Document of The World Bank FOR OFFICIAL USE ONLY Report No: 17253 IMPLEMENTATION COMPLETION REPORT INDONESIA SULAWESI - IRLAN JAYA URBAN DEVELOPMENT PROJECT (Ln 3340-IND) December 22, 1997 Urban Development Sector Unit Indonesia Country Management Unit East Asia and Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorizatio'n. 0 ii CURRENCY EQUIVALENTS Currency Unit = Rupiah (Rp) (As of January, 1992) Rp 1 million = US$542; US$1.00 =Rp 1,845 (As of June 1997) Rp 1 million =US$ 426; US$1.0=X Rp 2,350 FISCAL YEAR April 1 - March 31 UNITS OF MEASURES Metric Units- ABBREVIATIONS AND ACRONYMS' APIP - Annual Project Implementation Plan AMDAL - GOI Environmental Assessment Process CPMO - Central Project Management Office DGCK - Directorate General, Cipta Karya, Ministry of Public Works EA - Environmental Assessment GOI - Government of Indonesia IUIDP - Integrated Urban Infrastructure Development Program: KIP - Kampung Improvement Program LIDAP - Local Institutional Development Action Program MHA - Ministry of Home Affairs MIIP - Market Infrastructure Improvement Program O&M - Operations and Maintenance PDAM - Local Government Water Enterprise PFAMS - Project Finance Accounting Management System PIA - Program implementation Agreement PMDU - Provincial Management and Development Unit (for water enterprises) POMMS - Performance Oriented Maintenance Management System RIAP - Revenue Improvement Action Program SAR - Staff Appraisal Report SIJUDP - Sulawesi Irian Jaya Urban Development Project SLAP - Subsidiary Loan Agreement with Prefinancing SK - Surat Keputusan, Decree of a Senior Official SUDP2 - Second Sulawesi Urban Development Project TKI - Provincial Governments TKII - Local Governments TA - Technical Assistance TPA - Solid Waste Dump Site WTP - Water Treatment Plant Vice President Severino, Jean-Michel Country Director de Tray, Dennis Sector Manager Varma, Keshav Task Manager Hoornweg, Daniel iii FOR OFFICIAL USE ONLY REPUBLIC OF INDONESIA SULAWESI IRIAN JAYA URBAN DEVELOPMENT PROJECT (LN.3340-IND) Implementation completion Report Table of Contents PREFACE ...................................................................................i EVALUATION SUMMARY ...................................................................................ii PART I: PROJECT IMPLEMENTATION ASSESSMENT A. STATEMENT/EVALUATION OF OBJECTIVES ................................................................................1 B. ACHIEVEMENT OF OBJECTIVES ...................................................................................3 C. MAJOR FACTORS AFFECTING THE PROJECT ................................................................................8 D. PROJECT SUSTAINABILITY ...................................................................................9 E. BANK PERFORMANCE ...................................................................................9 F. BORROWER PERFORMANCE .................................................................................. 10 G. ASSESSMENT OF OUTCOME .............................................................. 10 H. FUTURE OPERATION .................................................................................. I I I. KEY LESSONS LEARNED ..................................................................................1 1 PART II: STATISTICAL ANNEXES ANNEX A: STATISTICAL TABLES ..................................................................................1 3 TABLE 1: SUMMARY OF AsSESSMENT ..14 TABLE 2: RELATED BANK LoANs ..15 TABLE 3: PROJECT TIMETABLE ..17 TABLE 4: CREDIT DISBURSEMENTS: CUMULATIVE ESTIMATED AND ACTUAL ..17 TABLE 5: KEY INDICATORS FOR PROJECT IMPLEMENTATION . .18 TABLE 6: KEY INDICATORS FOR PROJECT IMPLEMENTATION (A TO C) . . 19 TABLE 7: STUDIES INCLUDED IN PROJECT ........................................................................... 22 TABLE 8A: PROJECT COSTS (1&2) .................................................................................. 23 TABLE 8B: PROJECT FINANCING (1&2) .................................................................................. 25 TABLE 9: ECONOMIC COSTS - BENEFITS .................................................................................. 27 TABLE 10: STATUS OF LEGAL COVENANTS .................................................................................. 29 TABLE 1 1: COMPLIANCE WITH OPERATIONAL MANUAL STATEMENTS ........................ 3 1 TABLE 12: BANK RESOURCES: STAFF INPUTS .................................................................................. 31 TABLE 13: BANK RESOURCES: MISSIONS .................................................................................. 33 ANNEX B: STATISTICAL TABLES .................................................................................. 34 TABLE 1: EXCHANGE RATES USED DURiNG IMPLEmENTATION ........................................................ 34 APPENDIXES: A. MISSION'S AIDE-MEMOIRE ............................................................................... 35 B. BORROWER CONTRIBUTION TO THE ICR- SULAWESI IUIDP SUB-PROJECT ................................... 39 BORROWER CONTRIBUTION TO THE ICR-IRIAN JAYA WATER SUPPLY SUB-PROJECT ................ 50 C. MAP(IBRD22798) ....................................................................... 53 'This document has a restricted distribution and 'may be used by recipients only in thej performance of their o)fficial duties. Its con.tents may not otherwise be disclosed without World Bank aufthfiozation. IMPLEMENTATION COMPLETION REPORT INDONESIA SULAWESI - IRIAN JAYA URBAN DEVELOPMENT PROJECT (Loan No. 3340-IND) Preface This is the Implementation Completion Report (ICR) for the Sulawesi - Irian Jaya Urban Development Project (Loan 3340-IND) in the Republic of Indonesia, for which US$100.0 million was approved on June 6, 1991 and made effective on November 11, 1991. The Loan was closed on June 30, 1997 after a six month extension from the original closing date of December 31, 1996. Final disbursement took place on November 25, 1997, at which time the total amount of US$95, 834,632.57 in the currency pool was fully disbursed'. The ICR was prepared by Daniel Hoomweg (Task Manager), Heinrich Unger (ASTEN), Muhamad Nuch (EACIF), Dong Liu (EASUR), Ian Wetherill and Ephrem Asebe (consultants). It was reviewed by Messrs. Dennis de Tray, Country Director, and Keshav Varma, Urban Sector Manager, Indonesia, East Asia and Pacific Region. Preparation of this ICR began during the Bank's December 1996 ICR mission. It is based on material in the project file and data gathered during the ICR Mission. A brief follow-up mission was made to Irian Jaya and Sulawesi in July, 1997 and these findings are also incorporated. The Borrower contributed to the preparation of the ICR by stating its views as reflected in the mission's Aide-Memoire (Appendix A), and providing an extensive separate evaluation of the project, the summary of which is shown in Appendix B. The balance,in single currency loan of US$ 4,165,367.43 is being considered for emergency poverty relief efforts to alleviate the impacts of the financial crisis. ii INDONESIA IMPLEMENTATION COMPLETION REPORT SULAWESI - IRLIN JAYA URBAN DEVELOPMENT PROJECT (Loan No. 3340-IND) Evaluation Summary Introduction i. -In 1987, the Government of Indonesia issued its National Policy Statement for the urban sector and launched the Integrated Urban Infrastructure Development Program (IUIDP) concept. The Policy Statement provided a strategic framework and operational approach to guide local governments. The IUIDP approach, now adopted by over 75% of Indonesia's local governments, has become a platform for donor support. To date, over 20 urban projects have been financed under the IUIDP approach, of which 12 were financed by the ADB, and eight by the IBRD. Other donors have financed sub-components of some of these projects. The Sulawesi Irian Jaya Urban Development Project (SIJUDP), together with the East Java-Bali Urban Development Project (Ln. 3304-IND), were the first two major projects in the IUIDP series financed by the World Bank. The project provides a useful opportunity to review two types of interventions. Efforts in Sulawesi were within an IUIDP framework, whereas Irian Jaya had only water supply investments. The Project and its Objectives ii. Project Objectives. The objectives of the SIJUDP, as stated in the SAR were: (a) to provide urban infrastructure in selected cities in Sulawesi and Irian Jaya with emphasis on increased access of households to water supply and sanitation services; (b) to support improved infrastructure programming and financial planning in the Sulawesi cities, especially, to support the development of local government capacity to prepare and execute annual O&M programs; and (c) to encourage local government and water enterprise (PDAM) revenue generation and improved financial management. The first objective was applicable to both Sulawesi and Irian Jaya, whereas the second and third objectives were intended to be mainly for Sulawesi and to a limited extent for Irian Jaya in improved PDAM management and cost recovery (see Map for cities). iii. Project Components. The project objectives were to be achieved through the implementation of three principal components: (a) infrastructure development (water supply, drainage, solid waste, sanitation, roads, improvement of kampung, market infrastructure), and O&M for nine cities in Sulawesi ($118.2 million, or 70% of the project cost); (b) water supply system rehabilitation and investments in eight cities in Irian Jaya ($28.0 million, or 16.6%); and (c) technical assistance for project implementation support, institutional capacity building and project preparation ($22.7 million, or 13.4%). iv. Covenants. No major amendments to the Loan Agreement were made during project implementation. However, compliance with some loan covenants was only partial. For example, provisions for O&M in local governments (Tk II) in Sulawesi (section 3.01 of the loan agreement), tariff adjustments to fully cover water supply O&M, depreciation and operational interests (section 3.04), and the O&M expenditure level of each participating local government to reach at least the 90% agreed program (section 3.06), have not been fully complied with (see Table 10). ift v. Evaluation of Objectives. The SIJUDP objectives were important to the country and consistent with its priorities and the Bank's sector strategy. The project was demanding for the implementing agencies. The concept and scope of IUIDP were not clear to all government agencies participating in project implementation. In retrospect, the project's risk assumptions, with regard to institutional objectives and implementation arrangements, were optimistic: Targets for water connections, unaccounted-for-water reduction, and increased tariffs, although based on thorough feasibility studies, may have been higher than actually could be delivered with the available resources and institutional capacities of the local governments and their PDAMs. Implementation Experience and Results. vi. Achievement of Objectives. In spite of the start-up delay of more than one year, the project substantially achieved its first objective of providing urban physical infrastructure. In Irian &ya, the physical investments in water source supply, treatment, storage, transmission and distribution facilities have been completed. Most of the civil works financed under the project were handed over to the local water enterprises (PDAMs) by the original closing date and are now in operation. The practical loan extension of six months allowed a few of the larger works and facilities to be completed and commissioned. The initial Sulawesi IUIDP-based investments, which covered infrastructure development, rehabilitation, and O&M in nine cities, were generally completed. However, in all these towns, because of low construction quality, ineffective O&M, and continuing high unaccounted-for- water, the project did not fully achieve the expected development impact. vii. The second objective-- building local government capacity to prepare and execute annual O&M programs, as well as to carry out infrastructure programming and financial planning-- was partially achieved. However, little progress was made in institutionalization of the IUIDP concepts and follow-up mechanisms. Further, the objective to increase local capacity to deliver urban services more efficiently and sustainably (to improve municipal management) was only marginally achieved. The third objective - -increasing revenue and improving financial management--was partly achieved. However, where local revenue rose significantly, it is not conclusive that the Revenue Improvement Action Plan contributed to the change. viii. Project Cost. Total project cost, excluding interest during construction, was estimated to be US$168.9 million which with interest of US$19.3 million, required financing for a total of US$188.2 million, of which US$85.8 million was foreign. The Bank was to finance US$100.0 million and a Japanese Grant of Yen 103.6 million was made available to off-set preparation costs (detailed design and environmental assessment). The balance was to be financed from local (US$18.1 million), provincial (US$10.4 million) and central (US$33.4 million) government, water enterprises (US$5.1 million) and private contributions (US$1.2 million). Estimated actual total cost of the project was US$163.95 million and estimated actual loan financing loan was US$95.83 million. Exchange rates fluctuated from Rp 1,845 to US$1 in 1990 to Rp 2,350 to US$1 in June 1997. Through project savings and currency changes, approximately US$24.23 million was made available to improve deficiencies and optimize the water supply investments. ix. Factors Affecting the Project. The project along with the EJBUDP, was part of the Government's innovative attempt to help change urban management and donor assistance modalities. However, due to the complexities of the sector and the fact that some government officials resisted decentralization efforts, urban management did not improve as extensively as hoped. The critical factors affecting the project iv included: (a) ineffective and late technical assistance; (b) inexperienced contractors and supervision consultants who were reluctant to work in isolated communities, particularly in Irian Jaya; (c) local governments not sufficiently involved in planning, design and implementation; (d) little incentive for local governments to focus on O&M, compared to capital investments; (e) organizational changes within the executing agencies created confusion about areas of responsibility; (f) poor inter-agency coordination; (g) protracted and imperfect procurement procedures; and (h) lack of sufficient capable local staff and little continuity. The majority of the above factors affect most urban development projects in Indonesia, and should, therefore, be addressed on a broader scale rather than on a project-by-project basis. x. Bank Performance. Bank performance in identification was only marginally satisfactory. The Bank's urban strategy provided a framework for identifying the project, but as this was one of the first regional IUIDP projects (with an Irian Jaya Water supply component), procedures, coverage and project scope were changed several times during preparation: For example, Bank management felt that a separate water supply project for Irian Jaya would be too small, so it was incorporated into the IUIDP project. Bank preparation assistance was extensive and on the whole was satisfactory. However, supervision was marginally satisfactory because of resource constraints and the wide geographic area; thus, complete coverage during any one mission was not possible. However, the quality of supervision was high and was conducted with an appropriate mix of staff. xi. Borrower Performance. Borrower performance in project preparation, which was detailed and extensive in most cases, was satisfactory. It required an understanding of a new project concept, IUIDP, and operationalization of support systems that were demanding. Project preparation was detailed and extensive in most cases. Implementation was marginally satisfactory. After a delayed start, project implementation showed significant progress, but the quality of civil works was often poor. In particular, construction quality and contract supervision in Irian Jaya was problematic, while in Sulawesi, the problems were with landfill siting and operations, drainage and sanitation. Further, institutionalization of the implementation support mechanism proved difficult: In most towns, institutional weaknesses persist and O&M funding and execution are