Report No: AUS0001636 . Indonesia Revenue and Budget Management Institutional Diagnostic of Low and Slow Central Government Capital Budget Execution June 28, 2020 . GOV . © 2020 The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved This work is a product of the staff of The World Bank. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work if the source of the data is not the World Bank.. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. For any questions or clarification regarding this report, please contact Arun Arya, Senior Public Sector Specialist/ Task Team Leader, at aarya@worldbank.org Rights and Permissions The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Attribution—Please cite the work as follows: “World Bank. 2020. INSTITUTIONAL DIAGNOSTIC OF LOW AND SLOW CAPITAL CENTRAL GOVERNMENT BUDGET EXECUTION IN INDONESIA. © World Bank.” All queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. ii Acknowledgements This study report was prepared by a team led by Arun Arya (Senior Public-Sector Management Specialist, EEAG1/Task Team Leader (TTL)), and consisted of Hari Purnomo (Senior Public Financial Management Specialist, EEAG1/ Co-TTL), Tajuddin Mabaning Ismail (Consultant), Angella Faith Lapukeni (Young Professional, EEAM 2), Budi Permana (Senior Procurement Specialist, EEAR 2), Novira Kusdarti (Sr Financial Management Specialist, EEAG 1), Alan Pearson (Consultant), Suren Tripathi (Consultant), Joy Gabriel (Consultant), Joy Gabriel (Consultant) and Assyifa Szami Ilman (Consultant) under the overall leadership of Alma Kanani (Practice Manager of EEAG1). The team would like to acknowledge the valuable support received from the staff of Budget Implementation Directorate of DG Treasury of the Ministry of Finance with Pak Sudarso, the Director for Budget Implementation, as the key counterpart., The team would also like to thank Pak Andin Hadiyanto (Director General of Treasury, MOF) for providing his overall guidance and support, without whose directions to all Satkers (spending units), the diagnostic survey wouldn’t have been successful. Furthermore, the team would like to thank officials from the DG Treasury Regional Offices in West Java (Bandung) and North Sumatera (Medan) which assisted to organize workshops to discuss and clarify the survey findings with some selected spending units based in that regions. This report was produced under the Public Finance Management (PFM) Programmatic Advisory Services and Analytics (PASA) (P155648) financed by the Indonesia PFM Multi-Donor Trust Fund (MDTF) supported by the European Union, Government of Canada and the Government of Switzerland. iii Table of Contents EXECUTIVE SUMMARY .............................................................................................................. XI 1 COUNTRY CONTEXT ........................................................................................................... 1 2 THE DIAGNOSTIC OF CENTRAL GOVERNMENT CAPITAL BUDGET REALIZATION PERFORMANCE IN 2019 ............................................................................................................. 8 2.1 CAPITAL EXPENDITURE BUDGET ALLOCATION (END OF YEAR DIPA) VS. REALIZATION INFORMATION ........... 8 2.1.1 OVERALL ..................................................................................................................................... 8 2.1.2 AGGREGATE CAPITAL EXPENDITURE DATA BY MINISTRIES/AGENCIES FOR 2019........................................ 9 2.1.3 AGGREGATE CAPITAL BUDGET DATA BY KANWIL (REGIONAL OFFICE) FOR 2019 ................................... 16 2.2 ONLINE SURVEY APPROACH, RESPONSE STATUS APPROACH TO ANALYSIS ........................................... 19 2.2.1 ONLINE SURVEY APPROACH .......................................................................................................... 19 2.3 REGRESSION ANALYSIS APPROACH ............................................................................................ 20 2.3.1 REGRESSION MODEL.................................................................................................................... 20 2.4 SUMMARY OF EMPIRICAL RESULTS ............................................................................................ 22 3 CONCLUSIONS AND PROPOSED ACTION RECOMMENDATIONS ........................................ 24 3.1 MAJOR CONCLUSIONS ........................................................................................................... 24 3.2 DETAILED ANALYSIS, CONCLUSION AND PROPOSED ACTION RECOMMENDATIONS ................................. 26 3.2.1 GENERAL ISSUES ......................................................................................................................... 26 3.2.2 BUDGET PLANNING ..................................................................................................................... 27 3.2.3 PROCUREMENT MANAGEMENT PROCESS ......................................................................................... 31 3.2.4 BUDGET IMPLEMENTATION ........................................................................................................... 36 3.2.5 FINANCIAL MANAGEMENT AND AUDIT ............................................................................................ 41 3.3 PROPOSED ACTION RECOMMENDATIONS BY STAKEHOLDERS ............................................................ 44 3.4 CHANGE MANAGEMENT......................................................................................................... 53 APPENDIX A ONLINE SURVEY FORM ...................................................................................... 54 APPENDIX B STATISTICAL ANALYSIS OF SPENDING UNITS’ RESPONSES TO THE ONLINE SURVEY 67 B.1 ONLINE SURVEY RESPONSE STATUS ........................................................................................... 67 B.2 DETERMINATION OF THE SAMPLE FOR ANALYSIS ........................................................................... 68 APPENDIX C EMPIRICAL ANALYSIS INTO THE CAUSES OF LOW AND SLOW CAPITAL EXPENDITURE BUDGET EXECUTION .......................................................................................... 70 C.1 KEY INFORMATION ON THE SURVEY POPULATION AND THE SAMPLE FOR ANALYSIS ................................ 70 C.2 SUMMARY OF ALL EMPIRICAL RESULTS ...................................................................................... 71 C.3 BUDGETING (5-14) .............................................................................................................. 71 iv C.4 PROCUREMENT (15-23) ........................................................................................................ 82 C.5 BUDGET IMPLEMENTATION (24 – 32) ....................................................................................... 89 C.6 FINANCIAL MANAGEMENT AND AUDIT (33 – 34) ......................................................................... 99 C.7 OTHERS (35 – 41) ............................................................................................................. 101 APPENDIX D FREQUENCY DISTRIBUTION TABLES FROM SURVEY RESPONSES ....................... 108 D.1 BUDGETING (5-14) ............................................................................................................ 108 D.2 PROCUREMENT (15-23) ...................................................................................................... 110 D.3 BUDGET IMPLEMENTATION (24 – 32) ..................................................................................... 113 APPENDIX E REGRESSION ANALYSIS .................................................................................... 115 E.1 REGRESSION ANALYSIS APPROACH .......................................................................................... 115 E.2 REGRESSION MODEL ........................................................................................................... 117 E.3 REGRESSION RESULTS .......................................................................................................... 118 APPENDIX F PAST DIAGNOSTIC AND POLICY ACTIONS TAKEN BY GOVERNMENT .................. 126 APPENDIX G DETAILS OF FINDINGS, CONCLUSIONS, AND PROPOSED ACTION RECOMMENDATIONS ............................................................................................................. 130 v List of Figures FIGURE 1 CUMULATIVE CAPITAL EXPENDITURE AS A % OF DIPA BY MONTH, 2017 – 2019 .............................................. 5 FIGURE 2 GOI CENTRAL GOVERNMENT CAPITAL EXPENDITURE REALIZATION, % OF DIPA, 2019 ..................................... 8 FIGURE 3 APPROACH FOR CONDUCTING THE SPENDING UNIT CAPITAL EXPENDITURE SURVEY 2019 ........................... 19 FIGURE 4 TREND OF SPENDING UNIT CAPITAL EXPENDITURE SURVEY 2019 RESPONSES ............................................... 67 FIGURE 5 OVERALL BUDGET ISSUES REPORTED BY 44 % OF SATKERS ............................................................................. 72 FIGURE 6 AVERAGE % OF SATKERS REPORTING BUDGETING ISSUES BY SELECTED INDICATORS .................................... 72 FIGURE 7 SHARE OF IDEAL NEEDS ORIGINALLY PLANNED THAT ARE APPROVED (DIPA VALUE, %) ................................. 74 FIGURE 8 EFFECT ON THE LEVEL OF REALIZATION BY DIPA .............................................................................................. 76 FIGURE 9 EFFECT ON THE PACE OF REALIZATION BY DIPA ............................................................................................... 76 FIGURE 10 EFFECT OF DOCUMENTATION FOR BUDGET IMPLEMENTATION ON THE PACE AND LEVEL OF REALIZATION 77 FIGURE 11 EFFECT OF RULES AND GUIDELINES ON TIMELINESS OF STAFF APPOINTMENTS AND REPLACEMENTS ON THE LEVEL AND THE PACE OF REALIZATION.................................................................................................................... 79 FIGURE 12 THREE OUT OF FIVE INDICATORS FOR DELAYS IN TENDER IMPLEMENTATION INCREASE REALIZATION IN Q4 ................................................................................................................................................................................. 83 FIGURE 13 EFFECT OF TIMING OF PROCUREMENT PLAN ISSUANCE ON THE PACE OF REALIZATION FOR SATKERS HANDLING <10 BILLION DIPA ................................................................................................................................... 85 FIGURE 14 HIGHER ‘PACE’ FOR SATKERS WHO ANNOUNCE TENDERS EARLIER ............................................................... 86 FIGURE 15 RESPONSES TO PROCUREMENT ISSUES RELATED TO DELAY IN EVALUATION OF TENDERS REPORTED BY SATKERS (Q19) ......................................................................................................................................................... 87 FIGURE 16 EFFECT OF HAVING A PROCUREMENT PRACTICE (Q20-23) ............................................................................ 89 FIGURE 17 EFFECT OF INCREASING A PROCUREMENT PRACTICE BY 10% OF TOTAL PACKAGE (Q20-23) ........................ 89 FIGURE 18 EFFECT OF 10% INCREASE IN DELAYED/CANCELLED CONTRACTS ON LEVEL OF REALIZATION (Q24, Q25, Q27) ................................................................................................................................................................................. 90 FIGURE 19 EFFECT OF 10% INCREASE IN DELAYED/CANCELLED CONTRACTS ON PACE OF REALIZATION BY DIPA AMOUNT (Q24, Q27) ............................................................................................................................................... 90 FIGURE 20 REPORTED NUMBER OF DAYS TO PREPARE SPM DOCUMENTS ..................................................................... 91 FIGURE 21 FREQUENCY OF MAKING INVOICE REPAIRMENTS (#, %) ................................................................................ 94 FIGURE 22 DISTRIBUTION OF SATKERS BASED ON CAUSES FOR TIME LENGTH REQUIRED TO PREPARE THE SPM DOCUMENTS IN FULL (NUMBER OF SATKER, % CONTRIBUTION) (Q30) .................................................................. 95 FIGURE 23 CAUSES OF LENGTH OF TIME TO PREPARE SPM DOCUMENTS AND IMPACT ON PACE AND LENGTH (Q30) . 95 FIGURE 24 DISTRIBUTION OF SATKERS BASED ON FREQUENCY OF EXCEEDING DEADLINE FOR SUBMITTING SPM TO KPPN (NUMBER OF SATKER, PERCENT CONTRIBUTION) (Q31) ............................................................................... 95 FIGURE 25 FREQUENCY DISTRIBUTION OF SATKERS BASED ON CAUSES OF DELAYS IN IMPLEMENTING CONTRACTS (Q32) ........................................................................................................................................................................ 98 FIGURE 26 % EFFECT ON THE LEVEL OF REALIZATION DUE TO FACTORS THAT DELAY THE IMPLEMENTATION OF CONTRACTS (Q32) .................................................................................................................................................... 98 FIGURE 27 EFFECT OF DELAYS IN CONTRACT IMPLEMENTATION ON THE PACE OF REALIZATION .................................. 98 FIGURE 28 EFFECT OF FREQUENCY OF FINANCIAL MANAGEMENT PROBLEMS DURING CONTRACT IMPLEMENTATION ON THE LEVEL AND PACE OF REALIZATION............................................................................................................ 100 FIGURE 29 DISTRIBUTION OF SATKERS BASED ON FREQUENCY OF RECEIVING COMPLAINTS AND THE IMPACT ON THE PACE PF REALIZATION (Q35) .................................................................................................................................. 101 FIGURE 30 DISTRIBUTION OF SATKERS WHO REPORTED HAVING ISSUES USING APPLICATION.................................... 103 FIGURE 31 DISTRIBUTION OF SATKERS BASED ON FREQUENCY OF RECEIVING COMPLAINTS AND THE IMPACT ON THE LEVELS OF REALIZATION (Q36)............................................................................................................................... 103 vi List of Tables TABLE 1 BUDGET ALLOCATION BRACKETS FOR CAPITAL EXPENDITURES (AMOUNTS IN IDR BILLION)............................. XI TABLE 2 APBN-KITA AND POF PPID DATA ON CAPITAL EXPENDITURE BUDGETS AND REALIZATION (AMOUNT IN IDR TRILLION).................................................................................................................................................................... 6 TABLE 3 CAPITAL BUDGET EXECUTION DATA BY MINISTRIES/AGENCIES FOR 2019 BY DECREASING CAPITAL BUDGET ALLOCATION (END OF YEAR DIPA) ............................................................................................................................. 9 TABLE 4 CAPITAL BUDGET EXECUTION DATA BY MINISTRIES/AGENCIES FOR 2019 BY DECREASING REALIZATION % OF DIPA.......................................................................................................................................................................... 11 TABLE 5 CAPITAL BUDGET EXECUTION DATA BY MINISTRIES/AGENCIES UP TO Q3 2019 BY DECREASING REALIZATION % OF DIPA .................................................................................................................................................................... 13 TABLE 6 DIPA BRACKETS OF SPENDING UNITS WITH CAPITAL BUDGET EXPENDITURES ................................................. 15 TABLE 7 CAPITAL BUDGET EXECUTION DATA BY KANWIL FOR 2019 BY DECREASING CAPITAL BUDGET ALLOCATION (END OF YEAR DIPA) ................................................................................................................................................. 16 TABLE 8 CAPITAL BUDGET EXECUTION DATA BY KANWIL FOR 2019 BY DECREASING REALIZATION % OF DIPA ............. 17 TABLE 9 CAPITAL BUDGET EXECUTION DATA BY KANWILS UP TO Q3 2019 BY DECREASING REALIZATION % OF DIPA .. 18 TABLE 10 GROUPS IN THE CAPITAL BUDGET EXPENDITURE PROCESS REPRESENTING THE INDEPENDENT/EXPLANATORY VARIABLES ................................................................................................................................................................ 21 TABLE 11 SUMMARY OF PROPOSED ACTIONS RECOMMENDATIONS FOR CAPITAL EXPENDITURES ............................... 44 TABLE 12 DUPLICATE RESPONSES IN THE ONLINE SURVEY RESPONSES TABLE ................................................................ 68 TABLE 13 SUMMARY RESULTS OF THE SAMPLE AND THE DETERMINANTS OF PACE AND LEVEL OF REALIZATION ........ 69 TABLE 14 KEY INFORMATION ON THE SURVEY POPULATION FROM THE SPENDING UNIT REFERENCE TABLE ............... 70 TABLE 15 KEY INFORMATION ON THE SAMPLE FROM THE ONLINE SURVEY RESPONSES AND SPENDING UNIT REFERENCE TABLES .................................................................................................................................................. 70 TABLE 16 BUDGETING INDICATORS AND SUB-INDICATORS ............................................................................................. 71 TABLE 17 PROBLEMS CAUSING DIFFICULTIES IN PREPARING THE BUDGET (Q5) ............................................................. 73 TABLE 18 EFFECT OF BUDGET PREPARATION ON THE PACE REALIZATION ...................................................................... 73 TABLE 19 EFFECT OF BUDGET PREPARATION ON THE LEVEL REALIZATION ..................................................................... 73 TABLE 20 PERCENTAGE OF THE "IDEAL" NEEDS ORIGINALLY PLANNED AND SUBMITTED BY SPENDING UNITS IN THE PROCESS OF DRAFTING THE FY 2018 AND / OR FY 2019 BUDGET THAT CAN FINALLY BE APPROVED AND REALIZED AT DIPA (Q6) ............................................................................................................................................................ 74 TABLE 21 DIFFICULTIES IN THE IMPLEMENTATION OF THE BUDGET DUE TO DISCREPANCIES BETWEEN THE WORK PLAN DOCUMENT (RENJA K / L) COORDINATED BY BAPPENAS WITH THE BUDGET DOCUMENT (RKA - K / L) ISSUED BY THE MINISTRY OF FINANCE (Q7) .............................................................................................................................. 75 TABLE 22 ISSUES RELATED TO DOCUMENTATION OF BUDGET IMPLEMENTATION (DIPA AND POK) (Q8) ...................... 77 TABLE 23 OBSTACLES RELATED TO RULES AND GUIDELINES ON TIMELINESS OF STAFF APPOINTMENTS AND REPLACEMENTS FOR IMPLEMENTING THE BUDGET (Q9)........................................................................................ 78 TABLE 24 IMPACT RELATED TO THE ISSUANCE OF RULES AND GUIDELINES FOR IMPLEMENTING THE BUDGET (Q10) .. 80 TABLE 25 EFFECT OF ISSUANCE OF RULES AND GUIDELINES ON THE PACE OF REALIZATION (Q10) ............................... 80 TABLE 26 EFFECT OF ISSUANCE OF RULES AND GUIDELINES ON THE LEVEL OF REALIZATION (Q10) .............................. 80 TABLE 27 PROBLEMS ENCOUNTERED BY SPENDING UNITS IN THE PLANNING, BUDGETING AND PREPARATION OF DIPA (PARTIAL LIST) (Q14) ................................................................................................................................................ 82 TABLE 28 FACTORS AFFECTING TIMELINESS OF TENDER IMPLEMENTATION (Q15) ........................................................ 83 TABLE 29 TWO OUT OF FIVE INDICATORS AFFECT THE PACE OF REALIZATION WITH AN AGGREGATE NEGATIVE IMPACT OF 8.4% .................................................................................................................................................................... 83 TABLE 30 PERIOD WHEN GENERAL PROCUREMENT PLAN (RUP) WAS ISSUED FOR FY 2019 PROCUREMENT (Q16) ...... 84 TABLE 31 BREAKDOWNS BY DIPA BRACKETS ON PERIOD WHEN GENERAL PROCUREMENT PLAN (RUP) WAS ISSUED FOR FY 2019 PROCUREMENT (Q16) ................................................................................................................................ 85 TABLE 32 PERIOD WHEN MOST OF PROCUREMENT PACKAGE TENDERS WERE ANNOUNCED FOR FY 2019 PROCUREMENT (Q17) .............................................................................................................................................. 86 TABLE 33 FACTORS THAT DELAY THE EVALUATION OF THE WORK PACKAGE IN FY 2018 (Q19) ..................................... 87 TABLE 34 IMPACT OF ACTIVITY EVALUATION ISSUES ON THE PACE OF REALIZATION (Q19) ........................................... 87 TABLE 35 DISTRIBUTION OF SATKERS WITH PERCENTAGE OF EACH TENDER PACKAGES BASED ON VARIOUS APPROACHES............................................................................................................................................................ 88 TABLE 36 AVERAGE SATKERS REPORTED FOR HAVING ISSUES IN EACH BUDGET IMPLEMENTATION INDICATOR .......... 89 vii TABLE 37 DURATION OF PREPARATION OF SPM DOCUMENTS FOR SUBMISSION TO THE KPPN SINCE RECEIPT OF SUPPLIER/VENDOR INVOICES (Q28) ........................................................................................................................ 91 TABLE 38 EFFECT OF INCREASED DURATION OF BEYOND 5 DAYS ON THE PACE AND LEVEL OF REALIZATION ............... 91 TABLE 39 BREAKDOWN OF DURATION OF PREPARATION OF SPM DOCUMENTS FOR SUBMISSION TO THE KPPN BY DIPA BRACKET (Q28) ......................................................................................................................................................... 92 TABLE 40 FREQUENCY OF THIRD-PARTY INVOICES TO BE CORRECTED PRIOR TO ISSUANCE OF SPMS (Q29) ................. 93 TABLE 41 EFFECT OF INCREASED FREQUENCY OF CORRECTING INVOICES IS NEGATIVE ON THE PACE INDICATOR ....... 94 TABLE 42 CAUSES OF LENGTH OF TIME TO PREPARE SPM DOCUMENTS (Q30)............................................................... 94 TABLE 43 FREQUENCY OF EXCEEDING 17-DAY DEADLINE FOR SUBMITTING SPMS TO KPPNS (Q31) .............................. 96 TABLE 44 FACTORS THAT DELAY THE IMPLEMENTATION OF CONTRACTS IN FY 2018 (Q32)........................................... 97 TABLE 45 FREQUENCY OF FINANCIAL MANAGEMENT PROBLEMS DURING CONTRACT IMPLEMENTATION IN FY 2018 (Q33) ........................................................................................................................................................................ 99 TABLE 46 STATEMENTS ABOUT THE AUDIT OF CAPITAL EXPENDITURE IN FY 2018 (Q34) ............................................. 100 TABLE 47 FREQUENCY OF COMPLAINTS FROM THIRD PARTIES (CONTRACTORS) RELATED TO THE DELAY ON PAYMENT DISBURSEMENT IN FY 2018 (Q35) .......................................................................................................................... 101 TABLE 48 USER FRIENDLINESS OF FINANCIAL APPLICATIONS (Q36) .............................................................................. 102 TABLE 49 SUPPORT SERVICES MEETING EXPECTATIONS (Q37) ...................................................................................... 103 TABLE 50 PROBLEMS ENCOUNTERED AND RECOMMENDATIONS BY SPENDING UNITS ON THE USE OF IT APPLICATIONS (PARTIAL LIST) (Q38) .............................................................................................................................................. 104 TABLE 51 PROBLEMS ENCOUNTERED AND RECOMMENDATIONS BY SPENDING UNITS ON THE TIMELINESS AND QUALITY OF BUDGET IMPLEMENTATION (PARTIAL LIST) (Q39) ............................................................................ 105 TABLE 52 PROBLEMS ENCOUNTERED AND RECOMMENDATIONS BY SPENDING UNITS ON THE REGULATIONS AND POLICIES OF THE CENTRAL GOVERNMENT IN THE PROCESS OF MANAGING STATE FINANCES, INCLUDING: PLANNING, BUDGETING, BUDGET EXECUTION, ACCOUNTING AND REPORTING AND MONITORING AND EVALUATION (PARTIAL LIST) (Q40) ........................................................................................................................ 106 TABLE 53 TRAINING NEEDS AND CAPACITY BUILDING FOR THE APPARATUS / STAFF NEEDED BY THE SPENDING UNIT TO IMPROVE BUDGET IMPLEMENTATION WORK (PARTIAL LIST) (Q41) ..................................................................... 107 TABLE 54 DISTRIBUTION OF SATKERS WHO REPORTED ISSUES IN BUDGETING PROCESSES (EXCEPT FOR Q6) ............ 108 TABLE 55 MONTH IN 2018 WHEN PRESIDENTIAL REGULATION ON THE DETAILS OF THE APBN WERE RECEIVED FOR DIPA FY 2019 PREPARATION (Q11) ........................................................................................................................ 109 TABLE 56 MONTH IN 2018 WHEN SOFTCOPY OF DIPA FY 2019 WAS RECEIVED (Q12) .................................................. 109 TABLE 57 MONTH IN 2018 WHEN SIGNED PRINTOUT OF DIPA FY 2019 WAS RECEIVED (Q13) ..................................... 110 TABLE 58 DISTRIBUTION OF SATKERS WHO REPORTED ISSUES IN PROCUREMENT PROCESSES RELATED TO DELAYS IN AUCTION IMPLEMENTATION ................................................................................................................................. 110 TABLE 59 DISTRIBUTION OF SATKERS BASED ON TIMING OF ACTIVITIES RELATED TO AUCTIONING AND PROCUREMENT ............................................................................................................................................................................... 110 TABLE 60 PERCENTAGE OF TOTAL WORK PACKAGES IN SIRUP CARRIED OUT AS OPEN TENDERS IN FY 2018 (Q20) .... 111 TABLE 61 PERCENTAGE OF TOTAL WORK PACKAGES CARRIED OUT THROUGH EARLY PROCUREMENT IN FY 2018 (Q21) ............................................................................................................................................................................... 111 TABLE 62 PERCENTAGE OF TOTAL WORK PACKAGES CARRIED OUT THROUGH MULTIYEAR CONTRACTS IN FY 2018 (Q22) ...................................................................................................................................................................... 112 TABLE 63 PERCENTAGE OF TOTAL WORK PACKAGES WHICH FAILED THE PROCUREMENT PROCESS OR POSTPONED TO THE NEXT FY IN FY 2018 (Q23) ............................................................................................................................... 112 TABLE 64 PERCENTAGE OF SIGNED CONTRACTS IN FY 2018 THAT WERE CANCELLED (Q24) ........................................ 113 TABLE 65 PERCENTAGE OF SIGNED CONTRACTS IN FY 2018 DELAYED DUE TO DELAYS IN LAND ACQUISITION (Q25) . 113 TABLE 66 PERCENTAGE OF SIGNED CONTRACTS IN FY 2018 WITH CHANGES/ADDENDUM IN THE CONTRACT VALUE (Q26) ...................................................................................................................................................................... 113 TABLE 67 PERCENTAGE OF SIGNED CONTRACTS IN FY 2018 WHICH CANNOT BE FULLY RESOLVED BY END OF DEC 2018 (Q27) ...................................................................................................................................................................... 114 TABLE 68 DISTRIBUTION OF SATKERS BASED ON FINANCIAL MANAGEMENT ISSUES AND PERSPECTIVE ON AUDITING ACTIVITIES .............................................................................................................................................................. 114 TABLE 69 SINGLE SAMPLE T-TEST FOR THE PACE AND LEVEL INDICATORS .................................................................... 116 TABLE 70 2012 DIPA TRACKING STUDY: POLICY RECOMMENDATIONS AND GOVERNMENT’S REFORM ACTIONS ....... 126 TABLE 71 DETAILED ANALYSIS, CONCLUSION AND PROPOSED ACTION RECOMMENDATIONS ..................................... 130 viii Abbreviations State Revenue and Expenditure Budget (Anggaran Pendapatan dan Belanja APBN Negara) Our (People) Budget (The MOF regular publication to report budget APBN-KITA implementation performance in a monthly basis) Hand over document to confirm that the Contractor has delivered goods and BAST services and complied for payments (Berita Acara Serah Terima) BP Budget Preparation Module in SPAN BPK Supreme Audit Agency (Badan Pemeriksa Keuangan) Financial and Development Supervisory Agency (Badan Pengawasan Keuangan BPKP dan Pembangunan) BUN MOF as the State General Treasurer (Bendahara Umum Negara) CAPEX Capital Expenditures DG Directorate General DIPA Budget Allotment Document (Dokumen Isian Pelaksanaan Anggaran) DPR Parliament (Dewan Perwakilan Rakyat) FMIS Financial Management Information System GoI Government of Indonesia IDR Indonesia Rupiah Budget Execution Performance Indicators (Indikator Kinerja Pelaksana IKPA Anggaran) IT Information Technology KAK Terms of Reference (Kerangka Acuan Kerja) KANWIL Kantor Wilayah (Regional Office) of DG Treasury, MOF KPA Spending Unit as the Proxy Budget User (Kuasa Pengguna Anggaran) KPPN State Treasury and Cash Office (Kantor Pelayanan Perbendaharaan Negara) National Public Procurement Agency (Lembaga Kebijakan Pengadaan LKPP Barang/Jasa Pemerintah) MoF Ministry of Finance MoPWH Ministry of Public Works and Public Housing MYC Multi-Year Contracts OM SPAN Online Monitoring SPAN (see SPAN below) PA Line Ministry as the Budget User (Pengguna Anggaran) Perpres Presidential Regulation (Peraturan Presiden) PFM Public Financial Management PFM-MDTF Public Financial Management Multi Donor Trust Fund PMK Finance Minister Regulation (Peraturan Menteri Keuangan) ix PP Government Regulation (Peraturan Pemerintah) Ministry of Finance Information and Documentation Management Officer PPID (Pejabat Pengelola Informasi dan Dokumentasi, Kemenkeu) RENJA Work Plan (Rencana Kerja) RUP General Procurement Plan (Rencana Umum Pengadaan) Integrated Agency Financial Application System (Sistem Aplikasi Keuangan SAKTI Terpadu Instansi) Satker Spending Unit (Satuan Kerja) SBSN Government’s Syariah Bonds SIRUP General Procurement Plan Information System (Sistem Informasi Rencana Umum Pengadaan) State Treasury and Budget System (Sistem Perbendaharaan dan Anggaran SPAN Negara) SPM Payment Order (Surat Perintah Membayar) SPSE Electronic procurement system of LKPP (Sistem Pengadaan Secara Elektronik) SU Spending Unit or Satuan Kerja x Executive Summary Weak execution of the capital expenditure budget in recent years highlights the ongoing challenges in both the regulatory framework and institutions of public financial management in Indonesia. This raises a particular concern over the absorptive capacity of the line ministries and quality of capital budget implementation, particularly in view of the Government’s stated priority of significantly increasing infrastructure spending. Capital Expenditure from the central government budget has consistently remained low over the past decade in Indonesia. In 2007, it was 1.6 % of the GDP. In 2017, it continued to remain at a low 1.4 % of the GDP. The low capital expenditure is because of two factors, first, the limited fiscal space doesn’t allow the government to allocate enough funds for capital expenditure, and second, institutional challenges of public financial management limit the overall level and pace of capital budget execution. In term of the budget execution performance, in FY2019, the aggregate realization of capital expenditure budget was ‘low’ at IDR 173 trillion, which was 82 % of the end of year budget allocation of IDR 211 trillion. The execution of capital budget was also ‘slow’ considering 49% of the capital budget expenditure was made in the fourth quarter of FY2019 and 28% in the month of December 2019. Since the annual State Budget (APBN) is approved on a cash basis, the bunching of capital expenditure budget spending at the end of the year increases fiduciary risks of hasty implementation, as spending units rush to spend their budgets in the closing stages of the year to prevent the budget appropriation from lapsing. A study titled “Identifying the Constraints to Budget Execution in the Infrastructure Sector – DIPA (Dokumen Isian Pelaksanaan Anggaran – Budget Allotment Document) Tracking Study” was conducted by the World Bank in collaboration with the Ministry of Finance in 2012. While some of the identified constraints appear to have been removed by follow-up measures taken by the government, some of the long-standing institutional issues constraining the level and pace of capital expenditure budget remain unresolved. In FY 2019, out of the 24,000+ spending units, only 11,589 spending units had a budget allocation for capital expenditures as per following distribution: Table 1 Budget Allocation Brackets for Capital Expenditures (Amounts in IDR Billion) Budget (DIPA) Bracket Number of % of SU to Budget % budget to Spending total total Units (SUs) Less than 10 Billion 10,204 88.1% 9,972 4.7% 10-50 Billion 837 7.2% 18,512 8.8% 50-100 Billion 185 1.6% 12,915 6.1% More than 100 Billion 363 3.1% 169,377 80.4% Total 11,589 100.0% 210,776 100.0% If we look at the individual ministry wise allocation of capital budget, top 4 out of 86 Ministries/Agencies - The Ministry of Public Works and Housing, Ministry of Defence, Ministry of Transportation, and the State Police - had a combined capital expenditure budget allocation of IDR 164 Trillion, which was 77.6% of the total capital expenditure budget for 2019. This highlights the xi need to focus on high capital budget ministries to resolve the issues on low level and slow pace in the execution of capital budget. The Ministry of Finance had requested the World Bank to conduct a study to diagnose the reasons for ‘low’ and ‘slow’ capital budget execution. The Bank team designed an Online Survey to understand the challenges and constrains faced by Spending Units of line ministries in execution of capital budget. As per the result of the analysis of the budget execution data, analysis of the spending units’ responses to the online survey, and consultations with staff of some selected spending units in the field missions, the team found that the slow pace and low level of capital budget execution performance is caused by somewhat interrelated reasons as follows: - One of the major reasons for low and slow capital budget execution is the delay in the completion of the procurement process. This is because not all spending units are initiating the early procurement process before the start of the fiscal year as is permissible under regulations. Furthermore, not all spending units are using the provision of multi-year contracts which can potentially free them from the procurement process for the next few years and allow their implementations to be smoother. - Delays in land acquisition also impact the pace and level of capital budget execution. From empirical analysis, we found that delays in auction implementation and tender evaluation have a negative impact on the pace of realization by 8.4 percent and 22.3 percent respectively. Meanwhile, early announcement of tenders, early procurement and multiyear contracts increase the pace of realization by 18 percent, 9 percent and 5 percent respectively. - The other issue is related with budget planning. Capital Expenditure is budgeted annually. A mix of top-down and bottom-up approaches are applied to prepare Capital Expenditure proposals and budgets. However, spending units are concerned that they have only a short period of time for preparing and planning the (capital) budget proposals. From the empirical analysis results, we find there are two challenges that generally affect both ‘pace’ and ‘level’ of capital budget expenditure. First, challenges of preparing budget documentation - with Spending Units reporting this problem had an 4.3 % lower realization and 25 % slower realization compared to those which had no problems. Second, rules and guidelines on timeliness of staff appointments and replacements lead to 11 % lower and 19 % slower realization in comparison to those who did not face these challenges. - Another reason is delay in payments to vendors. Not all spending units make regular payments to vendors based on their monthly payment schedule but wait instead for the percent physical progress to be available before any payment can be made. There is also a lack of transparency in the time when the invoices are submitted by vendors and how much time does a Spending Unit take to clear those submitted invoices. - Our empirical analysis showed that three (3) key aspects negatively affect both the pace and the level of realization. These are: xii  contractors not submitting their invoices on-time in which case the level and pace indicators are lower by 1.1 and 10.2 percent;  contractors delaying their invoices up to the end of FY leading to negative impact of 1.0 and 7.3 percent on the level and pace respectively; and  supporting documents for submitting invoice not received from contractor on-time leading to negative impact of 1.1 and 8.9 percent on the level and pace respectively. - It is also concluded that the disbursement performance of capital budgets continued to be less optimal because of different interpretations and/or implementation of same regulations across ministries. Only a few line ministries (particularly Ministry of Public Works and Public Housing, MOPWH) take the benefits of implementing new regulations and policies. - There is also a lack of coordination between spending units and their Echelon 1 and 2 units in headquarters which causes delays in planning, budgeting and decision-making. - Staff motivation is low since the additional honorarium for officials who manage a project is considered low and paid on a monthly basis, hence they tend to lengthen their work period for one full year without incentive to finish it earlier. Honorariums set by MOF on standard costs for spending units key officials are considered low and are not commensurate with the task responsibilities. - Finally, the survey concludes that while there is still room to further improve regulations and policies to accelerate capital budget expenditure spending, it will not be effective if it does not address and resolve the root cause of the issue which is primarily the relatively slow pace of behavioural change of not only the key persons in the spending units but also the staff of Line Ministries in their headquarters. The government recognizes that the current budget execution process is weak and has taken some necessary measures to address them. The current concerns and high-level attention also provide an opportunity to undertake broader improvements in order to accelerate budget execution. In addition to addressing the immediate constraints in the short term, this momentum also provides an opportunity to undertake further improvements which may involve institutional and regulatory changes that are part of broader Public Financial Management (PFM) reforms. The team has made several strategic recommendations that can be followed up by the higher level authority in the Ministry of Finance, Echelon-1 Officers of Line Ministries, Spending units and the National Public Procurement Agency (LKPP) to further improve the policy, regulatory and institutional arrangements in the short-term or the medium to long-term in addressing the challenges identified in this study. Some of the major recommendations following to the PFM cycle processes are described as follows: 1. Budgeting: - Line Ministries should apply 80/20 rule with a focus on the few spending units with large amount of capex budget. The Line ministry may also streamline the number of their spending xiii units and assigning the planning and procurement processes to a few “large” spending units only. - There should be a minimum tenure of at least two years fixed for heads of spending units, excepting for cases such as demotion (due to disciplinary action), promotion or other unforeseen circumstances. - Line Ministries may establish a “project selection procedure” and build a pipeline of competing capital expenditure proposals from all Echelon 1 Units to be linked with the line ministry’s MTEF (3 year) forward estimates. - Echelon 1 Officers of the Line Ministries should be given more authority to manage budget for individual spending units and be made accountable for managing a program. The present laws and regulations recognize Minister (as the budget owner) and spending units (as the proxy budget user). - The Ministry of Finance should transfer the entire responsibility of in-year DIPA management, including virement from DG Budget to DG Treasury. - Data interoperability or merging two PFM applications of KRISNA (of Bappenas) for planning and SAKTI (of MOF) for budget needs to be done. 2. Procurement: - Technical design specifications need to be prepared and finalized far before procurement starts. Allocating sufficient budget for technical design preparation and requiring readiness criteria before the project starts. - Central government to improve coordination with local governments as the land procuring committee. It should invite the law enforcer (Attorney General and Police) and BPKP as observer in the process of land acquisition. The Ministry of Finance should provide a flexible budget allocation for land acquisition by allowing spending above DIPA ceiling based on actual and final agreed price of land. - For all procurement activities in the next year, the Procurement Plan (RUP) and tender announcements should be published in the preceding year. The Government can impose a restriction that RUP will not be allowed to be submitted in the current fiscal year. The eProcurement System (SPSE) should be modified to permit RUP submission only in the previous fiscal year. - National Public Procurement Agency (LKPP) and the Ministry of Finance should establish a protocol for data sharing and/or data interoperability between the e-procurement system (SPSE) and the FMIS system (SPAN) so that the government could have a full end-to-end contract information from the start of procurement, signing the contract, physical progress implementation and disbursement payments up to the completion of the projects. SPSE covers the sourcing aspect of the procurement process which is under the authority of LKPP, while SPAN, through its BC (Budget Commitment) and PM (Payment Management) modules, cover the contract execution—after contracts are awarded through SPSE—to payments process, which is under the authority of MOF’s DG Treasury. While the Oracle EBS platform that SPAN uses has a supply chain suite of applications (not yet included in SPAN) that can cover the sourcing aspect of procurement which SPSE covers, such a solution could xiv be easily adopted by a homogenous organization such as those in the private sector. LKPP wants to retain their procurement system so if SPAN is expanded to include sourcing functionality then there will be an overlap of applications between SPSE and SPAN wherein both technical and political economy issues need to be addressed. - Each line ministry should systematically monitor and report compliance of advance procurement, and LKPP should monitor and report at country level - Bappenas and/or MOF could proactively demand Line Ministries to adjust their proposal from single year to Multi-Year Contracts when appropriate, especially the large value contracts that are likely to take longer than 12 months period for completion. - Review of the e-catalogue procedures to identify opportunities for enhancing competitiveness in bidder selection and prices to enable greater value for money in addition to efficiency. 