Document of The World Bank FOR OFFICIAL USE ONLY R e p o r t No. 6256 PROJECT PERFORMANCE AUDIT REPORT INDONESIA THE FIVE C I T I E S WATER SUPPLY PROJECT (LOAN 1049-IND) J u n e 1 0 , 1986 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. Its contents may not otherwise be disclosed without WwW Bank authorization. ACRONYMS C i p t a Karya - D i r e c t o r a t e of Housing, B u i l d i n g , Planning and Urban Development i n t h e M i n i s t r y of P u b l i c Works Dalam Negeri - M i n i s t r y of Home A f f a i r s DSE - D i r e c t o r a t e of S a n i t a r y Engineering i n C i p t a Karya DUD - D i r e c t o r a t e of Urban Development i n Dalam Negeri GO I - Government of I n d o n e s i a ROR - F i n a n c i a l Rate of Return WE - Water E n t e r p r i s e s FOR OFFICIAL USE ONLY THE WORLD BANK Washtngton. D C . 20433 U.S.A. June 10, 1986 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: P r o j e c t Performance Audit Report o n I n d o n e s i a - The F i v e C i t i e s Water Supply P r o j e c t (Loan 1049-IND) Attached, f o r i n f o r m a t i o n , i s a copy o f a r e p o r t e n t i t l e d " P r o j e c t Performance Audit Report on I n d o n e s i a - The F i v e C i t i e s Water Supply P r o j e c t (Loan 1049-IND) " prepared by t h e O p e r a t i o n s E v a l u a t i o n Department. Yves Rovani by O t t o Maiss Attachment 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 authorization. FOR OPFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT INDONESIA THE FIVE CITIES WATER SUPPLY PROJECT (LOAN 1049-IND) TABLE OF CONTENTS Page No . Preface ............................................................ ................................................... i Basic Data Sheet Evaluation Summary ................................................. iii vi PROJECT PERFORMANCE AUDIT MEMORANDUM I. ............................................ PROJECT SUMMARY 1 Background ................................................. The Project and Its Objectives ............................. 1 Project Revision and Implementation ........................ 2 Project Costs and Loan Disbursements ....................... 3 5 and Suppliers ............................................ Performance of Consultants. Contractors Performance of Suppliers and Contractors ................... 5 Institutional Development and Performance................... 6 7 Operational Performance .................................... Financial Performance ...................................... 7 8 Audits ..................................................... Financing Plan ............................................. 10 Economic Performance ....................................... 11 Performance of the Bank .................................... 11 Sustainability of Benefits ................................. 11 12 11. SUPPLEMENTARY COMMENTS ..................................... 13 Water Service Connections .................................. The Cirebon and Jogjakarta Water Supply Projects ........... 13 14 111. CONLUSIONS .........m.........oooooo.oo........m....o.o... 15 ATTACHMENT A: Comments Received from the Borrower ................. 16 PROJECT COMPLETION REPORT I . . Introduction ............................................ ....................................... 17 I1 111 . Project Background Project Implementation and Management .................... 19 23 This document h u a restricted distribution and may be uacd by recipients only in the performance of their omcial duties. Its contents may not otherwise be disclowd without World Bank authorization. . TABLE OF CONTENTS (Cont'd) Page No . IV . . Operating Performance .................................... .................................... 28 V VI . . Financial Performance .................................... Institutional Performance ................................ 30 37 VII VIII IX . . Project Justification Bank and Government Performance Conclusions and Lessons Learned .......................... .......................... 40 41 42 ANNEXES Principal Report Sources ..................................... An Overview of Compliance of Major Loan Covenants ............ 45 46 ................................................... Comparison of Appraisal. Revised and Actual Implementation Schedule ......................... 47 An Analysis of Procurement Schedules An Overview of Specific Procurement Problems ................. 48 49 . ................................................. Comparison of Total Project Costs for Appraisal and Actual Conditions .............. 50 7 8.. ...................................... Actual and Appraisal Loan Disbursement Profiles Financing Plan. 1975-81 - ................................... 51 52 9a 9b. .. Income Statements Malang Malang Water Enterprise - ...................................... ..................... 53 54 9c . Balance Sheets Malang Water Enterprise - 10a Income Statements Purwokerto Water Enterprise .............. ............................ 55 56 . lob Sources and Applications of Funds . - 1oc Balance Sheets Purwokerto Water Enterprise - ................. .............. 57 58 ............................ 1 la Income Statements Banyuwangi Water Enterprise 1 lb. Sources and Applications of Funds - ................. 59 60 61 . 1 lc. Balance Sheets Banyuwangi Water Enterprise 12a Income Statements - Jambi Water Enterprise . - ................... ... 62 . . - 12c Balance Sheets Jambi Water Enterprise - ...................... 12b Sources and Applications of Funds Jambi Water Enterprise ............... 63 64 65 . 13a Income Statements Samarinda Water Enterprise - ................................................. 13b Sources and Applications of Funds Samarinda Water Enterprise - Balance Sheets Samarinda Water Enterprise .................. Summary of Financial Results of Water Enterprises Based 66 67 on Revalued Fixed Assets Assuming by 1984 the Installation of Delayed Service Connections and ...... ...................... Increases in Water Rates to Achieve 6% Rate of Return Organization Chart for Water Enterprise 68 70 Internal Financial Rates of Return (IFRR) ....... .................... Organization Chart Directorate of Sanitary Engineering 71 72 . IBRD No . 10870 PROJECT PERFORMANCE AUDIT REPORT INDONESIA THE FIVE CITIES WATER SUPPLY PROJECT (LOAN 1049-IND) T h i s r e p o r t p r e s e n t s t h e r e s u l t s of a performance a u d i t of t h e F i v e ' C i t i e s Water Supply P r o j e c t . Loan 1049-IND f o r USS14.5 m i l l i o n , t o a s s i s t w i t h f i n a n c i n g t h e p r o j e c t , was approved on October 15, 1974 and became e f f e c t i v e on May 2 1 , 1985. The l o a n was made t o t h e Government of t h e Republic of Indonesia. R e s p o n s i b i l i t y f o r implementation was w i t h t h e D i r e c t o r a t e of S a n i t a r y Engineering (DSE), which i s under t h e D i r e c t o r General of Housing, B u i l d i n g , Planning and Urban Development ( C i p t a Karya) of t h e M i n i s t r y of P u b l i c Works (MPW), formerly t h e M i n i s t r y of P u b l i c Works and Power. The o r i g i n a l c l o s i n g d a t e of June 30, 1980 was extended t o December 31, 1981, and t h e l o a n account was c l o s e d f i n a l l y i n May 1982 when an o u t s t a n d i n g balance of USS0.65 m i l l i o n was c a n c e l l e d . The P r o j e c t Performance Audit Report (PPAR) c o n s i s t s of a P r o j e c t Performance Audit Memorandum (PPAM), prepared by t h e Operations E v a l u a t i o n Department (OED), and a P r o j e c t Completion Report (PCR) prepared by t h e Urban and Water Supply D i v i s i o n of t h e E a s t Asia and P a c i f i c Regional P r o j e c t s Department and d a t e d June 1983. The PCR i s based, i n p a r t , on a r e p o r t prepared by C i p t a Karya and on a p r o j e c t completion mission i n 1982 when most of t h e p r o j e c t had been completed. OED h a s reviewed t h e PCR, t h e A p p r a i s a l and P r e s i d e n t ' s Reports, t h e l e g a l documents, and t h e t r a n s c r i p t s of t h e meeting of t h e Executive D i r e c t o r s when t h e l o a n was approved. Documents i n t h e Bank f i l e s have been reviewed, i n c l u d i n g documents p e r t a i n i n g t o follow-on p r o j e c t s , and s t a f f f a m i l i a r w i t h t h e p r o j e c t have been interviewed t o t h e e x t e n t p o s s i b l e . An O ED mission v i s i t e d I n d o n e s i a , d i s c u s s e d t h e p r o j e c t w i t h o f f i c e r s and s t a f f of t h e Government i n J a k a r t a , and i n s p e c t e d t h e p r o j e c t components i n f o u r of t h e f i v e c i t i e s (Jambe i n Sumatera, Malang and Banyuwangi i n J a v a , and Samarinda i n Kalimantan). The d e l a y i n i s s u i n g t h e PPAR r e s u l t e d p a r t i a l l y from t h e n e c e s s i t y t o a s s i g n O ED r e s o u r c e s t o o t h e r p r i o r i t y work because of a long-standing s t a f f vacancy. The d e l a y , however, made i t p o s s i b l e t o update some of t h e d a t a on t h e c r i t i c a l m a t t e r of s e r v i c e connections t o December 1984. The a u d i t has concluded t h a t t h e PCR is e x c e p t i o n a l l y thorough and d e s c r i b e s t h e p r o j e c t e x p e r i e n c e a c c u r a t e l y and i n ample d e t a i l t o s u p p o r t t h e conclusions reached and t h e l e s s o n s which emerged. For t h e most p a r t , therefore, the P P A M provides a summary and a t t e m p t s not t o r e p e a t t h e d e t a i l s provided i n t h e PCR. It does add more r e c e n t d a t a when a v a i l a b l e and, i n a d d i t i o n , provides some a d d i t i o n a l comment regarding water supply o p e r a t i o n s , performance of t h e Bank, s u s t a i n a b i l i t y of b e n e f i t s and water s e r v i c e connections. Following s t a n d a r d OED procedures, c o p i e s of t h e PPAR were s e n t t o t h e Government and t h e e x e c u t i n g agency, C i p t a Karya, f o r comments. Comments r e c e i v e d from t h e M i n i s t r y of Finance have been reproduced a s Attachment A t o the report. PROJECT PERFORMANCE AUDIT BASIC DATA SHEET INDONESIA THE FIVE CITIES WATER SUIPPI,Y PROJECT (LOAN 1049-IND) KEY PROJECT DATA Appraisal Actual or Estimate - I tem Expectation _Current Total Project Cost (US$ million) Overrun (XI Loan Amount (US$ million) Dis bursed 1 Cancel led 1 Date Physical Components Completed /b Proportion Completed by Above Date ( X I Proportion of Time Overrun (2) - 80% Internal Financial Rates of Return (X) 0.4-6.9 -3.5 to +3.4 Financial Performance Satisfactory Satisfactory with qualifications - /c Institutional Performance Satisfactory Satisfactory STAFF INPUT (Staff-Weeks from Time Recording System) Preappraisal - FY: 1972 - - 1973 - 1974 - 1976 - 1975 - 1977 - 1978 Appraisal Negotiations Supervision Preappraisal - FY: 1979 - - 1980 - 1981 - 1983 - 1982 - 1984 - TOTALS Appraieal Negotiations Supervision - /a As a result of increase in local costs. - /b Completion date, from Staff Appraisal Report, was for major ~onstcuction components only (Loan Agreement gave 06/30/79). Expected completion date for water service connections was March 31, 1981, while actuals for the five cities range from December 1975 (~anyuwangi) to an estimated 1987 or later for Malang (PPAM, paras. 9 and 12). - /c Delayed service connections (Note b) must be provided to achieve more satisfactory overall financial performance. CUMMULATIVE ESTIMATED AND ACTUAL DISBURSEMENTS (US$ million) BankN: 1975 - - 1977 - 1976 - 1979 - 1978 - 1980 - 1981 - 1982 (i) Appraisal Estimate 0.60 3.60 7.30 14.30 14.50 14.50 14.50 14.50 (ii) Actual 0.20 1.60 2.40 3.20 7.60 11.44 12.90 13.85 (iii) Actual as X of Appraisal 33 39 32 22 52 79 89 96 OTHER PROJECT DATA Original Actual or -Item Plan Revisions Est. Actual First Mention in Files or Timetable - - - - 01/12/72 -- Government's Application Negotiations 07/15/74 - 07115-07/26/74 Board Approval 091 /74 10/15/74 10/15/74 Loan Agreement Date 10/31/74 - 10/31/74 Effective Date 03/04/75 05/06/74 05/21/75 Closing Date 06/30/80 12/31/81 12/31/81 -/a Borrower Government of Indonesia Executive Agency Directorate of Sanitary Engineering, Ministry of Public Works Fiscal Year of Borrower - April 1 March 31 Follow-on Project Name Second Water Supply Project Loan Number 1709-IND Amount (US$ million) $36.0 million Loan Agreement Date June 1, 1979 - /a The loan account was closed on May 6, 1982 when USS0.65 million was cancelled. MISSION DATA /a - No. of No. of Man- Date of Month/Year Days Persons days Report Identification Jan-Feb 72 9 2 Preparation I May 72 7 1 Preparation I1 Sep-Oct 72 7 1 Preappraisal Apr-May 73 27 2 Appraisal Nov-Dec 73 21 2 Supervision I Oct 74 Supervision I1 Nov 75 Supervision 111 May-Jun 76 Supervision IV Nov-Dec 76 Supervision V Mar 77 Supervision VI Jun-Jul 77 Supervision VII Nov 77 Supervision VIII Jul 78 Supervision IX Jan-Feb 79 Supervision X Nov 79 Supervision XI Jun 80 Supervision XI1 Nov 80 Supervision XI11 May-Jun 81 Supervision XIV Nov 81 Completion (PCR) Feb-Mar 82 COUNTRY EXCHANGE RATES Name of Currency (Abbreviation) Rupiah (Rp) Year: Exchange Rate: Appraisal Year Average: 01/74 - 11/78 US$1 = Rp 415 Intervening Years Average: 11/78 - 11/81 - /b US$1 = Rp 625 Completion Year: 12/81 US$1 = Rp 625 - /c - /a Most supervision missions, including the PCR completion mission, were undertaken in conjunction with other project activities. - /b Fifty percent rupiah devaluation on November 15, 1978. - /c The rupiah was devalued again in April 1983 to US$1 = Rp 1,000. PROJECT PERFORMANCE AUDIT REPORT INDONESIA THE FIVE CITIES WATER SUPPLY PROJECT (LOAN 1049-IND) EVALUATION SUMMARY Introduction i. Loan 1049-IND, in the amount of USS14.5 million, to the Government of the Republic of Indonesia, was approved by the Bank on October 15, 1974, signed on October 31, 1974 and became effective on May 21, 1975. The Direc- torate of Sanitary Engineering (DSE), under Cipta Karya (Housing, Building, Planning and Urban Development) in the Ministry of Public Works (MPW) was the implementing agency (PCR, para. 1.04). About 85% of the loan amount was to be relent to the Water Enterprises (WES~), established as conditions of effectiveness of the loan, of the five project cities for sub-projects. The relending was done under Project Loan Agreements between the Government and each WE. The other 15% of the Bank loan was intended to finance technical assistance to DSE for institutional development and for feasibility studies for water supply and sewerage facilities in seven additional cities (PCR, para. 2.07; Loan Agreement, Schedule 2 . ) ii. The project developed from a sector study by the Bank, with parti- cipation by the World Health Organization, in 1970 and 1971 and, subse- quently, feasibility and organization studies and preliminary designs by consultants financed through an IDA technical assistance credit (PPAM, paras. 1-2). The Project and Its Objectives iii. The project was the first implementation stage (1975-1981) of master plans for water supply in the cities of Malang, Purwokerto and Banyuwangi in Java; Jambi in Sumatera; and Samarinda in Kalimantan. The physical objective was to increase the availability of public water service to a total of about 440,000 people. The principal objectives, however, were to: strengthen the sector organization at the national level; to establish the local semi-autonomous WEs and train their staffs; and, in the longer term, to put the community water supply program on a self-supporting basis using the five sub-projects as examples. And finally, projects for seven ) additional cities were to be prepared (PPAM, paras. 5 and 6. iv. The project, with an estimated total cost of USS25.4 million equiv- alent, was scheduled for completion by June 30, 1979. The Bank loan, with a closing date of June 30, 1980, was intended to cover the foreign exchange - 11 The formal name for a WE is Perusahaan Daerah Air Minum (PDAM), but WE will be used throughout the audit report for consistency with the Project Completion Report. costs (SAR; Loan Agreement; PCR, paras. 1.02 and 3.03). The forecast inter- nal financial rates of return for the individual sub-projects ranged from 0.4% to 7% (PCR, para. 7.03). V. The sub-projects in the respective cities included development of surface or groundwater sources, and the provision of water treatment, trans- mission, storage and distribution facilities, fire hydrants, and public ) standpipes and bathhouses (PPAM, para. 7. vi. The major project components were substantially completed by the end of 1981, three and one-half years behind the appraisal timetable. The construction time overrun resulted, in part, from start-up delays, but was caused mainly by cumbersome bureaucratic procurement procedures and, later, by delays in the supply of imported pipes and fittings (PPAM, para. 1 0). The service connections, essential for the success of the project, were completed on or ahead of schedule in Banyuwangi and Samarinda, but were, or will be, from about five to nine years late in the other three cities. These long delays in completion of service connections were mainly because of improper scheduling and, later, a shortage of local funds, but other factors were involved also (PPAM, paras. 12-13 and 45-51). vii. Although the project was appraised on the basis of preliminary designs, there was only one major change ( Samarinda) during the detailed design and construction phases, and this proved to be a cost-saving and time- saving revision (PPAM, para. 8. ) viii. Performance of the engineering consultants received mixed reviews, but on the whole was generally good. Results achieved through the work of the management consultants was very good (PPAM, paras. 19-22). Performance of suppliers and contractors was acceptable in most cases. The notable exceptions were two foreign suppliers of pipe and fittings and one local civil works contractor whose contract had to be terminated (PPAM, paras. 23-24). ix. Establishment of the five WEs, implementation of tariff standards and reorganization of DSE proceeded relatively smoothly, considering the magnitude of the changes involved. Adoption of an inter-departmental decree establishing functional relationships between ministries involved in the sector was achieved, but with considerable difficulty and delay (PPAM, paras. 25-26). x. High marks are deserved for the efforts, under difficult condi- tions, to satisfy the financial covenants pertaining to the WEs. A continu- ing major problem, not resolved during the project implementation period, however, was delayed payment for services to agencies of the Government (PPAM, paras. 29-36). - viii - Results xi. The p h y s i c a l o b j e c t i v e s of t h e p r o j e c t were accomplished; because of t h e f a c i l i t i e s added and improved o p e r a t i o n s , an u n i n t e r r u p t e d supply of s a f e water was provided t o about 0.5 m i l l i o n p e r s o n s , o r n e a r l y h a l f of t h e p o p u l a t i o n of t h e f i v e c i t i e s , which p r e v i o u s l y had no, o r poor q u a l i t y , p u b l i c w a t e r supply s e r v i c e s . But t h e b e n e f i t s were f u l l y r e a l i z e d o n l y a f t e r a d e l a y of s e v e r a l y e a r s because of l a t e completion, and a t a t o t a l c o s t (expressed i n l o c a l c u r r e n c y ) of about 63% above e s t i m a t e s ( p a r a . v i ; PPAM, p a r a s . 9-10, 12-13 and 15-17). xii. I n s t i t u t i o n a l g o a l s were a l s o achieved. Establishment of t h e f i v e W Es and t r a i n i n g of t h e i r s t a f f s - w i t h some exceptions-was n o t a b l y success- f u l , a l t h o u g h t h e r e is s t i l l much room f o r f u r t h e r improvement. The c a p a b i l - i t i e s of DSE a t t h e n a t i o n a l l e v e l were s t r e n g t h e n e d , a l t h o u g h more could have been accomplished were i t n o t f o r t h e s t a f f c o n s t r a i n t s which per- sisted. The e v e n t u a l i s s u a n c e of t h e i n t e r - d e p a r t m e n t a l d e c r e e (para. i x ) h a s been u s e f u l i n promoting c o o r d i n a t i o n , but some problems remain (PPAM, p a r a s . 25-26; PCR, p a r a s . 6.01-6.07, 7.01 and 9.01). xiii. Perhaps t h e most important r e s u l t was i n i t i a t i o n of a n a t i o n a l water supply program based on a "loan" approach r a t h e r than t h e h i s t o r i c a l " g r a n t " approach. The concepts of c o s t recovery and r a t i o n a l water t a r i f f s became e s t a b l i s h e d . The concepts of c o s t recovery and f i n a n c i a l v i a b i l i t y have s i n c e been extended t o many o t h e r water supply systems i n I n d o n e s i a , i n c l u d i n g t h o s e a s s i s t e d by f o u r follow-on Bank l o a n s 3 (PCR, paras. 6.01, 7.01 and 9.01). I n s p i t e of acceptance of t h e f i n a n c i a l c o n c e p t s , however, and g e n e r a l l y commendable e f f o r t s , t h e f i v e W E s e s t a b l i s h e d under t h i s p r o j e c t were n o t a b l e , i n t h e f a c e of time and c o s t o v e r r u n s , t o s a t i s f y t h e f i n a n c i a l covenants (PPAM, paras. 29-36). The r e e s t i m a t e d i n t e r n a l f i n a n c i a l r a t e of r e t u r n , based on 1983184 d a t a , e q u a l s o r exceeds t h e a p p r a i s a l f o r e - c a s t s f o r o n l y two of t h e WEs, w h i l e two of t h e o t h e r s a r e n e g a t i v e (PPAM, p a r a . 39; PCR, p a r a s . 7.03-7.04). xiv. F e a s i b i l i t y s t u d i e s f o r a n o t h e r water supply p r o j e c t f o r seven c i t i e s were completed s a t i s f a c t o r i l y and l e d t o t h e Second (Seven C i t i e s ) Water Supply P r o j e c t f o r which Bank Loan 1709-IND was approved i n May 1979. Sustainability xv . The a u d i t found n o t h i n g t h a t would pose a s e r i o u s t h r e a t t o t h e e s t i m a t e d b e n e f i t s claimed f o r t h e p r o j e c t . Problems r e v e a l e d by t h e p r o j e c t e x p e r i e n c e , and which l i m i t e d t h e b e n e f i t s , have been addressed by t h e W Es and DSE and o t h e r Government a g e n c i e s w i t h some s u c c e s s e s which have t h e p o t e n t i a l of enhancing t h e b e n e f i t s of both t h i s p r o j e c t and t h e follow-on p r o j e c t s (PPAM, paras. 43-44). 