inadequate. xii. Project Outcome. The project outcome is marginally satisfactory. Although there are several mitigating factors (Section H), the development result is modest, but is unlikely to be sustainable, mainly because of poor quality of civil works, inadequate local participation at the grass roots level, shortfalls in O&M resource allocation, inadequate tariff increases to date, and above all slow progress in institutional capacity building attained over the course of project implementation. Moreover, the re-estimated economic rates of return for most water, road and drainage sub-projects are marginal. Although the project outcome is marginally satisfactory, it must be viewed as the first effort in a series of sustained interventions to bring about long-term changes in government. Summary of Findings, Future Operations, and Key Lessons Learned xiii. Findings. The achievement of physical objectives, while important, cannot be sustained unless these are supported by corresponding progress in institutional capacity and changed attitudes that are oriented towards service delivery. In some cases, properly maintaining existing facilities would have been better than constructing new ones. Further, the time frame for institutionalizing the various decentralization mechanisms was overly optimistic. Finally, effective Bank supervision was constrained by the very wide geographic areas in which the project was located. v xiv. Future Operations. The Bank approved a follow-on project, the Second Sulawesi Urban Development Project, SUDP2 (Ln. 4105-IND), which became effective in April 1997. SUDP2 covers the nine original, plus 32 additional towns in all four Sulawesi provinces. In the original nine communities, the emphasis is on properly operating and maintaining what was already funded, rather than new investments. Further, the continuing release of Bank funds has been conditioned on proper financial provisions for O&M, among other criteria. Efforts to obtain better compliance have been incorporated into the annual project implementation plan (APIP) for each local government to be reviewed by the Bank. Implementation support is also focused on "hands-on" assistance with less emphasis on reporting, and performance indicators have been developed to try to monitor progress in municipal management. Central and provincial agencies are expected to take an active and sustained role in project supervision. xv. Key Lessons Learned. The most important lessons of the project are: (a) Quality at entry. In a programmatic approach such as applied in the Sulawesi IUIDP component, it is essential to pay particular attention to the selection of sub-projects, the criteria applied for that selection, and the procedures for the economic and financial analyses of the projects. Also more attention should be given to the impact of urban services and ways to measure it. (b) Operation of completed projects. Much more emphasis should be placed on: proper O&M of already funded investments; timely hand-over of sub-projects on completion; community involvement in service delivery; and improved contracting procedures (on the awarding, executing, and supervising of contracts, and offering post-construction service). (c) Change in perspective. The project highlights the need for local governments to move away from a "project focus" towards more of an overall urban management approach. This requires a change in the current incentive regime. While additional funds may be necessary to improve the performance of existing services, in some cases, changes in perspective may be the most important factor in enhancing sustainability. To this end, inter- and intra-agency coordination must be improved. The PDAMs need to be more involved in project design and implementation to ensure their full understanding of the systems. (d) Environmental management. Increased effort in watershed protection are important; in this area project-supported efforts were showing success in some towns. However, overall, the preparation of the environmental assessments had little impact on improving environmental management during implementation. Waste disposal sites need to be better operated (with clear operating plans) and better located. Modest, yet urgent, efforts are essential for basic sanitation improvements which must include community education and local participation. (e) Municipal management. A sharper focus is needed on municipal management. This should include enhanced professionalization, better land use and service delivery planning, less emphasis on projects, a more streamlined annual budgeting process (particularly with operating budgets), better inclusion of, and response to, the general community, and a primary emphasis on 'service delivery'. (f) PDAM management. The role of local governments and PDAM management must be clarified. Currently, local governments own the PDAM and exercise control over tariff policies often vi without being aware of the implications of limiting tariff increases. In addition local governments should not expect financial contributions from PDAMs regardless of their financial capability. (g) Geographic constraints. The relative isolation of the project sites, particularly in Irian Jaya, illustrates the difficulties associated with governnent decentralization initiatives, building institutional capacity and construction quality improvements. This cannot be avoided but needs to be accounted for in future efforts. (h) The IUIDP approach. The project outcome demonstrates that a debate on fUIDP versus non-IUIDP type projects is somewhat academic since in both parts of the project, the deficiencies of municipal management were apparent. What is needed is not a discussion of IUIDP versus non-IUIDP, but rather a broad strategic consensus on how to best help local governments through a blend of investments, technical assistance, changes to incentives, and other types of assistance. (i) Capacity building. Institutional capacity is not so much a function of staff skills and training, but rather the environment in which they work (e.g., incentive structures) and linkages between various government agencies, government levels and the community. REPUBLIC OF lIDONESIA SULAWESI - IRIAN JAYA URBAN DEVELOPMENT PROJECT (Loan No. 3340-IND) PART I: PROJECT IMPLEMENTATION ASSESSMENT A. Statement/Evaluation of Objectives 1. Background. In 1987, the Government of Indonesia issued its National Policy Statement for the urban sector, and launched the Integrated Urban Infrastructure Development Program (IUIDP). The Policy Statement provided a strategic framework and operational approach to guide urban governments. The IUIDP approach, which includes urban roads, water supply, drainage, solid waste, human waste, kampung improvement, and market infrastructure, has now been adopted by over 75% of Indonesia's local governments, and has become a platform for donor support. To date, over 20 urban projects have been financed under the RJIDP approach, of which 12 were financed by the ADB and eight by the IBRD (table 2). Other donors have fmanced sub-components of some of these projects. The Sulawesi Irian Jaya Urban Development Project (SIJUDP), together with the East Java-Bali Urban Development Project (Ln. 3304- IND) were the first two major projects in the series of IUIDPs financed by the World Bank. The project provides a useful review of two types of interventions, since efforts in Sulawesi were within an IUIDP framework, whereas Irian Jaya only had water supply investments. 2. Project Objectives. The objectives of the SIJUDP, as stated in the SAR were: (a) to provide urban infrastructure in selected cities in Sulawesi and Irian Jaya with emphasis on increased access of households to water supply and sanitation services; (b) to support improved infrastructure programming and financial planning in these cities, especially, to support the development of local government capacity to prepare and execute annual O&M programns; and (c) to encourage local government and water enterprise (PDAM) revenue generation and improved financial management. 3. Project Components. The project objectives were to be achieved through the implementation of the following three principal components: (a) infrastructure development (water supply, drainage, solid waste management, sanitation, roads, improvement of kampung, market infrastructure, and O&M) for nine cities in Sulawesi ($118.2 million, or 70% of the project cost); (b) water supply system rehabilitation and investments in eight cities in Irian Jaya ($28.0 million, or 16.6%); and (c) technical assistance for (i) project implementation support, (ii) institutional capacity building and (iii) project preparation ($22.7 million, or 13.4%), see map for cities. 4. No major amendments to the Loan Agreement were made during project implementation2. However, compliance with some loan covenants was only partial. For example, provisions for operations and maintenance in level II district local governments (Tk II) in Sulawesi (section 3.01 of the loan agreement), review of tariff adjustments to fully cover water supply operation and maintenance, depreciation and operational interests (section 3.04), and review of the operation and maintenance program of each participating local government to ensure at least the 90% agreed upon expenditure level (section 3.06), have not been fully complied with. See Table 10. 5. Evaluation of Objectives. The objectives of SIJUDP were important to the country, and remain so. They were supported by the GOI and World Bank urban development strategies which mirrored each other. The objectives reflected the urban priorities at the time, and were designed in line with the government's 2On April 17, 1996, the Bank, at the request of the GOI Ministry of Finance, agreed to amend the procurement and disbursements schedules of the Loan Agreement to allow the use of statements of expenditure against consultants' services valued below the Bank procurement prior review threshold. 2 Urban Policy Statement. In particular, the Policy Statement was directed towards: (a) improving service levels in a regionally balanced fashion, particularly for the poor; (b) improving urban productivity and the effectiveness of investments through better infrastructure planning and programming, especially at the city level, and through enhanced local government capacity for fiscal management, revenue mobilization, project implementation, and O&M; (c) improving the urban environment by enhancing local government capacity to plan, implement and operate infrastructure in an environmentally sound fashion and also by enhancing community participation. 6. Being an amalgamation of two separate projects - an urban water supply component for Irian Jaya, and IUIDP for the four Sulawesi provinces - the SIJUDP was demanding for the implementing agencies. Initially, the government's original desire was to include all urban centers in Sulawesi, but the original project scope was reduced to nine cities and towns only. Yet, the project remained quite large and covered an extended geographic area. Project implementation was to take place in a decentralized environment. This involved coordination activities in nine local governments, 16 water enterprises (PDAMs), five provinces and the involvement of more than ten central government agencies. Furthermore, the success of the project required implementation of action plans (Revenue Improvement Action Plan -RIAP-, Local Institution Development Action Plan - LIDAP-, Performance Oriented Maintenance Management System - POMMS-), and mobilization and supervision of several groups of consultants. 7. The concept and scope of IUIDP were not always clear to all government agencies participating in the project. For example, some saw the IUIDP approach as being applicable to small cities while others to big ones. Some also saw IUIDP as useful in the programming or planning phase, whereas others thought IUIDP to be useful only in the implementation phase. IUIDP is also now perceived by some as a way to gain access to additional govermment grants, as opposed to generating development funds from internal resources. Generally, there appears to be no consensus about the effectiveness of the IUIDP approach relative to the sub-sector approach for implementing urban development projects. It is clear though that neither approach is sufficient, and that a blend of assistance programs, including non-project activities, are needed. 8. In retrospect, the design of the project was ambitious. Some assumptions, particularly in the water and drainage subsectors were overly optimistic in terms of expected improvements in institutional performance. These improvements were expected to materialize under the IUID process, based on the extensive training and technical assistance to be provided during implementation. For example, targets for water connections, reduction of unaccounted-for-water, and increase in tariffs, were much higher than actually could be delivered with the available resources and institutional capacities of the local governments and their PDAMs. Also, initial assumptions of project risks with regard to institutional objectives and implementation arrangements were optimistic. B. Achievement of Project Objectives 9. Overall Assessment In spite of start-up delays of more than one year and construction quality problems, the project has substantially achieved its first objective of providing urban physical infrastructure. Execution of infrastructure works proceeded well in most sectors and locations, and people benefited from improved roads, reduced flooding, and additional water supply and house connections. It also partially achieved its other institutional objectives. Some progress was made in institutional capacity building and local government revenues showed some increases. 3 Objective 1: Irian Java 10. The Irian Jaya sub-project consisted mainly of water system rehabilitation and development in eight cities (Jaypura, Sorong, Biak, Fak-Fak, Manokwari, Nabire, Serui, and Wamena). The physical investments in water supply, treatment, storage, transmission and distribution facilities were completed. Most of the works financed under the project were handed over to the local water enterprises (PDAMs) by the original closing date and are now in operation. The loan extension allowed for the completion of a few of the larger works and facilities, namely the Jayapura 500 mm diameter transmission line, the Sorong water treatment plant, the Biak transmission and distribution system, and for the testing and commissioning, or handing-over of the completed works to the PDAM. This short delay in project completion was in part due to technical problems associated with the installation of equipment and erection of structures, and other deficiencies which required remedial work and start-up assistance prior to hand-over. The Bank welcomed the six month extension as a prudent measure to reduce the risk of contracts being "pushed" too quickly, and to ensure adequate commissioning time. 11. The investments in Irian Jaya project towns increased system production capacity and sales, improved reliability and water quality, and increased service coverage. For example, the total served population exceeded its target by 17% over the SAR 1996 estimate of 295,010 people. Annual water production increased from about 8.1 million m3 to 13.4 million m3, although slightly lower than the targeted 14.6 million m3 for 1996. Water sale targets were lower than the appraisal value mainly due to high unaccounted-for-water (UFW), which averaged about 40 % compared to the appraisal figure of 20% of total production3. As regards storage, the use of additional and first time storage reservoirs in most project towns assures that peak demand flow will be catered for, and emergency storage will be available when water production problems occur. Objective 1: Sulawesi- SIUIDP4. 12. The Sulawesi project component was based on the IUIDP concept and thus had a wider scope than the Irian Jaya component. The Sulawesi investments covered infrastructure development, rehabilitation, and O&M in nine cities (Ujung Pandang, Pare-Pare, Watampone, Palopo, Palu, Kendari, Manado, Gorontalo, and Bitung) and several subsectors as described below. 