Document of The World Bank FOR OFFICIAL USE ONLY Report No: ICR00004004 IMPLEMENTATION COMPLETION AND RESULTS REPORT ON A LOAN IN THE AMOUNT OF SDR 227 MILLION (US$ 300 MILLION EQUIVALENT) TO THE Republic of Indonesia FOR THE Indonesia Infrastructure Finance Facility June 24, 2024 Finance, Competitiveness And Innovation Global Practice East Asia And Pacific Region CURRENCY EQUIVALENTS (Exchange Rate Effective {April 2, 2024}) Currency Unit = US $ US$ 1.32 = SDR 1 FISCAL YEAR July 1 - June 30 Regional Vice President: Manuela V. Ferro Country Director: Carolyn Turk Regional Director: Lalita M. Moorty Practice Manager: Cecile Thioro Niang Task Team Leader(s): Dara Malia Lengkong ICR Main Contributor: Owen Nie, Neni Lestari ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank AF Additional financing CERO Climate and Environmental Risks and Opportunities CPF Country Partnership Framework ERR Economic Rate of Return E&S Environmental and Social ESG Environmental Social and Governance ETI Environmental Technology International FM Financial Management FIL Financial Intermediary Loan GCF Green Climate Fund GOI Government of Indonesia IIF Indonesia Infrastructure Finance ISM Implementation Support Mission ISR Implementation Support Report M&E Monitoring and Evaluation NBFI Non-bank Financial Institution NDC Nationally Determined Contribution NGFS Network for Greening the Financial System NPV Net Present Value PAD Program Appraisal Document PDAM East Java Government Provincial Regional Drinking Water Company (PDAM) PDO Project Development Objective PPP Public-Private Partnerships RDMP Refinery Development Master Plan ROA Return on Asset ROE Return on Equity SEMS Social and Environmental Management System SMI Sarana Multi Infrastruktur SPAM Umbulan Water Supply System ToC Theory of Change TTL Task Team Leader USO Universal Implementation Service Obligation TABLE OF CONTENTS DATA SHEET .......................................................................................................................... 1 I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES ....................................................... 6 A. CONTEXT AT APPRAISAL .........................................................................................................6 B. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) ..................................... 11 II. OUTCOME .................................................................................................................... 13 A. RELEVANCE OF PDOs ............................................................................................................ 13 B. ACHIEVEMENT OF PDOs ........................................................................................................ 13 C. EFFICIENCY ........................................................................................................................... 18 D. JUSTIFICATION OF OVERALL OUTCOME RATING .................................................................... 20 E. OTHER OUTCOMES AND IMPACTS (IF ANY)............................................................................ 20 III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME ................................ 21 A. KEY FACTORS DURING PREPARATION ................................................................................... 21 B. KEY FACTORS DURING IMPLEMENTATION ............................................................................. 23 IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME .. 24 A. QUALITY OF MONITORING AND EVALUATION (M&E) ............................................................ 24 B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE ..................................................... 25 C. BANK PERFORMANCE ........................................................................................................... 26 D. RISK TO DEVELOPMENT OUTCOME ....................................................................................... 27 V. LESSONS AND RECOMMENDATIONS ............................................................................. 28 ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS ........................................................... 31 ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION ......................... 35 ANNEX 3. PROJECT COST BY COMPONENT ........................................................................... 38 ANNEX 4. EFFICIENCY ANALYSIS ........................................................................................... 39 ANNEX 5. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS ... 40 ANNEX 6. SUPPORTING DOCUMENTS .................................................................................. 44 ANNEX 7. IIFF FINANCIAL PERFORMANCE ............................................................................ 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) DATA SHEET BASIC INFORMATION Product Information Project ID Project Name P092218 Indonesia Infrastructure Finance Facility Country Financing Instrument Indonesia Investment Project Financing Original EA Category Revised EA Category Financial Intermediary Assessment (F) Financial Intermediary Assessment (F) Organizations Borrower Implementing Agency PT Indonesia Infrastructure Finance, PT Sarana Multi Republic of Indonesia Infrastruktur Project Development Objective (PDO) Original PDO The objective of the Project is to strengthen and further develop the institutional framework of the financial sector to facilitate financing of commercially viable infrastructure projects and thereby increase provision of private infrastructure in Indonesia. Revised PDO To strengthen the financial capacity of IIF to increase the access to private sector financing for infrastructure in Indonesia Page 1 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) FINANCING Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$) World Bank Financing 100,000,000 99,880,000 99,880,000 IBRD-77310 200,000,000 200,000,000 198,600,179 IBRD-87150 Total 300,000,000 299,880,000 298,480,179 Non-World Bank Financing 0 0 0 Borrower/Recipient 0 0 0 Total 0 0 0 Total Project Cost 300,000,000 299,880,000 298,480,179 KEY DATES FIN_TABLE_DAT Approval Effectiveness MTR Review Original Closing Actual Closing 24-Jun-2009 25-Apr-2011 18-Jul-2012 31-Dec-2013 31-Dec-2023 RESTRUCTURING AND/OR ADDITIONAL FINANCING Date(s) Amount Disbursed (US$M) Key Revisions 21-Oct-2013 50.00 30-Nov-2015 99.88 Change in Loan Closing Date(s) 23-Nov-2016 99.88 Change in Loan Closing Date(s) 12-Oct-2021 215.80 Change in Loan Closing Date(s) Change in Implementation Schedule Other Change(s) KEY RATINGS Outcome Bank Performance M&E Quality Highly Satisfactory Satisfactory Substantial Page 2 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) RATINGS OF PROJECT PERFORMANCE IN ISRs Actual No. Date ISR Archived DO Rating IP Rating Disbursements (US$M) 01 26-Jun-2010 Moderately Satisfactory Moderately Satisfactory 0 Moderately 02 30-Jun-2011 Moderately Unsatisfactory 0 Unsatisfactory Moderately 03 23-Oct-2011 Moderately Unsatisfactory 0 Unsatisfactory Moderately 04 04-Jan-2012 Moderately Unsatisfactory 0 Unsatisfactory 05 24-Dec-2012 Unsatisfactory Moderately Unsatisfactory 10.00 06 01-Jun-2013 Moderately Satisfactory Moderately Satisfactory 10.00 07 23-Feb-2014 Satisfactory Satisfactory 72.00 08 28-Nov-2014 Satisfactory Satisfactory 97.18 09 25-Jun-2015 Satisfactory Satisfactory 97.18 10 04-Feb-2016 Satisfactory Satisfactory 99.88 11 12-Oct-2016 Satisfactory Satisfactory 99.88 12 17-Nov-2016 Satisfactory Satisfactory 99.88 13 07-Jun-2017 Satisfactory Satisfactory 99.88 14 27-Dec-2017 Satisfactory Satisfactory 99.88 15 11-Jun-2018 Moderately Satisfactory Moderately Satisfactory 99.88 16 12-Dec-2018 Moderately Satisfactory Moderately Satisfactory 99.88 17 13-Jun-2019 Satisfactory Satisfactory 141.54 18 21-Dec-2019 Satisfactory Satisfactory 141.54 19 22-Jun-2020 Satisfactory Satisfactory 174.70 20 15-Jan-2021 Satisfactory Satisfactory 215.80 21 24-Jun-2021 Satisfactory Satisfactory 215.80 22 06-Dec-2021 Satisfactory Satisfactory 236.81 23 28-Jun-2022 Satisfactory Satisfactory 236.81 Page 3 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) 24 03-Jan-2023 Satisfactory Satisfactory 262.57 25 14-Feb-2023 Satisfactory Satisfactory 262.57 26 26-Jun-2023 Satisfactory Satisfactory 262.57 27 29-Jan-2024 Satisfactory Satisfactory 298.48 SECTORS AND THEMES Sectors Major Sector/Sector (%) Energy and Extractives 51 Oil and Gas 3 Energy Transmission and Distribution 48 Transportation 49 Rural and Inter-Urban Roads 34 Ports/Waterways 4 Railways 11 Themes Major Theme/ Theme (Level 2)/ Theme (Level 3) (%) Private Sector Development 77 Business Enabling Environment 50 Investment and Business Climate 50 Jobs 17 Job Creation 17 Public Private Partnerships 10 Urban and Rural Development 34 Urban Development 17 Urban Infrastructure and Service Delivery 17 Rural Development 17 Rural Infrastructure and service delivery 17 Page 4 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) ADM STAFF Role At Approval At ICR Regional Vice President: James M. Adams Manuela V. Ferro Country Director: Joachim von Amsberg Carolyn Turk Director: Vikram Nehru Lalita M. Moorty Practice Manager: Tunc Tahsin Uyanik Cecile Thioro Niang Task Team Leader(s): Subrahmanya Pulle Srinivas Dara Malia Lengkong ICR Contributing Author: Ou Nie Page 5 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES A. CONTEXT AT APPRAISAL Context 1. Indonesia’s large infrastructure gap is an important constraint to the country’s economic growth and poverty reduction. Infrastructure is necessary to better connect the economy, reap the benefit from rapid urbanization and improve equality of opportunity through better access to essential services and employment. However, Indonesia’s core infrastructure stocks including road networks, ports, electricity, irrigation, etc. has not kept pace with the country’s rapid economic growth. During the decade preceding the appraisal of the additional financing (AF) of this operation, infrastructure stock as a share of GDP actually declined. The infrastructure gap has led to various development challenges including congestion and poor logistic performance, power shortages, lack of clean water and sanitation and other basic services, with negative implications for productivity growth, competitiveness, poverty reduction and human capital accumulation. 2. There is a sizable infrastructure financing gap in Indonesia. Total infrastructure investment, including public sector investment, has remained stable at around only 3-4 percent of GDP, significantly less than China (10 percent) and India (7.5 percent). When the AF operation was appraised in March 2017, the AF operation, the total financing gap for infrastructure was estimated to be around USD 50-60 billion per year. While the Government’s infrastructure program, including spending by sub-national government and by state-owned enterprises, addresses a part of the challenge, public investment is insufficient to address the entire financing gap due to limited fiscal space and competing priorities. 3. The Indonesian financial sector, including both banks and the capital market and institutional investors, do not provide adequate support to infrastructure development for a variety of reasons. The financial sector is dominated by banks, in particular large state-owned banks, and product offering tend to have shorter tenor than what infrastructure projects would need, with a preference for public sector projects and large corporate clients. Flexible debt financing for infrastructure projects with particular needs (i.e. innovative design and long-tenor Rupiah lending) are in short supply relative to needs. Moreover, capital market still lacks depth and liquidity, with limited participation from local long-term investors, and hence do not appear a viable and sufficient option to raise new infrastructure finance. Institutional investors, such as pension funds and insurance companies, have sizable asset under management, but tend to invest short-term in time deposits and government bonds. 