3. Budget Implementation: - Contracts should include explicit provisions to specify the time period within which the Spending Units will verify the contractor’s invoices and make payment, failing which, interest penalty may be levied in case of delay in releasing payments. - Developing an e-invoice system, as a new functionality in the SAKTI application, that allows vendors/ contractors to submit their invoices and supporting documents online, and spending units to approve or return for requiring additional information before approval. This would lead to greater transparency and accountability since any refusal and/or approval of invoices will be monitored. - Every line ministry with large capital budget expenditure should develop an “e-reporting” system that would be used to facilitate electronic reports from spending units to the superiors and from vendors/ contractors to the spending units. - Contracts should be required to include an “indicative” schedule of payment by specific date/week or on delivery of output. 4. Financial Management and Audit - DG Treasury may soon launch web-based SAKTI application to the entire 24,000 spending units all over Indonesia, in which, payment request (SPM) submission by all spending units to the MOF’s treasury payment office (KPPN) would be done on the system and errors can be corrected in the system without requiring manual process by human physical back and forth from spending units to the KPPN office sites. - The involvement of internal auditors involved in the project should be made from the beginning to get necessary guidance for the spending units. - The capacity of internal auditors should be improved across line ministries. The central internal audit institution (BPKP) should provide capacity building for internal auditors. - Replace the requirement for contractor to provide “bank guarantee” for processing end of year payment by opening a “temporary bank account” and giving a deferred cheque (cek tanggal mundur) to contractors so SPM can be processed earlier, while the works continue xv until completion till the end of contract date (for example, 25 December). The deferred cheque can be cleared before 31 December when DIPA validity expires. - Linking rewards and sanctions with spending performance as individual Key Performance Indicators for career promotion and budget cuts for under-performing spending units could be the solution for this issue. In implementing these recommendations, the government will need to follow a right change management strategy, including but not limited to staff incentives and follow up action, establishing Help Line to support the Spending Units, and, using the lessons learned from experience of well- performing spending units xvi 1 Country Context 1. The economic fundamentals underlying the Indonesian economy have increasingly gained strength over recent years. Economic growth has been averaging around 5 percent year-on-year since 2016. The country continues to make progress on reducing poverty and has begun to reverse inequality. However, poverty is significantly higher in Indonesia’s rural and lagging regions, and the rural poor are particularly vulnerable to sliding back into poverty. Indonesia’s public spending on priority areas in support of growth and shared prosperity objectives remains low. At 16.6 percent of GDP in 2018, Indonesia’s level of expenditure is a little over half the average of other emerging markets and significantly below OECD countries. 2. Indonesia has a large and widening public infrastructure gap compared to other emerging markets. Indonesia’s infrastructure capital stock is already low and unevenly distributed. The infrastructure gap is estimated at USD1.6 trillion with other emerging market economies (EMEs), with total capital stock currently at less than 50 percent of the average of other EMEs. Even as Indonesia’s capital investment has been growing faster than historical rates in recent years, with allocations from the central and local budgets increasing since 2015, they remain lower than needs. Even the current higher levels of investment by the central and local governments are insufficient to close the gap this gap has been around USD1 trillion for more than a decade and has been increasing at an average of USD60 billion a year, as other countries invested even more in their infrastructure. Quality is also a concern, with Indonesia’s infrastructure perceived to be of a lower quality than ASEAN averages in all aspects but railroads. Shortfalls in infrastructure availability and quality constitute a binding constraint on Indonesia’s economic development. Thus Indonesia needs both increased investment in infrastructure but also and critically so, to ensure that the available limited resources are not under-utilized, hence the need to zero in on execution of capital expenditure. 3. Underinvestment in infrastructure 1 over the past decade has left Indonesia with a large infrastructure gap. Financing this gap requires that Indonesia spends more than 3-4% of GDP in capital investments and forges effective and sustainable partnerships to leverage financing with the private sector. Return to higher economic growth depends on the successful implementation of the government’s ambitious infrastructure development plans but that is constrained by Capital Expenditure from the budget, which has consistently remained low over the past decade. While there are contributions from the other source of funds for infrastructure financing, such as private investor and PPP, the central government as stated in its RPJMN of 2020-24 is intended to increase the target of the central government capital budget expenditure contribution to 1.7-2.3% of GDP in average per year throughout FY 2020-24 , which is higher than the contribution of 1.6% in 2007 and 1.4% in 2017. 4. The low capital expenditure is because of two factors, first, the limited fiscal space doesn’t allow the government to allocate enough funds for capital expenditure, and second, public financial management challenges limiting the overall level and pace of capital budget execution. In the fiscal 1 Total infrastructure investment—that is, investment by the central government, subnational governments, state- owned enterprises and the private sector—has remained unchanged at only 3 to 4 percent of GDP for a decade. Page:1 year 2019, for example, the average capital budget execution in the past three years was 85%, of which, 45% was executed in the last quarter. 5. Weak execution of the capital expenditure budget in past years highlights the ongoing challenges in the institutions of public financial management. This raises a concern over the absorptive capacity and quality of budget implementation, particularly in view of the Government’s stated priority of significantly increasing infrastructure spending. There needs to be a significant improvement in the performance of budget execution if the substantial budget increases in capital and infrastructure spending and the recent medium-term development targets outlined in the RPJMN 2020-2024, are to be fully materialized. 6. While the scope of this diagnostic study report is limited on the analysis about budget execution (implementation) issues, it is worth to mention that Indonesia has conducted some other PFM assessments studies where if it is seen altogether in one package of analysis it would give a comprehensive picture of PFM issues in Indonesia for a full budget cycle since many of the down stream aspects causing the slow pace and low level of capital budget execution performance identified in this diagnostic study is somewhat related with the up-stream aspects of PFM (planning, budgeting, and procurement) of public investment projects. The other PFM assessment studies that highlighting challenges and issues on PFM in Indonesia are the following: (i) Public Expenditure Financial Accountability (PEFA): the last PEFA assessment for Indonesia in 2017 highlighted that in general Indonesia has already established strong legal and regulatory frameworks that aligns with most international standards on PFM. However, the overall score of “D+” for PI-11 on Public Investment Management aspect reflecting a weak of project implementation, particularly since the detailed technical, financial, economic, environmental and sensitivity analyses are not always available or completed at the time of investment project selection. Also, non-priority (about 60% of total) projects funded by state budget are decentralized to line ministries with no unified guidelines set by either Bappenas or MOF. There are no national guidelines for project costing and lack of identification of recurrent costs while the monitoring of cost and physical progress is reported outside the FMIS or done manually by individual line ministries. Meanwhile, PEFA also highlighted other weaknesses on medium term perspective in expenditure budgeting with the overall score of “C+” for PI-16. This reflects the weak on medium term expenditure estimates, lack on the use of last year’s first forward estimate for budget, nonexistence of information on medium term expenditure ceiling estimates from MOF to line ministries. (ii) Public Investment Management Assessment (PIMA): In collaboration with IMF, the Bank team has completed and released a study on PIMA to the government of the Republic of Indonesia on June 2019. This PIMA report highlighted that PIM in Indonesia are good considering since Indonesia’s PIMA scores are mostly in the middle range both for institutional strength and effectiveness, with specific strengths in the planning and implementation phases. These reflect the strong fiscal framework and rules that provide overall targets for fiscal policy, the use of alternative financing means for infrastructure, such as public-private partnerships (PPPs), the availability of funding within a budget year, and the strong reporting of state assets. However, shortcomings stem from a lack of focus on the appropriate project-level information when planning, budgeting, and monitoring public investment. Weak on project implementation is highlighted since there is no project audit and fragmentation of projects limit effectiveness. Multiyear budgeting is another area Page:2 with shortcomings, mostly due to absence of information on the medium-term spending envelopes, ongoing and new projects, and the total cost of projects. On the basis of the PIMA, the report recommends six high-priority actions: (a) Enhance the focus on capital project-level information for planning, budgeting and monitoring public investment; (b) Identify major capital projects in the medium-term development plans; (c) Strengthen multiyear budgeting framework for capital spending; (d) Improve the quality of project preparation and selection; (e) Modernize capital portfolio oversight and monitoring; and (f) Strengthen capital project management. (iii) Indonesia Public Expenditure Review (PER): On June 2020, the Bank has just released the PER study that aims to help the government of the Republic of Indonesia identify key constraints to efficient and effective public spending and offer ways to improve the quality of spending to achieve Indonesia’s development objectives. The PFM section in this PER report highlighted some challenges on PFM, such as: there are still systemic constraints start with inconsistency between planning architecture, budget architecture, and performance management framework of the government. The concept of money follow program cannot be fully implemented because programs in planning structure are based on national plan priorities and those under budget are based on the organizational structure. The constraint continues with the implementation of the logic framework that remains suboptimal, despite the existence of intervention logic framework in the regulation. The definition of outputs and outcomes are often not clearly stated. The MTEF practice is also still not complemented with a top-down medium-term budget ceilings from MoF to line ministries, which can be used as a guidance for them to prepare the spending plans. Clear visibility of fiscal constraints could have led to competition for resources, challenges to proposals and strategic allocation of resources. Finally, although monitoring takes place, it is fragmented, often duplicative and predominantly focused on budget absorption rates, rather than on measuring the impact of spending. To increase efficiency and effectiveness of spending, the Government could consider the following measures to address systemic constraints by Strengthen PFM to raise the quality and effectiveness of government spending by improving coordination between the MoF and Bappenas to align planning and budgeting, strengthening implementation of the ‘money follows program’ approach, strengthening the medium-term perspective in planning and budgeting, improving the “intervention logic” concepts in program/performance design, continuing to move to smaller and fewer in-year budget revisions, both for the mid-year budget revision (APBN-P) and self-blocking budget cuts, strengthening a ‘performance management environment’ that will encourage and support higher-quality spending by the public sector, and enabling a performance-based budgeting system that is adapted to the requirements of a significantly decentralized fiscal process. Since a large part of FY 2020 Budget has been reallocated to combating COVID-19, there is a need to track allocation, expenditure and results of expenditure related to COVID-19 and to establish a mobile apps to disseminate the data to the general public and a dashboard to improve decision making by providing real-time information on the expenditure for government officials. (iv) MAPS The public procurement system of Indonesia is currently being assessed using the Methodology for Assessing Procurement Systems (MAPS, version 2018) to prioritize the attention and support to the areas needing further improvement. MAPS is a universal tool Page:3 reflective of international best procurement practices that serves as a guide towards sustainable and inclusive public procurement reform. The ongoing MAPS assessment, which is also being supported by the PFM-MDTF, covers the core areas under the four pillars of the MAPS methodology which are: (i) Pillar I: Legal, Regulatory and Policy Framework; (ii) Pillar II: Institutional Framework and Management Capacity; (iii) Pillar III: Procurement Operations and Market Practices; and (iv) Pillar IV: Accountability, Integrity and Transparency of the Public Procurement System. The assessment aims to (i) identify possible and significant gaps that negatively impact the quality and performance of the public procurement systems; (ii) provide a comparative analysis and recommendations to enhance the efficiency and performance of public procurement system, (iii) set an agreed road map, in line with the vision of LKPP for enabling effective implementation of the public procurement framework for better procurement performance and outcomes. While LKPP has led a significant procurement reform effort in the country over the last decade, this has so far largely focused on legal and institutional aspects. The proposed activity will support implementation of selected key recommendations of the MAPS assessment and expected to focus on the remaining aspects under Pillar III related to procurement operations and market practices and under Pillar IV related to accountability, integrity and transparency. The proposed activity may also include subsequent assessments of particular aspects using MAPS Supplementary Modules. Once the MAPS has been completed, which is expected by early 2021, the specific scope, cost and timeframe of this activity will be defined and funding support for implementation of selected key recommendations will be sought from the PFM-MDTF at that time. 7. Analysis of aggregate capital expenditure disbursements from 2017 to 2019 shows decreases in the disbursement percentages against the final DIPA budget allocations (2017: 87%; 2018: 86%; 2019: 82%), the slow start in spending remains with most disbursements taking place in the fourth quarter (2017: 49%; 2018: 44%; 2019: 44% of capital budget allocation). This quarterly spending targets are planned (and achieved) by the Line Ministries but are far below the more linear budget absorption indicator or “norm” set by the MoF Budget Execution Directorate, which requires substantial spending to take place in the second and third quarters (45% of the total disbursement). 8. The Ministry of Finance requested the World Bank to conduct a study to diagnose the reasons for ‘low’ and ‘slow’ capital budget execution. The team obtained the comprehensive DIPA capital budget allocation and realization data from the Ministry of Finance’s Information and Documentation Management Officer (PPID). Figure 1 below shows the cumulative capital expenditure as a percentage of the DIPA Budget for 2017 – 2019 against the budget absorption indicator (hereinafter referred to as the “norm”) set under the Indikator Kinerja Pelaksanaan Anggaran (IKPA 2) or budget execution performance required as the spending target. This suggests 2IKPA, for Indikator Kinerja Pelaksanaan Anggaran or Budget Execution Performance Indicators, is defined in Minister of Finance Regulation 195 /PMK.05/2018 as indicator established by the Ministry of Finance as the State General Treasurer to measure the quality of the performance of the implementation of the expenditure budget of the State Ministries/Institutions in terms of conformity to planning, effectiveness of budget execution, efficiency of budget execution, and compliance with regulations. The regulation stipulated the ideal pattern of budget Page:4 that actual execution falls way below the norm set by the MoF Budget Execution Directorate, and that ‘low and slow’ capital execution rates remain a concern for most spending units. Figure 1 Cumulative Capital Expenditure as a % of DIPA by Month, 2017 – 2019 Source: MOF PPID 9. In recent years, despite issuance of some regulations to improve capital budget execution, the disbursement of capital expenditure budget continues to be on the ‘low’ and ‘slow’ for many line ministries. For the ‘low’ side, according to the Ministry of Finance Information and Documentation Management Officer (PPID) data, in FY2019, the aggregate realization of capital expenditure budget was IDR 172.91 trillion or 82.03% of the end of year DIPA allocation of IDR 210,78 trillion. The execution of capital budget was also ‘slow’ since 49% of capital budget expenditure was spent in the fourth quarter of FY2019, of which, 28% was spent in the month of December 2019. Since the State Budget (APBN) is approved on a cash basis, the bunching of capital expenditure budget spending at the end of the year increases fiduciary risks of hasty implementation, as spending units rush to spend their budgets in the closing stages of the year to prevent the budget appropriation from lapsing. 10. Officially MOF, through its published APBN-KITA document (as of January 2020), disclosed to the public that the provisional data (before audit) on capital expenditure budget realization in FY 2019 was IDR 180.92 trillion or 95.55% out of IDR 189.34 trillion APBN budget appropriation. Therefore, there is a difference in the data between the APBN-KITA and DIPA from PPID as follows: absorption as one of the twelve indicators (thirteen for 2020) for monitoring and evaluating the performance of State Ministries/Institutions. The ideal budget absorption pattern consists of quarterly targets for budget absorption, i.e. 15% in Q1, 40% in Q2, 60% in Q3, and 90% in Q4. Page:5 Table 2 APBN-KITA and POF PPID data on Capital Expenditure Budgets and Realization (Amount in IDR Trillion) FY 2019 (IDR Trillion) APBN KITA End Year DIPA (PPID) Difference Budget Realization 180.92 172.91 8.0 (as of 31 December 2019) (as of 31 December 2019) Budget Allocation 189.34 3 210.78 4 21.44 (as of 1 January 2019) (as of 31 December 2019) Performance 95.55% 82.03% 11. The reason for the difference of IDR 8 trillion between the budget realization as per APBN KITA and the end of year DIPA from PPID is that the PPID data is based on the budget being executed by spending units of line ministries through the DIPA while the APBN KITA data includes the capital expenditure realization being ratified and recorded by MOF (as the general state treasurer or BUN) in addition to the line ministries’ spending units’ capital expenditure budgets for a comprehensive accounting and reporting purposes. The capital expenditure other than line ministries’ spending unit include: (i) direct grants received in the form of fixed assets but to be accounted in the cash equivalent value, (ii) end of year ratification of capital budget expenditure funded by BLU and non- tax revenue funds, and (iii) capital expenditure budget were directly executed by MOF as the general state treasurer-BUN. 12. It can be seen from the above that the overall realization of 82% of the capital expenditure DIPA is low and the pace of execution is slow compared to the IKPA’s cumulative realization norms5 set for each quarter. The actual disbursement in the first quarter of 2019 was 4.2% against the norm of 15%; 16.4% against the norm of 40% in the second quarter, and 38.1% against the norm of 60% in the third quarter. 13. DG Treasury sets the norm for pace of disbursement by 15-40-60-90, in which the spending unit is required to disburse at least 15% of the capital expenditure budget for the first quarter, 40% by second quarter, 60% by third quarter, and lastly a minimum of 90% for the last quarter. The reason of why DG Treasury did not set 100% of capital budget disbursement as the norm is because the spending unit is not legally allowed to make any commitment above the DIPA as the ceiling. Usually, the spending unit will fix the owner estimate of a contract commitment lower than DIPA to have a buffer. Furthermore, since procurement is made through an open bidding selection process, the lowest bid would usually win for an efficiency reason so the actual contract amount would be lower than the DIPA. Therefore, the disbursement above 90% of the DIPA ceiling is already considered as a good performance. 3 The budget ceiling in APBN-KITA is the budget appropriation which included in APBN law approved by Parliament and is detailed by Presidential Regulation prior to the start of FY for the budget of the coming FY 4The DIPA is the budget allocation document at end of the fiscal year as the basis for execution of the budget throughout the ongoing FY 5 IKPA is regulated under PMK 195/2018. While IKPA has required spending units to follow the capital budget execution norm, the performance of spending units in executing their budgets is calculated only on the cumulative figure at the end of the year. Therefore, the pace (slower or faster) of performance by quarter is not captured in the IKPA review. Page:6 14. Meanwhile, the higher amount of the end of year DIPA budget (of PPID) allocation compared to the amount of the APBN budget (approved by Parliament) appropriation is because during the implementation throughout the year, the DIPA could be revised and/or changed by the government to include additional allocations that are allowed to be executed by the Government without requiring prior approval from the Parliament. For example, the State Budget (APBN) law No. 12/2018 (article #19) and the State Budget (APBN) law No. 20/2019 (article #19) allows the government to increase DIPA during FY for certain reasons so that the final end of year DIPA in 2019 was about IDR 21.44 trillion higher than the original APBN budget (appropriation approved by Parliament). The reasons for an increased end of year DIPA includes: - The use of additional budget from the BLU (Public Services Agency) owned funds that is ratified at end of fiscal year; - The use of additional budget allocation funded from an increase of Non-Tax revenue above the original budget estimation; - The additional budget allocation funded by foreign/domestic loans; - The additional budget allocation funded by foreign/domestic grants received after the State Budget law enacted - The use of residual SBSN (Syariah bonds) proceeds to finance infrastructure projects; - Shifting budget from unallocated portion (BA.BUN 999.08) to increase the line ministry budget allocation - The additional budget to pay the additional cost due to the: changed foreign currency exchange, increased debt interest repayment, increased fuel subsidy and higher government bonds yield. Considering that this study is aimed to review the performance of spending units in executing their capital expenditure budgets, the budget realization and allocation data referred to in this report is taken from the “final end of year DIPA data of PPID”, not from the APBN-KITA. As described above, both APBN-KITA and the final end of year DIPA data are identical. While, APBN-KITA data is more complete since it includes capital budget realization being recorded by MOF for accounting purposes, it is not relevant to be used in this study. Page:7 2 The Diagnostic of Central Government Capital Budget Realization Performance in 2019 2.1 Capital Expenditure Budget Allocation (End of Year DIPA) vs. Realization Information 2.1.1 Overall 15. The overall capital expenditure spending of GoI’s central government in terms of amounts and % of capital expenditure budget allocation (end of year DIPA) is shown in the figure below, based on PPID data: Figure 2 GoI Central Government Capital Expenditure Realization, % of DIPA, 2019 Source: MOF PPID 16. It can be seen from the above that the overall realization of 82.03% of the capital expenditure DIPA is low and the pace of execution is slow compared to the IKPA’s cumulative realization norms6 for each quarter: 4.2% against the 15% norm in first quarter; 16.4% against the 40% norm in second quarter, and 38.1% against the 60% norm in third quarter. 6 Please see footnote 2. While IKPA has required spending units to follow the capital budget execution norm, the performance of spending units in executing their budgets is calculated only on the cumulative figure at the end of the year. Therefore, the pace (slower or faster) of performance by quarter is not captured in the IKPA review. Page:8 2.1.2 Aggregate Capital Expenditure Data by Ministries/Agencies for 2019 2.1.2.1 Capital Expenditure Budget Allocation (DIPA) by Ministries/Agencies 17. The aggregate capital budget execution DIPA and realization by Ministries/Agencies for 2019 from highest to lowest DIPA amount is shown in the table below. Key observations on the DIPA allocations and realizations of the Ministries/Agencies are described below, however, the reasons as to why the Ministries/Agencies achieved their respective levels of realization and the factors that cause them will require a further diagnostic that needs to be coordinated with MOF in cooperation with the Ministries/Agencies concerned. Table 3 Capital Budget Execution Data by Ministries/Agencies for 2019 by Decreasing Capital Budget Allocation (end of year DIPA) Amount in Billion Indonesian Rupiah No of Realization % Spending DIPA DIPA % of Realization of DIPA Rank, Code, Ministry/Agency Units 2019-12 Total 2019-12 2019-12 01 '033: MINISTRY OF PUBLIC WORKS AND PUBLIC HOUSING 723 81,723 38.8% 64,687 79.2% 02 '012: 'MINISTRY OF DEFENSE 212 33,841 16.1% 24,502 72.4% 03 '022: 'MINISTRY OF TRANSPORTATION 571 26,049 12.4% 22,487 86.3% 04 '060: 'STATE POLICE OF THE REPUBLIC OF INDONESIA 446 21,945 10.4% 19,803 90.2% 05 '042: 'MINISTRY OF RESEARCH, TECHNOLOGY, AND HIGHER EDUCATION 216 7,346 3.5% 6,437 87.6% 06 '025: 'MINISTRY OF RELIGION 4,055 5,990 2.8% 4,688 78.3% 07 '024: 'MINISTRY OF HEALTH 218 4,629 2.2% 3,792 81.9% 08 '015: 'MINISTRY OF FINANCE 667 1,907 0.9% 1,479 77.5% 09 '051: 'STATE CYBER AND CODE AGENCY 1 1,888 0.9% 1,879 99.5% 10 '006: ATTORNEY GENERAL OF THE REPUBLIC OF INDONESIA 48 1,868 0.9% 1,858 99.5% 11 '013: 'MINISTRY OF LAW AND HUMAN RIGHTS OF RI 236 1,703 0.8% 1,627 95.6% 12 '075: 'METEOROLOGY CLIMATOLOGY AND GEOPHYSICS COUNCIL 186 1,291 0.6% 1,058 81.9% 13 '050: 'STATE INTELLIGENCE AGENCY 1 1,185 0.6% 1,185 100.0% 14 '020: 'MINISTRY OF ENERGY AND MINERAL RESOURCES 28 1,141 0.5% 1,030 90.3% 15 '023: 'MINISTRY OF EDUCATION AND CULTURE 209 1,084 0.5% 984 90.8% 16 '011: 'MINISTRY OF FOREIGN AFFAIRS 144 1,084 0.5% 1,012 93.4% 17 '107: 'NATIONAL SAR AGENCY 40 959 0.5% 956 99.7% 18 '018: 'MINISTRY OF AGRICULTURE 195 925 0.4% 883 95.5% 19 '019: 'MINISTRY OF INDUSTRY 64 902 0.4% 787 87.3% 20 '002: 'PEOPLE'S REPRESENTATIVE COUNCIL 1 848 0.4% 432 50.9% 21 '056: 'MINISTRY OF AGRARIAN AND GOVERNANCE / BPN 187 814 0.4% 643 79.0% 22 '112: 'BOARD OF FREE TRADE AND BATAM FREE PORT AREA 2 774 0.4% 568 73.4% 23 '040: 'MINISTRY OF TOURISM 14 731 0.3% 684 93.6% 24 '054: 'CENTRAL BUREAU OF STATISTICS 305 701 0.3% 640 91.3% 25 '005: 'SUPREME COURT 917 688 0.3% 681 99.0% 26 '029: 'MINISTRY OF ENVIRONMENT AND FORESTRY 234 619 0.3% 604 97.6% 27 '081: 'TECHNOLOGY ASSESSMENT AND APPLICATION 18 582 0.3% 565 97.0% 28 '083: 'GEOSPATIAL INFORMATION AGENCY 2 486 0.2% 431 88.8% 29 '082: 'AVIATION AND NATIONAL ANTARIKS. INSTITUTIONS 21 469 0.2% 437 93.4% 30 '079: 'INDONESIAN INSTITUTE OF SCIENCES 42 460 0.2% 421 91.4% 31 '063: 'NATIONAL AGENCY OF DRUG AND FOOD CONTROL 43 374 0.2% 364 97.2% 32 '067: 'MINISTRY OF VILLAGE, LEVEL REGIONAL DEVELOPMENT AND TRANSMIGRATION 109 357 0.2% 351 98.4% 33 '007: 'MINISTRY OF STATE SECRETARIAT 12 353 0.2% 325 92.1% 34 '032: 'MARINE AND FISHERIES MINISTRY 175 351 0.2% 320 91.2% 35 '055: 'MINISTRY OF NATIONAL DEVELOPMENT PLANNING 5 324 0.2% 281 86.6% 36 '027: 'SOCIAL MINISTRY 66 323 0.2% 321 99.4% 37 '080: 'NUCLEAR NUCLEAR POWER BOARD 22 309 0.1% 296 96.0% 38 '076: 'GENERAL ELECTION COMMISSIONS 549 296 0.1% 239 80.9% 39 '026: 'MINISTRY OF MANPOWER 31 287 0.1% 254 88.2% 40 '010: 'MINISTRY OF INTERNAL AFFAIRS 23 249 0.1% 228 91.5% 41 '113: 'NATIONAL BOARD OF TERRORISM 1 202 0.1% 152 75.2% 42 '004: 'AUDIT BOARD OF THE REPUBLIC OF INDONESIA 41 198 0.1% 197 99.4% 43 '059: 'MINISTRY OF COMMUNICATION AND INFORMATICS 60 192 0.1% 178 92.6% 44 '090: 'MINISTRY OF TRADE 49 188 0.1% 168 89.4% 45 '057: 'NATIONAL LIBRARY OF THE REPUBLIC OF INDONESIA 3 178 0.1% 172 96.6% 46 '109: 'SURAMADU REGION DEVELOPMENT AGENCY 1 169 0.1% 139 82.4% Page:9 Amount in Billion Indonesian Rupiah No of Realization % Spending DIPA DIPA % of Realization of DIPA Rank, Code, Ministry/Agency Units 2019-12 Total 2019-12 2019-12 47 '118: 'FREE TRADING & SABANG FREE TRADING AREA 1 168 0.1% 145 86.5% 48 '117: 'TELEVISION PUBLIC BROADCASTING INSTITUTION OF THE REPUBLIC OF INDONESIA 30 166 0.1% 163 97.8% 49 '119: MARITIME SECURITY AGENCY 1 164 0.1% 163 99.4% 50 '066: 'NATIONAL NARCOTICS AGENCY 78 141 0.1% 140 99.3% 51 '115: 'GENERAL ELECTION SUPERVISORY AGENCY 35 141 0.1% 127 90.3% 52 '087: 'NATIONAL ARCHIVES OF THE REPUBLIC OF INDONESIA 4 106 0.1% 102 96.3% 53 '089: 'FINANCIAL AND DEVELOPMENT SUPERVISORY AGENCY 39 87 0.0% 80 91.6% 54 '084: 'NATIONAL STANDARDIZATION AGENCY 1 70 0.0% 70 100.0% 55 '088: 'STATE CIVIL SERVICE AGENCY 16 69 0.0% 68 98.6% 56 '065: 'CAPITAL INVESTMENT COORDINATING BOARD 5 68 0.0% 64 95.0% 57 '116: 'RADIO PUBLIC BROADCASTING INSTITUTION OF THE REPUBLIC OF INDONESIA 69 56 0.0% 53 94.8% 58 '078: 'CENTER FOR REPORTING AND ANALYSIS OF FINANCIAL TRANSACTIONS 2 56 0.0% 48 86.8% 59 '068: 'POPULATION AND FAMILY NATIONAL PLANNING 35 46 0.0% 43 93.6% 60 '093: 'CORRUPTION ERADICATION COMMISSION 1 43 0.0% 41 94.6% 61 '122: 'PANCASILA IDEOLOGY DEVELOPMENT AGENCY (BPIP) 1 38 0.0% 36 94.3% 62 '085: NUCLEAR ENERGY SUPERVISORY AGENCY 3 38 0.0% 37 97.8% 63 '106: 'GOODS PROVISION / GOVERNMENT POLICY INSTITUTION POLICY 1 35 0.0% 34 97.1% 64 '001: 'PEOPLE'S CONSULTATIVE ASSEMBLY 2 34 0.0% 33 97.4% 65 '092: 'MINISTRY OF YOUTH AND SPORTS 5 33 0.0% 14 42.9% 66 '114: 'CABINET SECRETARIAT 1 28 0.0% 24 88.0% 67 '086: 'STATE ADMINISTRATIVE INSTITUTION 8 23 0.0% 22 95.4% 68 '064: 'NATIONAL RESISTANCE INSTITUTION 1 19 0.0% 19 99.9% 69 '077: 'CONSTITUTIONAL COURT OF RI 1 19 0.0% 18 93.0% 70 '041: 'MINISTRY OF STATE-OWNED ENTERPRISES 1 15 0.0% 15 99.6% 71 '048: 'MINISTRY OF ADMINISTRATIVE AND BUREAUCRATIC REFORM 2 15 0.0% 14 96.9% 72 '120: COORDINATING MINISTRY FOR MARITIME AFFAIRS AND INVESTMENTS 1 14 0.0% 13 98.0% 73 '104: 'INDONESIAN EMPLOYMENT PLACEMENT AND PROTECTION 21 13 0.0% 12 97.9% 74 '103: 'NATIONAL DISASTER MANAGEMENT AUTHORITY 1 12 0.0% 12 98.3% 75 '035: 'COORDINATING MINISTRY FOR ECONOMIC AFFAIRS 2 10 0.0% 9 92.6% 76 '111: 'NATIONAL BORDER MANAGEMENT AGENCY 1 10 0.0% 9 90.4% 77 '044: 'MINISTRY OF COOPERATION AND SMALL AND MEDIUM BUSINESSES 10 9 0.0% 9 97.7% 78 '121: 'CREATIVE ECONOMIC AGENCY 1 9 0.0% 6 65.2% 79 '095: 'REGIONAL REPRESENTATIVE BOARD (DPD) 1 8 0.0% 8 97.3% 80 '036: 'COORDINATING MINISTRY OF HUMAN DEVELOPMENT AND CULTURE 2 7 0.0% 5 71.7% 81 '034: 'COORDINATING MINISTRY OF POLITICAL, LAW AND SECURITY 1 7 0.0% 6 98.5% 82 '047: 'THE MINISTRY OF WOMEN'S EMPOWERMENT AND CHILD PROTECTION 7 5 0.0% 5 97.9% 83 '108: 'BUSINESS COMPETITION SUPERVISION COMMISSION 1 4 0.0% 4 99.6% 84 '100: 'RI'S JUDICIAL COMMISSION 1 3 0.0% 3 96.8% 85 '074: 'NATIONAL HUMAN RIGHTS COMMISSION 2 2 0.0% 2 91.7% 86 '110: 'OMBUDSMAN REPUBLIC OF INDONESIA 1 2 0.0% 2 99.3% Grand Total 11,589 210,775 100.0% 172,907 82.0% 18. As can be seen in the table above, the top 4 out of 86 Ministries/Agencies in the list above, are: The Ministry of Public Works and Housing, Ministry of Defence, Ministry of Transportation, and the State Police. The level of disbursement performance of these top 4 ministries was low with 79.2%, 72.4%, 86.3% and 90.2% of the approved budget respectively. These 4 top ministries have a combined capital expenditure budget allocation (DIPA) of IDR 164 Trillion, which is 77.6% of the total capital expenditure DIPA for 2019. These 4 ministries have 1,952 spending units out of a total 11,589 spending units with capital budget. The Ministry of Public Works and Public Housing with 723 spending units have almost 50% of the total DIPA of these 4 ministries. Page:10 2.1.2.2 Capital Expenditure Realization by Ministries/Agencies 2.1.2.2.1 Capital Expenditure Realization as % of DIPA 19. The table below shows the Capital Expenditure DIPA and realization by Ministries/Agencies for 2019 from highest to lowest realization % of DIPA to indicate the level of realization: Table 4 Capital Budget Execution Data by Ministries/Agencies for 2019 by Decreasing Realization % of DIPA Amount in Billion Indonesian Rupiah No of Realization Spending DIPA DIPA % Realization % of DIPA Rank, Code, Ministry/Agency Units 2019-12 of Total 2019-12 2019-12 01 '050: 'STATE INTELLIGENCE AGENCY 1 1,185 0.6% 1,185 100.0% 02 '084: 'NATIONAL STANDARDIZATION AGENCY 1 70 0.0% 70 100.0% 03 '064: 'NATIONAL RESISTANCE INSTITUTION 1 19 0.0% 19 99.9% 04 '107: 'NATIONAL SAR AGENCY 40 959 0.5% 956 99.7% 05 '041: 'MINISTRY OF STATE-OWNED ENTERPRISES 1 15 0.0% 15 99.6% 06 '108: 'BUSINESS COMPETITION SUPERVISION COMMISSION 1 4 0.0% 4 99.6% 07 '051: 'STATE CYBER AND CODE AGENCY 1 1,888 0.9% 1,879 99.5% 08 '006: ATTORNEY GENERAL OF THE REPUBLIC OF INDONESIA 48 1,868 0.9% 1,858 99.5% 09 '004: 'AUDIT BOARD OF THE REPUBLIC OF INDONESIA 41 198 0.1% 197 99.4% 10 '027: 'SOCIAL MINISTRY 66 323 0.2% 321 99.4% 11 '119: MARITIME SECURITY AGENCY 1 164 0.1% 163 99.4% 12 '110: 'OMBUDSMAN REPUBLIC OF INDONESIA 1 2 0.0% 2 99.3% 13 '066: 'NATIONAL NARCOTICS AGENCY 78 141 0.1% 140 99.3% 14 '005: 'SUPREME COURT 917 688 0.3% 681 99.0% 15 '088: 'STATE CIVIL SERVICE AGENCY 16 69 0.0% 68 98.6% 16 '034: 'COORDINATING MINISTRY OF POLITICAL, LAW AND SECURITY 1 7 0.0% 6 98.5% 17 '067: 'MINISTRY OF VILLAGE, LEVEL REGIONAL DEVELOPMENT AND TRANSMIGRATION 109 357 0.2% 351 98.4% 18 '103: 'NATIONAL DISASTER MANAGEMENT AUTHORITY 1 12 0.0% 12 98.3% 19 '120: COORDINATING MINISTRY FOR MARITIME AFFAIRS AND INVESTMENTS 1 14 0.0% 13 98.0% 20 '047: 'THE MINISTRY OF WOMEN'S EMPOWERMENT AND CHILD PROTECTION 7 5 0.0% 5 97.9% 21 '104: 'INDONESIAN EMPLOYMENT PLACEMENT AND PROTECTION 21 13 0.0% 12 97.9% 22 '117: 'TELEVISION PUBLIC BROADCASTING INSTITUTION OF THE REPUBLIC OF INDONESIA 30 166 0.1% 163 97.8% 23 '085: NUCLEAR ENERGY SUPERVISORY AGENCY 3 38 0.0% 37 97.8% 24 '044: 'MINISTRY OF COOPERATION AND SMALL AND MEDIUM BUSINESSES 10 9 0.0% 9 97.7% 25 '029: 'MINISTRY OF ENVIRONMENT AND FORESTRY 234 619 0.3% 604 97.6% 26 '001: 'PEOPLE'S CONSULTATIVE ASSEMBLY 2 34 0.0% 33 97.4% 27 '095: 'REGIONAL REPRESENTATIVE BOARD (DPD) 1 8 0.0% 8 97.3% 28 '063: 'NATIONAL AGENCY OF DRUG AND FOOD CONTROL 43 374 0.2% 364 97.2% 29 '106: 'GOODS PROVISION / GOVERNMENT POLICY INSTITUTION POLICY 1 35 0.0% 34 97.1% 30 '081: 'TECHNOLOGY ASSESSMENT AND APPLICATION 18 582 0.3% 565 97.0% 31 '048: 'MINISTRY OF ADMINISTRATIVE AND BUREAUCRATIC REFORM 2 15 0.0% 14 96.9% 32 '100: 'RI'S JUDICIAL COMMISSION 1 3 0.0% 3 96.8% 33 '057: 'NATIONAL LIBRARY OF THE REPUBLIC OF INDONESIA 3 178 0.1% 172 96.6% 34 '087: 'NATIONAL ARCHIVES OF THE REPUBLIC OF INDONESIA 4 106 0.1% 102 96.3% 35 '080: 'NUCLEAR NUCLEAR POWER BOARD 22 309 0.1% 296 96.0% 36 '013: 'MINISTRY OF LAW AND HUMAN RIGHTS OF RI 236 1,703 0.8% 1,627 95.6% 37 '018: 'MINISTRY OF AGRICULTURE 195 925 0.4% 883 95.5% 38 '086: 'STATE ADMINISTRATIVE INSTITUTION 8 23 0.0% 22 95.4% 39 '065: 'CAPITAL INVESTMENT COORDINATING BOARD 5 68 0.0% 64 95.0% 40 '116: 'RADIO PUBLIC BROADCASTING INSTITUTION OF THE REPUBLIC OF INDONESIA 69 56 0.0% 53 94.8% 41 '093: 'CORRUPTION ERADICATION COMMISSION 1 43 0.0% 41 94.6% 42 '122: 'PANCASILA IDEOLOGY DEVELOPMENT AGENCY (BPIP) 1 38 0.0% 36 94.3% 43 '040: 'MINISTRY OF TOURISM 14 731 0.3% 684 93.6% 44 '068: 'POPULATION AND FAMILY NATIONAL PLANNING 35 46 0.0% 43 93.6% 45 '011: 'MINISTRY OF FOREIGN AFFAIRS 144 1,084 0.5% 1,012 93.4% 46 '082: 'AVIATION AND NATIONAL ANTARIKS. INSTITUTIONS 21 469 0.2% 437 93.4% 47 '077: 'CONSTITUTIONAL COURT OF RI 1 19 0.0% 18 93.0% 48 '035: 'COORDINATING MINISTRY FOR ECONOMIC AFFAIRS 2 10 0.0% 9 92.6% Page:11 Amount in Billion Indonesian Rupiah No of Realization Spending DIPA DIPA % Realization % of DIPA Rank, Code, Ministry/Agency Units 2019-12 of Total 2019-12 2019-12 49 '059: 'MINISTRY OF COMMUNICATION AND INFORMATICS 60 192 0.1% 178 92.6% 50 '007: 'MINISTRY OF STATE SECRETARIAT 12 353 0.2% 325 92.1% 51 '074: 'NATIONAL HUMAN RIGHTS COMMISSION 2 2 0.0% 2 91.7% 52 '089: 'FINANCIAL AND DEVELOPMENT SUPERVISORY AGENCY 39 87 0.0% 80 91.6% 53 '010: 'MINISTRY OF INTERNAL AFFAIRS 23 249 0.1% 228 91.5% 54 '079: 'INDONESIAN INSTITUTE OF SCIENCES 42 460 0.2% 421 91.4% 55 '054: 'CENTRAL BUREAU OF STATISTICS 305 701 0.3% 640 91.3% 56 '032: 'MARINE AND FISHERIES MINISTRY 175 351 0.2% 320 91.2% 57 '023: 'MINISTRY OF EDUCATION AND CULTURE 209 1,084 0.5% 984 90.8% 58 '111: 'NATIONAL BORDER MANAGEMENT AGENCY 1 10 0.0% 9 90.4% 59 '020: 'MINISTRY OF ENERGY AND MINERAL RESOURCES 28 1,141 0.5% 1,030 90.3% 60 '115: 'GENERAL ELECTION SUPERVISORY AGENCY 35 141 0.1% 127 90.3% 61 '060: 'STATE POLICE OF THE REPUBLIC OF INDONESIA 446 21,945 10.4% 19,803 90.2% 62 '090: 'MINISTRY OF TRADE 49 188 0.1% 168 89.4% 63 '083: 'GEOSPATIAL INFORMATION AGENCY 2 486 0.2% 431 88.8% 64 '026: 'MINISTRY OF MANPOWER 31 287 0.1% 254 88.2% 65 '114: 'CABINET SECRETARIAT 1 28 0.0% 24 88.0% 66 '042: 'MINISTRY OF RESEARCH, TECHNOLOGY, AND HIGHER EDUCATION 216 7,346 3.5% 6,437 87.6% 67 '019: 'MINISTRY OF INDUSTRY 64 902 0.4% 787 87.3% 68 '078: 'CENTER FOR REPORTING AND ANALYSIS OF FINANCIAL TRANSACTIONS 2 56 0.0% 48 86.8% 69 '055: 'MINISTRY OF NATIONAL DEVELOPMENT PLANNING 5 324 0.2% 281 86.6% 70 '118: 'FREE TRADING & SABANG FREE TRADING AREA 1 168 0.1% 145 86.5% 71 '022: 'MINISTRY OF TRANSPORTATION 571 26,049 12.4% 22,487 86.3% 72 '109: 'SURAMADU REGION DEVELOPMENT AGENCY 1 169 0.1% 139 82.4% 73 '075: 'METEOROLOGY CLIMATOLOGY AND GEOPHYSICS COUNCIL 186 1,291 0.6% 1,058 81.9% 74 '024: 'MINISTRY OF HEALTH 218 4,629 2.2% 3,792 81.9% 75 '076: 'GENERAL ELECTION COMMISSIONS 549 296 0.1% 239 80.9% 76 '033: MINISTRY OF PUBLIC WORKS AND PUBLIC HOUSING 723 81,723 38.8% 64,687 79.2% 77 '056: 'MINISTRY OF AGRARIAN AND GOVERNANCE / BPN 187 814 0.4% 643 79.0% 78 '025: 'MINISTRY OF RELIGION 4,055 5,990 2.8% 4,688 78.3% 79 '015: 'MINISTRY OF FINANCE 667 1,907 0.9% 1,479 77.5% 80 '113: 'NATIONAL BOARD OF TERRORISM 1 202 0.1% 152 75.2% 81 '112: 'BOARD OF FREE TRADE AND BATAM FREE PORT AREA 2 774 0.4% 568 73.4% 82 '012: 'MINISTRY OF DEFENSE 212 33,841 16.1% 24,502 72.4% 83 '036: 'COORDINATING MINISTRY OF HUMAN DEVELOPMENT AND CULTURE 2 7 0.0% 5 71.7% 84 '121: 'CREATIVE ECONOMIC AGENCY 1 9 0.0% 6 65.2% 85 '002: 'PEOPLE'S REPRESENTATIVE COUNCIL 1 848 0.4% 432 50.9% 86 '092: 'MINISTRY OF YOUTH AND SPORTS 5 33 0.0% 14 42.9% Grand Total 11,589 210,775 100.0% 172,907 82.0% 20. It can be observed from the table above that about 30% (25 out of 86) of Central Government’s Ministries/Agencies comprises 70.7% (8,198 of total 11,589) spending units that have capital budget allocation had realization below the 90% norm while the other 70% (61 out of 86 Ministries/Agencies) comprises 29.3% (3,391 of total 11,589) spending units had the realization at or above the IKPA norm of 90%. However, these 61 ministries/agencies have only 9.7% of the total capital DIPA budget allocation so their good performance above the IKPA norm is not helped to improve the overall spending performance. The remaining 25 out of 86 Ministries/Agencies with realization below the 90% norm have 90.3% of the total capital DIPA budget allocation. They have 8,198 spending units, which are 70.7% of the total. 