21 - Second Water Supply, Loan 1709-IND, approved i n May 1979; The F i r s t E a s t J a v a Water Supply, Loan 2275-IND approved i n May 1983; and t h e Second E a s t J a v a Water Supply, Loan 2632-IND approved i n November 1985. Findings and Lessons xvi. The audit concludes that the project objectives were appropriate, clearly expressed and understood and accepted by the authorities at both the national and local levels and, it seems, by the ultimate beneficiaries. Planning was very good generally; the project, and subsequent projects, definitely benefited from the sector study and its follow-up and the treat- ment of the project as a pilot. xvii. There were some weaknesses in planning and managing the project, including: (a) lack of appreciation of the administration procedures which created procurement bottlenecks and led to unrealistic scheduling; (b) failure to assure that distribution facilities and service connections kept up with water source and transmission development; (c) overoptimistic expectations with respect to financial performance of the fledgling WEs in their early years and the resulting agree- ment on overly rigid revenue covenants; and (d) unrealistic requirements for timing of audit reports to be submitted to the Bank. xviii. The problems listed above are of a type not unusual for water supply and waste disposal projects generally. They have been recognized as lessons in Indonesia and applied to some extent to the preparation and implementation of the follow-on projects and should be considered in projects in other countries. Another lesson of much more significance is the value of the comprehensive sector study carried out in advance, the resulting dialogue and the use of the project as a pilot. PROJECT PERFORMANCE AUDIT MEMORANDUM INDONESIA THE FIVE CITIES WATER SUPPLY PROJECT (LOAN 1049-IND) I. PROJECT SUMMARY Background 1. The Bank first became associated with the community water supply sector in Indonesia in 1968, when the World Health Organization (WHO), the Bank and the Government went through the preliminaries of planning for a sector study. At that time, the Government was faced with great problems in meeting the water supply requirements of a very large, rapidly urbanizing population scattered over a vast area. The BankIWHO sector study, carried out in 1970171 and published in 1972, demonstrated the necessity of: (i) changing policies for financing community water supply projects from a Government grant to a loan approach; (ii) having projects and financing that cover all water supply components, not just source and transmission; and (iii) reorganization of sector institutions at both national and local levels (file search; PCR, paras. 1.03 and 2.01). 2. The Bank was further involved in project preparation when it financed the feasibility studies and preliminary designs for projects in seven cities through a general technical assistance credit to the C~overnment (Credit No. 216 of September 15, 1970). The selection of the cities was made in consultation with the Bank--agreement was not always reached easily--on the basis of importance, need, economic potential and other factors, includ- ing political. Sub-projects in five of these cities--Malang, Purwokerto and Banyuwangi in Java; Jambi in Sumatera; and Samarinda in Kalimantan--became the core of the Bank-financed project. The sub-projects in the other two cities, Cirebon and Jogjakarta were financed by the Government of Switzerland (file search; SAR;- l/ PCR, para. 2.02). 3. The Bank-f inanced project was appraised in December 1973 and nego- tiations were in July 1974. Loan 1049-IND was approved in October 1974 and became effective in May 1975. About 85% of the loan was for sub-projects in the five cities, and the remainder was for technical assistance to the national sector organization (Implementation Summary, para. i. There were a ) number of issues during the approval and loan processing period. One, between Cipta Karya, the project implementating agency, and the foreign engineering consultants, was on the amount of consulting staff-months required for detailed design and construction supervision and on the amount of design to be done locally versus being done in the consultant's home office. Cipta Karya wanted to reduce the consultant's staff time and also to 1/ - Staff Appraisal Report. have most d e s i g n done i n Indonesia. As i t turned o u t , t h e p r o j e c t would have b e n e f i t e d a g r e a t d e a l i f more c o n s u l t a n t s t a f f time had been provided and more of t h e f i n a l design had been done i n I n d o n e s i a ( f i l e s e a r c h ) . 4. Other i s s u e s were on c o n d i t i o n s of e f f e c t i v e n e s s . Should estab- lishment of Water E n t e r p r i s e s ( a s ) i n t h e f i v e cities:/ and appointment of management c o n s u l t a n t s be c o n d i t i o n s ? They were. And should t h e Bank r e q u i r e an undertaking by t h e f i v e l o c a l governments t o s p e c i f i c i n c r e a s e s i n water r a t e s a s an e f f e c t i v e n e s s c o n d i t i o n ( a s opposed t o r e q u i r i n g c e r t a i n f i n a n c i a l r a t e s of r e t u r n i n f u t u r e y e a r s ) ? This was not made a c o n d i t i o n of e f f e c t i v e n e s s ( f i l e s e a r c h ; PCR, paras. 2.03 and 3.01). I n t h e opinion of t h e a u d i t , a l l of t h e s e d e c i s i o n s proved t o be c o r r e c t . The P r o j e c t and Its O b j e c t i v e s 5. The p r o j e c t o b j e c t i v e s were w e l l thought o u t , c l e a r l y defined and, a p p a r e n t l y , understood and subscribed t o by t h e key Government o f f i c i a l s and a g e n c i e s , although l a t e r , i n p r a c t i c e , r i v a l r y and c o n f l i c t between Government agencies s e r i o u s l y hampered p r o j e c t implementation. The p r i n c i p a l o b j e c t i v e s were: t o s t r e n g t h e n t h e water supply s e c t o r o r g a n i z a t i o n a t t h e national level; t o establish local W s and t r a i n t h e i r s t a f f s , s t a r t i n g w i t h e t h e f i v e p r o j e c t c i t i e s (PPAM, para. 2) a s examples; and, i n t h e longer term, t o put t h e community water supply program on a s e l f - s u p p o r t i n g b a s i s . The l o a n c o n d i t i o n s were c o n s i s t e n t with and g e n e r a l l y r e f l e c t e d t h e s e i n s t i t u t i o n a l o b j e c t i v e s (SAR; P r e s i d e n t ' s Report; Loan Agreement; PCR, p a r a s . 2.02-2.04 and Annex 2). 6. P h y s i c a l l y , t h e p r o j e c t s were intended t o i n c r e a s e t h e a v a i l a b i l i t y of p u b l i c water i n Banyuwangi , Jambi , Malang , Purwoker t o and Samarinda from an average about 16% (160,000 people) of t h e t o t a l population i n 1974 t o a n average of about 50% (600,000 people) i n 1981. Also, p r o j e c t s f o r seven a d d i t i o n a l c i t i e s were t o be prepared. The master p l a n f o r t h e f i v e c i t i e s , of which t h i s p r o j e c t was t h e f i r s t s t a g e , included a second s t a g e aimed a t 75% coverage of t h e population by 2001 (SAR; P r e s i d e n t ' s Report; PCR, para. 2.05). 7. The p h y s i c a l components of t h e sub-projects i n t h e f i v e c i t i e s a r e d e s c r i b e d i n adequate d e t a i l i n t h e PCR ( p a r a . 2.06). They a r e q u i t e b a s i c , c o n s i s t i n g of development of new o r expansion of e x i s t i n g ground water s o u r c e s ( i n c l u d i n g s p r i n g s ) , r i v e r water i n t a k e s w i t h pumping and t r e a t m e n t (Jambi and Samarinda), t r a n s m i s s i o n and d i s t r i b u t i o n f a c i l i t i e s , f i r e hydrants, p u b l i c s t a n d p i p e s and bathhouses, and f o r Malang, t e s t well d r i l l - i n g f o r f u t u r e groundwater development (Loan Agreement; PCR, para. 2.06). S t r i k i n g l y , t h e p r o j e c t d e s c r i p t i o n i n t h e Loan Agreement, which was r e l a - t i v e l y d e t a i l e d , d i d not s p e c i f i c a l l y i n c l u d e s e r v i c e connections and meters although t h e s e were included i n t h e itemized p r o j e c t d e s c r i p t i o n and c o s t e s t i m a t e s i n t h e annexes t o t h e SAR. 21 - A Water E n t e r p r i s e is a semi-autonomous c o r p o r a t i o n c r e a t e d by a l o c a l government (PCR, p a r a s . 1.04, 2.03 and 6.01) and i s formally c a l l e d a Perusahaan Daerah Air Minum (PDAM). The acronym WE w i l l be used throughout t h i s r e p o r t , however, t o be c o n s i s t e n t with t h e PCR. Project Revision and Implementation 8. The only significant revision during detailed design and construction was on the Samarinda sub-project. Here, the plan for a difficult and costly river crossing was abandoned, and a second (small) intake and treatment plant on the south side of the river was constructed instead. This is reported to be an improvement, saving both construction costs and time (PCR, para. 3.10; field interviews). This lack of revisions on a project which was appraised on the basis of preliminary designs is unusual and appears to reflect well on the quality of the preliminary engineering, although the WEs and Cipta Karya expressed some criticism (PPAM, para. 19). 9. Although the Loan Agreement (Schedule 2) gave an expected comple- tion date of June 30, 1979 for project construction, the appraisal forecasts (SAR, Annexes 5 and 6; file search) for completion of major works (water source development, treatment, transmission and distribution facilities) ranged from March 1978 (Malang) to August 1978 (Samarinda). Substantial completion of the principal works in all five cities actually was accom- plished by about December 1981 (PCR, para. 3 .03). The overall time overrun on this part of the project , therefore, was about three-and-one-half years, ) or about 80% based on a starting date of January 1, 1974 (SAR, Annex 6. 10. Considerable delay occurred at the beginning of the implementation period because of delays in completing final designs and appointing consul- tants to supervise construction. Then there were extensive delays in evaluating and awarding contracts and opening letters of credit. Cipta Karya's shortage of qualified staff, but mainly the numerous and cumbersome Government procurement and contract payment procedures were the major causes of delay. Problems with deliveries of imported pipe and fittings, and late payments--up to 12 to 15 months--of local currencies owed to consultants and contractors, caused by the budgetary procedures and shortages of funds, also contributed to the delays (PCR, paras. 3.02-3.03 and 3.05-3.06; file search; field interviews). 11. The records do not reveal any significant problems in complying with the Bank's procurement guideline for Bank-financed contracts or with the Government's procedures for local procurement in the case of locally financed contracts (PCR, paras. 3.05 and 3.06; file search), except the bureaucratic delays. A common complaint was that international competitive bidding under the Bank's procurement guidelines contributed to the delays (field inter- views). According to the records, this probably stems from the delays in getting tender documents and evaluation reports delivered to the Bank for review and approval. Once received by the Bank, responses were made effi- ciently. In one case, a contract for pumps and motors, there was disagree- ment about the proposed award, but this was resolved comparatively quickly, and the award was made according to the Bank's procurement guidelines (file search). 12. Water service connection and meter installations, which were included in the project cost estimates, and are vital to the financial performance of the WEs and full realization of project benefits, lagged seriously behind schedule in Jambi, Malang and Purwokerto. The targets for Banyuwangi and Samarinda, however, were reached on or ahead of schedule and eventually exceeded (PCR, para. 4.01 and Annexes 9A-13A; field interviews). The table below summarizes the eituation. Ac tual/Estimated Dates No. of Conn. by Target Actual or Target (No. of Conn.) - Target /a Estimated Date 12/31/85 Banyuwangi 2,200 03/78 12/75 2,780 6,300 Jambi 10,800 03/80 10184 2,340 13,000 Malang 26,300 03181 12/89 12,700 20,000 Purwokerto 7,400 03/80 04/86 3,720 7,200 Samarinda 3,800 03/79 12/79 3,000 9,000 - /a From appraisal estimates of expenditures by years (SAR, Annex 5 ). Appraisal financial forecasts (SAR, Annexes 11-14), however, are based on the target numbers of connections being in service by March 31, 1980 in all cities except Samarinda, where it was to be by March 31, 1979. 13. The general reason given for the overall shortfall in service connections is poor planning and lack of coordination between the WEB and DSE. There was little effort at the beginning to concentrate on distribution mains and service connections as early as possible, and it was only at later stages of construction that attention (including by the Bank) was focused on this problem. Also, there apparently was a misunderstanding about whether Bank loan funds could be used to finance locally procured connection piping and the Government intended to use local funds which then were not available as and when needed (PCR, paras. 3.03 and 3.04). There is more to the story than that, however (PPAM, paras. 45-50). 14. Public standpipes and bathhouses (clothes washing, bathing and toilet facilities) are common and important ways of making maximum use of community water eupplies in Indonesia, particularly by the low-income population, and each of the sub-projects included the addition of such structures. Actual accompliehments under the project were mixed. Banyuwangi, Halang and Samarinda equaled or exceeded the targets for new standpipee. Jambi reached about half the target and Purwokerto added none of the scheduled 54 new etandpipae, Am for bathhouree, only Banyuwangi aat the target. None of the other WEr came clore. A major conetraint was land acquisition, which a180 h u barn a prob1.m on urban d e v e l o p ~ n t projects in Indoneeia. In the case of 8amarinda, an ample number of bathhouses (60) were built, outeida the project, by local community organitationr (field interviews). 15. Components of t h e p r o j e c t , o t h e r than c o n s t r u c t i o n , w i t h t a r g e t d a t e s a l s o were delayed. Reorganization of DSE, due f o r completion by December 31, 1977 (Loan Agreement, Schedule 2 ) , was judged t o be f i n i s h e d i n September 1978. An i n t e r a g e n c y agreement governing r e l a t i o n s between key government m i n i s t r i e s and t h e W Es had a t a r g e t d a t e of December 31, 1974, but t h e d e c r e e a l s o was not i s s u e d u n t i l September 1978 (PCR, p a r a s . 2.08 and 3.01). And t h e f e a s i b i l i t y s t u d i e s f o r t h e follow-on p r o j e c t , due t o be completed by t h e end of 1976, were not ready u n t i l mid-1977 (Loan Agreement, Schedule 2; f i l e s e a r c h ) . A l l of t h e d e l a y s of t h e s e components were caused by i n s t i t u t i o n a l problems. P r o j e c t C o s t s and Loan Disbursements 16. Bank s t a f f c a l c u l a t i o n s of a c t u a l p r o j e c t c o s t s a r e g i v e n i n t h e PCR ( p a r a s . 3.07-3.08 and Annex 6 ) . Somewhat d i f f e r e n t f i g u r e s were provided by t h e p r o j e c t implementing agency. The d i f f e r e n c e s i n t o t a l s appear t o r e s u l t l a r g e l y from v a r i a t i o n s i n exchange r a t e s between t h e r u p i a h and t h e US d o l l a r , p l u s t h e e s t i m a t e d c o s t s of a d d i t i o n a l work r e q u i r e d t o complete t h e water s e r v i c e connections. S i n c e , i n t h e o p i n i o n of t h e a u d i t , t h e d i f f e r e n c e s are n o t s i g n i f i c a n t f o r p r o j e c t e v a l u a t i o n purposes, t h e f i g u r e s g i v e n i n t h e PCR have been adopted f o r t h i s r e p o r t . 17. T o t a l p r o j e c t c o s t s were about USS29.0 m i l l i o n , o r about Rp 17,152 m i l l i o n , u s i n g t h e v a r i o u s exchange r a t e s which p r e v a i l e d d u r i n g t h e p e r i o d of e x p e n d i t u r e s . Expressed i n US$, a c t u a l c o s t s exceeded t h e a p p r a i s a l estimates by a b o u t 14%, but expressed i n l o c a l c u r r e n c y , t h e overrun was about 63%. Actual f o r e i g n exchange c o s t s were only about 1% above t h e estimates. Local c o s t s , which were about 96% above t h e estimates, account f o r most of t h e i n c r e a s e i n t o t a l c o s t s , and t h e i n c r e a s e was l a r g e l y because of t h e d e v a l u a t i o n of t h e r u p i a h i n 1978 and t h e high r a t e of l o c a l i n f l a t i o n which took p l a c e d u r i n g t h e extended c o n s t r u c t i o n p e r i o d (PCR, p a r a s . 3.07- 3.08 and Annex 6). Project revisions w e r e not a f a c t o r i n the cost overrun (PPAM, para. 8 ) . 18. The Bank l o a n of USS14.5 m i l l i o n proved t o be more t h a n adequate t o cover a c t u a l f o r e i g n exchange c o s t s , and when t h e account was c l o s e d , USS0.65 was c a n c e l l e d . Because of t h e t o t a l c o e t overrun, t h e Bank l o a n covered about one-third of t h e t o t a l p r o j e c t c o s t s i n s t e a d of h a l f , a s intended a t a p p r a i s a l (PPAM, para. 38). Disbursements lagged behind t h e expected disbursement p r o f i l e by up t o t h r e e y e a r s , more-or-less i n l i n e w i t h imple- mentation d e l a y s , b u t because of a one-year s a f e t y f a c t o r used i n e s t a b l i s h i n g t h e i n i t i a l Closing D a t e , t o t a l e x t e n s i o n s of only 18 months--from June 30, 1980 t o December 31, 1981--were r e q u i r e d . The account was c l o s e d i n May 1982 when t h e c a n c e l l a t i o n was made (PCR, p a r a s . 3.09 and 5.03 and Annex 7 ) . Performance o f C o n s u l t a n t s , C o n t r a c t o r s and S u p p l i e r s 19. The f i v e WEs, C i p t a Karya and Bank s t a f f , a s might be expected, have a v a r i e t y of views about t h e performance of t h e i n d i v i d u a l c o n s u l t i n g firms. O n balance, t h e consensus was t h a t o v e r a l l performance was g e n e r a l l y good. The lowest r a t i n g went t o t h e e n g i n e e r i n g j o i n t v e n t u r e ( c o n s u l t a n t "A") which prepared the feasibility studies and preliminary designs. The detailed design work of consultant "B" started slowly, largely because of a long delay in contract negotiations. Then some of the detailed designs, particularly in the early stages, had to be revised. This appears to have been caused by consultant "B" doing most of the design work in his home office (PPAM, para. 3) based on data which, to some extent, was provided by others. Consultant "B" was responsible also for overall construction supervision, with a local consulting firm providing the site supervision staff. Consultant "B" did not provide enough of his own staff, however (PPAM, para. 3 ); usually there were only two engineers, who, in spite of exceptional effort (one even learned the Indonesiarl language), were too few to handle five widely separated sub-projects, and the engineers from the local partner were inexperienced. 20. The highest rating for consulting performance went to the manage- ment consultant ("C"), who was from a developing country, but had extensive experience in his own country, and also in other developing countries in East Asia. Consultant "Dm, who carried out the feasibility studies and prelimi- nary designs for the follow-on Seven Cities Water Supply Project also received a very good performance rating by Cipta Karya. 21. The most significant engineering deficiencies observed by, or reported to, the audit mission were in Jambi. There, the distribution plan did not cover an area large enough (by half) to reach the scheduled number of properties which were willing and able to pay for service connections. The river water levels at the intake do not reach the elevations predicted by the feasibility studies, causing the raw water pumping station to shut down from time to time, and the intake design did not provide adequately for sand accu- mulations in the pump sump. And finally, the elevated water storage tank leaks, caused by poor construction but indicating also inadequate construc- tion supervision. 22. Malang's WE also experienced some problems which appear to result from engineering. The Mendit Springs pumping station, which is supposed to pump 500 liters per second with standby capacity, produces only 482 liters per second with all pumps operating. In addition, the groundwater investiga- tion to identify future water sources was, according to the WE, superficial and the WE has little confidence in the results. Performance of Suppliers and Contractors 23. Firms responsible for 9 of 11 supply contracts performed well. The other two caused serious problems. One failed to meet specifications (pipe fittings). The other did not manage shipment properly with the result that about one-third of the ductile iron pipe arrived in damaged condition (PCR, paras. 3.03 and 3.05 and Annexes 4 and 5). 24. Most civil works contractors eventually produced work of acceptable quality, although there were quality control problems along the way (PCR, para. 3.06 and Annexes 4 and 5). The works at Jambi euffered because of an incompetent contractor; he was replaced by another contractor, but the results were not entirely satisfactory (PCR, para. 3.12; PPAM, para. 2 1). Malang's WE a l s o paid t h e p r i c e of some c a r e l e s s c o n s t r u c t i o n . Water mains were not p r o p e r l y cleaned and f l u s h e d b e f o r e being put i n t o s e r v i c e which caused many problems w i t h s e r v i c e meters. There was a l s o a problem a t Malang's Mendit Spring pumping s t a t i o n because of r e f u s e l e f t i n t h e s t r u c - t u r e by t h e c o n t r a c t o r s . The pumps had t o be dismantled and cleaned and some r e p a i r s were r e q u i r e d ( f i e l d o b s e r v a t i o n s and i n t e r v i e w s ) . I n s t i t u t i o n a l Development and Performance 25. I n s t i t u t i o n a l performance, a l t h o u g h v a r y i n g from agency t o agency, was good o v e r a l l , e s p e c i a l l y when t h e complexity of t h e development t a s k is c o n s i d e r e d , and t h e a u d i t is s a t i s f i e d t h a t t h e i n s t i t u t i o n a l a s p e c t s a r e ' a c c u r a t e l y d e s c r i b e d i n t h e PCR ( p a r a s . 6.01-6.05 and 6.07). The f i v e WE's were e s t a b l i s h e d s u c c e s s f u l l y and t h e f i r s t s t a g e s of t r a i n i n g i n management, o p e r a t i o n s and f i n a n c e s appears t o have produced s a t i s f a c t o r y r e s u l t s . DSE was r e o r g a n i z e d a l o n g l i n e s g e n e r a l l y a s recommended by t h e management c o n s u l t a n t s , and t h i s p r o g r e s s i s being continued under t h e follow-on projects. There were d i f f i c u l t i e s w i t h t h e i n t e r d e p a r t m e n t a l d e c r e e on f u n c t i o n a l r e l a t i o n s h i p s between t h e M i n i s t r i e s of P u b l i c Works, Home A f f a i r s and Finance and t h e WEs, but t h i s was e v e n t u a l l y i s s u e d ; r e p o r t s i n d i c a t e t h a t it h a s been u s e f u l , a l t h o u g h more improvement i n c o o r d i n a t i o n i s s t i l l required. 