4. The World Bank is well-positioned to support the provision of infrastructure financing, including through private sources, in Indonesia through a combination of technical expertise, financing and strong partnership with the GOI. Throughout the decade preceding the preparation of this operation, the World Bank worked closely with the Government of Indonesia (GoI) and key development partners to expand infrastructure provision in Indonesia, with a focus on strengthening infrastructure sector policy, leveraging private capital through PPPs and improving investment climate. As requested by the GOI, WB support in infrastructure included a combination of technical advice, including on relevant key sectoral policy dialogues in energy and transport, and financing support of various forms including policy loan series, guarantee funds and creation of institutions. WB involvement under this project was seen as bringing credibility to the proposed new financial institution and improve private investor confidence and mobilize additional Page 6 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) private investment, as well as providing relevant knowledge, capacity building and advancing key policy reforms in the infrastructure finance space. In addition, WB involvement also brought considerable convening power through close collaboration with development partners including the International Finance Corporation (IFC) and the Asian Development Bank (ADB). the IFC and the ADB are the second and third largest shareholders of the IIF, each with around 20 percent of ownership. At the same time, the ADB also provided debt financing alongside the WB. 5. During the period IIF has been active, several global trends and developments have influenced the landscape of infrastructure finance. Shift towards sustainable and climate-resilient infrastructure: there has been a significant global push towards funding infrastructure that is sustainable and resilient to climate change. This includes integrating green finance principles into project evaluation and funding mechanisms. Public-Private Partnerships (PPPs): the use of PPP models has increased globally as governments seek to leverage private capital and expertise to fulfill public infrastructure needs without overburdening public finances. Technological integration: advances in technology have started to play a crucial role in infrastructure projects, with smart infrastructure becoming a focal area. This includes the integration of digital technologies in the planning, construction, and management of infrastructure. Market and financial innovations: new financial instruments and mechanisms, such as green bonds, infrastructure funds, and viability gap funding, have been developed to address the specific risks and funding needs of large-scale infrastructure projects. Theory of Change (Results Chain) 6. The project was designed to facilitate financing of infrastructure projects and hence increase the provision of infrastructure in Indonesia, ultimately supporting an improved investment climate, sustained economic growth and poverty reduction in the long-term. The original operation of $ 100 million was approved in June 2009 and one additional financing operation of $ 200 million was approved in March 2017. While both the original and the AF operations Program Appraisal Documents (PADs) did not include an explicit Theory of change, the ICR team constructed the Theory of change based on both desk review of relevant project documents and information and face-to-face interviews with key stakeholders and counterparts (Figure 1). While the project had one PDO related to the capitalization of PT IIF to provide infrastructure financing, the project enjoyed great success in promoting good ESG and climate-related practices for the Indonesian infrastructure sector, which warrants being recognized as a separate outcome contributing towards achieving the long-term outcome of increase the provision of infrastructure in Indonesia to support sustainable economic growth and poverty reduction. Figure 1: Theory of Change Page 7 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) Activities Outputs PDOs/Outcomes LT Outcomes Number of capacity building engagements with IIF Establishment and operationalization of Implementation the IIF with robust support and Operating Manual and Institutional social and strengthening environmental activities, including management system on ES safeguard risk (SEMS)  Strengthen the management, fiduciary financial capacity of strengthening and the IIF to increase sustainable finance Infrastructure sub- financing for mainstreaming projects financed by infrastructure in the IIF Indonesia. including through private Introduction of capital mobilization  Increase the innovative financing provision of schemes including infrastructure in local-currency Indonesia to support Investment loan financing, longer made to the IIF as sustainable maturity financing and subordinated debt economic growth credit enhancement to be used for and poverty eligible reduction infrastructure projects Provision of ESG and climate advisory services by IIF to clients  Promotion of good ESG and climate- Screening tool for related practices for climate change infrastructure adaptation projects in Indonesia investments ready to be utilized Knowledge sharing activities regarding SE implementation experience with key players in the infrastructure finance space Page 8 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) Project Development Objectives (PDOs) 7. The project development objective of the original IIF project approved in 2009 was to strengthen and further develop the institutional framework of the financial sector to facilitate financing of commercially viable infrastructure projects and thereby increase provision of private infrastructure in Indonesia. 8. The revised PDO of the additional financing (AF) operation approved in March 2017 was to strengthen the financial capacity of the IIF to increase the access to private sector financing for infrastructure in Indonesia. Key Expected Outcomes and Outcome Indicators 9. There are three PDO-level results indicators related to the amount of financing, the private capital mobilized, and innovative financing schemes provided. Two intermediate results indicators complement the PDO level indicators (Table 1). Table 1: PDO and intermediate indicators PDO Indicators Indicator Name Unit of Measure Baseline Actual (Current) End Target The amount of financing from Amount 0.00 198.6 200.00 Bank funds provided by IIF to (USD million) commercially viable Date 28-Feb-2017 31-Dec-2023 31-Dec-2023 infrastructure projects. Comment Last withdrawal has been completed The amount of private capital Number 0.00 23.90 4.00 supported by IIF relative to its own investment. Date 28-Feb-2017 31-Dec-2023 31-Dec-2023 Comment This number refers to project financing: calculated as [total project costs]/[total IIF financing]. Number of infrastructure Number 0.00 i. Rupiah financing: 50 3.00 financing supported by IIF using projects innovative financing, such as: (i) rupiah financing; (ii) take out ii. Take out financing 1 financing; (iii) maturity greater project than 10 years. (iv) Cash Deficiency Support; (v) Credit iii. Maturity > 10 years: Enhancement; (vi) Pandemic 27 projects Relief Facility iv. Cash Deficiency Support: 1 project v. Credit Enhancement: 2 project vi. Pandemic Relief Facility: 0 Page 9 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) Date 28-Feb-2017 31-Dec-2023 31-Dec-2023 Comment Includes all sub-projects receiving financial instruments that are considered as innovative in nature. Intermediate Results Indicators Status Indicator Name Baseline Actual (Current) End Target Revised Number of Number 0.00 61 7.00 infrastructure sub- projects financed Date 28-Feb-2017 31-Dec-2023 31-Dec-2023 by IIF Comment Includes all IIF’s sub-projects. New Number of IIF Number 0.00 45 7.00 advisory engagements Date 28-Feb-2017 31-Dec-2023 31-Dec-2023 Comment As of Dec 2023: Completed: 37; Ongoing : 8 Page 10 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) Components 10. Both the parent and AF operations have only one component: an investment loan by the Bank available to IIF as subordinated debt and/or perpetual/convertible capital instrument to be used for eligible infrastructure investment. The parent operation, approved in 2009, provided an investment loan (long-term debt financing) of US$ 100 million in the form of a Financial Intermediary Loan (FIL) to help capitalize the newly created PT IIF alongside an equity investment from the IFC. An AF operation was prepared in 2017 as the IIF was by then fully operational and the original loan fully disbursed. As requested by the GoI, the AF operation, approved in 2017, provides an additional FIL in the among of US$ 200 million which would help strengthen IIF’s financial capacity further to increase the provision of private sector financed infrastructure. Project funds were provided to the Ministry of Finance and channeled through PT Sarana Multi Infrastruktur (PT SMI), a state-owned infrastructure finance company established in 2009 and supervised by OJK, to PT IIF. The parent operation identified three sub-component of sub-projects, credit enhancement and advisory services. The AF operation, while not explicitly identifying sub-components, has PDO and intermediate indicators to measure all of these aspects of IIF activities. Figure 1 On-lending structure of IIF Beneficiaries 11. The project has three sets of beneficiaries including primary, secondary and indirect. The primary and main beneficiary of the project is PT Indonesia Infrastructure Finance (PT IFF), a non-bank financial institution created through this project with its institutional capacity built from scratch. The secondary beneficiaries are the infrastructure projects and corporates that benefit from PT IIF’s financing support. Also, indirect beneficiaries are various segments of the Indonesian society who are downstream users of infrastructure as well as the households and the private sector who benefit from the improved connectivity and employment generated. B. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) Page 11 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) 12. The project received Additional Financing (AF) in 2017 and several extensions of closing date, requested by the GoI, including during the pandemic. An interim ICR for the parent project, submitted in October 2016 before the closing of the parent project as per policy, found the overall outcome as Moderately Satisfactory as the IIF is fully operational, and the AF remains a Financial Intermediary Loan provided to the Ministry of Finance and channeled to PT IIF through PT SMI. Further, the project received several extensions throughout its lifecycle. During the original operation, the project received Level 2 approval for two extensions, one in October 2013, to allow more time to complete project activities and achieve PDO given slower-than-expected initial disbursement and pipeline built-up, and another in November 2015, to allow time for the preparation of the AF operation. During the AF operation, the project received Level 2 approval for one extension in October 2021 to allow more time for PDO achievement in the context of the disruption on project activities brought by the COVID-19 pandemic. Further, there was an amendment to the Loan Agreement, in November 2012, to allow IIF to on-lend in USD. Further, an important change in 2017 came with the conversion of WB funds from USD to IDR, whereby the MOF takes the exchange rate risk and charges a premium. The IDR IBRD funds were then on-lent to IIF through SMI, with a 0.5% spread, stipulated under a subordinated loan agreement. This USD-IDR conversion arrangement was deemed necessary, given the unavailability of long-term IDR funds at the time. Yet, this had caused some initial delays under the AF. Revised PDOs and Outcome Targets 13. At the appraisal stage of the AF operation, the PDO was rephrased to provide more clarity and relate more specifically to the underlying development challenge. The original IIFF project development objective was to strengthen and further develop the institutional framework of the financial sector to facilitate financing of commercially viable infrastructure projects, and thereby increase provision of private infrastructure in Indonesia. As noted in the interim ICR, this PDO seemed wide in scope, vague in some areas (especially related to institutional framework) and challenging to quantify through appropriate indicators. Given that the project actually had precise objectives in mind, i.e. the establishment and development of a Non-bank Financial Institution (NBFI) dedicated to the private provision of public infrastructure, the PDO was revised to provide more clarity and relate more directly to the development challenge: it is significantly shortened to the following: to strengthen the financial capacity of IIF to increase the access to private sector financing for infrastructure in Indonesia. Revised PDO Indicators 14. To better align with the revised PDO at AF, several changes to PDO level and intermediate indicators were made to provide more clarity and highlight the innovative design and embedded knowledge/advisory component of the project. To better reflect the revised PDO, two new indicators were added: the amount of private capital supported by IIF relative to its own investment, and number of infrastructure financing supported by IIF using innovative financing. Also, an intermediate indicator on number of IIF advisory engagement was also added to reflect the importance of embedded knowledge and capacity building element in this project. The earlier indicator, increase in number of privately financed infrastructure projects made bankable through the IIF’s advisory services, was deleted due to its vagueness and difficulty in measurement. Rationale for Changes and Their Implication on the Original Theory of Change 15. N/A since the parent and AF operations did not have an explicit Theory of Change. Page 12 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) II. OUTCOME A. RELEVANCE OF PDOs Assessment of Relevance of PDOs and Rating Rating: high 16. The project development objective of the IIFF project, refined and revised at the AF stage, is to strengthen the financial capacity of the IIF to increase the access to private sector financing for infrastructure in Indonesia. 