21. These include the following 3 Ministries with 67.3% of the total capital expenditure DIPA budget allocation and with a significant number of spending units experiencing low capital expenditure spending: - Ministry of Public Works with 38.8% of total DIPA has realized only 79.1% of its budget; - Ministry of Defence with 16.1% of total DIPA has realized only 72.4% of its budget; - Ministry of Transportation with 12.4% of total DIPA has realized only 86.3% of budget; Page:12 22. The table below shows the realization % of the total realization and realization % of DIPA of all Ministries/Agencies up to the third quarter (Q3) of 2019 from highest to lowest realization % of DIPA up to Q3 to indicate the pace of realization. The overall realization % of total realization up to Q3 was 46.5% and the overall realization % of DIPA up to Q3 was 38.1%. Table 5 Capital Budget Execution Data by Ministries/Agencies up to Q3 2019 by Decreasing Realization % of DIPA (Amount in Billion Indonesian Rupiah) Realization % No of Realization of Total Realization % Spending DIPA Realization up to Realization of DIPA Rank, Code, Ministry/Agency Units 2019-12 2019-12 2019-Q3 up to 2019-Q3 up to 2019-Q3 01 '048: 'MINISTRY OF ADMINISTRATIVE AND 2 15 14 11 74.0% 71.6% BUREAUCRATIC REFORM 02 '067: 'MINISTRY OF VILLAGE, LEVEL REGIONAL 109 357 351 223 63.5% 62.5% DEVELOPMENT AND TRANSMIGRATION 03 '044: 'MINISTRY OF COOPERATION AND SMALL 10 9 9 6 63.4% 62.0% AND MEDIUM BUSINESSES 04 '004: 'AUDIT BOARD OF THE REPUBLIC OF 41 198 197 122 61.9% 61.6% INDONESIA 05 '041: 'MINISTRY OF STATE-OWNED ENTERPRISES 1 15 15 9 61.8% 61.6% 06 '064: 'NATIONAL RESISTANCE INSTITUTION 1 19 19 11 59.2% 59.1% 07 '107: 'NATIONAL SAR AGENCY 40 959 956 567 59.3% 59.1% 08 '057: 'NATIONAL LIBRARY OF THE REPUBLIC OF 3 178 172 101 58.5% 56.5% INDONESIA 09 '088: 'STATE CIVIL SERVICE AGENCY 16 69 68 37 54.6% 53.9% 10 '035: 'COORDINATING MINISTRY FOR ECONOMIC 2 10 9 5 57.6% 53.4% AFFAIRS 11 '065: 'CAPITAL INVESTMENT COORDINATING 5 68 64 35 55.1% 52.3% BOARD 12 '036: 'COORDINATING MINISTRY OF HUMAN 2 7 5 4 71.7% 51.4% DEVELOPMENT AND CULTURE 13 '068: 'POPULATION AND FAMILY NATIONAL 35 46 43 23 54.3% 50.8% PLANNING 14 '087: 'NATIONAL ARCHIVES OF THE REPUBLIC OF 4 106 102 53 51.8% 49.9% INDONESIA 15 '110: 'OMBUDSMAN REPUBLIC OF INDONESIA 1 2 2 1 50.1% 49.7% 16 '118: 'FREE TRADING & SABANG FREE TRADING 1 168 145 82 56.8% 49.1% AREA 17 '113: 'NATIONAL BOARD OF TERRORISM 1 202 152 98 64.2% 48.3% 18 '050: 'STATE INTELLIGENCE AGENCY 1 1,185 1,185 551 46.5% 46.5% 19 '089: 'FINANCIAL AND DEVELOPMENT 39 87 80 40 50.3% 46.0% SUPERVISORY AGENCY 20 '060: 'STATE POLICE OF THE REPUBLIC OF 446 21,945 19,803 9,771 49.3% 44.5% INDONESIA 21 '011: 'MINISTRY OF FOREIGN AFFAIRS 144 1,084 1,012 482 47.6% 44.4% 22 '047: 'THE MINISTRY OF WOMEN'S 7 5 5 2 44.3% 43.4% EMPOWERMENT AND CHILD PROTECTION 23 '013: 'MINISTRY OF LAW AND HUMAN RIGHTS OF 236 1,703 1,627 721 44.3% 42.3% RI 24 '022: 'MINISTRY OF TRANSPORTATION 571 26,049 22,487 10,754 47.8% 41.3% 25 '033: MINISTRY OF PUBLIC WORKS AND PUBLIC 723 81,723 64,687 33,692 52.1% 41.2% HOUSING 26 '084: 'NATIONAL STANDARDIZATION AGENCY 1 70 70 29 41.1% 41.0% 27 '056: 'MINISTRY OF AGRARIAN AND GOVERNANCE / 187 814 643 329 51.2% 40.4% BPN 28 '006: ATTORNEY GENERAL OF THE REPUBLIC OF 48 1,868 1,858 744 40.1% 39.8% INDONESIA 29 '063: 'NATIONAL AGENCY OF DRUG AND FOOD 43 374 364 149 41.0% 39.8% CONTROL 30 '115: 'GENERAL ELECTION SUPERVISORY AGENCY 35 141 127 56 43.7% 39.4% 31 '079: 'INDONESIAN INSTITUTE OF SCIENCES 42 460 421 178 42.4% 38.8% 32 '120: COORDINATING MINISTRY FOR MARITIME 1 14 13 5 39.6% 38.8% AFFAIRS AND INVESTMENTS 33 '116: 'RADIO PUBLIC BROADCASTING INSTITUTION 69 56 53 22 40.6% 38.5% OF THE REPUBLIC OF INDONESIA 34 '051: 'STATE CYBER AND CODE AGENCY 1 1,888 1,879 724 38.5% 38.3% 35 '032: 'MARINE AND FISHERIES MINISTRY 175 351 320 133 41.6% 38.0% 36 '029: 'MINISTRY OF ENVIRONMENT AND FORESTRY 234 619 604 232 38.4% 37.5% Page:13 Realization % No of Realization of Total Realization % Spending DIPA Realization up to Realization of DIPA Rank, Code, Ministry/Agency Units 2019-12 2019-12 2019-Q3 up to 2019-Q3 up to 2019-Q3 37 '117: 'TELEVISION PUBLIC BROADCASTING 30 166 163 60 36.5% 35.8% INSTITUTION OF THE REPUBLIC OF INDONESIA 38 '005: 'SUPREME COURT 917 688 681 246 36.1% 35.7% 39 '012: 'MINISTRY OF DEFENSE 212 33,841 24,502 11,712 47.8% 34.6% 40 '093: 'CORRUPTION ERADICATION COMMISSION 1 43 41 15 36.4% 34.5% 41 '083: 'GEOSPATIAL INFORMATION AGENCY 2 486 431 167 38.7% 34.3% 42 '119: MARITIME SECURITY AGENCY 1 164 163 56 34.5% 34.2% 43 '090: 'MINISTRY OF TRADE 49 188 168 63 37.7% 33.7% 44 '074: 'NATIONAL HUMAN RIGHTS COMMISSION 2 2 2 1 36.4% 33.4% 45 '010: 'MINISTRY OF INTERNAL AFFAIRS 23 249 228 83 36.4% 33.3% 46 '018: 'MINISTRY OF AGRICULTURE 195 925 883 299 33.8% 32.3% 47 '059: 'MINISTRY OF COMMUNICATION AND 60 192 178 62 34.8% 32.2% INFORMATICS 48 '025: 'MINISTRY OF RELIGION 4,055 5,990 4,688 1,919 40.9% 32.0% 49 '040: 'MINISTRY OF TOURISM 14 731 684 226 33.0% 30.9% 50 '020: 'MINISTRY OF ENERGY AND MINERAL 28 1,141 1,030 335 32.5% 29.4% RESOURCES 51 '085: NUCLEAR ENERGY SUPERVISORY AGENCY 3 38 37 11 29.7% 29.0% 52 '095: 'REGIONAL REPRESENTATIVE BOARD (DPD) 1 8 8 2 29.5% 28.7% 53 '114: 'CABINET SECRETARIAT 1 28 24 8 32.2% 28.3% 54 '054: 'CENTRAL BUREAU OF STATISTICS 305 701 640 195 30.5% 27.9% 55 '082: 'AVIATION AND NATIONAL ANTARIKS. 21 469 437 127 29.1% 27.1% INSTITUTIONS 56 '108: 'BUSINESS COMPETITION SUPERVISION 1 4 4 1 27.1% 26.9% COMMISSION 57 '042: 'MINISTRY OF RESEARCH, TECHNOLOGY, AND 216 7,346 6,437 1,956 30.4% 26.6% HIGHER EDUCATION 58 '015: 'MINISTRY OF FINANCE 667 1,907 1,479 505 34.1% 26.5% 59 '100: 'RI'S JUDICIAL COMMISSION 1 3 3 1 26.7% 25.8% 60 '034: 'COORDINATING MINISTRY OF POLITICAL, 1 7 6 2 26.1% 25.8% LAW AND SECURITY 61 '103: 'NATIONAL DISASTER MANAGEMENT 1 12 12 3 25.5% 25.0% AUTHORITY 62 '026: 'MINISTRY OF MANPOWER 31 287 254 71 28.1% 24.8% 63 '086: 'STATE ADMINISTRATIVE INSTITUTION 8 23 22 6 25.8% 24.6% 64 '121: 'CREATIVE ECONOMIC AGENCY 1 9 6 2 37.2% 24.3% 65 '023: 'MINISTRY OF EDUCATION AND CULTURE 209 1,084 984 256 26.0% 23.6% 66 '104: 'INDONESIAN EMPLOYMENT PLACEMENT 21 13 12 3 23.6% 23.1% AND PROTECTION 67 '112: 'BOARD OF FREE TRADE AND BATAM FREE 2 774 568 175 30.7% 22.6% PORT AREA 68 '081: 'TECHNOLOGY ASSESSMENT AND 18 582 565 129 22.9% 22.2% APPLICATION 69 '024: 'MINISTRY OF HEALTH 218 4,629 3,792 946 24.9% 20.4% 70 '077: 'CONSTITUTIONAL COURT OF RI 1 19 18 4 21.7% 20.2% 71 '078: 'CENTER FOR REPORTING AND ANALYSIS OF 2 56 48 11 23.0% 20.0% FINANCIAL TRANSACTIONS 72 '106: 'GOODS PROVISION / GOVERNMENT POLICY 1 35 34 7 19.8% 19.2% INSTITUTION POLICY 73 '027: 'SOCIAL MINISTRY 66 323 321 62 19.3% 19.1% 74 '066: 'NATIONAL NARCOTICS AGENCY 78 141 140 27 19.1% 18.9% 75 '092: 'MINISTRY OF YOUTH AND SPORTS 5 33 14 6 41.7% 17.9% 76 '080: 'NUCLEAR NUCLEAR POWER BOARD 22 309 296 55 18.6% 17.9% 77 '001: 'PEOPLE'S CONSULTATIVE ASSEMBLY 2 34 33 6 17.0% 16.5% 78 '002: 'PEOPLE'S REPRESENTATIVE COUNCIL 1 848 432 139 32.1% 16.4% 79 '019: 'MINISTRY OF INDUSTRY 64 902 787 143 18.2% 15.9% 80 '055: 'MINISTRY OF NATIONAL DEVELOPMENT 5 324 281 47 16.7% 14.5% PLANNING 81 '111: 'NATIONAL BORDER MANAGEMENT AGENCY 1 10 9 1 15.2% 13.7% 82 '007: 'MINISTRY OF STATE SECRETARIAT 12 353 325 38 11.8% 10.8% 83 '075: 'METEOROLOGY CLIMATOLOGY AND 186 1,291 1,058 138 13.1% 10.7% GEOPHYSICS COUNCIL 84 '076: 'GENERAL ELECTION COMMISSIONS 549 296 239 31 13.1% 10.6% 85 '109: 'SURAMADU REGION DEVELOPMENT AGENCY 1 169 139 6 4.0% 3.3% 86 '122: 'PANCASILA IDEOLOGY DEVELOPMENT 1 38 36 0 0.0% 0.0% AGENCY (BPIP) Grand Total 11,589 210,775 172,907 80,363 46.5% 38.1% 23. It can be observed from the table above that 5 out of 86 Ministries/Agencies have realization of DIPA that are at or above the IKPA norm of 60% up to Q3 2019. They have only 0.3% of the total Page:14 capital DIPA budget allocation. They have 163 spending units which are only 1.4% of the total spending units. 24. The remaining 81 out of 86 Ministries/Agencies with realization of DIPA below the IKPA norm of 60% up to Q3 2019 have 99.7% of the total capital DIPA budget allocation. They have 11,426 spending units, which are 98.6% of the total spending units, which experience a slow pace of capital expenditure spending. 2.1.2.3 Ministries/Agencies with High Capital Budget Expenditure DIPAs 25. As seen in the table below, while there are 10,204 spending units with DIPA budget allocation of less than IDR 10 Billion (about USD 650,000) which comprise about 88% of the total 11,589 spending units, they account for only 4.7% of the DIPA budget allocation. Meanwhile, 363 spending units with DIPA budget allocation of IDR 100 Billion (about USD 6,500,000) or more, are only 3.1% of the total number of spending units. These account for 80.4% of the total DIPA budget allocation and has the lowest realization of 79.9% as shown in the table below. Focus on the improvements for expenditure performance of these 363 spending units and their associated Ministries/Agencies can therefore have a significant impact on realization throughput for aggregate capital budget expenditure performance. Table 6 DIPA Brackets of spending units with Capital Budget Expenditures Page:15 2.1.3 Aggregate Capital Budget Data by KANWIL (Regional Office) for 2019 2.1.3.1 Capital Expenditure Budget Allocation (DIPA) by KANWIL 26. The aggregate capital budget execution DIPA and realization by KANWIL for 2019 from highest to lowest DIPA amount is shown in the table below. Key observations on the DIPA allocations and realizations by the DG Treasury KANWILs are described below, however, the reasons as to why the KANWILs achieved their respective levels of realization and the factors that cause them will require a further diagnostic that needs to be coordinated with MOF in cooperation with the Ministries/Agencies concerned also in their respective KANWILs. Table 7 Capital Budget Execution Data by KANWIL for 2019 by Decreasing Capital Budget Allocation (end of year DIPA) 27. It can be seen from the table above that the top 10 KANWILs have a combined capital expenditure budget allocation (DIPA) of IDR 158 Trillion, which is 75.2% of the total capital expenditure DIPA for 2019. Page:16 2.1.3.2 Capital Expenditure Realization by KANWIL 2.1.3.2.1 Capital Expenditure Realization as % of DIPA 28. The table below shows the Capital Expenditure DIPA and its realization by KANWIL for 2019 in the descending order of realization %: Table 8 Capital Budget Execution Data by KANWIL for 2019 by Decreasing Realization % of DIPA 29. It can be seen from the table above that the top 9 KANWILs have realization % of DIPA that is at or above the IKPA norm of 90%. These KANWILs have a combined capital expenditure budget allocation (DIPA) of IDR 25 Trillion, which is 11.7% of the total capital expenditure DIPA for 2019. 30. The table below shows the realization % of the end of the year total realization and realization % of DIPA for all KANWILS up to the third quarter (Q3) of 2019 in descending order. It can be seen in the table below that only one KANWIL had realization % of DIPA that is above the IKPA norm of 60% for the ideal realization in Q3. Page:17 Table 9 Capital Budget Execution Data by KANWILS up to Q3 2019 by Decreasing Realization % of DIPA Page:18 2.2 Online Survey Approach, Response Status Approach to Analysis 2.2.1 Online Survey Approach 31. The Bank team designed an Online Survey form using Microsoft Forms as the platform. The Ministry of Finance issued a letter to all the 24,000 + spending units of the central government in the country to respond to this Online Survey on capital expenditure budget. 31 December 2019 was given as the due date for submission of responses. The detailed Survey Questionnaire sent to all spending units using the Microsoft Forms is placed at Appendix A. 32. Out of all 24,000+ spending units, only 11,589 spending units had a budget allocation for capital expenditures in 2019. The list of these 11,589 spending units containing the KANWILs, KPPNs, Ministries/Agencies they belong to, as well as their DIPA and realization as of 31 December 2019 was provided by MoF’s PPID from OM SPAN and was used as the Satker (spending unit) Unit Reference Table to track and determine respondents for analysis. 33. The online survey and processing of results for analysis and reporting is depicted in the diagram below: Figure 3 Approach for Conducting the spending unit Capital Expenditure Survey 2019 34. The following steps were taken in the analysis of responses: i. The spending units submitted their responses to the online survey, specifying their spending unit codes for identification. The responses were downloaded in MS Excel format from the online survey site on the Microsoft Forms platform and is hereinafter referred to as the Online Survey Responses Table. Page:19 ii. The Spending Unit Reference Table was matched with the survey responses to determine the spending units which have responded and their corresponding APBN and DIPA ceilings and realization for analysis. iii. The Spending Unit Reference Table breakdowns by monthly realization and capital expenditure types was used as reference for obtaining breakdowns such as monthly and cumulative realization and capital expenditure types per spending unit. iv. The Bank and MoF conducted missions to Bandung on 3-6 Feb 2020 and to Medan on 9- 11 Mar 2020 to discuss with MoF Kanwils and KPPNs and specific spending units about their responses to the online survey and capital expenditure processes. v. The findings from the online survey responses and direct consultations during the missions were collated and analysed and presented in this report. 35. The Online Survey Responses Table only contains the spending unit code without the KPPN code. This was done to minimize errors in entry of codes since the focus of the survey is the spending units. The result of this is that when the Online Survey Responses Table is matched with the Spending Unit Reference Table, some spending units that operate under two KPPNs7 and which sent responses will match with two spending units in the Spending Unit Reference Table. For these spending units, the sum of the DIPA and realization of the two spending units in the Spending Unit Reference Table is used as the DIPA and realization of the responding spending unit in the Online Survey Responses Table. 36. Spending units who responded whose spending unit codes are not in the Spending Unit Reference Table are classified as “Others”. For these spending units, only the spending unit code is available to identify them, so information for these spending units on the KANWILs, KPPNs, Ministries/Agencies they belong to, as well as their DIPA and realization, are not available. Therefore, results from responses of spending units of the “Others” type are ignored and therefore not shown. 2.3 Regression Analysis Approach 2.3.1 Regression Model 37. Regression analysis was used to predict the impact on realization (our dependent variable) of various responses from spending units (our explanatory variables). Our dependent or response variables are defined as follows: Level Capital Expenditure Realization = Realization in 2019 as a % of 2019 DIPA (1) Pace Capital Expenditure Realization = Realization up to Q3 as a % of 2019 Realization (2) 7It is worth noting that out of the 11,589 spending units in the Spending Unit Reference Table, there are 119 spending units that operate under their respective KPPNs in their regions/cities as well as under KPPN 140 “KPPN KHUSUS PINJAMAN DAN HIBAH” or KPPNs for loans and grants, each with their own DIPA and realization for these 2 KPPNs. Due to the nature of these spending units, they are listed twice in the Spending Unit Reference Table for each KPPN, so the total number of spending units is 2 x 119 = 238, and therefore, there are 11,470 unique spending units in the Spending Unit Reference Table. Depending on their DIPA, some spending units are classified as targeted for both KPPNs, while some are targeted for one KPPN or non-targeted for the other KPPN or non-targeted for both KPPNs. Page:20 38. The independent/explanatory variables are classified into five broad groups: Budgeting, Procurement Management, Budget Implementation, Financial Management and Audit, and Others. These groups are described in the table below which also shows the question numbers in the survey related to the respective group. Table 10 Groups in the Capital Budget Expenditure Process Representing the Independent/Explanatory Variables Question Group Description Numbers Budgeting 5 - 14 In the context of the diagnostic, refers to the preparation of the budget by the spending units; the issues, obstacles, and difficulties that the spending units face in the various activities of the budget preparation process, alignment of the budget preparation documents (RKA-KL) with their ministries’ work plans (Renja-KL), and guidelines on the budget implementation/allocation documents (DIPA) and the timing of their availability. Procurement 15 - 23 Refers to the issues, obstacles, and difficulties that the spending units face in the various activities and timing of procurement processes, as well as adoption of procurement practices such as early procurement and procurement to be carried out as multi-year contracts. Budget Implementation 24 - 32 Refers to the issues, obstacles, and difficulties that the spending units face in the various activities and timing of budget implementation activities, i.e, contract execution and preparation of payment orders (SPMs). Financial Management 33 - 34 Refers to the issues, obstacles, and difficulties that the spending units and Audit face in various financial activities such as completion of payment processes and audit of capital expenditure. Others 35 - 41 Refers to various aspects in support of the budgeting to budget implementation and financial management processes such as user friendliness of applications, issues in the use of IT applications, qualitative descriptions of issues that hinder the timeliness and quality of budget implementation, problems in PFM regulations and policies of the Central Government, training needs and capacity building, and suggested recommendations in these areas, 39. Since the sample was based on the spending units that responded to the survey, thus self- selecting, we established a linkage between dependent variables and explanatory variables from the sample behaviour and say with a degree of confidence whether it can be the same for the population. In order to test the representativeness of our sample of 1,798 spending units against the population for the 11,589 spending units, a simple-sample t-test was used, based on which, we found that the way independent variables affect the pace and level of capital budget execution in the sample can be inferred to be affecting the population as well, with confidence. The Regression Model used in the study is explained in Appendix E. Page:21 2.4 Summary of Empirical Results 40. In general, we find that more indicators (20 indicators) affect the ‘pace’ relative to the ‘level’ of realization (15 indicators), but a 1 percent increase in the pace dependent variable will increase the level dependent variable by 0.06 percent. Running a regression on the effect of the pace variable on the level variable shows that there is a statistically significant relationship between the two. Therefore, explanatory indicators are relevant in indirectly affecting both ‘level’ and ‘pace’ of realization. This effect of the pace on the level is small however and indicates the importance of factors also affecting both indicators. 41. Overall, it was found that Budgeting and procurement are the most critical variables that affect the ‘pace’ of realization, whilst budget implementation and financial management and audit are relatively more important in affecting the ‘level’ of realization. The specific findings in respect of five groups of independent/ explanatory variables is presented below: a) Budgeting: Based on analysis of data, we found two challenges that generally affect both ‘pace’ and ‘level’ of capital budget expenditure. First, challenges of documentation of budget implementation - with spending units reporting this problem had a 4.3 percent lower realization and 25 percent slower realization compared to those which had no problems. Second, rules and guidelines on timeliness of staff appointments and replacements leading to 11 percent lower and 19 percent slower realization in comparison to those who did not face these challenges. b) Procurement: The data analysis shows that Procurement is a pillar that is relatively more relevant for the pace of realization than the overall level of realization in 2019. It showed that delays in tender implementation and activity evaluation have a negative impact on the pace of realization by 8.4 percent and 22.3 percent respectively. On the other hand, early announcement of tenders, early procurement, and multiyear contracts increase the pace of realization by 18 percent, 9 percent and 5 percent respectively. On the other hand, failed tender/postponements in the next FY decrease the level of realization by 5 percent. c) Budget Implementation: Budget implementation is key for the ‘level’ and the ‘pace’ of realization. The length of time taken to prepare payment order (SPM) documents, mainly caused by a lack of resource staff and having incomplete proof of third-party invoices, had an overall impact on both indicators (negative 3 percent on the level and up to negative 9 percent on the pace. The lack of supplies by contractors and late approvals also negatively affect the pace (-1.5 percent and -1.1 percent respectively) and the level (-6.3 percent and - 7.0 percent respectively). This signals that these are key issues in budget implementation and more attention may need to be paid to them. On average, about 22 percent of the sample reported having issues in the budget implementation indicators. Page:22 d) Financial Management and Audit: About 38 percent of spending units reported having financial management issues, with most affecting both the ‘pace’ and ‘level’ of realization. Three key aspects negatively affect both the pace and the level. These are: (1) contractors not submitting their invoices on-time in which case the level and pace indicators are lower by 1.1 and 10.2 percent; (2) contractors delaying their invoices up to the end of FY leading to negative impact of 1.0 and 7.3 percent on the level and pace respectively; and (3) supporting documents for submitting invoice not received from contractors on-time leading to negative impact of 1.1 and 8.9 percent on the level and pace respectively. e) Others: Although 86 percent spending units reported that they had never received complaints from third parties (contractors) related to the delay in payment disbursement, those that did are estimated to have a 9.3 percent slower realization that those that never do. Thus, ensuring a decrease in such complaints could improve realization. No empirical evidence on the difference was found in the level of realization. 42. The more detailed online survey status, methodology and empirical analysis into the causes of low and slow Capital Expenditure budget execution is placed in Appendix C. Page:23 3 Conclusions and Proposed Action Recommendations 1. This section presents the conclusions and recommendations for improving the capital expenditure budget realization. The detailed recommendations cover the entire cycle of PFM from planning, budgeting, and execution based on the analyses of the online survey results described in the sections above as well as the results of discussions with MoF staff and staff of ministries/agencies’ spending units during the missions to MoF’s Kanwils (Regional Treasury Offices) in Bandung, West Java, and Medan, North Sumatra. 2. The conclusions and recommendations on procurement-related aspects of budget execution should only be considered as indicative and requiring further review and analysis. It is to be noted that LKPP, in collaboration with the World Bank, is currently carrying out a comprehensive assessment of the Indonesia public procurement system using the universal Methodology for Assessing Procurement Systems (MAPS), which when completed will provide a reliable holistic basis to identify and offer recommendations for areas requiring further improvement. 3.1 Major Conclusions 3. As per the result of the survey and consultations with staff of some selected spending units in the West Java and North Sumatra provinces, it was discovered that the slow pace and low level of capital budget execution performance is caused by some reasons that are somewhat interrelated. 4. One of the major reasons for low and slow capital budget execution is the delay in the completion of the procurement process. This is because not all spending units are initiating the early procurement process before the start of the fiscal year as is permissible under regulations. Furthermore, not all spending units are using the provision of multi-year contracts which can potentially free them from the procurement process for the next few years and allow their implementations to be smoother. Delays in land acquisition also impact the pace and level of capital budget execution. From empirical analysis, we found that delays in auction implementation and tender evaluation have a negative impact on the pace of realization by 8.4 percent and 22.3 percent respectively. Meanwhile, early announcement of tenders (Q4 of 2018 vs Q34 of 2019), early procurement and multiyear contracts increase the pace of realization by 18 percent, 9 percent and 5 percent respectively. However, we find that failed auction or postponements in the next FY decrease the level of realization by 5 percent. Page:24 5. The other issue is related with budget planning. Capital Expenditure (Capex) is budgeted annually. A mix of top-down and bottom-up approaches are applied to prepare Capex proposals and budgets. However, spending units are concerned that they have only a short period of time for preparing and planning the (capital) budget proposals. From the empirical analysis results, we find two challenges that generally affect both ‘pace’ and ‘level’ of capital budget expenditure. First, challenges of preparing budget documentation - with Spending Units reporting this problem had an 4.3 % lower realization and 25 % slower realization compared to those which had no problems. Second, rules and guidelines on timeliness of staff appointments and replacements lead to 11 % lower and 19 % slower realization in comparison to those who did not face these challenges. 6. Another reason is delay in payments. Not all spending units make regular payments to vendors based on their monthly payment schedule but wait instead for the percent physical progress to be available before any payment can be made. There is also a lack of transparency in the time when the invoices are submitted by vendors and how much time does a Spending Unit take to clear those submitted invoices. 7. Our empirical analysis showed that three (3) key aspects negatively affect both the pace and the level of realization. These are: i. contractors not submitting their invoices on-time in which case the level and pace indicators are lower by 1.1 and 10.2 percent; ii. contractors delaying their invoices up to the end of FY leading to negative impact of 1.0 and 7.3 percent on the level and pace respectively; and iii. supporting documents for submitting invoice not received from contractor on-time leading to negative impact of 1.1 and 8.9 percent on the level and pace respectively. 8. It is also concluded that the disbursement performance of capital budgets continued to be less optimal because of different interpretations and/or implementation of same regulations across ministries. Only a few line ministries (particularly Ministry of Public Works and Public Housing, MOPWH) take the benefits of implementing new regulations and policies. 9. There is also a lack of coordination between spending units and their Echelon 1 and 2 units in headquarters which causes delays in planning, budgeting and decision-making. 10. Finally, the survey concludes that while there is still room to further improve regulations and policies to accelerate capital budget expenditure spending, it will not be effective if it does not address and resolve the root cause of the issue which is primarily the relatively slow pace of behavioural change of not only the key persons in the spending units but also the staff of Line Ministries in their headquarters. 11. Linking rewards and sanctions with spending performance as individual Key Performance Indicators for career promotion and budget cuts for under-performing spending units could be the solution for this issue. Page:25 3.2 Detailed Analysis, Conclusion and Proposed Action Recommendations 12. Following herewith is a detailed analysis of the reasons for low and slow capital budget execution, the findings and the results of the direct consultations with spending units during the field missions, the conclusions, and proposed action recommendations. 3.2.1 General Issues Issue #1: Fragmentation of Capital Budget. 13. There is fragmentation of preparation of Capital Expenditure (Capex) proposals (TORs) by the spending units (SU), which may lead to inefficient and ineffective implementation processes. Based on survey findings and results of consultations during the field missions, the data of DIPA of 11,589 spending units with Capital Expenditures (capex) budget in FY 2019, about 88% of them have capex budget less than IDR 10 billion (around USD 650,000). Only 363 spending units (3.1% of total 11,589 SUs) had capital expenditure budget above IDR 100 billion. 14. Fragmentation of preparation of Capex budget proposals and allocations by the spending units (SU) lead to inefficiencies and delays in execution. To achieve more economies of scale, preparation of Capex budget proposals with common items (such as building renovations, vehicle, office equipment) could be grouped together or consolidated to be implemented by few larger Spending Units which have experience and expertise to manage proposals (TORs) preparation and procurement for multiple SUs, perhaps on a regional basis. This would make the Capex proposal preparation, procurement process, and implementation more efficient and would also potentially save time and costs. 15. Accordingly, following policy recommendations are being made: a) Line Ministries should apply 80/20 rules with a focus on the few spending units with large amount of capex budget b) Preparation of Capex proposals with small value but large volume of common items used by some spending units can be consolidated by selected large spending units that have experience and expertise to manage these. This will allow majority of spending units to focus on the budget implementation only. c) The Line ministry may also be required to streamline the number of their spending units and assigning the planning and procurement processes at few “large” spending units only. Page:26 Issue #2: Frequent rotation of the heads of spending units which impact execution 16. Based on survey findings, around 60% of the respondents’ heads of spending units worked less than 2 years in his/her current position. Based on interviews with some spending unit staff, it was found that the frequent rotation of the heads of spending units would have an inverse impact on budget implementation performance since news heads of spending units need more time to familiarize themselves with the unique characteristics of the work in their new roles. 17. It is accordingly recommended that there should be a minimum tenure of at least two years fixed, except for cases such as demotion (due to disciplinary action), promotion or other unforeseen circumstances. 3.2.2 Budget Planning Issue #1: Spending Units have less time for preparation of budget 18. Capital Expenditure (Capex) is budgeted annually. A mix of top-down and bottom-up approaches are applied to prepare Capex proposals and budgets. However, spending units are concerned that they have only a short period of time for preparing and planning the (capital) budget proposals. 19. As per Survey results, only 6% of responses stated that their spending units implemented multiyear contracts, while 70% of total responses said that the budget preparation period in T-1 is too short, such that the required supporting documentation were not ready and completed on time. 20. Currently, most Capex budgets are executed under single-year contracts. Hence, the preparations of TORs, technical designs, and bid requirements are done within one fiscal year. Ideally, technical planning can be prepared a year before implementation of the projects (T-2). Unfortunately, Capex needs are not yet specifically identified as part of the MTEF (3 year) forward estimates. 21. It is important to differentiate between “Capex Proposals” in T-3--since a commitment of resources on Capex clearly has long term implications for the Line Ministry’s budget—and the regular “Capex Budget Allocations” in T-1. 22. Following set of measures are therefore recommended to address this issue: a) Line Ministry is required to establish a “project selection procedure” and to build up a pipeline of competing Capex proposals from all Echelon 1 Unit to be linked with the line ministry’s MTEF (3 year) forward estimates. b) In this procedure, at the T-3 stage the spending units will start to prepare the Capex TOR Proposals with a brief summary of the project. Then, at the T-2 stage, all proposals (“TORs”) are required to be furnished with detailed draft supporting documentation, including justifications on the need, scope, technical design and estimated costs to be reviewed by the Echelon 1. Finally, at the T-1 stage, the final TOR along with all Page:27 supporting documentation (including cost benefit analysis) are ready to be proposed by the line ministries to Bappenas and MOF for approval of work plan and budget allocations. Issue #2: Gap between top-down and bottom-up budget planning 23. There is a big gap between the bottom-up initial planning proposals by spending units and the top-down budget allocation (RKA-KL and DIPA) prepared and allocated by the Echelon 1 as the program manager back to the spending units during budget preparation stage. 24. Survey results show that around 57% of spending units say their approved budget allocations (DIPA) are not aligned with their original needs and require immediate revisions. Furthermore, during implementation 23% of respondents say there are delays in getting approval from MOF in DIPA revisions. 25. Delays in budget implementation were partly caused by a high degree of deviation between the proposed and approved activities stated in the DIPA. Some spending Units indicated that the approved DIPA was less than initially proposed. In addition, some approved activities were new and not in the activities that were initially proposed. This gap is caused by top-down adjustments of Echelon 1 units soon after the APBN is approved by Parliament and the President Regulation on the detailed APBN issued by MOF as a guidance for preparing DIPA is issued. It is also added with lack of good communication between spending units in the field and their superior (echelon 1 and 2) at the headquarter. 26. Since the signed final DIPA is somewhat different with the original plan, so most Spending Units must immediately revise their DIPA and/or the activity plan details (POK) on January of new fiscal year before they can proceed on to the procurement stage, which causes delays in the budget implementation. 27. Following policy recommendations are henceforth being made: a) SU is encouraged to prepare 3 years forward planning with the 1st year forward estimate used as the baseline in preparing the next year budget proposal b) However, this bottom-up process of activity and budget planning by spending units is used as a reference by Echelon 1 to finalize RKA-KL only while the final decision of DIPA is made by Echelon 1 c) DG Budget could continue to facilitate data collection of 3-years forward estimate (MTEF) from each individual spending unit through its KPJM application though they are not required to do budget proposal analysis on detailed individual SU level. d) Echelon 1 units should be made accountable for managing a program. The laws and regulations recognizing Minister (as the budget owner-PA) and spending units (as the proxy budget user-KPA). Page:28 Issue #3: Frequent DIPA revisions during budget implementation period 28. DG Treasury’s IKPA norm is to limit for one DIPA revision per quarter for each of Spending Unit or about 4 times of revisions per year per Spending Unit. Hence, a total of around 96,000 revisions are possibly proposed by all 24,000+ spending units multiply by 4 times revision in a year. 29. Under current legal arrangements, the authority of DIPA management is held by DG Budget although during the budget implementation period, some approval authorities on DIPA revisions have been delegated by DG Budget to DG Treasury, particularly for the budget revision and/or virement on administrative data changes. 30. DG Budget still holds most of the authority on DIPA revision, particularly on revision that could require Parliament consent. DG Budget in other good practice countries are no longer dealt with detail SU’s DIPA (budget allotment) implementation and management. 31. Accordingly, following policy recommendations are being made: a) DG Budget, MOF should limit their responsibility for addressing all aspects of strategic policy and performance at a higher level of programs and routinely conducting in-depth budget proposal reviews at program level (not SU’s DIPA). b) As other Budget office in best practices countries, DG Budget may focus to work as analyst for budget formulation and appropriation rather than doing administrative works of DIPA (budget allotment) management c) MOF to transfer the entire responsibility of in-year DIPA management, including virement from DG Budget to DG Treasury. Only if necessary and for a few DIPA revision criteria, DG Treasury would require guidance from DG Budget, particularly on certain limited DIPA revisions that would require Parliament’s knowledge and consent d) The Echelon 1 of Line Ministry shall be given more authority to manage budget for individual spending unit (Let the manager manage) which is tied to and intended to contribute to the achievement of the goals and objectives of a program within strategic plans of the line ministry. Issue #4: Weak linkage between planning and budgeting within the line ministry 32. As per Survey results, about 75% of respondents confirmed the discrepancy between the Work Plan (Renja) and the Budget Document (RKA-KL) has created difficulties in the implementation of the budget. Page:29 33. Within a line ministry, the initial planning (Renja) is prepared by Planning directorate while the budget (RKA-KL) is consolidated by Finance directorate based on the spending units’ budget proposals. Since Renja is prepared at the L/M level without inputs from spending units so many times it is not aligned with the budget needs of the spending units. 34. Accordingly, following recommendations are being made to address this issue: a) Improving the flow of consistent data and information between planning and finance units in a line ministry and/or merging the two of them into one unit (i.e., Rocankeu of MOF) b) Data interoperability or merging two PFM applications of KRISNA (of Bappenas) for planning and SAKTI (of MOF) for budget Issue #5: Late issuance of some Finance Minister regulations have a negative impact on budget implementation 35. PMK on DIPA revision: As per Survey results, almost 54% respondents cited a delay in the issuance of PMK on DIPA revision. PMK 210/2019 on guideline for DIPA (budget) FY 2020 revision was released on 31 December 2019, which is much earlier than the issuance in previous years, but this regulation could be made permanent without a need to be changed year by year. 36. It is accordingly recommended that PMK on the guideline of DIPA revision can be made in a permanent means without a need to change every year since not much changes in content. For a minor change, MOF can amend without need to re-write the whole PMK. 37. PMK on Standard Cost: As per Survey results, around 53% cited a delay in the issuance of the PMK on Standard cost. PMK 78/2019 on Standard Input Cost for 2020 was issued on 17 May 2019. But since this PMK is limited for standard cost of one fiscal year budget only, it cannot be used for preparing the Capital Expenditure proposals for MYC which will require longer period within MTEF (3 year) forward estimates. 38. Since the parameter for cost increase (such as inflation) is not much fluctuated, it is accordingly recommended that the PMK on standard input cost be made covering 3-year period (rather than 1 year). The first year is fixed while the following two are indicative to be (minor) adjusted year by year so that preparation of capex proposal is not limited to the next one fiscal year budget (T) only. Having a 3-year standard cost will be in line with the planning cycle within the line ministry which have started to plan their work activity on February T-1. 39. PMK on guidelines to prepare RKA-KL: As per Survey results, about 50% of Spending Units are concerned with the delay in the issuance of PMK on the guideline (Juksunlah) to prepare the RKA-KL. Page:30 40. PMK 208/2019 on Juksunlah RKA-KL was issued on 31 December 2019; It is too late for guiding the preparation of RKA-KL for FY 2020 but since this PMK is no longer limited to use in FY 2020, so it can be used for all following years unless it is revised later. Besides, the detailed of 500+ pages previous attachment are now separated and no longer part of PMK (to be put under DG Budget regulation). 41. A good reform has been taken to make PMK on Juksunlah as permanent regulation not to be changed every year. Going forward, it is recommended that this PMK on guideline (Juksunlah) to prepare RKA-KL can be combined with the Bappenas’ regulation on Renja preparation, so it will integrate planning and budgeting processes into 1 (one) sequential flow as mandated by PP 17/2017. 3.2.3 Procurement Management Process Issue #1: Implementation of tenders are constrained by the lack of readiness of the project 42. As per Survey results, about 46% of respondents claimed that technical designs are not ready on time. This is due to their low capacity. 