26. The above performance, i n t h e o p i n i o n of t h e a u d i t , p o i n t s out t h e v a l u e of c a r e f u l p l a n n i n g and g e n e r a l acceptance by key o f f i c i a l s a s t o t h e needs and o b j e c t i v e s of t h e i n s t i t u t i o n a l reforms r e q u i r e d ; i n e f f e c t , t h e importance of advance development of a p o l i t i c a l c o n s t i t u e n c y . Even t h e n , however, working out d e t a i l s and r e s o l v i n g t e r r i t o r i a l r i v a l r i e s can be d i f f i c u l t and time-consuming as i n t h e c a s e of t h e i n t e r d e p a r t m e n t a l decree. The d e l a y of two y e a r s between a p p r a i s a l and a p p r o v a l of Bank Loan 1709-INTI f o r t h e Second Water Supply P r o j e c t is i n d i c a t i v e of t h e s e d i f f i c u l t i e s . O p e r a t i o n a l Performance 27 There i s no q u e s t i o n t h a t t h e p r o j e c t r e s u l t e d i n s u b s t a n t i a l improvements i n t h e water supply o p e r a t i o n s i n a l l of t h e f i v e p r o j e c t c i t i e s , a s r e p o r t e d i n t h e PCR ( p a r a . 4 - 0 1 ) , even though t h e r e p o r t e d volumes of water produced a n d / o r s o l d i n t h r e e of t h e cities were s h o r t of t h e f o r e - c a s t s , and unaccounted-for water probably w a s n o t reduced t o t h e e x t e n t planned i n any of t h e f i v e . Reasonably dependable q u a n t i t a t i v e comparisons of volumes of p r o d u c t i o n , s a l e s and unaccounted-for water b e f o r e and a f t e r t h e p r o j e c t a r e n o t p o s s i b l e f o r most of t h e c i t i e s , however. Data which could be used t o a c c u r a t e l y d e s c r i b e t h e "before" s i t u a t i o n and be used a s t h e b a s i s f o r p r o j e c t i o n s was extremely l i m i t e d . I n a d d i t i o n , some of t h e d a t a c o l l e c t e d d u r i n g t h e p r o j e c t implementation period and a f t e r , which a r e used as measures of o p e r a t i o n a l l e v e l s and e f f i c i e n c y , a r e s u s p e c t . This i s p a r t i c u l a r l y t r u e of p r o d u c t i o n volumes. N e v e r t h e l e s s , i t is c l e a r t h a t i n a l l t h e c i t i e s , t h e r e were s i g n i f i c a n t accomplishments, even b e f o r e t h e p r o j e c t s were completed. The f o l l o w i n g , d e r i v e d from t h e PCR and f i e l d d a t a o b t a i n e d by t h e a u d i t m i s s i o n , i l l u s t r a t e s t h e s c a l e of magnitude of t h e improvements s i n c e about 1975: I n c r e a s e d Production Increased Sales Volumes Volumes Banyuwangi /a 0% 0% 50% 150% Jambi 33% 340% 150% 480% Malang 0% 110% 10% 120% Purwokerto 0% 60% 40% 170% Samarinda 140% 400% 175% 340% T o t a l F i v e Cities 5% 110% 40% 165% - /a No i n c r e a s e i n water production c a p a c i t y (from s p r i n g s ) was planned. 28. A major problem with t h e water supply o p e r a t i o n s i n t h e f i v e c i t i e s a t t h e t i m e of a p p r a i s a l was t h e high l e v e l of unaccounted-for water which was e s t i m a t e d t o average almost 50% of water production. The p r o j e c t was expected--unrealistically, i n t h e o p i n i o n of t h e audit--to reduce t h i s t o about 20% i n each c i t y by 1979. Actual performance by t h e W Es was mixed. Excluding Banyuwangi, a s p e c i a l case,l/ and b e a r i n g i n mind t h a t some production d a t a a r e u n r e l i a b l e , t h e average unaccounted-for water was reduced from about 45% i n 1975 t o about 35% i n 1983. I f Malang, by f a r t h e l a r g e s t c i t y which a l s o has t h e most problems, is excluded a s w e l l , t h e average r e d u c t i o n was from about 47% i n 1975 t o about 30% i n 1983. Malang's unaccounted-for water i n 1983 was s t i l l about 40% of production and t h i s h a s had a d e t r i m e n t a l e f f e c t on t h e WE's c a p a c i t y t o provide new w a t e r s e r v i c e c o n n e c t i o n s (SAR; PCR, p a r a . 4.02 and Annexes 9A-13A; PPAM, p a r a . 46). F i n a n c i a l Performance 29. The a u d i t found no reason t o d i s a g r e e w i t h t h e o v e r a l l e v a l u a t i o n of f i n a n c i a l performance a s d e s c r i b e d i n t h e PCR ( p a r a s . 5.01-5.16 and 6.07 and Annexes 9-13); t h e l i m i t e d more r e c e n t d a t a o b t a i n e d d u r i n g t h e a u d i t does not s u g g e s t any s i g n i f i c a n t changes i n t h e c o n c l u s i o n s p r e s e n t e d i n t h e PCR concerning f i n a n c e s . 30. The e s t a b l i s h m e n t of t h e WEs a s c o r p o r a t i o n s w i t h f i n a n c e s s e p a r a t e from t h e l o c a l governments was s u c c e s s f u l . A n a t i o n a l s t a n d a r d f o r water t a r i f f s was e s t a b l i s h e d and adopted by t h e f i v e W E s, and t h e p o l i c i e s and procedures w i t h r e s p e c t t o t a r i f f s and f i n a n c i a l management of t h e s e WEs have been extended t o many o t h e r water supply systems i n Indonesia. Modern u t i l i t y accounting and f i n a n c i a l r e p o r t i n g systems have been i n s t a l l e d by t h e WEs and, although t h e r e a r e s t i l l problems, p a r t i c u l a r l y w i t h f i x e d a s s e t a c c o u n t s and d e p r e c i a t i o n d e d u c t i o n s (PCR, para. 5.05), t h e WEs have demon- s t r a t e d t h a t they can m a i n t a i n t h e s e systems q u i t e w e l l ( u n l i k e some o t h e r 31 - Banyuwangi o b t a i n s i t s water by g r a v i t y from s p r i n g s w i t h c a p a c i t y exceeding demands u n t i l t h e 1990s and t h e measure of production i n c l u d e s t h e overflow of t h e e x c e s s at t h e source. s e c t o r s i n I n d o n e s i a where t h e r e a r e s e v e r e problems w i t h e s t a b l i s h m e n t of a c c e p t a b l e accounting systems). Although WE managers could undoubtedly make g r e a t e r u s e of f i n a n c i a l r e p o r t s prepared (PCR, p a r a . 4.04), the audit mission observed t h a t , i n a t l e a s t two of t h e W E, t h e managers and key s t a f f s had a p r a c t i c e of meeting r e g u l a r l y t o d i s c u s s t h e i r q u a r t e r l y f i n a n c i a l and operating reports. 3 1. The performance of t h e W s i n r a i s i n g t a r i f f s i n t h e attempt t o E s a t i s f y t h e i r f i n a n c i a l o b j e c t i v e s (and t h e revenue covenants) have been commendable. The average water c h a r g e s (except i n Banyuwangi) and t h e n e t o p e r a t i n g incomes b e f o r e d e p r e c i a t i o n and i n t e r e s t ( e x c e p t i n Jambi) have been c o n s i s t e n t l y above t h e a p p r a i s a l f o r e c a s t s , i n s p i t e of o p e r a t i n g c o s t s which exceeded f o r e c a s t s and, i n some c a s e s , delayed f i n a n c i a l b e n e f i t s caused by underachievement of t h e t a r g e t s f o r new s e r v i c e c o n n e c t i o n s (PPAM, p a r a s . 12-13). 32. The f i n a n c i a l r a t e s of r e t u r n (FRR) on n e t f i x e d a s s e t s a s r e p o r t e d by t h e W s a l s o were above t h o s e s p e c i f i e d i n t h e l o a n documents. E These v a l u e s were i n c o r r e c t , however, because t h e a s s e t s were n o t revalued a s r e q u i r e d and new a s s e t s were n o t e n t e r e d i n t o t h e books a s they went i n t o service. Estimated FRRs u s i n g c o r r e c t procedures i n d i c a t e they were only about 15% t o 20% of what was r e p o r t e d by t h e W Es and t h a t p o s s i b l y only t h e Malang WE m e t t h e covenanted 6% FRR f o r FY81 (PCR, para. 5.06). 33. Bank s t a f f e s t i m a t e d t h a t w i t h assumed completion of s e r v i c e connection t a r g e t s by 1984 and v a r i o u s i n c r e a s e s i n average water s e r v i c e c h a r g e s d u r i n g 1982-84, t h e covenanted FRRs of 6 % , p r o p e r l y c a l c u l a t e d , could be reached i n 1984. While t h i s accomplishment was considered p o s s i b l e i n Banyuwangi, Malang and Purwokerto, i t was b e l i e v e d u n l i k e l y f o r Jambi and Samarinda because of water r a t e s t h a t a l r e a d y were comparatively h i g h (PCR, paras. 5.07-5.08). More r e c e n t i n f o r m a t i o n shows t h a t t h e Samarinda WE d i d , i n f a c t , i n c r e a s e water s e r v i c e c h a r g e s t o t h e n e c e s s a r y l e v e l s , e f f e c t i v e i n 1983, and t h a t w i t h i t s ongoing program f o r i n c r e a s i n g t h e d i s t r i b u t i o n net- work and numbers of c o n n e c t i o n s , it probably achieved a n FRR of 6% o r above i n 1984. Malang, on t h e o t h e r hand, a p p a r e n t l y d i d n o t i n c r e a s e c h a r g e s u n t i l 1985 and i t s FRR may have dropped w e l l below 6% f o r 1984. Malang would obviously b e n e f i t a g r e a t d e a l by reducing unaccounted-for water. 34. A major f i n a n c i a l problem experienced by a l l t h e W E s , b u t espe- c i a l l y Malang, a r e t h e high l e v e l s of accounts r e c e i v a b l e from government a g e n c i e s , p a r t i c u l a r l y t h e m i l i t a r y , over which l o c a l a u t h o r i t i e s have no c o n t r o l (PCR, p a r a s . 5.14 and 5.15). As of June 30, 1983 ( a u d i t mission f i e l d d a t a ) , t h e a c c o u n t s r e c e i v a b l e from government a g e n c i e s were a s follows : Local Percent of T o t a l Government M i l i t a r y T o t a l s 1982 B i l l i n g s ---------Rp millions-------- Banyuwangi 5.6 9.0 14.6 10% Jambi 57 .O 97.7 154.7 75% Malang 25.0 945.0 970.0 70% Purwokerto 67.7 21.9 89.6 40% Samarinda 22 .O 125.0 147.0 20% Totals - -- - 177.3 1,198.6 1,375.9 50% Other t h a n from government a g e n c i e s , t h e b i l l i n g and c o l l e c t i o n performance of t h e W s i s good, w i t h r e c e i v a b l e s ranging from about 7% t o 18% of annual E b i l l i n g s (PCR, para. 5.14). 35. The g e n e r a l problem with c o l l e c t i o n s f o r s e r v i c e t o t h e m i l i t a r y i s l a r g e l y one of l e n g t h y procedure. The b i l l s f o r s e r v i c e go t o t h e l o c a l m i l i t a r y u n i t s , then t o h e a d q u a r t e r s through s e v e r a l ranks and f i n a l l y t h e payment is r e t u r n e d t o t h e W E s through t h e s e same channels. Some p r o g r e s s i n improving t h i s sytem has been made i n r e c e n t y e a r s , but i t remains a l a r g e problem, damaging t o t h e cash flow p o s i t i o n s of t h e W E s. In addition t o the m a t t e r of r e c e i v a b l e s , t h e l a r g e m i l i t a r y consumers a r e a problem f o r t h e Malang WE i n o t h e r ways (PPAM, para. 47). 36. Because of t h e i r t i g h t f i n a n c i a l p o s i t i o n s , t h e Ws a r e having a E problem, a t least f o r the p e r i o d 1983-1985, meeting debt s e r v i c e requirements on government l o a n s , i n c l u d i n g Bank l o a n funds r e l e n t t o t h e W Es (PCR, para. 5.09). Also, d u r i n g t h e c o n s t r u c t i o n p e r i o d , t h e WEs were unable t o r e t u r n t o t h e Government any s u r p l u s cash generated from o p e r a t i o n s , a s r e q u i r e d under t h e Loan and P r o j e c t Agreements. It turned o u t t h a t t h e r e were no l e g a l p r o v i s i o n s f o r such payments t o t h e Government, which proved t o be j u s t as w e l l because t h o s e WEs with s u r p l u s e s were then a b l e t o make a d d i t i o n a l investments i n d i s t r i b u t i o n and s e r v i c e connections (PCR, para. 5.16). Audits 37. The performance of t h e WEs i n s u b m i t t i n g a u d i t e d f i n a n c i a l s t a t e - ments t o t h e Bank w i t h i n s i x months of t h e end of t h e f i s c a l y e a r was poor. The r e p o r t s have never been less than a year l a t e . Performance i n t h i s r e s p e c t i s n o t as s e r i o u s as it may seem, however. The a u d i t mission found t h a t t h e a u d i t o r s ' r e p o r t s f o r 1981 and 1982 were submitted t o t h e WEs i n about s i x t o e i g h t months. Thus, t h e primary purpose of t h e a u d i t s , namely t o r e p o r t t o t h e managements of t h e r e s p o n s i b l e a g e n c i e s , was being s a t i s f i e d reasonably well. The r e a l problem on timing, a s f a r a s s a t i s f y i n g t h e Bank i s concerned, is i n o b t a i n i n g and c l e a r i n g t h e E n g l i s h t r a n s l a t i o n s of t h e long-form a u d i t r e p o r t s . T h i s , by t h e c e n t r a l S t a t e Accounting O f f i c e , h a s r e q u i r e d a s much a s an a d d i t i o n a l 15 t o 18 months. More s e r i o u s than any d e l a y i n t r a n s m i t t i n g E n g l i s h v e r s i o n s of t h e a u d i t r e p o r t s is t h e f a c t t h a t i n g e n e r a l , t h e r e p o r t s have n o t been adequate i n scope and c o n t e n t (PCR, para. 5.12). Financine Plan 38. Under t h e f i n a n c i n g p l a n , t h e Bank l o a n was expected t o f i n a n c e t h e f o r e i g n exchange c o s t s , o r 51% of t h e t o t a l e s t i m a t e d c o s t s . The Bank l o a n , a f t e r t h e small c a n c e l l a t i o n , a c t u a l l y covered t h e t o t a l f o r e i g n exchange c o s t s but because of t h e c o s t o v e r r u n i n l o c a l currency c o s t s , i t m e t o n l y about 33% of t o t a l c o s t s . Government l o a n s and e q u i t y c o n t r i b u t i o n s , i n t e n d e d t o cover 23% of t o t a l c o s t s , had t o be i n c r e a s e d by about R s 9.1 b i l l i o n and met about 50% o f t h e t o t a l e x p e n d i t u r e s . I n t e r n a l c a s h genera- t i o n , which was t o cover about 19% of t o t a l c o s t s was a c t u a l l y i n c r e a s e d by about R s 1.1 b i l l i o n but covered o n l y 16% o f t o t a l c o s t s . Actual customer c o n t r i b u t i o n s t o be a p p l i e d t o p r o j e c t fund requirements ( 7 % ) were less t h a n f o r e c a s t by about R s 0.4 b i l l i o n because of t h e delayed s e r v i c e connection program and s u p p l i e d o n l y about 1% of t h e t o t a l requirements (PCR, p a r a s . 5.02-5.03 and Annex 8 ) . Economic Performance 39. A s r e f l e c t e d by t h e i n t e r n a l f i n a n c i a l r a t e of r e t u r n (IFRR), t h e p r o j e c t was n o t economically remunerative. The IFRRs e s t i m a t e d a t a p p r a i s a l f o r t h e f i v e WEs were marginal. Only Jambi, a t 7%, w a s c l o s e t o r e s p e c t a b i l - i t y by t h i s measure of worth (PCR, p a r a s . 7.03-7.04 and Annex 17). Actual performance, a s a whole, has been even less than f o r e c a s t , e x c e p t , perhaps, f o r Samarinda where t h e IFRR may be i n t h e o r d e r of 6% (3% f o r e c a s t ) . The r e a l economic r e t u r n from t h e p r o j e c t has been much g r e a t e r , however. G r e a t l y expanded, more e f f i c i e n t , more r e l i a b l e and s a f e r water s u p p l y systems have been e s t a b l i s h e d i n a l l f i v e c i t i e s , w i t h a l l t h e obvious bene- fits. The semi-autonomous WEs were e s t a b l i s h e d s u c c e s s f u l l y and more have been s e t up i n o t h e r c i t i e s . The n a t i o n a l s e c t o r o r g a n i z a t i o n has been strengthened. And, most i m p o r t a n t , t h e concept of c o s t recovery, v e r s u s s u b s i d i z a t i o n , f o r community w a t e r supply o p e r a t i o n s w a s f i r m l y e s t a b l i s h e d . Performance of t h e Bank 40. I n t h e o p i n i o n of t h e a u d i t , t h e p r o j e c t was very w e l l prepared. The v a l u e of t h e ~ank/WIlO s e c t o r s t u d y and t h e thoroughness of t h e d i a l o g u e between t h e Government and t h e Bank d u r i n g t h e p r o j e c t p r e p a r a t i o n period is unquestionable. The a u d i t i s p a r t i c u l a r l y impressed w i t h t h e i n t i m a t e and c o n s t r u c t i v e r o l e played by t h e Bank's r e s i d e n t mission, p a r t i c u l a r l y i n t h e p r e p a r a t i o n phase. It is obvious from t h e r e c o r d s t h a t t h e r e s i d e n t s t a f f d i d a g r e a t d e a l i n a t t e m p t i n g t o e x p e d i t e a c t i o n by t h e Government, and, more i m p o r t a n t , t h e y appeared t o have been very h e l p f u l i n a s s i s t i n g head- q u a r t e r s s t a f f t o t r y and understand and a d a p t t o l o c a l p o l i t i c a l and socio- l o g i c a l circumstances. N e v e r t h e l e s s , a s r e p o r t e d i n t h e PCR ( p a r a . 8.01), t h e Bank f a i l e d t o r e c o g n i z e t h e p o t e n t i a l procurement b o t t l e n e c k s , come t o some p r i o r agreement w i t h t h e Government on s t r e a m l i n i n g t h e procedures, and e s t a b l i s h a r e a l i s t i c p r o j e c t timetable. 41. Although t h e Bank r e g u l a r l y reviewed p r o j e c t implementation i n t h e f i e l d w i t h an average of about two m i s s i o n s per y e a r , t h e p r o j e c t could have b e n e f i t t e d from more v i s i t s t o t h e f i v e c i t i e s . The r e c o r d s show c l e a r l y t h a t most missions had t o spend much of t h e i r t i m e i n J a k a r t a where p r o j e c t management was c e n t r a l i z e d . T r a v e l t o t h e w i d e l y - s c a t t e r e d c i t i e s was time-consuming, and w i t h t h e l i m i t e d s t a f f r e s o u r c e s which t h e Bank a l l o c a t e d t o t h e p r o j e c t , some of t h e i n d i v i d u a l c i t i e s were v i s i t e d somewhat less than once a year and f o r very s h o r t p e r i o d s . I n a d d i t i o n , Bank s t a f f a l s o were h e a v i l y involved i n t h e p r e p a r a t i o n , a p p r a i s a l and, e v e n t u a l l y , s u p e r v i s i o n of o t h e r p r o j e c t s i n t h e s e c t o r which overlapped t h i s one. ( T h i s under- s t a f f i n g s i t u a t i o n c o n t i n u e s f o r t h e ongoing follow-on p r o j e c t s ) . 42. During f i e l d i n t e r v i e w s , t h e a u d i t mission determined t h a t Bank missions were h e l p f u l and a p p r e c i a t e d , but because of time c o n s t r a i n t s , t h e m i s s i o n s c o n c e n t r a t e d on i n f o r m a t i o n g a t h e r i n g and r e s o l u t i o n of p r o c e d u r a l problems. L i t t l e t e c h n i c a l a s s i s t a n c e was d e r i v e d from t h e m i s s i o n s them- selves. I n some c a s e s , Bank s t a f f were a b l e t o r e f e r l o c a l problems t o h i g h e r l e v e l s and t h u s a s s i s t w i t h c o r r e c t i v e a c t i o n , but u n f o r t u n a t e l y , t h i s d i d n o t happen i n t h e c a s e of t h e b e l a t e d s t a r t on new s e r v i c e connections i n some of t h e c i t i e s (PPAM, para. 13; PCR, para. 8.02). WE managers i n Malang and Banyuwangi spoke of communication problems (language) with Bank missions. Malang W Es e n g i n e e r s a l s o would have l i k e d more t e c h n i c a l a d v i c e from Bank s t a f f and were d i s a p p o i n t e d t h a t t h e r e was n o t enough time t o e x p l a i n and g e t Bank s t a f f s u p p o r t f o r t e c h n i c a l changes they thought would have improved t h e p r o j e c t . The s t a f f of t h e Samarinda W E were of t h e opinion t h a t withdrawals from t h e Bank l o a n account took t o o long; according t o them, disbursements took up t o two months from t h e d a t e of a p p l i c a t i o n . Bank r e c o r d s i n d i c a t e , however, t h a t most of t h e d e l a y s occurred b e f o r e t h e a p p l i c a t i o n s were r e c e i v e d by t h e Bank. S u s t a i n a b i l i t y of B e n e f i t s 43. There a r e no g l a r i n g r i s k s t o s u s t a i n i n g t h e b e n e f i t s achieved through t h i s p r o j e c t . As i s u s u a l l y t h e c a s e , water t a r i f f s w i l l have t o be r e v i s e d r e g u l a r l y t o r e f l e c t changed c o s t s and circumstances i f t h e important o b j e c t i v e s of f i n a n c i a l s e l f s u f f i c i e n c y and expansion of s e r v i c e a r e t o be s a t i s f i e d i n f u t u r e years. Although i n s t i t u t i o n a l development has been impressive t h u s f a r , i t i s important t h a t t h e WEs r e c e i v e c o n t i n u i n g a t t e n t i o n and t e c h n i c a l a s s i s t a n c e from C i p t a Karya, as a means of h e l p i n g t o f o r e s t a l l any l o s s of momentum o r even d e c l i n e s i n t h e q u a l i t y of management and s e r v i c e . An A s s o c i a t i o n of Water E n t e r p r i s e s , which was e s t a b l i s h e d i n r e c e n t y e a r s , should a l s o h e l p i n t h i s r e s p e c t , p a r t i c u l a r l y i f i t h e l p s t h e WE's t o s h a r e e x p e r i e n c e s and i d e a s and t o a t t a c k common problems. 44. E f f e c t i v e a c t i o n on r e d u c t i o n of unaccounted-for w a t e r , p a r t i c u l a r l y i n Malang, should have t o p p r i o r i t y a s a means of i n c r e a s i n g n e t revenues and making t h e most out of i n s t a l l e d c a p a c i t y . R e l a t e d t o t h i s is t h e n e c e s s i t y of c o r r e c t i n g f a u l t s i n t h e measurement of water produced and d i s t r i b u t e d . Such f a u l t s were noted by t h e a u d i t mission i n Malang and Samarinda. The raw water pumping arrangements a t Jambi r e q u i r e e x p e r t a t t e n t i o n , p a r t i c u l a r l y t o c o r r e c t problems w i t h s h a f t b e a r i n g s and i m p e l l e r s ; o t h e r w i s e t h e p r i n c i p a l s o u r c e of water i s l i a b l e t o f a i l . I SUPPLEMENTARY COMMENTS Water S e r v i c e Connections 45. The record on i n s t a l l a t i o n of new water s e r v i c e c o n n e c t i o n s , com- pared t o t h e f o r e c a s t s used i n p r o j e c t planning, i s d i s a p p o i n t i n g i n Jambi, Purwokerto and, p a r t i c u l a r l y , Malang. The g e n e r a l reason g i v e n was poor planning which r e s u l t e d i n d i s t r i b u t i o n f a c i l i t i e s n o t being ready i n t i m e t o meet t h e s e r v i c e connection s c h e d u l e (PPAM, p a r a s . 12-13). There a p p e a r s t o be more t o t h i s a s p e c t of implementation than a scheduling problem, however. C o n s t r a i n t s i n water production c a p a c i t y , inadequate s i z e of t h e d i s t r i b u t i o n a r e a , and t h e degree of i n i t i a t i v e by WE management a l s o were f a c t o r s . 