17. The project is highly relevant to the Bank’s development financing approach of maximizing finance for development (MFD) which emphasizes leveraging private sector resources. Together with the Government, Asian Development Bank (ADB) and the IFC, WB resources help capitalized the IIF and enables it to borrow from the private sector through both bond issuances and bank lending, and hence enhance its resources1. When IIF lends to sub-projects, these sub-projects and companies are then able to leverage additional equity and debt financing, leading to significant private capital mobilization overall. Thus, although the combined US$ 300 million in financing provided by the WB is still modest relative to the overall infrastructure financing gap in Indonesia, the ability to mobilize significant private capital through the WB’s catalytic presence help magnified the impact of WB financing. 18. The PDO is well aligned with WBG’s country partnership framework (CPF) for Indonesia 2016-2020 and 2021- 2025 and Indonesia’s development priorities. Infrastructure development and investment has been at the forefront of Indonesia’s development priorities since the approval of the original operation throughout the project lifecycle. Most recently, the Medium-Term National Development Plan (2020), which constitutes the agenda of the second Jokowi Administration, emphasize the role of infrastructure to support economic development and basic services. According to the Infrastructure Financing Framework 2020-2024, Indonesia envisioned significant private financing (42%) vis a vis GoI (37%) and SOEs (21%). The CPF for FY16-FY20 gave a prominent role for Indonesia’s massive infrastructure gap and the need to scale up financing, particularly through further enabling the private sector: indeed, two out of the six engagement areas identified concerns infrastructure, recognizing its importance in both job creation and service delivery, and leveraging private sector investment is also identified as a main theme. The PDO retains its relevance in the latest CPF (FY21-25), which recognizes investments in infrastructure as along the top 5 development challenges for Indonesia. B. ACHIEVEMENT OF PDOs 1 The Government of Indonesia has a 30 percent of ownership of the IIF through PT SMI and the IFC and the ADB are the second and third largest shareholders of the IIF, each with around 20 percent of ownership. At the same time, WB and ADB debt financing was channeled through PT SMI to the IIF. Page 13 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) Assessment of Achievement of Each Objective/Outcome 19. The Program development objective as set forth in the PAD and the ISRs were fully achieved. At closing, all three PDO-level indicators and two intermediate indicators have been fully achieved or exceeded. First, a total of US$ 298.5 million IBRD loan funds have been disbursed, equivalent to 99.5 percent of the total loan amount made available to the IIF under the parent and additional finance operations between 2009 and 2023. IIF has leveraged private capital of around 24 times its own capital (including WB and ADB loan as well as GoI equity contribution), vastly exceeding the original target of 4 times. Number of innovative financing provided, including local Rupiah financing, take-out financing, financing with maturity greater than 10 years, cash deficiency support and credit enhancement, totaled 78 compared to the original target of 3. Further, 61 infrastructure sub-projects were financed by the IIF, compared to the target of 7, and there was a total of 45 advisory engagements at closing, compared to the target of 7. Overall speaking, these numbers together point to fully achieved program development objective as set forth in the PAD of the original and AF operations. 20. The project successfully supported Indonesia to establish and operationalize the IIFF, which has since become a credible non-bank financial institution focused on infrastructure financing and advisory. Since its establishment in 2009, the IIF has undergone significant institutional development under WB financing and technical support, emerging as a small but credible player in infrastructure finance in Indonesia, with unique expertise combining project finance with Environmental & Social (E&S) safeguard management. Throughout the project cycle and as of closing, the IIF continues to grow with a well-balanced and diversified team of employees and a diverse infrastructure project portfolio and pipeline. Further, IIF has built a solid reputation for its advisory services, especially on environmental and social advisory such as ESG due diligence, corporate ESG roadmap and ESG implementation assistance, for both the public and the private sector. 21. IIF maintains a diverse multi-sector infrastructure project portfolio and pipeline which has seen continuous growth throughout the project cycle. As of the writing of this ICR, IIF’s portfolio, growing continuously from a small pipeline at the beginning of the operation, includes a total of 63 infrastructure projects with total commitment of well over US $ 1 billion, covering multiple sectors including electricity (28 percent), telecommunications (21 percent), road (11 percent), oil & gas (9 percent), water and waste utility (9 percent), airport (7 percent), with the remaining including social and regional infrastructure, port, railway and mass transportation, and others. Of the 63 projects, 17 are funded directly by World Bank financing (A list of detailed information on each WB funded projects are included in Annex 6 for reference) from the AF operation through 8 separate disbursements between 2018 and 2023. During the last year of the AF operation, IIF has identified a total of 22 pipeline projects covering both the public and the private sector. Figure 2 Disbursement progress of IIF- AF operation Page 14 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) Source: Project Completion Report provided by the IIF 22. Innovative financing schemes catered to Indonesia’s unique infrastructure finance challenges are an integral part of IIF’s offering. At the appraisal of the original and AF projects in 2009 and in 2017, consultations with market players indicated many infrastructure financing needs not sufficiently met by the market, most importantly long-tenor loans and rupiah-denominated loans but also flexible provisions of debt financing packages such as take-out financing, bridge financing and other innovative financial products such as guarantees. The IIF provided a total of 50 Rupiah-denominated financing as well as 27 financing of a tenor longer than 10 years. Further, there has been 1 cash-deficiency support project, 2 credit enhancements and 1 take-out financing. During the ICR interviews with IIF as well as sub-projects, clients confirmed the importance of these innovative financing schemes, especially the longer-tenor and local currency financing. More recently, as noted in the last ISR of the project, the IIF continues to design and introduce new financing schemes, including a credit risk guarantee for local financial institutions together with the Korean Development Bank and the Green Climate Fund as well as other blended finance projects with development partners. 23. Further, the IIF has established itself as a champion of good ESG practices in infrastructure projects in Indonesia, has become a source of knowledge and advisory and is being recognized in national and international fora. On November 10th, 2022, during the Indonesian G20 presidency, IIF supported the Indonesian Ministry of Finance at a G20 Bali Summit side event entitled Launching of the ESG Framework and Manual: Journey to ESG Implementation for Infrastructure Financing in Indonesia. The event featured IIF-supported sub-project Arkora Hydro project at a panel discussion and featured high-level participation from the WB and the GoI. More broadly, IIF has begun to capitalize on its expertise in ESG due diligence by offering ESG advisory services to its clients. Advisory fee income now constitutes a significant portion of the company's non-interest income, accounting for 23.2 percent as of the end of 2023. Due to its reputation and strong capacity in this space, the IIF mentioned during the ICR interviews that it has even seen some of its staff leaving because they are highly sought after by other players in the financial sector for their knowledge and expertise in ESG, and therefore has a bit of talent retention problem. Page 15 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) Comparison between the IIF and similar projects in other countries Infrastructure Finance Projects worldwide have demonstrated a range of outcomes, often depending on regional economic stability, government policies, and financial models adopted. Here are some highlighted results from different projects in other regions:  Canada Infrastructure Bank (CIB): This bank has been effective in leveraging private capital for public infrastructure projects, focusing on large-scale investments with a blend of public and private funds. The model prioritizes projects that promise significant economic and social benefits. One of the key strategies has been to invest in revenue-generating projects where private sector participation is feasible and profitable.  Ghana Infrastructure Investment Fund (GIIF): It has effectively mobilized resources for critical infrastructure, supporting the government's economic development goals. GIIF has been a pivotal player in managing and coordinating financial resources for national development. The fund has focused on strategic investments that can spur economic growth, such as energy and transportation.  Financiera de Desarrollo Nacional (FDN) in Colombia : FDN has been instrumental in structuring and financing comprehensive infrastructure projects, particularly in the transportation sector, such as the 4G Roads Project, a massive infrastructure project involving multiple road segments across Colombia. It has successfully attracted international investors and managed to create a viable model for infrastructure financing that balances risk and returns. The total private investment (86%) is COP 23,5 Bn (USD 6,2 Bn). COP 6,8 Bn (USD 1.8 Bn) of capital markets investment have been mobilized (25%). From the capital markets perspective this has been an important achievement to be replicate in other countries. This project has set a benchmark for public-private collaboration in infrastructure.  