13. Water Supply in Sulawesi. All major works and facilities proposed in the original project scope have been substantially achieved. Water works and facilities were commissioned in four project cities (Watampone, Manado, Bitung and Palopo) and were in operation by the PDAMs, by the original closing date. 3 GOI sector guidance in water supply sector for Replita V assumed that if money is spent on UFW, then a reduction to 20% was possible over a period of 5 to 6 years. This assumption has been disproved numerous times since the appraisal of the project. In addition, the nature of UFW in Indonesia has become more clearly understood - both physical and non-physical losses; and the lack of strong interest in the PDAM/DGCK/MHA in resolving this issue has become apparent. The Sulawesi IUIDP component cost including O&M was estimated at US$118.2 million, or 70% of the total. The relative share of IUIDP components for civil works and equipment were: (i) urban roads, 27%, (ii) drainage, 12.2%, (iii) water supply, 10.9%, (iv) kampung improvement, 3.4%, (v) solid waste management, 3.3%, (vi) human waste, 1.4%, and (vii) market infrastructure improvement, 0.3 % of the total cost. The annual and incremental O&M expenditures were estimated at 11.5% of the project cost. On completion, the total estimated actual cost of the Sulawesi IUIDP component was US$ 104.46 million. 4 14. Urban Roads. Over the project life, the Bank loan financed a large number of small and some 40 medium-size urban road sub-projects (valued between Rp 400 million and Rp 2 billion), and one large sub-project (valued Rp 7.4 billion), in the nine project cities. The work generally consisted of upgrading, including road widening, sidedrains, and sidewalk works. The overall quality of works was marginally satisfactory and drains and sidewalks, in particular, were of low quality. 15. Drainage. The physical targets of the drainage investment program were mostly achieved. The investments financed under the project were mainly construction and/or rehabilitation of secondary and tertiary urban storm drains. Some primary drains were also constructed. In Bitung a series of gabion "sabo" dams were built to trap volcanic sand flushed from steep slopes during very heavy rains. However, there still are some serious deficiencies with regard to the effectiveness and functioning of the overall drainage systems. As a result of these shortcomings, sand and silt have accumulated, vegetation has grown, and garbage is clogging existing and new drains in most project towns, placing the future effectiveness of drains in question. Because of these substantive deficiencies, the longer term benefits and the sustainability of many of the drainage investments are assessed as unlikely. 16. Kampung Improvement Program (KIP). Basic neighborhood or slum upgrading (kampung) improvements were provided under this sub-component. However, the Central Government and also some of the local governments often treated KIP as a physical infrastructure program only (excluding social and economic interventions) and implemented those basic improvements (water supply, footpath/access tracks, sanitation facilities etc.) without effective community consultation or involvement, despite repeated appeals by Bank supervision missions. As a result, the sanitation facilities installed are not always used, and local drainage and solid waste management continue to lack sufficient O&M. 17. Solid Waste. This component helped improved overall waste collection. However, the environmental impact from TPAs (solid waste disposal sites) has been exacerbated in some communities. For example, in Manado, the significant increase in local refuse collection has had an adverse impact on the TPA. In several of the project cities, TPAs were poorly sited. Most waste was dumped down steep slopes, making compacting and covering difficult. The five-year experience of the SIJUDP indicates that progress in this area is likely to be slow, while the positive lessons learned from, e.g. Watampone, could be readily transferable. Landfill sites at Manado, Bitung, Palu, Kendari and Ujung Pandang were not completed on time. Action plans, however, have been prepared to remedy the inadequate waste disposal sites in these five towns. They will be implemented under the Second Sulawesi UDP (Ln. 41 05-IND). Positive experience in Polopo and Watampone suggests that with an improved understanding by the Walikota/Bupati and his technical staff, TPA problems can be effectively addressed. 18. Human Waste Management (Sanitation). Community bathrooms (MCK), family toilets and septic tanks, sludge pump-out and removal trucks, and sludge treatment facilities financed under this component were less successful operationally than some of the other components. Some were not handed over to the concerned local government department for a long time. As in KIP, much work needs to be done to promote community participation through preparatory consultation. From a public health and environmental point of view, a concerted program of public education on the risks of inadequate sanitation and human waste disposal is necessary. Overall, the investments in these facilities had very limited impact or benefit, and their sustainability appears unlikely, because neither the communities nor the local government are using the facilities to their capacities. 19. Market Infrastructure Improvement Program (MIIP). The MIIP was an important component due to the economic significance of the local markets in the project towns. In some towns substantive improvements to water supply, sanitation, drainage and solid waste management were achieved under 5 MIIP, thereby improving public health and environmental conditions in and around the markets. However, most local governments paid little attention to this component. In the follow-on Second Sulawesi Urban Development Project, MIIP is a key project component, with significantly higher local government involvement. Objective 2: Instituional Capacity Building. 20. Infrastructure programming and financial planning in the project and development of local government capacity to prepare and execute annual O&M programs objectives were partially achieved. For example, central government staff noticed increased capacity in the nine previous SIJUDP towns during preparation of the Second Sulawesi UDP. However, little progress was made in institutionalizing the IUIDP concept in day to day local government operations: (a) Multi Year Investment Program (PJM), (b) Revenue Improvement Action Plan (RIAP), (c) Local Institutional Action Plan (LIDAP), and (d) Project Finance Accounting Management System (PFAMS). The IUIDP is still largely perceived in project terms, as opposed to ongoing service delivery. 21. The RIAP, was instituted as a means of improving revenue generation and management. It appears that it was accepted by some local governments only as a condition for additional grants, and without significant commitment. For this initiative to succeed, changes will be required: in the current requirements for recurrent expenditure and revenue budgeting, and in the proper applications of the incentive schemes. As regards LIDAP, the same type of comments apply. The nine Sulawesi cities have been able to use PFAMS (and training) successfully. The financial reports improved significantly throughout the project, but the system still needs to be simplified and improved. 22. The TA for POMMS implementation was mobilized late, and focused on technical systems. Formal instruction from Ministry of Home Affairs (MHA) was not forthcoming. The exceptions were Ujung Pandang, which had received previous TA for POMMS implementation, and Bitung where the accounting changes were made without reference to MHA. Late TA mobilization also reduced the time that POMMS could benefit from inputs from GOI and missions. O&M is not being properly funded in any of the local governments. As a consequence POMMS had not been used as designed. It was later agreed that this must be addressed through the Second Sulawesi UDP, and release of Bank funds under the Loan would be made conditional on proper financial provisions for O&M. Further, management actions would be incorporated in the Annual Project Implementation Plan for local governments and PDAMS (APIP) to be reviewed by the Bank each year. Objective 3: Revenue Generation. 23. The objective of increasing revenue generation by local governments and PDAMs, and improving financial management was partially achieved. However, the full implementation of a cost-based water tariff would require a considerable increase in 'A' factors5, reduction in operational and administration cost, and organizational changes. The RIAP deals with the 8 to 10 major local taxes and charges, and identifies the realistic potential from these revenues, and presents a time bound action plan to progress towards revenue maximization. The resulting annual revenue targets were to be incorporated in the annual budgets of local governments. This did not happen due to the local governments' lack of commitment and awareness of what had been agreed to in the Project Implementation Agreements. However, the RIAP targets were conservative, and overall revenue growth has exceeded appraisal projections. In financial management terms recurrent expenditures have exceeded appraisal projections, but where significant increases in local revenue have occurred, it is not certain whether RIAP had a role in it. 5 'A" factor - This is the basic domestic water tariff; weighting is currently applied to this to reflect both differing levels of consumption, and by type of customer. 6 24. Economic Rate of Return. In retrospect, EIRR estimates at appraisal were relatively high. Recalculated EIRRs for the PDAMs, even under optimistic assumptions were estimated to be marginal. The EIRR re-evaluation of the 67 sub-projects in urban roads and drainage implemented between 1992/93 and 1995/96 and with a construction value above Rp 400 million, however, did not establish a clear linkage between the completed sub-projects and estimated benefits (Annex A: Table 9). However, there is clear evidence on the ground that many of the investments are yielding benefits to the local population. 25. Private Sector Participation. Only a few promising activities, such as parking tariff collection, private sponsorship (with maintenance responsibilities) of waste containers in Manado, and market development in Palopo and Watampone have been undertaken. Other possible examples for the project towns would be in areas such as PDAM operation by a local contractor in Wamena, TPA bulldozer operations in Palu, and heavy equipment leasing in all communities. While in principle the role of the private sector is accepted, due to the size and relative isolation of the communities, what is expected are incremental advances, usually at the Bupati's/Walikota's encouragement. 26. Environmental Impact Important successes were the watershed management efforts to protect the quality of present and future water supplies in Irian Jaya. Following a Governor's decree, committees were set up by all local governments, and some are active with implementation efforts, such as delineation of the catchment area, fencing, signing, policing, monitoring, and coordinating development activities. The Governor's effort to institutionalize a participatory approach was a positive step. The growing recognition for local government budgetary allocations and the need for major changes in perspective emphasized in the 1996 watershed protection workshop were also encouraging. However, overall, the preparation of the environmental assessments (EA) had little impact on improving environmental management during implementation, because the EA studies were done in Jakarta, and the completed reports were not adequately disseminated to the field or followed-up during implementation. 27. Project Implementation. Disbursement closely followed SAR estimates, except for the initial lag. All civil works contracts were LCBs and few of them required prior Bank review. Contracts were awarded according to Keppres (GOI procurement guidelines) and the awards were made to the lowest evaluated bidders. However, the tender procedures need improvement, as in some cases the difference between the lowest and highest bid prices was less than one percent. Because of the delay in mobilizing the TA consultants, there were initial problems in CPMO meeting the reporting requirements in terms of promptness and necessary information. But later, the position improved significantly with good cooperation between CPMO and the various Bank supervision missions. Regular financial performance reporting on PDAMs was available from the Provincial Management and Development Unit for water enterprises (PMDU) in Irian Jaya after year three, and on a more limited basis for some PDAMs in Sulawesi. The lack of financial and economic skills within PMDU to carry out any form of analysis of PDAM management and of their operations was a constraint. In the case of specific products of various TA in the project, submission of the reports to the Bank for review and comment was not always considered satisfactory. A more structured approach to this kind of reporting would be required in future projects. 28. Project Cost. Total project cost, excluding interest during construction, was estimated to be US$168.9 million which with interest of US$19.3 million, required financing for a total of US$188.2 million, of which US$85.8 million was foreign. The Bank was to finance US$100.0 million and a Japanese Grant of Yen 103.6 million was made available to off-set preparation costs (detailed design and environmental assessment). The balance was to be financed from local (US$18.1 million), provincial (US$10.4 million) and central (US$33.4 million) government, water enterprises (US$5.1 million) and 7 private contributions (US$1.2 million). Estimated actual total cost of the project was US$163.95 million and estimated actual loan financing loan was US$95.83 million. Exchange rates fluctuated from Rp 1,845 to US$1 in 1990 to Rp 2,350 to US$1 in June 1997. Through project savings and currency changes, approximately US$24.23 million was made available to improve deficiencies and optimize water supply investments. Some US$1.52 million was utilized form the project preparation funds for detailed design and environmental assessment. C. Major Factors Affecting the Project 29. Factors not generally subject to government control. Although there was no consensus with GOI, consultants and TA were generally viewed to be ineffective in setting up and implementing POMMS, RIAP and LIDAP. Although consultant performance is generally subject to government control (the contract managers) the consultants in this area were often non-professional and of limited benefit. 30. Factors generally subject to Government control. One of the main factors in this category is the poor quality of construction works, e.g., water pipe bedding and welding in Jayapura maintenance, access at the Manado WTP, concrete quality and retaining walls throughout, market drainage and road works in Kendari, poorly assembled pipeworks and equipment in many WTPs. Several factors contributed to this: (a) late mobilization of the PMU Advisory consultants in Irian Jaya and of the DED & SPN consultants in Sulawesi leaving supervision to poorly equipped local government staff only, (b) "advisory" role only for the PMU consultants in Irian Jaya with niether authority nor responsibility for construction quality, (c) weak, small or inexperienced contractors working on many small, separate contracts, (d) an apparent lack of appreciation of the benefits and importance of good quality construction at all levels of government, the contractors and most consultants, (e) inadequate or inexperienced supervision staff from either local governments or the consultants, (f) protracted and imperfect procurement procedures, (g) lack of sufficient O&M funding and execution, and (h) persistent institutional weaknesses. In particular, most local governments felt that they could not afford the O&M levels set out in the SAR, (agreed to by the local governments in the Project Implementation Agreements and covenanted in the Loan Agreement and insisted upon by Bank supervision missions), while provincial governments did not agree with local government statements on affordability. 31. "Handing over" of investments for operation and maintenance involves a complicated bureaucratic process, often times going from central government to provincial government, local government, and occasionally down to the community. This resulted in little ownership and or maintenance. Some KIP investments had still not been handed over to the respective communities more than three years after completion. Similarly, IPLT (sludge treatment) facilities constructed by Cipta Karya Pusat were left idle by local governments for years. There were at least six of these in IBRD project towns, some funded in parallel with the project. These seemingly needless delays no doubt seriously reduce the effectiveness of the investments and highlight an urgent need for greater accountability and cooperation. 