43. The low capacity of spending units to prepare technical design can be resolved by extending the time period to prepare Capex proposal for one year. So, one year before budget proposal submission or at T-2 stage, Spending Units shall have completed technical design to be reviewed by the Echelon 1. Spending Units must propose budget for project preparation, including to hire consultants for preparing technical design in T-2, or one year before submitting Capex budget proposals. 44. The following actions are henceforth recommended: a) Technical design specifications need to be prepared and finalized far before procurement starts b) Allocating sufficient budget for technical design preparation and requiring readiness criteria before the project starts. c) Spending units’ staff to actively carry out market analysis of capacity of all potential bidders in the market to serve as a guide in formulating qualification requirements to avoid failures in the bidding process. Page:31 Issue #2: Delay in obtaining land and license of land used for construction 45. As per Survey results, about 42% of respondents claimed that the delay in obtaining land (land acquisition) and license for land transfer causes delays in tender implementation. 46. President Regulation 148/2015 on land acquisition for public benefits has been well implemented without much issues. With this regulation, there is a clear mechanism to obtain land for building public infrastructures and facilities. The issue that remains unresolved is the implementation in the field and the adequacy of budget to cover the actual needs based on the result of land price negotiation. 47. The following are henceforth recommended: a) To improve coordination with local governments as the land procuring committee b) To invite the law enforcer (Attorney General and Police) and BPKP as observer in the process of land acquisition c) MOF to provide a flexible budget allocation for land acquisition by allowing spending above DIPA ceiling based on actual and final agreed price of land, without waiting for new budget allocation next year 8. This can be done through DIPA revision (across economic classification, imitating salary expenses) within the budget ceiling of 1 program in one fiscal year. Issue #3: Delay in the starting the issuance of general procurement plan (RUP) 48. As per Survey results, about 40% respondents issued RUP before the start of new fiscal year while around 60% issued RUP after new fiscal year starts. 49. If the issuance of RUP is late then the whole procurement process will be delayed. Only spending units of MOPWH are regularly submitting their general procurement plans (RUP) for the following year through Sistem Rencana Umum Pengadaan (SIRUP) in quarter 4 of the previous year. 50. Following is therefore recommended: a) For all procurement activities in the next year, the RUP should be published in the preceding year. Each ministry could systematically monitor and report compliance at ministry level, and where necessary issue further regulatory measures for strengthening, similar to the example of MPWH. b) LKPP could monitor and report at country level. c) The Government can impose a restriction that RUP will not be allowed to be submitted in the current fiscal year. The eProcurement System (SPSE) should be modified to permit RUP submission only in the previous fiscal year. 8This practice is followed in many countries like India where land acquisition award is a quasi-judicial order which is binding on all parties, unless overruled by a higher court. If the government and sellers of land are in agreement, the payment should be made from budget immediately, even if it exceeds the DIPA limit for that purpose for that spending unit. The DIPA should be subsequently revised as a consequence. Page:32 Issue #4: Delay in starting the announcements of tender for procurement 51. As per Survey results, only 16% of respondents announced most of their tenders before the beginning of new fiscal year. 52. It shows that the new rule to do early procurement is not well implemented. PP 50/2018 (article 59) has progressively allowed the spending units to start the procurement process (preparation up to signing the contract) after the budget proposals approved by Parliament (by end of October). 53. Following recommendations are accordingly made: a) For all procurement activities in the next year, the tender announcement should be published in the preceding year. Each ministry could systematically monitor and report compliance at ministry level, and where necessary issue further regulatory measures for strengthening, similar to the example of MPWH. b) LKPP could monitor and report at country level. c) Government can consider imposing restrictions that tenders won’t be allowed to be published in the second quarter onwards in a fiscal year. eProcurement system (SPSE) can be modified accordingly. Issue #5: Delay in signing the procurement contracts 54. As per Survey, only around 33% of respondents said that they signed most of their contacts in the first quarter. 55. Article 59 (point 2) of PP 50/2018 allowed spending unit to sign the contract before the start of new fiscal year, though it is effective only after 1 January. 56. Going forward, henceforth, following actions are recommended: a) All contracts should be signed within the bid validity period originally specified in the bidding documents. Each ministry could systematically monitor and report compliance at ministry level. LKPP could monitor and report at country level. b) LKPP and MOF to establish a protocol for data sharing and/or data interoperability between the e-procurement system (SPSE) and the FMIS system (SPAN) so that the government could have a full end-to-end contract information from the start of procurement, signing the contract, physical progress implementation and disbursement payments up to the completion of the projects. c) Data interoperability between LKPP’s SPSE e-Procurement system with MoF’s SPAN would improve budget efficiency and also reduce workloads of spending units in entering contract information into two different applications and providing the government with accurate, timely, and comprehensive data for better decision making. Page:33 Issue #6: Lack of qualified staff in spending units to evaluate bidders’ proposals 57. About 48% respondents admitted in the Survey they do not have enough staff to evaluate work package offers from bidders. 58. MoPWH (Ministry of Public Works and Public Housing) has established dedicated procurement unit in each province (Balai Pelaksana Pengadaan Barang dan Jasa-BP2JK). This allows them economies of scale and efficient procurement. This dedicated procurement unit will also reduce the burden of spending units from doing the procurement administration task. Meanwhile, Ministry of Transport (MoT) experienced challenges since its centralized unit is newly established and not yet equipped with better trained staff in procurement procedures. 59. The team finds that Procurement capacity in spending units is generally low. To mitigate this issue, LKPP regulation 5/2015 stipulates line ministries to establish a centralized procurement support units (ULPs). ULP have been established across several Ministries though not all ministries are fully implementing this model. 60. Going forward, following actions are recommended to address this issue: a) As the result of doing procurement by centralized unit within each ministry varies, this approach could be further reviewed by all the ministries for potential benefits of efficiency and value for money. b) The case of Ministry of Transport shows that continued training and capacity building must be provided to the staff of the procurement units. c) Each ministry could systematically monitor and report compliance with the requirement for completing bid evaluation and awarding contracts within the bid validity period originally specified in the bidding documents. d) LKPP could monitor and report at country level. Issue #7: The lack of utilization of the government’s regulations regarding early procurement process prior to the start of the Fiscal Year 61. Only about 10% of respondents in Survey said that 90% or more of their contracts go through the early procurement process. 62. The team finds that not many spending units are initiating the early procurement process before the start of the fiscal year as is permissible under regulations (PP 50/2018, article 59). Only spending units of MOPWH has taken advantage of this early procurement since they have frequently carried out early procurement particularly for civil works contracts, which is supported by the minister’s decree on instructions for early procurement. 63. The following recommendations are being henceforth made: Page:34 a) Each ministry could systematically monitor and report compliance at ministry level, and where necessary issue further regulatory measures for enhancing advance procurement, similar to the example of MPWH. b) LKPP could monitor and report at country level Issue #8: Multiyear contracts (MYC) are not commonly used 64. As per Survey results, only about 6% of respondents said that 90% or more of their contracts are multiyear contracts. These spending units, respectively, are in Ministry of Public Works and Public Housing (MOPWH). Other ministries need to follow its example. 65. While the provision of multiyear contracts can potentially free spending units from the procurement process in the next two years and implementation could be smoother, not many line ministries are applying this rule. Based on interview with some SUs, PMK 60/2018 has provided much flexibility and authority to the line ministry. However, only few contracts mostly funded by loan and/or SBSN (Syariah bonds) are made in MYC. The remaining issues are more on lack of incentives for SUs on why they need to do MYCs and identifying characteristic of works which do not require MYCs and isolate them. 66. The following recommendations are being made to address this issue: a) Line Ministries are encouraged to seek approval for Multi-Year Contracts (MYC) exploiting PMK 60/2018, requests for which, can be approved by DG Budget on a case-by-case basis. For a higher threshold of contract value, authority has been delegated to the line ministry to approve. b) During the trilateral meeting, Bappenas and/or MOF could proactively demand Line Ministry to adjust their proposal from single year to MYCs when appropriate for one large value package of contract to be ideally completed longer than 12 months period c) MOF and LKPP could carry out a study to assess the potential negative impact of splitting large civil works that normally require multiyear implementation period into multiple smaller contracts of less than one-year implementation period. Issue #9: e-catalogue is not comprehensive to cover all needs and issued late 67. E-catalogue of LKPP is not comprehensive to include all accessories or supporting tools to make the goods ready to use. 68. The team finds that E-catalogue now has an expanded number of items. In addition to central e-catalogue, LKPP has also published sectoral e-catalogue. Page:35 69. While the increase in the number of items available in the e-catalogues is a positive development, it is recommended that further review of the e-catalogue procedures is undertaken to identify opportunities for enhancing competitiveness in bidder selection and prices to enable greater value for money in addition to efficiency. 3.2.4 Budget Implementation Issue #1: Capex budget disbursement is heavily skewed towards the end of the fiscal year 70. As per the Capital Budget execution data made available by the Ministry of Finance, around 44% of the Capital Expenditure budget was disbursed in the last quarter of FY 2019 with about 25% itself spent in the month of December. 71. Since State budgets are approved on a strict one fiscal year in cash basis, the year- end bunching is repeatedly happened as spending units rush to spend their budget in the closing stages of the year to prevent the lapse of their budget appropriation. It also increases fiduciary risks that will arise due to hasty implementation and jeopardize the quality of the delivered outputs. 72. The following recommendations are being made for the future practice: a) MOF should encourage the line ministry to apply MYC for incomplete activities in the current year, but nonetheless those that are likely to be finalized in the next following fiscal year. The PMK 60/2018 on MYC should be revised to provide more flexibility for the spending unit to extend a contract period to the next fiscal year as long as they are not seeking for additional budget on-top of the approved next year budget allocation to compensate the delay. b) MOF should promote the application of early procurement as a new indicator to be evaluated under the IKPA performance. Issue #2: Delays in start of project implementation varies by the nature of project, source of funding, and leadership of line ministry 73. Nature of project: The pace of execution depends upon the nature of project. The expenditure on ‘maintenance’ of current capital infrastructure was fast paced in comparison to new large constructions. The team finds that different nature of projects can cause different time to start. The new construction projects, particularly if they involve land acquisition, would be usually late to start due to challenges during preparation, procurement and implementation. While the maintenance, non-construction and consultancy works can start quickly and disburse its first initial payment earlier. It is recommended use MYCs for the large scale of new development, construction or infrastructure projects. Page:36 74. Funding source: The loan and SBSN (Government's Syariah bonds) funded projects which permits for multiyear mostly start later during FY compared with the Rupiah Murni of APBN which is strictly limited for one year. The team finds that loan and SBSN (Government’s Syariah bonds) funded projects which permit for multiyear contracts to finance large construction projects (e.g., large-scale and complex procurement that requires pre-qualification, bank guarantees, etc.) mostly start later during FY. 75. Leadership: The leadership of the line ministry is different across ministries with Ministry of Public Works and Public Housing (MOPWH) is the best practice example. Line ministries with strong leadership like MOPWH usually start the project earlier, particularly due to the strong attention of the President on the infrastructure projects. It is recommended that the MOF facilitates a peer-to-peer knowledge sharing session by inviting the best performer ministry like MOPWH to share their experiences and methods in implementing Capex projects. Issue #3: Delays at the spending units in processing contractor’s invoice for payments 76. The PMK regulates that (i) The contractor should submit invoices to Spending Unit within 5 days after finishing work progress. (ii) the submitted invoices are then reviewed by commitment maker officer (PPK) for 5 days to verify and sign the hand-over documents (BAST), if all documentations completed and delivered outputs accepted. (iii) PPK will then transfer the invoices and all supporting documents to PP-SPM (payment order maker officer) who will prepare payment order (SPM) document in 5 days at the latest. (iv) Finally, the head of Spending Unit (KPA) should submit SPM to KPPN within 2 days after SPM is issued by PP SPM. Therefore, a spending unit is given a time limit of 17 days to process an SPM document, started from the date when contractor submitting invoices up to the submission of the payment orders (SPM) documents to MOF’s KPPN for processing the payment to the contractor. 77. As per Survey results, while about 86% of spending units’ respondents said that they have no difficulty in meeting the time limit of 17 (seventeen) days to prepare and submit payment orders (SPM) document to MOF after receiving invoice claims from contractor, about half of spending units’ respondents admitted they had difficulties to force government contractors/ vendors to submit invoices within 5 days after finishing work progress mainly because there is no clear mechanism on how to monitor the contractors’/ vendors’ compliance with this 5 days requirement. 78. The team finds that that there is no clear monitoring system and a lack of enforcement by Spending Units and/or Echelon 1 to monitor the process by which and when the payment order (SPM) is issued by spending units to the KPPNs after receiving invoices from contractors. In addition, the gaps can also be caused by the regulation which says that payment can only be made after the construction is completed or goods/services are received. Page:37 79. The best example of a monitoring system is the “e-Monitoring Online”, built by MOPWH. This system could help Echelon 1 and 2 at the headquarter to directly monitor regular progress of both physical works and payments reported by all spending units at the field across Indonesia. It is, however, limited to be used by MoPWH internal staff (HQ and spending units) and does not have a functionality to monitor submission of invoices by vendors/ contractors to the spending units and from spending units to the KPPNs. 80. Going forward, the following recommendations are being made to address this issue. a) Contracts should include explicit provisions to specify the time period within which the Spending Unit will verify the contractor’s invoices and make payment. b) Contracts should specify additional interest penalty in case of delay in releasing payment for the fault of spending unit in delaying the verification of works beyond the period specified in the contract without reasonable reasons. c) Auditors should also review the spending unit’s compliance with the terms of the contract including time taken for verification and payment of invoices to the contractors. d) Each line ministry should systematically monitor the time taken by the spending unit in verifying invoices and making payments under the contracts. e) Develop an e-invoice system, as a new functionality in the SAKTI application, that allows vendors/ contractors to submit their invoices and supporting documents online, and spending units to approve or return for requiring additional information before approval. The system should track the payment of each invoice from submission to final payment by the system and update expenditure record by detailed chart of accounts. f) Every line ministry with large capital budget expenditure implemented by many spending units across Indonesia should: i. develop an “e-reporting” system that would be used to facilitate electronic reports from Spending Units to the superior. ii. expand the functionality of e-reporting system to also enable vendors/ contractors submitting their progress reports to the spending units in an electronic mode that would also be monitored by Echelon 1 and 2 at the headquarter Issue #4: Many contractors submit invoices for payment at the end of the fiscal year creating a recurring issue of skewed disbursement towards the end of fiscal year 81. The government standard bidding document provides standard provision on terms of payment, such as work measurement/time-based (submission of monthly or bi-monthly invoices by the contractors and payment by the government based on verified measurement of physical progress of the works); or Lump-Sum (submission of invoices by contractor and payment by the government in instalments based on satisfactory completion of specified output milestones). Procuring entity is also required to specify the terms of payment including when the contractor can submit its invoices. However, in practice many contractors do not submit their invoices in accordance with the time frame provided in the contract, which results in delayed payment. Page:38 82. The recurring issue of skewed disbursement is partially caused by contractors’ not submitting the invoices in time as per contract and partially by delay in verification and payment by the spending unit (as mentioned above), due to multiple possible reasons including difficulty of contractors in preparing invoices, lack of capacity/ motivation of spending unit in verifying the invoices, lack of funds of the spending units, or other governance related issues. 83. MOF only records the spending unit’s obligation to settle the payment of invoices within 17 days after the handover document (BAST) issued for 100% of goods/services being completed and delivered at end of the contract period. This is the reason of why IKPA performance of SUs are generally given the good score despite of slow in disbursement of payment stages within contract period before the works fully completed. 84. Going further, the following recommendations are being made to address this issue: a) Commitment making officer (PPK) could monitor and remind the contractor in regular monthly meetings or through reminder letter as needed for them to submit invoices in accordance with the time frame specified in the contract; b) Contracts should be required to include an “indicative” schedule of payment by specific date/week or on delivery of output. For example, the contract to show an indicative schedule payment: i. 10% initial payment once the contract is signed and effective (invoice to be claimed by 1 April) ii. 40% second payment after 60% of work completed (invoice to be claimed by 1 July) iii. 40% third payment after 90% of work completed (invoice to be claimed by 1 October) iv. 10% final payment after 100% work completion (invoice to be claimed on 1 December) c) When the time due for contractors to submit invoices and the physical progress is observed (by SU) completed, SU could issue a letter to remind contractors that they are eligible to submit invoices and request clarification if contractors refused to do so Issue #5: There is a lack of transparency and accountability at Spending Units in handling the submission of invoices by vendors and providing clearance for invoice payments 85. As per Survey results, about 73% of respondents said that incomplete proof of vendor’s invoices is the main cause for the length of time for Spending Units to prepare the order for payment (SPM); Meanwhile, on average 1 of 4 invoices would need to be withdrawn and fixed by vendors before they are considered completed by spending units. 86. There is no record in the system to track receipt of submission of invoices by vendors and their approval, rejection, or return by spending units. 87. Going forward, the following recommendations are being made to address this issue: Page:39 a) Spending unit needs to record the date of vendor’s invoice submission and its reasons for invoice refusal (if any) so that the Echelon 1 (and KPPN) would know what would be the common error of vendors that cause invoice rejection by Spending Units. b) MOF to expand the functionality of SAKTI with “e-invoices” to facilitate an electronic submission of bills from vendors to spending units. If an e-invoice module, that is filled in and submitted by contractors/ vendors, is built in SAKTI, there could be greater transparency and accountability since any refusal and/or approval of invoices can be monitored. Issue #6: Low capacity at both spending units and vendors to process payment claims 88. There is no sanction or punishment for either spending units or vendors for any delay in submitting and processing payment claims. 89. The delay from contractor for submitting invoice in time is partly due to the lack of vendor’s staff capacity who did not get frequent socialization and training supports on the procedures of invoice submission provided by spending units and/or KPPN. 90. Going further, the following recommendations are being made to address this issue: a) Spending Units should be proactive in sending reminder and request the contractor to submit invoice in accordance with contract without delays. b) It would also be helpful to conduct training and socialization on invoice preparation and submission procedures, including time required to process the payment, so contractors are aware. c) Introducing new intensive monitoring mechanism by categorizing them efficient/inefficient vendors as per their timeliness of their contract completion at all stages. Issue #7 Implementation of new activities instructed by Echelon 1 within current fiscal year 91. There are frequent new instructions of Echelon-1 to the good performer spending units to implement new activities during the few months before the end of year as the result of budget optimization across spending units. This new instruction requires DIPA revision which results in the “slow” pace of budget execution since it is approved late and the “low” level since the spending units did not have capacity to implement new activity within a tight schedule in one fiscal year. Page:40 92. Spending Units have difficulty to implement new activities with additional budgets allocated by the top level (echelon 1) in the middle of the year since the time to implement this new activity is too short (i.e., to prepare the plan, design, and revise the DIPA) before the end of fiscal year. 93. For the essential capital expenditure projects, if delays in project completion seems unavoidable, it is recommended that the Ministry of Finance provides its direct approval to convert the original single-year contract into a multiyear contract along with the ability to carry over the unused budget in current year to be added “on-top” of next fiscal year budget (scaling up the SBSN flexibility to few national priority and essential projects). 3.2.5 Financial Management and Audit Issue #1: Low capacity of spending unit staff to prepare SPM documents 94. As per Survey results (Question #33), about 56% of spending units’ respondents reported that they ever had an experience with the rejection of their payment orders (SPMs) by Local Treasury Offices (KPPNs). The main reason of the rejection is mostly due to the Spending Unit failed to update the cash withdrawal plan prior to the submission of SPM. 95. Some regional treasury offices (Kanwils) have actively provided advisory, consultancy and guidance services to the spending units staff on SPM submission related procedures, though it is not made in a uniform manner by all Kanwils. 96. It is recommended that the Ministry of Finance conducts training and capacity building on SPM submission related procedures along with the other PFM regulations on procurement, planning, budgeting, project management and accounting and reporting for all spending unit’s officials. 97. DG Treasury of Ministry of Finance is advised to soon launch web-based SAKTI, in which, SPM submission by all spending units would be done on the system and errors can be corrected in the system without requiring physical back and forth. Page:41 Issue #2: Auditors’ focus on compliance delays the process 98. Only about 14% of the Survey respondents say that the auditors created a situation that will contribute to delay in implementing activities. Spending units who raised their concern with auditors are mostly BLU (Hospitals) while a spending unit from Army (military) unit has felt grateful to be helped by their (internal) auditors to achieve 100% disbursement. 99. Interestingly, about 32% of respondents said that they prefer to use direct selection by splitting activities into small contracts to avoid audit of large sized contracts. 100. While there are growing concerns over the heightened level of fiduciary (audit) control discouraging Spending units’ personnel performance in project implementation, the role of auditors in budget planning and implementation has been increased in the last several years. MOF has issued many regulations that would require much involvement of line ministry’s internal auditors in doing ex-ante control of the line ministry’s budget plan and execution prior of getting MOF’s approval. It is true that the increased fiduciary (audit) control has discouraged spending unit staff from taking pro-active steps in budget execution, including the procurement process. 101. Going further, the following recommendations are being made to address this issue: a) The involvement of (internal) Auditors included in the project is required to be made from the beginning to provide the necessary guidance for the spending units b) The capacity of internal auditors of line ministries should be improved to be equally similar across line ministries c) BPKP to provide capacity building for line ministry’s internal auditors Issue #3: Impractical deadline for SPM submission at the close of fiscal year 102. The MOF’s requirement to set an earlier deadline (around 2 weeks) of SPM submission to be processed in KPPN before the end of fiscal year of 31 December is contradicted with the law and regulation that allow the 100% completion of physical works could be delivered at the last date of the contract that is permitted to be ended on 31 December. 103. While the validity of DIPA and the contract is allowed to be ended at the last date of a fiscal year on 31 December, every year DG Treasury set another date as the deadline of when SU is required to submit SPM to be processed by KPPN. For example, in FY 2019, DG Treasury issued an instruction to SUs for submitting SPM by 13 December at the latest and if the work is not yet 100% completed by that time, MOF required contractors to provide “bank guarantee” in an equal amount of the payment to be released. Page:42 104. The team feels it is unfair for requiring the contractors to provide a bank guarantee since it is not their fault for not completing the work and submitting invoices by 13 December since they are legally allowed to finish the work up to the contract period ends (say 31 December). 105. MOF should either issue a regulation that requires contract period to end before the closing date of a fiscal year, (say, 14 working days before 31 December) or MOF to find other alternative than requiring a “bank guarantee”, since in order to get a bank guarantee, contractors is required to deposit an equal amount of cash in the Bank. 106. Going further, the following recommendations are being made to address this issue: a) MOF to allow the submission, but delaying the payment after the SPM is submitted and processed by KPPN on 13th December, with a provision to settle the payment within thirty (30) calendar days after the invoice supported by proof of delivery is received (as stipulated in Article 75 (1) of the PP 45/2013). This can be done provided there are no other clauses in the agreement with contractors which may attract penalties. b) Replace the requirement for contractor to provide “bank guarantee” for processing end of year payment by opening a “temporary bank account” and giving a deferred cheque (cek tanggal mundur) to contractors so SPM can be processed earlier, while the works continue until completion till the end of contract date (for example, 25 December). The deferred cheque can be cleared before 31 December when DIPA validity expires. Issue #4: Honorarium for spending unit’s officials 107. Staff motivation is low since the additional honorarium for officials who manage a project is considered low and paid on a monthly basis, hence they tend to lengthen their work period for one full year without incentive to finish it earlier. 108. Honorariums set by MOF on standard costs for spending units key officials are considered low and are not commensurate with the task responsibilities. The current incentive structure for honorariums for civil servants who are appointed as spending unit personnel fail to reflect the scale or complexity of the projects. 109. Going further it is recommended to conduct a study to find other alternative way than monthly fixed honorarium in providing better incentives for Spending Units’ staff to motivate them in accelerating disbursement of capital budget as early possible. 110. A summary of diagnosis, conclusions, and policy recommendations is enclosed in Appendix G. Page:43 3.3 Proposed Action Recommendations by Stakeholders 111. Addressing capital budget execution challenges is critical for Indonesia. The government recognizes that the current budget execution process is weak and has taken some necessary measures to address them. The current concerns and high-level attention also provide an opportunity to undertake broader improvements in order to accelerate budget execution. In addition to addressing the immediate constraints in the short term, this momentum also provides an opportunity to undertake further improvements which may involve institutional and regulatory changes that are part of broader Public Financial Management (PFM) reforms. 112. The action recommendations are formulated for two (2) different time periods for the related stakeholders. The time periods of related actions are: 1) Actions that may have an impact on short term budget implementation; and 2) Actions and/or recurrent activities recommended to be held for the medium to longer-term period. 113. The table below summarizes the Proposed Action Recommendations and time periods to implement those recommendations. Table 11 Summary of Proposed Actions Recommendations for Capital Expenditures Recommendation in order of Priority Responsible Short Medium Government Agency Term Term Budget Planning Policy #3: The Line ministry is required to All Line X streamline the number of their spending Ministries/Agencies units and/or assigning (consolidating) planning and procurement processes at few “large” spending units only. #15: Improving the flow of consistent data All Line X and information between planning and Ministries/Agencies finance units in a line ministry and/or merging the two of them into one unit (i.e., Rocankeu of MOF #5: Line Ministry is required to establish a All Line X “project selection procedure” and to build up Ministries/Agencies a pipeline of competing Capex proposals from all Echelon 1 Unit to be linked with the line ministry’s MTEF (3 year) forward estimates. #11: DG Budget, MOF should limit their DG Budget, MOF X responsibility for only addressing all aspects of strategic policy and performance at a higher level of programs and routinely conducting in-depth budget proposal reviews at program level (not to be in-charge of Spending Unit’s DIPA management). Page:44 Recommendation in order of Priority Responsible Short Medium Government Agency Term Term Legal and Regulatory #17: PMK on the guideline of DIPA revision DG Budget, MOF X can be made in a permanent means without a need to change every year since not much changes in content. #18: PMK on standard input cost can be DG Budget, MOF X made for covering 3-year period (rather than 1 year). Though the year 2 and 3 are indicative, subject to be changed, having a 3- year standard cost will be inline with the planning cycle within the line ministry who have started to plan their work activity on February T-1 #4: There should be a regulation set All Line X minimum tenure of at least two years fixed, Ministries/Agencies except for cases such as demotion (due to disciplinary action), promotion or other unforeseen circumstances. #7: A regulation to require Line Ministry to DG Budget, MOF X prepare 3 years capital budget forward planning with the 1st year forward estimate used as the baseline in preparing the next year budget proposal #10: neither the state finance law nor DG Budget, MOF X regulation is clear on the responsibility of an Echelon 1 unit to be accountable for managing a program. The laws and regulations only recognizing Minister (as the budget owner-PA) and spending units (as the proxy budget user-KPA) #13: MOF to transfer the entire responsibility DG Budget, MOF and X of in-year DIPA management, including DG Treasury, MOF virement from DG Budget to DG Treasury. Only if necessary and for a few DIPA revision criteria, DG Treasury would require guidance from DG Budget, particularly on certain limited DIPA revisions that would require Parliament’s knowledge and consent #14: The Echelon 1 of Line Ministry shall be DG Budget, MOF and X given more authority to manage budget for DG Treasury, MOF individual spending unit (Let the manager manages) which is tied to and intended to contribute to the achievement of the goals and objectives of a program within strategic plans of the line ministry. Page:45 Recommendation in order of Priority Responsible Short Medium Government Agency Term Term Implementation #19: To continue a good practice to make DG Budget, MOF X PMK on Juksunlah as permanent regulation need not to be changed every year #1: Line Ministries need to apply 80/20 rules: All Line X focus on the few (20%) spending units with Ministries/Agencies large amount of capex budget and pay less attention for the other 80% of smaller one #2: Preparation of Capex proposals with small All Line X value but large volume of common items Ministries/Agencies used by some spending units can be consolidated by selected large spending units that have experience and expertise to manage these. This will allow majority of spending units to focus on the budget implementation only. #16: Data interoperability or merging two Bappenas X PFM applications of KRISNA (of Bappenas) for DG Budget, MOF planning and SAKTI (of MOF) for budget DG Treasury, MOF #12: As other Budget office in best practices DG Budget, MOF X countries, DG Budget may focus to work as analyst for budget formulation and appropriation rather than doing administrative works of DIPA (budget allotment) management #6: The project selection procedures must be All Line Ministries X applied by line ministry with T-3 period. and Spending Units - T-3 stage: the spending units will start to prepare the Capex TOR Proposals with a brief summary of the project. -T -2 stage: all proposals (“TORs”) are required to be furnished with detailed draft supporting documentation, including justifications on the need, scope, technical design and estimated costs to be reviewed by the Echelon 1. - T-1 stage: the final TOR along with all supporting documentation (including cost benefit analysis) are ready to be proposed by the line ministries to Bappenas and MOF for approval of work plan and budget allocations. #9: DG Budget could continue to facilitate DG Budget, MOF X data collection of 3-years forward estimate (MTEF) from each individual spending unit through its KPJM application though they are not required to do budget proposal analysis on detailed individual SU level. #8: The bottom-up planning and budgeting All Line Ministries X process by spending units is used as a and Spending Units Page:46 Recommendation in order of Priority Responsible Short Medium Government Agency Term Term reference by Echelon 1 to finalize RKA-KL only while the final decision of DIPA allocation is made by Echelon 1 #47: Promote MYC for the large scale of new Bappenas X development, construction or infrastructure DG Budget, MOF projects All Line Ministries Procurement Policy #41: During the trilateral meeting, Bappenas Bappenas, MoF and √ and/or MOF could proactively demand Line Line Ministries Ministry to adjust their proposal from single year to MYC when appropriate for one large value package of contract to be ideally completed longer than 12 months period #34: As the result of doing procurement by Procuring Entity/ √ centralized unit within each ministry varies, Line Ministry this approach could be further reviewed by all the ministries for potential benefits of efficiency and value for money. #42: MOF and LKPP could carry out a study to MoF and LKPP √ assess the potential negative impact of splitting large civil works that normally require multiyear implementation period into multiple smaller contracts of less than one- year implementation period. #32: LKPP and MOF to establish a protocol LKPP & MoF √ for data sharing and/or data interoperability between the e-procurement system (SPSE) and the FMIS system (SPAN) so that the government could have a full end-to-end contract information from the start of procurement, signing the contract, physical progress implementation and disbursement payments up to the completion of the projects. #43: While the increase in the number of LKPP/ √ items available in the e-catalogues is a Line Ministry positive development, further review of the e-catalogue procedures could also be undertaken to identify opportunities for enhancing competitiveness in bidder selection and prices to enable greater value for money in addition to efficiency. Legal and Regulatory #38: Each ministry could systematically Procuring Entity/ √ monitor and report compliance at ministry Line Ministry level, and where necessary issue further Page:47 Recommendation in order of Priority Responsible Short Medium Government Agency Term Term regulatory measures for enhancing advance procurement, similar to the example of MPWH Implementation #21:Technical design specifications need to Procuring Entity/ √ be prepared and finalized far before Line Ministry procurement starts #22: Allocating sufficient budget for technical Procuring Entity/ √ design preparation and requiring readiness Line Ministry criteria before the project starts. #23: Spending units’ staff to actively carry out Procuring Entity/ √ market analysis of capacity of all potential Line Ministry bidders in the market to serve as a guide in formulating qualification requirements to avoid failures in the bidding process. #27: For all procurement activities in the next Procuring Entity/ √ year, the RUP should be published in the Line Ministry preceding year. Each ministry could systematically monitor and report compliance at ministry level, and where necessary issue further regulatory measures for strengthening, similar to the example of MPWH. #31: All contracts should be signed within the Procuring Entity/ √ bid validity period originally specified in the Line Ministry bidding documents. Each ministry could systematically monitor and report compliance at ministry level. #40: Line Ministries are encouraged to seek Procuring Entity/ √ approval for Multi-Year Contracts (MYC) Line Ministry exploiting PMK 60/2018, requests for which can now be approved by DG Budget on a case-by-case basis and a higher threshold contract value has been delegated to the line ministry to approve #35: Continued training and capacity building Procuring Entity/ √ must be provided to the staff of the Line Ministry procurement units. #36: Each ministry could systematically Procuring Entity/ √ monitor and report compliance with the Line Ministry requirement for completing bid evaluation and awarding contracts within the bid validity period originally specified in the bidding documents. LKPP could monitor and report at country LKPP √ level on recommendation of #27, #29, #36, #38 Page:48 Recommendation in order of Priority Responsible Short Medium Government Agency Term Term Budget Execution (Implementation) Policy #61: If the submission of invoice is LKPP X intentionally delayed by vendors, introducing DG Treasury, MOF punishment by naming and shaming and/or categorizing them as riskier vendors #45: To avoid the DIPA of the current year DG Treasury, MOF X elapsed, full amount can be disbursed at end of December to a temporary account established by MOF in a commercial bank (outside of TSA) to keep the cash before the physical projects fully completed #48: Scale up the SBSN flexibility to the other DG Budget, MOF X priority and essential projects funded by own DG Treasury, MOF source of GOI funds (Rupiah Murni) #62: For the essential capital expenditure DG Budget, MOF X projects, if delays in project completion seem unavoidable MoF should provide its direct approval to convert the original single-year contract into a multiyear contract along with the ability to carry over the unused budget in current year to be added “on-top” of next fiscal year budget (scaling up the SBSN flexibility to few national priority and essential projects); Legal and Regulatory #44: MOF to have a new regulation in DG Budget, MOF X permitting carry over of the physical DG Treasury, MOF completion to a maximum of three (3) months in next fiscal year. #50: A new regulation is advised to be LKPP X created that requires a contract to include MOF explicit provisions to specify the time period within which the Spending Unit will verify the contractor’s invoices and make payment. #51: A new regulation is advised to be LKPP X created that requires contracts to specify MOF additional interest penalty in case of delay in releasing payment for the fault of spending unit in delaying the verification of works beyond the period specified in the contract without reasonable reasons. #56: A new regulation is advised to be LKPP X created that requires contracts to include an MOF “indicative” schedule (specific date/week) for submission of invoices by the contractor. In example, the contract to show an indicative Page:49 Recommendation in order of Priority Responsible Short Medium Government Agency Term Term schedule of when the invoices to be submitted: 1) 10% initial payment once the contract signed and effective and the invoices to be billed on 1 April 2) 40% second payment after 60% of work completed and the invoice to be billed on 30 August 3) 40% third payment after 90% of work completed and the invoice to be billed on 30 October 4) 10% final payment and invoice is estimated to be billed on 30 November When the time due for contractors to submit invoices and the physical progress is observed (by SU) completed, SU could issue a letter to remind contractors that they are eligible to submit invoices and request clarification if contractors refused to do so Implementation #46: Incomplete activities in the current year, DG Treasury, MOF X but nonetheless those that are likely to be finalized at the maximum of the beginning 3 months of following year, can be allowed to continue on the condition that the contractor provides a bank guarantee for an amount equal to the final payment made and a legal sanction (including blacklisted) if the contractor run-away not to complete the works; #49: MOF to facilitate a peer-to-peer DG Treasury, MOF X knowledge sharing session by inviting the best performer ministry like MOPWH to share their experiences and methods in implementing Capex projects #52: Auditors is advised to review the BPK X spending unit’s compliance with the terms of BPKP the contract including time taken for IG verification and payment of invoices to the contractors. #53: Each line ministry is advised to All Line Ministries/ X systematically monitor the time taken by the Agencies spending unit in verifying invoices and making payments under the contracts. #54: Every line ministry with large capital All Line Ministries/ X budget expenditure implemented by many Agencies spending units across Indonesia is advised to: Page:50 Recommendation in order of Priority Responsible Short Medium Government Agency Term Term 1) develop an “e-reporting” system that would be used to facilitate electronic reports from Spending Units to the superior. 