India Infrastructure Finance Company Limited (IIFCL): The success of this initiative has demonstrated how an innovative arrangement helped in leveraging limited public resources for providing the much needed long-tenure debt for PPP projects on an unprecedented scale and at economic costs. In the first establishment, this entity has been able to address several issues such as (i) mobilizing funds on such a large scale, (ii) security of the on-lent debt had to be ensured through some form of a back-to-back arrangement that carried government support and (iii) ability to tap into insurance and pension funds besides raising external debt, including from multilateral development banks like the World Bank and the Asian Development Bank. IIFCL had often been seen as a comparable example during IIF's initial establishment. Compared with these projects, the IIF has shown effectiveness in guaranteeing infrastructure projects which facilitates the attraction of private investment. IIF's role in improving project bankability through guarantees has been critical in mobilizing private sector investment, which is a key aspect where IIF also interacts but more from a direct financing perspective. Compared to the models in Ghana and Colombia, IIF may not have the same level of direct government backing or the scale of capitalization as seen in FDN but plays a similar catalytic role in facilitating private sector participation in infrastructure. The success of IIF can be seen in its ability to adapt to the local financial market and regulatory environment to support infrastructure projects that might not Page 16 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) Justification of Overall Efficacy Rating 24. The overall efficacy is rated as High. As discussed above, all PDO-level and intermediate level results indicators have been fully achieved or exceeded. Despite a slower-than-expected start, the IIF was able to utilize the WB capitalization to grow into a credible player, through significant leverage of private capital, and continue to expand its multi-sector portfolio. Moreover, the IIF has occupied a niche position in E&S compliance and due diligence that has been recognized nationally and internationally. Page 17 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) C. EFFICIENCY Assessment of Efficiency and Rating 25. There was some initial delay in loan effectiveness and built-up of a viable pipeline, but implementation has progressed well since then. As noted in the interim ICR, capacity building for a new institution was time- consuming, the project pipeline was slow to fill, and IIF, the new institution, needed quite some time to establish itself in the infrastructure finance space. Two factors, the institutional complexities of the establishment of SMI and IIF, and the participation of other institutions, i.e. the IFC and the ADB, complicated the loan effectiveness process and required significant efforts in capacity-building and in coordination. Although some of these risks were foreseen at the preparation of the parent operation, the implementation progress took longer than expected by the WB team at the start. The loan was effective in April 2011 and the first disbursement made in 2013Q2, following which disbursement reached the full amount of the original operation in 2016Q1, before the AF appraisal. Following effectiveness, IIF was able to make up for the initial delay and progress consistently towards achievement of the PDO. 26. Significant economic and social benefits are expected from IIF-financed subprojects on Indonesia’s infrastructure and economic development. The over 60 infrastructure projects financed by the IIF, including the 17 directly funded by the WB, is expected to bring significant economic and social benefit to the country independent of financial inflows to the company itself. For instance, road projects help increase connectivity and reduce congestion and traveling time, and hence cut logistical costs and consumer prices. Power sector projects increase energy supply, often in remote places of Indonesia, to meet excess demand. Moreover, projects promoting the use of solar and hydro power plants contribute to Indonesia’s climate mitigation ambitions and national targets by increasing the share of renewable energy in the energy mix. Telecommunication projects support digitalization of the economy and hence increase in productivity and could in some cases increase competition in a highly concentrated market. Overall speaking, significant economic and social benefit from IIF’s infrastructure financing has contributed to Indonesia’s economic development and poverty reduction. 27. IIF’s financial performance has been sound overall, and profitability has been increasing albeit from a low base level. At closing, as an NBFI regulated by OJK, IIF continues to maintain sufficient Tier 1 and 2 capitals and debt-to-equity ratio remains stable (between 5-6 in the last four years) with rooms for increasing lending activities. Total asset and revenue have seen steady growth since IIF’s establishment in 2010 and reached IDR 15.1 trillion and IDR 1.3 trillion as of end 2023. Profitability was in the negative territory or at relatively low levels in the early years (between 2010 and 2014) and in 2017 but has seen steady increase in the last five years with return-on-equity (ROE) at 4.5 percent and return-on-asset (ROA) at 0.9 percent as of end 2023. While low profitability has been a source of concern for certain equity shareholders and may have played a role in IIF’s limited capacity to attract private equity shareholders, key indicators such as ROE, ROA and net profit margin have mostly been in the positive territory for the 14 years since its establishment. Annex 7 details IIF’s key financial performance. 28. The Bank has achieved high efficiency of use of own resources and considerable leveraging of other sources of financing with this project. WB and ADB’s long-term senior loan, together with the GoI and the IFC’s equity contribution form a solid financial basis for the IIF and allows it to further borrow through bond issuance Page 18 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) and commercial loans to increase its commitment envelope. IIF in turn has provided financial support to companies and sub-projects which benefit from other sources of debt and equity financing, resulting in total project costs leveraging up by a factor of over 20 times the original contribution from international financial institutions and the GoI (Figure 3). Several indicators illustrate the project’s efficiency further: first, the WB’s cost per sub-project was initially very high due to limited project pipeline and was above US $ 7 million as of end 2015. However, it decreased substantially as more sub-projects receive support, and currently stand at a mere US $ 3.17 million per sub-project at closing. Second, if leverage is measured as IIF’s equity and borrowing (total committed IIF financial resources) divided by WB loan amount, this number is around 8.6 times at the closing of the original operation, in 2016, and around 5.4 times at the closing of the AF operation. Figure 3: IIF’s leverage structure Note: data in figure is as of Oct 2023 and this ICR uses end 2023/early 2024 data for results measurement, hence the small discrepancies in the leverage measured. 29. The economic analysis carried out for selected WB-financed subprojects indicate high economic efficiency. Since the WB is only one of the debt financing providers for the IIF and there are 17 sub-projects, a fraction of the total, funded directly with WB financing but have other sources of debt and equity financing themselves, calculation of economic rate of return/net present value for WB financing alone is difficult to estimate. However, the WB and the IIF did commissioned selected business case studies for four representative WB-funded projects from different sectors that includes NPV/ERR calculations including quantification of Environmental & Social benefits. These calculations show that the four projects have an ERR in the range of 10 to 18 percent, and the return is higher if E&S benefits are considered. In dollar terms, the benefit accrued vastly exceed the economic cost and all projects have positive net present values. Since many projects are yet to be fully operational or are in progress, it is difficult to repeat the same calculation for all sub-projects, but this analysis for the selected sub-projects indicates that the economic efficiency of WB funded projects is high. Page 19 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) D. JUSTIFICATION OF OVERALL OUTCOME RATING 30. Combining the ratings of relevance (High), efficacy (High) and efficiency (High), the overall derived outcome rating is Highly Satisfactory (HU) according to Bank Guidance on ICR for IPF operations Appendix H (page 38). The team decided there is no need to trigger split rating since the scope of the project remains the same 2. E. OTHER OUTCOMES AND IMPACTS (IF ANY) Gender 31. The project was not gender tagged or did not have a gender component. Institutional Strengthening 32. During ICR interviews with the government and IIF, it became clear that the WB’s support in strengthening the IIF’s capacity, especially in E&S safeguards, is an important value-added of the project independent of the financing provided. Initially, IIF found the implementation of international standards on E&S safeguard to be challenging due to a lack of experience and expertise. In collaboration with IFC and ADB, the WB team’s continued technical assistance support, including through regular implementation support missions, help developed IIF’s expertise overtime and is instrumental to its institutional strengthening and occupying its unique niche position in the market. IIF even signaled its willingness to continue receive WB’s technical support even after the closing of the IPF, which attests to the importance of the institutional strengthening endeavor carried out as part of this project independent of the financing provided. Mobilizing Private Sector Financing 33. This project is a good example of a financial intermediary lending where bank capital successfully mobilized a significant amount of private sector financing. In fact, the original operation preceded the WB’s emphasis on private capital mobilization. IIF has leveraged private capital of around 24 times its own capital (including WB and ADB loan as well as GoI equity contribution), vastly exceeding the original target of 4 times. This aspect was discussed at length in the relevance of PDO section as well as the efficiency section. 2 The scope of the project remains essentially the same, as it is still focused on capitalizing the same non-bank financial institution to provide infrastructure financing for Indonesia and there is no change in geographical coverage as well. As made clear in earlier discussion about the additional financing operation, the revision to PDO and revision/addition of results indicators focused on presenting program objective and results measurement in a more clear and concise way. Indeed, this is a case where objectives or outcomes were too broad or vaguely worded were just clarified, and as per para 60 of Bank guidance on ICRs do not necessarily trigger a split rating. The AF operation is a natural continuation of the original project as the client simply requested more financing on the same activities and institution. Page 20 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) Poverty Reduction and Shared Prosperity 34. The project contributes directly to the WBG’s twin goals of ending extreme poverty and boosting shared prosperity. Infrastructure sub-projects financed by the IIF contributes to economic growth and poverty reduction through multiple channels, including by improving connectivity and reducing high logistic costs. Since many sub-projects serve remotes geographical parts of the archipelago and underserved segments of the population, the project has direct impact on inequality through easing regional disparities and promoting economic inclusion, on top of growth gains. Figure 3 Geographical distribution of IIF sub-projects Other Unintended Outcomes and Impacts N/A. III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME A. KEY FACTORS DURING PREPARATION 35. The economic context was very different at the onset of this operation, as the global economy was suffering from the global financial crisis and many EMDEs saw worsening external funding conditions. The global financial crisis spread from the United States and caused the worst tightening of external financing conditions for many countries in the world, especially EMDEs, in the form of capital outflows, exchange rate fluctuations and elevated borrowing costs. Although Indonesia had rebounded from the 1998/99 Asian financial crisis and saw improved sovereign credit ratings, it was still hit by the GFC due to an open capital account and significant foreign Page 21 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) presence in the stock and bond markets. These developments, coupled with the long-standing infrastructure financing gaps, made the IIF local-currency financing offering, which, among other things, removes exchange rate risks, attractive and competitive. Overtime, as advanced economies maintained a loose monetary policy stance for many years after the GFC, borrowing costs were low for a long time which might have changed how competitive the WB lending rates were compared to other options. 36. There were some design issues related to PDO formulation and results framework as well as assessment of risks at the appraisal of the original operation. As discussed earlier in the significant change section, certain aspects of the PDO of the original operation were considered too wide, vague and difficulty to measure, which led to issues for results framework as well. Some of the original results indicators were quite weak, i.e. “increase in the amount of private capital” and “increased support to government’s policymaking…”. However, these aspects were clarified in other Bank documentations as well as during the AF appraisal stage. Also, design issues related specifically to FIL operation is present: the Bank’s role as institution-builder of a FI limits access to proprietary information of clients and constrain the Bank’s ability to manage sub-projects, including the E&S safeguard and procurement standards. Also, the original operation significantly under-appreciated the risks of delays of implementation and filling of project pipeline, as well as the risks that a lack of local capacity and expertise pose on the PDO of institutional building. 