32. A third factor is that local governments did not understand Ministry of Finance requirements and the Subsidiary Loan Agreement with Pre-financing (SLAP). Coordination with Pusat could have been much better. TKI coordination was considered much more evolved in South Sulawesi Province which had set up a PPMO and PPMU modeled on the East Java provincial implementation units, established under Ln. 3304-IND (East Java-Bali UDP) on their own initiative. 8 33. A fourth factor is the change in executing agencies / recipients of infrastructure. At the time of appraisal, the project included 9 Tk II governments in Sulawesi; in four cases the project towns were Kota Administrative (embryo Kotamadya), i.e., Palu (Kabupaten Donggala), Kendari (Kabupaten Kendari), Watampone (Bone), and Palopo (Kabupaten Luwu). In Irian Jaya, Jayapura, the provincial capital, was located in Kabupaten Jayapura. During the project Palu, Kendari and Jayapura were all converted into Kotamadya (city) which are separate TK II governments. This raised a number of organizational and institutional questions regarding the project's ownership and establishment of new water enterprises, tariff approval mechanisms, and various responsibilities and commitments related to the Program Implementation Agreements (PIA) and PIA targets for revenue improvements. 34. At appraisal, the Bank had requested the conversion of all water companies owned/managed by the Central Government (BPAM), to PDAM, and had specifically covenanted the time table for the conversions in Irian Jaya. The basis for conversion was that the BPAM had reached a reasonable level of management and operating efficiency and should have been recovering operating costs and depreciation through effective tariff policies. Although the conversions were made, the basic requirements for conversion had not been met. The management capability was not in place, and financial capability had not been established. In addition to having negative impacts on the quality of infrastructure, there were also major impacts on the effectiveness of the various TA and institutional development elements of the project. In particular, control of revisions of tariffs was passed from central government to local governments who also were not prepared to handle the additional powers and responsibilities. 35. This project, like many urban development interventions, was affected by systemic governance issues. The Government agencies responsible for the project implementation were not able to effect significant changes in these areas. These issues, such as, the representational nature of the local legislative assembly (DPRD), Bupati/Walikota accountability, staff compensation, and performance measures of professional staff and political appointees, need to be further refined to ensure long-term sustainability in this sector. 36. A number of factors generally subject to the control of the implementing agency were procurement delays, and delays in local contracting because of lack of experience with Bank procedures. Further, large infrastructure works faced problems when broken into smaller contracts. Local contractors were not financially strong and contract supervision was insufficient. Institutional development and management of technical assistance did not receive adequate attention by all levels of government. Land acquisition problems by Tk II, and inadequate O&M and financial management by PDAMs continued to have negative effects on the operation of project financed facilities. D. Project Sustainability 37. The benefits generated in relation to the project's major objectives and the achievements expected in the operational plan (Section H) are unlikely to be sustainable. Sustainability is considered unlikely only when the project is viewed in isolation, i.e., no follow-on activities, however, since the follow-on efforts are outside this project's scope, an evaluation of the project, on its own must be made. To reverse the underlying factors affecting project sustainability, (a) a well directed follow-on project, (b) an enhanced emphasis on overall urban management, and (c) a feedback mechanism on the quality of urban services delivery, will have to be instituted. In this regard, in Sulawesi, the follow-on project (Second Sulawesi UDP- Ln 4105-IND) is likely to enhance the first project's sustainability. In both Irian Jaya and Sulawesi a further shift, away from a "project focus" and towards "service provision and urban management", is required. This means moving away from the current policy environment which 9 encourages development expenditure instead of recurrent expenditure. Finally, institutional mechanisms for community 'feedback' on the quality of service delivery could help local governments to adjust services accordingly. The recent proposal by the Director General of Cipta Karya (supported by the Governor of Irian Jaya) to establish PDAM "consumer advisory boards" is a step in the right direction. The establishment and active involvement of these advisory boards in Irian Jaya should enhance the sustainability of the project. Similarly, the watershed protection efforts through multi-stakeholder efforts are very encouraging. E. Bank Performance 38. Identification/Preparation. For SIJIUDP, the gestation period from identification to appraisal was longer than average for the first generation IUIDPs. This reflected the difficulties that this project had in coordinating several sectors and levels of government, and the fact that the project covered two less developed areas of Indonesia. Initially, the IUIDP concept was not clear to the implementing agencies. The Bank provided extensive guidance on this and on the establishment of an institutional framework to solve preparation problems the project experienced. Bank assistance concentrated only on those cities where preparation had reached an advanced stage. On the other hand, Bank management felt that a separate water supply project for Irian Jaya would be too small, so it was incorporated into the IUIDP project. However, at Bank's insistence, the overall scope of the project was reduced to use available resources more effectively. Other key aspects of Bank assistance focused on strengthening O&M activities for infrastructure and services covered by SIJUDP expenditure programs in each local government. Implementation plans were detailed for each component. Overall, project preparation assistance was satisfactory while identification was marginally satisfactory. 39. Appraisal. Project appraisal was marginally satisfactory. At the time of pre-appraisal, peer reviewers expressed their concern about the extensive geographic area included in the project and the large number of sub-projects. This was a valid concern given the geography of Sulawesi where cities like Manado and Ujung Pandang are more than 1,000 kilometers apart, which made frequent supervision of all project towns difficult. But despite these recommendations, the project was appraised as prepared, and included nine local governments in Sulawesi, and the eight PDAMs in remote Irian Jaya Province. Otherwise, assessments of the project's primary risk, i.e., difficulties in achieving the institutional development objective, were on target. As one of the first two major Bank financed IUIDPs, the project contained pilot elements; some of the risks had not been fully understood, or quantified at the time of the appraisal, particularly, the physical investments/TA mix, and inter-government relationships, a key factor in judging the success or failure of the project. 40. Supervision. Mainly because of limited resources and the broad geographic and technical scope, Bank staff supervision was marginally satisfactory. However, field visits were made generally with the appropriate mix of staff. Supervision reports were sector and site specific and gave detailed observations and recommendations on specific actions to be taken by the appropriate agencies. Because of budget constraints, complete coverage of project sites of the wide geographic area during any one mission was not possible; therefore limited supervisions were carried out. In accordance with the Loan Agreement, "a comprehensive review assessing the progress of the project" was to be held by June 1994 as part of the mid-term review. However, due to the slow start-up, the project mid-term review was not done as scheduled. Instead, the June/July 1994 mission undertook an in-depth review of the implementation progress and loan fund use, and the subsequent mission of November/December 1994 concluded that review. The review stated that project implementation was suffering from lack of adequate supervision by central government agencies probably due to the remote and dispersed location of project towns. The 10 final supervision mission of the project found the quality of civil works poor, and the overall sustainability of the project questionable. There was a slight disconnect in general supervision ratings (mostly satisfactory) and the final ICR mission (less positive). This was due to a more limited focus during regular supervision missions, e.g., facilities construction, and a broad overview, (looking at the sum of the whole versus the sum of the parts) during the ICR mission. F. Borrower Performance 41. Preparation. Borrower performance in project preparation was satisfactory. Project preparation required the mastery of a new project concept, IUIDP, and operationalization of support systems which were demanding for the agencies involved. Project preparation efforts were detailed and extensive. 42. Implementation. Implementation was marginally satisfactory. After a delayed start, project implementation showed significant progress but the quality of civil works and services made little improvement. In particular, in Irian Jaya construction quality and contract supervision continued to be problematic, while in Sulawesi, the problems were with landfill siting and operations, drainage and sanitation. Institutionalization of the implementation support mechanisms proved to be difficult. In most towns, institutional weaknesses persisted and O&M funding and execution were inadequate. There was a clear need to better manage all technical assistance and to insure better supervision of consultants. G. Assessment of Outcome 43. Overall, the project outcome is assessed as marginally satisfactory. Although there are several mitigating factors (Section H), the development result is modest and sustainability appears unlikely mainly because of poor quality of civil works, inadequate local participation at a grass roots level, shortfalls in O&M, inadequate tariff increases to date, and above all the slow progress in institutional capacity building attained during the course of project implementation. Moreover, the re-estimated economic rate of returns for most water, road and drainage sub-projects are marginal. H. Future Operation 44. As noted earlier, the financial commitment for O&M has not been strong by the Tk II. The Bank has approved a follow-on project, the Second Sulawesi Urban Development Project, SUDP2 (Ln 4105- IND), which became effective in April 1997 and is reviewing the prospects of a follow-on project in Irian Jaya. SUDP2 covers the nine original, plus 32 additional towns in all Sulawesi provinces. The design of the SUDP2 has made use of the key lessons learned from the implementation experience of SIJUDP. For the nine original SIJUDP communities, emphasis will be on properly operating what was already funded, rather than exclusively focusing on new investments. Further, release of Bank funds has been made conditional on proper financial provisions for O&M. Efforts to obtain better compliance have been incorporated into annual APIP for each local government to be reviewed by the Bank. More comprehensive municipal management performance indicators and requirements for much more active project supervision by central and provincial agencies have also been included. These actions under SUDP2 could significantly enhance the sustainability of the investments of SIJUDP sub-projects. Implementation and supervision of SUDP2 has a key focus on "municipal management" trying to ensure that project investments are well incorporated into an increasingly efficient local government. 11 45. The appropriate time for OED to evaluate the impact of SIJUDP will be after the closing of the Third Jabotabek Urban Development Project (loan 3246-IND), the last of the first generation IUIDP loans appraised until 1993 (Annex A: Table 2) in Indonesia. The performance indicators to be used for evaluating should be similar to those used in SUDP2, the follow-on project. I. Key Lessons Learned 46. Key Lessons Learned. The most important lessons of the project are: (a) Quality at entry. In a programmatic approach such as applied in the Sulawesi IUIDP component, it is essential to pay particular attention to the selection of sub-projects, the criteria applied for that selection, and the procedures for the economic and financial analyses of the projects. Also more attention should be given to the impact of urban services and ways to measure it. (b) Operation of completed projects. Much more emphasis should be placed on: proper O&M of already funded investments; timely hand-over of sub-projects on completion; community involvement in service delivery; and improved contracting procedures (on the awarding, executing, and supervising of contracts, and offering post-construction service). (c) Change in perspective. The project highlights the need for local governments to move away from a "project focus" towards more of an overall urban management approach. This requires a change in the current incentive regime. While additional funds may be necessary to improve the performance of existing services, in some cases, changes in perspective may be the most important factor in enhancing sustainability. To this end, inter- and intra-agency coordination must be improved. The PDAMs need to be more involved in project design and implementation to ensure their full understanding of the systems. (d) Environmental management. Increased effort in watershed protection are important; in this area project-supported efforts were showing success in some towns. However, overall, the preparation of the environmental assessments had little impact on improving environmental management during implementation. Waste disposal sites need to be better operated (with clear operating plans) and better located. Modest, yet urgent, efforts are essential for basic sanitation improvements which must include community education and local participation. (e) Municipal management. A sharper focus is needed on municipal management. This should include enhanced professionalization, better land use and service delivery planning, less emphasis on projects, a more streamlined annual budgeting process (particularly with operating budgets), better inclusion of, and response to, the general community, and a primary emphasis on 'service delivery'. (f) PDAM management. The role of local governments and PDAM management must be clarified. Currently, local governments own the PDAM and exercise control over tariff policies often without being aware of the implications of limiting tariff increases. In addition local governments should not expect financial contributions from PDAMs regardless of their financial capability. (g) Geographic constraints. The relative isolation of the project sites, particularly in Irian Jaya, illustrates the difficulties associated with government decentralization initiatives, building institutional capacity and construction quality improvements. This cannot be avoided but needs to be accounted for in future efforts. 12 (h) The IUIDP approach. The project outcome demonstrates that a debate on IUIDP versus non-IUIDP type projects is somewhat academic since in both parts of the project, the deficiencies of municipal management were apparent. What is needed is not a discussion of IIUIDP versus non-IUIDP, but rather a broad strategic consensus on how to best help local governments through a blend of investments, technical assistance, changes to incentives, and other types of assistance. (i) Capacity building. Institutional capacity is not so much a function of staff skills and training, but rather the environment in which they work (e.g., incentive structures) and linkages between various government agencies, government levels and the community. 