46. I n Malang, water production c a p a c i t y , which was i n c r e a s e d a c c o r d i n g t o t h e p r o j e c t plan, has proved t o be q u i t e inadequate t o p r o p e r l y s e r v i c e t h e planned number of c o n n e c t i o n s , e s p e c i a l l y w i t h an e x c e s s i v e a p p a r e n t l e v e l of unaccounted-for water (PPAM, para. 28). B y t h e end of 1983, t h e w a t e r supply was being completely u t i l i z e d , a l t h o u g h o n l y about 70% of t h e s e r v i c e connection t a r g e t had been m e t . The pumps a t t h e major new water s o u r c e , Mendit S p r i n g , were o p e r a t i n g a t f u l l c a p a c i t y , 24 hours a day w i t h no overflows, according t o t h e o p e r a t i n g records. Malang WE had managed t o p r o v i d e adequate water t o a l l s e r v i c e c o n e c t i o n s up t o t h a t p o i n t (compared t o t h e "before" s i t u a t i o n when two-thirds of t h e o l d connections d i d n o t o b t a i n enough water) and a d d i t i o n a l connections were l i a b l e t o cause s e r v i c e q u a l i t y t o d e c l i n e again. Another problem is t h a t development of t h e c i t y had taken a d i r e c t i o n d i f f e r e n t than what had been expected and more pumping would be r e q u i r e d t o s e r v i c e t h e newer a r e a s . Malang W E ' intention t o s o b t a i n an i n c r e a s e d a l l o c a t i o n of Mendit Spring water and t o expand i t s t r e a t m e n t and pumping c a p a c i t y is v e r y i m p o r t a n t , t h e r e f o r e , provided t h a t e f f o r t s t o reduce unaccounted-for water r e c e i v e a t l e a s t e q u a l p r i o r i t y . 47. Malang h a s a problem w i t h t h e l a r g e amounts of water used a t t h e m i l i t a r y i n s t a l l a t i o n s (30% t o 50% of water s o l d , depending on t h e source of data). There a r e no r e s t r a i n t s on domestic water u s e of t h e housing f a c i l i - t i e s w i t h i n t h e m i l i t a r y a r e a s , and t h e water use per connection ( t h e r e a r e about 100) i s approximately 80 t i m e s t h e average use per domestic connection i n t h e r e s t of t h e system. There is obvious waste which could be used t o s e r v e more new connections. 48. I n Jambi, t h e problem was t h a t t h e planned d i s t r i b u t i o n a r e a was much t o o s m a l l (PPAM, p a r a . 21). Jambi WE made no p r o g r e s s w i t h new connec- t i o n s u n t i l 1977, and then i t was slow u n t i l 1982. Recent p r o g r e s s has been very good and stems from e x t e n s i o n s t o t h e o r i g i n a l p r o j e c t . They were completed i n 1983 and 1984, and about doubled t h e l e n g t h of t h e d i s t r i b u t i o n mains. The i n i t i a t i v e of Jambi W Es management a p p e a r s t o have been ' r e s p o n s i b l e f o r t h i s improvement. The new mains were designed by WE s t a f f (and approved by DSE) and t h e funds came from t h e W E s own o p e r a t i o n s p l u s ' a d d i t i o n a l l o a n s from t h e Government. Jambi's g r e a t e s t problem w i t h s e r v i c e connections i s with t h e m e t e r s , mostly t h o s e provided f o r low-cost housing e s t a t e s and which become t h e p r o p e r t y of t h e WE when t h e p r o p e r t i e s a r e connected t o W E ' system. s 49. A t Banyuwangi, t h e t a r g e t s f o r new s e r v i c e c o n n e c t i o n s were exceeded from t h e very f i r s t year of c o n s t r u c t i o n , and by t h e end of 1985, t o t a l connections were almost t h r e e times t h e p r o j e c t o b j e c t i v e . One e x p l a n a t i o n i s t h a t t h e o r i g i n a l d i s t r i b u t i o n network was u n d e r u t i l i z e d , caused i n p a r t by l i m i t e d t r a n s m i s s i o n c a p a c i t y , but t h e r e must have been o t h e r reasons a s w e l l , because t h e r a p i d growth i n new c o n n e c t i o n s began b e f o r e t h e t r a n s m i s s i o n c o n s t r a i n t was c o r r e c t e d . WE s t a f f advised t h e a u d i t mission t h a t t h e r e was both an adequate supply of water and a s u b s t a n t i a l market f o r new s e r v i c e connections. The WE proved a b l e t o provide t h e new connections promptly and e f f i c i e n t l y and t h e c o s t of a b o u t US$140 e q u i v a l e n t p e r connection, paid by t h e p r o p e r t y owner, d i d n o t dampen t h e demand. In t h e opinion of t h e a u d i t , management i n i t i a t i v e by t h e new WE was c r i t i c a l t o t h e s u c c e s s of t h e connection program i n Banyuwangi. 50. The Samarinda W E a l s o had s u c c e s s w i t h i t s connection program. The keys t o t h i s were a c o n s i d e r a b l e u n s a t i s f i e d demand f o r w a t e r , good l o c a l i n i t i a t i v e and e f f o r t s t o promote new c o n n e c t i o n s , t h e replacement of most o l d water mains and a good program t o l o c a t e i l l e g a l connections. The a u d i t mission was t o l d t h a t t h e people can a f f o r d new c o n n e c t i o n s , even a t a c o s t of a b o u t USS160 e q u i v a l e n t , and t h a t they want good s e r v i c e which t h e WE a p p e a r s t o provide. With c l e a r a n c e from t h e c i t y government, t h e WE promptly r e i n v e s t e d income i n new t e r t i a r y mains and m a t e r i a l s f o r connections. The c o n t i n u i n g program t o l o c a t e i l l e g a l connections and t h e a c t i o n taken when they a r e found i s q u i t e e f f e c t i v e i n adding new r e g i s t e r e d connections; t h e f i n e , imposed by t h e p o l i c e , is e q u i v a l e n t t o t h e c o s t of a new connection. 51. The market f o r water is e v i d e n t throughout Samarinda. Some a r e a s n o t y e t served by t h e W E r e c e i v e water by t a n k t r u c k s (some belonging t o t h e WE, but most a r e privately-owned) a t a u n i t c o s t some f i v e times t h e maximum r a t e charged a t domestic water s e r v i c e connections. There is a l s o a l o t of p r i v a t e e n t e r p r i s e . Privately-owned s t a n d p i p e s s e l l water a t about twice t h e maximum domestic r a t e . Then, t h e r e a r e "drum d e a l e r s " , who, a t about t h e same c o s t t o t h e consumers, d e l i v e r w a t e r purchased from t h e WE, through hoses t o drums a t t h e consumers' r e s i d e n c e s . There a r e a l s o p r i v a t e l y - o p e r a t e d horse-drawn t a n k e r s . A l l of t h e above a r e l i c e n s e d . River water d e a l e r s a r e n o t l i c e n s e d . They have small gasoline-engine-driven pumps which pump u n t r e a t e d r i v e r w a t e r through networks of i r o n p i p e and hoses t o t h e p r o p e r t i e s they s e r v e w i t h a charge about 50% h i g h e r than t h e W Es maximum rate. It is obvious from a l l of t h i s t h a t t h e Samarinda WE h a s an e x c e l l e n t o p p o r t u n i t y t o expand i t s s e r v i c e a r e a s . The Cirebon and J o g j a k a r t a Water Supply P r o j e c t s 52. C o n s t r u c t i o n of t h e s e two p r o j e c t s , f o r which f e a s i b i l i t y s t u d i e s and p r e l i m i n a r y d e s i g n s were f i n a n c e d by a Bank t e c h n i c a l a s s i s t a n c e c r e d i t , was financed by a g r a n t from t h e Government of Switzerland (PPAM, para. 2). C i p t a Karya r e p o r t s t h a t t h e Cirebon p r o j e c t was completed s a t i s f a c t o r i l y . The J o g j a k a r t a p r o j e c t a l s o was f i n i s h e d , but t h e r e were water production problems because of t h e high i r o n c o n t e n t i n t h e raw water. A l e a k c o r r e c - t i o n program was c a r r i e d out a s an e x t e n s i o n of t h e o r i g i n a l p r o j e c t . 53. C i p t a Karya s t a f f gave t h e impression t h a t implementation of t h e s e two p r o j e c t s was e a s i e r than t h e Bank financed p r o j e c t , mainly because pro- curement was t i e d t o Swiss goods and s e r v i c e s and t h e procedures were much less complicated f o r t h e Indonesians. Bank f i l e s show t h a t t h e r e were prob- lems, however. The J o g j a k a r t a WE d i d n o t s i g n i t s p r o j e c t agreement w i t h t h e Government f o r more than f o u r y e a r s , because t h e WE o b j e c t e d t o t h e i n t e r e s t rate. There was a l s o a long d e l a y i n g e t t i n g a c o n s t r u c i o n s u p e r v i s i o n c o n t r a c t ; i t w a s a j o i n t c o n t r a c t f o r both c i t i e s and Cirebon s i g n e d , b u t J o g j a k a r t a would not. Apparently, t h i s was a f a i r l y extreme example of c o n f l i c t between t h e l o c a l government and t h e n a t i o n a l government which r e v e a l e d a l a c k of power (and r e s o l v e ) by C i p t a Karya t o push i t s p o l i c i e s . 111. CONCLUSIONS 54. The p r o j e c t was very w e l l planned, having b e n e f i t t e d from a Bank/ WHO s e c t o r s t u d y and u n u s u a l l y c l o s e c o o p e r a t i o n between t h e Government and t h e Bank d u r i n g t h e p r e p a r a t i o n phase. The p r o j e c t o b j e c t i v e s were appro- p r i a t e and a p p a r e n t l y w e l l understood and accepted. 55. The i n s t i t u t i o n a l o b j e c t i v e s were achieved w i t h u n q u e s t i o n a b l e b e n e f i t s a t t h e n a t i o n a l and l o c a l l e v e l s of t h e s e c t o r , and t h e p o l i c i e s and procedures adopted by t h e f i v e c i t i e s w i t h r e s p e c t t o water supply have been u s e f u l examples f o r o t h e r I n d o n e s i a n communities. Completion of t h e p h y s i c a l components of t h e p r o j e c t w a s about three-and-one-half y e a r s behind sched- u l e . Some of t h i s d e l a y was t h e r e s u l t of an u n r e a l i s t i c t i m e t a b l e , b u t most was caused by b u r e a u c r a t i c procurement b o t t l e n e c k s and some problems w i t h imported goods. Three of t h e c i t i e s were delayed even l o n g e r i n meeting s e r v i c e connection t a r g e t s , caused i n p a r t by poor s c h e d u l i n g , b u t o t h e r f a c t o r s were a l s o important. 56. A p p r a i s a l c o s t e s t i m a t e s were s a t i s f a c t o r y . A c o s t overrun of 63% (14% when expressed i n US d o l l a r s ) , a l l i n l o c a l c o s t s , was t h e r e s u l t of d e l a y s and h i g h rates of l o c a l i n f l a t i o n (and d e v a l u a t i o n of t h e r u p i a h ) d u r i n g t h e extended c o n s t r u c t i o n period. 57. Most of t h e water e n t e r p r i s e s have been unable t o s a t i s f y t h e f i n a n c i a l performance g o a l s , b u t t h e t a r i f f reform e f f o r t s made a r e commend- able. The most g e n e r a l problems were t h e c o s t o v e r r u n s , delayed f i n a n c i a l b e n e f i t s and e x c e s s i v e l e v e l s of unaccounted-for water. 58. The economic r e t u r n f o r t h e i n d i v i d u a l s u b - p r o j e c t s , u s i n g t h e IFRR a s a proxy, was expected t o be low. The r e e s t i m a t e d r e t u r n s a r e even lower, w i t h only one, o r p o s s i b l y two, of t h e W s i n t h e g e n e r a l range of 5% t o E 10%. N e v e r t h e l e s s , t h e p r o j e c t i s considered t o have been f u l l y j u s t i f i e d because of the unquantified p h y s i c a l b e n e f i t s and, e s p e c i a l l y , the i n s t i t u t i o n a l and s e c t o r f i n a n c i n g developments i n i t i a t e d by t h e p r o j e c t . - 16 - ATTACHMENT A COMMENTS FROM THE GOVERNMENT *** MR. I N D E R K SUD D A T E : MAY 2 1 , 1 9 8 6 OUR T L X : ~ ~ / K L / V / B P C K S U B J E C T : LOAN 1 0 4 9 - I N D F I R S T WATER S U P P L Y P R O J E C T . WE H E R E W I T H ARE P L E A S E D TO N O T I F Y YOU THAT WE ARE I N F U L L AGREEMENT W I T H T H E P R O J E C T PERFORMANCE A U D I T R E P O R T . RGRDS : SOENARJONO DANDEDJO D I R G E N O F HUMAN S E T T L E M E N T S . CC : DIRGEN OF INTERNATIONAL MONETARY A F F A I R S M I N F I N . 4 7 3 3 0 DJCK I A *** XXXXX 4 6 1 1 1 BOOTH I A 2 4 8 4 2 3 WORLDBANK WORLDBANK MS S Y S T E M DISCONNECTED - -- -- -. COMPLETION REPORT PROJECT INDONESIA: THEFIVE CITIES WATER SUPPLY PROJECT (LOAN 1049-IND) I. INTRODUCTION 1.01 T h i s p r o j e c t completion r e p o r t (PCR) concerns t h e Five C i t i e s Water Supply P r o j e c t i n I n d o n e s i a (Loan 1049-IND) f o r which a Bank l o a n of $14.5 m i l l i o n was approved i n October 1974. This a l s o c o n s t i t u t e d t h e Bank's f i r s t involvement i n t h e water supply s e c t o r i n t h e c o u n t r y and was t h u s aimed t o p r o v i d e a v e h i c l e f o r i n t r o d u c i n g t h e r e q u i s i t e p o l i c y and i n s t i t u t i o n a l measures needed f o r t h e development of t h e s e c t o r . D e s p i t e t h e f a c t t h a t t h i s p r o j e c t was f r a u g h t w i t h s t a r t - u p d e l a y s and c h r o n i c procurement problems d u r i n g i t s implementation (1974-1981), i t was n e v e r t h e l e s s s u c c e s s f u l i n terms o f f o s t e r i n g t h e broad i n s t i t u t i o n a l g o a l s and b a s i c f i n a n c i a l g o a l s . The e x p e r i e n c e w i t h t h e f i r s t water supply p r o j e c t a l s o served a s a b a s i s f o r t h e a p p r o v a l i n J u n e 1979 o f a second water supply l o a n c o v e r i n g seven c i t i e s n a t i o n w i d e (Loan 1709-IND: amount $36 m i l l i o n ) and f o r an a p p r a i s a l i n June 1982 of a t h i r d water supply p r o j e c t ( l o a n amount $30.6 m i l l i o n ) i n v o l v i n g 50 s m a l l and medium s i z e d towns i n one province (East J a v a ) . 1.02 The s u b j e c t PCR p r o j e c t financed t h e f o r e i g n exchange c o s t s of t h e p r o j e c t t o improve and/or i n c r e a s e t h e urban water supply and d i s t r i b u t i o n f a c i l i t i e s i n f i v e c i t i e s nationwide, namely, Malang ( p o p u l a t i o n 472,000), Purwokerto (228,000) and Banyuwangi (83,000) i n J a v a ; Jambi (177,000) i n Sumatera; and Samarinda (120,000) i n Kalimantan ( s e e Map i n Annex), t o g e t h e r w i t h t h e a s s o c i a t e d t e c h n i c a l s e r v i c e s . The p r o j e c t s i n t h e above f i v e c i t i e s , which were p a r t of a long-term p l a n f o r t h e development of water s u p p l y i n t h e c i t i e s , r e p r e s e n t e d a f i r s t major s t e p by theDGovernment of I n d o n e s i a (GOI) i n a program t o improve and extend water f a c i l i t i e s throughout Indonesia. 1.03 E a r l i e r i n v e s t m e n t s i n t h e country's urban water supply s e c t o r began a c t i v e l y d u r i n g t h e f i r s t five-year p l a n ( R e p e l i t a I: 1969-1974) but were g r o s s l y i n a d e q u a t e compared t o t h e i n c r e a s i n g needs of a r a p i d l y u r b a n i z i n g p o p u l a t i o n (about 20 m i l l i o n i n 1 9 7 0 ) . / 1 During t h i s p e r i o d , however, t h e government began t o c r i t i c a l l y e x a m i n e T t s p o l i c i e s , e s p e c i a l l y t h o s e c o n c e r n i n g t h e l a r g e s u b s i d y p r o v i s i o n s f o r f i n a n c i n g t h e f a c i l i t i e s , t h a t had h i n d e r e d t h e pace of development i n t h e s e c t o r . The e e c t o r s t u d y , funded by t h e Bank i n 1971 ( p a r a . 2.01), r e i n f o r c e d t h e need t o provide a s s i s t a n c e t o t h e c i t i e s i n t h e form of l o a n s r a t h e r than g r a n t s f o r i n s t a l l i n g water supply - /1 A c o n s i d e r a b l e p o r t i o n of t h e t o t a l urban p o p u l a t i o n s t i l l l i v e s i n c i t i e s w i t h no p u b l i c water supply, and where p u b l i c water supply exists, i t i s i n a d e q u a t e and s e r v e s o n l y a s m a l l p a r t - about 20 t o 40% of t h e - p o p u l a t i o n . Most urban d w e l l e r s - a s i n r u r a l areas - a r e dependent on contaminated dug w e l l s , s t r e a m s o r r i v e r s w i t h a t t e n d a n t h e a l t h r i s k s . systems. The s u b j e c t PCR p r o j e c t was formulated on t h i s b a s i s . Implementa- t i o n of t h e p r o j e c t r a n through t h e second ( R e p e l i t a 11; 1974-1979) and t h e e a r l i e r p a r t of t h e t h i r d ( R e p e l i t a 111; 1979-1984) f i v e y e a r p l a n p e r i o d s d u r i n g which t h e Government began t o f o c u s a n i n c r e a s e d a t t e n t i o n i n meeting v a s t backlogs i n t h e s e c t o r investment programs. This trend i s c u r r e n t l y c o n t i n u i n g under t h e impetus of t h e I n t e r n a t i o n a l Drinking Water and Sani- t a t i o n Decade program and w i t h t h e Government's emphasis on p r o v i s i o n of w a t e r supply f o r s m a l l c i t i e s and towns nationwide. O r g a n i z a t i o n of t h e Borrower 1.04 R e s p o n s i b i l i t y f o r t h e n a t i o n a l urban water s u p p l y program i n I n d o n e s i a rests w i t h t h e M i n i s t r y of P u b l i c Works (MEW)./l Within t h e m i n i s t r y , t h e D i r e c t o r a t e General of Water Resources d e a z mainly w i t h water r i g h t s , a l l o c a t i o n s of water r e s o u r c e s , and t h e development of water r e s o u r c e s f o r a g r i c u l t u r a l purposes. The D i r e c t o r General of Housing, B u i l d i n g , Planning and Urban Development ( C i p t a Karya) i s i n c h a r g e of t h e development of urban water supply and sewerage,/2 C i p t a Karya, through i t s D i r e c t o r of S a n i t a r y Engineering (DSE), i s t h e implementing agency f o r water s u p p l y , sewerage and s a n i t a t i o n p r o j e c t s w i t h t h e f u n c t i o n s of p r o j e c t planning and p r o j e c t s e l e c t i o n , fund a l l o c a t i o n s , p r e l i m i n a r y and d e t a i l e d e n g i n e e r i n g , c o n s t r u c t i o n s u p e r v i s i o n and o c c a s i o n a l l y o p e r a t i o n and maintenance of water supply systems. The m u n i c i p a l i t i e s o r r e g e n c i e s a r e r e s p o n s i b l e f o r o p e r a t i o n and maintenance of waterworks and f o r e x t e n s i o n of t h e d i s t r i b u t i o n systems. The waterworks e n t e r p r i s e s (WEs) a r e c o r p o r a t i o n s c r e a t e d by t h e municipal o r regency governments ( s e e p a r a . 6.01), and t h e i r d e g r e e of dependency v a r i e s from c i t y t o c i t y . I n most c a s e s t h e water revenues b a r e l y cover o p e r a t i o n and maintenance c o s t s , t h u s t h e opportuni- t i e s f o r replacements o r e x t e n s i o n s of t h e d i s t r i b u t i o n systems a r e o n l y minimal. 1.05 While C i p t a Karya has t h e t e c h n i c a l r e s p o n s i b i l i t y f o r t h e W Es, g e n e r a l o v e r s i g h t r e s p o n s i b i l i t i e s f o r WEs' a d m i n i s t r a t i o n and f i n a n c e r e s t w i t h t h e D i r e c t o r a t e of Urban Development (DUD) of t h e M i n i s t r y of Home - /1 Formerly, M i n i s t r y of P u b l i c Works and Power. - /2 P r o v i s i o n of t h e r u r a l water s u p p l y and s a n i t a t i o n i s t h e r e s p o n s i b i l i t y o f t h e M i n i s t r y of H e a l t h through t h e D i r e c t o r a t e of Hygiene and Sanita- A f f a i r s (Dalam Negeri). Because of t h e involvement of s e v e r a l m i n i s t e r i a l a g e n c i e s i n t h e s e c t o r , and t h e i r o v e r l a p p i n g r e s p o n s i b i l i t i e s t h a t had o f t e n l e d t o a fragmented management of t h e s e c t o r a s a whole, i t was deemed n e c e s s a r y d u r i n g p r o j e c t a p p r a i s a l t o r e q u i r e the'covernment t a k e measures i n c l a r i f y i n g each agency's r o l e and i t s functional. r e s p o n s i b i l i t y . In t h i s c o n n e c t i o n , a n i n t e r d e p a r t m e n t a l d e c r e e was t o have been i s s u e d i n 1974 by t h e M i n i s t r i e s of Home A f f a i r s , Finance, and P u b l i c Works. The i s s u a n c e of t h i s d e c r e e was however delayed u n t i l 1978 when t h e second water supply p r o j e c t was under c o n s i d e r a t i o n ( p a r a . 6.07). T h i s d e c r e e was a s t a r t i n promoting b e t t e r working r e l a t i o n s h i p s between C i p t a ~ a r y a / ~ S ~ , and t h e DUD WEs . PCR P r e p a r a t i o n 1.06 Though n o t a s p e c i f i c requirement under t h e s u b j e c t l o a n , C i p t a Karya, upon r e q u e s t from t h e Bank, prepared a p r o j e c t completion r e p o r t i n August 1981 and s u b s e q u e n t l y r e v i s e d t h e r e p o r t a s of J a n u a r y 1982. T h i s r e p o r t , a l b e i t u s e f u l , l a c k e d updated f i n a n c i a l d a t a f o r t h e WEs and c e r t a i n t e c h n i c a l i n f o r m a t i o n which were r e p o r t e d l y s t i l l being c o l l e c t e d by C i p t a Karya but d i d n o t become a v a i l a b l e t o t h e Rank a t t h e time of PCR, prepara- t i o n . C o n s i d e r a b l e Bank time needed t o be expended i n t h i s updating e f f o r t , p a r t i c u l a r l y w i t h r e g a r d t o recomputing t h e r e p o r t e d f i n a n c i a l r a t e s of r e t u r n t o f a c i l i t a t e t h e i r comparison w i t h t h e a p p r a i s a l e s t i m a t e s ( p a r a . 5.06). The r e p o r t of C i p t a Karya p l u s o t h e r p r i n c i p a l document s o u r c e s t h a t were used i n t h e p r e p a r a t i o n of t h i s PCR a r e l i s t e d i n Annex 1. 11. PROJECT BACKGROUND Origin 2.01 The Bank's e a r l y involvement i n t h e country's water supply s e c t o r began w i t h t h e v i s i t s of a n I D A r e c o n n a i s s a n c e mission i n July-August 1970 and a g a i n i n February 1971 t o i d e n t i f y t h e p r i n c i p a l problems a s w e l l a s p o s s i b l e s o l u t i o n s i n t h e urban water supply (and sewerage) s e c t o r . The above s e c t o r s t u d y underscored t h e need t o change t h e e x i s t i n g f i n a n c i n g p o l i c i e s of t h e government from a g r a n t t o a l o a n approach i n f i n a n c i n g m u n i c i p a l water p r o j e c t s & ; t h e need t o f i n a n c e t h e whole water supply - /1 With t h e a d o p t i o n of t h e " b a s i c needs" approach i n t h e e a r l y 19808, ( s e e p a r a . 