37. Setting up a new institution, i.e. the IIF, as well as the on-lending arrangement through SMI, has been challenging. The IIF took a significant amount of time to establish its credibility in the infrastructure finance arena and to build its market presence. IIF’s overall size has been relatively small compared to major market players in this space, which has been a constraint on further growth and development during the entire project period. Throughout this period, the IIF encountered challenges stemming from a shortage of suitable projects. Extensive capacity-building by the WB including on E&S safeguards were important in IIF’s journey towards its niche position. There were also some earlier management turnovers which prevented the IIF from becoming fully functioning sooner. During the ICR interviews, some stakeholders also expressed that it would be useful to revisit the necessity of using an on-pending arrangement through PT SMI since such arrangement tend to cause additional bureaucracy and add to the borrowing cost IIF faces. However, as any new institution, once the trial- and-error phase is over, and lessons were learned from past mistakes, the IIF grew quickly, and a meaningful pipeline were built up after several years. Page 22 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) B. KEY FACTORS DURING IMPLEMENTATION 38. During early stages of implementation, management issues and change in political landscape affected how quick IIF became operational. The interim ICR noted that the fist CEO resigned in December 2010 just months before loan effectiveness in April 2011, and the management team faced major challenges and were replaced. It took IIF another year to put a new management team in place with a clear business plan to fill a sub-project pipeline. Also, the project received broad and high-level support at the preparation of the original operation from the Minister of Finance, the Economic Coordinating Minister and the Vice-President of Indonesia. This was factored into the somewhat optimistic implementation schedule. However, as these key positions all saw a change of incumbents between 2009-2010 due to changes in the political landscape, the pace of progress slowed accordingly. In addition, based on several discussions, another important turning point was when the current management team, consisting largely of finance experts from the private sector, took over in 2019. They were relatively much more open and collaborative on ES safeguards issues (with the 2019 portfolio audit/review led by the WB-IFC regional safeguards advisors and the WB Director participating in site visits), and good collaboration amongst WB, IFC and ADB were maintained since then. 39. The COVID-19 economic crisis and associated loan forbearance measures have been associated with an increase in non-performing loans on IIF’s portfolio, which is being actively monitored. Throughout the economic downturn caused by the COVID-19 pandemic, the Indonesian financial sector demonstrated resilience, and bank asset quality remained relatively stable, avoiding the severe deterioration often seen in financial crises. However, concerns persisted regarding non-performing loans, as loan forbearance measures—intended to provide temporary relief to the financial sector—could potentially obscure the full scope of underlying vulnerabilities. Most of OJK’s loan forbearance measure expired in early 2023, but some measures were extended for a year. In this context, IIF sees certain parts of its portfolio under stress or requiring temporary relief on interest or principal payments between 2022-2023 as the economy recovers from the pandemic. The last ISR of the project notes that IIF is closely tracking the asset quality of its portfolio and is undertaking full portfolio stress testing. ICR interviews confirmed that the effect of remaining OJK forbearance measures on asset quality has already been fully revealed and accounts affected by forbearance measures have shown improvements and unlikely to turn into NPLs. 40. Climate and environmental risks and opportunities (CERO) for the financial sector have seen increasing attention worldwide and in Indonesia throughout the lifecycle of this project. At the start of this project, the risks and opportunities posed by climate change and environmental concerns for the financial sector were yet to receive great attention. However, with the founding and expansion of the Network for Greening the Financial System (NGFS) as well as increasing attention by central banks and financial regulators around the world, CERO has become an increasingly important topic for financial institutions. In this context, the capacity building efforts to strengthen E&S monitoring in infrastructure finance, as well as the completion of a screening tool for climate change adaptation investment and to quantify E&S benefits are invaluable initiatives that provides a good example to follow for others in infrastructure finance and for other NBFIs in Indonesia and beyond. IIF has been able to capture the value-added of these climate and E&S initiatives through both increased capacity of staff, fame and attention on the national and international stage and advisory fee incomes. Page 23 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME A. QUALITY OF MONITORING AND EVALUATION (M&E) M&E Design 41. There is no Theory of Change at appraisal for both the original operation and the additional financing operation. The team responsible for the ICR reconstituted a Theory of Change (ToC) to reflect the context at the end of 2023. The ToC emphasized the knowledge and advisory aspects of WB support independent of the financing provide and the other sources of capital mobilized, including on E&S safeguard and procurement and later on climate adaptation investment screening. 42. The results framework saw an improvement during the AF operation related to the revision of the PDO and is properly designed to capture the contribution of project component towards PDO-level outcomes. The results indicators are well designed, especially after restructuring during the AF operation, so they contribute to understanding the causal links between the activities and intermediate results and PDO indicators. In particular, the intermediate indicator on number of advisory engagements proved critical in capturing the capacity building aspect of the project which saw increasing importance towards the last few years of the AF operation. Further, all indicators are straightforward and well within IIF staff’s capacity to measure and collect. However, the M&E framework did not include indicators related to the IIF’s financial performance, which constitutes a weakness in design even though these information were received by the WB team regularly throughout the project cycle. M&E Implementation 43. The project’s M&E implementation quality is high through regular implementation support missions and ISR reports as well as regular semi-annual reports submitted to the WB by the IIF. Except for the changes cleared documented during the appraisal of the AF operation, the M&E framework were not modified and RIs were not added or dropped. The interim ICR notes that the RIs of the original operation were tracked and reported in ISRs, although there were some issues due to difficulty in measurement. During the AF operation, the enhanced M&E framework were implemented consistently and reported regularly through project implementation support missions and reports (ISRs) conducted every half a year, even during the COVID-19 pandemic which posed difficulty for in-person mission travels and site visits. Progress on RIs were shared by IIF team with the WB team on a regular basis. In fact, with WB technical support, the IIF submit Semi-annual progress report to the WB which includes all info needed for M&E but actually incorporate a much broader set of information including details on project portfolio and new business development, financial and income statements, management and shareholding structure as well as details on the numerous sub-projects. This information allowed the WB team to closely monitor and evaluate the overall progress of the project and provides much- needed context for the results indicators being tracked. M&E Utilization 44. There is evidence that the project’s M&E system was used to inform decision-making and project management through the lifecycle of the project. The semi-annual reports discussed above, which includes the project’s M&E framework, has been informing IIF’s decision-making and project management, especially with WB team’s hands on support in measuring and collecting these indicators through interviews and discussions during the preparation of the Page 24 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) semi-annual reports. The establishment of the M&E system provides important feedback to IIF in supervising the growing number of sub-projects. Justification of Overall Rating of Quality of M&E 45. The quality of M&E is rated as Substantial. PDO and intermediate outcome indicators underwent an improvement during the AF operation appraisal stage and provides good measurement of the achievement of the project’s objectives. The M&E system has been fully implemented through regular monitoring and reporting with WB technical assistance and has been informing business development planning and decision-making. However, M&E design suffers from weakness due to the lack of IIF financial indicators in the design framework, which led to the rating of Substantial instead of High. B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE 46. Overall environmental and social safeguards were rated Moderately Satisfactory during the last implementation support mission (ISM), and IIF continues to demonstrate good performance although the need to strengthen monitoring and implementation aspects remain. In particular, IIF is actively working with sub-projects in their environmental monitoring, including interpretation of results and developing additional monitoring points. However, there is need to continuously strengthen implementation capacity going forward, with a particular focus on: (i) quality of corrective action plans; (ii) risk-based supervision and (iii) escalation. The ICR team was scheduled to receive more extensive inputs on environmental and social safeguard performance from the joint safeguard assessment review expected to be conducted by WB and IFC in early 2024, which involves a desk review based on the performance evaluation criteria agreed with the IFC and the Bank, and site visit to selected projects for deep dive assessments. A safeguard assessment is being conducted during and after the ICR process, with an in-person mission in May 2024, the results of which will be made available separately. 