13 ICR-Annex A IMPLEMENTATION COMPLETION REPORT INDONESIA SULAWESI - IRIAN JAVA URBAN DEVELOPMENT PROJECT PART II: STATISTICAL ANNEXES ANNEX A. STATISTICAL TABLES (Loan 3340-IND) Table 1: Summary of Assessment A. Achievement ofobjectives ubstantial artial Negljgigble No Macroeconomic policies - 5 5 X Sector policies 5 X 5 0 Financial objectives 5 X a o Institutional development 0 X 0 C Physical objectives X 5 5 5 Poverty reduction 5 5 X 5 Gender concerns 5 5 5 X Other social objectives 5 O X O Environmental objectives 5 X 5 5 Public sector management 0 X c o Private sector development 5 O X 5 Economic benefits O X 5 5 B. Project Sustainahility Lik UnlikIy Uncertain 5 X O C. Bank Performance Higjljy Marginally Saisfactorv Satisfatg satisfactory Deficient Identification o O X o Preparation assistance 5 X C 5 Appraisal g D X 5 Supervision O O X O D. Borrower Performanc Highly Marginally Stisfactory Safisfacnry s fcry Deficient Preparation O X Implementation C 5 X Covenant compliance 0 a X 0 Operation 0 X 5 E. Assessment of Outcome Highly Marginally SadSttry Satisfactory Dericient o 5 X o 14 ICR-Annex A Table 2: Related Urban and Water Supply Bank Loans Loan/credit title Purpose Year of Status approval Preceding onerationsA* Loan 1972-IND Fourth Urban To Implement a nationwide KIP; a site and 1981 Closed Development IBRD Loan $43 service program; and strengthening of the million; Cost $85.93 million. management capabilities of the Bank Tabungan Negara(BTN)and the PERUMNAS. Loan 2408-IND Fifth Urban To Improve basic urban services and 1984 Closed Development strengthen municipal administration in the project cities (Surabaya, Semarang, Surakarata, and Ujung Pandang) and augment the capacity for local resource mobilization oan 2725-Housing Sector To expand access to housing finance for low 1986 Closed Project and middle income households; to reduce overall subsidies to the lowest income groups; to reduce the reliance of the housing finance system on government funds and introduce new instruments for resource mobilization; to stimulate the production of more low cost housing by both public and private developers; to generate employment at low foreign exchange and to Strengthen BNT and l _______________ PERUMNAS. Loan 2816-IND Urban Sector To carry out GOI's FY87/88 and FY88/89 1987 Closed Project urban infrastructure expenditure program; to strengthen sector institutions and procedures; to improve local resource mobilization; and to increase the responsibilities of local governments for urban infrastructure l______________________ planning, financing and implementation. Loan 2817-IND Regional To implement a program for relieving traffic 1987 Closed Cities Urban Transport congestion and promote transport efficiency; to strengthen city government capabilities in the planning, implementation, and maintenance of traffic and transport facilities; and to establish a process of coordinating the investment activities of central, provincial and city government agencies in urban transport L _____________________ prograrns. 15 Loan 2932-IND Jabotabek To provide technical assistance for 1988 Closed Urban Development institutional development and training in urban management and include physical works( mainly civil works and some equipment) for an extensive program of road improvement and construction Loan 3219-IND Second To develop and implement a coordinated 1990 Closed Jabotabek Urban Development program of physical investments, technical Project assistance and policies of urban water supply, wastewater disposal, drainage and water _________________________ resources/equity management. l Loan 3246-lND Third To introduce a more effective and sustainable 1991 Active Jabotabek Urban Development approach to provision of basic services in Jabotabek through extensive community participation in recognized low-income urban communities; to strengthen environmental protection and pollution control in the Jakarta region; and to improve maintenance of existing infrastructure networks and provide a firmer basis to plan future development priorities. Loan 3304-IND East Java-Bali To improve the quality of urban infrastructure 1991 closed Urban Development Project and services in the two provinces, through support for urban infrastructure investments; institutional development l Fllowing projectsI Loan 3726-IND Surabaya To improve urban service levels and 1994 Active Urban Development affordability, particularly for the poor; productivity and the effectiveness of investments through better infrastructure planning and management, revenue mobilization, project implementation and O&M; enviromnental quality by enhancing local government capacity to plan, implement and operate infrastructure in an environmentally sound fashion and also by enhancing community participation l Loan 3749-IND Semarang- To improve the provision of urban 1994 Active Surakarta Urban Development infrastructure services and the efficiency of the urban investments; to promote stronger, more autonomous, and financially more independent municipal government; and to contribute towards poverty alleviation, mainly through better access to essential services and an improved urban environment (Part of IUIDP framework) . X 16 oan 3854-IND Kalimantan To improve the provision of urban 1995 Active Urban Development Project infrastructure services and the efficiency of the urban investments; promote stronger, more autonomous, and financially more independent municipal governments; to contribute towards poverty reduction, mainly through better access to essential services; and improve the environment. n 4105-lND, Second to improve the provision of urban services 1997 Active Sulawesi through appropriate economic investments in Urban Development Project physical infastructure; to strengthen operations and maintenance activities for urban services, and support improved planning, programming, budgeting, financial management and local revenue generation by local governments; and to improve urban environment management and reduce local environmental impacts. oan 4017 IND Second East To improve urban infrastructure service 1996 Active ava Urban Development delivery, and to develop the necessary Project financial and institutional capacity in local govermments to sustain urban services. Loan 4155-IND Bali Urban Improve urban infrastructure services in Bali 1997 Active Improvement Project in a sustainable manner to meet: (i) basic needs in all important urban centers and (ii) the needs for growing urbanization in south Bali as a result of tourism and other economic activities preceeding projects are only those within the ten year limit. 17 ICR-Annex A Table 3: Project Timetable Steps in project cycle Date planned Date actual/atest estimate Identification (IEPS) 12/83 - 04/87 12//83 04/18/88 04/18/88 05/88 - 5/89 2/88 - 3/90 ppraisal 06/89 10/90 Negotiations . 12/89 04/10-12/91 oard presentation 03/90 06/06/91 Signing 08/91 08/08/91 Effectiveness 11/91 11/04/91 idterm Review 06/94 10/94 oject completion 06/30/96 12/31/96 oan closing (Loan 3304-IND)) 12/31/96 06/30/97 Table 4: Loan Disbursements: Cumulative Estimated and Actual (US$ million) Bank FY FY92 FY93 FY94 FY95 FY96 FY97 FY98 Appraisal estimate 19.1 46.7 67.9 84.3 96.3 100 100 Actual 4.5 17.63 40.52 63.26 81.50 95.8 95.8 Actual as % of estimate 23.6 37.7 60.0 75.0 84.6 95.8 95.8 Date of final disbursement November 25, 1997 18 ICR-Annex A Table 5: Key Implementation Indicators and Reporting Systems Indicators Planned Reporting frequency and Actual responsibility Performance 1. Conformity of annual budget Annual Satisfactory allocation with approved expenditure (1) PFO programs and financing plans (2) CPFO 2. Conformity of actual expenditures Annual Satisfactory with budget allocations (1) PFO _(2) CPFO 3. Physical progress per local and Quarterly Satisfactory enterprise government (1) PMO/PUM (2) CPMU 4. RKL/RPL Implementation Annual Unsatisfactory (1) PMO /PMU (2) CPMO 5. Water enterprise financial targets Annual Unsatisfactory (1) PMO /PMU l _________________________ (2) CPM O 6. Local government revenue Annual Unsatisfactory regarding targets, but improvement targets and achievements (1) PLO /PMU satisfactory regarding actual results l __________________________ (2) CPM O 7. Loan disbursement targets Quarterly Satisfactory CPFO 8. Consulting services implementation Quarterly Partially satisfactory schedules, particularly assignment starts CPFO 9. Procurement schedule Quarterly Unsatisfactory (1) PMO/PUM (2) CPMU /a PMO refers to the Project monitoring Office at the local government level in Sulawesi. PMU refers to the Project Management Unit in Irian Jaya. 19 Table 6: Key Performance Indicators for Project Operation a) Irian Jaya Water Enterprises- PDAM Jayapura Biak Fak-Fak Manokwari Nabire Serui Strong Wamnena Population ('000)* Actual* 314 78 34 40 42 n/a 99 41 SAR(96/ 162 52 19 44 25 15 103 9 97) Population Served (%)* Actual* 57 49 42 26 28 n/a 60 38 SAR 85 76 71 75 76 75 69 75 Production Capacity (I/s)* Installed 416 264 35 65 30 n/a 124 20 Produced 246 90.2 28 35 18.5 n/a 114 18 Connections Actual 14777 1845 2131 1724 1320 1546 6958 824 SAR 16612 3288 1402 3263 2155 1126 9148 Unaccounted for Water ( %)'* Actual 42 45 33 66 40 40 39 0.00 SAR 20 20 20 20 20 20 20 20 Average Tariff- Rp/M3 Actual 514 914 452 487 892 358 976 0.00 SAR 860 1060 467 450 717 583 601 577 Average Cost Rp/M3 Actual 438 913 508 425 667 287 1121 0.00 SAR 372 410 391 369 463 434 408 438 Operating Revenue -Rp Million Actual 2446.312 494.886 328.347 371.278 216.407 194.358 1753.670 0.00 SAR 4510.850 1060.51 192.170 192.170 415.540 432.900 206.160 1530.460 Operating & Maint. - Rp Million Actual 1201.623 309.971 227.706 113.753 119.642 73.502 1436.536 0.00 SAR 1720.640 396.080 157.370 314.690 256.830 139.580 993.150 88.33 Administration/Gen. - Rp Million Actual 479.446 147.63 98.142 115.817 36.320 46.150 227.336 0.00 SAR 372.600 22.410 16.470 17.350 17.840 - 15.330 36.360 13.040 Income before Deprecations Rp Actual 672.223 37.655 2.502 118.041 60.445 74.706 89.798 0.00 Million SAR 2417.610 642.030 18.320 83.500 158.230 51.250 510.450 36.07 Net Income - Rp Million Actual (685.889 (284.04 (6.044.**) (117.249.**) (90.491) (44.925) (197.571 (0.00) 0) SAR 121.560 215.59 (63.000)' (179.110) (81.560) (37.060) 504.460) (19.46) Notes: Actual - * Population and population served are Data from July 1997 ICR mission the rest of the data is as of December 1995 SAR - Data from Financial Year 1995/96 column (.**) Without depreciation 20 Table 6: Key peribrmnance Indicator for project Operation Sulawesi Water Enterprises PDAM MANADO PDAM BIUNG SAR SAR PROJECTED P Impat SAR SAR PROJECTE P 1991 1996 1996 SAR 41 to 96 Act v SAR9146 1991 1 19996 SAR 4 to # ACt v SMA ti Service Area Population 262 280 365 16 102 69 76 88 7 19 Population Served % 56.00% 68.70% 60.20% 59.70% 74.40% 43.39% Population Served No 147 192 220 46 73 41 56 36 15 (3) Connections 000's 21.020 26.800 27.549 5.780 6.529 6.800 8.850 8.363 2.050 1.563 Water Production M3 Mill 14.748 16.188 13.903 1.440 (0.845) 2.618 3.767 6.634 1.169 3.016 Unaccounted for Water M3 Mill 6.123 4.979 5.631 (1.144) (0.492) 0.751 1.095 2.257 0.343 1.506 Unaccounted for Water % 42% 31% 41% 29% 29% 40% 0% Water Saies M3 MiII 8.625 11.209 8.272 2.584 (0.352) 1.667 2.693 3.377 0.826 1.610 Average Tailif RpslM3 355 550 1,209 195 664 350 620 1,160 270 S10 Average Ops Expenditur Rps/M3 263 304 782 41 519 211 224 669 13 376 Total Operating Revenu Rps Mill 3,394 7,044 10,949 3,650.00 7,555.00 754 1,934 3,963 1,180 3,229.00 Total Operating Expens Rps Miii 2,256 3,413 6,473 1,157.00 4,217.00 395 602 1,988 207 1,593.00 Depreciation Rps Mill 525 2175 99S 1,650 470 296 543 72S 247.00 432 Net Incomel(Loss) Rps Mill 163.00 489.00 2,443.00 326.00 Z280 (56.00) 476.00 898.00 832.00 954 Employeesi 1,000 Conns No 12.1 17 Sulirja Investment- Total RpslIM3 Debt Coverage Ratio NOTE 1996 DATA FROM FINPRO PROJECTIONS FOR SECOND SULAWESi UDP NOTE 1996 DATA FROM FINPRO PROJECTIONS FOR SECOND SULAvWB UDP I PDAM GORONTALO PDAM DONGGALA SAR(1) SAR ESTIMATED Projet Impact SAR SAR ESTIMATED Prjct i 1991 1996 1996 SAR.91to96 ActvSAR91I96 1991 1996 1996 SAR41to96 ActvSAR MM ServiceArea Population 121 133 140 13 19 145 178 190 33 45 Population Served % 42.80% 63.50% 45.00% 18.80% 51.70% 15.79% Population Served No 52 . 85 63 33 11 27 92 30 65 3 Connections 000s 7.040 10.370 10.000 3.330 2.960 3.920 13.320 6.000 9.400 2.080 Water Production M3 Mill 2.776 3.576 3.218 0.800 0.442 1.706 4.454 2040 2.747 0.334 Unaccounted forWater M3 Mil 0.833 0.725 1.018 (0.108) 0.185 0.683 1.069 0.830 0.386 0.147 Unaccounted forWater % 30% 20% 32% -10% 40% 24% 41% -16% Water Sales M3 Mill 1.943 2.851 2.200 0.908 0.257 1.024 3.385 1.210 2.362 0.187 Average Tariff RpdIM3 330 650 320 (330) 363 525 1,109 162 746 Average Ops Expenditur RpdJM3 240 372 132 (240) 206 216 339 10 133 Total Operating Revenu Rps Mill 748.00 2,212.00 1,464 (748) 495 2,453 1,854 1,958 1,359 Total Operating Expens Rps Mili 466.67 1,064.00 597 (467) 211 730 410 519 199 Depreciation Rps Mill 289 683 394 (289) 91 519 520 428 429 Net Inconel(Loss) Rps Mill 0.64 205.00 204 (1) 149 642 490 493 341 Employees 1,000 Conns No 9 Suliria Investment- Total RpsdM3 Debt Coverage Ratio Note - SAR data is for 9 months; where relevant this as been grossed up PDAM BONE PDAM LUWU SAR(I) SAR ESTIMATED Projec Impact SAR(1) SAR ESTIMATED P-Ject _meo 1991 1996 1996 SARI dto96 AotvSAR9196 1991 1996 1996 SAR-91to96 PAct vAR S9I Service Area Population 61 64 91 3 30 60 78 86 18 26 Population Served % 43.10% 55.30% 39.05% 5S9.10% 84.60% 65.12% Population Served No 26 35 35 9 9 36 66 56 30 20 Connections 000's 3.980 6.350 7.050 2.370 3.070 4.740 9.160 8.265 4.420 3.525 Water Production M3 Mil 1.975 2.620 2.366 0.645 0.381 1.824 3.468 5.600 1.644 3.776 Unaccounted for Water M3 Mill 0.700 0.750 0.606 0.050 (0.094) 0.365 0.696 3.099 0.331 2.734 Unaccounted for Water % 35% 29% 26% -7% 20% 20% 55% 0% Water Sales M3 Mill 1.275 1.870 1.750 0.595 0.475 1.459 2.772 2.501 1.313 1.042 Average Tariff RpsIM3 335 510 808 175 473 183 440 257 (163) Average Ops Expenditur Rpd/M3 169 241 576 72 407 126 186 60 (126) Total Operating Revenu Rps Mill 445 1,052 1,410 607 S65 343 1,658 1,315 (343) Totai Operating Expens Rps Mill 216 451 1,008 235 792 184 515 331 (184) Depreciaton Rps Mill 82 270 96 188 14 57 345 288 (57) Net Incomed(Loss) FRps Mill 1 200 880 199 879 127 449 322 (127) Employees/ 1,000 Conns No 17 Suliria Investnent- Total RpdfM3 Debt Coverage Ratio Note - SAR data ia for 9 months; where relevant this aa been grossed up 21 Table 6: Key Performance Indicators for Project Operatlon b) Local Government Financial Performance KODYA MANADO KODYA BITUNG KODYA UJG PANDANG KAB BONE KAB LUWU KODYA PAREPARE 1995196 1995196 1995/96 1995196 1995196 1995196 1995196 1995196 1995196 1995196 1995196 1995196 ALL FIGURES Rp MUI Actual SAR Actual SAR Actual SAR Actual SAR Actual SAR Actual SAR Balance Brought Forward - 31 503 1,232 - Local Revenues 8,734 7,529 1,606 821 18,434 14,289 3,806 3,365 3,854 2,885 2,407 2,321 Taxes 4,044 2,240 734 214 7,800 5,627 503 432 443 429 496 467 Charges 4,013 5,283 738 599 8,591 6,017 3,028 2,162 2,889 1,957 1,571 1,724 Local Enterprises - ) ) 92 - 9 - 30) 7 ) PDAM 150) 68 ) 9 570) 2,645 37) 771 28) - - ) 130 Departmental Income 8) 7 8 ) - ) - 2 - 46) 499 80) Otherlncome 518) 58 ) 1,382) - 227) - 417 - 253) Assigned Revenues 2,875 ) 1,481 1,615 ) 738 8,773 ) 4,245 3,722 ) 1,788 5,601 ) 1,619 1,974 ) 565 PBB 2,174 ) 1,371 ) - 5,815 ) 4,245 3,119 ) - 2,643 ) 1,619 1,649 ) - OtherAssigned Taxes 439 ) 1,481 109 ) 1,887 ) 196 ) - 139 ) - 166 ) 565 OtherAssigned Revenues 262 ) 134 ) - 1,070 ) 407 ) 2,819 ) - 159 ) Grants & Subsidies 23,868 7,706 10,871 3,448 51,355 36,557 40,539 30,780 43,492 30,413 10,943 6,695 Recurrent Grants 18,914 5,446 7,090 1,507 34,972 29,633 29,900 22,260 28,919 22,844 7,360 4,559 Inpres Tk II & Jalan 4,535 ) 2,260 3,508 ) 1,941 8,423 ) 3,539 8,607 ) 6,688 13,071 ) 5,859 3,004 ) 2,136 Other Grants 419 ) 272 ) - 1,200 ) 4,043 2,032 ) 1,128 - ) 1,175 - SPABP - 6,760 3,385 - 704 536 - Loans Raised 2,500 2,800 250 - 4,558 8,950 430 - 847 - TOTAL FUNDS AVAILABLE 38,359 19,516 14,373 - 83,623 64,040 49,728 35,934 57,111 34,917 15,425 9,581 Recurrent Expenditure 28,513 11,909 9,810 2,319 54,854 43,296 34,620 26,229 34,361 26,875 10,420 6,403 13 - . . - Development Expenditure 9,744 12,188 4,535 3,203 27,515 - 13,182 9,706 19,203 9,004 4,582 4,512 otal Expenditure 38,257 24,097 14,345 5,522 82,369 - 47,802 35,934 53,864 35,880 15,003 10,915 DC R 10 10 N/A 45 8 W NA 31 . 