1.04 of t e x t ) , t h e government has r e v i s e d t h e f i n a n c i n g p o l i c y t o a s s i s t r u r a l and urban a r e a s a s follows: P r o v i s i o n of g r a n t s f o r t h e b a s i c needs systems ( s e r v i n g 602 p o p u l a t i o n a t 60 l p c d ) ; s o f t l o a n s t o s a t i s f y consumption l e v e l s between 60 and 120 l p c d ; and commercial l o a n s f o r l a r g e r systems s e r v i n g g r e a t e r - t h a n 60% p o p u l a t i o n and/or higher-than 120 l p c d demand. requirements r a t h e r t h a n o n l y t h e s o u r c e and t r a n s m i s s i o n f a c i l i t i e s - /1; and t h e need t o r e o r g a n i z e t h e s t a f f i n g a t n a t i o n a l and l o c a l l e v e l s i n a d m i n i s t e r i n g t h e new, unsubsidized l o a n program. A d e m o n s t r a t i v e p i l o t p r o j e c t i n v o l v i n g f i v e t o s i x c i t i e s was a l s o proposed by t h e s t u d y . There e x i s t e d an o v e r a l l s u p p o r t of t h e government f o r t h e s t u d y f i n d i n g s and recommendations. P r e p a r a t i o n and A p p r a i s a l 2.02 Following t h e s e c t o r s t u d y , and a t government's r e q u e s t , t e c h n i c a l a s s i s t a n c e (IDA Technical A s s i s t a n c e C r e d i t No. 216) was provided f o r ca'rry- i n g o u t water supply f e a s i b i l i t y and o r g a n i z a t i o n a l s t u d i e s i n seven c i t i e s (Malang, Purwokerto, Banyuwangi, Jambi, Samarinda, Cirebon, and ~ o g j a k a r t a )- ./2 F o r e i g n c o n s u l t a n t s 13 prepared t h e o r g a n i z a t i o n a l and m a s t e r p l a n s t u d i e s d u r i n g 1972-1973. s e s t u d i e s were s u p e r v i s e d by I D A and formed t h e b a s i s f o r t h e f i r s t water supply p r o j e c t i n I n d o n e s i a t o be financed by t h e Bank. The c o n s u l t a n t s ' s t u d i e s recommended G O 1 t o ( a ) f i n a n c e urban water supply systems w i t h a mix of l o a n s and e q u i t y ; ( b ) c r e a t e WEs; and ( c ) i n s t i t u t e o r g a n i z a t i o n a l changes i n DSE. I n June 1973 t h e Swiss government o f f e r e d t o f i n a n c e t h e water supply systems i n Cirebon and J o g j a k a r t a . Accordingly, t h e p r o j e c t i n t h e remaining f i v e c i t i e s was a p p r a i s e d by t h e Bank i n December 1973. N e g o t i a t i o n s and Loan A v ~ r o v a l 2.03 Loan n e g o t i a t i o n s took p l a c e i n J u l y 1974. A p p r o p r i a t e l o a n cove- n a n t s , aimed a t s a f e g u a r d i n g t h e Bank's concerns f o r t h e r e q u i s i t e i n s t i t w t i o n a l , f i n a n c i a l and managerial improvements i n t h e water s e c t o r , were m u t u a l l y agreed ( s e e p a r a . 2.08). Supplemental l e t t e r s e l a b o r a t i n g t h e implementation a s p e c t s of t h e major l o a n covenants were a l s o agreed. Given t h e i n s t i t u t i o n a l t h r u s t of t h e p r o j e c t , t h e c o n d i t i o n s of l o a n e f f e c t i v e - n e s s r e q u i r e d , i n t e r a l i a , t h e p r i o r e s t a b l i s h m e n t of autonomous W Es i n the f i v e p r o j e c t c i t i e s and t h e appointment of Managing and Finance and A d m i n i s t r a t i o n D i r e c t o r s f o r each WE. The l o a n f o r USS14.5 m i l l i o n was approved by t h e Bank on October 15, 1974, and s u b s e q u e n t l y became e f f e c t i v e o n May 21, 1975. /1 - The e x i s t i n g p r a c t i c e involved t h e a l l o c a t i o n of n a t i o n a l funds t o c i t i e s a s g r a n t s t o be used o n l y f o r i n s t a l l i n g p r o d u c t i o n and t r a n s m i s s i o n f a c i l i t i e s . The municipal governments d i d n o t , however, have t h e funds t o b u i l d o r extend d i s t r i b u t i o n systems. 1 2 S e l e c t i o n of t h e s e c i t i e s was based on s e v e r a l f a c t o r s i n c l u d i n g t h e i r - importance a s a p r o v i n c i a l c a p i t a l , t r a d e o r t o u r i s t c e n t e r , s c a r c i t y of w a t e r s u p p l y , and development and economic p o t e n t i a l of t h e c i t y . 1 3 Engineering c o n s u l t a n t s - - Japan; Management C o n s u l t a n t s - Philippines. P r o j e c t Objectives 2.04 The p r i n c i p a l p r o j e c t o b j e c t i v e s were ( a ) t o r e o r g a n i z e and s t r e n g t h e n t h e n a t i o n a l l e v e l o r g a n i z a t i o n , DSE, t o provide it w i t h t h e c a p a b i l i t y t o implement e f f e c t i v e l y a n a t i o n a l water supply program; ( b ) t o e x t e n d t h e water supply f a c i l i t i e s of t h e f i v e c i t i e s t o t h e e x t e n t f e a s i b l e i n a f i r s t s t a g e ; and ( c ) t o e s t a b l i s h WEs and t o t r a i n t h e s t a f f s t o o p e r a t e and m a i n t a i n t h e water systems. The long-range o b j e c t i v e was t o put t h e water supply program on a s e l f - s u p p o r t i n g b a s i s u s i n g t h e p r o j e c t s a s s i s t e d by t h e proposed l o a n a s a v e h i c l e . The funds included i n t h e l o a n f o r f e a s i b i l i t y s t u d i e s were t o provide t h e means of b r i n g i n g a d d i t i o n a l c i t i e s i n t o t h e n a t i o n a l program. Project Description 2.05 The p r o j e c t was t h e f i r s t s t a g e , covering t h e y e a r s 1975 through 1981, o f a master p l a n prepared by t h e c o n s u l t a n t s f o r water supply i n t h e f i v e c i t i e s . The f i r s t s t a g e p r o j e c t was aimed t o i n c r e a s e t h e percentage o f t h e t o t a l p o p u l a t i o n s e r v e d i n t h e f i v e c i t i e s from t h e e x i s t i n g 16% t o 48% i n 1981, and t h e master p l a n program contemplated a second s t a g e t o f u r t h e r i n c r e a s e i t t o 75% i n 2001. 2.06 The p r i n c i p a l e l e m e n t s of t h e p r o j e c t i n each c i t y a r e l i s t e d below. Ma1ang (a) S p r i n g development w i t h c o l l e c t i o n s t r u c t u r e , t r e a t m e n t p l a n t , c l e a r w e l l and b o o s t e r pumping s t a t i o n . (b) About 5 8 km of t r a n s m i s s i o n and d i s t r i b u t i o n mains with about 12,800 new metered s e r v i c e c o n n e c t i o n s . Purwokerto (a) Groundwater development w i t h b o r e h o l e s and pumping. (b) About 37 km of t r a n s m i s s i o n and d i s t r i b u t i o n mains w i t h about 6,000 new metered s e r v i c e connections. (a) A break-pressure t a n k w i t h c h l o r i n a t i o n p l a n t f o r t h e s p r i n g water. (b) About 1 9 km of t r a n s m i s s i o n and d i s t r i b u t i o n mains w i t h about 900 new metered s e r v i c e c o n n e c t i o n s . Jambi (a) River water i n t a k e w i t h pumping s t a t i o n , 1 km t r a n s m i s s i o n main, t r e a t m e n t works, c l e a r w e l l and b o o s t e r pumping (b) About 64 km of d i s t r i b u t i o n mains w i t h about 9,200 new metered s e r v i c e connections Samarinda (a) River water i n t a k e w i t h pumping s t a t i o n , 1.5 km t r a n s m i s s i o n p i p e s , t r e a t m e n t works, c l e a r w e l l and b o o s t e r pumping (b) About 37 k m of d i s t r i b u t i o n mains w i t h about 2,500 new metered s e r v i c e connections Minor p h y s i c a l elements included t h e p r o v i s i o n of p u b l i c s t a n d p i p e s , bath- h o u s e s , f i r e h y d r a n t s , o f f i c e and warehouse b u i l d i n g s , l a b o r a t o r y equipment and s t a f f houses. 2.07 C o n s u l t a n t S e r v i c e s under t h e p r o j e c t i n c l u d e d t h e following: (a) D e t a i l e d e n g i n e e r i n g d e s i g n and c o n s t r u c t i o n s u p e r v i s i o n f o r t h e projects; (b) Management and t e c h n i c a l a s s i s t a n c e t o DSE and WE f o r implementa- t i o n of proposed o r g a n i z a t i o n changes, t r a i n i n g of s t a f f and e s t a b l i s h m e n t of a d m i n i s t r a t i v e and t e c h n i c a l procedures; and (c) F e a s i b i l i t y s t u d i e s f o r a second water supply package of seven cities. Lo an Covenants 2.08 The Loan Agreement i n c l u d i n g t h e supplemental l e t t e r s c o n t a i n e d t h e following major covenants: (a) A d m i n i s t r a t i v e Development. T h i s concerned ( i ) t h e r e o r g a n i z a t i o n o f DSE and t h e e s t a b l i s h m e n t of W Es i n accordance w i t h t h e recom- mendations of t h e management c o n s u l t a n t s ' s t u d i e s ; ( i i ) t r a i n i n g o f DSE and WEs' s t a f f ; and ( i i i ) t h e f o r m u l a t i o n of an a c c e p t a b l e i n t e r d e p a r t m e n t a l d e c r e e governing r e l a t i o n s between GO1 m i n i s t r i e s ( P u b l i c Works, Home A f f a i r s and Finance) and t h e WEs i n t h e a d m i n i s t r a t i o n of t h e n a t i o n a l urban water s u p p l y program. (b) Water R a t e s and Rate of Return. With r e g a r d t o r a t e s t r u c t u r e s , DSE i n c o n s u l t a t i o n w i t h t h e WEs was t o a s s e s s and implement t h e recommendations of a n a t i o n a l s t a n d a r d water r a t e s t u d y . A r a t e o f r e t u r n (ROR) covenant r e q u i r i n g i n c r e a s e s i n ROR from 1% in 1978 t o 6% i n 1981 - based on revalued n e t f i x e d a s s e t s i n operation - was t o be complied w i t h by each WE. (c) Accounting and Auditing Systems of W E . The W s Es were t o e s t a b l i s h , w i t h t h e a i d of c o n s u l t a n t s , s e p a r a t e accounting systems and f i n a n c i a l r e p o r t i n g under a p p r o p r i a t e commercial accounting p r a c t i c e . Audited f i n a n c i a l s t a t e m e n t s of t h e WE8 and a u d i t r e p o r t s were t o be submitted a n n u a l l y n o t l a t e r than s i x months a f t e r t h e end of each year. (d) Water B i l l s of GO1 Agencies Owed t o WEa. These were t o be paid ' when due and G O 1 was t o make l i q u i d funds a v a i l a b l e f o r t h a t purpose. 2.09 The compliance s t a t u s of t h e covenants a t p r o j e c t completion i s reviewed i n Annex 2 and examined i n d e t a i l i n t h e following c h a p t e r s . PROJECT IMPLEMENTATION AND MANAGEMENT 3.01 The l o a n became e f f e c t i v e on May 21, 1975 a f t e r c o n d i t i o n s f o r i t s e f f e c t i v e n e s s ( o f para. 2.03) were s a t i s f a c t o r i l y met. The e n g i n e e r i n g d e s i g n c o n s u l t a n t s had been appointed i n September 1974 and t h e management c o n s u l t a n t s i n e a r l y 1975. A l l p r o j e c t c i t i e s had e s t a b l i s h e d s e p a r a t e W Es w i t h t h e appointment of Managing D i r e c t o r s , Finance and Administration D i r e c t o r s . Delays were, however, evidenced i n t h e i s s u a n c e of t h e i n t e r - d e p a r t m e n t a l d e c r e e ( o r i g i n a l t a r g e t d a t e : December 31, 1974) owing t o a l a c k of agreement among t h e a g e n c i e s w i t h r e g a r d t o t h e p r o c e d u r a l matters involved. S i n c e t h e d e c r e e w a s aimed a t improving t h e a d m i n i s t r a t i o n of t h e o v e r a l l s e c t o r a l development r a t h e r t h a n t h e p r o j e c t per se, t h e Bank a p p r o p r i a t e l y decided t o w a i t p a t i e n t l y u n t i l t h e a g e n c i e y c o u l d r e s o l v e t h e i r d i f f e r e n c e s . As noted i n para. 1.05, t h i s d e c r e e was f i n a l l y i s s u e d i n September 1978 ( s e e p a r a 6.07 f o r d e t a i l s on impact of t h i s d e c r e e ) . 3.02 S t a r t - u p d e l a y s o f 8 t o 1 0 months were evidenced i n t h e prepara- t i o n of d e t a i l e d e n g i n e e r i n g and documentation. T h i s s i t u a t i o n which a temmed from t h e e n g i n e e r i n g c o n s u l t a n t s ' less-than-adequate performance ( p a r a . 3.11) would a l s o be a t t r i b u t a b l e t o t h e l a c k of t r a i n e d s t a f f a t DSE who were i n charge of reviewing t h e d e s i g n s . T h i s , coupled w i t h t h e govern- ment's h i g h l y b u r e a u c r a t i c approval procedures made t h e t e n d e r i n g and e s p e c i a l l y t h e t e n d e r award p r o c e s s extremely t e d i o u s and time-consuming. The f i r s t set of t e n d e r s were n o t i n v i t e d u n t i l June 1976, approximately 10-12 months behind a p p r a i s a l e s t i m a t e s . Implementation Schedule 3.03 The Loan Agreement provided t h a t t h e p r o j e c t works would be conr p l e t e d by June 30, 1979 and t h a t t h e l o a n c l o s i n g d a t e would be June 30, 1980. However, b e c a u s e of t h e s t a r t - u p d e l a y s , b u t even more b e c a u s e of t h e s u b s e q u e n t procurement d e l a y s i n t h e s u p p l y of p i p e s and f i t t i n g s ( p a r a . 3 . 0 5 ) , t h e o v e r a l l p r o j e c t was n o t completed u n t i l December 1981, some 3 0 months behind t h e a p p r a i s a l s c h e d u l e ( s e e Annex 3 ) . Under GO1 r e q u e s t , t h e l o a n c l o s i n g d a t e had t o be postponed t o December 31, 1981 t o accommodate t h e f i n a n c i n g of t h e d e l a y e d procurement c o n t r a c t s . A t PCR s t a g e , most works were s a t i s f a c t o r i l y completed e x c e p t f o r t h e major s h o r t f a l l i n t h e p r o v i s i o n of s e r v i c e c o n n e c t i o n s (23,300 s h o r t f a l l s o u t of some 31,400 p l a n n e d f o r t h e p r o j e c t ) i n t h e c i t i e s of Malang, Jambi and Purwokerto.11 The r e a s o n s f o r t h i s s h o r t f a l l a p p e a r t o b e due t o ( i ) a n i n a p p r o p r i a t e - c o n s t r u c t i o n p h a s i n g o f t h e d i s t r i b u t i o n and small yard p i p i n g s as t h e f i n a l component of implementation which c o n s e q u e n t l y became delayed; ( i i ) government's i n t e n t i o n t o u t i l i z e l o c a l f u n d s r a t h e r t h a n t h e Bank l o a n f u n d s i n p r o c u r i n g t h e c o n n e c t i o n p i p e s 12 (which are l o c a l l y a v a i l a b l e ) and t h e r e l a t e d problems of t h e t i m e l y a v a i x b i l i t y o f t h e l o c a l f u n d s ; and ( i i i ) a l a c k of t i m e l y communication between t h e WEs and DSE r e g a r d i n g t h e d e l a y and s h o r t f a l l i n t h e p r o v i s i o n of c o n n e c t i o n s and t h e measures needed t o remedy t h e s i t u a t i o n . 3.04 The WEs have t h e meters r e q u i r e d f o r t h e c o n n e c t i o n s , which were purchased e a r l y i n t h e p r o j e c t w i t h f u n d s p r o v i d e d from t h e Bank l o a n . While G O 1 f u n d s have been a l l o c a t e d f o r p i p e s and i n s t a l l a t i o n of some of t h e c o n n e c t i o n s , DSE s t a f f a d v i s e d i n l a t e 1981 t h a t f u n d s were s t i l l needed f o r t e r t i a r y and y a r d p i p e s and l a b o r f o r a b o u t 17,500 o f t h e c o n n e c t i o n s f o r t h e t h r e e WEs (Malang, Purwokerto and Jambi) and t h a t t h e t o t a l e s t i m a t e d c o s t f o r t h e s e amounted t o a b o u t Rp 2,100 m i l l i o n (USS3.4 m i l l i o n equiva- l e n t ) . A s of August 1982, a d d i t i o n a l GO1 f u n d s had been a u t h o r i z e d f o r one o f t h e WEs (Jambi) b u t r e q u e s t s f o r t h e remaining f u n d s r e q u i r e d were s t i l l pending. DSE had s i n c e i n d i c a t e d t o t h e Bank t h a t t h e d e l a y e d c o n n e c t i o n s c o u l d be i n s t a l l e d o v e r a two o r t h r e e y e a r p e r i o d s o t h a t t h e p r o j e c t f a c i l i t i e s would be f u l l y u t i l i z e d and t h e i n t e n d e d b e n e f i t s a c h i e v e d . The above e x p e r i e n c e might s e r v e t o a l s o i l l u s t r a t e t h a t DSE's emphasis s h o u l d e x t e n d beyond t h e p r o d u c t i o n s i d e t o i n c l u d e a n a d e q u a t e s u p e r v i s i o n of s e r v i c e c o n n e c t i o n s t o b e promptly made i n a t i m e l y manner. Bank, o n i t s p a r t , s h o u l d have emphasized o n t h e above a s p e c t d u r i n g t h e e a r l y supervi- s i o n missions. Procurement 3.05 A l l goods ( p i p e s , f i t t i n g s and w a t e r m e t e r s , e t c . ) and s e r v i c e s were procured i n a c c o r d a n c e w i t h t h e Bank's i n t e r n a t i o n a l c o m p e t i t i v e b i d d i n g (ICB) g u i d e l i n e s . w h i c h were s a t i s f a c t o r i l y complied w i t h by t h e /1 - As of December 1982, t h e s e s h o r t f a l l s had been reduced t o 16,385, i n d i - eating a s t e a d i l y improving t r e n d of t h e s i t u a t i o n i n t h e t h r e e c i t i e s . /2 - T h i s s i t u a t i o n a p p a r e n t l y r e s u l t e d from a m i s u n d e r s t a n d i n g of DSE t h a t t h e Bank l o a n f u n d s d i d n o t i n c l u d e t h e f i n a n c i n g o f house c o n n e c t i o n s . government. I n a l l , 11 I C B goods c o n t r a c t s amounting t o $9 m i l l i o n i n v a l u e were awarded and except f o r one, a l l o t h e r c o n t r a c t s were won by f o r e i g n (USA, Japan, and Singapore) c o n t r a c t o r s . The e x e c u t i o n of t h e e n t i r e c o n t r a c t i n g phase - from Tender C a l l t o C o n t r a c t Award t o i s s u a n c e of Notice t o Proceed - was r a t h e r marred by s e v e r a l a d m i n i s t r a t i v e and p r o c e d u r a l d e l a y s which i n most c a s e s ranged between 17 t o 21 months (Annex 4 ) . In s h a r p c o n t r a s t t o t h i s t h e a p p r a i s a l e s t i m a t e d only 5 t o 11 months of execu- t i o n t i m e (depending on t h e c o n t r a c t ) between t e n d e r c a l l t o i s s u a n c e of N o t i c e t o ~ r o c e e d . / l Most a d m i n i s t r a t i v e d e l a y s were evidenced i n one o r s e v e r a l of t h e f o l l o w i n g s t a g e s of b i d e v a l u a t i o n and s e l e c t i o n by t h e m i n i s t e r i a l procurement committee (PAPADELAN), approval of l a r g e c o n t r a c t awards by t h e c e n t r a l procurement team (SEKNEG) and t h e opening of t h e L e t t e r of C r e d i t . D e l i v e r y of damaged p i p e s and delayed d e l i v e r y of pipe f i t t i n g s ( t h e l a t t e r r e s u l t i n g from s u p p l i e r s ' d i f f i c u l t i e s i n meeting s p e c i f i c a t i o n s ) i n two major I C B s u p p l y c o n t r a c t s a l s o c o n t r i b u t e d t o o v e r a l l implementation d e l a y s i n t h e p r o j e c t (Annex 5 ) . Bank had t o c o n s t a n t l y i n t e r v e n e i n t h e above m a t t e r s t o e n s u r e t h a t a d d i t i o n a l d e l a y s would n o t occur. 3.06 C i v i l works c o n t r a c t s - 105 i n t o t a l - amounting t o about $15 m i l - l i o n e q u i v a l e n t were awarded i n a s a t i s f a c t o r y manner according t o l o c a l c o m p e t i t i v e b i d d i n g (LCB) procedures. Bank d i d not f i n a n c e t h e s e l o c a l - c u r r e n c y c o n t r a c t s . C o n s t r u c t i o n d e l a y s evidenced i n t h e c i v i l works c o n t r a c t s (Annex 3 ) stemmed mainly from t h e d e l a y i n t h e procurement of p i p e s and f i t t i n g s ( p a r a . 3.05). Local f i n a n c i n g problems - e s p e c i a l l y d u r i n g t h e p o s t - d e v a l u a t i o n p e r i o d of l a t e 1978 - a l s o c o n t r i b u t e d t o some d e l a y s i n awarding c i v i l works c o n t r a c t s . I n t h e f i e l d , t h e l i m i t e d s k i l l s o f t h e r e l a t i v e l y i n e x p e r i e n c e d l o c a l e n g i n e e r s posed c h r o n i c s u p e r v i s i o n problems w i t h r e g a r d t o c o n s t r u c t i o n q u a l i t y c o n t r o l which were t o be r e s o l v e d w i t h t h e h e l p of t h e c o n s u l t a n t s u p e r v i s i o n team. The q u a l i t y of t h e executed c i v i l works i n most c a s e s was a c c e p t a b l e . Q u a l i t y problems d i d p r e v a i l , however, due t o a l a c k of c o n t r a c t o r s ' s a t i s f a c t o r y performance i n two c i t i e s (Jambi and Banyuwangi) which were s u b s e q u e n t l y r e s o l v e d i n a s a t i s f a c t o r y manner (Annex 5 ) . A n o v e r a l l s a t i s f a c t o r y a d m i n i s t r a t i o n of so many LCB c o n t r a c t s i s indeed a c r e d i t t o t h e a b i l i t i e s of t h e WEs and DSE. I n t h i s c o n n e c t i o n , Bank's a p p r a i s a l e s t i m a t e seems r a t h e r o p t i m i s t i c . Under t h e second water supply p r o j e c t , and a t Bank's i n s i s t e n c e , C i p t a Karya h a s agreed t o c l o s e l y monitor t h e a d m i n i s t r a t i v e d e l a y s f o r t h e v a r i o u s procurement s t a g e s of a c o n t r a c t and t o t a k e a p p r o p r i a t e s t e p s t o remedy any problems. T h i s h a s been proving t o be u s e f u l i n shorten- i n g t h e d e l a y s b u t t h e y a r e a t i l l e x c e s s i v e . These procedure-related problems which a r e a l s o endemic i n o t h e r Bank-financed p r o j e c t s i n I n d o n e s i a should c o n t i n u e t o be addressed through t h e Bank's P r o j e c t Implementation Review m e e t i n g s with'GOI and through s p e c i f i c procurement seminars f o r t h e concerned a g e n c i e s . P r o j e c t Costs 3.07 The a c t u a l and a p p r a i s a l p r o j e c t c o s t s a r e compared i n t h e f o l l o w i n g t a b l e and t h e d e t a i l s a r e i n Annex 6. Local Foreign Total ( l o c a l & foreign) costs costs 8 (RP m i l ) ($ m i l ) / a equivalent - equivalent - /a Appraisal 4,739 14.0 10,542 25.4 Estimated a c t u a l 9,274 14.1 17,152 29.0 % Increase 96 1 63 14 - /a Using v a r i a b l e exchange r a t e s between Rupiah and d o l l a r t h a t p r e v a i l e d o v e r t h e implementation p e r i o d . 