47. Financial Management (FM) and procurement both continued to be rated Satisfactory during the last ISM. The initial phase of developing financial management (FM) capabilities, which included the creation of financial models for various sub-projects, experienced a gradual commencement. However, as the initiative progressed, the IIF started to enhance its FM proficiency and became increasingly acquainted with the GoI and WB procedures. FM received Moderately Unsatisfactory rating from late 2011 to mid-2013 owing to slow progress in developing IIF’s Financial Management System and Internal Audit but has since been upgraded during the reminder of the original operation, including an FM review in 2013. During the AF operation, FM has been consistently rated as Satisfactory until the last ISM, where IIF confirmed that all project activities (including sub-projects activities) are scheduled to be completed before the closing date of the loan and withdrawal would be timely to allow sufficient time for completion before closing. There were no overdue audit report or Interim Financial Reports from the IIF. During ICR interviews, the team also confirmed that there were no notable procurement issues in this project as the rating continues to be Satisfactory as IIF follows high standard in their due diligence. Due to the nature of an FIL operation, Bank staff would only monitor IIF procurement capacity instead of all aspects of sub-project procurement, and this sometimes creates tension as a growing IIF portfolio means increased attention needed from both WB and IIF if the highest standards were to be followed. Page 25 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) C. BANK PERFORMANCE Quality at Entry 48. Quality at entry is considered high due to innovative design and introducing strong E&S safeguards, although there were some flaws related to phrasing. At the appraisal of the original operation, the project team was praised for innovative design that allows the Bank to extend financing to private corporates working on public infrastructure and establishing a new NBFI with flexible mandates while working together with three other key development partners. ICR interviews confirmed the key role of the IIF in introducing a strong E&S safeguards standard to Indonesia’s infrastructure finance market, where such standards were not commonly applied before this project. The minor flaws in the PDO and indicator were considered by the interim ICR as only a matter of phrasing and were later fixed during the design of the AF operation. Quality of Supervision 49. WB team, with Jakarta-based staff playing a key role, has consistently provided high-quality implementation support throughout the lifecycle of the project. During interviews, the IIF acknowledged the important role of TTLs, core task team members as well as E&S safeguard specialists based in Jakarta who played a critical role in providing consistent hands-on support through both regular implementation support missions and on-demand capacity building and technical assistance. Aide Memories and ISRs demonstrate that missions were carried out on schedule twice a year during the project period, even during the pandemic, and ratings were candid with adjustments in both directions. There were several TTLs for the entire operation which lasted 15 years, but several key team members were involved for a reasonably long period covering at least the entire duration of the AF operation. The last mission, carried out in December 2023, recorded the progress towards achievement of PDO and overall implementation progress as Satisfactory (S) with a disbursement rate of 99.5 percent with only $1.5 million of remaining balance due to MoF regulation regarding exchange rates movements3. 50. The client found WB team’s capacity building support to be very helpful and have expressed the desire to continue receiving such support even after project closing. In addition to building a new institution, the client noted that implementing relevant international standards, including in E&S safeguard and in procurement, is challenging and requires change throughout the organization. In addition to intensive implementation support, the project benefitted from strong support from the Country Management Unit as well as frequent in-office contact, documentation and interviews made possible only by the presence of local Bank staff. IIF has expressed strong desire for the advisory and capacity building part of the engagement to continue beyond the closing of the IPF project itself as a way of maintaining its niche position and reputation in the market, which speaks to the high quality of supervision provided by the WB team. 51. Towards the closing of this project, as the climate and environmental agenda become increasingly important globally for financial institutions, the WB team supported IIF in developing a tool for a screening of climate change adaptation investment and quantifying E&S benefits. This TA is an innovative effort to further mainstream climate change and other ESG considerations in infrastructure financing and investments and quantifying the broader economic 3The allocated Rupiah disbursement amount to the IIF in FY 2023 was originally 100 percent of the loan amount at the exchange rate which prevailed at that time. The Rupiah has since further depreciated against the dollar, but the Rupiah disbursement amount could not be changed due to MoF Regulation on State Budget Planning and Implementation No 62/2023 Article 133 prohibits reallocation between multilateral funding/borrowing, thereby not allowing for flexibility and adjustment to the DIPA allocation of IIFF loan amount channeled to IIF. Page 26 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) and social benefit of implementing an environmental and social framework, making it possible to directly link supported project activities, for instance in renewable energy, to Indonesia’s goals to achieve net-zero emissions by 2060. Specifically, the screening tool focuses on identifying a pipeline of climate adaptation investment, which has been notably absent from the sustainable finance portfolios of major banks as recorded in their reporting to OJK in the last couple of years. These tools were piloted to examine four projects in hydro, toll-road, water and railways, for which business case studies were commissioned and produced, and are now ready to be used by the IIF for the broader portfolio. Justification of Overall Rating of Bank Performance 52. Overall Bank performance is rated as Satisfactory. Initially, the WB task team was operating in a challenging country context and difficult circumstances and were perhaps a bit too optimistic towards the speed of implementation. However, there is strong evidence documenting the task team’s continuous and persistent technical and operational support for the client, helping the operationalization of the IIF and filling and growing of its project pipeline, development capacity in project management, E&S safeguard, and procurement as well as monitoring and evaluation of project activities, both for the parent operation as well as for the AF operation. The client benefitted from the project team’s proactive approach to TA and capacity building through the project lifecycle and have even expressed strong desire for these to continue beyond project closing. While the interim ICR rated overall Bank performance Moderately Satisfactory to balance the initial difficulties and persistent Bank support to overcome these difficulties, WB performance during the AF operation has achieved notable results and visibility and earned high levels of client trust and approval, justifying a rating of Satisfactory for the entire operation. D. RISK TO DEVELOPMENT OUTCOME 53. There does not appear to be a material risk that development outcomes that have been achieved in terms of increasing the provision of infrastructure and promotion of good ESG practices in infrastructure projects will not be maintained. The positive economic and social impact of IIF-funded infrastructure projects will likely persist and gradually manifest itself. The knowledge spillover of TA and capacity building for IIF into Indonesia’s infrastructure finance market will likely continue to exert its influence as market demand for this expertise grows. IIF may be at risk of competing with other players in the financial sector to retain E&S expertise and a couple of risks related to its limited capital base and ability to attract equity investments may constrain its further growth. We briefly discuss these sources of risks below. 54. First, IIF's growth has been somewhat constrained by its limited capital base, which has limited its participation in key viable projects. This has been a challenge for its growth, profitability, as well as leverage in influencing sub-projects to implement sound ESG practices, vis a vis other bigger, local financiers (i.e. banks) who often do not yet see ESG as a priority. It will thus be important for IIF to further diversify its funding base for its growth, profitability and ESG champion role. Our ongoing TA on the Sustainable Infrastructure Fund is aimed to help IIF in addressing this issue, by putting in place an off-balance-sheet mechanism for financing commercially viable infra projects. 55. Second, IIF has been unable to get new investors and launch an IPO, which is largely due to the constrained growth and profitability issue above. So far, IIF is still largely dependent on public and international development financing. IIF is in the process of raising additional capital through rights issuance which is expected to be finalized Page 27 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) later this year. So far, SMI is the only shareholder planning to subscribe to the additional shares, which may result in an increase of SMI shareholding to 45%, and dilution of IFC and other shareholders' stake. 56. Last, as IIF continues to grow its portfolio, there will be increasing risks associated with ES and loan quality. IIF will thus need to continue to strengthen its SED technical capacities, as well as loan quality monitoring and workout functions. V. LESSONS AND RECOMMENDATIONS 57. Better coordination and communication between development partners as well as within the WBG makes a huge difference. During ICR interviews, the authorities mentioned that dealing with separate procedures of different international institutions were time-consuming at earlier stage, and this has gotten better since the WB and other shareholders actively coordinated their requirements and procedures in the effort to reduce compliance burden for the client. WB and IF’s rating scales are different and their assessment of IIF’s E&S safeguard compliance differ. This sent conflicting and confusing messages to the client regarding how they are doing. 58. For a financial intermediary lending operation, striking the right and often delicate balance between adherence of Bank safeguard and procurement standards and reliance on client’s system is essential. Some stakeholders pointed out that the rigorous application of Bank safeguards and procurement standards constrain the IIF in its effort to develop a more profitable pipeline of projects and compete in the marketplace. The Bank team continues, throughout the project cycle, to reach beyond institutional capacity building and actively manage E&S implementation support at the level of sub-projects, but the IIF, as a financial intermediary, does not have the needed capacity and authority to impose the Bank’s safeguard and procurement standards on its clients. On the contrary, some other stakeholders were of the view that the IIF’s E&S safeguard monitoring and implementation has not been satisfactory. 59. The benefits and drawbacks of the on-lending arrangement could be revisited in similar future operations. The funding was channeled through Sarana Multi Infrastruktur (SMI), which is progressively being granted the mandate as Indonesia's national development financial institution. This has led to higher overhead borrowing costs and additional bureaucratic layers in the processing and disbursement of funds. It may be beneficial to re-evaluate these arrangements to enhance efficiency in future operation. 60. Necessity of designing precise, measurable PDO formulation and robust risk assessment frameworks at the project's appraisal stage. The IIFF faced initial design issues, including broadly defined Project Development Objectives and a weak results framework, alongside implementation delays and local capacity risks. For future similar projects, it's important during the design phase to include clear, quantifiable objectives and comprehensive risk assessments that consider local capacities and potential delays. This approach will enhance project clarity, measurability, and resilience to implementation challenges. 61. This experience underlines the importance of patience, perseverance, and the need for continuous capacity building in the establishment of new infrastructure Finance Facility. The journey of establishing IIFF as Page 28 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) a credible player in the infrastructure finance space was fraught with challenges, including management turnovers and the initial scarcity of suitable projects. However, extensive capacity-building efforts, particularly on Environmental and Social (E&S) safeguards, eventually positioned IIFF to carve out its niche. Future endeavors should factor in the time and resources required for such entities to fully operationalize and recognize the value of early and ongoing support in E&S safeguarding as critical to building market credibility. Over the project horizon, the majority of beneficiaries acknowledge the lesson learned from IIFF in adopting E&S, some of them developed E&S manual/guidelines/standard operating procedure to ensure the future project implementation also incorporate E&S safeguard. These achievements received international recognition including the Best Sustainability Bond for NBFIs during the Asset Triple A Sustainable Capital Markets Country and Regional Awards 2021 and “Sustainability Bond of the Year – Financial Institution” in Environmental Finance’s Bond Awards 2022. 62. Securing broad, multi-level political support and establishing a stable, competent management team from the outset is key. The IIFF's early operational phase was marked by management challenges and a shifting political landscape, which slowed the pace of progress. The departure of key political supporters due to changes in the political landscape further compounded these challenges. Future projects should strive for strong and consistent political backing and prioritize the swift establishment of an effective management structure to navigate political and operational uncertainties. Recommendations for future projects: 63. Based on the ICR findings and lessons learned, key recommendations for future projects focus on three dimensions. 