ICRR 11200 Report Number : ICRR11200 ICR Review Operations Evaluation Department 1. Project Data: Date Posted : 06/21/2001 PROJ ID : P003937 Appraisal Actual Project Name : Integrated Swamps Project Costs 106 69.3 Development Project US$M ) (US$M) (ISDP) Country : Indonesia Loan/ US$M ) 65 Loan /Credit (US$M) 50.8 Sector (s): Board: RDV - Central Cofinancing government administration US$M ) (US$M) (58%), General agriculture fishing and forestry sector (23%), Water supply (10%), Roads and highways (9%) L/C Number : L3755 Board Approval 94 FY ) (FY) Partners involved : Closing Date 09/30/2000 09/30/2000 Prepared by : Reviewed by : Group Manager : Group : Robert C. Varley Ridley Nelson Alain A. Barbu OEDST 2. Project Objectives and Components a. Objectives ISDP had two major objectives:- 1. Reduce poverty in the existing selected swamp schemes by further development of their agricultural potential; 2. Assist GOI in management of part of the coastal zone and help ensure sound environmental practices in swamp developments. Increases in harvested areas and yields directly increase income and farmers' welfare . Since these farmers were settled as part of the transmigration program they had previously been identified as a poor target group (transmigrants.) The additional infrastructure, flood control and improved navigation benefited all residents in the area and the tree crop component was also targeted at transmigrants and other local smallholder treecrop cultivators. b. Components The lead agency was the DGWRD (Directorate General of Water Resources Development .) The project had multiple components, involving 6 agencies. Realized project costs totalled US$ 69.3 million comprising:- (i) water control infrastructure and institutional strengthening for O&M (45%); (ii) food crop production support through agricultural research, extension and improved inputs (11%); (iii) tree crop development and land titling (12%); (iv) rural infrastructure - bridges, jetties, roads and potable water supply (21%); (v) strengthening regional government capacity in coastal land use management (2%); (vi) program management, emergency O&M, other (8%). c. Comments on Project Cost, Financing and Dates The 75% fall in the value of the Rupiah between the SAR and ICR reduced Rupiah costs relative to US$ . $14.2 million was cancelled from the WB loan. While the US$ cost of the project fell by 35% the Rupiah cost increased by 32%. After the monetary and political crisis of 1997/98, WB approved use of their funds for emergency maintenance, project management and the addition of a participatory approach to the implementation of the water control component. 3. Achievement of Relevant Objectives: These are presented by component :- 1. Irrigation and drainage infrastructure was rehabilitated over an area of 81,000 ha exceeding the SAR target by 4%. The number of WUA increased from 2 to 220 and participation in executing water management and O&M practices was successfully initiated . The most recent assessment is that 22% of WUA are "strong" and 70% "medium." 2. Increased agricultural production of both tree and food crops were achieved at levels below the SAR targets . A total of 19 Farming System Technology Adaptation (FSTA) and 35 Tertiary Development Units (TDU) were established, exceeding SAR targets . Rice cropping intensity increased from 98% to 133% and yields from 2t/ha to 2.8t/ha despite recent production constraints . Farm income in constant Rupiah terms increased by 28% compared to an SAR projection of 70%. 3. The project has developed 12,500 ha of coconut to be cultivated by 6,747 ex-transmigrants and 4005 local farmers. 70% of plantings more than one year old are Class A or B (satisfactory), while 16% failed. 80% of land certificates were completed and despite some delays and irregularities there were no reports of conflicts over land management. 4. 179km of roads and 14 jetties were improved or newly constructed exceeding SAR targets by 20% and 40% respectively, although there were some deficiencies in road construction and concern about maintenance . Water systems were provided to 42,000 households and 43 communal systems although there are concerns about sustainability, health and dysfunctional fiberglass tanks . 5. Study results have been incorporated in provincial 5-year spatial plans and regional government has addressed conservation needs and modified project designs in response to expressions of public and NGO concerns about environmental issues. The ex-post ERR estimate of 10-13% could be considered an overestimate, given the exclusion of sunk costs and the likely unsustainability of benefits . On the other hand it could be considered an underestimate given the positive externalities from improved transportation, increased local government capacity, societal empowerment, and better environmental conditions. 4. Significant Outcomes/Impacts: 1. In the face of an unfavorable external environment (El Nino, La Nina and the monetary crisis ), poor performance of swamp irrigation projects in the past, and a complex interrelated set of activities, the implementing agencies successfully piloted a new participative, integrated approach to swamp irrigation in Indonesia . 2. The project provided specialized technical skills and valuable experience in implementation of integrated swamp development, both to regional technical agencies and the provincial planning agency (BAPPEDA.) 3. The ISDP program adapted successfully to the new requirements of water resources policy (WATSAL) with an innovative participatory approach which empowered stakeholders and incorporated participatory M&E systems . 