2) expand the functionality of e-reporting system to also enable vendors/ contractors submitting their progress reports to the spending units in an electronic mode that would also be monitored by Echelon 1 and 2 at the headquarter #55: Commitment making officer (PPK) could All Line Ministries/ X monitor and remind the contractor in regular Agencies monthly meetings or through reminder letter as needed for them to submit invoices in accordance with the time frame specified in the contract.; #57: Spending unit needs to record the date All Line Ministries/ X of vendor’s invoice submission and its Agencies reasons for invoice refusal (if any) so that the DG Treasury, MOF Echelon 1 (and KPPN) would know what would be the common error of vendors that cause invoice rejection by Spending Units #58: MOF to expand the functionality of DG Treasury, MOF X SAKTI with “e-invoices” to facilitate an electronic submission of bills from vendors to spending units. If an e-invoice module, that is filled in and submitted by contractors/ vendors, is built in SAKTI, there could be greater transparency and accountability since any refusal and/or approval of invoices can be monitored. #59: Spending Units should be proactive in All Line Ministries/ X sending reminder and request the contractor Agencies to submit invoice in accordance with contract without delays. #60: It would also be helpful to conduct MOF X training and socialization on invoice LKPP preparation and submission procedures, All Line Ministries/ including time required to process the Agencie payment, so contractor aware. Financial Management and Audit Policy #63. MOF to (i) conduct training on payment MoF X verification and (ii) prepare standard check list for complete documentation for SU and KPPN. #65: The capacity of internal auditors of line BPKP X ministries should have been improved to be Page:51 Recommendation in order of Priority Responsible Short Medium Government Agency Term Term equally similar across line ministries, through IA-CM level 3 certification. #67: Conducting a study to define MoF X performance allowance for SUs’ staff to motivate them in accelerating disbursement of capital budget as early possible. Implementation #66. SU to prepare contract for completion X up to max 15 December every year. This recommendation only applicable for single year contract. #64. DG Treasury MOF is advised to soon MoF X launch web-based SAKTI so SPM submission by all spending units would be done through electronic and error can be corrected in the system without physical back and forth presence Page:52 3.4 Change Management 114. Here are a few recommendations to help with the change management aspects across all stakeholders: (a) Staff incentives and follow up action: 115. Monitoring alone may not deliver better results if Spending Units’ staff don’t have adequate incentives or if the follow up action from the Echelon 1 (or 2) is not enforced. To help instil discipline, a clear reward and sanction rule should be formulated, communicated and then enforced (by both MOF and Line Ministry), in terms of linking disbursement performance with individual Spending Unit officers’ Key Performance Indicator for career promotion and/or budget cuts for under-performing spending units for delays that are not reasonable. For instance, if contracts are not yet signed by the 3rd quarter of the fiscal year, consider issuing reprimand letters to the responsible officer if no reasonable cause is given to justify the delay. (b) Help Line to support the Spending Units: 116. It is important to recognize that the responsibility and accountability for much of the budget execution processes remains with the spending units. Yet, support from the line ministry’s headquarters can be helpful to resolve bottlenecks that need coordination from other units. To facilitate this, a “Help Line” can be set up at the Secretary General and/or Secretary DGs of line ministries and also at DG Treasury Regional Offices and/or KPPNs to provide trouble-shooting guidance and advice, or coordinate interventions from other units to help SUs executing the Capex budget. (c) Lessons from experience: 117. Spending Unit staff which have not had substantial prior experience in managing execution of Capex budget activities may hesitate to perform certain activities for lack of knowledge or confidence. To help overcome these, the Secretary General (Planning and Finance Bureau) office and/or DG Treasury, MOF should facilitate a sharing and learning event among the Spending Units, where the Spending Unit staff which have successfully managed and executed Capex projects can present lessons from their experiences to the other Spending Units’ staff. A rigorous post implementation evaluation and review of selected Capex projects can help build knowledge among Spending Units’ staff and also help answer technical questions. This can also be a good opportunity to disseminate lessons learned and knowledge on how the planning, budgeting, procurement and implementation processes could be improved. Page:53 Appendix A Online Survey Form In recent years, despite of the issuance of the government’s new regulations and policies to improve capital budget execution performance, the disbursement of capital budget are less optimal. These can be seen from the low realization of central government spending by end of fiscal year and the pattern of budget absorption is more prevalent at the last quarter of the year (slow and low budget execution). To identify and analyze the factors that inhibit the capital budget absorption, the Ministry of Finance of the Republic of Indonesia in collaboration with the World Bank, is conducting the budget implementation survey at the Spending Units in Line Ministries/Agencies. This survey is aimed at all Spending Units of the Line Ministries/Agencies of the Central Government throughout Indonesia. This survey aims to capture the perspective of the Spending Unit in Line Ministries / Agencies about implementing budgets (especially capital expenditure) which are often faced with challenges and constraints related to the slow pace and / or low absorption of the budget. With the use of Information Technology, the dissemination and filling of this survey can be done on-line and real time directly at the location of the Spending Unit where you are located without the need for writing correspondence (paperless). This survey is expected to be answered by the authorities in the Spending Unit, especially the Head of the Spending Unit and / or parties who officially represent it. The response and answers from this survey will help the Ministry of Finance to formulate and refine more effective policies in overcoming the challenges of implementing the budget. There is no right or wrong answer. All answers given will be kept confidential. Please fill out this survey completely based on your spending unit’s experience only for the implementation of the latest budget in FY 2018 and / or FY 2019, not for the previous fiscal years. Thank you again for taking the time to fill out this survey. Page:54 Part 1: Identity 1. Put 6 digit code of your Spending Unit: …………….. 2. How much DIPA value in total that is managed by your Satker in FY 2019 (Particularly on capital expenditure of code #53)? [ ] Up to 10 billion Rupiah [ ] 10-50 billion Rupiah [ ] 50-100 billion Rupiah [ ] Above 100 billion Rupiah 3. How long has the head of your Spending unit been in his/her position? [ ] Between 0 and 6 months [ ] Between 6 months to 1 year [ ] Between 1 and 2 years [ ] More than 2 years 4. At the end of FY2018, how many ASN civil servants were employed in your Satker? …………. Part 2: Budgeting 5. In FY 2018 and / or FY 2019, to what extent are the following problems the cause of your Spending unit's difficulty in preparing the budget? Page:55 Very Never Rarely Occasionally Frequently Frequently Activity Planned is not aligned with needs Unit price of goods/services set in the SBU or SBK is too low/too high Activity budget has been put on hold (bintang) because of a lack of supporting data Budget document need to be revised due to wrong budget codes being used The short assessment period means that supporting data is not ready in time Budget ceiling is too low and is inconsistent with market prices 6. On average, what percentage of the "ideal" needs originally planned and submitted by your Satker in the process of drafting the FY 2018 and / or FY 2019 budget can finally be approved and realized at DIPA? Please enter a percentage in integers, do not include a percentage sign. ……… 7. If there is a discrepancy between the Work Plan document (Renja K / L) coordinated by Bappenas with the Budget Document (RKA - K / L) issued by the Ministry of Finance, the extent to which this creates difficulties in the implementation of the budget, especially for projects / activities funded by capital expenditure? [ ] Cause serious problems [ ] A big problem [ ] It causes problems even if it's small Page:56 [ ] Does not cause problems 8. In the FY 2018/2019, to what extent do the following issues related to documentation of budget implementation (DIPA and POK) cause difficulties for your Satker? Yes No The approved DIPA is received late Activity operational guidance documents (POK) differ from DIPA There are delays in securing Echelon 1 approvals of the activity operational guidance documents (POK) The DIPA is not aligned with needs and requires revision There are delays in securing Echelon 1 approvals of DIPA revisions There are delays in securing Ministry of Finance approvals of DIPA revisions 9. In FY 2018/2019, what factors related to the following rules and guidelines for implementing the budget caused obstacles for your Satker? Yes No The decree letter (SK) regarding the appointment of the KPA was issued late by line ministry The decree letter (SK) regarding the appointment of the KPA was received late by Satker The decree letter regarding the appointment of the PPK, PP SPM and Expenditure Treasurer was issued late The decree letter (SK) regarding the staff appointment contained errors that will need a correction The decree letter (SK) for replacing the KPA/PPK/PP SPM/Expenditure Treasurer was issued late Page:57 10. In FY 2018/2019, how is the impact on your Satker (if any) related to the issuance of the following rules and guidelines for implementing the budget? Not Creating CreatingOccasionallymajor issue create issue issue Joint Letters of 2 ministers regarding indicative ceilings are late in being issued PMK regarding Juksunlah RKA-KL is issued late PMK regarding SBK, SBU are issued late PMK regarding DIPA revision procedure is issued late 11. In what month of 2018 did your satker receive the budget allocation (presidential regulation on the details of the APBN) as the basis for preparing DIPA FY 2019? …………. 12. In what month of 2018 did your Satker receive the DIPA FY 2019 in soft copy? ………… 13. In what month of 2018 did your satker receive the detailed DIPA (petikan) FY 2019 that had been signed in print? ……….. 14. If any, please elaborate other problems that your Satker encountered in the planning, budgeting and preparation of DIPA ……………… Part 3: Procurement All procurement questions in the following sections are only related to tender / auction packages for work financed from the capital expenditure budget (economic classification of 53). 15. In FY 2018, how much of the capital expenditure work (especially construction) is that the auction / tender implementation is late due to the following reasons? Page:58 Not Creating CreatingOccasionallymajor issue create issue issue DIPA is not available on time Technical design is not available on time There is a delay in obtaining land / land for construction There are constraints for licensing of land used or land transfer which have not been resolved yet. At the working location area there are not many qualified contractors able to do the work 16. For procurement in FY 2019, when does your Satker issue the General Procurement Plan (RUP) in LKPP SiRUP? [ ] Quarter 3, 2018 [ ] Quarter 4, 2018 [ ] Quarter 1, 2019 [ ] Quarter 2, 2019 17. For procurement in FY 2019, when does your Satker begin most of the announcements of the tender / auction for the procurement package? [ ] Quarter 4, 2018 [ ] Quarter 1, 2019 [ ] Quarter 2, 2019 [ ] Quarter 3, 2019 18. In the previous FY 2018, when did your Satker sign most of the procurement contracts? [ ] Quarter 1 - January to March, 2018 Page:59 [ ] Quarter, 2 - April to June, 2018 [ ] 3rd Quarter - July to September, 2018 [ ] Quarter, 4th - October to December, 2018 19. In FY 2018, what are the main factors that delay the evaluation of the work package offer in your Satker? The bid evaluation period here is the time between auction announcements and the determination of the auction winner. Yes No It often takes a long time for the bidding evaluation committee / auction committee / procurement service unit to meet and start the work Physical verification of bidder qualification documents often takes a long time The bid evaluation process often takes a long time The lack of sufficient staff who are qualified to evaluate the work package offer 20. On average, what is the percentage of the total package (or budget value) of work in the SiRUP of your Satker for TA 2018 which is carried out in an open auction? Please enter a percentage in integers, do not include a percentage sign. Give an estimate, the answer to this question does not need to be correct. Answer zero (0) if it doesn't exist …….. 21. On average, what percentage of the total package (or budget value) of work in FY 2018 is carried out through an early procurement (procurement before TA begins)? Please enter a percentage in integers, do not include a percentage sign. Give an estimate, the answer to this question does not need to be correct. Answer zero (0) if it doesn't exist …………. 22. On average, what percentage of the total package (or budget value) of work in FY 2018 is carried out as multi-year contracts? Page:60 Please enter a percentage in integers, do not include a percentage sign. Give an estimate, the answer to this question does not need to be correct. Answer zero (0) if it doesn't exist ……….. 23. On average, what percentage of the total package (or budget value) of work in FY 2018 fails the auction and / or must be postponed to the next fiscal year? Please enter a percentage in integers, do not include a percentage sign. Give an estimate, the answer to this question does not need to be correct. Answer zero (0) if it doesn't exist ……….. Part 4: Budget Implementation 24. On average, what percentage of the contract in FY 2018 is canceled even though the contract has been signed? Please enter a percentage in integers, do not include a percentage sign. Give an estimate, the answer to this question does not need to be correct. Answer zero (0) if it doesn't exist ……. 25. On average, how many percent of the contracts have been signed by your Spending Unit in TA 2018 delayed due to the delay in land acquisition? Please enter a percentage in integers, do not include a percentage sign. Give an estimate, the answer to this question does not need to be correct. Answer zero (0) if it doesn't exist ……….. 26. On average, what percentage of the contract package implemented by your Satker in FY 2018 changes / addendum the contract value? Please enter a percentage in integers, do not include a percentage sign. Give an estimate, the answer to this question does not need to be correct. Answer zero (0) if it doesn't exist ………. 27. On average, how many percent of the contract package work that should be carried out for one fiscal year by your Satker in FY 2018 cannot be fully resolved by the end of December 2018 (does need a bank guarantee to be continued next year)? Please enter a percentage in integers, do not include a percentage sign. Give an estimate, the answer to this question does not need to be correct. Answer zero (0) if it doesn't exist ………. Page:61 28. On average, how long does your Satker prepare an SPM document (including the length of the billing testing process) since the receipt of the receipt is complete to be submitted to the KPPN as the basis for issuing SP2D? [] Between 0 and 5 days [] Between 6 and 10 days [] Between 11 to 15 days [] more than 15 days 29. How often does the third party (contractor) make repairs to the invoice before it can be considered complete for SPM to be issued? [] Rarely, third parties rarely withdraw bills to be fixed/completed [] Quite often, third parties on average make 1 withdrawal of bills for fixing before they are considered complete [] Very often, third parties on average do more than 1 time withdrawal of bills for repairs before they are considered complete 30. What are the main causes for the length of time required by your Satker to prepare the SPM document in full since the receipt of a bill from a third party? [ ] Proof of third party bills is often incomplete [ ] Validation of an independent party outside the Satker is required to do the billing test [ ] Lack of resource staff in the Satker to speed up processing the bill 31. Spending units have a time limit of seventeen (17) days to submit SPM to KPPN after the arising of the claim right (PMK 190/2012 jo PMK 178/2018). How often does your Satker exceed this deadline? [ ] Very often [ ] Often [ ] Sometimes [ ] Rarely [ ] Never 32. According to you, how often do the following factors cause delays in the implementation of contracts in FY 2018? Page:62 Very NeverRarelyOccasionallyFrequentlyFrequently The design / technical specifications are lacking or inaccurate, resulting in several order variations which cause an increased for costs and delays Approval required for the endorsement of the contract is late (before signing the contract) Payment to contractors was delayed due to delays in the billing verification process Payment to the contractor was postponed even though the bill verification process was completed because it was waiting for the DIPA revision Contractors often lack supplies of goods / material to complete work, because the demand for work in the area where the project is high Natural disasters (including floods, landslides, earthquakes, fires, volcanic eruptions, tsunamis, typhoons, or high waves); Rainy season starts earlier than forecast; Rainy season starts late than forecast Part 5: Financial Management and Audit 33. In FY 2018, how often do the Spending Units where you work face the following financial management problems during contract implementation? Page:63 Very NeverRarelyOccasionallyFrequentFrequently SPM being rejected by KPPN (due to the lack of supporting documents or other unmet criteria); Contractor/Supplier is not billing down payment; Contractor/Supplier is not submitting their invoices on-time; Contractor/Supplier delays their invoices up to the end of fiscal year without clear reasons Supporting documents for submitting invoice (BAPP, BAST, BAP) is not received from contractor on-time so that SPM is not processed in according to the contract schedule 34. Based on experience in FY 2018, do you agree with the following statement about the audit of capital expenditure? In FY 2018, the audit process ... Entirely Fully DisagreeDisagreeNeutralAgreeagree To ensure a compliance with the set rules and regulations on PFM and procurement Also to review performance to obtain value for money Creating a situation where you need to be very cautious in making a decision that will contribute to delay in implementing activities Making a disqualified of bidders who made a small administrative mistake though technically they are responsive and capable Creating a situation where the commitment maker is pushed to obtain an audit opinion prior of signing a contract Preferring the use of non-competitive bidding (either direct appointment or direct selection) to avoid audit for large size amount contract Part 6: Others Page:64 35. During the FY 2018, had your Satker ever received complains from third party (contractor) related to the delay on payment disbursement [ ] Never [ ] Rarely (less than 1 complain each month) [ ] Often 36. Has the following Computer and Information Technology (TIK) applications easy to use (User Friendly)? Yes No SIRUP (General Procurement Information System) of LKPP Krisna, Bappenas RKA-KL SATU DJA (revisi DIPA, KPJM, input cost standard, SMART) SAS (satker application system), SPP, SPM, contract summary or SAKTI SAIBA (Satker accounting system in accrual basis) E-rekon SIMAK BMN (State assets management information system) SILABI (Satker treasurer information system) OM-SPAN (online monitoring SPAN) E-Monev, Bappenas 37. Have the support services from DG Treasury as the developers of the following applications such: GPP, SAS, SAIBA, SILABI, E-rekon, SAKTI , OM-SPAN met your expectations? Yes, has met the expectation Less met the expectation 38. Please use this section to identify other problems that have been faced by your Satker on the use of IT applications and submit recommendations for improvement if any. ………………………….. 39. Please use this section to identify other problems that have been faced by your Satker that can hinder the timeliness and quality of budget implementation and submit recommendations for improvement if any. …………………….. Page:65 40. Please use this section to identify problems in the regulations and policies of the Central Government in the process of managing state finances, including: planning, budgeting, budget execution, accounting and reporting and monitoring and evaluation, and submitting recommendations for improvements to these regulations if any. ………………….. 41. Please use this section to identify training needs and capacity building for the apparatus / staff needed by the Satker to improve budget implementation work …………………… Page:66 Appendix B Statistical Analysis of Spending Units’ Responses to the Online Survey B.1 Online Survey Response Status 118. 2,287 Responses were received from 2,102 spending units between 18 Oct 2019 and 10 Feb 2020 and their responses recorded in the Online Survey Responses Table. Of these: • 2,062 responses (90.2%) were from 1,926 spending units • 225 responses (9.8%) were from 176 spending units not in the Spending Unit Reference Table, therefore considered those with no capital expenditures and classified as “Others”. This “Others” category is ignored in the analysis of the survey results 119. The trend of responses during the online survey period are shown in the figure below: Figure 4 Trend of spending unit Capital Expenditure Survey 2019 Responses Page:67 B.2 Determination of the Sample for Analysis 120. The spending units sent a total of 2,287 responses as described above, out of which 225 responses from 176 spending units of the “Others” category are not included due to the absence of DIPA budget allocation and realization information on capital expenditure for further analysis. The number of responses for consideration in the sample for analysis is 2,062 responses. 121. A review of the responses showed that some spending units sent multiple responses. These spending units which sent multiple responses show as duplicate spending unit codes. The table below shows the responses by the number of duplicates in the Online Survey Responses Table. Table 12 Duplicate responses in the Online Survey Responses Table # of Duplicates Responses Percent Cumulative 0 1,798 87.2% 87.2% 1 242 11.7% 98.9% 2 18 0.9% 99.8% 3 4 0.2% 100% Total 2,062 1% Considering that there are some spending units which sent multiple responses with answers that were not consistent and could distort the results of the empirical analysis to be performed on the sample, the responses with no duplicates consisting of 1,798 responses were used for the “sample” for in-depth analysis in this report. B.2.1 General Approach to the Analysis of the Sample 122. Following is the general approach to conducting the analysis of the sample: 1) The survey consists of 6 parts or areas with a total of 41 questions: a. Part 1: Key spending unit information (1 - 4) b. Part 2: Budgeting (5 - 14) c. Part 3: Procurement (15 - 23) d. Part 4: Budget Implementation (24 - 32) e. Part 5: Financial Management and Audit (33 - 34) f. Part 6: Others (35 - 41) 2) The questions gathered either favourable and unfavourable responses to issues or information on certain aspects such as time/periods or frequency of activities in the areas above to gauge the impact of the same responses by groups in the sample to the achievement of realization of the corresponding groups. 3) The determinants of the level (low) and pace (slow) of realization are: g. For the level of realization: Realization % of the total end of the year DIPA budget allocation in 2019 h. For the pace of realization: • Pace (i) is Realization % up to Q3 (Quarter 3) of the total 100% realization Page:68 • Pace (ii) is Realization % up to Q3 (Quarter 3) of the total end of year DIPA budget allocation Level of Capital Expenditure Realization = Realization as a % of end of the year DIPA budget allocation in 2019 Pace (i) of Capital Expenditure Realization = Realization up to Q3 as a % of total end of the year Realization Performance in 2019. Pace (ii) of Capital Expenditure Realization = Realization up to Q3 as a % of end of the year DIPA budget allocation in 2019. 123. The responses from the samples 9 for every question of the survey are used as reference for the empirical analysis into the causes of ‘low’ level and ’slow’ pace of capital budget execution. The empirical analysis is in the form of a regression analysis that was performed on the results of the sample and presented in the following manner. Table 13 Summary results of the sample and the determinants of pace and level of realization 124. The results of the regression analysis based on the responses of the sample (i.e. the spending units) which constitute the explanatory variables, and the corresponding results of the determinants of pace and level of realization which constitute the dependent variables. 125. It is to be noted that while the tables show both the Pace (i) variable (realization up to Q3 of total realization) and the Pace (ii) variable (realization up to Q3 of total DIPA), the regression analysis was based on computations on the Pace (i) variable (realization up to Q3 of total realization) and is referred to simply as the “pace” variable or indicator 126. The results of the empirical analysis as well as the results of discussions with MoF staff and staff of ministries/agencies’ spending units during the missions to MoF’s Kanwils (Regional Treasury Offices) in Bandung, West Java, and Medan, North Sumatra serve as reference for the Major Conclusions and Policy Recommendations in Chapter 3. 9The term ‘sample’ is being used for the group of spending units that responded to the survey. These spending units were not pre-selected as a sample in this study, but they choose themselves to respond to the survey. Page:69 Appendix C Empirical Analysis into the Causes of Low and Slow Capital Expenditure Budget Execution C.1 Key Information on the Survey Population and the Sample for Analysis 127. The aggregate capital budget execution DIPA and for 2019 presented in Chapter 2 above constitutes the population of spending units and their Ministries/Agencies. The table below shows a summary of this population with their aggregate pace and level indicators as well as the averages of these indicators for the representativeness test of the sample. Table 14 Key Information on the Survey Population from the Spending Unit Reference Table Source: WB Staff Estimations 128. The table below shows the same key information for the sample. Table 15 Key Information on the Sample from the Online Survey Responses and Spending Unit Reference Tables Source: WB Staff Estimations 129. The key information in the tables above from the Spending Unit Reference Table where the dependent variables were derived (pace and level indicators) and the Online Survey Responses Table (where the explanatory variables from the responses by the sample and corresponding pace and level indicators were derived) form the basis for the empirical analysis in this chapter. 130. The frequency distribution tables based on the survey responses by spending units are shown as appropriate in this Appendix and in Appendix D, which provide additional granularity and insights. Page:70 C.2 Summary of All Empirical Results 10 131. In general, we find that more indicators (20 indicators) affect the pace relative to the level of realization (15 indicators), 11 but a 1 percent increase in the pace dependent variable will increase the level dependent variable by 0.06 percent. Running a regression on the effect of the pace variable on the level variable shows that there is a statistically significant relationship between the two. Therefore, explanatory indicators are relevant in indirectly affecting both ‘level’ and ‘pace’ of realization. This effect of the pace on the level is small however and indicates the importance of factors also affecting both indicators. Budgeting and procurement, for example, are the most critical ones for affecting the ‘pace’ of realization whilst budget implementation and financial management and audit (FMA) are relatively more important in affecting the ‘level’ of realization. The empirical results based on the regression analysis is presented in Appendix E. C.3 Budgeting (5-14) C.3.1 Overview 132. Of the 10 broad budget indicators, with 4 having sub indicators bringing the total to 25 (Table 16), a total average of 44 percent of Satkers indicated having some kind of budgeting obstacle (shown in Figure 5). Figure 6 below shows the average respondents who faced issues grouped by types of issues that they encountered in the budgeting topic. Most satkers who reported issues have to deal with differences between the budget document and the work plan (1361 satkers). On the other hand, only 261 satkers had to deal with issues related to complying with rules and guidelines, with most reporting difficulty in preparing the budget and their "ideal" needs included in the budget being finally approved. Table 16 Budgeting Indicators and Sub-Indicators No Issue Having Issue % of Satkers Total Survey Questions (Explanatory Indicators) (No. of (No. of Having Indicators/ Satkers) Satkers) Issues sub Indicators Q5: Difficulty in preparing the budget 656 1142 64 6 Q6: Share of Ideal Needs Originally Planned that Are N/A: Purely Quantitative response 1 Approved Q7: Discrepancy between Renja K/L (Bappenas) and 437 1361 76 1 RKA K/L (MoF) Q8: Documentation for budget implementation 1197 601 33 5 Q9: Rules and guidelines on timeliness of staff 1537 261 14.5 4.0 appointments and replacements Q10: Issuance of rules and guidelines for 1165 633 35 4 implementing the budget Q11: Month received information on detailed APBN N/A: Purely Quantitative response 1 Q12: Month received DIPA in soft copy N/A: Purely Quantitative response 1 Q13: Month received printout of DIPA N/A: Purely Quantitative response 1 Q14: Elaborate other problems N/A: Purely Descriptive response 1 Average 999 799 44 10 Unless otherwise indicated, each regression controls for the Island where the spending unit is based and the category of DIPA they handle in the 2019 FY. 11Here, indicator refers to the main question as a whole, such as question 5. However, some questions also have sub indicators. When we account for those, there are 49 indicators and sub indicators that affect the pace, and 31 indicators and sub indicators that affect the level, Page:71 No Issue Having Issue % of Satkers Total Survey Questions (Explanatory Indicators) (No. of (No. of Having Indicators/ Satkers) Satkers) Issues sub Indicators Total Indicators for Budget Planning 25 Source: WB Staff Calculations 133. From the empirical results however, we find two challenges that generally affect both ‘pace’ and ‘level’ of capital budget expenditure. First, challenges of documentation of budget implementation - with Satkers reporting this problem had a 4.3 percent lower realization and 25 percent slower realization compared to those which had no problems. Second, rules and guidelines on timeliness of staff appointments and replacements lead to 11 percent lower and 19 percent slower realization in comparison to those who did not face these challenges. Figure 5 Overall Budget Issues Reported by 44 % of Figure 6 Average % of Satkers reporting Budgeting Issues Satkers by Selected Indicators Note: 0501 to 0506= Difficulty in preparing the budget; 0701 = Difficulty in dealing with discrepancy between work plan and budget document; 0801 to 0804 = Documentation for budget implementation; 0901 to 0905= Rules and guidelines; 1001 to 1004 = Issuance of rules and guidelines for implementing the budget Source: WB Staff Calculations C.3.2 Difficulty in preparing the budget (Q5) 134. Spending units which indicated facing any of the challenges listed in Table 17, have on average, slower realization compared to those that did not report any issues. The difference between those facing such difficulties and those that do not is a 9 percent lower realization in the first three quarters if there is misalignment between activity and needs (0501) 12. Jointly, if a Satker reported yes to all of the challenges, then the realization could decrease by up to 37 percentage points in the first three quarters. It may be noted that an average of 34 percent spending units reported having all of the listed challenges simultaneously. 12 This is estimated for each individual sub indicator. Page:72 135. We found that the general effect of all these indicators on total realization varied by DIPA bracket. The result is presented in Table 19 which shows that Satkers with DIPA amounts between IDR 10 billion and IDR 50 billion and those with more than IDR 100 billion are affected by misalignment between needs and plans, resulting in less realization compared with Satkers in the same DIPA category that do not face these challenges. Q5: In FY 2018 and / or FY 2019, to what extent are the following problems the cause of your Spending unit's difficulty in preparing the budget? Table 17 Problems causing difficulties in preparing the budget (Q5) Source: WB Staff Calculations Table 18 Effect of Budget Preparation on the Pace Realization Aggregate % Impact Sub-Indicators effect on on Pace Pace (0501) Activity Planned is not aligned with needs -9% (0502) Unit price of goods/services is too low/too high -5% (0503) Activity budget has been put on hold due to lack of data -6% (0504) Budget document needs to be revised due to wrong budget codes -3% -37% (0505) Short assessment period means supporting data is not ready in time -9% (0506) Budget ceiling is too low and is inconsistent with market prices. -5% Note: Each line represents the change in realization for the spending units in that category compared to those who responded with “causes no difficulty”. Source: WB Staff Calculations Table 19 Effect of Budget Preparation on the Level Realization Aggregate effect on Level by DIPA Sub-Indicators 10 < 50 >= 100 Billion Billion (0501) Activity Planned is not aligned with needs -3.6% -8.0% (0503) Activity budget has been put on hold due to lack of data -2.7% * (0505) Short assessment period means supporting data is not ready in time -3.8% * No. of Spending units in each DIPA group: 339 132 Page:73 Note: Each line represents the change in realization for the spending units in that category compared to those who responded with “causes no difficulty”. (*) means that the aggregate effect proven not statistically significant compared to those who do not report issues in budget preparation. Source: WB Staff Calculations C.3.3 Share of Ideal Needs Originally Planned that Are Approved (Q6) Q6: On average, what percentage of the "ideal" needs originally planned and submitted by your spending unit in the process of drafting the FY 2018 and / or FY 2019 budget can finally be approved and realized at DIPA? 136. About than 77 percent of spending units consisting of almost 80% of the total DIPA of the sample said that 75 percent or more of their ideal needs were approved and realized at DIPA. It reflects good planning and availability of fiscal resources. The rest of the spending units need improvement, primarily those who reported 10 percent (or an appropriate low threshold) or less. Although we observe varying levels of Figure 7 Share of Ideal Needs Originally Planned that realization for different groups of Are Approved (DIPA Value, %) spending units in Table 20, we do not find any empirical evidence that those with differences in reported share of Ideal needs that are approved also have differences in realization. Even when estimated separately within each DIPA category, we do not find any empirical evidence that those with differences in reported share of Ideal needs that are approved also have differences in realization Source: WB Staff Calculations Table 20 Percentage of the "ideal" needs originally planned and submitted by spending units in the process of drafting the FY 2018 and / or FY 2019 budget that can finally be approved and realized at DIPA (Q6) Source: WB Staff Calculations Page:74 C.3.4 Discrepancy between Renja K/L (Bappenas) and RKA K/L (MoF) (Q7) Q7: If there is a discrepancy between the Work Plan document (Renja K / L) coordinated by Bappenas with the Budget Document (RKA - K / L) issued by the Ministry of Finance, the extent to which this creates difficulties in the implementation of the budget, especially for projects / activities funded by capital expenditure? 