1. Project design to better mobilize private capital and attract private investment through: • Enhance Blended Finance Mechanisms: Blended finance can effectively address the challenges of high initial costs and extended payback periods that typically discourage private sector investment in infrastructure. The IIFF should consider expanding its application of blended finance mechanisms to attract more private sector investment. This expansion could include the creation of innovative financial products designed to reduce risk for private investors. Instruments such as partial credit guarantees, or first-loss capital provisions could be particularly valuable for projects that yield substantial social and environmental benefits . • Strengthen the PPP Framework, including create a Green PPPs Framework: The IIFF, in collaboration with Indonesian government entities, is poised to enhance the regulatory and institutional framework for Public- Private Partnerships (PPPs) in Indonesia. The IIFF should explore the development of a Green PPPs framework that incorporates environmental sustainability criteria throughout the entire PPP project lifecycle, from inception to completion. This framework would advocate for the integration of green technologies, the promotion of energy efficiency, and ensure alignment with Indonesia's climate action objectives. It would serve as a comprehensive guide for selecting, designing, and implementing infrastructure projects that deliver positive environmental impacts, thereby encouraging innovation and sustainability in public infrastructure development. The IIFF's contributions could also include providing technical assistance to improve project preparation, developing guidelines for equitable risk distribution, and establishing mechanisms for managing contingent liabilities. 2. Building or maintaining niche market position in good ESG practices in infrastructure finance through: Page 29 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) • Build a Climate-Focused Project Pipeline: The IIFF should take a proactive stance in collaborating with government agencies, private entities, and local communities to pinpoint, formulate, and fund a suite of infrastructure projects. These projects should not only yield benefits in terms of climate mitigation and adaptation but also bolster Indonesia's Nationally Determined Contributions (NDCs), thereby rendering them appealing prospects for GCF financing. • Support IIFF's Active Role in Carbon Markets: The IIFF could assume a critical role in advancing Indonesia's engagement with the international carbon markets. This would entail aiding projects that produce marketable carbon credits via sustainable land management, renewable energy initiatives, and enhancements in energy efficiency. IIFF can utilize its advisory expertise and financial services to guide project developers through the intricate carbon credit certification and market exchange processes. Furthermore, IIFF could investigate potential investments in carbon credit aggregation platforms or funds, thereby solidifying its position as an influential entity in the carbon markets and aligning its investment approaches with worldwide climate change mitigation efforts. • Develop Financial Products for Green Projects: IIFF should design specialized financial products to support green infrastructure projects and facilitate participation in carbon markets. These could include the issuance of green bonds, the provision of sustainability-linked loans, and making equity investments in projects eligible for carbon credits. These financial instruments would not only provide the necessary capital but also serve as an incentive for project developers to implement sustainable practices. 3. Acknowledging the importance of non-material benefits from the entire business processes are as importance as the lending itself: Throughout the lending period, the IIF benefited from diverse forms of assistance and inquiries from lenders, culminating in the comprehensive refinement of its business processes. Conversations with several IIF beneficiaries revealed that this expertise has also been imparted to them by the IIF. Going forward, the IIF could benefit from enhanced visibility in the financial sector possibly through more active dissemination of its experience and success stories. . Page 30 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS A. RESULTS INDICATORS A.1 PDO Indicators Objective/Outcome: Project Development Objective Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion The amount of financing from Amount(USD) 0.00 200.00 198.60 Bank funds provided by IIF to commercially viable 28-Feb-2017 31-Dec-2023 31-Dec-2023 infrastructure projects. Comments (achievements against targets): Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion The amount of private capital Number 0.00 4.00 23.90 supported by IIF relative to its own investment. 28-Feb-2017 31-Dec-2023 31-Dec-2023 Page 31 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) Comments (achievements against targets): Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Number of infrastructure Number 0.00 3.00 78.00 financing supported by IIF using innovative financing, 28-Feb-2017 31-Dec-2023 31-Dec-2023 such as: (i) rupiah financing; (ii) take out financing; (iii) maturity greater than 10 years. Comments (achievements against targets): A.2 Intermediate Results Indicators Component: Intermediate Results Indicators Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Infrastructure sub-projects Number 0.00 7.00 61.00 financed 28-Feb-2017 31-Dec-2023 31-Dec-2023 Comments (achievements against targets): Page 32 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Number of IIF advisory Number 0.00 7.00 45.00 engagements 28-Feb-2017 31-Dec-2023 31-Dec-2023 Comments (achievements against targets): Page 33 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) B. KEY OUTPUTS BY COMPONENT This project has only one component and key outputs are presented in the main text as well as section A. Page 34 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION A. TASK TEAM MEMBERS Name Role Preparation Supervision/ICR Dara Malia Lengkong Task Team Leader(s) Angelia B. Nurwihapsari .S, Kristin Susana Moko Procurement Specialist(s) Novira Kusdarti Financial Management Specialist Rusdian Lubis Team Member Satoshi Ishihara Social Specialist Marinella Maxima G. Yadao Team Member Erly Carina Tatontos Team Member Francesco Strobbe Team Member Elikia Merleen Vanessa Abraham Team Member Krisnan Pitradjaja Isomartana Environmental Specialist Mark Alexander Giblett Team Member Hani Maisarah Binti Mohamad Team Member Owen Nie ICR TTL Neni Lestari ICR co-TTL Carlos Senon Benito ICR Team Member Evilia Nusi ICR Team Member Dinna Tazkiana ICR Team Member Biying Zhu ICR Team Member B. STAFF TIME AND COST Page 35 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) Staff Time and Cost Stage of Project Cycle No. of staff weeks US$ (including travel and consultant costs) Preparation FY06 12.332 70,223.41 FY07 25.347 74,596.73 FY08 35.882 93,399.64 FY09 73.774 184,987.50 FY10 0 0.00 Total 147.34 423,207.28 Supervision/ICR FY10 61.062 120,134.33 FY11 48.627 141,580.76 FY12 27.715 134,507.48 FY13 37.902 120,903.38 FY14 29.165 129,436.91 FY15 8.262 135,258.31 FY16 24.365 171,929.35 FY17 16.817 113,528.12 FY18 18.600 125,550.67 FY19 25.453 161,026.41 FY20 34.891 182,794.63 FY21 41.495 248,946.22 FY22 33.000 243,494.09 FY23 31.848 376,138.10 FY24 31.539 303,136.96 Total 470.74 2,708,365.72 Stage of Project Cycle Staff Time and Cost No. of staff weeks US$ (including travel and consultant costs) Page 36 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) Preparation Total 0.00 0.00 Supervision/ICR FY10 61 120134 FY11 48 141580 FY12 27 134507 FY13 37 120903 FY14 29 129436 FY15 8 135258 FY16 24 171929 FY17 16 113528 FY18 18 125550 FY19 25 161026 FY20 34 182794 FY21 41 248946 FY22 33 243494 FY23 31 376138 FY24 19 291592 Total 459 2696821 Page 37 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) ANNEX 3. PROJECT COST BY COMPONENT Amount at Approval Actual at Project Percentage of Approval Components (US$M) Closing (US$M) (US$M) On-lending of Bank loan to eligible infrastructure 100 99.88 99.9% projects (parent operation) On-lending of Bank loan to eligible infrastructure 200 198.60 99.3% projects (additional financing) Total .00 298.48 99.5% Page 38 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) ANNEX 4. EFFICIENCY ANALYSIS Since the WB investments constitutes debt financing for the IIF for a total of 17 sub-projects, we did not calculate the ERR/NPV for WB investment. Such calculations are available for a selection of 4 sub-projects for which a business case studies were conducted. The results of these case studies were discussed in the efficiency section in the main text. Page 39 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) ANNEX 5. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS From the Indonesia Infrastructure Finance Facility (IIFF): This Implementation Completion and Results (ICR) Report provides another perspective on the journey of a facility designed to support an institution established and catered towards improving public service through private participation, with the World Bank involved in every step since the inception of IIF. The World Bank has been providing various support in the form of capacity-building activities, missions, technical assistances, and financing facilities. The successful closing of this Additional Facility was also supported by various stakeholders, including approval and monitoring from Bappenas, technical and operational support from SMI, and substantial support from the Ministry of Finance, which enabled the facility that is originated in USD to be distributed in IDR. This mechanism has significantly improved the facility’s versatility especially in serving domestic infrastructure demand that is mostly in IDR. The commitment to successfully complete this Additional Facility aligns with our ongoing efforts to grow through three main strategies: 1. Enhance Competitiveness To enhance competitiveness, IIF aims to deliver value-added solution for clients. We have already introduced innovative offerings such as Non-cash Loan Facilities, Credit Enhancement Facilities, Cash Deficiency Support, various Advisory capabilities including ESG Advisory. Additionally, we have several new solutions in development. In the short term, IIF is also exploring participation in Blended Financing activities, which could provide unique and appealing solutions to projects seeking greater financial viability. Furthermore, we are actively building brand awareness and positioning through participation in awards, serving as experts and panelist in infrastructure and sustainability events and seminars, and sponsoring impactful business-related events. 2. Business Expansion IIF can achieve business expansion through both organic growth and non-organic growth. Organically, IIF plans to broaden its infrastructure financing coverage to encompass expanding sectors and sub sectors influenced by sociological, ecological, technological, and business trends. Additionally, regional expansion within ASEAN region to support Indonesia’s interest is a potential avenue for organic growth in the future. Non-organically, IIF may explore growth opportunities through acquiring stakes in financial institutions, subject to regulatory approval and strategic timing considerations. Business expansion typically requires capital in the form of equity or equity like instruments from existing shareholders or from new investors. Recently, IIF has issued domestic Perpetual Notes to to bolster its capital base, is in the process of seeking additional equity from existing shareholder, and intends to explore opportunities to attract strategic investor(s) in the near future. Page 40 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) Moreover, IIF is exploring less capital-intensive modes of business expansion, leveraging its capabilities, experience, know-how, and network through managing an infrastructure fund. In the near term, IIF is actively progressing towards establishing its first sustainable infrastructure fund, with significant support from the World Bank for comprehensive feasibility study. 