area in: Coast o f Java, plus DI Kalimantan, --- Sumatera Island Maluku Island ---- Java Kalimantan Yogyakarta, and Kota -- Sulawesi, East Kalimantan Sulawesi Malang - WestNusa Maluku West Nusa Tenggara -- North East Nusa Tenggara Phase-2: Tenggara New kelurahans inthe Phase-2: Papua same kotaikabupaten Urban area in -- Bali plus Banten Province, Southem Coast of without DKIJakarta Java 13 15 Number o f 58 79 103 660 3.3 Million 1.5 Million 131 l- r 8 r r 0 N 0 6 N Q, 0 0 N 0 CQ 0 N r-0 0 N (0 0 0 N --5 - 80 -I N m 0 0 N 0 N 0 N r 0 N 0 0 0 0 - - N Q, I I UPPAnnual Disbursements (GO1FY) UPP2 50.0 40.0 30.0 US$ M US$M ~ 20.0 ~ 10.0 I 0.0 2000 2001 2002 2003 2004 2003 2004 2005 2006 2007 PAD HActual i 1 UPAD BRevised Estimte 1 UPPS US$M I UPP 1 PAD BActual & rev. est 1 134 95° 100° 105° 110° 115° 120° 125° This map was produced by the Map Design Unit of The World Bank. The boundaries, INDONESIA colors, denominations and any other information shown URBAN POVERTY on this map do not imply, on the part of The World Bank PROJECT 3 Group, any judgment on the legal status of any territory, 15° or any endorsement or a c c e p t a n c e o f s u c h PROVINCES TO BE EXTENDED INDONESIA boundaries. IN UPP 3 SELECTED CITIES AND TOWNS MYANMAR VIETNAM PROVINCE CAPITALS PHILIPPINES NATIONAL CAPITAL 10° 10° RIVERS THAILAND Sulu MAIN ROADS Sea RAILROADS PROVINCE BOUNDARIES Banda Aceh INTERNATIONAL BOUNDARIES L A 5° A Y BRUNEI 1 S Talaud Medan M Natuna 135° 140° Besar I Celebes Is. Tarakan Pematangsiantar A Sea Simeulue 23 Morotai PACIFIC OCEAN 2 SINGAPORE 22 Manado Nias Pekanbaru Tanjungpinang 24 Ternate Halmahera 0° KALIMANTAN Gorontalo Waigeo M 3 Pontianak Lingga 25 0° 19 enta w a i Samarinda Manokwari Padang 28 Biak Balikpapan Palu Sorong Siberut 4 5 Jambi Peleng Obi Bangka 20 SUMATERA Pangkalpinang Palangkaraya SULAWESI Sula Is. Misool Yapen Jayapura 9 Ceram I s . 26 IRIAN JAYA 6 Palembang Belitung 21 Amahai Fakfak 7 Bandjarmasin 27 Kendari Buru (PAPUA) Bengkulu 30 Parepare Ambon Timika Puncak Jaya 8 (5030 m) 5° Ujung Pandang Muna Kai Enggano Bandar 11 Java Sea B a n d a Is. Lampung JAKARTA Baubau 29 0 200 400 Kilometers Serang S e a Aru GUINEA 12Bandung Is. Semarang Madura 10 13 APUAP Surabaya Wetar 0 100 200 300 400 Miles JAWA Babar Tanimbar Yogyakarta 16 15 Sumbawa Alor Moa Is. BaliLombok Raba Flores 14 Merauke NEW 95° 100° 105° Denpasar Mataram Ende Arafura Sea 17 18 TIMOR-LESTE PROVINCES: 10° Waingapu Sumba Timor 10° Kupang 1 NANGROE ACEH DARUSSALAM 11 D.K.I. JAKARTA 22 KALIMANTAN TIMUR 2 SUMATERA UTARA 12 JAWA BARAT 23 SULAWESI UTARA 3 RIAU 13 JAWA TENGAH 24 GORONTALO 4 SUMATERA BARAT 14 D.I. YOGYAKARTA 25 SULAWESI TENGAH I N D I A N O C E A N 5 JAMBI 15 JAWA TIMUR 26 SULAWESI SELATAN 6 BENGKULU 16 BALI 27 SULAWESI TENGGARA 7 SUMATERA SELATAN 17 NUSA TENGGARA BARAT 28 MALUKU UTARA IBRD APRIL 8 LAMPUNG 18 NUSA TENGGARA TIMUR 29 MALUKU 15° 15° 9 BANGKA-BELITUNG 19 KALIMANTAN BARAT 30 IRIAN JAYA (PAPUA) 33987 2005 10 BANTEN 20 KALIMANTAN TENGAH A U S T R A L I A 21 KALIMANTAN SELATAN 115° 120° 125° 130° 135° 140°