137. About 76 percent of spending units from all spending units observed said the discrepancy between Renja (Rencana Kerja or workplan of BAPPENAS) and RKA-KL (Rencana Kerja Anggaran Kementerian/Lembaga or Minsitry/Institution budget workplan of MOF) created difficulties in the implementation, indicating relatively slower paces and lower levels of realization compared to those not experiencing difficulties. It confirms the need to have harmonized data as mandated by PP 17/2017. 138. We find that for spending units reporting this as a major problem, realization is as low as 12.5 percent compared with those for whom this was not a problem. Overall, causing any problem, regardless of the degree, slows realization pace by 9.7 percent. However, contrary to what Table 21 indicates, we find no empirical evidence of the impact on the overall ‘level’ of realization. 139. A further zero-in on the effect by breakdown of DIPA categories in Table 21 reveals that the Satkers handling higher amounts of DIPA are relatively more affected in their level of realization, whilst Satkers handling lower DIPA amounts are more affected in their pace of realization. The level of realization is affected by these discrepancies for those satkers handling DIPA amounts between IDR 10 billion and IDR 50 billion and more than IDR 100 billion. These groups will have 2 percent and 4 percent lower realization levels than those that do not face these challenges (Figure 8). The pace of realization affects all DIPA categories, with the effect being more pronounced for those Satkers handing less than IDR 50 billion (causing a 10 percent drop in realization) compared to those handling more than IDR 50 billion (causing 3-5 percent drop in the pace of realization indicator). Table 21 Difficulties in the implementation of the budget due to discrepancies between the Work Plan document (Renja K / L) coordinated by Bappenas with the Budget Document (RKA - K / L) issued by the Ministry of Finance (Q7) Source: WB Staff Calculations Page:75 Figure 8 Effect on the level of Realization Figure 9 Effect on the Pace of Realization by by DIPA DIPA No Problem Cause Problem 66% No Problem Cause Problem 95%96% 56% 94% 50% 52% 92% 47% 40% 42% 39% 87% 85% 85% 81% < 10 Billion 10 < 50 50 < 100 >= 100 < 10 Billion 10 < 50 50 < 100 >= 100 Billion Billion Billion Billion Billion Billion DIPA Handled by Satker DIPA Handled by Satker Note: Each number on each bar chart represents predicted averages from the regression model for the ‘pace’ and ‘level’ for Satkers within that DIPA. This is obtained from margins, holding all other covariates at their means. Source: WB Staff Calculations C.3.5 Documentation for budget implementation (Q8) 13 Q8: In the FY 2018/2019, to what extent do the following issues related to documentation of budget implementation (DIPA and POK) cause difficulties for your spending unit? 140. Around 31 percent of respondents experienced difficulties related to documentation of budget implementation (DIPA and POK), with two issues indicating slower paces and lower levels of realization compared to those not experiencing difficulties. Issues related to approval of DIPA revisions and operation guidance documents don’t indicate corresponding slower realization. 141. However, we did find empirical evidence that all units which reported having difficulties related to documentation of budget implementation also had slower and lower realization rates for 2019 (Table 22). Three factors are key in contributing to low realization, (1) misalignment between DIPA and needs (1.6 percent), (2) delays in Echelon 1 approvals for revisions (1.2 percent) and (3) delays in securing Ministry of Finance approvals (1.4 percent). These factors also reduce the pace of realization by 3.7 percent, 4.7 percent and 5.8 percent, respectively (Figure 10). 605 spending units reported that all sub indicators in this question affect their realization. The aggregate negative impact for a Satker that faces all these issues jointly is 25 percent slower pace and 4.3 percent lower level of realization respectively, relative to those that faced no issues in any of these sub indicators. 130801=There are delays in securing Echelon 1 approvals of the activity operational guidance documents (POK); 0802=The DIPA is not aligned with needs and requires revision; 0803=There are delays in securing Echelon 1 approvals of DIPA revisions; 0804=There are delays in securing Ministry of Finance approvals of DIPA revisions; 0805=The decree letter (SK) regarding the appointment of the KPA was issued late by line ministry. Page:76 Table 22 Issues related to documentation of budget implementation (DIPA and POK) (Q8) Source: WB Staff Calculations Figure 10 Effect of Documentation for budget implementation on the Pace and Level of Realization Effect on Pace Effect on Levels 0 -1.2% -1.4% -1.7% -05% -3.7% -4.7% -4.9% -5.8% -5.8% -10% POK Differ from DIPA Delays in Ench1 approvals of POK DIPA not aligned with needs Delays in DIPA revision approvals Delays in MoF approvals Note: Each numbered box represents the decrease in realization due to the obstacle mentioned. Lines are the 95 % confidence internals from the regression results. Source: WB Staff Calculations Page:77 C.3.6 Rules and guidelines on timeliness of staff appointments and replacements (Q9) Q9: In FY 2018/2019, what factors related to the following rules and guidelines for implementing the budget caused obstacles for your spending unit? 142. Around 15 percent of spending units stated that there were obstacles related to the timeliness of rules and guidelines on staff appointments and replacements for implementing the budget. The table below shows that none of these obstacles indicate corresponding slower realization except for the timeliness of letters of appointments of the KPA (authorized budget user) which indicate lower realization levels only. 143. However, we did find empirical evidence that all units which reported having any kind of difficulties related to the timeliness of rules and guidelines on staff appointments and replacements also had lower and slower realization rates, than those that reported as having no difficulties. At least 77 percent of Satkers reported that all sub indicators caused difficulties for them. These Satkers had 11.1 percent lower realization and 19 percent slower realization compared to the respondents that do not face these obstacles, representing the aggregate, joint effect of all sub-indicators on level and pace respectively. The late issuance of decree regarding appointment of the PPK, PP SPM and Expenditure Treasurer was found to be a key driver of these negative effects that contribute to reducing realization by 5.2 percent compared to Satkers who did not face this problem (Figure 11). Table 23 Obstacles related to rules and guidelines on timeliness of staff appointments and replacements for implementing the budget (Q9) Source: WB Staff Estimations Page:78 Figure 11 Effect of Rules and guidelines on timeliness of staff appointments and replacements on the level and the Pace of Realization Effect on Level Effect on Pace Q. 0901 -2.5% -3.7% Q. 0902 -2.8% -4.3% Q. 0903 -2.8% -5.2% Q. 0905 -2.0% -3.5% -10% -5% 0 -10% -.5% 0 (0901) SK issued late by line ministry (0902) SK received late by Satker (0903) Letter on appointments issued late (0905) SK for replacements issued late Notes: Each numbered box represents the decrease in realization due to the obstacle mentioned. Lines are the 95 % confidence internals from the regression results. Q0901 to 0905 refers to the classification of the issues:0901=The decree letter (SK) regarding the appointment of the KPA was issued late by line ministry; 0902=The decree letter (SK) regarding the appointment of the KPA was received late by Satke; 0903=The decree letter regarding the appointment of the PPK, PP SPM and Expenditure Treasurer was issued late; 0904 =The decree letter (SK) regarding the staff appointment contained errors that will need a correction; 0905=The decree letter (SK) for replacing the KPA/PPK/PP SPM/Expenditure Treasurer was issued late. We do not put the result for 0904 as we found no statistically significant difference for both level and pace compared to those who reported no obstacles. Source: WB Staff Calculations C.3.7 Issuance of rules and guidelines for implementing the budget (Q10) Q10: In FY 2018/2019, how is the impact on your spending unit (if any) related to the issuance of the following rules and guidelines for implementing the budget? 144. About 52 percent of spending units said timeliness of issuance of the rules and guidelines above causes obstacles (Table 24). Furthermore, the table shows the impact does not indicate corresponding slower and/or lower realization. 145. However, based on empirical evidence, for Satkers which reported as facing obstacles in the issuance of rules and guidelines for implementing the budget, their pace of realization was adversely affected. Their realization was reduced by up to 5.1 percent if joint Letters of 2 ministers regarding indicative budget ceilings were issued late. For those Satkers that faced all challenges jointly as listed in Table, their realization was 16.5 percent lower than the Satkers did not face these challenges. A total of 720 Satkers reported that all the sub indicators in this question were an obstacle to them. Page:79 146. In general, the level of realization was not significantly different from those which didn’t face these obstacles, but Satkers handling DIPA between IDR 50-100 billion were surely affected by these issues (Table 26). The late issuance of PMKs reduce realization levels by 3 percent, whilst for those handling DIPA between IDR 50-100 billion, reduction in realization is 8 percent. Table 24 Impact related to the issuance of rules and guidelines for implementing the budget (Q10) Source: WB Staff Calculations Table 25 Effect of Issuance of rules and guidelines on the pace of realization (Q10) Satkers with Aggregate % Impact Sub-Indicators this Problem effect on on Pace (#, %) Pace 1001= Joint Letters of 2 ministers regarding indicative 882 (49%) -5.1% ceilings are late in being issued 1002 = PMK regarding Juksunlah RKA-KL is issued late 924 (51%) -3.9% -16.5% 1003 = PMK regarding SBK, SBU are issued late 962 (54%) -4% 1004 = PMK regarding DIPA revision procedure is issued late 964 (54%) -3.5% Note: Each number in % Impact on pace column represents the change in realization for the spending units in that category compared to those who responded with “causes no obstacles”. Aggregate impact refers to the 720 respondents in the regression sample that reported facing all these are obstacles. Source: WB Staff Calculations Table 26 Effect of Issuance of rules and guidelines on the level of realization (Q10) Effect by Level by DIPA Sub-Indicators < 10 10 < 50 50 < 100 Billion Billion Billion 1001= Joint Letters of 2 ministers regarding indicative ceilings are late in being issued -1% 1002 = PMK regarding Juksunlah RKA-KL is issued late -3% 1003 = PMK regarding SBK, SBU are issued late -3% 1004 = PMK regarding DIPA revision procedure is issued late -3% 8% No. of Respondents in each DIPA group: 1,263 339 64 Note: Each sub-indicator represents the change in realization for the spending units in that DIPA category compared to those who responded with “causes no obstacles” in the same DIPA category. Source: WB Staff Calculations Page:80 C.3.8 Time when the budget allocation (DIPA) is received by the spending units (Q11- Q13) 147. The survey results show that spending units received information on detailed APBN (Presidential Regulation) in different months (Q11) whilst DIPA in soft copy (Q12) and printout of DIPA (Q13) were largely received in December 2018. Regressions results did not depict any positive or negative relationship between the months that the DIPA was received and realization. Perhaps the Presidential Regulation is not used as the basis of their DIPA preparation. It confirms a need to strengthen the concepts of Baseline and New Initiatives. It also indicates that some spending units may not have understood the question properly. This may refer to the understanding of the question where months in the question was for FY2018 and others may have responded as FY 2019. The frequency tables for Q11 to Q13 are shown in Appendix D D.1.2. C.3.9 Other problems encountered in the planning, budgeting and preparation of DIPA (Q14) 148. The spending units elaborated other problems encountered in the planning, budgeting and preparation of DIPA and can be used as reference for following up with specific spending units the problems that they elaborated during evaluation of improvement programs related to capital budget execution and their pace and level indicators. Q14: If any, please elaborate other problems that your spending unit encountered in the planning, budgeting and preparation of DIPA 149. About 60% of respondents have no issue, though some issues that have been reported are: • Difficulty in estimating capital expenditure requirements; • Improvements in the cash plan (page III DIPA) such as: o Display of codes per activity and economic classification to facilitate preparation; o Better planning to prevent revisions; o Visibility of realization data; o The need to manage quarterly revisions in relation to realization. • Insufficient time to prepare plans (3 days given); • Technical assistance for procurement; • Various other issues that require further analysis. Can focus on respondents with high DIPA and/or low realization %. Page:81 Table 27 Problems encountered by spending units in the planning, budgeting and preparation of DIPA (Partial List) (Q14) Source: WB Staff Calculations C.4 Procurement (15-23) C.4.1 Overview 150. The data analysis shows that Procurement is a pillar that is relatively more relevant for the pace of realization than the overall level of realization in 2019. We find that delays in tender implementation and activity evaluation have a negative impact on the pace of realization by 8.4 percent and 22.3 percent respectively. On the other hand, early announcement of tenders (Q4 of 2018 vs Q34 of 2019), early procurement and multiyear contracts increase the pace of realization by 18 percent, 9 percent and 5 percent respectively. However, we find that failed tender/postponements in the next FY decrease the level of realization by 5 percent. C.4.2 Delays in Tender Implementation (Q15) 151. About 42 percent of spending units experienced obstacles in the timeliness of tender implementations due to the factors enumerated in above table. Issues on the readiness of the project itself, i.e. technical design and DIPA not available on time indicate slower pace and lower level of realization. Availability of qualified contractors able to do the work indicate lower realization only which could be due to others factors as well, while constraints for licensing and delays in obtaining land do not indicate corresponding slower and/or lower realization. 152. Out of the 42 percent of spending units which experienced obstacles, 13 percent (228 Satkers) reported these as major obstacles and 29 percent (529 Satkers) as small obstacles. Of the obstacles in the timeliness of tender implementation, empirical evidence shows that two of these factors have a negative impact on the pace of realization: (1) DIPA not available on time and (2) unavailability of technical design in time. These together reduce the level of realization by 8.4 percent in comparison to Satkers that which didn’t face these obstacles (Table 29). Page:82 153. None of these factors however show any statistically significant difference in their effect on the level of realization between satkers, even when estimated individually by DIPA category. Q15: In FY 2018, how much of the capital expenditure work (especially construction) is that the tender implementation is late due to the following reasons? Table 28 Factors affecting timeliness of tender implementation (Q15) Source: WB Staff Calculations Table 29 Two out of five Indicators affect the pace of Figure 12 Three out of five Indicators for Delays in Tender Realization with an aggregate negative impact of 8.4% Implementation increase Realization in Q4 % Aggregate Sub-Indicators (1505) Not many qualified Impact effect contractors to do the work 2.7% (1501) DIPA is not (1502) Technical design is -2.8 not available on time 5.8% available on time (all) (1502) Technical design -8.4% (1501) DIPA is not available 3.3% -5.6 on time (all) is not available on time Note: Each line represents the change in realization for the Note: Each line represents the change in realization for the spending units in that category compared to those who spending units in that category compared to those who responded with “causes no obstacles”. responded with “causes no obstacles”. Source: WB Staff Calculations Source: WB Staff Calculations Page:83 C.4.3 Period of Issuance for General Procurement Plan (RUP) for FY 2019 procurement (Q16) 154. Ideally, the RUP (Rencana Umum Pengadaan or General Procurement Plan) should be issued before the start of the fiscal year (FY), ideally in Q3 of the previous FY, but most Satkers issued their RUPs in Q1 of 2019 (Table 30), although a larger proportion of those handling larger DIPA amounts (more than 50 billion) issue relatively earlier (Q4 2018) than those handling less (Table 31). 155. We find empirical evidence that earlier issuance of the General Procurement Plan (RUP) in LKPP SiRUP leads to improved realization as measured by the pace indicator for the 1,263 Satkers handling less than IDR 10 billion of DIPA (Figure 13). The average realization up to Q3 of 2019 is highest (63 percent) for the Satkers who issue SiRUP in Q3 of 2018 (earliest option) and lowest (55 percent) for Satkers who issue in Q2 of 2019 (the latest in option). We do not find a generic relationship between issuance of SiRUP and the pace of realization for Satkers handling other DIPA amounts. Q16: For procurement in FY 2019, when does your spending unit issue the General Procurement Plan (RUP) in LKPP SiRUP? Table 30 Period when General Procurement Plan (RUP) was issued for FY 2019 procurement (Q16) Source: WB Staff Calculations Page:84 156. The table below shows the breakdown of spending units and periods of issuance of RUPs by DIPA categories. Table 31 Breakdowns by DIPA brackets on period when General Procurement Plan (RUP) was issued for FY 2019 procurement (Q16) Source: WB Staff Calculations Figure 13 Effect of Timing of Procurement Plan Issuance on the pace of Realization for Satkers handling <10 Billion DIPA 2018 Q3 63% 2018 Q4 59% 2019 Q1 59% 2019 Q2 55% 50% 55% 60% .65 70% Note: Each number represents predicted averages for the ‘pace’ for Satkers reporting that time period. This is obtained from margins, holding all other covariates at their means. Source: WB Staff Calculations Page:85 C.4.4 Period when most of procurement package tenders were announced for FY 2019 procurement (Q17) 157. About 63% of Satkers announced their procurement package tenders in either Q4 of 2018 or Q1/2019 (Table 32). The tenders should be announced before the start of the fiscal year (FY), ideally in Q4 of the previous FY so that the work can start as early as possible in the FY. 158. The results of empirical analysis (Figure 14) predict higher pace of realization (58-59 percent as of 2019 Q3) on average, compared to those who announced in Q2/2019 or Q3/2019. The difference in realization for these two periods is muted, thus both are considered early. Notably however, there are 15 percentage points difference between Satkers issuing procurement tenders in Q3 compared to those who announce their tenders in Q4.14 Q17: For procurement in FY 2019, when does your spending unit begin most of the announcements of the tender for the procurement package? Table 32 Period when most of procurement package tenders were announced for FY 2019 procurement (Q17) Source: WB Staff Calculations Figure 14 Higher ‘Pace’ for Satkers who announce tenders earlier 58% 59% 51% 36% 2018 Q4 2019 Q1 2019 Q2 2019 Q3 Note: Each bar represents the predicted averages from the regression model for the pace based on the reported month of announced tenders, holding all other covariates at their means. Source: WB Staff Calculations 14 These averages are obtained from margins, holding all other covariates at their means Page:86 C.4.5 Delays in Evaluation of Tenders (Q19) 159. Of the 42 percent Satkers which experienced delays in tender evaluation (Table 33 and Figure 15), the most reported obstacle was the lack of qualified staff to evaluate the work package offer (49 percent). A total of 759 Satkers faced all four issues contributing to an aggregate negative effect of 22.3 percent on the pace of realization (Table 34). Satkers that experienced delays in the evaluation of work packages show slower pace of realization, by 6.6 percent. Q19: In FY 2018, what are the main factors that delay the evaluation of the work package offer in your spending unit? Table 33 Factors that delay the evaluation of the work package in FY 2018 (Q19) Source: WB Staff Calculations Figure 15 Responses to Procurement Issues Table 34 Impact of activity evaluation Issues on the pace of related to Delay in Evaluation of Tenders realization (Q19) reported by Satkers (Q19) Sub-Indicators % Impact Agg. effect (1902) Physical verification of bidder qualification -4.3 documents often takes a long time (1903) The bid evaluation process often takes a long -5.2 -22.3% time (1904) The lack of sufficient staff who are qualified to -6.6 Note: Frequencies are 759 having issues and evaluate the work package offer 1039 not having issues Source: WB Staff Calculations Note: Each line represents the change in realization for the spending units in that category compared to those who responded with “causes no obstacles”. Source: WB Staff Calculations Page:87 C.4.6 How Total work packages are carried out (Q20-Q23) 160. Majority of Satkers carry out less than 10 percent of total packages 10 percent of their package values through open auction (Q20), early procurement (Q21) or multi-year contracts (Q22) (frequency tables in Appendix D D.2.2). This notwithstanding, more than 90 percent reported less than 10 percent of failed auction, suggesting most are successful and do not get postponed to the next FY. 161. The continuous nature of the responses and the large number of respondents recording 0 percent allows us to investigate the impact of having the practice (moving from 0 percent to anything higher) and the impact of increasing the practice (how much a % increase in the packages auctioned/procured in a certain way would increase realization). The results from both are presented in Figure 16 and Figure 17, respectively. 162. First, a Satker that starts carrying out total package (or budget value) of work through an early procurement, increases realization pace by 5 percent whilst one that starts using multi-year contracts increases realization by 8 percent. On the other hand, although very few contracts failed, a movement from 0 percent failed/postponed contract to any positive number failing will decrease the level of realization by 5 percent. 163. For Satkers already using this practice, a 10 percent increase in using multiyear contracts increases the pace and the level of realization by 1 percent, whilst a 10 percent increase in failed action reduces realization by 0.1 percent (Figure 17). Table 35 Distribution of Satkers with Percentage of Each Tender Packages based on Various Approaches 0% of Total Package More than 0% of Total Package Survey Questions Frequency % Frequency % Q20 (Open Auction) 545 30% 1,253 70% Q21 (Early Procurement) 1,271 71% 527 29% Q22 (Multi-year Contracts) 1,508 84% 290 16% Q23 (Failed auction/postponed) 1,635 91% 163 9% Note: Q20= On average, what is the percentage of the total package (or budget value) of work in the SiRUP of your Satker for TA 2018 which is carried out in an open auction; Q21= On average, what percentage of the total package (or budget value) of work in FY 2018 is carried out through an early procurement (procurement before TA begins); Q22= On average, what percentage of the total package (or budget value) of work in FY 2018 is carried out as multi-year contracts; Q23 = On average, what percentage of the total package (or budget value) of work in FY 2018 fails the auction and / or must be postponed to the next fiscal year ? Source: WB Staff Calculations Page:88 Figure 16 Effect of having a Procurement Practice Figure 17 Effect of Increasing a Procurement practice by 10% (Q20-23) of total package (Q20-23) Q21: early procurement 9% Q22: multi-year contracts Q23: failed auction /postponed Q22: multi-year contracts 5% 1.0% Q23: failed auction /postponed -5% -0.1% Low Realization Slow Realization Low Realization Slow Realization Note: Frequencies are 759 having issues and 1039 not Note: Each line represents the change in realization for the having issues spending units in that category compared to those who Source: WB Staff Calculations responded with “causes no obstacles”. Source: WB Staff Calculations C.5 Budget Implementation (24 – 32) C.5.1 Overview 164. Budget implementation is key for the level and the pace of realization. The length of time taken to prepare SPM documents, mainly caused by a lack of resource staff and having incomplete proof of third party invoices, had an overall impact on both indicators (negative 3 percent on the level and up to negative 9 percent on the pace; see Figure 18 and Figure 19). The lack of supplies by contractors and late approvals also negatively affect the pace (-1.5 percent and -1.1 percent respectively) and the level (-6.3 percent and -7.0 percent respectively). This signals that these are key issues in budget implementation and more attention may need to be paid to them. On average, about 22 percent of the sample reported having issues in the budget implementation indicators (Table 36). Table 36 Average Satkers Reported for Having Issues in Each Budget Implementation Indicator Survey Question No Issue Issues % with Issues Q24 (Cancelled Contract) 1718 80 4 Q25 (Delay in land acquisition) 1720 78 4 Q26 (Contracts with changes/addendum in contract value 1193 605 34 Q27 (Signed contracts not fully resolved by end of Dec 2018) 1565 233 13 Q29 (Frequency of third-party invoices to be corrected) 1436 362 20 Q31 (Exceeding 17-day deadline for submitting SPMs to KPPNs) 951 847 47 Q32 (Factors delaying implementation of contracts) 1213 585 33 Average 1399 399 22 Source: WB Staff Calculations Page:89 C.5.2 Issues with contracts (Q24-27) 165. The spending units’ responses to Q24-27 and their corresponding pace and level indicators are shown in Appendix D D.3.1. The empirical analysis shows that Satkers which have a higher percentage of contracts canceled after being signed in FY 2018 due to the delay in land acquisition and contracts that cannot be resolved within the stipulated fiscal year also have lower levels of realization (Figure 18). The pace of realization is affected by cancelled contracts in Satkers handling IDR 50-100 billion DIPA . In Satkers handling more than IDR 100 billion DIPA pace is affected by unresolved contracts. (Figure 19). Figure 18 Effect of 10% increase in Delayed/Cancelled Figure 19 Effect of 10% increase in Delayed/Cancelled Contracts on Level of Realization (Q24, Q25, Q27) Contracts on Pace of Realization by DIPA amount (Q24, Q27) Note: Each bar represented the predicted decrease in the Note: Each bar represented the predicted decrease in the level of realization for a 10 percent increase in contracts pace of realization for a 10 percent increase in contracts facing each of the presented issues. facing each of the presented issues. Source: WB Staff Calculations Source: WB Staff Calculations C.5.3 Duration in Preparation of SPM documents (Q28) 166. Majority of respondents prepared their SPM documents within 5 days of receipt of invoices from suppliers/vendors (Table 37 and Figure 20). It indicates that there is no issue on the capacity of spending units to prepare SPMs. However, the increasing range of durations do not indicate corresponding slower and/or lower realization. It could also be noted that low level of realization is pronounced in respondents which take more than 15 days to prepare their SPM (73.5 percent). 167. While Table 37 indicates that the increasing range of durations do not indicate corresponding slower and/or lower realization, the results of the empirical analysis show that the higher the number of days of preparation of SPM documents for submission to the KPPN since receipt of supplier/vendor, the slower is the realization. If the time taken is more than 5 days, it reduces realization by 5.7 percent (Table 38). Page:90 Q28: On average, how long does your spending unit prepare an SPM document (including the length of the billing testing process) since the receipt of the receipt is complete to be submitted to the KPPN as the basis for issuing SP2D? Table 37 Duration of preparation of SPM documents for submission to the KPPN since receipt of supplier/vendor invoices (Q28) Source: WB Staff Calculations Figure 20 Reported Number of days to prepare SPM Table 38 Effect of increased duration of beyond 5 days on documents the Pace and Level of Realization Effect on Effect on Effect on Level: Pace: Level: Satkers Satkers Satkers with with DIPA < with DIPA DIPA > 10 Billion > 100 100 Billion Billion Q28: Duration of preparation -6.4% -5.7% -7.5% of SPM documents Note: Each line represents the change in realization for the The frequencies are as follows: 0-5 days = 1535; 6 to 10 spending units in that category compared to those who prepare days = 166; 11-15 days =80 and more than 15 days = 7 the SPM documents within 0-5 days. Source: WB Staff Calculations Source: WB Staff Calculation Page:91 168. The table below shows the breakdown of duration ranges by DIPA bracket which shows a low realization level of 1 spending unit (73.24%) in the >= 100 Billion DIPA bracket range. Table 39 Breakdown of duration of preparation of SPM documents for submission to the KPPN by DIPA Bracket (Q28) Source: WB Staff Calculation 169. The table below shows that the spending unit had a DIPA revision amounting to 134.21 percent of the previous DIPA amount in Q4/2019, however, only 73.24 percent of the revised DIPA was spent. Source: WB Staff Calculation Page:92 C.5.4 Frequency of corrections of third-party invoices (Q29) 170. About 20 percent of respondents said revisions to invoices often happen (Table 40 and Figure 21). It indicates corresponding slower and/or lower realization. This may require training or a help desk for the government’s vendors/contractors/suppliers to decrease the likelihood of invoice revisions. 171. The empirical analysis shows that overall, higher proportion of third-party invoices to be corrected prior to issuance of SPMs is associated with slower pace of realization. The overall effect is a negative 5.7 percent lower realization than those that reported this as a rare practice (Table 41). We see that this overall effect is mainly driven by the Satkers handling DIPA of IDR 10 billion or less, for whom this practice will decrease their realization by 4.5 percent compared to other Satkers handling the same amount of DIPA who rarely make these corrections. Thus, this is a challenge that is both universal, but relatively more so for this group of Satkers. We could not find any difference that was statistically different from zero, between those that make corrections often and rarely in terms of the level of realization. Q29: How often does the third party (contractor) make corrections invoices before they can be considered complete for SPMs to be issued? Table 40 Frequency of third-party invoices to be corrected prior to issuance of SPMs (Q29) Source: WB Staff Calculation Page:93 Figure 21 Frequency of making invoice repairments Table 41 Effect of increased frequency of correcting (#, %) 15 invoices is negative on the pace indicator Effect on Pace Overall Satkers with DIPA < 10 Billion Q29: Third party make repairs to the invoice -3.9% -4.5% Note: Each line represents the estimated and statistically significant change in realization for the spending units who reported “often” or “very often” Source: WB Staff Calculations compared to those who reported “rarely”. Source: WB Staff Calculation C.5.5 Causes of length of time to prepare SPM documents (Q30) 172. Incomplete proof of third-party invoices is cited by 72.6 percent of respondents as the cause of the length of time to prepare SPM documents. It shows corresponding slower and/or lower realization, and this may require training or a help desk for the government’s vendors/contractors/ suppliers to decrease the likelihood of submitting invoices with incomplete documentation. The other causes do not show corresponding slower and/or lower realization, however the lack of staff cited by 22.7 percent of respondents as well as the time needed for independent party validation of invoices cited by 4.7 percent of respondents need to be addressed (Table 42 and Figure 22). 173. The causes of length of time to prepare SPM documents and impact on pace and length are presented in Figure 22 and Figure 23 below. Q30: What are the main causes for the length of time required by your spending unit to prepare the SPM document in full since the receipt of a bill from a third party? Table 42 Causes of length of time to prepare SPM documents (Q30) Source: WB Staff Calculation 15Q29: How often does the third party (contractor) make corrections invoices before they can be considered complete for SPMs to be issued? Page:94 Figure 22 Distribution of Satkers based on causes for Figure 23 Causes of length of time to prepare SPM time length required to prepare the SPM documents documents and impact on pace and length (Q30) in full (Number of Satker, % Contribution) (Q30) 84, 5% 97 94 94 408, 23% 63 55 54 1306, 72% Lack of resource Proof of third party Validation of an staff in the Satker invoices is often independent party Lack of resource staff in the Satker to speed up processing to speed up incomplete outside the Satker the bill Proof of third party bills is often incomplete processing invoices is required to do the invoice test Validation of an independent party outside the Satker is Low Slow required to do the billing test Note: Each bar represents averages obtained from margins, holding Source: WB Staff Calculations all other covariates at their means Source: WB Staff Calculations C.5.6 Frequency of exceeding the 17-day deadline for submitting SPMs to KPPNs (Q31) Q31: Spending units have a time limit of seventeen (17) days to submit SPM to KPPN after the arising of the claim right (PMK 190/2012 jo PMK 178/2018). How often does your spending unit exceed this deadline? The ratio of respondents that had exceeded Figure 24 Distribution of Satkers based on frequency of the deadline and those that never exceeded exceeding deadline for submitting SPM to KPPN (Number of Satker, Percent Contribution) (Q31) the deadline is 47 percent to 53 percent respectively (Table 52). Nearly half of all spending units exceed the time limit of seventeen (17) days to submit SPM to KPPN after a right claim has been raised. Based on the empirical analysis, exceeding the deadline negatively affects the pace of realization, in comparison with those that never exceed the time limit, the latter having 6.9 percent higher realization (up to Q3 as a % of total realization) (Figure 24). This effect applies to all Satkers and predicts the impact of realization should they exceed this time limit, all things being equal. Exceeding this Source: WB Staff Calculations limit, however, did not show any differences among the two when it pertains to the level realization. Page:95 Table 43 Frequency of exceeding 17-day deadline for submitting SPMs to KPPNs (Q31) Source: WB Staff Calculations C.5.7 Factors that delay the implementation of contracts (Q32) 174. About 33 percent of respondents experienced delays in the implementation of contracts due to the factors above. All these factors indicate slower pace and lower level of realization. Some external factors such as the rainy season, demand for work in the area, and natural disasters are unavoidable, though measures can be taken to mitigate the impact of these factors. The factors that could be improved are, in increasing order of the pace indicator from the table above, are: 1) The design / technical specifications are lacking or inaccurate, resulting in several order variations which cause an increased for costs and delays 2) Payment to contractors was delayed due to delays in the billing verification process 3) Approval required for the endorsement of the contract is late (before signing the contract) 4) Payment to the contractor was postponed even though the bill verification process was completed because it was waiting for the DIPA revision Page:96 175. The table below shows that from the descriptive statistics, the factors above are associated with Satkers with slower pace and/or lower level of realization than external factors except for “Contractors often lack supplies of goods / material to complete work, because the demand for work in the area where the project is high” where the lower only realization could be due to other factors. The frequency distributions for each of the factors that cause delays in the implementation of contracts are shown in Table 44. Q32: According to you, how often do the following factors cause delays in the implementation of contracts in FY 2018? Table 44 Factors that delay the implementation of contracts in FY 2018 (Q32) Source: WB Staff Calculations 176. From the regression analysis, two factors negatively affect both pace and the level of realization compared to Satkers that do not face these challenges. These are: (1) lack of supplies for contractors (-6.3 percent on pace and -1.5 percent on level), and (2) late approvals (-7.0 percent on pace and -1.1 percent level) (Figure 26). With the exception of natural disasters, all factors have a negative impact on the pace (Figure 27). Design/technical specifications for instance (faced by 40 percent of respondents) reduce the realization pace by 7.9 percent whilst late approvals reduce the realization by 7 percent compared to those that do not face these problems. Some external factors such as the rainy season delay affects realization by 4.4 percent whilst early rainy seasons by 4.0 percent. These may not be avoidable, but the knowledge may allow mitigating the impacts to be put in place. Page:97 Figure 25 Frequency Distribution of Satkers based on causes Figure 26 % Effect on the Level of realization due to of delays in implementing contracts (Q32) factors that delay the implementation of contracts (Q32) Average 1213 585 Late Rainy Season 1163 635 Contractors lack Late Approval supplies Early Rainy Season 1129 669 Natural Disasters 1402 396 Contractors Lack Supplies 1219 579 Payment Postponed 1331 467 Payment Delays 1189 609 Late Approval 1183 615 -1.1 Design/Technical Spec 1089 709 0% 20% 40% 60% 80% 100% Does not Cause Problem Causes Problems -1.5 Source: WB Staff Calculations Note: Each bar represents the estimated and statistically significant change in realization between those that reported a problem and those that did not. Source: WB Staff Calculations Figure 27 Effect of delays in contract implementation on the Pace of realization Design/technical specifications=1 -7.9% Late approval=1 -7.0% Payment delays=1 -6.6% Payment postponed=1 -5.1% Contractors lack supplies=1 -6.3% Early rainy season=1 -4.0% Late rainy season=1 -4.4% -10% -5% 0 Note: Each numbered box represents the decrease in realization due to the obstacle mentioned. Lines are the 95 % confidence internals from the regression results. Source: WB Staff Calculations Page:98 C.6 Financial Management and Audit (33 – 34) C.6.1 Frequency of financial management problems during contract implementation (Q33) Q33: In FY 2018, how often do the Spending Units where you work face the following financial management problems during contract implementation? 