3 51 4 22 ICR-Annex A Table 7: Studies Included in Project Purpose as defined Study/technical assistance at appraisa/redefined Status Impact of study 1. IRJA Water Resources Study Watershed completed Substantial- would be a Part I: Availability of resource management and major input into any follow- Part II: Further investigation of protection on investment changes. availability, fnance, private sector involvement, institutional strengthening, and investments requirements in nine PDAMs. 2. Unaccounted-for-Water Study Efficiency Completed Showed that the problem is more institutional than physical. 3. Ujung Pandang Drainage Study Preparation of Master completed Substantial, priority Plan & priority investments to be investments implemented under SUDP2 4. Watershed Management Study for protection of completed Substantial, if protection Jayapura, Sorong, and Timika catchment area, land committees maintained. erosion 5. Master Plan for Human Waste & Improved sanitation & completed Excellent Study, limited Wastewater Disposal for Manado protection of water impact to date due to City's quality unwillingness to accept sanitation as a priority. 6. Biak Water Source Investigation Review of catchment completed Substantial - helped to area, physical define actions of watershed characteristics, of the management committee groundwater resource 7. Strategies for fast growing Urban Develop growth Completed Provided very useful Areas in Sulawesi and Irian Jaya. strategies, Identify background document for investment priorities identification of second Sulawesi UDP2 (Loan 4105-IND) 23 TABLE 8A1: PROJECT COST ESTIMATE (US $ Million) ,_^l Appralsal Exchange Rate 1845 Rp = US S1 Actual 2320 Rp = US $1 Item Original Project Cost Estimate Latest Project Cost Esdimate Local Foreign Total Local Foreign Total A Infrastructure Sulawesi 1 Water Supply 10.14 8.18 18.32 7.30 5.90 13.20 2 Drainage 12.95 7.59 20.54 15.65 9.17 24.82 3 Urban Roads 30.08 15.45 45.53 32.11 16.49 48.60 4 Solid Waste 3.58 2.06 5.64 3.84 2.21 6.05 5 Human Waste 1.46 0.87 2.33 1.01 0.60 1.60 6 Kampung Improvement 3.79 2.01 5.80 3.80 2.01 5.81 7 Market Infrastrusture 0.33 0.16 0.49 0.46 0.23 0.69 Sub Total Infrastrucuture 62.33 36.31 98.64 64.17 36.60 100.77 8 Current O&M la 6.29 2.87 9.16 2.53 1.16 3.69 9 Incremental O&M / a 6.50 3.79 10.30 - - - Sub Total O&M 12.79 6.67 19.46 2.53 1.16 3.69 Sub Total Investment & O&M 75.12 42.98 118.10 66.70 37.76 104.46 B Water Supply Irian Jaya 11.11 16.91 28.02 10.40 15.84 26.24 C Technical Assistance I Implementation Support 9.97 5.53 15.50 5.34 1.79 7.13 2 Institutional Capacity Building 2.33 1.90 4.23 2.09 0.59 2.68 3 Project Preparation 1.63 1.36 2.98 3.92 0.17 4.09 Sub Total Technical Assistance 13.93 8.78 22.71 11.35 2.55 13.90 Total Project Cost 100.16 68.67 168.83 88.46 56.15 144.61 Interest During Construction 2.22 17.13 19.35 2.22 17.13 19.35 Total Financing Requirement 102.38 85.80 188.18 90.68 73.27 163.95 J a Non-water supply only Base costs are in October 1990 prices Note: Operation & Maintenance can not be clealry identified between existing and incremental. sartab2$ ICR-TAB8.XLS 12/20/97 24 TABLE 8A2: PROJECT COST ESTIMATE (Rps Billion) Item Original Project Cost Estimate Latest Project Cost Estimate | Local Foreign Total Local Foreign Total | -11 A Infrastructure Sulawesi 1 Water Supply 18.70 15.10 33.80 16.94 13.68 30.62 2 Drainage 23.90 14.00 37.90 36.31 21.27 57.58 3 Urban Roads 55.50 28.50 84.00 74.49 38.25 112.74 4 Solid Waste 6.60 3.80 10.40 8.91 5.13 14.04 5 Human Waste 2.70 1.60 4.30 2.34 1.39 3.72 6 Kampung Improvement 7.00 3.70 10.70 8.82 4.66 13.49 7 Market Infrastrusture 0.60 0.30 0.90 1.07 0.53 1.60 Sub Total Infrastrucuture 115.00 67.00 182.00 148.88 84.91 233.79 8 Current O&M /a 11.60 5.30 16.90 5.87 2.68 8.55 See Note 9 Incremental O&M / a 12.00 7.00 19.00 - - Sub Total O&M 23.60 12.30 35.90 5.87 2.68 8.55 Sub Total Investment & O& 138.60 79.30 217.90 154.75 87.59 242.34 B Water Supply Irian Jaya 20.50 31.20 51.70 23.05 35.07 58.12 C Technical Assistance I Implementation Support 18.40 10.20 28.60 12.39 4.15 16.53 0.00 2 Institutional Capacity Buildi 4.30 3.50 7.80 4.85 1.37 . 6.22 - 3 Project Preparation 3.00 2.50 5.50 9.10 0.40 9.50 - Sub Total Technical Assista 25.70 16.20 41.90 26.34 5.92 32.25 0.00 Total Project Cost 184.80 126.70 311.50 204.13 128.59 332.72 0.00 Interest During Construction 4.10 31.60 35.70 4.10 31.60 35.70 See Note Total Financing Requirement 188.90 158.30 347.20 208.23 160.19 368.42 / a Non-water supply only Base costs are in October 1990 prices Note: Operation & Maintenance can not be clealry identified between existing and incremental. ICR-TAB8.XLS sartab2rps 12120/97 sartab3APP 25 Table 8B1: Project Financing Plan Summary - Appraisal Rp Billion fReqional Sources OnLent lw APBN Japanes Tota IBRD G O J GOI Private Local Provincial IBRD Domestic lBRD Domestic IBRD Domestic Grant Infrastructure 1 Water Supply - 13.00 - 26.70 3.00 31.40 11.40 85.50 58.10 . 27,40 0.00 2 Drainage - 3.00 2,35 0.30 2.90 1.55 21.00 6.80 37.90 24.20 13.70 - 3 Solid Waste - 0.20 - 6.65 0.80 0.10 1.94 0.64 10.33 8.69 1.64 0.00 4 Human Waste 1.00 0.24 - 1.45 0.20 0.30 0.10 0.80 0.25 4.34 2.55 1.79 5 Urban Roads 1.20 2.20 6.20 10.90 1.30 22.00 8.30 24.20 7.80 84.10 57.10 . 27.00 (0.00) 6 Kampung Improvement - 2.95 0.10 - 3.70 1.20 2.05 0.70 10.70 5.75 4.95 (0.00) 7 Market Infrastrusture - 0.74 - 0.14 0.88 0.14 0.74 - Sub Total Infrastrucuture 2.20 22.33 8.65 46.00 5.30 29.00 11.15 81.53 27.59 233.75 156.53 , 77.22 0.00 8 Current O&M /a - 9,70 5.10 2.70 1.54 19.04 - 19.04 - 9 Incremental O&M / b - 8,40 5.00 2.20 1.34 16.94 16.94 Sub Total O&M - 18.10 10.10 - - 4.90 - 2.88 35.98 35.98 Sub Total Investment & O&M 2.20 40.43 18.75 46.00 5.30 29.00 16.05 81.53 30.47 - 269.73 156.53 113.20 0.00 Technical Assistance 2.35 0.50 4.20 0.30 1.60 0.60 21.90 8.60 1.80 41.85 27.70 1.80 12.35 (0.00) Total Project Cost / c 2.20 42.78 19.25 50.20 5.60 30.60 16.65 103.43 39.07 180 311.58 184.23 1.80 125.55 000 Interest During Construction 12.65 22.98 35.63 63583 Total Financing /c 2.20 55.43 19.25 50.20 5.60 30.60 16.65 103.43 6205 1.80 347.21 184.23 1.80 161.18 00 .~~ _ _ - = _ = _ a - _- - -_ _ / a Local induses Rp 9.5 million user charges / b Non-water supply only / c Total may not add up due to rounding tb8AP ICR-TABSXLS 121201e7 sartab3APP 26 Table 8B2: Project Financing Plan Summary - Latest Projection R Billion Regional Sources On Lent In res APBN Japanes Total IBRD G O J GOI Private Local Provincial IBRD _Domestic IBRD I Domestic IBRD Domestic Grant Infrastructure 1 Water Supply 10.65 28.19 0.80 40.00 9.10 88.74 68.19 - 20.55 (0.00) 2 Drainage 4.02 3.47 1.89 28.60 4.80 10.35 4.46 57.58 40.83 - 16.75 0.00 3 Solid Waste 1.63 0.09 4.79 0.74 4.58 2.22 14.04 5.53 8.51 (0.00) 4 Human Waste 1.06 1.40 0.59 0.39 0.03 0.24 3.72 2.03 - 1.70 (0.00) 5 Urban Roads 4.37 2.28 14.21 27.67 39.89 12.61 11.71 112.74 54.49 58.25 6 Kampung Improvement 0.92 0.53 0.82 5.45 1.39 3.30 1.08 13.49 9.57 3.92 (0.00) 7 Market Infrastrusture 0.32 0.04 0.16 0.82 0.28 1.60 0.98 0.62 0.00 Sub Total Infrastrucuture 22.97 6.41 51.46 0.80 63.86 51.31 66.29 28.82 291.91 181.61 110.30 - 8 Current O&M /a 5.12 0.01 3.21 0.22 8.55 - 8.55 9 Incremental O&M / b Sub Total O&M 5.12 0.01 - - - 3.21 - 0.22 8.55 - 8.55 Sub Total Investment & O&M 28.09 6.41 51.46 0.80 63.86 54.52 66.29 29.04 300.47 181.61 118.85 (0.00) Technical Assiatance \d 29.00 1.45 1.80 32.25 29.00 1.80 1.45 (0.00) Total Project Cost 28.09 6.41 51.46 0.80 63.86 54.52 95.30 30.49 1.80 332.72 210.62 1.80 120.30 (0.00) Interest During Construction 12.65 22.98 35.63 35.63 Total Financing /c 40.74 641 51.46 = 0.80 63.86 54.52 9530 53.47 1.80 368.35 210.62 1.80 155.93 (0.00 / a Local induses Rp 9.5 million user charges / b Non-water supply only / c Total may not add up due to rounding /d Estimated GOI contribution @ 5% sartab3APP ICR-TAB8.XLS 12120/97 27 ICR-Annex A Table 9A: Economic and Financial Evaluation Water Supply At the project appraisal stage, both economic and financial analyses were carried out for the water supply investments. The economic analyses were based on cost and benefit comparison between piped water and other sources of water. They utilized a model (ECOWAT) developed by the World Bank for Indonesia. The fnancial analyses were based on the expected revenues generated from the new connections and the investment costs. They also used a fnancial model (FINPRO) developed by the World Bank for Indonesia. The estimated economic and fnancial returns (EIRR and FIRR) are summarized below: Table 1: Estimated Economic and Financial Returns at Project Appraisal City (Local Government) EIRR FIRR Watampone (Bone) 12.8% 6% Palopo (Luwu) 10.4% 6.0% Manado 14.0% 16.6% Gorontalo 9.7% 12.1% Donggala (Palu) 14.6% 10.5% Jayapura _ 16.8% 6.2% Biak 16.2% -3.7% Sorong __ _ _ 22-0% l 5.4% Fak Fak X 13.4% _ -6.9% Nabire j 16.6% j -0.3% Serui ___ _ -5.8% Manokwari 10.3% -3_.6% Source: SAR and Consultant's Economic Evaluation Reports. According to the consultant's Economic Evaluation Report on Sulawesi investments, the EIRRs for Palopo and Gorontalo water supply investments were 6% and 3%, respectively, assuming that people would continue to boil piped water for drinking; if it was assumed that people would no longer boil piped water for drinking, the EIRRs would increase to 10% and 10%, respectively. Note that the EIRRs for Palopo and Gorontalo water supply investments in Table 1 above are, as in the SAR, 10.4% and 9.7%, not 6% and 3% as shown in the consultant's Report. It is not clear whether the high EIRRs are due to the assumption that people would not boil piped water anymore, or due to any modifications that might had been made after the consultant's Report. To prepare the Implementation Completion Report (ICR), the Borrower and the implementation consultants made efforts to estimate the financial and economic rates of returns for the completed water supply investments. The Bank provided the Borrower and the consultants with detailed comments on their draft economic and financial evaluation section in the ICR. The fnal reports still contained errors that rendered the results unusable. Some major problems are: a. high coverage (a fixed 60% from 1996 to 2020); b. long evaluation period (25 years); and c. PDAMs continue to receive connection fees every year over the 25-year period while no corresponding connection costs are included and not enough water can be provided from the investments. Even with these optimistic assumptions, many FIRRs and EIRRs were only marginal or negative. While reasonable estimates of the FIRRs and EIRRs are not available for the completed water supply investments, an assessment can nevertheless be made based on a comparison of connections, tariffs, revenues, unaccounted-for-water, and operating costs between appraisal forecasts (which formed the basis of economic and 28 financial analyses at appraisal) and completion actual. Such a comparison shows that almost all the PDAMs fell short on these critical performance indicators; some PDAMs were significantly below the targets. On the basis of some sensitivity analyses conducted during appraisal and sample analyses carried out by the Bank at completion, it is reasonable to conclude that the economic and fnancial returns at project completion are significantly below the appraisal estimates as shown in Table 1 above; the EIRRs would be just barely above zero and the FIRRs all negative. Urban Roads and Drainage Due to the large number of small sub-projects, the SAR specified that medium (between Rp 400 million and Rp 2 billion) and large sub-projects (above Rp. 2 billion) in urban roads, drainage and water supply sectors would require economic analyses. Economic viability of small sub-projects was presumed, provided that they follow the agreed planning and design criteria. Medium sub-projects were subject to a simplified economic analysis, while large sub-projects had to go through a more detailed analysis. Another feature of the project is that the project followed a programmatic approach to ensure flexibility in sub-project selection. Under this approach, subprojects to be implemented after the first year were not evaluated during appraisal; they were supposed to be evaluated during the project implementation period, when these sub- projects were proposed by local governments. The SAR did not present any estimates of EIRRs for the first year medium and large sub-projects in urban roads and drainage. The consultant's Economic Evaluation Report contained some brief analyses for the first year large and medium urban roads and drainage sub-projects. The urban road analyses followed the Ministry of Public Works "Urban Road Planning and Programming Manual", as recommended by the Bank. Vehicle operation cost savings and user time savings were used as benefits. The drainage analyses used land value increases and road maintenance cost savings as benefits. The consultant's ICR Report shows that some 67 sub-projects in urban roads and drainage were above Rp 400 million and implemented between 1992/93 and 1995/96; and there was only one urban road project that was above Rp 2 billion, implemented in 1994/95. These medium and large sub-projects totaled about Rp 50 billion in costs, representing about 40% of the total costs in urban roads and drainage sectors under the project. These sub- projects were not subject to any economic evaluation before they were implemented; and there were no traffic and land value data available. The major reasons for not carrying out any required economic analyses were limited resources on the part of both the Bank (the bank needs to provide guidance on appropriate methodologies) and the Borrower (the Borrower and its implementation consultants need to carry out the analyses) versus the large number of sub-projects and project towns, and lack of expertise in the implementation agencies. At the Bank's request, the Borrower and the ICR consultants also attempted to estimate the economic returns on the completed large and medium urban roads and drainage projects. However, the consultant's evaluation did not establish a clear linkage between the completed sub-projects and the estimated benefits. The results are thus not presented here. While reasonable estimates of the EIRRs are not available for the completed large and medium urban roads and drainage sub-projects, an assessment can be made based on traffic flows (increased access and reduced vehicle operating costs) and land values and enhanced quality of life from drainage improvements. Supervision concentrated on least cost analysis and technical merits for road and drainage work. Other Sectors Benefits of human and solid waste management and KIP sub-projects were not required to be quantified. No cost-benefit analyses were therefore carried out for them at project appraisal, and cost-benefit analyses are not required at project completion, either. Technical evaluation ensure of that these sub-projects represent least cost solutions specific to the local needs and conditions. 29 ICR-Annex A Table 10: Status of Legal Covenants Original Revised Covenant Present Fulfillment Fulfillment Agreement Section type status Date Date Description of Covenant Comments Loan 2.02 (b) I C Open & Maintain Special Account in Dollars in BI and operate for LA schedule 6 3.01 (a) 10 C Carry out project with due diligence with appropriate administrative, environmental & financial practices & provide necessary funds and other required resources 3.01 (b) (i) 10 PC Carry out project in accordance with agreed Not fully complied with in relation to PIA PIA's satisfactory to Bank provisions for operations and maintenance in the project Tk II in Sulawesi, except in Kotamadya Ujung Pandang 3.01 (b) 10 C Carry out project in accordance with schedule __ _ _ _ _ (ii) S__ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 3.03 (a) 3,10 C Sign PLA's with participating Local Governments on terms agreed with the Bank l________ m_______ incorporating interest rate of 10.5%. 3.04 2 PC Convert BPAM's to PDAM's, prepare action Not been fully complied with in terms of plan therefor, and adjust tariffs per 4.02 & implementation of tariff increases to fully 4.03 (Note: All conversions have been cover operation and maintenance, completed) depreciation and interest. Required tariff increases have been both delayed and reduced by the Tk II and Tk I governments, and the result is that water enterprise tariff adjustments have taken l________ ______________________________________ place at three yearly intervals. 3.05 9,10 June 1993 October Conduct comprehensive Mid-term Review of Midterm-review conducted in October 1994 program & revise program including 1994. environmental management plans. 