3.08 The 96% i n c r e a s e i n l o c a l c o s t s i s a t t r i b u t a b l e t o t h e 3 0 months o v e r a l l implementation d e l a y s mentioned e a r l i e r a s w e l l a s t o t h e r u p i a h d e v a l u a t i o n i n November 1978 which t r i g g e r e d t h e i n f l a t i o n r a t e i n t h e f o l l o w i n g t h r e e y e a r s of t h e a c t i v e c o n s t r u c t i o n p e r i o d ( s h o r t a g e s of key building materials - - e s p e c i a l l y cement was r e p o r t e d f o l l o w i n g d e v a l u a t i o n ) . With r e g a r d t o t h e f o r e i g n c o s t s , however, t h e r e was o n l y a n i n s i g n i f i c a n t i n c r e a s e (1%) i n t h e a c t u a l f o r e i g n e x p e n d i t u r e s i n c u r r e d . The i n c r e a s e s i n l o c a l c o s t s were made up by t h e c e n t r a l government funding and WEB' i n t e r n a l c a s h s o u r c e s . The i n f l a t i o n r a t e s under a p p r a i s a l and a c t u a l c o n d i t i o n s a r e compared i n Annex 6 which c l e a r l y i n d i c a t e s t h e impact of t h e rupiah devaluation on l o c a l costs. Loan Disbursement 3.09 A comparison of a c t u a l v e r s u s t h e a p p r a i s a l - p r o j e c t e d disbursement p r o f i l e s i s p r e s e n t e d i n Annex 7. Disbursement d e l a y s g e n e r a l l y p a r a l l e l l e d t h e implementation d e l a y s , t h e l a t t e r w a r r a n t i n g a r e v i s i o n i n t h e o r i g i n a l l o a n c l o s i n g d a t e from J u n e 30, 1980 t o December 31, 1981. A t t h e t i m e of l o a n c l o s i n g t h e l o a n r e s i d u a l amounted t o about $0.65 m i l l i o n which was c a n c e l l e d . The a c t u a l disbursement - t o t a l l i n g about $13.85 m i l l i o n - r e p r e s e n t s 95% of t h e t o t a l l o a n amount. It i s e v i d e n t t h a t t h e Bank's a p p r a i s a l p r o j e c t i o n s f o r t h e disbursement s c h e d u l e were o v e r l y o p t i m i s t i c . Revisions i n Scope of Work 3.10 Because t h e p r o j e c t was appraised on the b a s i s of f e a s i b i l i t y / preliminary engineering s t u d i e s , i t was apparent t h a t c e r t a i n r e v i s i o n s i n t h e design would be c a l l e d f o r when d e t a i l e d engineering was completed. Most of t h e required r e v i s i o n s however involved minor adjustment i n the length of transmission/distribution mains. The only major r e v i s i o n emanating from the d e t a i l e d study concerned the Samarina subproject where, because of t h e unfavorable r i v e r bottom conditions and high p r i c e of underwater pipe, the o r i g i n a l l y planned r i v e r crossing had t o be eliminated and a small treatment plant ( a t Seberang) i n s t a l l e d t o serve the southern p a r t of t h e c i t y . This a l t e r n a t i v e proved t o be both a cost-saving and t ime-saving measure. Consultants 3.11 The performance of t h e consultants who did detailed design was l e s s than s a t i s f a c t o r y a t t h e s t a r t of t h e project. ? h i s w as p a r t l y due t o the f a c t t h a t a s u b s t a n t i a l portion of d e t a i l e d design was done i n the above firm's headquarters contributing t o d i f f i c u l t i e s and delays reviewing and r e v i s i n g the designs i n Jakarta. The consultants a l s o had some communication problems with DSE s t a f f which l a t e r improved. The above firm, however, was e f f e c t i v e i n supervising the construction of the sub- p r o j e c t s and paid d i l i g e n t a t t e n t i o n t o a number of s i t e problems. The management consultants,charged with the task of developing t h e administration of DSE and the WEs' a s w e l l a s t r a i n i n g the s t a f f on a d m i n i s t r a t i v e , t e c h n i c a l and f i n a n c i a l aspects, enjoyed a good w r k i n g r e l a t i o n s h i p from early-on with t h e government s t a f f and a l s o performed s a t i s f a c t o r i l y . The s e r v i c e s of the f e a s i b i l i t y study consultants .for a second water supply package was a l s o s a t i s f a c t o r y overall. Contractors 3.12 The performance of the contractors is outlined i n Annex 5. As noted i n para. 3.05, supply c o n t r a c t o r s - a t l e a s t i n two I C B c o n t r a c t s- caused excessive delays i n t h e d e l i v e r y of pipe f i t t i n g s . The o v e r a l l performance of t h e c i v i l w r k s c o n t r a c t o r s was acceptable i n most cases except i n t h e case of Jambi where the o r i g i n a l contractor, who was incom- p e t e n t , had t o be replaced. Profect Staff 3.13 The p r o j e c t was c e n t r a l l y managed by DSE which had the f u l l r e s p o n s i b i l i t y f o r procuring supplies and supervising the LCB contracts. Subproject managers and f i e l d i n s p e c t o r s , drawn from l o c a l WEs, undertook day-to-day s i t e supervision tasks. Most of t h e assigned f i e l d s t a f f unfortunately had no previous experience i n water work construction and were mostly young and inexperienced. I n view of t h i s , t h e aesistance of t h e c o n s u l t a n t supervision team became c r i t i c a l , e s p e c i a l l y i n the areas of the t r e a t m e n t p l a n t equipment i n s t a l l a t i o n and major p i p e l i n e works. The above s i t u a t i o n w i t h r e g a r d t o t h e l i m i t e d s u p e r v i s i o n c a p a b i l i t i e s of l o c a l i n s p e c t i o n teams a l s o d e p i c t s a nationwide problem which needs t o be remedied through c a r e f u l l y t a i l o r e d t r a i n i n g , workshop and seminar programs. To p r o v i d e some a s s i s t a n c e i n t h i s r e g a r d , r e l e v a n t t r a i n i n g components have been i n c l u d e d a s a p a r t of t h e Bank-financed second and t h i r d water supply projects. IV. OPERATING PERFORMANCE 4.01 There was c o n s i d e r a b l e improvement i n t h e way t h e water supply systems i n t h e f i v e c i t i e s were o p e r a t e d a s a r e s u l t of t h e program of management and t e c h n i c a l a s s i s t a n c e t o t h e W Es c a r r i e d o u t under t h e p r o j e c t and i n i t i a t i v e s taken by t h e i r s t a f f s . Management c o n s u l t a n t s ' a s s i s t a n c e proved t o b e u s e f u l i n t h e e s t a b l i s h m e n t of commercial a c c o u n t i n g and management i n f o r m a t i o n systems a t t h e WEs. However, water p r o d u c t i o n and s a l e s f o r t h r e e (Malang, Jambi and Purwokerto) of t h e f i v e W Es fell c o n s i d e r a b l y s h o r t of t h e e x p e c t a t i o n s a t a p p r a i s a l p r i m a r i l y because of (1) t h e d e l a y o f twcrand-one h a l f y e a r s i n c a r r y i n g o u t t h e p r o j e c t , ( 2 ) t h e c o n s t r u c t i o n of t h e d i s t r i b u t i o n f a c i l i t i e s a s t h e l a s t component of t h e p r o j e c t r a t h e r than phasing them i n t o t h e systems a s planned a t a p p r a i s a l , and ( 3 ) t h e f a i l u r e t o p r o c u r e f o r t h e p r o j e c t t h e p i p e s r e q u i r e d t o connect t o t h e d i s t r i b u t i o n systems t h e customers i n t h e numbers p r o j e c t e d ( p a r a . 3.03). The f o l l o w i n g t a b l e summarizes t h e p e r t i n e n t o p e r a t i o n a l d a t a f o r 1975 and 1981, r e s p e c t i v e l y a t t h e s t a r t and completion of t h e p r o j e c t , w i t h t h e d e t a i l e d year-by-year o p e r a t i o n a l d a t a p r e s e n t e d i n Annexes 9A-13A. The f i n a n c i a l impact of t h e d e l a y i n c o n n e c t i o n s on t h e WEs i s d i s c u s s e d i n Chapter V. Unaccounted-for Water 4.02 A t a p p r a i s a l , i t was e s t i m a t e d t h a t t h e p e r c e n t a g e s of unaccounted- f o r water of t h e WEs, which were v e r y h i g h p r i o r t o t h e p r o j e c t when t h e w a t e r works were p a r t of municipal o p e r a t i o n s , would d e c l i n e by 1975 t o a b o u t 30% o f water produced a s a r e s u l t of immediate improvement programs and would d e c l i n e f u r t h e r t o about 20% i n 1978 and t h e r e a f t e r . These e s t i m a t e d improvements were p r e d i c a t e d i n s u b s t a n t i a l p a r t upon t h e expected phased completion of t h e p r o j e c t f a c i l i t i e s by mid-1979 t o r e s u l t i n l a r g e l y new systems having reduced leakage. Delay i n completion of t h e systems d i d n o t however permit a l l t h e expected r e d u c t i o n s b u t t h e r e were, n e v e r t h e l e s s , s i g n i f i c a n t r e d u c t i o n s i n t h e p e r c e n t a g e s of unaccounted-for w a t e r , a s shown i n Table 4.1. The average p e r c e n t a g e of unaccounted-for water f o r t h e f i v e WEs combined was reduced from about 45% i n 1975 t o 36% i n 1978 and 26% i n 1981. F a c t o r s c o n t r i b u t i n g t o t h e r e d u c t i o n s were t h e WEs' programs of l e a k a g e d e t e c t i o n and r e p a i r s , metering of a l l c o n n e c t i o n s and improvements i n meter r e a d i n g and b i l l i n g systems. Table 4.1 : COMPARISON OF OPERATIONAL PERFORMANCE UNDER APPRAISAL AND ACTUAL CONDITIONS Project A t PCR s t a g e start 1981la 1975 APP~ ~ a r g s zh o r t f a l l (-) Actual Est. Actual orexcess (+) Malang Water produced ( 0 0 0 - c u m) Water s o l d (000 cu m) X unaccounted-f o r water Number of connections Purwokerto Water produced (000 c u m ) Water s o l d (000 c u m) X unaccounted-for water Number of connections Jambi - - - Water ~ r o d u c e d (000 cu m) N. A 4,830 1,375 - 3,455 Water s o l d (000 cu m) 459 3,860 1,265 - 2,595 X unaccounted f o r water N.A. 20 8 Number of c o n n e c t i o n s 1,600 10,800 2,570 - /c - 8,230 Banyuwangi Water Produced (000 cu m) /b 860 1,410 2,995 + 1,585 Water s o l d (000 c u m) 883 1,130 1,880 + 750 X unaccounted f o r w a t e r k 71 20 37 Number of connections 1,300 2,200 4,235 + 2,035 S amar inda Water produced (000 cu m) 855 3,100 3,350 + 250 Water s o l d (000 cu m) 51 3 2,480 2,743 + 263 X unaccounted-f o r water 40 20 18 Number of connections 1,300 3,800 4,730 + 930 /a - Comparisons (except f o r Samarinda) a r e between a c t u a l s f o r t h e c a l e n d a r year ended December and t h e a p p r a i s a l e s t i m a t e s f o r t h e f i s c a l year ended March o f t h e following year. / b "Actual" and " a p p r a i s a l estimate" f i g u r e s a r e not comparable f o r Banyuwangi - because t h e WE's a c t u a l r e p o r t e d f i g u r e s r e f l e c t a s production amounts t h e t o t a l s p r i n g source c a p a c i t y , i n c l u d i n g s u b s t a n t i a l unused overflow, whereas t h e a p p r a i s a l e s t i m a t e s exclude t h e e s t i m a t e d overflow. Thus t h e a c t u a l f i g u r e s o v e r s t a t e water production and l o s s e s based on t h e amount of water e n t e r i n g t h e system. - /c The updated f i g u r e s , a s of December 1982, a r e a s follows: % I Malang - 16,960; Purwokerto - 5,058; and Jambi - 5,406. Reporting 4.03 The W Es have submitted t o t h e Bank through DSE q u a r t e r l y f i n a n c i a l and o p e r a t i n g r e p o r t s , i n c l u d i n g q u a r t e r l y and annual f i n a n c i a l s t a t e m e n t s and s c h e d u l e s , s u b s t a n t i a l l y a s s p e c i f i e d by t h e Bank under t h e Loan Agreement. The most important a s p e c t of t h e r e p o r t i n g accomplishments i s t h a t the W Es have demonstrated t h a t t h e y a r e a b l e t o maintain q u i t e a d e q u a t e l y modern u t i l i t y accounting systems and t o produce promptly q u a r t e r l y and annual f i n a n c i a l s t a t e m e n t s f o r t h e b e n e f i t of t h e i r manage- ments and t h e r e s p o n s i b l e governmental a u t h o r i t i e s . The W Es continue t o p e r f e c t t h e s e systems and r e p o r t s w i t h t h e a s s i s t a n c e of DSE. 4.04 It appears t h a t g r e a t e r use of t h e WEs' f i n a n c i a l and o p e r a t i n g r e p o r t s could be made by t h e i r managements f o r f i n a n c i a l planning purposes. T h i s would i n v o l v e such a c t i o n s a s assessments of t h e p r o s p e c t s f o r meeting d e b t s e r v i c e requirements and t a k i n g t i m e l y s t e p s with r e s p e c t t o water r a t e s , r e t u r n s , e t c . , i n order t o maintain f i n a n c i a l v i a b i l i t y . A n i m p o r t a n t element i n t h i s would be t h e r e g u l a r p r e p a r a t i o n of f i n a n c i a l p r o j e c t i o n s f o r a few y e a r s i n t o t h e f u t u r e . Such p r o j e c t i o n s have been prepared only i n f r e q u e n t l y and, i n such c a s e s , mechanically. DSE should a s s i s t t h e WEs i n e s t a b l i s h i n g sound f i n a n c i a l planning p r a c t i c e s i n o r d e r t o d e r i v e g r e a t e r b e n e f i t s from t h e accounting systems and r e p o r t s . This a s p e c t i s being emphasized under t h e second water supply p r o j e c t . V . FINANCIAL PERFORMANCE 5.01 The a p p r a i s a l f o r e c a s t s and t h e a c t u a l income s t a t e m e n t s , s o u r c e s and a p p l i c a t i o n s of funds s t a t e m e n t s and balance s h e e t s of each of t h e W E s f o r t h e p r o j e c t c o n s t r u c t i o n period 1975-81 a r e presented i n i n Annexes 9 t o 1 3 . Following i s a review of t h e s e d a t a and o t h e r f a c t o r s r e l e v a n t t o t h e f i n a n c i a l performance of t h e WEs. Financing P l a n 5.02 The f i n a n c i n g p l a n t a b l e i n Annex 8 , which i n c l u d e s t h e p l a n f o r each W E , shows t h a t f o r t h e f i v e W Es combined t h e a c t u a l t o t a l e x p e n d i t u r e s of Rp 19,832 m i l l i o n d u r i n g t h e p r o j e c t c o n s t r u c t i o n p e r i o d exceeded t h e a p p r a i s a l f o r e c a s t s by Rp 9,823 m i l l i o n . These funds were provided by Rp 4,224 m i l l i o n more i n G O 1 l o a n s than f o r e c a s t ; Rp 4,874 m i l l i o n more i n n e t e q u i t y funding by'GOI; and Rp 1 , 1 1 3 m i l l i o n more i n t e r n a l cash g e n e r a t i o n by t h e WEs; reduced by Rp 388 m i l l i o n l e s s r e c e i v e d by the W Es as consumer c o n t r i b u t i o n s f o r s e r v i c e connections. 5.03 Of t h e t o t a l c a p i t a l e x p e n d i t u r e s i n c u r r e d during p r o j e c t imple- m e n t a t i o n p e r i o d , Rp 16,067 m i l l i o n (Rp 6,625 m i l l i o n more than f o r e c a s t ) o r 812 was f o r c o n s t r u c t i o n of t h e s u b p r o j e c t s and Rp 2,015 m i l l i o n (Rp 1,915 m i l l i o n more) o r 10X was f o r o t h e r water works. The l a r g e r e x p e n d i t u r e s and increased'G0I f i n a n c i n g r e q u i r e d r e s u l t e d i n t h e following p e r c e n t a g e s of t o t a l fund requirements being o b t a i n e d from t h e v a r i o u s s o u r c e s , a s compared with t h e f o r e c a s t s a t a p p r a i s a l . Appraisal Actual Sources of funds e s t i m a t e (%) 4, Bank l o a n proceeds 51 GO1 loans 10 T o t a l Loans Net e q u i t y from G O 1 13 I n t e r n a l cash generation 19 Consumer c o n t r i b u t i o n s 7 T o t a l Sources Financial Results 5.04 The income and s o u r c e s and a p p l i c a t i o n s of funds s t a t e m e n t s i n Annexes 9-13 show t h a t , d e s p i t e t h e d e l a y s i n p r o j e c t c o n s t r u c t i o n and s h o r t f a l l s i n c o n n e c t i o n s , t h e WEB, except Jambi, i n g e n e r a l i n c r e a s e d t h e i r n e t income and i n t e r n a l cash g e n e r a t i o n more t h a n f o r e c a s t a t a p p r a i s a l . With t h e h i g h e ~ t h a n - a n t i c i p a t e d i n f l a t i o n , t h e o p e r a t i n g expenses, ( o t h e r t h a n d e p r e c i a t i o n ) were g e n e r a l l y h i g h e r t h a n f o r e c a s t . These i n c r e a s e s i n expenses were however more t h a n compensated by much l a r g e r water r a t e i n c r e a s e s t h a n f o r e c a s t ( p a r a s . 5.06-5.08). 5.05 While t h e WEs' f i n a n c i a l s t a t e m e n t s show t h e e x t e n t t o which c a s h g e n e r a t e d i n t e r n a l l y ( n e t o p e r a t i n g income b e f o r e d e p r e c i a t i o n charges) exceeded t h e a p p r a i s a l f o r e c a s t s , t h e r e p o r t e d d e p r e c i a t i o n d e d u c t i o n s and n e t income a f t e r d e p r e c i a t i o n a r e s u b j e c t t o q u e s t i o n . The W Es had n o t , up t o t h e end of 1981, t a k e n i n t o t h e i r accounts t h e f i x e d a s s e t s (and c o n t r a i t e m s o f GO1 l o a n s and e q u i t y ) c o n s t r u c t e d under t h e p r o j e c t , pending arrangements by GO1 f o r a formal turnover of t h e a s s e t s t o t h e WEs. Accordingly, t h e r e was no accounting on t h e WEB' books f o r d e p r e c i a t i o n on t h o s e of t h e p r o j e c t f a c i l i t i e s which were completed and u t i l i z e d i n t h e WEs' o p e r a t i o n s . 1 -1 There i s t h u s c u r r e n t l y a p r e s s i n g need t o i n s t i t u t e a - 11 T h i s s i t u a t i o n has been brought t o t h e a t t e n t i o n of t h e W Bank s t a f f on s e v e r a l occasions. The f i n a n c i a l d a t a of t h e W Es and DSE by Es f o r 1981 i n Annexes 9 through 1 3 have been a d j u s t e d by Bank s t a f f t o r e f l e c t t h e p r o j e c t f i x e d a s s e t s a s c o n s t r u c t i o n i n p r o g r e s s , b u t because of t h e l a c k o f i n f o r m a t i o n t h e t a b l e s do n o t show t h e amounts used each y e a r i n o p e r a t i o n s o r a d j u s t e d d e p r e c i a t i o n c h a r g e s i n t h e income s t a t e m e n t s . f o r m a l mechanism t o e x p e d i t e t h e t r a n s f e r of GOI-built assets t o t h e W E. s I f a system could be developed whereby GO1 would p r o v i d e t h e f u n d s b u t a l l o w WEs t o b u i l d t h e a s s e t s t o t h e i r a c c o u n t s , t h e a f o r e m e n t i o n e d t r a n s f e r problem c o u l d p r o b a b l y be a l l e v i a t e d . For ongoing and f u t u r e p r o j e c t s , f i x e d a s s e t s and r e l a t e d items s h o u l d be r e c o r d e d on a t i m e l y b a s i s on t h e books o f t h e e n t e r p r i s e s f o r which t h e y a r e b e i n g c o n s t r u c t e d s o t h a t a c c u r a t e r e c o r d s of o p e r a t i o n s and d e p r e c i a t i o n s c a n b e m a i n t a i n e d and reported . F i n a n c i a l Covenants 5.06 Water Rates and R a t e s of Return. Water r a t e s a t t h e s t a r t o f t h e p r o j e c t , when t h e waterworks were p a r t o f t h e l o c a l government d e p a r t m e n t s , w e r e v e r y low, h a r d l y c o v e r i n g c a s h o p e r a t i n g e x p e n s e s . The Loan Agreement and a s u p p l e m e n t a l l e t t e r provided t h a t s p e c i f i e d a v e r a g e w a t e r rates p e r c u b i c m e t e r would be e s t a b l i s h e d i n 1976 and 1977 and t h a t t h e r e a f t e r t h e y would be r a i s e d s u f f i c i e n t l y t o produce r a t e s o f r e t u r n on r e v a l u e d n e t f i x e d a s s e t s i n s e r v i c e of 1% i n 1978, 2% i n 1979, 4% i n 1980 and 6% i n 1981 and t h e r e a f t e r . T a b l e 5.1 on t h e a v e r a g e water rates and rates of r e t u r n f o r t h e p r o j e c t p e r i o d i n d i c a t e s t h a t t h e WEs' a c t u a l i n c r e a s e s i n w a t e r r a t e s were h i g h e r t h a n f o r e c a s t ( e x c e p t f o r Banyuwangi). They produced r e p o r t e d rates o f r e t u r n which were above t h e r a t e s o f 2% f o r 1979 and 6% f o r 1981 f o r e c a s t a t a p p r a i s a l and s p e c i f i e d i n t h e l o a n agreements ( e x c e p t f o r Jambi which r e p o r t e d no r e t u r n s d e s p i t e i t s h i g h w a t e r r a t e s ) . However, t h e r a t e s o f r e t u r n r e p o r t e d by most WEs a r e n o t r e l i a b l e i n d i c a t o r s o f t h e a c t u a l r e t u r n s s i n c e t h e y were c a l c u l a t e d on ( a ) u n r e v a l u e d n e t f i x e d a s s e t s and ( b ) less t h a n t h e f u l l amount o f f i x e d assets i n o p e r a t i o n because undetermined amounts o f p r o j e c t f a c i l i t i e s used by t h e WEs were n o t t a k e n i n t o t h e a c c o u n t s and i n c l u d e d i n t h e c a l c u l a t i o n s of n e t f i x e d a s s e t s and d e p r e c i a t i o n d e d u c t i o n s ( p a r a . 5.05). Adjustment f o r t h e s e f a c t o r s would r e d u c e c o n s i d e r a b l y o r e l i m i n a t e r e t u r n s f o r t h e WEs, a s i n d i c a t e d by t h e e s t i m a t e d r a t e s of r e t u r n f o r 1981 shown i n T a b l e 5.1 a f t e r s u c h a d j u s t m e n t . I n comparing t h e a p p r a i s a l and a c t u a l r a t e s of r e t u r n , i t should be recog- n i z e d t h a t a p p r a i s a l e s t i m a t e s of t h e rates of r e t u r n were based on t h e assumption t h a t a l l W Es would become f u l l y o p e r a t i o n a l by 1981 ( i n s t e a d o f 1984 under a c t u a l c o n d i t i o n s ) . 5.07 Annex 1 4 summarizes t h e a d j u s t e d f i n a n c i a l r e s u l t s o f t h e W Es o p e r a t i o n s i n 1981 and p r o j e c t i o n s f o r 1982-84 ( a ) based on r e v a l u e d f i x e d a s s e t s e s t i m a t e d t o have been i n o p e r a t i o n ; ( b ) assuming by 1984 t h e i n s t a l l a t i o n o f a l l delayed s e r v i c e c o n n e c t i o n s ; and ( c ) assuming i n c r e a s e s i n w a t e r r a t e s i n 1983-84 t o a c h i e v e a 6% rate of r e t u r n i n 1984 on r e v a l u e d n e t f i x e d assets i n o p e r a t i o n . T a b l e 5.2 shows t h e a v e r a g e and t h e household w a t e r rates on t h e s e a s s u m p t i o n s and t h e a n n u a l p e r c e n t a g e i n c r e a s e s i n w a t e r r a t e s r e q u i r e d i n 1983-84 t o p r o d u c e t h e i n d i c a t e d 6% r a t e of r e t u r n . It a l s o shows t h e r e s u l t i n g c o v e r a g e s f o r a n n u a l d e b t s e r v i c e requirements. T a b l e 5.1: AVERAGE WATER RATES AND RATE OF RETURN UNDER APPRAISAL AND ACTUAL CONDITIONS Malang Average Water R a t e ( ~ p / c um) Appraisal e s t i a a t e Actual R a t e of Return ( p e r c e n t ) Appraisal estimate A c t u a l r e p o r t e d by WE /c E s t i m a t e d 1981 on r e v a l u e d a s s e t s Purwokerto Average Water Rate ( ~ p / c um) Appraisal estimate Actual R a t e of Return ( p e r c e n t ) Appraisal estimate A c t u a l r e p o r t e d by WE / c E s t i m a t e d 1981 on r e v a x e d a s s e t s Banyuwangi Averaee Water Rate ( R D / C U m) Appraisal estimate ~ctual R a t e of Return ( p e r c e n t ) Appraisal estimate A c t u a l r e p o r t e d by WE / c E s t i m a t e d 1981 on r e v a s e d a s s e t s Jambi Appraisal estimate Actual R a t e of R e t u r n ( p e r c e n t ) Appraisal estimate ~ i t u a l r e p o r t e d by WE E s t i m a t e d 1981 on r e v a l u e d a s s e t s S amar i n d a - - Average Water Rate (Rp/cu m) Appraisal estimate Actual R a t e of R e t u r n ( p e r c e n t ) Appraisal estimate ~ctual r e p o r t e d by WE /c E s t i m a t e d 1981 on r e v a x e d a s s e t s /a - Comparisons ( e x c e p t f o r Samarinda) a r e between a c t u a l s f o r t h e c a l e n d a r y e a r ended December and t h e a p p r a i s a l e s t i m a t e s f o r t h e f i s c a l y e a r ended March of t h e f o l l o w i n g y e a r . - /b The a v e r a g e w a t e r r a t e s shown f o r a c t u a l s i n 1981 a r e t h e a v e r a g e s f o r t h e f o u r t h q u a r t e r 1981 i n o r d e r t o show more n e a r l y t h e y e a r e n d l e v e l s . /c See comments on o v e r s t a t e m e n t of r e p o r t e d r a t e s of r e t u r n i n p a r a . 5.06. - Samarinda's w a t e r r a t e s were i n c r e a s e d e a r l y i n 1982, r a i s i n g t h e a v e r a g e t o Rp 254 p e r c u m i n t h e second q u a r t e r of 1982. Note: Negative R a t e s of Return a r e n o t i n d i c a t e d i n t h e t a b l e . T a b l e 5.2: PROJECTED WATER RATES AND RATES OF RETURN Actual a s Annual % w a t e r adjusted Projected r a t e increase 1381 1982 1983 1984 1983/84 Malang Water r a t e ( ~ p / c um) Average a l l c l a s s e s 109 109 120 132 ) Household - 1st 1 5 cu m 50 50 55 60 1 R a t e of r e t u r n ( % ) 9 5 5 6 Debt s e r v i c e coverage NA NA 1.8/a - 2.3 Purwokerto Water r a t e (RP/CU m) Average a l l c l a s s e s 76 76 110 160 ) 45 Household - 1st 1 5 cu m 40 40 58 85 1 R a t e of r e t u r n (%) 2 - 2 6 Debt s e r v i c e coverage NA NA 1.41a - 2.3 B anyuwangi Water r a t e (RP/CUm) Average a l l c l a s s e s 62 67 90 121 ) 34 Household 40 40 55 1 R a t e of r e t u r n ( 2 ) 2 - 2 72 6 Debt s e r v i c e coverage NA NA 1.9/a - 3.1 J ambi Water r a t e ( R ~ / C U m) Average a l l c l a s s e s 137 168 222 294 ) 32 Household - 1st 15 cu m 70 80 105 140 ) R a t e of r e t u r n (%) - - 1 6 Debt s e r v i c e coverage NA NA l.O/a - 2.3 S amar inda Water r a t e (Rp/cu m) Average a l l c l a s s e s 157 250 293 340 ) Household - 1st 15 cu m 75 115 135 155 ) R a t e of r e t u r n (2) - 4 5 6 Debt s e r v i c e coverage NA NA - 2.l/a 2.6 NA = Not a p p l i c a b l e . Debt s e r v i c e commences i n 1983. - /a Coverage i s f o r annual d e b t s e r v i c e . I n 1983, t h e r e i s a l s o due t h e p a y ment of d e f e r r e d i n t e r e s t accrued i n 1981182 on t h e l o a n s from G O I . Such i n t e r e s t due i n Rp m i l l i o n s and t h e s h o r t f a l l s of c a s h g e n e r a t i o n i n 1983 f o r payment, a s shown by t h e p r o j e c t i o n s , a r e a s follows: Malang - i n t e r e s t 597, s h o r t f a l l 327; Purwokerto - i n t e r e s t 249, s h o r t f a l l 199; Banyuwangi - i n t e r e s t 100, s h o r t f a l l 49; Jambi - i n t e r e s t 444, s h o r t f a l l 439 ; and Samarinda - i n t e r e s t 466, s h o r t f a l l 165. 