177. About 38 percent of Satkers reported having financial management issues (Table 45), with most affecting both the ‘pace’ and ‘level’ of realization. Three key aspects negatively affect both the pace and the level. These are: (1) contractors not submitting their invoices on-time in which case the level and pace indicators are lower by 1.1 and 10.2 percent; (2) contractors delaying their invoices up to the end of FY leading to negative impact of 1.0 and 7.3 percent on the level and pace respectively; and (3) supporting documents for submitting invoice not received from contractors on-time leading to negative impact of 1.1 and 8.9 percent on the level and pace respectively (Figure 28). All the factors above underscore the need to improve capacity of spending units by the Kanwils or KPPNs and closer coordination with suppliers/vendors. Table 45 Frequency of financial management problems during contract implementation in FY 2018 (Q33) Source: WB Staff Calculations Page:99 Figure 28 Effect of Frequency of financial management problems during contract implementation on the level and Pace of Realization Note: Each bar represents the estimated and statistically significant change in realization between those that reported a problem and those that did not. Source: WB Staff Calculations C.6.2 Statements about the audit of capital expenditure (Q34) 178. In summary, 60 percent agree while about 20 percent disagree and 20 percent are neutral with the statements. None of these statements indicate corresponding slower pace and/or lower level of realization and no evidence was found from the empirical analysis on the question because the responses to the statements constitute the individual views of the spending unit staff. Q34: Based on experience in FY 2018, do you agree with the following statement about the audit of capital expenditure? Table 46 Statements about the audit of capital expenditure in FY 2018 (Q34) Source: WB Staff Calculations Page:100 C.7 Others (35 – 41) C.7.1 Frequency of complaints from third parties (contractors) related to the delay in payments (Q35) 179. Although 86 percent reported that they had never received complaints from third parties (contractors) related to the delay in payment disbursement, those that did are estimated to have a 9.3 percent slower realization that those that never do. Thus, ensuring a decrease in such complaints could improve realization. No empirical evidence on the difference was found in the level of realization. Q35: During the FY 2018, had your spending unit ever received complaints from third party (contractor) related to the delay on payment disbursement Table 47 Frequency of complaints from third parties (contractors) related to the delay on payment disbursement in FY 2018 (Q35) Source: WB Staff Calculations Figure 29 Distribution of Satkers based on Frequency of Receiving Complaints and the impact on the Pace pf Realization (Q35) Source: WB Staff Calculations Page:101 C.7.2 User-Friendliness of Information Technology Applications (Q36) 180. An average of about 96 percent of spending units said the applications are user friendly. Only 12 Satkers reported having problems with all the apps at the same time (i.e. reported “no” to all the apps being user friendly). Krisna is the one where most reported challenges whilst OM-SPAM seems to be most user friendly (Table 48 and Figure 30). However, we find that these difficulties affect the level of realization (). SIRUP, SAS and E-Rekon affect the realization pace negatively by 1.5 percent, 1.6 percent and 2.4 percent respectively, compared to those that do not find challenges using these applications. These may be the key ones needed for further trainings across the satkers. Q36: Are the following Computer and Information Technology (TIK) applications easy to use (User Friendly)? Table 48 User friendliness of financial applications (Q36) Source: WB Staff Calculations Page:102 Figure 30 Distribution of Satkers who Figure 31 Distribution of Satkers based on Frequency of Reported having issues using Application Receiving Complaints and the impact on the Levels of Realization (Q36) 17.5 8.6 7.8 2.2 2.6 1.9 1.9 1.7 2.9 1.7 1.1 -1.5% -1.6% SIRUP SAS E-Rekon -2.4% Percent of Having Trouble using Apps Impact on Levels Note: Each bar represents the estimated and statistically significant change in realization between those that reported a problem and Source: WB Staff Calculations those that did not. Source: WB Staff Calculations C.7.3 Elaboration on various other issues (Q37-Q41) 181. These questions pertained to various issues such as: (Q37) support services meeting the spending units’ expectations; (Q38) problems in the use of IT applications; (Q39) other problems that have been faced spending units that can hinder the timeliness and quality of budget implementation; (Q40) problems in the regulations and policies of the Central Government in the process of managing state finances, including: planning, budgeting, budget execution, accounting and reporting and monitoring and evaluation; (Q41) training needs and capacity building for the staff needed by the spending unit to improve budget implementation work; and recommendations for improvement as applicable to the question. 182. The information from the spending units on these questions can be used as reference for following up with specific spending units the various issues that they elaborated during evaluation of improvement programs related to capital budget execution and their pace and level indicators. Q37: Have the support services from DG Treasury as the developers of the following applications such: GPP, SAS, SAIBA, SILABI, E-rekon, SAKTI, OM-SPAN met your expectations? 183. Directorate SITP can make use of this result as well as the result of Question 36 to find out of why some spending units are not satisfied with IT applications. The significantly lower realization of those who responded that support services met the expectation to a lesser degree could be due to other factors. Table 49 Support services meeting expectations (Q37) Page:103 Source: WB Staff Calculations Q38: Please use this section to identify other problems that have been faced by your spending unit on the use of IT applications and submit recommendations for improvement if any 184. About 55 percent of spending units have no issue, though some issues that have been reported are: • Too many application updates which cause various issues. Confirm if this applies to distributed desktop applications • Make applications more user friendly • Application errors happen frequently • Minimum asset value in SIMAK of IDR 1,000,000 not in line with needs for goods • Allocation provided not in line with spending unit’s request • Need to submit documents electronically rather than go to KPPNs to submit hardcopies • Display/reporting enhancements in OM SPAN such detail transaction info per SPM/SP2D • Limitations in the RKAKL application such as only single user and no copy/paste functionality which are expected to be addressed by SAKTI • Need for tighter integration between applications • Various other issues that require further analysis. Can focus on respondents with high DIPA and/or low realization % Table 50 Problems encountered and recommendations by spending units on the use of IT applications (Partial List) (Q38) Source: WB Staff Calculations Q39: Please use this section to identify other problems that have been faced by your spending unit that can hinder the timeliness and quality of budget implementation and submit recommendations for improvement if any. 185. About 71% of spending units have no issue, though some issues that have been reported are: • Ease the process of SPM disbursements • Shorten the time to execute and allow flexibility in the DIPA revision process • Ensure completeness of supplier supporting documentation Page:104 • Allow spending units to revise disbursement schedules. Check functionality in SAKTI • Policies of KPPNs differ from each other • PPK (Commitment Officer) also has structural roles, preventing focus to the job at hand • Lack of staff • Delays in availability of contract information • Lack of preparedness of planning documents • Delay in execution of suppliers, accumulation of invoices at the end of the year • Various other issues that require further analysis. Can focus on respondents with high DIPA and/or low realization % Table 51 Problems encountered and recommendations by spending units on the timeliness and quality of budget implementation (Partial List) (Q39) Source: WB Staff Calculations Q40: Please use this section to identify problems in the regulations and policies of the Central Government in the process of managing state finances, including planning, budgeting, budget execution, accounting and reporting and monitoring and evaluation, and submitting recommendations for improvements to these regulations if any. 186. About 77 percent of spending units have no issue, though some issues that have been reported are: • Policies need to adjust for the need for easing the budget execution process • Some clauses of regulations are difficult to understand • Clarify the roles of DG Budget and the Kanwils and budget revision authorizations • Shorten the time to process contract signing and revisions • Need for tighter integration between applications, merge applications to as few applications as possible Page:105 • Roles of Commitment Officer, SPM signatory, expenditures treasurer, financial management, invoice settlement, and procurement officer are combined, causing accountability issues and delays in settlement of disbursements • Allow flexibility in managing daily disbursement estimates • Align planning better with budgeting • Various other issues that require further analysis. Can focus on respondents with high DIPA and/or low realization % Table 52 Problems encountered and recommendations by spending units on the regulations and policies of the Central Government in the process of managing state finances, including: planning, budgeting, budget execution, accounting and reporting and monitoring and evaluation (Partial List) (Q40) Source: WB Staff Calculations Q41: Please use this section to identify training needs and capacity building for the apparatus / staff needed by the spending unit to improve budget implementation work. 187. About more than 50 percent of spending units have not expressed specific training needs, following are some training needs that have been expressed: • Continuous and routine training on the applications to gain good knowledge of developments in the applications. Minimum twice a year • Comprehensive understanding of the applicable regulations related to financial management and in implementing the absorption of the APBN and its applications, up to reporting, especially when the spending unit consults on regulations and issues in the operation of spending unit applications • SAKTI training. Training from the Kanwils was not understood well due to bandwidth limitations • Various other training needs that require further analysis. Can focus on respondents with high DIPA and/or low realization % Page:106 Table 53 Training needs and capacity building for the apparatus / staff needed by the spending unit to improve budget implementation work (Partial List) (Q41) Source: WB Staff Calculations Page:107 Appendix D Frequency Distribution Tables from Survey Responses Frequency distribution tables based on spending units’ responses to the online survey questionnaire by each question are presented below. D.1 Budgeting (5-14) D.1.1 Q5 – Q10 Table 54 Distribution of Satkers who reported issues in Budgeting Processes (Except for Q6) No Having Percent of Questions Issue Issue Having Issues (0501) Activity Planned is not aligned with needs 614 1184 66% (0502) Unit price of goods/services set in the SBU or SBK is too low/too 696 1102 61% high (0503) Activity budget has been put on hold (bintang) because of a lack 776 1022 57% of supporting data (0504) Budget document need to be revised due to wrong budget codes 738 1060 59% being used (0505) The short assessment period means that supporting data is not 541 1257 70% ready in time (0506) Budget ceiling is too low and is inconsistent with market prices 572 1226 68% Average for Q5 656 1142 64% (0701) If there is a discrepancy between the Work Plan document (Renja K / L) coordinated by Bappenas with the Budget Document (RKA - K / L) issued by the Ministry of Finance, the extent to which this creates 437 1361 75% difficulties in the implementation of the budget, especially for projects / activities funded by capital expenditure? (0801) Activity operational guidance documents (POK) differ from DIPA 1457 341 19% (0802) There are delays in securing Echelon 1 approvals of the activity 1378 420 23% operational guidance documents (POK) (0803) The DIPA is not aligned with needs and requires revision 751 1047 58% (0804) There are delays in securing Echelon 1 approvals of DIPA revisions 1165 633 35% (0805) There are delays in securing Ministry of Finance approvals of 1236 562 31% DIPA revisions Average for Q8 1197 601 33% (0901) The decree letter (SK) regarding the appointment of the KPA was 1542 256 14% issued late by line ministry (0902) The decree letter (SK) regarding the appointment of the KPA was 1556 242 13% received late by Satker (0903) The decree letter regarding the appointment of the PPK, PP SPM 1536 262 15% and Expenditure Treasurer was issued late (0904) The decree letter (SK) regarding the staff appointment contained 1546 252 14% errors that will need a correction (0905) The decree letter (SK) for replacing the KPA/PPK/PP 1507 291 16% SPM/Expenditure Treasurer was issued late Average for Q9 1537 261 14% (1001) Joint Letters of 2 ministers regarding indicative ceilings are late in 916 882 49% being issued (1002) PMK regarding Juksunlah RKA-KL is issued late 874 924 51% (1003) PMK regarding SBK, SBU are issued late 836 962 54% (1004) PMK regarding DIPA revision procedure is issued late 834 964 54% Page:108 No Having Percent of Questions Issue Issue Having Issues Average for Q10 1165 633 35% Note: For average values and percentage values, we rounded the figure to ease the interpretation processes D.1.2 Q11 – Q13 Q11: In what month of 2018 did your satker receive the budget allocation (presidential regulation on the details of the APBN) as the basis for preparing DIPA FY 2019? Table 55 Month in 2018 when presidential regulation on the details of the APBN were received for DIPA FY 2019 preparation (Q11) Source: WB Staff Calculations Q12: In what month of 2018 did your spending unit receive the DIPA FY 2019 in soft copy? Table 56 Month in 2018 when softcopy of DIPA FY 2019 was received (Q12) Source: WB Staff Calculations Page:109 Q13: In what month of 2018 did your satker receive the detailed DIPA (petikan) FY 2019 that had been signed in print? Table 57 Month in 2018 when signed printout of DIPA FY 2019 was received (Q13) Source: WB Staff Calculations D.2 Procurement (15-23) D.2.1 Q15 – Q18 Table 58 Distribution of Satkers who reported issues in Procurement Processes related to Delays in Auction Implementation Question No Small Major Percentage Respondents Obstacle Obstacle Obstacle with Obstacles (1501) DIPA is not available on time 1099 499 200 39% (1502) Technical design is not available on 962 639 197 46% time (1503) There is a delay in obtaining land / 1045 470 283 42% land for construction (1504) There are constraints for licensing of 1037 483 278 42% land used or land transfer which have not been resolved yet. (1505) At the working location area there are 1065 552 181 41% not many qualified contractors able to do the work Average for Q15 1042 529 228 42% Table 59 Distribution of Satkers based on Timing of Activities related to Auctioning and Procurement Number of Satkers Percentage Q16 Q17 Q18 Q16 Q17 Q18 2018 Q1 600 33% 2018 Q2 696 39% 2018Q3 135 360 8% 20% 2018 Q4 590 283 142 33% 16% 8% Page:110 Number of Satkers Percentage 2019 Q1 851 848 47% 47% 2019 Q2 222 502 12% 28% 2019Q3 165 9% 2019 Q4 Average First Half 725 1131 1296 40% 63% 72% Average Second Half 1073 667 502 60% 37% 28% Note: Q16= For procurement in FY 2019, when does your Satker issue the General Procurement Plan (RUP) in LKPP SiRUP?; Q17= For procurement in FY 2019, when does your Satker begin most of the announcements of the tender / auction for the procurement package?; Q18= In the previous FY 2018, when did your Satker sign most of the procurement contracts?; The average first half and/or second half refers to the first two quarters (or last two quarters) from each questions. D.2.2 Q20 – Q23 Q20: On average, what is the percentage of the total package (or budget value) of work in the SiRUP of your spending unit for TA 2018 which is carried out in an open tender? Table 60 Percentage of total work packages in SIRUP carried out as open tenders in FY 2018 (Q20) Source: WB Staff Calculations Q21: On average, what percentage of the total package (or budget value) of work in FY 2018 is carried out through an early procurement (procurement before TA begins)? Table 61 Percentage of total work packages carried out through early procurement in FY 2018 (Q21) Source: WB Staff Calculations Page:111 Q22: On average, what percentage of the total package (or budget value) of work in FY 2018 is carried out as multiyear contracts? Table 62 Percentage of total work packages carried out through multiyear contracts in FY 2018 (Q22) Source: WB Staff Calculations Q23: On average, what percentage of the total package (or budget value) of work in FY 2018 fails the auction and / or must be postponed to the next fiscal year? Table 63 Percentage of total work packages which failed the procurement process or postponed to the next FY in FY 2018 (Q23) Source: WB Staff Calculations Page:112 D.3 Budget Implementation (24 – 32) D.3.1 Q24 – Q27 Q24: On average, what percentage of the contract in FY 2018 is cancelled even though the contract has been signed? Table 64 Percentage of signed contracts in FY 2018 that were cancelled (Q24) Source: WB Staff Calculations Q25: On average, how many percent of the contracts have been signed by your Spending Unit in TA 2018 delayed due to the delay in land acquisition? Table 65 Percentage of signed contracts in FY 2018 delayed due to delays in land acquisition (Q25) Source: WB Staff Calculations Q26: On average, what percentage of the contract package implemented by your spending unit in FY 2018 had changes / addendum in the contract value? Table 66 Percentage of signed contracts in FY 2018 with changes/addendum in the contract value (Q26) Source: WB Staff Calculations Page:113 Q27: On average, how many percent of the contract package work that should be carried out for one fiscal year by your spending unit in FY 2018 cannot be fully resolved by the end of December 2018 (does need a bank guarantee to be continued next year)? Table 67 Percentage of signed contracts in FY 2018 which cannot be fully resolved by end of Dec 2018 (Q27) Source: WB Staff Calculations Table 68 Distribution of Satkers based on financial management issues and perspective on auditing activities Percentage Q33: Frequency of having financial management No Having of having problems Problem Problem problem SPM being rejected by KPPN 794 56 1,004 Contractor/Supplier is not billing down payment 1246 31 552 Contractor/Supplier is not submitting their invoices 1028 43 on-time 770 Contractor/Supplier delays their invoices up to the 1384 23 end of FY 414 Supporting documents for submitting invoice not 1142 36 received from contractor on-time 656 Average for Q33 1119 679 38 Q34: Preference of statements about audit of Percentage Neutral Agree Disagree capital expenditure of Disagree Ensure compliance with the set regulations on PFM 189 1506 103 6 and procurement Review performance to obtain value for money 217 1472 109 6 Be cautious in making a decision that will contribute 392 1033 373 21 to delay in implementing activities Disqualifying bidders who are responsive and 491 861 446 25 capable due to small administrative mistakes The commitment maker should obtain an audit 466 1066 266 15 opinion prior of signing a contract Using non-competitive bidding to avoid audit for 432 564 802 45 large size amount contract Average for Q34 365 1084 350 19 Page:114 Appendix E Regression Analysis E.1 Regression Analysis Approach E.1.1 Regression Model 188. We used regression analysis to predict the impact on realization (our dependent variable) of various responses from spending units (our explanatory variables). Our dependent or response variables are defined as follows: Level Capital Expenditure Realization = Realization in 2019 as a % of 2019 DIPA (1) Pace Capital Expenditure Realization = Realization up to Q3 as a % of 2019 Realization (2) 189. Our ‘pace’ indicator is equivalent to pace (i) in the descriptive analysis. As far as regression results are concerned, ‘pace’ refers to the same as pace (i). 190. Our independent/explanatory variables consists of Part 2 to Part 6 of the online survey questions described in Appendix B.2.1, following the general approach of the survey and several indicators from each question and/or sub question in the survey. These indicators all belong to one of five broad groups by which the analysis will be presented: Budget Planning, Procurement Management, Budget Implementation, Financial Management and Audit, and Others. The Regression Model used in the study is explained in Appendix E. E.1.2 Testing the Representativeness of the Sample 191. Since the sample is based on the Satkers that responded to the survey, thus self- selecting, we wanted to establish a linkage between dependent variables and explanatory variables from the sample behaviour and say with a degree of confidence whether it can be the same for the population. In order to test the representativeness of our sample of 1,798 Satkers against the population for the 11,589 Satkers, we use the simple-sample t-test. The single-sample t-test compares the mean of the sample to a given number and tells us how statistically significant the differences between groups are. In this case, we compare the mean of the population of both our dependent variables (pace and level) against the mean of the dependent variables for our sample. If the p-value associated with the t-test is small (0.05 is often the threshold), there is evidence that the mean is different from the tested value. If the p-value associated with the t-test is not small (p > 0.05), then the null hypothesis (Ho) is not rejected, and we can conclude that the mean is not different from the hypothesized value. The results are shown in the Table below. Page:115 Table 69 Single Sample T-Test for the Pace and Level Indicators One sample t-test for the sample for the ‘level’ of realization One sample t-test for the sample for the ‘pace’ of realization Source: WB Staff Estimations 192. The sample Satkers are 15.5 percent of the total Satkers, which constitutes all who responded. This test allows us to compare the characteristics of the population vis-à-vis those of population terms of our dependant variables. Nevertheless, our regression results remain robust and our conclusions hold as we use the ‘svy’ in Stata which provides us with robust standard errors. The mean from the population for the Level indicator is 95.4 percent (0.954, See Table 14). The corresponding two-tailed p-value for alternative hypothesis (Ha) that mean is not equal to 0.954 is less than 0.05 (0.0008) and for the Ha that the mean of the sample is less than 0.964 is also less than 0.05 (0.0000). We conclude that the mean of variable level for the sample is statistically different from the mean of the population, but in fact less than the mean of the population. Therefore, this suggests that our sample is marginally worse performing Satkers in terms of level. The mean from the population for the pace indicator is 57.3 percent (0.573, see Table 69) and the corresponding two-tailed p-value for Ha that the mean is not equal to 0.573 (!=0.573) is less than 0.05 (0.0003) and for the Ha that the mean of the sample is less than 0.573 is also less than 0.05 (0.0001). We conclude that the mean of the pace variable for the sample is also statistically different from the mean of the population but in fact less than the mean of the population. Therefore, this suggests that our sample is also among the “worse” performing Satkers in terms of pace. This has allowed us to find details of challenges that may have been masked by aggregate data. Page:116 193. We conclude that our findings on how the independent variables affect the pace and level of the sample can be inferred to affecting the population as well with confidence, and probably affect the level of the population by a larger magnitude that what is presented in this chapter. E.2 Regression Model Our regression model is as follows: Level = Indicator, + SatkerFixedEffects + (3) Pace = Indicator, + SatkerFixedEffects + (4) Where: j = 1,2, . . .,1798 satkers, and indexes the total number of satkers in each regression Level and Pace are as previously defined in equation (1) and (2) for each Satker j . k = 1,2, . . .,n is the number of indicators such that Indicator, are the independent variables represents the regression coefficients corresponding to each indicator k. SatkerFixedEffects are the Satker fixed effects. These are the invariant characteristics of each Satker such as their reported location or the value of DIPA bracket 16 that they handle. These are variables that are constant across spending units and don’t change regardless of the response the Satker gives to the survey questions. This ensures that the results and causality we draw from each of the questions from the survey are the result of the problems in question and that the results are not influenced by these invariant characteristics. is the error term. 17 Each question is estimated separately since the independent/explanatory variables are not necessarily independent of each other. For example, budget planning may affect procurement processes etc. In that case, we cannot have the responses to these related questions in the same regression. We present analysis of only those factors that are statistically significant in affecting realization. 16 DIPA brackets are divided into four and each Satker is defined as belonging to at most 1 bracket at the time of the survey. 17 An error term tells us how certain we can be about the formula. The larger it is, the less certain the regression line. Page:117 E.3 Regression Results E.3.1 Regression Results for Budgeting Notes: Standard errors in parentheses; p-values=(*) p<0.10, (**) p<0.05, (***) p<0.010. The aggregate results displayed in the main part of this chapter is a result of addition of all significant values in the same category/question results. Question 5 Impact on Level Base: Causes no difficulty 0501 0502 0503 0504 0505 0506 Causes difficulty -0.00801 0.0017 -0.00615 -0.0058 -0.00915 0.00106 (0.01) (0.01) (0.01) (0.01) (0.01) (0.01) R-squared 0.091 0.09 0.09 0.09 0.091 0.09 Impact on Pace Base: Causes no difficulty 0501 0502 0503 0504 0505 0506 - - - Causes difficulty -0.0552*** -0.0301* -0.0902*** 0.0929*** 0.0479*** 0.0485*** (0.02) (0.02) (0.02) (0.02) (0.02) -0.0161 R-squared 0.068 0.056 0.058 0.053 0.066 0.056 Question 6 Impact on Level 90% or Base: less than 10% 10-25% 25-50% 50-75% 75-90% R squared more 0.0308 0.00634 0.0227 0.0121 0.0221 0.092 (0.0378) (0.0309) (0.0284) (0.0279) (0.0276) Impact on Pace 90% or Base: Causes no difficulty 10-25% 25-50% 50-75% 75-90% R squared more -0.174** -0.143* -0.178** -0.193*** -0.168** 0.055 (0.0844) (0.0755) (0.0702) (0.0687) (0.0681) Question 7 Impact on Level DIPA Value by Group < 10 Billion 10 < 50 Billion 50 < 100 Billion >= 100 Billion No Difficulties 0.959*** 0.948*** 0.858*** 0.852*** (142.78) (80.96) (12.63) (29.47) Cause Difficulties 0.964*** 0.928*** 0.873*** 0.815*** (281.02) (107.70) (37.61) (38.18) Impact on Pace DIPA Value by Group < 10 Billion 10 < 50 Billion 50 < 100 Billion >= 100 Billion No Problem 0.668*** 0.500*** 0.423*** 0.529*** Page:118 Question 7 (33.96) (19.67) (6.33) (18.11) Cause Problem 0.562*** 0.409*** 0.393*** 0.479*** (48.64) (27.05) (14.13) (23.22) Question 8 Impact on Level Base: No difficulties 0801 0802 0803 0804 0805 Causes difficulty -0.0212*** -0.0157* -0.0136** -0.0205*** -0.0177*** (0.00773) (0.00824) (0.00603) (0.00667) (0.00664) R-squared 0.091 0.093 0.092 0.093 0.091 Impact on Pace Base: No difficulties 0801 0802 0803 0804 0805 Causes difficulty -0.0494** -0.0369** -0.0472*** -0.0582*** -0.0577*** (0.0194) (0.0179) (0.0154) (0.0159) (0.0163) R-squared 0.054 0.053 0.056 0.058 0.057 Question 9 Impact on Level Base: No Obstacles 0901 0902 0903 0904 0905 Cause obstacles -0.0254** -0.0277*** -0.0284*** -0.0107 -0.0197** (0.0105) (0.0101) (0.00996) (0.00876) (0.00860) R-squared 0.094 0.095 0.096 0.091 0.093 Question 10 Impact on Level DIPA Value Base: No Issue 1001 1002 1003 1004 Group Creating Issue -0.0108* < 10 Billion (0.01) R-squared 0.01 Creating Issue -0.0295** -0.0312** -0.0281** 10 < 50 (0.01) (0.01) (0.01) Billion R-squared 0.054 0.056 0.053 Creating Issue 0.0822** 50 < 100 (0.03) Billion R-squared 0.136 Impact on Pace Base: No Issue 1001 1002 1003 1004 Creating Issue -0.0508*** -0.0392** -0.0395** -0.0350** Page:119 Question 10 (0.02) (0.02) (0.02) (0.02) R-squared 0.057 0.055 0.055 0.054 Question 11 - 13 Impact on Level Impact on Pace Months 1101 1201 1301 1101 1201 1301 0.930*** 0.936*** 0.951*** 0.658*** 0.595*** 0.580*** January (0.0203) (0.0160) (0.0105) (0.0359) (0.0411) (0.0340) 0.922*** 0.844*** 0.863*** 0.514*** 0.313*** 0.619*** February (0.0233) (0.0767) (0.0497) (0.0505) (0.101) (0.0889) 0.954*** 0.967*** 0.914*** 0.519*** 0.489*** 0.356** March (0.00799) (0.0139) (0.0150) (0.0373) (0.0930) (0.148) 0.951*** 0.980*** 0.658*** 0.484*** 0.968*** -0.0455* April (0.0123) (0.00365) (0.00842) (0.0361) (0.0120) (0.0251) 0.935*** 0.970*** 0.978*** 0.603*** 0.729*** 0.711*** May (0.0211) (0.00600) (0.00638) (0.0409) (0.0938) (0.123) 0.964*** 0.970*** 0.985*** 0.498*** 0.516*** 0.907*** June (0.00622) (0.00379) (0.0115) (0.0267) (0.152) (0.0550) 0.906*** 0.985*** 0.521*** 0.718*** July (0.0163) (0.00583) (0.0282) (0.0869) 0.947*** 0.957*** 0.985*** 0.591*** 0.658*** 0.419*** August (0.0110) (0.0200) (0.0166) (0.0261) (0.0834) (0.106) 0.950*** 0.950*** 0.989*** 0.497*** 0.618*** 0.954*** September (0.00872) (0.0276) (0.00570) (0.0312) (0.0704) (0.0138) 0.940*** 0.963*** 0.933*** 0.517*** 0.491*** 0.271*** October (0.00699) (0.00848) (0.0375) (0.0196) (0.0518) (0.0877) 0.958*** 0.944*** 0.930*** 0.546*** 0.527*** 0.475*** November (0.00702) (0.00817) (0.0141) (0.0251) (0.0216) (0.0319) 0.945*** 0.943*** 0.945*** 0.569*** 0.544*** 0.547*** December (0.00567) (0.00337) (0.00313) (0.0145) (0.00865) (0.00814) Notes: Standard errors in parentheses; p-values=(*) p<0.10, (**) p<0.05, (***) p<0.010. The aggregate results displayed in the main part of this chapter is a result of addition of all significant values in the same category/question results. E.3.2 Regression Results for Procurement Notes: Standard errors in parentheses; p-values=(*) p<0.10, (**) p<0.05, (***) p<0.010. The aggregate results displayed in the main part of this chapter is a result of addition of all significant values in the same category/question results. Page:120 Question 15 Impact on Level Base: Causes no issues 1501 1502 1503 1504 1505 Causes issues -0.00906 -0.00618 0.00392 0.000678 0.000862 (0.01) (0.01) (0.01) (0.01) (0.01) R-squared 0.091 0.09 0.09 0.09 0.09 Impact on Pace Base: Causes no difficulty 1501 1502 1503 1504 1505 Causes issues -0.0278* -0.0561*** -0.00489 -0.00399 -0.0232 (0.02) (0.02) (0.02) (0.02) (0.02) R-squared 0.053 0.058 0.051 0.051 0.052 Question 17 Impact on Pace 2019 Quarter 2019 Quarter Time start announcing tender process 2018 Quarter 4 2019 Quarter 2 1 3 0.580*** 0.591*** 0.506*** 0.364*** (0.02) (0.01) (0.01) (0.03) Question 18 Impact on Level Time start signing most procurement 2018 Q1 2018 Q2 2018 Q3 2018 Q4 contracts 0.952*** 0.947*** 0.935*** 0.913*** (0.00496) (0.00445) (0.00668) (0.0129) Impact on Pace Time start signing most procurement 2018 Q1 2018 Q2 2018 Q3 2018 Q4 contracts 0.638*** 0.545*** 0.452*** 0.382*** (0.0125) (0.0119) (0.0171) (0.0285) Question 19 Impact on Level Base: No issues 1901 1902 1903 1904 Having issues -0.00749 -0.00779 -0.00661 -0.00681 (0.01) (0.01) (0.01) (0.01) R-squared Impact on Pace Base: No difficulties 1901 1902 1903 1904 Having issues -0.0609*** -0.0431*** -0.0522*** -0.0664*** (0.02) (0.02) (0.02) (0.02) Page:121 Question 20-23 Impact on Level Question 20-23 2001 2101 2201 2301 - Having issues -0.000311* 0.000971*** -0.000652** 0.000341*** (0.000188) (0.000109) (0.000289) (0.000274) Impact on Pace Base: No difficulties 2001 2101 2201 2301 Having issues -0.0564*** 0.0492*** 0.0867*** 0.00327 (0.019) (0.0166) (0.02) (0.0245) R-squared 0.057 0.055 0.059 0.051 E.3.3 Regression Results for Budget Implementation Question 24 - 27 Impact on Level Base: Causes no issues 2401 2501 2601 2701 Causes issues -0.00112** -0.000890* -0.000163 -0.000528* (0.000552) (0.00049) (0.000176) (0.0003) R-squared Question 28 Impact on Level DIPA more than IDR Base: between 0 - 5 days 100 billion 0.0644* (0.0335) Impact on Pace DIPA less than IDR 10 Base: between 0 - 5 days Overall billion -0.0571** -0.0751** (0.0224) (0.0316) Question 29 Impact on Pace DIPA less than IDR 10 Base: Rarely conducted invoice repairs Overall Effect billion Often conducted invoice repairs -0.0394** -0.0449* Page:122 (0.0176) (0.0253) R-squared 0.053 0.015 Question 30 Impact on Level Lack of resource staff in the Proof of third-party Validation of an independent party Satker to speed up processing invoices is often outside the Satker is required to do invoices incomplete the invoice test 0.941*** 0.943*** 0.970*** (0.00665) (0.00334) (0.0100) Impact on Pace Lack of resource staff in the Proof of third-party Validation of an independent party Satker to speed up processing invoices is often outside the Satker is required to do invoices incomplete the invoice test 0.545*** 0.539*** 0.627*** (0.0165) (0.00902) (0.0337) Question 31 Impact on Pace Base: Never Exceed the deadline -0.0692*** (0.0155) Question 32 Impact on Level Impact on Pace Base: No Issue Design/Technical Spec -0.00945 -0.0789*** (0.00626) (0.0155) Late Approval -0.0105* -0.0700*** (0.00633) (0.0158) Payment Delays -0.00984 -0.0657*** (0.00622) (0.0157) Payment Postponed -0.00974 -0.0510*** (0.00748) (0.0169) Contractors lack supplies -0.0149** -0.0630*** (0.00664) (0.0159) Natural Disasters 0.00188 -0.0199 (0.00748) (0.0177) Early Rainy Season -0.00215 -0.0397** Page:123 (0.00625) (0.0158) Late Rainy Season -0.00321 -0.0435*** (0.00655) (0.0159) E.3.4 Regression Results for Financial Management and Auditing Question 33 Impact on Level 3302 3303 3304 3305 -0.00455 -0.0109* -0.0101 -0.0114* (0.00613) (0.00628) (0.00747) (0.00634) Impact on Pace 3302 3303 3304 3305 -0.0717*** -0.102*** -0.0732*** -0.0889*** (0.0161) (0.0152) (0.0173) (0.015) Question 34 Impact on Level Impact on Pace Base: No Issue Neutral 0.942*** * (0.009) Agree 0.942*** * 3401 (0.003) Disagree 0.964*** * (0.008) Neutral 0.940*** 0.545*** (0.0087) (0.0076) Agree 0.943*** 0.545*** 3402 (0.0033) (0.0076) Disagree 0.966*** 0.545*** (0.0074) (0.0076) Neutral * 0.526*** (0.0168) Agree * 0.539*** 3403 (0.0101) Disagree * 0.578*** (0.0159) Neutral * 0.534*** (0.0155) Agree * 0.537*** 3405 (0.0099) Disagree * 0.593*** (0.0187) Page:124 Page:125 Appendix F Past Diagnostic and Policy Actions taken by Government 194. In April 2012, the World Bank in collaboration with the Ministry of Finance of the Government of the Republic of Indonesia launched a study on “Identifying the Constraints to Budget Execution in the Infrastructure Sector - DIPA Tracking Study”. This study report aimed to support the Ministry of Finance in exploring reforms to improve line ministries’ budget execution performance in the infrastructure sector. The study covered an assessment of factors constraining budget execution and identified a number of causes of the low and slow capital expenditure disbursement pattern. When this study was launched, less than 85% of the approved budget was spent in each year and almost half of the budget was spent at the last quarter. The study examined bottlenecks at each and every step of the budget execution process, from budget preparation through to the completion of the project. The study also involved surveys/ field visits to gather information from key stakeholders, such as Spending Unit’s personnel, the local treasury offices (KPPNs), and contractors covering four sample provinces, namely DKI Jakarta (as a pilot), West Java, North Sumatra and South Sulawesi. Thirty-six DIPAs in fiscal years 2010 and 2011 were selected as samples within three (3) line ministries: The Ministry of Public Works, the Ministry of Transport, and the Ministry of Energy and Mineral Resources. The study was conducted through data and information collection, in-depth interviews, and focus group discussions (FGDs). 195. While this study mainly focused on the budget implementation process and did not look into the quality of spending, the Public Financial Management (PFM) team in the World Bank Office Jakarta was able to formulate policy recommendations by drawing upon the analysis from the field survey results and inputs from in-depth discussion with the selected spending units, as well as MOF’s staff. 196. Some of the causes constraining budget execution that were identified in the DIPA Tracking Study of 2012 appear removed by the implementation of Government Regulation (GR) 45/2013 and its amendment of GR 50/2018, the constitutional court decision No. 35/2013, and the implementation of SPAN (FMIS). However, somehow long-standing issue of the ‘low and slow’ capital expenditure execution is still unresolved until now. 197. The policy recommendations proposed by the PFM team of the World Bank in its 2012 DIPA Tracking Study and the reform actions taken by the government in resolving those issues are summarized in the table below. Table 70 2012 DIPA Tracking Study: Policy Recommendations and Government’s Reform Actions PFM Team WB recommendations: The Government Reform Actions 1. Planning and Budgeting (Budget Preparation) Appointment of spending unit personnel Government Regulation (GR) 45/2013 removed annual should be no longer bound to fiscal limitation on appointment of spending unit personnel year and since then it appears to no longer be significant issue impeding disbursement. Discontinue ‘bintang’ practice. The Constitutional Court in 2013 decided that DPR is no longer allowed to put on-hold budget (by marking the budget with bintang) after the budget law has been enacted. Bintang is now put by MOF for few cases to delay disbursement by line ministries only for Page:126 PFM Team WB recommendations: The Government Reform Actions administrative requirement and lack of supporting documentation. • Provide more authority to line The late DIPA Delivery is not cited as a problem ministries (Echelon 1) in reallocation anymore since all DIPA is now recorded in SPAN and and DIPA revision within activity electronically printed by spending units. However, the • Gradually discontinue the issuance of time taken for doing DIPA revision is still a concern since DIPAs as signed in hard copies and there are some authorities of DIPA revision (virement) replace them with an automated that are held by DG Budget in the Ministry of Finance. system More delegation of authority for DIPA revision from DG Budget to DG Treasury’s Regional Offices (Kanwils) and to line ministries (Echelon 1) is expected to be in line with the Performance Based Budgeting reform Poor planning and budgeting Remains a significant issue in spite of GR 17/2017 requiring coordinated effort between Bappenas and MoF. Incompatible coding structures restricts correlation between plan (Renja KL) and budget (RKA- KL) Rigidities and details budget discussion The Constitutional Court in 2013 decided that DPR is no longer authorized to approve budget by activity and types of expenditures (economic classification). Furthermore, appropriation shown in DIPA is now at 2- digit level instead of 4 digit – provides more flexibility to line ministries. 2. Procurement Lack of understanding of Perpres on Although Perpres No.54/2010 and its amendments and advance procurement No. 16/2018 include provisions for advance procurement, spending units have not been widely implementing the provisions. Ministry of Public Works and Housing (MOPWH) issued special decree to strengthen the applicability of advance procurement which seems to be followed more systematically Lengthy procurement process Remains an issue – many contributing factors Lack of incentive to participate in Largely overcome by providing for establishment of procurement committee permanent Procurement Units (ULP) to provide expert advice and assistance to spending unit personnel conducting procurements and/or consolidate all procurements activity in this centralized unit rather than executed by individual spending unit Lack of infrastructure to support e- Government e-procurement system was updated, most procurement recently in 2019 (SPSE ver.4.3). 3. Implementation Lengthy and complex land acquisition Still remains an issue. The issuance of law No. 12/2002 and Presidential Regulation No. 62/2018 have provided stronger legal basis to resolve the issue though there is a need to issue another regulation to include all infrastructure development projects (not only the national strategic projects) Page:127 PFM Team WB recommendations: The Government Reform Actions Skewed disbursement toward end of fiscal Skewed disbursement remains. The government would year (due to contractor preference to need a new advice on how to make use of SPAN (FMIS) claim at the end of fiscal year and slow to improve consistency of disbursement with the plan. processing at spending unit) Contractor end of year claim not widespread, but ICT system could improve monitoring of invoice submissions. Processing at spending unit not clear and different across line ministries. 198. To address several impediments to budget execution the Government Regulation No. 45/2013 (and its amendment of GR 50/2018) has introduced some regulatory environment to accelerate disbursement, including the following: • removing the requirement to reappoint spending unit (spending unit) officials each year. This measure will allow the spending units to function from the beginning of the fiscal year thereby accelerating spending; • introducing commitment controls. Alongside other benefits this helps MOF to monitor the amounts committed by Line Ministries and take early action where there are delays in implementation; • allowing advance procurement before the start of the fiscal year (once the APBN law has been enacted). This allows contracts to be signed earlier in the fiscal year and/or signed before the start of new fiscal year though the effective date should be on January 1; • allowing payments of APBN commitments be made before the goods and/or services are received. Payments of APBN commitments before the goods and/or services are received can be done through advance payment mechanism after the providers submits a guarantee for the payments to be made. • settling billing rights to the State within 30 (thirty) calendar days after the receipt of complete billing proofs. • providing a legal basis for the carryover of the budget to the next year for national priority activities and multiyear contracts. • reducing the need for line ministries to submit supporting documents to the Ministry of Finance for prior clearance after their internal audit unit has verified the compliance of budget document with all requirement. Page:128 Page:129 Appendix G Details of Findings, Conclusions, and Proposed Action Recommendations The table below shows the detailed analysis of the reasons for low and slow capital budget execution, the findings and the results of the direct consultations with spending units during the missions, the conclusion, and proposed action recommendations. Table 71 Detailed Analysis, Conclusion and Proposed Action Recommendations Reasons for low and slow capital Survey Finding and Direct Conclusions Proposed Recommendations budget execution Consultation Results A. General Issues 1. There is fragmentation of Based on the data of DIPA of 11,589 - Fragmentation of preparation of #1: Line Ministries need to apply preparation of Capital spending units with Capital Capex budget proposals and 80/20 rules: focus on the few Expenditure (Capex) proposals Expenditures (capex) budget in FY allocations by the spending units spending units with large amount of (TORs) by the spending units 2019, about 88.05% of them have (SU) lead to inefficiencies and capex budget (SU), which may lead to capex budget less than IDR 10 delays in execution. inefficient and ineffective billion (around USD 650,000). Only - To achieve more economies of #2: Preparation of Capex proposals implementation processes. 