3.06 2,5 NC 6/1 annually Review previous year O&M expenditures & Not been complied with either by the ensure levels reach 90% of agreed progran at borrower or the participating local l ________ ________ ________ _______ __________________ m inim um . governm ents. 30 3.07 5,10 PC 7/1/92 Establish Water Enterprise Support Unit in Partially complied with; there are still Irian Jaya. deficiencies in the non-technical aspects - finance and economics. 4.01 (a) 1,9 C Arrange for Annual audits of all Project Accounts & provide unified Project audit report to Bank not later than 9 months after FY closes. 4.02 (a) C No PDAM debt converge ratio shall be less than 1.3 except that of Jayapura PDAM which shall be less than 1.5. 4.02 (b) C No PDAM debt shall be more than 70% of total capitalization 4.02 (c) (i) C Each BPAM & PDAM shall produce gross Best estimate ( based on information revenue not less than the operating expenses received but some PDAM not yet covered) 4.02 (c) (ii) NC Each BPAM and PDAM shall produce gross revenue not less than the sum of operating expenses & deprecation 4.03 Cp (a) Review & adjust BPAM & PDAM tariffs to meet 4.02 A-C and (b) send copy of review l _______ _______ ________ ______ ________ _________ report to Bank. ___________rpor_t_Bnk 4.04 C No Local Government debt coverage ratio shall be less than 1.5 (excluding routine expenditures) C = Covenant complied with Covenant type: CD = Complied with after delay I = Account/Audits CP = Complied with partially 2 = Financial performance/revenue generation from beneficiaries NC = Not complied with 3 = flow and utilization of project funds 4 = Counterpart funding 5 = Management aspects of project or executing agency 6 = Enviromnental covenants 7 = Involuntary resettlement 8 = Indigenous people 9 = Monitoring, review, and reporting 10 = Project implementation not covered by categories 1-9 11 = Sectoral or cross-sectoral budgetary or other resource allocation 12 - Sectoral or cross-sectoral policy/regulatory/institutional action 13 = other 31 ICR-Annex A Table 11: Compliance with Operation Manual Statements Statement number and title Description and comment on lack of compliance None No significant lack of compliance with applicable Bank manual statements observed Table 12: Bank Resources: Staff Inputs Stages of Staff weeks Amount project cycle Actual US$('000) Through Appraisal 98.6 318.6 Appraisal-effectiveness 25.3 60.3 Supervision 147.5 318.1 Completion 9.9 22.8 TOTAL/planned/ 281.3 719.8 ICR-Annex A Table 13: Bank Resources: Missions Performance rating tages of project cycle Month/ No. of SW in Specialized staff skills Implementation Develop. Types of problems Year persons\ field: represented Status Impact I Through Appraisal Apr. '87 4 n/a FA, WSE, 0, C Feb.'88 6 n/a FA, IS, ME, 0, IS, Ec Jun.'88 n/a FA, ME, 0, IS, Ec, C Mar.'89 n/a FA, IS, Ec, C Jul. '90 n/a Ec, E, SE, UP, ME Nov. 90 n/a Ec, ME, SE, E. (2), _ _ _ _ _ _ _ __ _UP Appraisal to Board Nov. 6 16 Ec, ME, SE, E(2), UP '90 Supervision (type) _ full Nov.'91 5 8 ME, E, UP, FA, 0 2 1 TA progress slow full July '92 5 8 ME, E, FA, E, 0 2 1 Sl slow progress with TA mobilization. TOR under preparation. limited Nov. 4 n/a? '92 full July '93 2 18 ME, FA 2 1 Watershed management in Irian Jaya working with mixed results; IUIDP component in Sulawesi proceeding more slowly. Part One: Mid-term June/Jul. 6 23 ME, 0(2), FA, E, EE S S Part one of the Mid-term Review: Concem over the pace of Review '94 implementation and quality and sustainability of the physical works; entire project suffers from lack of adequate supervision and monitoring, tariff review of Irian Jay water enterprises need attention; _land fill sites location development at city of Bitung Part Two: Mid-term /Dec. 6 23 ME, 0, FA, E, EE S S Attributed implementation problem as lack of adequate supervision Review '94 and remote dispersal location of project sites full Apr. '95 5 24 E, FA, ME, O No 590 in file imited July '95 3 6 ME, FA, 0 Civil works deficiencies requiring repair in Irian Jaya; PDAMs mproblems: training in tariff analysis; ownership of PDAM of Jayapura 33 Performance rating tages of project cycle Month/ No. of SW in Specialized staff skills Implementation Develop. Types of problems Year personsN field: represented Status Impact and increase in tariff. limited Nov. 2 6 FA, 0 Need put Wamena system into operation; Irian Jaya PMDU - need for '95 a qualified financial staff. full May '96 3 10 FA, ME, O S S I limited July '96 1 2 FA Re-allocation of loan funds for maintenance of drainage sub-projects limited July '96 1 0.8 0 Follow up timely completion (December 31, 1996) of Manado PDAM, Bitung, etc. constructions with attention to SLAP arrangements with DP3 of MOF limited Sept. 1 2 WSE Identified watershed issues in the project area. '96 full/ICR Dec. '96 5 24 ME, 0, FA, E, EE S NR Extensive Review of the status of the project limited Apr. '97 1 _ 0 Follow up on the December ICR- Sustainability of project: construction of steel tank works proceeding satisfactorily; but maintenance of new facilities need attention. limited/ICR July '97 3 6 EE, FA, WSE Sustainability of project. E = Environmental Specialist; Ec = Economist; EE= Environmental Engineer; FA = Financial Specialist; IS = Institutional Specialist; ME = Municipal Engineer; 0 = Operation Officer/Procurement Specialist; SE = Sanitation Engineer; UP = Urban Planner; WSE = Water Supply Engineer /~~~ ~~~ ~~~ ~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ -35- Appendix A Mission's Aide Memoire The World Bank 1818 H Street N.W. (202) 477-1234 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Washington, D.C. 20433 Cable Address: INTBAFRAD INTERNATIONAL DEVELOPMENT ASSOCLATION U.S.A. Cable Address: INDEVAS January 13, 1997 Prof. Dr. Herman Haeruman Deputy Chairman for Regional Affairs BAPPENAS JI. Taman Suropati 2 Bali, Indonesia 80361 Dear Prof. Herman: Sulawesi Irian Jaya UDP (Ln 3340) - Completion Mission A World Bank team led by Dan Hoornweg carried out the completion mission for the above project. Attached is the final aide memoire as endorsed by the Bank. Although this project has been consistently rated as satisfactory, the mission had serious concerns with the overall" sustainability" of the investments. This is mainly due to numerous instances of poor construction quality, very inadequate efforts in operations and maintenance, a lack of a " municipal management" focus, and continued institutional weaknesses which are at the root of these problems. The project has been extended by six months (now due to close 30 June, 1997) to complete some still ongoing contracts, address some immediate deficiencies, and ensure adequate commissioning of larger civil works, e.g. Jayapura water pipeline and Manado water treatment Plant. Hopefully, some of the institutional weaknesses and O&M deficiencies can also be addressed during this time to the extent possible within the very limited time frame. We have tried to ensure that the lessons learned from SIJUDP are directly applied to the second Sulawesi UDP. Your comments at negotiations, stressing the need for technical assistance based on " hands on" assistance and management help at the local government level, are extremely relevant. This, and a change away from a " project mentality" towards overall urban management, seem to be the most relevant lessons coming out of this completion mission. We are still awaiting documentation from DG Cipta Karya (GOI's own completion reports for the two separate components) before we can complete our -36- Implementation Completion Report. We anticipate receiving this by 15 March, 1997. We would then have the Bank's Completion Report prepared shortly after loan closing. We are pleased to see significant progress with the watershed protection programs in Irian Jaya. I would particularly like to thank the Governor Drs. Jacob Pattipi for his personal interest in the one workshop held during the mission. His agreement to pass another SK strengthen the watershed protection committees through more clearly defined budgets and meeting schedules should be very helpful. An important issue arose during the supervision mission. Kotamadya Manado has withdrawn funds from the Special Account in excess of the agreed in the July 1996 no objection letter. We require that these funds be reimbursed immediately. We plan to send a small supervision team to Irian Jaya in March to review progress with completion action plans in Jayapura, Sorong, Biak and Sorong, and a further mission, perhaps in conjunction with the Second Sulawesi UDP start-up activities, towards project completion. With best wishes, Sincerely yours, (signed) Anupam Khanna Chief, Infrastructure Operations Country Department III East Asia & Pacific Region cc: Dr. Ir. Manuwoto, Chairman TKPP Dr. Ir. Bambang Panudju, Executive Secretary, TKPP Dr. Ir. Sujana Royat, Kepala, Biro P4R, BAPPENAS Ir. Rachmadi B. Sumadhijo, Director General, Cipta Karya (MPW) Ir. Asrap Hadiroso, Director, Easter Region Development, DGCK Ir. Djoko Kirmanto, Director, Bina Program, DGCK PPMO/PPMU/PMOs/PMUs/CPMO and Advisory Consultants -37- EXECUTIVE SUMMARY * This project is an amalgamation of two projects. * Bank ICR mission, accompanied by some Pusat (DGCK) staff, visited Irian Jaya and four Sulawesi provinces (13 out of 17 project towns) and met with provincial and local government officials to review completed works and obtain their views. * Physical implementation of project was completed within the original closing date with only minor exceptions, and largely within the original scope. * Testing, commissioning and "handling over" are still outstanding on several sub- projects. * Technical assistance was also completed on time except on one still ongoing study. * Limited extension of the loan closing date has been requested by GOI, and a 6-month extension to permit completion of the unfinished contracts has been granted. * Extension would also allow time (and possibly funds) to remedy some serious deficiencies, such as Jayapura transmission pipelines, Sorong WTP, action plans for waste disposal sites in Sulawesi. * Disbursements are at about 90 %, and the project is expected to be completely disbursed. * Borrower's draft ICR has been received for Irian Jaya Water Supply component, but not yet for the Sulawesi IUIDP component. * Borrower's views at the local (Tk II) and Provincial level were articulate, perceptive and generally very positive, such as provision of additional funding, greater cleanliness of most towns, better planning and programming capabilities. * Preliminary Borrower views from the Pusat level were also largely positive, although concerns with "sustainability" were raised. * Mission's views of the implementation performance are not as positive at all, especially because of doubts about the sustainability of the investments. * Main concerns of mission are the poor quality of the significant portions of the physical investments, lack of O&M funding and execution, and persistent institutional weaknesses. * Lessons from this project's implementation performance have been largely incorporated into the design of the Second Sulawesi UDP (and may also be applicable to other proposed water and sanitation investments in Eastern Indonesia) * In terms of the original project objectives: * the provision of the urban infrastructure has been achieved, albeit with serious quality problems * better planning and programming has been achieved, but institutional weaknesses persist and O&M funding and execution were woefully inadequate. * Local government revenue generation and cost recovery have improved substantially, but sound financial management, in particular, is less evident watershed management in Irian Jaya is startling to work in some local governments. -38- * The project highlights the need for local Governments to move away from a "project mentality towards overall urban management. * The Special Account needs to be replenished due to serious over drawing in respect of Kotamadya Manado. -39- Appendix B BORROWER'S CONTRIBUTION TO THE ICR SULAWESI IUIDP SUB-PROJECT THE IMPLEMENTATION PROJECT REPORT OF INDONESIA Preface This report reviews the implementation experience of the Sulawesi and Irian Jaya Urban Development project (SIJUDP) in Indonesia. This project involved a loan for US$100 million, which was agreed on August 8, 1991 and became effective in November 1991. Initially Loan closing was extended from December 31, 1996 to June 30, 1997, due to administrative needs and technical concerns. The funding of the project was also aided by Japan, which provided funding in the amount of Y103.6 million, or about US $740.000, to fund the technical assistant during project preparation. The material used to prepare this report is SAR, Loan Agreement, P3KT Study, CPMO report, Aides Memoirs, and data from regional governments. The implementation report of the SIJUDP project consists of two parts, namely: Part I: Project Goals, Results Achieved, Problems Faced, and so on. Part II: Physical Development; Implementation, Problems, and Efforts to Remedy. -40- EXECUTIVE SUMMARY INTRODUCTION Urban population growth in Sulawesi and Irian Jaya Provinces for the future 5-10 years is assumed to create a gap between Service need and Service capability. Such a gap is getting far if it is not anticipated earlier, particularly the condition of those urban infrastructures will be declining seriously. The SIJUDP Project was intended to overcome those gaps, but due to fund constraints faced by GOI, the development was implemented gradually over the five budgetary Years and IBRD Loan was required as a supporting fund. CHAPTER 1 PROJECT OBJECTIVES General objectives of SIJUDP (according to SAR) are: a) To provide urban infrastructures properly. b) To improve capability of local government to prepare its development program and financial plan. c) To improve financial management of Local Government. The project was directed for some fast growing cities in Sulawesi Province, such as Ujung Pandang, Pare-Pare, bone, Palopo, Kendari, Palu, Manado, Gorontalo and Bitung, while development sectors being prioritized were KIP, Solid Waste, Sanitation, Market, Urban Roads, Water Supply and Drainage. For some cities in Irian Jaya Province the project was focused on water supply only in Jayapura, Sorong, Serui, Nabire, Fak Fak, Wamena, Monokawari and Biak. The project objective was to realize National Development strategy and IBRD strategy that emphasizes improvement of services, improvement of local government financing capability and reservation of living environment. Success or failure to achieve the objective depend on various factors that need to be fulfilled by the Government, i.e.: 1. Provision fund for development. 2. Provision fund for operation and maintenance. 3. Institutional management and development. 4. Community participation. 