5.08 The water r a t e s f o r 1982 shown i n Table 5.2 a r e a l r e a d y i n e f f e c t . The i n c r e a s e d r a t e s p r o j e c t e d f o r 1983/84 f o r Malang, Purwokerto and Banyuwangi, a l t h o u g h r e f l e c t i n g s i z a b l e i n c r e a s e s f o r the l a t t e r two WE, s a r e c o n s i d e r a b l y below t h e water r a t e s a l r e a d y i n e f f e c t f o r Jambi and Samarinda. They a r e a l s o w e l l w i t h i n t h e range of water r a t e s p r o j e c t e d f o r 1984 f o r s i x s i m i l a r W Es (Rp 126-230 p e r cu m and 187 average) which were c o n s i d e r e d t o be a f f o r d a b l e i n t h e a p p r a i s a l of t h e Bank-financed second w a t e r supply p r o j e c t . It t h u s appears t h a t Malang, Purwokerto and Banyuwangi, w i t h inexpensive s o u r c e s of s p r i n g water, should be a b l e t o m a i n t a i n water r a t e s t o t h e e x t e n t r e q u i r e d t o provide the covenanted 6% r a t e of r e t u r n on revalued n e t f i x e d a s s e t s . However, Jambi and Samarinda, w i t h a l r e a d y h i g h water r a t e s and expensive s u r f a c e water pumping and t r e a t m e n t , w i l l have d i f f i c u l t y meeting t h a t o b j e c t i v e . For t h e s e two W E, s t h e s t i p u l a t e d ROR covenent should be a p p l i e d f l e x i b l y . This i s e s p e c i a l l y warranted i n t h e c a s e of Samarinda which exceeded a p p r a i s a l e s t i m a t e s both i n t h e number of s e r v i c e c o n n e c t i o n s i n s t a l l e d and the volume of water s o l d ( T a b l e 4.1 o f t e x t ) . 5.09 With r e s p e c t t o t h e W E ' debt s e r v i c e , t h e p r o j e c t i o n s i n Annex 1 4 s i n d i c a t e higher annual payment requirements than was f o r e c a s t a t a p p r a i s a l . T h i s of c o u r s e r e s u l t e d from t h e 96% i n c r e a s e i n t h e l o c a l p r o j e c t c o s t s a s n o t e d e a r l i e r ( p a r a . 3.07). The p r o j e c t i o n a l s o i n d i c a t e t h a t i n 1983-84 a l l of t h e WEs, w i t h t h e p o s s i b l e e x c e p t i o n of Jamhi i n 1983, w i l l be a b l e t o meet from c u r r e n t cash g e n e r a t i o n t h e annual payments, but not t h e a d d i t i o n a l amounts of i n t e r e s t accrued i n 1981-82 payable i n 1983. It a p p e a r s t h a t i t w i l l be n e c e s s a r y f o r 'GO1 t o reach an accommodation with t h e WEs which do n o t have s u f f i c i e n t accumulated funds t o meet the 1983 pay- m e n t s / l ( s e e Table 5.2, f o o t n o t e a ) . I n f u t u r e y e a r s , cash g e n e r a t i o n of the W < n o t needed t o meet d e b t s e r v i c e o r t o comply w i t h terms of t h e l o c a l E government o r d i n a n c e s f o r t h e d i s t r i b u t i o n of p r o f i t s , can be used advan- t a g e o u s l y t o extend t h e i r water supply systems ( o n l y about 50% of t h e p o p u l a t i o n i s served by t h e p r o j e c t ) o r t o prepay t h e i r l a r g e o u t s t a n d i n g loans. 5.10 The experience w i t h t h e f i r s t p r o j e c t has i n d i c a t e d t h a t t h e r e has n o t been a l a c k of w i l l on t h e p a r t of t h e l o c a l a u t h o r i t i e s t o i n c r e a s e water r a t e s t o t h e e x t e n t needed t o m a i n t a i n t h e i r f i n a n c i a l v i a b i l i t y and t o meet t h e covenants of t h e l o a n agreements. DSE i s c u r r e n t l y a s s i s t i n g the W Es i n updating and a n a l y z i n g i n f o r m a t i o n on t h e a b i l i t y of consumers i n t h e f i v e c i t i e s t o pay i n o r d e r t o m a i n t a i n t h e s e o b j e c t i v e s . 5.11 Audit of Accounts. WEs' submission of a u d i t r e p o r t s has not s a t i s f a c t o r i l y complied w i t h t h e requirement of t h e Loan Agreement between t h e Bank and G O 1 t h a t t h e y be f u r n i s h e d t o the Bank a n n u a l l y by June 30 f o r - /1 The c o s t o v e r r u n s r e s u l t i n g from t h e implementation d e l a y s and Rupiah d e v a l u a t i o n were, however, beyond t h e c o n t r o l of t h e WEs . t h e p r e v i o u s y e a r . They have u s u a l l y been submitted more than a year l a t e . The a u d i t r e p o r t s f o r FY 1981, due by June 30, 1982, a r e c u r r e n t l y overdue f o r a l l WEs. 5.12 The a u d i t r e p o r t s r e c e i v e d t o d a t e were prepared by t h e S t a t e Accounting Office's r e g i o n a l a u d i t o r s . They have i n c l u d e d o n l y a short-form a u d i t o r ' s o p i n i o n , signed by t h e head of t h e r e g i o n a l o f f i c e , and s t a t e m e n t s o f income and balance s h e e t s (no s t a t e m e n t s of s o u r c e s and a p p l i c a t i o n s of f u n d s , which should have been included) without any n o t e s o r e x p l a n a t o r y m a t e r i a l on t h e f i n a n c i a l s t a t e m e n t s o r t h e a u d i t s . More complete and f i n a l r e p o r t s meeting s u b s t a n t i v e a u d i t s t a n d a r d s have been r e q u e s t e d s e v e r a l ' times by Bank m i s s i o n s , but t h e r e appear t o have been problems a s s o c i a t e d w i t h c e n t r a l S t a t e Accounting O f f i c e review of t h e r e p o r t s and i t s c l e a r a n c e o f t r a n s l a t i o n s of i n f o r m a t i o n i n longer-form r e p o r t s . The r e p o r t s r e c e i v e d have n o t been i n f o r m a t i v e i n r e p o r t i n g on t h e scope and f i n d i n g s of t h e a u d i t s and i n making adequate d i s c l o s u r e s w i t h r e s p e c t t o t h e f i n a n c i a l presentations. 5.13 The d e f i c i e n c y i n r e g a r d s t o t h e t i m e l i n e s s and scope of t h e a u d i t s prepared under t h e f i r s t p r o j e c t i s t o a l a r g e e x t e n t a t t r i b u t a b l e t o t h e l a c k of t r a i n e d a u d i t o r s which i s perceived a s a nationwide problem a f f e c t i n g a l l major s e c t o r s o f t h e economy. ( I n s e v e r a l s e c t o r s , e s t a b l s k ment of a proper accounting system i t s e l f remains t o be a c h r o n i c problem). The Bank h a s r e c e n t l y i n i t i a t e d d i a l o g u e s w i t h t h e government i n s e e k i n g ways t o improve t h e a u d i t i n g c a p a b i l i t i e s , e s p e c i a l l y , f o r Bank-financed p r o j e c t s . This i s however expected t o be medium- t o long-term p r o c e s s , i n producing t h e d e s i r a b l e r e s u l t s . 5.14 B i l l i n g s and t h e Collections/Government B i l l s . R e s u l t s under t h e improved b i l l i n g and c o l l e c t i o n systems of t h e W E s, which were i n s t a l l e d e a r l y i n t h e p r o j e c t w i t h t h e a s s i s t a n c e of management c o n s u l t a n t s , have been s a t i s f a c t o r y . The WEs r e a d customers' meters and b i l l and c o l l e c t monthly. C o l l e c t i o n e x p e r i e n c e has been q u i t e good e x c e p t f o r b i l l s owed by G O 1 a g e n c i e s , over which t h e W E s and l o c a l a u t h o r i t i e s have no c o n t r o l . A s o f December 31, 1980, customers' r e c e i v a b l e s ( o t h e r than from government a g e n c i e s ranged from 7% t o 18% of annual b i l l i n g s ; t h e average was 122, t h e e q u i v a l e n t of about 1.4 months b i l l i n g s , a s compared w i t h t h e a p p r a i s a l e s t i m a t e of 15%. 5.15 The nonpayment o r o n l y p a r t i a l payments by G O 1 a g e n c i e s , p r i m a r i l y m i l i t a r y e s t a b l i s h m e n t s , of water b i l l s t o t h e W Es c o n t i n u e s t o be a major problem. By March 1982, t o t a l unpaid b a l a n c e s owed t o t h e WEs, d a t i n g a s f a r back a s 1976, had i n c r e a s e d t o about Rp 641 m i l l i o n (about US$1,025,000 e q u i v a l e n t ) , a v e r y l a r g e amount c o n s i d e r i n g t h e s i z e s and f i n a n c e s of t h e WEs. G O 1 should promptly p r o v i d e t h e funds f o r payment of a l l i t s agency water b i l l s t o the W Es and should f o r m u l a t e a system f o r t h e t i m e l y payment o f c u r r e n t b i l l s s o t h e - p r o b l e m w i l l n o t r e c u r . Under t h e a u s p i c e s of t h e E a s t J a v a Water Supply p r o j e c t , a s t u d y w i l l be i n i t i a t e d t o a s c e r t a i n t h e u n d e r l y i n g c a u s e s of t h e l a t e payment of water b i l l s - i n c l u d i n g metering d e f e c t s , u n c o n t r o l l e d usage and undetected l e a k a g e s i n t h e system. 5.16 Return of E q u i t y Funds t o G O I . The Loan Agreement and t h e P r o j e c t Loan Agreements provided t h a t t h e W Es would r e t u r n t o G O 1 a n n u a l l y d u r i n g t h e p r o j e c t c o n s t r u c t i o n p e r i o d such amounts of s u r p l u s cash a s t h e y would b e a b l e t o g e n e r a t e . These payments would be considered t h e r e t u r n of e q u i t y funds which G O 1 would have s u p p l i e d t o t h e W E s a s p a r t of i t s p r o v i s i o n through l o a n s / e q u i t y of 100% of t h e funds r e q u i r e d f o r p r o j e c t c o n s t r u c t i o n and thus would have been t h e WEs' c o n t r i b u t i o n s t o p r o j e c t c o n s t r u c t i o n . Midway i n t h e p r o j e c t , 'GO1 a g e n c i e s advised t h a t t h e r e was no p r o v i s i o n under I n d o n e s i a n law and procedures t o permit t h e WEs, as l o c a l government-owned c o r p o r a t i o n s , t o make such payments t o G O 1 n o r , indeed, could'GO1 make e q u i t y investments d i r e c t l y i n WEs, even though t h e payments b o t h ways were agreed by'GOI i n i t s Loan Agreement w i t h t h e Bank and i t s P r o j e c t Loan Agreements w i t h t h e W Es . / l Although no s u r p l u s funds were r e t u r n e d t o ,GO1 by t h e WEs, most of t g i r i n t e r n a l l y - g e n e r a t e d cash (Rp 2,015 m i l l i o n ) was i n v e s t e d i n nonproject water works not f o r e c a s t a t a p p r a i s a l , which enabled t h e WEs t o be f i n a n c i a l l y v i a b l e d e s p i t e t h e d e l a y s i n p r o j e c t c o n s t r u c t i o n . Under t h e s e circumstances t h e r e t e n t i o n of t h e s u r p l u s funds by t h e W Es was indeed a p p r o p r i a t e . VI. INSTITUTIONAL PERFORMANCE Management and O r g a n i z a t i o n a l E f f e c t i v e n e s s 6.01 Water E n t e r p r i s e s . P r i o r t o t h e p r o j e c t , t h e water supply systems i n t h e f i v e p r o j e c t c i t i e s and g e n e r a l l y throughout Indonesia were a p a r t of t h e municipal o r regency governments without d i s t i n c t s e p a r a t i o n of t h e i r o r g a n i z a t i o n s o r a s s e t s from t h o s e of t h e l o c a l government. Under t h e p r o j e c t , t h e water supply systems i n t h e f i v e c i t i e s were v e s t e d by l o c a l government o r d i n a n c e s , under a u t h o r i t y of Indonesian law, i n water e n t e r - p r i s e s (Perusahaan Daerah) which a r e c o r p o r a t i o n s s e p a r a t e from t h e l o c a l governments i n t h e i r o r g a n i z a t i o n s and finances.12 A s a r e s u l t of t h e s e changes and o t h e r measures t a k e n under t h e p r o j e z , t h e newly-established water e n t e r p r i s e s i n t h e f i v e c i t i e s have accounted s e p a r a t e l y f o r t h e i r - 11 T h i s problem was subsequently r e s o l v e d under t h e Second Water Supply P r o j e c t (Loan 1709-IND) by providing that'GOI would extend e q u i t y funds t o t h e WEs i n t h a t p r o j e c t by making i n t e r e s t - f r e e l o a n s t o t h e i r l o c a l governments which would, i n t u r n , provide such funds a s e q u i t y of t h e l o c a l governments i n t h e WEs. Surplus funds generated by t h e W E s would t h e n be r e t u r n t o GO1 i n d i r e c t l y i n t h e same manner, i . e . , r e t u r n of e q u i t y t o t h e l o c a l governments which would, i n t u r n , t r a n s m i t t h e funds t o GO1 a s repayments on t h e i n t e r e s t - f r e e l o a n s from G O I . - 12 The head of t h e l o c a l government and o t h e r l o c a l o f f i c i a l s a r e members o f and c o n t r o l t h e e n t e r p r i s e ' s s u p e r v i s o r y board. a s s e t s and o p e r a t i o n s and r e t a i n e d t h e i r own r e v e n u e s from which t o meet o p e r a t i n g and c a p i t a l e x p e n d i t u r e s and d e b t s e r v i c e . The p o l i c i e s and p r o c e d u r e s e s t a b l i s h e d f o r t h e f i v e WEs, i n c l u d i n g t h o s e w i t h r e s p e c t t o w a t e r rates and r a t e s t r u c t u r e s , have been extended t o many o t h e r water s u p p l y s y s t e m s i n I n d o n e s i a engaged i n GOI-assisted c o n s t r u c t i o n programs. They have c o n s i d e r a b l y enhanced t h e p r o s p e c t s f o r t h e e f f e c t i v e o p e r a t i o n of f i n a n c i a l l y s e l f - s u s t a i n i n g water supply systems. 6.02 Improvements i n o r g a n i z a t i o n a l s t r u c t u r e s , s t a f f i n g and working p r o c e d u r e s were needed by t h e W E s from t h e s t a r t of t h e p r o j e c t t o c o p e , w i t h t h e i n c r e a s e d r e s p o n s i b i l i t i e s o f o p e r a t i n g new and expanded w a t e r s u p p l y s y s t e m s . The o r g a n i z a t i o n s o f t h e WEs were s t r u c t u r e d ( s e e Annex 1 5 f o r o r g a n i z a t i o n c h a r t ) i n a c c o r d a n c e w i t h s t u d i e s by management c o n s u l t a n t s p r i o r t o t h e s t a r t of t h e p r o j e c t . New commercial a c c o u n t i n g systems were e s t a b l i s h e d and s t a f f were t r a i n e d i n t h e i r u s e as w e l l as i n o p e r a t i o n s and t e c h n i c a l m a t t e r s . T h i s work was c a r r i e d o u t s a t i s f a c t o r i l y w i t h t h e a s s i s t a n c e of t h e c o n s u l t a n t s and DSE s t a f f l a r g e l y d u r i n g t h e f i r s t two y e a r s of t h e p r o j e c t . 6.03 The s t a f f s o f t h e W Es were s t r e n g t h e n e d o v e r t h e p e r i o d of t h e p r o j e c t b o t h i n numbers and i n a d m i n i s t r a t i v e and t e c h n i c a l s k i l l s by t h e a s s i s t a n c e and t r a i n i n g provided by t h e management c o n s u l t a n t s . During t h e p r o j e c t i t w a s found t h a t a s i g n i f i c a n t number of l o c a l government p e r s o n n e l who c o n t i n u e d work f o r t h e WEs a f t e r t h e y were e s t a b l i s h e d a s s e p a r a t e e n t e r p r i s e s were r e l u c t a n t t o r e l i n q u i s h t h e i r s t a t u s as government employees by t r a n s f e r r i n g f o r m a l l y t o t h e WEs; s u c h a move would have t e r m i n a t e d t h e i r t e n u r e as government employees and t h e i r r e l a t e d p e n s i o n benefits. N o s u i t a a b l e a l t e r n a t i v e was found t o t h e i r c o n t i n u a t i o n o n t h e s t a f f s o f t h e WEs. The managements of t h e WEs a d v i s e d t h a t t h e y needed t h e s e r v i c e s of s u c h s t a f f , t h a t t h e y were engaged f u l l t i m e by t h e WEs and u n d e r t h e WEs' d i r e c t i o n and t h a t t h e i r compensation would b e b o r n e e n t i r e l y by t h e WEs and i n c l u d e d i n t h e WEs' expense a c c o u n t s . Under t h e s e c i r c u m s t a n c e s , no o b j e c t i o n was r a i s e d by t h e Bank t o t h e c o n t i n u a t i o n of t h e s e r v i c e s o f such s t a f f . 6.04 D i r e c t o r a t e of S a n i t a r y E n g i n e e r i n g . The N a t i o n a l L e v e l s t u d y of 1973, conducted by t h e management c o n s u l t a n t s , i n c l u d e d p r o j e c t i o n s f o r s t a f f growth a t DSE and a l s o contemplated changes i n DSE's o r g a n i z a t i o n and s t r u c t u r e . A c c o r d i n g l y , DSE's o r g a n i z a t i o n was revamped under t h e p r o j e c t and now c o n s i s t s of t h e p l a n n i n g , development, c o n s t r u c t i o n and l o g i s t i c s s u b d i r e c t o r a t e s and t h e a d m i n i s t r a t i v e d i v i s i o n . These u n i t s a r e f u r t h e r s u b d i v i d e d i n t o s e c t i o n s as shown by t h e o r g a n i z a t i o n c h a r t i n Annex 16. The o r g a n i z a t i o n a l s t r u c t u r e i s s a t i s f a c t o r y . 6.05 Under t h e p r o j e c t , management c o n s u l t a n t s developed systems and p r o c e d u r e s f o r t h e o p e r a t i o n of DSE w i t h r e s p e c t t o fund r e l e a s e s f o r p r o j e c t e x p e n d i t u r e s , repayments t o G O I , p r o j e c t c o n s t r u c t i o n c o s t account- i n g and m o n i t o r i n g t h e WEs. Although DSE, as e x e c u t i n g agency f o r t h e p r o j e c t , and i t s c o n s u l t a n t s were s u c c e s s s f u l i n s e t t i n g up f i n a n c i a l and a d m i n i s t r a t i v e procedures i n t h e W E s and t r a i n i n g WE s t a f f s i n t h e i r u s e , management improvement w i t h i n DSE h a s n o t heen f u l l y e f f e c t i v e because of heavy work l o a d s and l i m i t e d number of s t a f f . I n t h e c o u r s e of t h e p r o j e c t , DSE's p r o f e s s i o n a l s t a f f was i n c r e a s e d ( a s of December 31, 1981) t o 360 from a b o u t 137 p r o f e s s i o n a l s a t t h e start of t h e p r o j e c t . E n g i n e e r i n g v a c a n c i e s s t i l l remain and a r e n o r m a l l y d i f f i c u l t t o f i l l because compensation i s r e l a t i v e l y low and q u a l i f i e d p e r s o n s a r e i n s h o r t supply. It i s a n t i c i p a t e d t h a t t h e c o n t i n u e d t r a i n i n g of s t a f f i n t h e a r e a s of p r o j e c t p l a n n i n g and i m p l e m e n t a t i o n s k i l l s under t h e a u s p i c e s of t h e second and t h i r d water s u p p l y p r o j e c t s s h o u l d p r o v i d e b e n e f i t s t o a d d i t i o n a l DSE s t a f f . The s e r v i c e s of management s p e c i a l i s t s t o s t r e n g t h e n a d m i n i s t r a t i v e p r o c e d u r e s and f i l l i n g of s t a f f i n g needs have a l s o been c o n t i n u e d under t h e s e p r o j e c t s . I n a d d i t i o n , t h e t r a i n i n g programs planned under t h e Bank-financed Manpower Development p r o j e c t f o r t h e M i n i s t r y of P u b l i c Works should p r o v i d e a d d i t i o n a l o p p o r t u n i t i e s f o r improving DSE's a d m i n i s t r a t i o n and p r o j e c t management c a p a b i l i t i e s . L o c a l Government P a r t i c i p a t i o n 6.06 The f i r s t w a t e r s u p p l y p r o j e c t was executed under t h e o v e r a l l c o n t r o l of DSE w i t h t h e l o c a l governments p l a y i n g v i r t u a l l y no s i g n i f i c a n t r o l e i n t h e d e s i g n and i m p l e m e n t a t i o n of t h e p r o j e c t . The f i n a n c i n g scheme of t h e p r o j e c t a l s o c o n t r i b u t e d t o t h i s s i t u a t i o n . The p r o j e c t could have b e n e f i t t e d from an improved c o o r d i n a t i o n between DSE and t h e l o c a l govern- ments, e s p e c i a l l y i n t h e a r e a s of t i m e l y t r a n s f e r of t h e a s s e t s t o W Es and i n t h e t i m e l y p r o v i s i o n o f s e r v i c e c o r r e c t i o n s . The need f o r an improved r o l e of t h e l o c a l governments had been emphasized under t h e second and t h e t h i r d water supply p r o j e c t s . Covenant R e l a t i n n t o S e c t o r a l D e v e l o ~ m e n t 6.07 Two major s e c t o r development-related covenants (Annex 2 ) were s t i p u l a t e d under t h e p r o j e c t . The f i r s t covenant r e q u i r e d t h e government t o implement t h e recommendations of a n a t i o n a l s t a n d a r d water r a t e s t u d y , done by t h e management c o n s u l t a n t s . I n 1977, a n a t i o n a l water r a t e g u i d e l i n e s which were a c c e p t a b l e t o t h e Bank, were adopted by t h e f i v e W E s of t h e p r o j e c t and s u b s e q u e n t l y extended t o o t h e r w a t e r e n t e r p r i s e s i n I n d o n e s i a . The second s e c t o r r e l a t e d r e q u i r e m e n t , s t i p u l a t e d through a Supplemental L e t t e r , sought a n i n t e r - d e p a r t m e n t a l d e c r e e which would govern t h e r e l a t i o n s between t h e M i n i s t r i e s of P u b l i c Works, Home A f f a i r s and Finance on t h e one hand, and t h e W Es on t h e o t h e r . The d e c r e e was t o have been i s s u e d i n December 1974. But, f o r v a r i o u s b e r e a u c r a t i c r e a s o n s a s w e l l a s d i f f e r e n c e s o f o p i n i o n between t h e M i n i s t r i e s o f Home A f f a i r s and P u b l i c Works concern- i n g t h e d i v i s i o n of t h e i r r e s p o n s i b i l i t i e s i n t h e urban water s u p p l y s e c t o r , t h e i s s u a n c e of t h e d e c r e e d i d n o t become a r e a l i t y u n t i l September 1978 ( p r i o r t o l o a n n e g o t i a t i o n s f o r t h e second water s u p p l y p r o j e c t ) . The d e c r e e h a s been u s e f u l i n promoting c o o r d i n a t i o n among t h e above m i n i s t r i e s b u t t h e r e i s s t i l l room f o r improvement i n t h i s a r e a , w i t h s p e c i a l r e g a r d t o t h e need f o r an i n c r e a s e d r o l e t o be played by t h e M i n i s t r y of Home A f f a i r s concerning a c l o s e r monitoring of t h e WEs' nationwide. VII. PROJECT JUSTIFICATION P r o i e c t Achievements 7.01 Under t h e p r o j e c t , p r o d u c t i o n f a c i l i t i e s were c o n s t r u c t e d t o p r o v i d e u n i n t e r r u p t e d p o t a b l e w a t e r s e r v i c e t o about 0.5 m i l l i o n p e r s o n s , o r 45% of t h e p o p u l a t i o n o f f i v e c i t i e s which p r e v i o u s l y had poor and u n s a f e water s u p p l i e s . A s e a r l i e r noted, t h e a c t u a l achievement of s e r v i c e connec- t i o n s , a s of December 1982, was only about 50% of t h e a p p r a i s a l t a r g e t s of 31,400 connections. DSE h a s a s s u r e d t h a t by 1984 a l l s h o r t f a l l i n connec- t i o n s w i l l be f u l l y m e t . The p r o j e c t c r e a t e d f i v e new semi-autonomous water e n t e r p r i s e s , t r a i n e d s t a f f s i n management and o p e r a t i o n and e s t a b l i s h e d p u b l i c u t i l i t y accounting systems which a r e being maintained e f f e c t i v e l y by t h e e n t e r p r i s e s . It s t r e n g t h e n e d t h e p r o j e c t implementation c a p a c i t y of DSE and C i p t a Karya, enhancing t h e i r a b i l i t y t o c a r r y o u t p r o j e c t s and a s s i s t w a t e r e n t e r p r i s e s throughout I n d o n e s i a . It a l s o f o s t e r e d t h e concept of c o s t r e c o v e r y i n t h e water supply s e c t o r , encouraging t h e o p e r a t i o n of water e n t e r p r i s e s on a f i n a n c i a l l y sound b a s i s . I n a d d i t i o n , t h e s o c i a l o b j e c t i v e o f supplying water t o l o w i n c o m e groups was achieved under a t a r i f f s t r u c t u r e which would promote t h e consumption of water by t h e s e groups ./l - L e a s t Cost S o l u t i o n 7.02 I n each c i t y t h e p r o j e c t h a s provided t h e l e a s t c o s t method of meeting t h e demand f o r water supply a s determined by s t u d i e s o f a l t e r n a t i v e water s o u r c e s a t a p p r a i s a l . I n Malang, Purwokerto and Banyuwangi, rela- t i v e l y i n e x p e n s i v e s p r i n g s o u r c e s were u t i l i z e d , supplemented i n t h e c a s e of Purwokerto w i t h groundwater t o provide t h e a d d i t i o n a l supply r e q u i r e d . I n Jambi and Samarinda, t h e r e were no f e a s i b l e a l t e r n a t i v e s t o s u r f a c e water development, and t h e sites f o r i n t a k e s and t r e a t m e n t works were s e l e c t e d a s most s u i t a b l e on t e c h n i c a l and economical b a s e s . I n t e r n a l Rates of Return 7.03 The i n t e r n a l f i n a n c i a l r a t e s of r e t u r n f o r t h e f i v e WEs, a s e s t i m a t e d a t a p p r a i s a l and a c t u a l c o n d i t i o n s , a r e compared below ( s e e Annex 17 f o r d e t a i l s ) : 11 - The n a t i o n a l s t a n d a r d water r a t e s t r u c t u r e developed under t h e p r o j e c t c h a r g e s much lower r a t e s t h a n t h e a v e r a g e r a t e s f o r s m a l l e r q u a n t i t i e s o f water consumed, s t a r t i n g a t 15 c u m f o r b a s i c household needs. Also, under t h e p r o j e c t , t h e h i g h " o n e t i m e " house c o n n e c t i o n c o s t s ( o r t h e " i n i t i a l f e e " ) were t o be paid i n a f f o r d a b l e i n s t a l m e n t s o v e r a 2 t o 5 y e a r p e r i o d , t h u s e n a b l i n g t h e l o r i n c o m e groups t o have house connections. - - R a t e of r e t u r n , X Actual City Appraisal Condition ( a ) Condition (b) Malang 0.4 0.6 0.7 Purwoker t o 4 -3.5 -0.5 Jambi 7 -2.9 -0.5 Banyuwang i 1 -1.5 0.5 Samarinda 3 3.4 4.5 The e s t i m a t e d a c t u a l r a t e s of r e t u r n r e f e r t o t h e c o n d i t i o n s of ( a ) assuming f u t u r e water r a t e s (from 1983 onwards) a d j u s t e d f o r i n f l a t i o n o n l y (Annex 1 7 ) and (b) assuming f u t u r e water r a t e s (from 1984 onwards) a d j u s t e d t o meet t h e s t i p u l a t e d 6 % ROB as i n d i c a t e d i n T a b l e 5.2. The rates of r e t u r n f o r Purwokerto, Jambi and Malang f u r t h e r assumed t h a t by 1984 t h e y w i l l have i n s t a l l e d t h e remaining delayed house c o n n e c t i o n s ( p a r a . 