363 spending units (3.1% of total scale, preparation of Capex budget with small value but large volume of 11,589 SUs) had capital expenditure proposals with common items common items used by some budget above IDR 100 billion. (such as building renovations, spending units can be consolidated vehicle, office equipment) could be by selected large spending units that grouped together or consolidated have experience and expertise to to be implemented by few larger manage these. This will allow SUs who have experience and majority of spending units to focus expertise to manage proposals on the budget implementation only. (TORs) preparation and procurement for multiple SUs, #3: The Line ministry is also required perhaps on a regional basis. This to streamline the number of their would make the Capex proposal spending units and assigning the preparation, procurement process, planning and procurement processes and implementation more efficient at few “large” spending units only. and would also potentially save time and costs. Page:130 Reasons for low and slow capital Survey Finding and Direct Conclusions Proposed Recommendations budget execution Consultation Results 2. There is frequent rotation of the Around 60% of the respondents’ Based on interviews with some #4: There should be a minimum heads of spending units which heads of spending units worked less spending unit staff, it was found tenure of at least two years fixed, impact execution. than 2 years in his/her current that the frequent rotation of the except for cases such as demotion position. heads of spending units would (due to disciplinary action), have an inverse impact on budget promotion or other unforeseen implementation performance since circumstances. news heads of spending units need more time to familiarize themselves with the unique characteristics of the work in their new roles. B. Budget Planning 3. Capital Expenditure (Capex) is Only 6% of responses stated that Currently, most Capex budgets are #5: Line Ministry is required to budgeted annually. A mix of their spending units implemented executed under single-year establish a “project selection top-down and bottom-up multiyear contracts, while 70% of contracts. Hence, the preparations procedure” and to build up a approaches are applied to total responses said that the budget of TORs, technical designs, and bid pipeline of competing Capex prepare Capex proposals and preparation period in T-1 is too requirements are done within one proposals from all Echelon 1 Unit to budgets. However, spending short, such that the required fiscal year. Ideally, technical be linked with the line ministry’s units are concerned that they supporting documentation were not planning can be prepared a year MTEF (3 year) forward estimates. have only a short period of time ready and completed on time. before implementation of the for preparing and planning the projects (T-2). Unfortunately, #6: In this procedure, at the T-3 (capital) budget proposals Capex needs are not yet specifically stage the spending units will start to identified as part of the MTEF (3 prepare the Capex TOR Proposals year) forward estimates. with a brief summary of the project. Then, at the T-2 stage, all proposals It is important to differentiate (“TORs”) are required to be between “Capex Proposals” in T-3-- furnished with detailed draft since a commitment of resources supporting documentation, including on Capex clearly has long term justifications on the need, scope, implications for the Line Ministry’s technical design and estimated costs budget—and the regular “Capex to be reviewed by the Echelon 1. Budget Allocations” in T-1. Finally, at the T-1 stage, the final TOR along with all supporting Page:131 Reasons for low and slow capital Survey Finding and Direct Conclusions Proposed Recommendations budget execution Consultation Results documentation (including cost benefit analysis) are ready to be proposed by the line ministries to Bappenas and MOF for approval of work plan and budget allocations. 4. There is a big gap between the Around 57% of spending units say Delays in budget implementation #7: SU is encouraged to prepare 3 bottom-up initial planning their approved budget allocations were partly caused by a high years forward planning with the 1st proposals by spending units and (DIPA) are not aligned with their degree of deviation between the year forward estimate used as the the top-down budget allocation original needs and require proposed and approved activities baseline in preparing the next year (RKA-KL and DIPA) prepared and immediate revisions. Furthermore, stated in the DIPA. Some spending budget proposal allocated by the Echelon 1 as during implementation 23% of Units indicated that the approved the program manager back to respondents say there are delays in DIPA was less than initially #8: However, this bottom-up process the spending units during getting approval from MOF in DIPA proposed. In addition, some of activity and budget planning by budget preparation stage. revisions. approved activities were new and spending units is used as a reference not in the activities that were by Echelon 1 to finalize RKA-KL only initially proposed. This gap is while the final decision of DIPA is caused by top-down adjustments made by Echelon 1 of Echelon 1 units soon after the APBN is approved by Parliament #9: DG Budget could continue to and the President Regulation on facilitate data collection of 3-years the detailed APBN issued by MOF forward estimate (MTEF) from each as a guidance for preparing DIPA is individual spending unit through its issued. It is also added with lack of KPJM application though they are good communication between not required to do budget proposal spending units in the field and their analysis on detailed individual SU superior (echelon 1 and 2) at the level. headquarter. Since the signed final DIPA is #10: At present, neither the state somewhat different with the finance law nor government original plan, so most Spending regulation is clear on the Units must immediately revise responsibility of an Echelon 1 unit to their DIPA and/or the activity plan be accountable for managing a details (POK) on January of new program. The laws and regulations Page:132 Reasons for low and slow capital Survey Finding and Direct Conclusions Proposed Recommendations budget execution Consultation Results fiscal year before they can proceed recognizing Minister (as the budget on to the procurement stage, owner-PA) and spending units (as which causes delays in the budget the proxy budget user-KPA) implementation 5. Frequent DIPA revisions during DG Treasury’s IKPA norm is to limit Under current legal arrangements, #11: DG Budget, MOF should limit budget implementation period for one DIPA revision per quarter the authority of DIPA management their responsibility for addressing all for each of Spending Unit or about 4 is held by DG Budget although aspects of strategic policy and times of revisions per year per during the budget implementation performance at a higher level of Spending Unit. Hence, a total of period, some approval authorities programs and routinely conducting around 96,000 revisions are possibly on DIPA revisions have been in-depth budget proposal reviews at proposed by all 24,000+ spending delegated by DG Budget to DG program level (not SU’s DIPA). units multiply by 4 times revision in Treasury, particularly for the a year budget revision and/or virement #12: As other Budget office in best on administrative data changes practices countries, DG Budget may DG Budget sill held most of the focus to work as analyst for budget authority on DIPA revision, formulation and appropriation rather particularly on revision that could than doing administrative works of require Parliament consent. DIPA (budget allotment) DG Budget in other best practice management countries are no longer dealt with detail SU’s DIPA (budget allotment) #13: MOF to transfer the entire implementation and management responsibility of in-year DIPA management, including virement from DG Budget to DG Treasury. Only if necessary and for a few DIPA revision criteria, DG Treasury would require guidance from DG Budget, particularly on certain limited DIPA revisions that would require Parliament’s knowledge and consent #14: The Echelon 1 of Line Ministry shall be given more authority to Page:133 Reasons for low and slow capital Survey Finding and Direct Conclusions Proposed Recommendations budget execution Consultation Results manage budget for individual spending unit (Let the manager manages) which is tied to and intended to contribute to the achievement of the goals and objectives of a program within strategic plans of the line ministry. 6. Weak linkage between planning About 75% of respondents Within a line ministry, the initial #15: Improving the flow of consistent and budgeting within the line confirmed the discrepancy between planning (Renja) is prepared by data and information between ministry the Work Plan (Renja) and the Planning directorate while the planning and finance units in a line Budget Document (RKA-KL) has budget (RKA-KL) is consolidated by ministry and/or merging the two of created difficulties in the Finance directorate based on the them into one unit (i.e., Rocankeu of implementation of the budget spending units’ budget proposals. MOF Since Renja is prepared at the L/M #16: Data interoperability or merging level without inputs from spending two PFM applications of KRISNA (of units so many times it is not Bappenas) for planning and SAKTI (of aligned with the budget needs of MOF) for budget the spending units 7. The late issuance of some a. Almost 54% respondents cited a PMK 210/2019 on guideline for #17: PMK on the guideline of DIPA Finance Minister regulations on delay in the issuance of PMK on DIPA (budget) FY 2020 revision was revision can be made in a permanent budget implementation DIPA revision released on 31 December 2019, means without a need to change which is much earlier than the every year since not much changes in issuance in previous years, but this content. For a minor change, MOF regulation could be made can amend without need to re-write permanent without a need to be the whole PMK changed year by year. b. Around 53% cited a delay in the PMK 78/2019 on Standard Input #18: Since the parameter for cost issueance of the PMK on Cost for 2020 was issued on 17 increase (such as inflation) is not Standard cost. May 2019. But since this PMK is much fluctuated, the PMK on limited for standard cost of one standard input cost can be made for fiscal year budget only, it cannot be covering 3-year period (rather than 1 used for preparing the Capital year). The first year is fixed while the Expenditure proposals for MYC following two are indicative to be Page:134 Reasons for low and slow capital Survey Finding and Direct Conclusions Proposed Recommendations budget execution Consultation Results which will require longer period (minor) adjusted year by year so that within MTEF (3 year) forward preparation of capex proposal is not estimates limited to the next one fiscal year budget (T) only. Having a 3-year standard cost will be inline with the planning cycle within the line ministry who have started to plan their work activity on February T-1 c. About 50% are concerned with PMK 208/2019 on Juksunlah RKA- #19: A good reform has been taken the delay in the issuance of PMK KL was issued on 31 December to make PMK on Juksunlah as on the guideline (Juksunlah) to 2019; It is too late for guiding the permanent regulation not to be prepare the RKA-KL. preparation of RKA-KL for FY 2020 changed every year but since this PMK is no longer limited to use in FY 2020, so it can #20: Going forward, this PMK on be used for all following years guideline (Juksunlah) to prepare unless it is revised later. Besides, RKA-KL can be combined with the the detailed of 500+ pages Bappenas’ regulation on Renja previous attachment are now preparation, so it will integrate separated and no longer part of planning and budgeting processes PMK (to be put under DG Budget into 1 (one) sequential flow as regulation) mandated by PP 17/2017 C. Procurement Processes 8. Implementation of tenders are About 46% of respondents claimed The low capacity of spending units #21: Technical design specifications constrained by the lack of that technical designs are not ready to prepare technical design can be need to be prepared and finalized far readiness of the project on time resolved by: before procurement starts - Extending the time period to prepare Capex proposal for #22: Allocating sufficient budget for one year. So, one year before technical design preparation and budget proposal submission or requiring readiness criteria before at T-2 stage, Spending Units the project starts. shall have completed technical Page:135 Reasons for low and slow capital Survey Finding and Direct Conclusions Proposed Recommendations budget execution Consultation Results design to be reviewed by the #23: Spending units’ staff to actively Echelon 1. carry out market analysis of capacity - Spending Units must propose of all potential bidders in the market budget for project preparation, to serve as a guide in formulating including to hire consultants qualification requirements to avoid for preparing technical design failures in the bidding process. in T-2, or one year before submitting Capex budget proposals. 9. Delay in obtaining land and About 42% of respondents claimed President Regulation 148/2015 on #24: To improve coordination with license of land used for that the delay in obtaining land land acquisition for public benefits local governments as the land construction (land acquisition) and license for has been well implemented procuring committee land transfer causes delays in without much issues. With this tender implementation regulation, there is a clear #25: To invite the law enforcer mechanism to obtain land for (Attorney General and Police) and building public infrastructures and BPKP as observer in the process of facilities. The left issue is only land acquisition about the implementation in the field and the adequacy of budget #26: MOF to provide a flexible to cover the actual needs based on budget allocation for land acquisition the result of land price negotiation by allowing spending above DIPA ceiling based on actual and final agreed price of land, without waiting for new budget allocation next year. This can be done through DIPA revision (across economic classification, imitating salary expenses) within the budget ceiling of 1 program in one fiscal year 10. Delay in the starting the About 40% respondents issued RUP If the issuance of RUP is late then #27: For all procurement activities in issuance of general before the start of new fiscal year the whole procurement process the next year, the RUP should be procurement plan (RUP) while around 60% issued RUP after will be delayed. Only spending published in the preceding year. new fiscal year starts units of MOPWH are regularly Each ministry could systematically Page:136 Reasons for low and slow capital Survey Finding and Direct Conclusions Proposed Recommendations budget execution Consultation Results submitting their general monitor and report compliance at procurement plans (RUP) for the ministry level, and where necessary following year through Sistem issue further regulatory measures for Rencana Umum Pengadaan (SIRUP) strengthening, similar to the in quarter 4 of the previous year. example of MPWH. #28: LKPP could monitor and report at country level. 11. Delay in starting the Only 16% of respondents It shows that the new rule to do #29: For all procurement activities in announcements of tender for announced most of their tenders early procurement is not well the next year, the tender procurement before the beginning of new fiscal implemented. PP 50/2018 (article announcement should be published year 59) has progressively allowed the in the preceding year. Each ministry spending units to start the could systematically monitor and procurement process (preparation report compliance at ministry level, up to signing the contract) after and where necessary issue further the budget proposals approved by regulatory measures for Parliament (by end of October). strengthening, similar to the example of MPWH. #30: LKPP could monitor and report at country level. 12. Delay in signing the Only around 33% of respondents Article 59 (point 2) of PP 50/2018 #31: All contracts should be signed procurement contracts said they signed most of their allowed spending unit to sign the within the bid validity period contacts in Q1 contract before the start of new originally specified in the bidding fiscal year, though it is effective documents. Each ministry could only after 1 January systematically monitor and report compliance at ministry level. LKPP could monitor and report at country level. #32: LKPP and MOF to establish a protocol for data sharing and/or data interoperability between the e- Page:137 Reasons for low and slow capital Survey Finding and Direct Conclusions Proposed Recommendations budget execution Consultation Results procurement system (SPSE) and the FMIS system (SPAN) so that the government could have a full end-to- end contract information from the start of procurement, signing the contract, physical progress implementation and disbursement payments up to the completion of the projects. #33: Data interoperability between LKPP’s SPSE e-Procurement system with MoF’s SPAN would improve budget efficiency and also reduce workloads of spending units in entering contract information into two different applications and providing the government with accurate, timely, and comprehensive data for better decision making. 13. Lack of qualified staff in About 48% respondents admitted Procurement capacity in spending #34: As the result of doing spending units to evaluate they do not have enough staff to units is generally low. To mitigate procurement by centralized unit bidders’ proposals evaluate work package offers from this issue, LKPP regulation 5/2015 within each ministry varies, this bidders stipulates line ministries to approach could be further reviewed MoPWH (Ministry of Public Works establish a centralized by all the ministries for potential and Public Housing) has established procurement support units (ULPs). benefits of efficiency and value for dedicated procurement unit in each ULP have been established across money. province (Balai Pelaksana several Ministries though not all Pengadaan Barang dan Jasa-BP2JK). ministries are fully implementing #35: Continued training and capacity This allows them economies of scale this model. building must be provided to the and efficient procurement. This staff of the procurement units. dedicated procurement unit will also reduce the burden of spending Page:138 Reasons for low and slow capital Survey Finding and Direct Conclusions Proposed Recommendations budget execution Consultation Results units from doing the procurement #36: Each ministry could administration task. systematically monitor and report Meanwhile, Ministry of Transport compliance with the requirement for (MoT) experienced challenges since completing bid evaluation and its centralized unit is newly awarding contracts within the bid established and not yet equipped validity period originally specified in with better trained staff in the bidding documents. procurement procedures. #37: LKPP could monitor and report at country level. 14. The lack of utilization of the Only about 10% of respondents said Not many spending units are #38: Each ministry could government’s regulations that 90% or more of their contracts initiating the early procurement systematically monitor and report regarding early procurement go through the early procurement process before the start of the compliance at ministry level, and process prior to the start of the process fiscal year as is permissible under where necessary issue further FY regulations (PP 50/2018, article regulatory measures for enhancing 59). Only spending units of advance procurement, similar to the MOPWH has taken advantage of example of MPWH. this early procurement since they have frequently carried out early #39: LKPP could monitor and report procurement particularly for civil at country level works contracts, which is supported by the minister’s decree on instructions for early procurement. 15. Multiyear contracts (MYC) are Only about 6% of respondents said While the provision of multiyear #40: Line Ministries are encouraged not commonly used. that 90% or more of their contracts contracts can potentially free to seek approval for Multi Year are multiyear contracts. These spending units from the Contracts (MYC) exploiting PMK spending units, respectively, are in procurement process in the next 60/2018, requests for which can now Ministry of Public Works and Public two years and implementation be approved by DG Budget on a Housing (MOPWH). Other ministries could be smoother, not many line case-by-case basis and a higher need to follow its example ministries applying this rule. Based threshold contract value has been on interview with some SUs, PMK delegated to the line ministry to 60/2018 has provided much approve. Page:139 Reasons for low and slow capital Survey Finding and Direct Conclusions Proposed Recommendations budget execution Consultation Results flexibility and authority to the line ministry. However, only few #41: During the trilateral meeting, contracts mostly funded by loan Bappenas and/or MOF could and/or SBSN (Syariah bonds) are proactively demand Line Ministry to made in MYC. The left issue is adjust their proposal from single more on lack of incentive of why year to MYC when appropriate for they need to do MYC and the one large value package of contract characteristic of works which do to be ideally completed longer than not require MYC 12 months period #42: MOF and LKPP could carry out a study to assess the potential negative impact of splitting large civil works that normally require multiyear implementation period into multiple smaller contracts of less than one-year implementation period. 16. e-catalogue is not E-catalogue of LKPP is not E-catalogue now has an expanded #43: While the increase in the comprehensive to cover all #38: comprehensive to include all number of items. In addition to number of items available in the e- needs and issued late accessories or supporting tools to central e-catalogue, LKPP has also catalogues is a positive make the goods ready to use published sectoral e-catalogue development, further review of the e-catalogue procedures could also be undertaken to identify opportunities for enhancing competitiveness in bidder selection and prices to enable greater value for money in addition to efficiency. D. Budget Implementation 17. Capex budget disbursement is Around 44% of the Capital Since State budgets are approved #44: MOF to have a new regulation heavily skewed towards the end Expenditure budget was disbursed on a strict one fiscal year in cash in permitting carry over of the of the fiscal year in the last quarter of FY 2019 with basis, the year-end bunching is physical completion to a maximum repeatedly happened as spending Page:140 Reasons for low and slow capital Survey Finding and Direct Conclusions Proposed Recommendations budget execution Consultation Results about 25% itself spent in the month units rush to spend their budget in of three (3) months in next fiscal of December the closing stages of the year to year. prevent the budget appropriation lapsing. It also increases fiduciary #45: Meanwhile, to avoid the DIPA of risks that will arise of due to hasty the current year elapsed, full amount implementation and jeopardize the can be disbursed at end of December quality of the delivered outputs to a temporary account established by MOF in a commercial bank (outside of TSA) to keep the cash before the physical projects fully completed #46: Incomplete activities in the current year, but nonetheless those that are likely to be finalized at the maximum of the beginning 3 months of following year, can be allowed to continue on the condition that the contractor provides a bank guarantee for an amount equal to the final payment made and a legal sanction (including blacklisted) if the contractor run-away not to complete the works; 18. Delays in starting project a. the nature of project: The pace The different nature of projects can #47: Promote MYC for the large scale implementation varies by: of execution depends upon the cause different time to start. The of new development, construction or nature of project. The new construction projects, infrastructure projects expenditure on ‘maintenance’ particularly if it is involved land was fast paced in comparison to acquisition, would usually late to new large constructions start due to challenges during preparation, procurement and implementation. While the maintenance, non-construction Page:141 Reasons for low and slow capital Survey Finding and Direct Conclusions Proposed Recommendations budget execution Consultation Results and consultancy works can start quickly and disburse its first initial payment earlier. b. the types of funding sources: The loan and SBSN (Government’s #48: Scale up the SBSN flexibility to The loan and SBSN Syariah bonds) funded projects the other priority and essential (Government's Syariah bonds) which permits for multiyear to projects funded by own source of funded projects which permits finance large construction projects GOI funds (Rupiah Murni) for multiyear mostly start later (e.g., large-scale and complex during FY compared with the procurement that requires pre- Rupiah Murni of APBN which is qualification, bank guarantees, etc) strictly limited for one year mostly start later during FY c. the leadership of the line The line ministry with strong #49: MOF to facilitate a peer-to-peer ministry is different across leadership like MOPWH usually knowledge sharing session by ministries with Ministry of start the project earlier, inviting the best performer ministry Public Works and Public particularly due to the strong like MOPWH to share their Housing (MOPWH) is the best attention of the President on the experiences and methods in practice example. infrastructure projects implementing Capex projects 19. Delays at the spending units in While about 86% of spending units’ There is no clear monitoring #50: Contracts should include explicit processing contractor’s invoice respondents said that they have no system and a lack of provisions to specify the time period for payments difficulty in meeting the time limit enforcement by Spending Units within which the Spending Unit will of 17 (seventeen) days to prepare and/or Echelon 1 to monitor the verify the contractor’s invoices and Note: The PMK regulates that (i) and submit payment orders (SPM) process by which and when the make payment. The contractor should submit document to MOF after receiving payment order (SPM) is issued by invoices to Spending Unit within 5 invoice claims from contractor, spending units to the KPPNs after #51: Contracts should specify days after finishing work progress. about half of spending units’ receiving invoices from additional interest penalty in case of (ii) the submitted invoices are then respondents admitted they had contractors. In addition, the gaps delay in releasing payment for the reviewed by commitment maker difficulties to force spending units can also be caused by the fault of spending unit in delaying the officer (PPK) for 5 days to verify and to submit invoices within 5 days regulation which says that verification of works beyond the sign the hand-over documents after finishing work progress mostly payment can only be made after period specified in the contract (BAST), if all documentations because there is no clear the construction is completed or without reasonable reasons. completed and delivered outputs mechanism on how to monitor the goods/services are received. accepted. (iii) PPK will then transfer Page:142 Reasons for low and slow capital Survey Finding and Direct Conclusions Proposed Recommendations budget execution Consultation Results the invoices and all supporting Contractors compliance with this 5 The best example of monitoring #52: Auditors should also review the documents to PP-SPM (payment days requirement. system is the “e-Monitoring spending unit’s compliance with the order maker officer) who will Online”, built by MOPWH. This terms of the contract including time prepare payment order (SPM) system could help Echelon 1 and 2 taken for verification and payment of document in 5 days at the latest. (iv) at the headquarter to directly invoices to the contractors. Finally, the head of Spending Unit monitor regular progress of both (KPA) should submit SPM to KPPN physical works and payments #53: Each line ministry should within 2 days after SPM is issued by reported by all spending units at systematically monitor the time PP SPM. Therefore, a spending unit the field across Indonesia. It is taken by the spending unit in is given a time limit of 17 days to however limited to be used by verifying invoices and making process an SPM document, started MoPWH internal staff (HQ and payments under the contracts. from the date when contractor spending units) while no submitting invoices up to the functionality in this application to #54: Every line ministry with large submission of the payment orders facilitate regular report from the capital budget expenditure (SPM) documents to MOF’s KPPN vendors/contractors to the implemented by many spending for processing the payment to the spending units. units across Indonesia should: contractor. 1) develop an “e-reporting” system that would be used to facilitate electronic reports from Spending Units to the superior. 2) expand the functionality of e- reporting system to also enable vendors/ contractors submitting their progress reports to the spending units in an electronic mode that would also be monitored by Echelon 1 and 2 at the headquarter 20. Many contractors submit - The government standard The recurring issue of skewed #55: Commitment making officer invoices for payment at the end bidding document provides disbursement is partially caused by (PPK) could monitor and remind the of the fiscal year creating a standard provision on terms of contractors’ not submitting the contractor in regular monthly recurring issue of skewed payment, such as invoices in time as per contract and meetings or through reminder letter Admeasurement/time-based partially by delay in verification and as needed for them to submit Page:143 Reasons for low and slow capital Survey Finding and Direct Conclusions Proposed Recommendations budget execution Consultation Results disbursement toward end of (submission of monthly or bi- payment by the Employer (as invoices in accordance with the time fiscal year monthly invoices by the mentioned above), due to multiple frame specified in the contract.; contractor and payment by the possible reasons including difficulty government based on verified of contractors in preparing #56: Contracts should be required to measurement of physical invoices, lack of include an “indicative” schedule progress of the works), or capacity/motivation of Employer in (specific date/week) for submission Lump-Sum (submission of verifying the invoices, lack of funds of invoices by the contractor. In invoices by contractor and of the Employer, or other example, the contract to show an payment by the government in governance related issues. indicative schedule of when the instalments based on invoices to be submitted: satisfactory completion of MOF only records the spending 1) 10% initial payment once the specified output milestones). unit’s obligation to settle the contract signed and effective and - Procuring entity is also required payment of invoices within 17 days the invoices to be billed on 1 to specify the terms of payment after the handover document April including when the contractor (BAST) issued for 100% of 2) 40% second payment after 60% can submit its invoices. goods/services being completed of work completed and the - However, in practice many and delivered at end of the invoice to be billed on 30 August contractors do not submit their contract period. This is the reason 3) 40% third payment after 90% of invoices in accordance with the of why IKPA performance of SUs work completed and the invoice time frame provided in the are generally given the good score to be billed on 30 October contract, which results in despite of slow in disbursement of 4) 10% final payment and invoice is delayed payment payment stages within contract estimated to be billed on 30 period before the works fully November completed - When the time due for contractors to submit invoices and the physical progress is observed (by SU) completed, SU could issue a letter to remind contractors that they are eligible to submit invoices and request clarification if contractors refused to do so Page:144 Reasons for low and slow capital Survey Finding and Direct Conclusions Proposed Recommendations budget execution Consultation Results 21. There is a lack of transparency 73% of respondents said that There is no record in the system to #57: Spending unit needs to record and accountability at Spending incomplete proof of vendor’s track receipt of submission of the date of vendor’s invoice Units in handling the submission invoices is the main cause for the invoices by vendors and their submission and its reasons for of invoices by vendors and length of time for Spending Units to approval, rejection, or return by invoice refusal (if any) so that the providing clearance for invoice prepare the order for payment spending units. Echelon 1 (and KPPN) would know payments (SPM); Meanwhile, in average 1 of 4 what would be the common error of invoices would need to be vendors that cause invoice rejection withdrawn and fixed by vendors by Spending Units. before they are considered completed by spending units #58: MOF to expand the functionality of SAKTI with “e- invoices” to facilitate an electronic submission of bills from vendors to spending units. If an e-invoice module, that is filled in and submitted by contractors/ vendors, is built in SAKTI, there could be greater transparency and accountability since any refusal and/or approval of invoices can be monitored. 22. Low capacity at both spending There is no sanction or punishment The delay from contractor for #59: Spending Units should be units and vendors to process on either spending units or vendors submitting invoice in time is partly proactive in sending reminder and payment claims for any delay in submitting and due to the lack of vendor’s staff request the contractor to submit processing payment claims. capacity who did not get frequent invoice in accordance with contract socialization and training supports without delays. on the procedures of invoice submission provided by spending #60: It would also be helpful to units and/or KPPN. It is added with conduct training and socialization on the issue on low incentive for invoice preparation and submission vendors submitting invoices on procedures, including time required time since the cost of preparing the to process the payment, so administrative requirements in contractor aware. Page:145 Reasons for low and slow capital Survey Finding and Direct Conclusions Proposed Recommendations budget execution Consultation Results multiple times is higher than the cost of holding the invoice and #61: Introducing punishment by consolidating with the next naming and shaming and/or invoices altogether categorizing them as riskier vendors 23. Implementation of new activity There are frequent new instructions Spending Unit is having a difficulty #62: For the essential capital instructed by Echelon 1 that of Echelon-1 to the good performer to implement new activities with expenditure projects, if delays in affects budget (DIPA) revision spending units to implement new additional budgets instructed and project completion seem that is required to be executed activities during the few months allocated by the top level (echelon unavoidable MoF should provide its immediately within current before the end of year as the result 1) in the mid of year since it is not direct approval to convert the fiscal year of budget optimization across yet planned before and the time to original single-year contract into a spending units. This new instruction implement this new activity is too multiyear contract along with the requires DIPA revision which impact short (ie. to prepare the plan, ability to carry over the unused on the “slow” pace of budget design, and revise the DIPA) before budget in current year to be added execution since it is approved late the end of fiscal year. “on-top” of next fiscal year budget and the “low” level since the (scaling up the SBSN flexibility to few spending units did not have capacity national priority and essential to implement new activity within a projects); tight schedule in one fiscal year. E. Financial Management and Audit 24. Weak payment verification in About 44% of spending units’ Some regional treasury offices #63: MOF to (i) conduct training on SU and various understanding respondents reported that some of (Kanwils) have actively provided payment verification and (ii) prepare on complete documentation by their payment orders (SPMs) were advisory, consultancy and guidance standard check list for complete KPPN rejected by Local Treasury Offices services to the spending units staff, documentation for both SU and (KPPNs), though it is not made in a uniform KPPN. mechanism by all Kanwils. #64: DG Treasury MOF is advised to soon launch web-based SAKTI so SPM submission by all spending units would be done through electronic and error can be corrected in the system without physical back and forth presence Page:146 Reasons for low and slow capital Survey Finding and Direct Conclusions Proposed Recommendations budget execution Consultation Results 25. Auditors focus on compliance to Only about 14% of respondents say While there are growing concerns #65: The capacity of internal auditors delay the process that the auditors created a situation over the heightened level of of line ministries should have been that will contribute to delay in fiduciary (audit) control improved to be equally similar across implementing activities. Spending discourages Spending units’ line ministries, through IA-CM level 3 units who raised their concern with personnel performance in project certification. auditors are mostly BLU (Hospitals) implementation, the role of while a spending unit from Army auditors in budget planning and (military) unit has felt grateful to be implementation has been helped by their (internal) auditors increased in the last several years. to achieve 100% disbursement. MOF has issued many regulations that would require much Interestingly, about 32% of involvement of line ministry’s respondents said that they prefer to internal auditors in doing ex-ante use direct selection by splitting control of the line ministry’s activities into some contracts to budget plan and execution prior of avoid audit for large size amount getting MOF’s approval. contract It is true that the increased fiduciary (audit) control has discouraged spending unit staff from taking pro-active steps in budget execution, including to do the procurement process 26. The MOF’s requirement to set While the validity of DIPA and the It is unfair for requiring the #66: SU to prepare contract for an earlier deadline (around 2 contract is allowed to be ended at contractors to provide a bank completion up to max 15 December weeks) of SPM submission to be the last date of a fiscal year on 31 guarantee since it is not their fault every year. This recommendation processed in KPPN before the December, every year DG Treasury for not completing the work and only applicable for single year end of fiscal year of 31 set another date as the deadline of submitting invoices by 13 contract. December is contradicted with when SU is required to submit SPM December since they are legally the law and regulation that to be processed by KPPN. In allowed to finish the work up to allow the 100% completion of example, for FY 2019, DG Treasury the contract period ends (say 31 physical works could be issued an instruction to SUs for December) delivered at the last date of the submitting SPM by 13 December at MOF should either to set a the latest and if the work is not yet regulation that require a contract Page:147 Reasons for low and slow capital Survey Finding and Direct Conclusions Proposed Recommendations budget execution Consultation Results contract that is permitted to be 100% completed by that time, MOF period to end before closing date ended on 31 December required contractors to provide of a fiscal year on 31 December “bank guarantee” in an equal (say, 14 working days before 31 amount of the payment to be December) or MOF to find other released alternative than requiring a “bank guarantee”, since in order to get a bank guarantee, contractors is required to deposit an equal amount of cash in the Bank. 27. Honorarium for spending unit’s staff motivation is low since the Honorariums set by MOF on #67: Conducting a study to define officials additional honorarium for officials standard costs for spending units performance allowance for SUs’ staff who manage a project is considered key officials are considered low to motivate them in accelerating low and paid on a monthly basis, and are not commensurate with disbursement of capital budget as hence they tend to lengthen their the task responsibilities; The early possible. work period for one full year current incentive structure or without incentive to finish it earlier. honorariums for civil servants who are appointed as spending unit personnel fail to reflect the scale or complexity of the projects. Page:148