44 CHAPT'ER 2 Implementation of SIJUDP projects was the first experience for all cities, except for Ujung Pandang, however the overall result was satisfactorily achieved. The projects were in good settlement and reach objectives, e.g. to improve services to community and to improve local revenue generation. However, its sustainability will depend on availability of fund for maintenance and community's attitude to have "sense of belonging" of the development result. Failure and difficulties that have been faced are very valuable to be examined that such failures wan't be repeated and efforts done to handle the difficulties can be reviewed for the implementation of the similar projects in the future. a. Constrains in the project administration are: - Delay of disbursement procedure, mainly the SLAP mechanism, etc. b. Problems in field implementation: - Difficulty in finding the right Final Disposal Sites (Solid Waste Component) - Silting up of the drains c. Problems concerning the project institution are: - Lack of skilled staffs - Lack of good coordination among the agencies involved in the project Summary of planned project expenditure and its actual expenditure up into March 1997 is presented in Table RI -42- Table RI.: Summary of DIP Fund Allocation and Realization of Project Cost Payment SIJUDP No. GOI IBRD EQ USD 000 (RP MILL) (RP MILL) 1. SAR ALLOCATION - Physical Project 95,900.00 156,600.00 84,820.00 -Technical Assistance 10,200.00 27,931.20 15,180.00 _____________________ 106,100.00 184,531.20 100,000.00 2 DIP ALLOCATION - Physical Project 130,469.75 185,348.85 84,020.33 - Technical Assistance 10,200.00 37,051.00 16,771.39 140,669.75 222,399.85 100,791.72 3 CONTRACTED - Physical Project 118,336.94 183,039.99 83,012.25 - Technical Assistance 37.051.71 16,,771,3 118,336.94 215,987.05 98.783.64 4 PAYMENT MADE - Physical Project 117,785.49 173,827.43 82,982.92 - Technical Assistance 32,639.64 14,802.56 117,785.49 206,467.07 97.785.48 DISBURSEMENT - Physical Project - 167,090.92 78,833.30 - Technical Assistance 23,651.32 14,802.56 TOTAL 190,742.24 93,635.86 -43- Overall picture of financial position of SIJUDP - Project for each city as follows: Table R2: Summary of DIP Fund Allocation and Project cost Realization as per cities in Sulawesi and Irian Jaya No. City Fund SAR Allocation DIP Fund Contracted Payment Disbursement Source Rp Mill) Allocation (Rp Mill) Made (Rp Mill) (USD 000) (RP Mill) 1 Ujung Pandang IBRD 37,000.00 43,742.73 43,302.85 43,302.85 16,831.38 GOI 26,700.00 29,312.44 27,187.68 27.175.68 63,700.00 73,055.17 70,490.53 70,478.53 16,831.38 2 Pare-Pare IBRD 3,700.00 3,964.36 3,942.32 3,942,32 1,887,70 GOI 2,100.00 10,198.48 8,954.28 8.954.28 5,800.00 14,162.84 12,896.60 12,896.60 1,887.70 3 Bone IBRD 8,000.00 9,323.37 9,242.00 9,242.00 4.145.92 GOI 5,700.00 9,619.18 7,457.03 7,457.03 13,700.00 18,942.55 16,699.03 16,699.03 4,145.92 4 Palopo IBRD 7,100.00 8,218.81 8,042.51 8,004.04 3,656.96 GOI 5,700.00 10,505.50 9,036.77 8,608.62 12,800.00 18,724.31 17,079.28 16,612.66 3,656.96 5 Palu IBRD 16,000.00 14,291.25 14,095.03 14,077.84 5,149.71 GOI 8,600.00 6,830.72 6,286.75 6,255.951 24,600.00 21,121.97 20,381.78 20,333.79 5,149.71 6 Kendari IBRD 4,200.00 5,314.87 4,940.67 4,940.67 2,322.49 GOI 3,600.00 19,091.37 17,562.79 17,562.70 7,800.00 24,406.24 22,503.46 22,503.37 2.322.49 7 Manado IBRD 24,100.00 30,244.51 29,518.59 29,513.12 10,540.67 GOI 18,500.00 24,547.24 21,184.59 21,178.09 42,600.00 54,791.75 50,703.18 50,691.21 10,540.67 8 Gorontalo IBRD 12,300.00 12,194.08 12,022.17 12,020.78 5,214.67 GOI 8,100.00 8,469.59 8,337.91 8,237.00 20,400.00 20,663.67 20,360.08 20,257.78 5,214.67 9 Shtung IBRD 5,800.00 9,489.53 9,368.36 9,368.37 2,718.79 GOI 3,700.00 2,555.23 2,505.38 2,505.38 2,718.79 9,500.00 12,044.76 11,873.74 11,873.75 Total for Sulawesi IBRD 118,200.00 136,783.51 134,474.50 134,412.00 52,468.29 II GOI 82,700.00 121,129.75 108,513.181 107,934.73 0.00 -44- ......A.octio A.. aio. ..l) ae(R UE)0* 1 . Jayapura IBRD 14,700.00 20,302.42 20,302.42 20,302.42 10,737.74 0OI 5,700.00 3,761.31 3,761.31 3,761.31 ______ 20,400.00 24,063.73 24,063.73 24,063.73 10,737.74 2. Sarong FBRD 7,000.00 12,057.69 12,057.69 12,057.69 6,549.62 GOI 2,200.00 2,326.53 2,326.53 2,326.53 9,200.00 14,384.22 14,384.22 14,384.22 6,549.62 3. Fak-Fak IBRD 1,200.00 1,471.77 1,471.77 1,471.77 853.29 GOI 400.00 353.27 353.27} 353.27 1,600.00 1,825.04 1,825.04 1,825.04 853.29 4. Nabire IBRD 2,400.00 2,408.52 2,408.52 2,408.52 1,384.92 GOI 800.00 578.50 578.50 578.50 3,200.00 2,987.02 2,987.02 2,987.02 1,384.92 5. Manokwari IBRD 4,600.00 5,306.33 5,306.33 5,306.33 2,908.10 . ~~~~GOT 1,500.00 1,126.11 1,126.11 1,126.11 6,100.00 6,432.44 6,432.44 6,432.44 2,908.10 6. Biak IBRD 4,000.00 4,416.03 4,416.03 4,416.03 2,459.12 GOI 1 ,400.00 1 ,033.17 1,033.17 1,033.17 _______ 5,400.00 5,449.20 5,449.20 5,449.20 2,459.12 7. Serui IBRD 2,000.00 1,003.01 1,003.01 1,003.01 576.67 GOT 600.00 231.87 231.87 231.87 2,600.00 1,234.88 1,234.88 1,234.88 576.67 8. Wamena IBRD 2,500.00 1,599.57 1,599.57 1,599.57 895.55 GOT 600.00 413.00 413.00 413.00 _______________________ 3,100.00 2,012.57 2,012.57 2,012.57 895.55 Total for Irian Jaya IBRD 38,400.00 48,565.34 48,565.34 48,565.34 26,365.01 GOT 13,200.00 9,823.76 9,823.76 9,823.76 _______ Total Sulawesi + Irian Jaya IBRD 156,600.00 185,348.85 183.039.84 182.977.34 78,833.30 GOT 95,900.00 130,953.51 118,336.94 117,758.49 ______ TA IBRD 27,931.20 37,051.0C0 37,051.00 33,009.71 14,802.56 GOT 10,200.00. ______________________ _______ 38,131.20 37,051.00 37,051.00 33,009.71 14,802.56 TOTAL TIBRD 184,531.20 222,399.85 |220,090.84 215,987.05 93,635.86 GOI 106,100.00 130,953.51 118,336.94 117,758.49S______ (Data Source: CPMO) Up to March 31, 1997, physical progress for was 100% and 98% for Sulawesi and irian Jaya respctively. Overall disbursement was US$93,6 million ot of US$100 milion. Most of the indisbursed fund came for the SLAP category, since there was some fund had not been accounted for by Pemda/PDAM (in Sulawesi) and in process of replenishment by Ministry of Finance to the Bank. -45- THE KEY OF PROJECT SUCCESS Success of project is mainly supported by a high responsibility and hard working performed by local government officials to realise a renewal in their region. The responsibility was encouraged particularly with a strong willingness to be awarded with Adipura, a symbol of city cleanliness. BANK PERFORMANCE Performance demonstrated by Bank in project identification, project approach, appraisal report and project implementation supervision was very good and produced documents were very important for project references. LOCAL GOVERNMENT/BORROWER PERFORMANCE Generally performance demonstrated by Local Government as borrower from the phase of preparation of project organisation of SIJUDP, to the implementation of project and operation of finished project was good and smooth. Some items need to be highlighted are: - The quality of staff assigned in the SIJUDP projects - Provision of bigger amount of fund for maintenance PROJECT RESULTS The SIJUDP project was considered satisfactorily complete and that project objectives were fully achieved, however, some matters need to be examined more careful, i.e.: - To improve maintenance intensity to urban infrasructure - To improve operation of Final Disposal and Human Waste Treatment Facility. All programs, planned to be financed with the loan and GOI counterpart fund, included in the Project Memorandum had been implemented, and some additional programs financed with "Loan Savings" were also implemented, therefore the physical achievement. The additional programs were aimed to optimizing the built system and technical assistance i.e. drainage programs in Ujung Pandang, drainage and urban roads programs in Manado, water supply systm in Irian Jaya, technical assistance for Sulawesi II UDP preparation, technical assistance for water supply in Irian Jaya and technical assistance for the prearation of SIJ-UDP Project Implementation Completion Report. With the commisioning of new project components in each town, physical benefits with the potential to enhance financial and economic benefits become abvious, key advantages were: (i). Increased system capacities enable PDAM's to proced with the installation of consumer service connections resulting in increased income. (ii). Improved rehability of supply supported by the dissemination of project information was had an effect on consumer confidence. 46- (iii). Provision of increased water storage capacity in all towns has improved system realiability and water qualit. (iv). Increased system capacity have allowed the PDAM's to increase consumer coverage to include housing estates and liglot industry. PROJECT OPERATION The built urban facilities was handed over to the apointed units to be operated and maintenanced in accordance wit Mayor or Bupati's decree. The facilities were expected to give more benefits to the community and live longer. To achieve these goals, Pemda is encourage to: - implement the PDAMs - implement RIAP and LIDAP OPERATION OF URBAN FACILITIES The newly completed urban facilities ex SIJUDP project have been in operation and under the supervision of the respective unit, i.e. Public Works Agency, Cleaning Agency, Market Agency etc. From the commercial point of view, its Retribution collected still unable to cover its routine expenditures, due to the fact that the existence of the units are not profit - making - body. Maintenance of urban facilities seemed to be unhandled properly, due to a limited fund. LESSON LEARNED 1 . Project Delay The original plan of SIJUDP implementation took place in November 1991, but it was delayed until June 1992 due to some reasons. - Preparation to start up the project i.e. : establishment of project organisation, administrative software, project supporting fund etc., have not been settled properly. - Assignment of Consultants was made few months after loan effectiveness 2. Project Organization Function of PMU, MPO and PFO were handicapped by their structural function in the Local Government. 3. Project Design Some project design created by the Consultant were not suitable with the field condition. 4. Final Disposal Site (FDS) It was difficult to search location for FDS which meets the rquisite: - not too close with housing complex - not too close with water sources - access road to FDS is not too steep -47- 5. Retribution Tariff Tariff for retribution can not be revised too frequent (2-3 years) to avoid social grievances. 6. Medium Development Program (MDP-PJM) MDP have to be revised every year to accommodate the rising development demand in the region. 7. Procurement preparation, planning and logistics become a very improtant administrative component during the early stages of the project. An even higher priority would have been advantageous. 8. Lead time for procurement and construction contracts formalities require special consideration in outlying provinces. 9. The stardard of local contractors in most project towns was not good compared to contractors in Java, but still acceptable and require more diligence on the part of implementation outhorities supervisory staff. Non-compliance with technical specifications was common, and a firm punitive approach needs to be applied from the beginning of each contracts. Contractors management must assume a higher degree of on-site responsibility. FINANCIAL PERFORMANCE OF LOCAL GOVERNMENTS Financial performance for mine cities in Slawesi for the last five years is considered good for some reasons. - Average Growth rate of Local Revenue and Property Tax was higher than SAR Projection, as example. For Bitung below: -48- ............. .-..................... R p m illion c X aii1/9 92/3 939 94/9KS5Y 9s9 ,Grow*b- Local Revenue SAR 594 69763 786 819 9% RIAP 786 874 969 1635 2015 29% ACTUAL 702 823 1215 1507 1606 24% Property Tax SAR 356 427: 573 615 738 20% RIAP 399 441 512 632 686 15% ACTUAL 399 441 622 1375 1372 43% Please refer to table II-2 page 121 CHAPTER 3 This chapter assessed a broad picture of nine cities regarding the situation of Urban Facilities before and after the SIJUDP Project. Bitung is taken for example: SOLID WASTE Kodya Bitung - _ore ; i e -- -(1990)- (196 District 1 4 Population 35.000 104.600 Production 90 m3 270 m3 Transferred 36 m3 150 m3 % ~~~~~~~40% 56% Truck 1 unit 1 unit Dump Truck 1 unit liunit Cart 10 18 unit Temporary Disposal Site (1 m3) 1 4 unit Transfer Depo 1 unit Container 16 unit Trailer 8 unit Loader __ _ _ lunit -49- CHAPTER 4 This chapter assessed the difference of development program between PIA, Project memorandum against DIP. Bitung is taken for example: No. Sei~~t~w FUND ALOC E .... -..,,,-'' ' -' :":''' .... W T ..... .. , ., . .. . ....... .. ...... -... ' -. ' ' .' .. '',',.:."'' '"','.''' '.""" "': ': ~~~. . . . .. ..... .. .. . . . . .: 1 Water Supply 1.984,0 1.318,76 1.318,76 2 Drainage 1.882,0 7.968,76 9.987,53 3 Solid Waste 243,0 487,83 222,0 4 Sanitation 154,0 87,99 87,99 5 Urban Road 2.065,0 2.230.27 1.917,73 6 KIP 758,0 965.78 492,75 7 MIIP V 8 O&M 1.878,0 577,56 18,0 TOTAL 8.964,0 13.636,95 12.044,76 Please refer to table IV-8 page 153-170 CHAPTER 5 Chapter 5 of this report deals with the economical analysis for urban roads and drainage components. The "Economical Internal Rate of Return" of EIRR for packages amounting to or more than Rp 400 million was applid for urban roads and drainage components and for water supply componen the Financial Internal Rate of Return" of FIRR was applied. According to the calculation, the average EIRR for Urban Roads and Drainage was below 1%, but for Water Supply component of four PDAMs in Sulawesi FIRR was 9,31%. Average FIRR for Water Supply component in Irian Jaya was 11,78%. CHAPTER 6 Chapter 6 discribes the suggestion and recommendation for the implementation of SIJUDP specially in Sulawesi. (as submitted) -50- PROJECT IMPLEMENTATION COMPLETION REPORT IRIAN JAYA WATER SUPPLY SUB PROJECT LOAN 3340-IND SUMMARY Introduction The Irian Jaya Water Supply Sub-project was unusual in that it extended over a period of thirteen years from conception to completion. There was a two year break between the completion of detailed design and the implementation loan becoming effective. Although this report essentially covers the Irian Jaya Sub-project, mention is made of the Sulawesi Urban Development Project to illustrate the complexities of the loan arrangements and participants during the early stages. The Project covered eight Kabupaten capital cities and towns throughout the province of Irian Jaya, with a total appraisal estimated service coverage of 295,000 people. At the end of 1995 when the last reliable figures were available, 66% of this target has been achieved. However, it is possible that the appraisal targets will be met at completion of the project or soon after. during the 1996/97 fiscal year. This prediction is based on the fact that the majority of customer service connections are scheduled for installation during 1996. Project Design Project objectives were not over ambitious and addressed the immediate and future augmentation needs for all town supplies. Generally, the design preparations were adequate in ensuring that project implementation proceeded without any serious difficulties. The usual problems associated with projects of this type in remote areas were to be expected. Apart from the need to provide additional drawings and details to supplement small contracts, the project design was good. Problems associated with the installation of equipment and erection of structures, were not so much the result of design inadequacies as unfamiliarity with these particular items. Project Appraisal With regard to project, focus on the ultimate objectives remained unchanged, but organizationally, the project became a sub-project of the Sulawesi Irian Jaya Urban Development Project. In some respects, especially from the management point of view, this division was an advantage as the project was not too large. it involved into a specialized water supply project. Project Implementation -51- A sound working relationship developed between World Bank and GOI implantation agencies in both areas of the support and supervision. The timing and number of supervision missions was satisfactory and specialist support inputs were valuable and appreciated. Implementing agencies complaints with regard to procurements delays may have been to some extent the result of inexperience in the World Bank procedures. The standard of construction improved as the project advanced due to progressive upgrading of the standard and intensity of site supervision, and the efforts of the specialists advice and training. Project Results With the commissioning of the new project components in each town, physical benefits with the potential to enhance financial and economic benefits became obvious. Key advantages were: (i) increased system capacities enabled PDAM's to proceed with the installation of the consumer service connections resulting in increased income. (ii) improved reliability of supply supported by the dissemination of project information has had an effect on consumer confidence. (iii) provision of increased water storage capacity in all towns has improved system reliability and water quality. (iv) increased systems capacity have allowed the PDAMs to increase consumer coverage to include housing estates and light industry. Key Lessons Learned - - Were generally the results of the isolated nature of the project- (i) procurement preparations, planning and logistics became a very important administrative component during the early stages of the project. An even higher priority would have been advantageous. (ii) lead times for procurement and construction contracts formalities require special consideration in outlying Provinces. (iii) the standard of local contractors in most project towns was not good compared contractors in Java but still acceptable and required more diligence on the part of implementation authorities supervisory staff. Non-compliance with technical specialization was common, and a firm punitive approach needs to be applied from the beginning of each contract. Contractors management most assume a higher degree of on-site responsibility -52- (iv) the use of decentralized type of project management with on-site PMU and PIU units proved to be successful. Minimal central control allowed the decision making process to be faster and move effective. (as submitted) -53- Appendix C: Map IBRD No. I IBRD 22798 '''z ' PAPUA NEW GUINEA 0i7j-9-2-<9-2~~~ 2- -: 0 0 0 .g 0~~jO i.;rEZ :U7 4: X (!0, ;f :§ 8 zz - - 3 ( -,0; ; ~~~~~~~~ '.~~~~~~~..'JNAR.19