5. Significant Shortcomings (including non-compliance with safeguard policies): 1. At the end of the Loan period there are still significant activities which have not been completed including works, remedial action, O&M, agricultural extension, completion of land titling and M&E . Capacity building is incomplete. 2. Further progress and sustainability depend on external funding which is not assured under the new decentralization arrangements . Capacity building is incomplete and will require continuous support for several years - this must come from special GOI grants or voluntary use of block grants by newly empowered and functionally responsible local governments and provinces . 3. Difficulties that DGWRD experienced as a "lead agency" with insufficient authority to integrate diverse agency activities, seem likely to get worse . The "decentralization" strategy adopted by DGWRD/BAPPENAS involved very gradual transfer of decision making and funding responsibilities to lower levels of government . GOI's present implementation of decentralization transfers both the finance (untied block grants) and the expenditure responsibilities directly to tier 3 (kabupaten) governments. 4. The project lacked a well-developed logframe, necessary for efficiently sequencing of project activities . The second development objective was too broadly phrased, leading to difficulties in linking and assessing activities and objectives. 5. Although this project was better prepared, more geographically focused, and more integrated, than earlier swamp projects, insufficient time was given to harmonize coordination among implementing agencies . The project suffered poor coordination between the multiple agencies involved and there were delays in WUA formation. 6. Cost recovery from user contributions did not receive enough attention although an allocation was made for a cost-recovery study, which was cancelled since the conclusion had been reached that farmers would not be able/wiiling to pay a fee. Sustainability would require continued central government subsidy of almost all O&M cash costs. The use of a revolving credit scheme for inputs further reflects the weak financial aspects of project design and incentives - this credit was overambitious given the difficulties that even Indonesian banks have in administering credit. The revolving funds now recover only 50% of loans, while the performance of Project Management Units (PMU) in administering tree crop credit was not reported, although earlier bank -administered credit schemes were almost universally unsuccessful . 7. Participative monitoring by an NGO commissioned by the project in 1998, revealed "lack of transparency and accountability of this project had fostered corruption and the marginalization of farmers ." Much has been improved since Krismon but prior to this inadequate dialogue, deficiencies in design and poor quality work were prevalent. 8. The agricultural input component was inadequately prepared, omitting assessment of the country's environmental regulation framework. This resulted in provision of hazardous banned pesticides violating OP 4.09, and although safe pest management was eventually established, the corrective action was not taken when it should have been, at Mid Term Review ( MTR). 6. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Moderately Satisfactory The ICR rating is "marginally satisfactory" Institutional Dev .: Modest Modest Sustainability : Uncertain * Unlikely The ICR rates sustainability "uncertain" but the available ICR ratings require choosing "likely" or "unlikely." Bank Performance : Unsatisfactory Unsatisfactory Borrower Perf .: Satisfactory Satisfactory Quality of ICR : Satisfactory NOTE: NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13.55, but are listed for completeness. 7. Lessons of Broad Applicability: 1. Strengthening of local government capacity and integration of agricultural and water management reforms are essential for defining and prioritizing needs and improving the chances of project success . 2. A participatory approach and contracting of some operations to WUAs can be a cost effective way of improving quality of construction as WUAs are also interested in having well -functioning schemes. 3. Swamp development is a long-term process and sufficient preparatory time (about 2 years) is required to ensure full involvement in design and that stakeholders understand roles and responsibilities . 4. Farmers and other government agencies should participate in design and preconstruction meetings with the beneficiaries should be arranged . 5. Tertiary canals in swamp schemes are often of considerable size and WUAs cannot take immediate responsibility for O&M. 6. A WUA solely for the purpose of O&M of drainage canals is unlikely to be sustainable and "WUAs should be encouraged to start other activities besides O&M, for example savings and loan funds, cooperative input supply or marketing , operation of mechanical equipment ..." 8. Assessment Recommended? Yes No Why? There are many lessons learned which should be consolidated and disseminated in a suitable form - a performance audit is one way of accomplishing this . Neither the full benefits nor their sustainability have been demonstrated for what is an important new approach . This project is a rich source of lessons learned for a sector which has in the past been associated with expensive, environmentally unsound and unsuccessful attempts at developing Indonesia's vast lowland swamp resources . This is also the first completed Indonesia irrigation project to have been significantly affected by both irrigation sector and political reforms . It should be evaluated in terms of adherence to the new WB/WATSAL policy commitments. 9. Comments on Quality of ICR: The ICR is comprehensive and the Borrower Comments particularly useful . It did not, however, follow the correct ratings conventions.