3. Improve Operational and Financial Performance Investing and improvement in human capital management is utmost important for a financial institution. Besides well-designed capacity building, IIF also recently launched a high-performance organization mindset to increase efficiency, effectiveness, and productivity of human capital to benefit all IIF’s stakeholders. IIF also learns the dos and don’ts during its journey to empower sound risk management practice. Continuous improvement in risk management has reduced the number of COVID-impacted accounts from an initial 8 to just 1 remaining. The existing high interest rate environment also provided performance challenge to IIF such as more frequent asset prepayment and decreasing profitability, especially with high leverage that IIF has. To address these challenges, IIF is actively seeking ways to boost fee-based income, fine-tuning its pricing strategy, and actively managing its liabilities cost. Collaborative efforts within Indonesia’s infrastructure financing ecosystem are also being intensified to capture potential revenue opportunities. As a result of these concerted efforts, IIF has achieved three consecutive years of dividend payments to shareholders, reflecting a turnaround in recent performance. IIF will require robust support to execute these strategies and hopes for the World Bank’s ongoing partnership as a longstanding stakeholder. Technical assistance and capacity building in product development, business expansion, S&E safeguards, and risk management are crucial areas that require continuous learning and improvement. Support for competitively priced long-term IDR facility, such as this Additional Facility, will help establish a stable foundation for IIF’s long-term liability management in infrastructure financing. This aligns with IIF’s business expansion strategy, particularly following the capital increase. On the S&E safeguard implementation, the World Bank's role and support have been crucial for IIF in managing S&E risks according to international standards. The World Bank safeguard team’s advice and supervision for high-risk projects, regular site visits, and numerous capacity-building sessions for IIF’s SED team have significantly improved our S&E safeguard practices. We hope that the bank will continue supporting IIF, especially in managing the S&E safeguards for high-risk projects. Additionally, the bank provided technical assistance to develop tools for screening climate change investments and quantifying the social and environmental benefits of IIF's sustainability framework. This tool development is complete, and we are gradually integrating the screening tools into our business processes. We expect the bank to continue supporting this tool application effort. Together with the Bank’s safeguard team, we have also provided safeguard training for relevant stakeholders in Indonesia through the Indonesia Network Learning Center for Environment and Social Page 41 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) Sustainability (NLC-ESS). This effort has enhanced IIF's reputation as an NBFI committed to sustainable finance with a “double materiality” concept in its business processes. However, we learn that implementing international S&E safeguard standards is challenging and requires transformation at all organizational levels. Many borrowers don't see immediate benefits and are hard to convince, while project owners often lack the capacity and resources to identify and manage S&E/ESG risks, viewing the standards as too strict. Nevertheless, with increasing concern and better regulatory frameworks for sustainability and ESG factors, these challenges can turn into opportunities for sustainable finance. With support from the World Bank and collaboration with other stakeholders, IIF is confident in addressing the challenges ahead to successfully carry out its mandate in increasing private sector participation in Indonesia’s sustainable infrastructure development. Page 42 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) Page 43 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) ANNEX 6. SUPPORTING DOCUMENTS List of all subprojects funded directly by the World Bank Drawdown Amount from WB Facility Current Progress Facility WB Outstanding Remaining Estimated Limit Portion WB Portion WB Potion Completion Obstacles Full No Debtor Project Description (IDR Billion) (IDR bn) (IDR bn) (IDR bn) (%) Completion (If Any) 1 Len Palapa Ring II Project - Central Package, is a project 500.00 250.00 250.00 - 100% - Telekomunikasi of the Ministry of Communication and Informatics Indonesia that reaches 17 urban districts in Indonesia. The Idea of development Palapa Ring’s optical fiber network is intended as a backbone (backbone) for the national telecommunications system, benefits of Palapa Ring can also support fixed telecommunications networks (fixed) and cellular, including distance education (tele education) and distance treatment far (health tele) cheaply and TV broadcasts to villages. Palapa Ring will also facilitate Universal implementation Service Obligation (USO), utilization of e-government, e-education, e-healthy, and internet access by anyone and Palapa Ring is one of the national strategic projects stipulated by Presidential Regulation No. 3 of 2016. 2 Pemalang The 39.2-kilometer toll road connects Pemalang 200.00 80.00 80.00 - 100% - Batang Toll and Batang, Central Java, as part of the Trans Java Road Toll Road, linking Merak, Banten, to Banyuwangi, East Java. It crosses Pemalang, Pekalongan, and 3 Pemalang Batang regencies.This toll road is divided into 2 600.00 288.06 278.06 - 100% - - Batang Toll sections: Road Page 44 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) Drawdown Amount from WB Facility Current Progress Facility WB Outstanding Remaining Estimated Limit Portion WB Portion WB Potion Completion Obstacles Full No Debtor Project Description (IDR Billion) (IDR bn) (IDR bn) (IDR bn) (%) Completion (If Any)  Section I (Pemalang - Pekalongan) length 23.3 km  Section II (Pekalongan - Batang) is 15.9 km 4 Buminata 10 Megawatt capacity micro-hydro power plant 227.00 70.00 70.00 - 100% - - Energi Perkasa project in Tomata Village, Central Sulawesi. The electricity from this project will be distributed to customers through a 20 kV medium voltage distribution network. 5 Meta Adhya Umbulan Water Supply System (SPAM) is a Public- 530.00 60.00 60.00 - 100% - - Tirta Umbulan Private Partnership project in Indonesia and managed by East Java Goverment Provincial Regional Drinking Water Company (PDAM) with capacity 4.000 L/second. This clean water facility can increase the supply of drinking water to approximately 310 thousand residents or equivalent to 1.3 million residents in five sub-districts. 6 Adhya Tirta Lampung Water Supply System (SPAM) is a Public- 275.00 70.00 70.00 - 100% - - Lampung Private Partnership project in Indonesia and managed by Bandar Lampung City Regional Drinking Water Company (PDAM) with a planned capacity of 750 L/second. This clean water facility can increase the supply of drinking water to approximately 60 thousand households or equivalent to 300 thousand residents in eight sub-districts 7 Bangun Cipta Loan Facility for equity support to Umbulan and 132.50 60.00 60.00 - 100% - - Kontraktor Bandar Lampung water treatment project. Page 45 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) Drawdown Amount from WB Facility Current Progress Facility WB Outstanding Remaining Estimated Limit Portion WB Portion WB Potion Completion Obstacles Full No Debtor Project Description (IDR Billion) (IDR bn) (IDR bn) (IDR bn) (%) Completion (If Any) 8 Arkora Hydro Loan Facility for hydro power plant at west java with 90.00 89.10 89.10 - 100% - - capacity 7.4 MW and estimated annual energy output of 52,000 MWh 9 Arkora Hydro Loan Facility for hydro power plant at Central 150.00 132.84 132.84 - 100% - - Sulawesi Sulawesi with capacity 10.0 MW and estimated Selatan annual energy output of 63,072 MWh 10 PT Bali Refinancing loan of PT Bali Towerindo Sentra Tbk 800.00 500.00 500.00 - 100% - - Towerindo Sentra Tbk 11 Centratama Refinancing loan of Centratama Telekomunikasi 405.00 80.00 80.00 - 100% - - Telekomunikasi Indonesia Indonesia 12 Celebes The construction of 13.32 km connecting line for 237.75 95.71 95.71 - 100% - - Railway the Makassar – Parepare railway Indonesia 13 Enviromate IIF provided working capital and non-cash facility 248.50 219.64 219.64 - 100% - - Technology amounting to IDR 248.5 billion and IDR 141.5 billion, International respectively, for project in state-owned oil and gas (ETI) company. As of December 2023, the Refinery Development Master Plan (RDMP) Project at Balongan has been successfully completed. Moreover, the collaboration between ETI and IIF persists, with ongoing developments on new projects. 14 PT PSN Enam Nusantara Satu Satellite Project - to refinancing 500.00 478.2 478.2 - 100% - - Indonesia existing facility of PT PSN Enam Indonesia (PSN 6) (PSN6) existed in Export Development Canada Page 46 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) Drawdown Amount from WB Facility Current Progress Facility WB Outstanding Remaining Estimated Limit Portion WB Portion WB Potion Completion Obstacles Full No Debtor Project Description (IDR Billion) (IDR bn) (IDR bn) (IDR bn) (%) Completion (If Any) 15 PT Smartfren Cellular operator based on 4G LTE technology with 400.00 314.6 314.6 - 100% - - Telecom national coverage covering all regions of Indonesia. 16 PT Dumai Tirta Drinking Water Management System (“SPAM’) in 133.2 100.5 100.5 - 100% - - Persada Dumai, Riau Province, Indonesia, in collaboration with Perusahaan Umum Daerah Air Minum (Perumdam Tirta Dumai Bersemai) through a Public-Private Partnership scheme 17 PT Poca Communications equipment installation services, 100.00 52.6 52.6 - 100% - - Jaringan Solusi radio frequency, tower construction and & PT Radhika maintenance. Patangga Jagaditha TOTAL 5,228.90 2,941.32 2,941.32 Page 47 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) List of interviews conducted during ICR mission in Jakarta Feb 19-29: WBG Internal: World Bank Indonesia Country Manager Project Financial Management Specialist Project Procurement Specialist Indonesia EFI Program Leader Project Environmental and Social Safeguard Specialist IIFF-AF Task Team Leader International Finance Corporation (IFC) External: Ministry of Finance, the Directorate General of State Asset Management (DJKN MoF) Asian Development Bank (ADB) Infrastructure Finance Facility (IIFF) sub-project beneficiaries: Arkora Hydro West Java, Arkora Hydro Sulawesi, Pemalang Batang toll road, Cibitung Tanjung Priok (CTP) toll road Indonesia Infrastructure Finance (IIF) representatives: board of commissioners, CEO, Finance team and Social and Environmental team Page 48 of 49 The World Bank Indonesia Infrastructure Finance Facility (P092218) ANNEX 7. IIFF Financial Performance 2023 2022 2021 2020 2019 Statement of Financial Position (Audited) (Audited) (Audited) (Audited) (Audited) ASSETS Cash and Cash Equivalents – net 739,713 923,739 1,352,431 2,057,059 2,429,067 Securities – net 2,108,934 2,195,776 2,128,893 2,470,048 2,732,936 Equity Investments 362,817 214,300 201,902 396,720 389,636 Loans – net 11,554,694 12,518,031 10,203,363 9,197,486 6,232,662 Other Assets – net 343,771 646,606 664,538 563,059 526,759 Total Assets 15,109,929 16,498,452 14,551,127 14,684,372 12,311,060 LIABILITIES Fund Borrowings 4,281,691 5,270,858 3,748,292 5,378,793 4,713,745 Subordinated Loans 5,307,914 4,916,285 4,383,902 4,157,322 3,142,918 Debt Securities Issued 2,981,054 3,883,838 4,029,707 2,735,233 2,183,064 Other Liabilities 151,246 125,390 167,718 232,764 118,774 Total Liabilities 12,721,905 14,196,371 12,329,619 12,504,112 10,158,501 EQUITY Capital Stock 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 Additional Paid-in Capital 29,800 29,800 29,800 29,800 29,800 Other Comprehensive Income – net 14,691 (21,266) (35,108) (22,724) (24,416) Retained Earnings 343,533 293,547 226,816 173,184 147,175 Total Equity 2,388,024 2,302,081 2,221,508 2,180,260 2,152,559 Total Liabilities and Equity 15,109,929 16,498,452 14,551,127 14,684,372 12,311,060 in IDR million Statement of Profit or Loss and 2023 2022 2021 2020 2019 Other Comprehensive Income (Audited) (Audited) (Audited) (Audited) (Audited) 1,167,938 966,823 911,520 837,802 Revenues 1,341,414 Expenses (1,201,485) (1,067,196) (889,051) (840,279) (805,398) Profit/(Loss) Before Tax 139,929 100,742 77,772 71,241 32,404 (17,761) (24,745) (28,731) (16,428) Tax (Expenses)/Benefit (35,778) Profit/(Loss) for the Year 104,151 82,981 53,027 42,510 15,976 in IDR million 2023 2022 2021 2020 2019 Statement of Cashflows (Audited) (Audited) (Audited) (Audited) (Audited) 1,140,054 (1,682,559) (847,901) (2,825,683) (454,075) Net Cash Used in Operating Activities Net Cash (Used in)/ Provided by 132,387 (2,755) 337,333 322,320 436,475 Investing Activities Net Cash Provided by/ (Used in) (1,402,470) 1,244,806 (212,619) 2,152,771 1,851,753 Financing Activities Cash and Cash Equivalents at 923,740 1,352,435 2,057,102 2,429,067 582,361 Beginning of the Year Cash and Cash Equivalents at End of 739,714 923,740 1,352,435 2,057,102 2,429,067 the Year Page 49 of 49