3.04) and u t i l i z e t h e f u l l water d e l i v e r y c a p a c i t i e s planned f o r t h e p r o j e c t . 7.04 The n e g a t i v e r a t e s o f r e t u r n c a l c u l a t e d on a c t u a l f i g u r e s r e s u l t p r i m a r i l y from h i g h e r p r o j e c t c o s t s t h a n a n t i c i p a t e d and d e l a y s i n implementing t h e p r o j e c t and i n s t a l l i n g t h e s e r v i c e c o n n e c t i o n s , which have d e f e r r e d f u l l p r o j e c t b e n e f i t s . I n any e v e n t , t h e i n t e r n a l f i n a n c i a l r a t e s o f r e t u r n , e i t h e r a s e s t i m a t e d a t a p p r a i s a l o r c a l c u l a t e d on t h e b a s i s of a c t u a l r e s u l t s and c u r r e n t p r o j e c t i o n s , a r e marginal. They u n d e r e s t i m a t e t h e economic r e t u r n s because t h e major p u b l i c h e a l t h b e n e f i t s d e r i v e d from t h e p r o j e c t cannot be measured i n monetary terms. The p r o j e c t i s j u s t i f i e d by t h e f a c t t h a t it p r o v i d e s a t r e a s o n a b l e c o s t a n e s s e n t i a l s e r v i c e t o a s u b s t a n t i a l p a r t of t h e p o p u l a t i o n of t h e c i t i e s t o a l l e v i a t e s e r i o u s water s h o r t a g e s and c o n s e q u e n t i a l h e a l t h problems and develops i n s t i t u t i o n s t o c a r r y o u t sound water s u p p l y programs a t b o t h t h e n a t i o n a l and l o c a l l e v e l s . VIII. BANK AND GOVERNMENT PERFORMANCE 8.01 The scope of t h e p r o j e c t was w e l l prepared w i t h adequate p a r t i c i - p a t i o n from t h e government. I n r e t r o s p e c t , t h e s c h e d u l i n g of t h e procure- ment phase was o v e r l y o p t i m i s t i c i n view of t h e cumbersome p r o c e d u r a l r e q u i r e m e n t s of t h e government t h a t r e s u l t e d i n s e v e r e implementation d e l a y s . Some of t h e s e d e l a y s could have been however overcome had t h e DSE p r o j e c t s t a f f been more experienced i n handling procurement i s s u e s and more a l e r t t o t h e need f o r minimizing d e l a y s . The e x p e r i e n c e gained from t h e f i r s t water s u p p l y p r o j e c t has been n o n e t h e l e s s u s e f u l i n d e a l i n g w i t h t h e procurement a s p e c t s of t h e second p r o j e c t . 8.02 The Five C i t i e s p r o j e c t was r e g u l a r l y s u p e r v i s e d by Bank s t a f f ( s e e Annex 1 8 ) d u r i n g October 1974 through March 1982. I n a l l , 14 super- v i s i o n m i s s i o n s were undertaken. A s e x p e c t e d , t h e i n s t i t u t i o n a l development g o a l s of t h e p r o j e c t and t h e r e l a t e d inter-agency c o o r d i n a t i o n a s p e c t s r e q u i r e d c o n s i d e r a b l e a t t e n t i o n from t h e Bank s t a f f d u r i n g t h e e n t i r e super- v i s i o n phase. S i n c e t h e house c o n n e c t i o n problem ( p a r a . 3.03) was n o t d e t e c t e d u n t i l t h e near-completion s t a g e of t h e p r o j e c t , i t a p p e a r s i n r e t r o s p e c t t h a t t h e e a r l i e r Bank s u p e r v i s i o n m i s s i o n s should have k e p t a more w a t c h f u l eye on t h i s problem. The m i s s i o n members g e n e r a l l y enjoyed a good working r e l a t i o n s h i p w i t h t h e government s t a f f . The o n l y major i r r i t a n t s t o t h e i r o t h e r w i s e amicable r e l a t i o n s h i p concerned t h e i n o r d i n a t e d e l a y s i n t h e i s s u a n c e of t h e long-sought i n t e r d e p a r t m e n t a l d e c r e e and i n t h e t e n d e r i n g , e v a l u a t i o n and award of procurement c o n t r a c t s . Bank c r i t i c i s m on t h e s e m a t t e r s however had t o be tempered by t h e r e a l i t i e s of t h e problems t h e p r o j e c t management f a c e d , namely, l a c k of experienced s t a f f , t e d i o u s a d m i n i s t r a t i v e procedures, l a c k of inter-agency c o o r d i n a t i o n and a r a p i d l y growing n a t i o n a l water development program. 8.03 On t h e m a t t e r of l o a n c o v e n a n t s , t h e Bank f r e q u e n t l y c a l l e d t h e non-compliance problems t o t h e a t t e n t i o n of C i p t a Karya and M i n i s t r y of Home A f f a i r s f o r t h e i r t i m e l y r e s o l u t i o n . Even though t h e r e s p o n s e from t h e s e a g e n c i e s was r a t h e r s p o r a d i c , t h e y seemed t o a g r e e w i t h t h e Bank's concerns. A t p r o j e c t completion, t h e o v e r a l l compliance s t a t u s of t h e v a r i o u s covenants was g e n e r a l l y s a t i s f a c t o r y , except f o r t h e f a i l u r e of GO1 t o ( a ) a s s u r e t i m e l y payment of water b i l l s owed by i t s a g e n c i e s t o t h e WEs o r t o p r o v i d e t h e funds needed t o pay t h e l a r g e a r r e a r s accumulated s i n c e 1976; and ( b ) submit t i m e l y and adequate a u d i t e d f i n a n c i a l s t a t e m e n t s and a u d i t r e p o r t s f o r t h e WEs. Compliance by t h e WEs under t h e covenanted r a t e s o f r e t u r n was a l s o l e s s t h a n s a t i s f a c t o r y due p r i m a r i l y t o t h e d e l a y s i n t h e project. IX. CONCLUSIONS AND LESSONS LEARNED 9.01 The p r o j e c t s u c c e s s f u l l y achieved i t s i n s t i t u t i o n a l g o a l s i n establishing W E s a t t h e l o c a l l e v e l s , and s t r e n g t h e n i n g t h e c a p a b i l i t i e s of DSE a t t h e n a t i o n a l l e v e l t o implement nationwide water supply programs based on a "loan" approach i n s t e a d of t h e e a r l i e r " g r a n t " approach. On t h e f i n a n c i a l s i d e , t h e c o n c e p t s of c o s t r e c o v e r y and water t a r i f f s t r u c t u r e , aimed t o f o s t e r economic v i a b i l i t y , became w e l l accepted. The p r i n c i p a l short-coming of t h e p r o j e c t concerns t h e p h y s i c a l implementation d e l a y s up t o 30 months compared t o t h e a p p r a i s a l s c h e d u l e - which s i g n i f i c a n t l y i n c r e a s e d t h e t o t a l p r o j e c t c o s t s . Because of t h e a s s o c i a t e d d e l a y s i n t h e i n s t a l l a t i o n o f house c o n n e c t i o n s i n t h r e e of t h e f i v e p r o j e c t c i t i e s , t h e p r o j e c t b e n e f i t s were c o r r e s p o n d i n g l y d e f e r r e d . It i s c u r r e n t l y envisaged t h a t by 1984 a l l t a r g e t e d c o n n e c t i o n s w i l l have been i n s t a l l e d , t h u s b e n e f i t t i n g t h e p o p u l a t i o n t h e p r o j e c t was o r i g i n a l l y i n t e n d e d t o s e r v e . Lessons Learned 9.02 Following a r e t h e major l e s s o n s drawn from t h e e x p e r i e n c e w i t h t h e p r o j e c t and a c t i o n s which should be t a k e n t o remedy shortcomings w i t h r e s p e c t t o t h i s and o t h e r 'GOI-assisted water supply p r o j e c t s : F i n a n c i a l R a t e s o f Return. Even though t h e b a s i c c o n c e p t of ROR s t i p u l a t i o n under t h e f i r s t w a t e r p r o j e c t h a s remained v a l i d , t h e u n f a v o r a b l e impact of t h e u n f o r e s e e n p r o j e c t i m p l e m e n t a t i o n d e l a y s o n ROR h a s been c l e a r l y d e m o n s t r a t e d by t h e p r o j e c t . Because of t h i s , i t would have been more r e a l i s t i c i f t h e ROR compliance r e q u i r e m e n t s f o r t h e f i v e p r o j e c t WEs were t o have t a k e n i n t o a c c o u n t t h e need f o r f l e x i b i l i t y t o accommodate u n f o r e s e e n e v e n t s ( i m p l e m e n t a t i o n d e l a y s , c o s t o v e r r u n s and d e f e r r e d b e n e f i t s ) . The experience with t h e f i r s t project c l e a r l y indicates t h a t the s t i p u l a t i o n o f RORs s h o u l d be viewed more a s a performance t a r g e t r a t h e r t h a n a r i g i d f i n a n c i a l r e q u i r e m e n t and t h a t i t s h o u l d be " f i n e t u n e d " a s a p p r o p r i a t e d u r i n g Bank s u p e r v i s i o n m i s s i o n s t o more c l o s e l y c o r r e s p o n d t o t h e a c t u a l c o n d i t i o n s . In s t i p u l a t i n g ROR covenant r e q u i r e m e n t s , t h e t i m i n g of e f f e c t i v e n e s s o f t h e ROR covenant s h o u l d be more c l o s e l y r e l a t e d t o when t h e WEs become f u l l y o p e r a t i o n a l w i t h t h e e f f i c i e n t u t i l i z a t i o n o f t h e project assets. (b) Procurement Scheduling: Given GOI's e l a b o r a t e a d m i n i s t r a t i v e r e q u i r e m e n t s w i t h r e g a r d t o c o n t r a c t a p p r o v a l p r o c e d u r e s , a more r e a l i s t i c time frame needs t o be t a k e n i n t o a c c o u n t w h i l e s c h e d u l i n g procurement f o r f u t u r e p r o j e c t s . The government should e q u a l l y be concerned about t h e time d e l a y s caused by b u r e a u c r a t i c p r o c e d u r e s and should t r y i n e a r n e s t t o minimize t h e l o n g pro- c e s s i n g t i m e between t e n d e r c a l l and c o n t r a c t award, t h e time t a k e n f o r opening of L e t t e r s of C r e d i t , and f o r i s s u a n c e of N o t i c e t o Proceed. I n t h i s r e g a r d , a s t u d y may b e w a r r a n t e d t o a s c e r t a i n c a u s e s f o r d e l a y s and o u t l i n e measures t o minimize t h e same. The i s s u e s c o n c e r n i n g procurement d e l a y s s h o u l d c o n t i n u e t o be b r o u g h t t o G O I ' s s e r i o u s a t t e n t i o n d u r i n g t h e Bank's i m p l e m e n t a t i o n review m e e t i n g s w i t h t h e concerned t o p o f f i c i a l s . (c) S e r v i c e Connections. Because of t h e d e l a y e d c o n s t r u c t i o n of t h e u p s t r e a m f a c i l i t i e s and s h o r t c o m i n g s i n p l a n n i n g , t h e i n s t a l l a t i o n o f s e r v i c e c o n n e c t i o n s i n 3 of t h e 5 c i t i e s was postponed and n o t accomplished a t t h e PCR s t a g e of t h e p r o j e c t . T h i s was a major o v e r s i g h t on t h e p a r t of t h e WEs and DSE which should have t a k e n s t e p s t o proceed w i t h t h e house c o n n e c t i o n s i n p a r a l l e l t o , o r i m m e d i a t e l y f o l l o w i n g , t h e c o n s t r u c t i o n o f t h e major w a t e r works. The e x p e r i e n c e w i t h t h e f i r s t w a t e r s u p p l y p r o j e c t h a s t h u s c l e a r l y i n d i c a t e d t h e need f o r a b e t t e r programming and i m p l e m e n t a t i o n s c h e d u l i n g o f s e r v i c e c o n n e c t i o n s i n t h e ongoing and f u t u r e w a t e r s u p p l y p r o j e c t s . A l s o , under t h e f i r s t p r o j e c t , a good p r o m o t i o n a l campaign from e a r l y on s h o u l d have been u n d e r t a k e n by t h e WEs t o s o l i c i t c o n n e c t i o n s from t h e p u b l i c who had become o t h e r w i s e s k e p t i c of t h e p r o j e c t i m p l e m e n t a t i o n d e l a y s and t h e a s s u r a n c e o f a g u a r a n t e e d w a t e r s u p p l y a t a d e q u a t e p r e s s u r e . Bank, on i t s p a r t , s h o u l d have a l s o emphasized above aspects during the e a r l i e r supervision missions. (d) C o n s t r u c t i o n S u p e r v i s i o n . The l a c k of a d e q u a t e c o n s t r u c t i o n s u p e r v i s i o n s k i l l s o f t h e f i e l d s t a f f was a major c o n c e r n under the f i r s t project . Continued emphasis on i n t e n s i v e t r a i n i n g programs i s needed t o b u i l d up t h e s u p e r v i s i o n s k i l l of t h e DSE and WEs' s t a f f s . ( T h i s w i l l be c a r r i e d o u t under t h e second and t h i r d w a t e r s u p p l y p r o j e c t s . ) U n t i l t h e l o c a l s k i l l s can be improved t o a d e s i r a b l e d e g r e e , c o n s u l t a n t s ' a s s i s t a n c e w i l l be needed i n t h e w a t e r s u p p l y c o n s t r u c t i o n programs f o r t h e foreseeable future. (e) T r a n s f e r of A s s e t s and T h e i r R e v a l u a t i o n . DSE and t h e W Es should c o o r d i n a t e DSE's p r o j e c t c o n s t r u c t i o n c o s t a c c o u n t i n g system w i t h t h e a c c o u n t i n g systems of t h e W Es so t h a t i n t h e f u t u r e a l l f i x e d a s s e t s and r e l a t e d i t e m s c a n be r e c o r d e d on a t i m e l y b a s i s on t h e books of t h e WEs f o r whose a c c o u n t t h e y are b e i n g c o n s t r u c t e d . I n t h i s c o n n e c t i o n , a formal mechanism s h o u l d be e s t a b l i s h e d whereby t h e government-funded assets c o u l d be t r a n s f e r r e d t o W Es in a t i m e l y manner. Given t h e a c u t e s h o r t a g e of f i n a n c i a l management personnel - - e s p e c i a l l y a c c o u n t a n t s and a u d i t o r s i n the cauntry, and i n l i g h t o f t h e r e a s o n a b l y low i n f l a t i o n r a t e s , i t would seem r e a l i s t i c t o r e v a l u e t h e a s s e t s a t a less f r e q u e n t i n t e r v a l t h a n once a y e a r as was s t i p u l a t e d by t h e l o a n c o v e n e n t . (f) Audited F i n a n c i a l S t a t e m e n t s and Audit R e p o r t s . The f i n a n c i a l r e p o r t s of t h e W Es were on t h e whole s a t i s f a c t o r y . However, problems s t i l l remain w i t h r e g a r d t o t h e s u b m i s s i o n of t i m e l y and a d e q u a t e l y a u d i t e d f i n a n c i a l s t a t e m e n t s and a u d i t r e p o r t s . The c a p a b i l i t y of t h e p r e s e n t government a u d i t o r s should be increased s u f f i c i e n t l y i n t h e near f u t u r e t o c a r r y out t h e a u d i t s i n t h e water supply s e c t o r adequately and/or p r i v a t e a u d i t o r s q u a l i f i e d t o do t h e job s h o u l d be engaged. Bank h a s agreed t o f i n a n c e t h e c o s t of p r i v a t e a u d i t s under t h e t h i r d w a t e r s u p p l y projects. The Government h a s c u r r e n t l y t r a i n i n g programs under way t o improve t h e a u d i t i n g c a p a b i l i t i e s nationwide. (g) Water B i l l s of G O 1 Agencies P a y a b l e t o WEs. The f a i l u r e of GO1 a g e n c i e s t o pay t h e i r water b i l l s and of GO1 t o make f u n d s a v a i l - a b l e t o a s s u r e t h e i r prompt payment as r e q u i r e d by t h e l o a n agree- ment was e v i d e n c e d under t h e f i r s t p r o j e c t . GO1 w i l l be s e r i o u s l y a d d r e s s i n g t h i s i s s u e t h r o u g h a s t u d y a g r e e d under t h e Bank-funded t h i r d water supply p r o j e c t s . ANNEX 1 INDONESIA THE FIVE CITIES WATER SUPPLY PROJECT (LOAN 1049-IND) PROJECT COMPLETION REPORT P r i n c i p a l Report Sources Publication Reference Title dates The I n d o n e s i a n Economy - Recent Developments and P r o s p e c t s f o r 1974175 Appraisal: I n d o n e s i a - The F i v e C i t i e s Water Supply P r o j e c t Report and Recommendation of t h e P r e s i d e n t t o t h e Executive D i r e c t o r s on a Proposed Loan t o t h e Republic of I n d o n e s i a f o r a F i v e C i t i e s Water Supply P r o j e c t Loan No. Loan Agreement ( F i v e C i t i e s Water Supply 1049-IND P r o j e c t ) between Republic of I n d o n e s i a and I n t e r n a t i o n a l Bank f o r R e c o n s t r u c t i o n and Development P r o j e c t Loan Agreements between Republic of I n d o n e s i a and t h e Water E n t e r p r i s e s - A p p r a i s a l of I n d o n e s i a Second Water Supply Project F i v e C i t i e s Water Supply P r o j e c t - Indonesia, Revised P r o j e c t Completion Report prepared by C i p t a Karya/DSE Loan No. Project Files 1049-IND - Correspondence - Consultants' P r o g r e s s R e p o r t s - F i n a n c i a l Reports by Water E n t e r p r i s e s - Audit Reports of S t a t e Accounting O f f i c e o r Regions - F e a s i b i l i t y Study R e p o r t s f o r t h e P r o j e c t Cities INDDNESU THE P l w CITIES WATER SUPPLY mOJECI ( L M 1069-IND) PROlECI WMPLETION RWORT An O n r r l e r of C a p l i a n c . of k j o r Loan Covanant. ( J a m a q 1983) Pertinent reference t o ley1 Capliancr h d l i ~ e Overall cm- It- docurent. Targat Act-1 pl1.n~. .t.tua R* .. e SECIOR-RELATED Organizational, function.1 i n t e r Supplemental 12/31/74 9/78 Working . . t i e The d e c r e e g o n r n r e l a t l o l r between GO1 minlmtrie. (Pub- r e l a t i o n a h l p s between YE.. DSE Letter factorily l i c Work., H - A f f a i r s and P i n a n e e and t h e LE. I n t h e a n d Mlnimrrv---- ~~ of , 1 1- e Affairs .dmInimtr.tion of t h e nation.1 urban r t c r .upply p r o g r r . (1nterdepartmrnt.l Decree) A a a e m p e n t of n a t i o n a l e t a n d a r d 3.06 and 8efore 9/75 1977 Sati.factoq WE I n c o n u l t a t i o n r i t h th. E 8 r a a t o assess and h p l c r a t e r r a t e atudy r e c m r n d a t i o n a Supplaent.1 or o t h e r d a t e m n t the recm-n&tiolr of national a t a d a r d water r a t e and t h e i r i m p l e n e n t e r l o n Letter %reed u p n a t u d y . I n 1977 g u i d e l l n - . a c c e p t a b l e t o t h e M I * . were d o p t e d a d r r e mtbmaquently implemented by t h e p r o j e c t YE. and n t e d e d t o o t h e r n t e r e n t e r p r i s e s i n I n d u n e e i a . PROJECT IMPLEIIENTATLON Appointment of consultants E n g i n e e r i n g conmultanrs 1.02 ( a ) - Management c o n m u l t a n t s 3.02 ( b ) - P r o j e c t finance. Provl.ion of l o a n s r o d e q u i t y 3.04 ( b ) ( i ) By 6/79 Cmpleted, r i t h C o n r n e n t t o p r o v i d e f m d . f o r pro*ct i n f o r . of 607. funds ( f i n a n c i n g p l a n ) .nd S u p p l e delay., erccpt l o a n and 4 P e q u i t y f o r J-bi, Mnyuwangi a n d S a n a r i n d a mental L e t t e r f o r m e m i c a con- and 7Q l o a n a n d 3 P e q u i t y f o r k l a n g and P u r v o k e r t o YES, nect i o r . r l l grant* f o r m n a - e n t and t e c h n i c a l mervlcr. ."d fe..ibility .tudie.. R e t u r n of s u r p l u a c a s h by rn t o 3.04 ( b ) ( l " ) ."d 8.h - Hot done The l w n agr.-ent provided t h a t d u r l n d t h e p r o h c t c o w e t m c t l o n p e r i o d . We m u l d r e t u r n t o GO1 a n l u . 1 1 ~ s u r p l u e COI i n reduction of e q u i t y l e t er of camh g e n e r a t e d . o r t h e l r c o n t r i b u t l o l r t o c o l r t r u c t i o n 06/f9/79 c m t a p r o r i d a d i n i t i . l l y e n t l r e l y by G01. No much pay- .Lnta r r a ~ d t . o G01. h i c h i n f o r r d t h e Bar+ d u r i n g t h e p r o j e c t t h a t I n d o n e s i a n I n and p r o c e d u r e s d o n o t p r m i t .wh p q r n t s by Ye. t o COI. H a e v e r . t h e l u p l v s f a n & w e r e umrd by t h e LO. f o r n o r p r o y c t r t e r vo*s b e n e f i c l a 1 to tha. W n e r a h i p and c o n t r o l of t h e pro- 3.04 ( a ) - E m have o p e r e Each irnr..Cmcnt p r o j e c t r s t o b r c a r r i e d out by DSE f o r j e c t f.ciliriem t o be v e s t e d i n t e d " I t b u t .n)r t h e a c c o u n t of t h e Wd concerned. and by t h e c m p l e t i o o of t h e hands of ms nor l a t e r than f0m.1 tYrnO".. t h e iw.aCm.nt p r o j e c t . t h e m e n h i p a d c o n t r o l of t h e project cmpletion t o t h m up t o f a c i l i t i a a and s q u i p e n t r r e to fo-lly pas. over t o t h e 116-1982 LO. Completion of c o l u t r u c t i o n 3.01. 3.04; 6130179 T a r t i a n y and p r d pipe. r r c not provided t o I n ~ t . 1 1 a e r 1.01 (a), v i c e c o n n e c t l o w f o r 3 LO.. 2.01 6 Sched- u l e 1 of P r o j e c t Loan Progres. r e p o r t i n g Submimaion of q u a r t e r l y and 3.08 ( b ) . Q u a r t e r l y re- Reports S.tl.f.ctoq tank ha. r e c e i v e d p r o j e c t r w o r t . end flnanci.1 r e p o r t * of a n n u a l p r o g r e e s report. 4.08 a d p r t 6 0 day. .ubmitt.d but t L . 1 ~ a 1 1 WE. v i a DSI, t h r q h S e p t m b c r 1982. Bank l e t t e r a f t e r end of bur la=- c o u l d Improve o f 11/14/74 qurter a d h a t behlnd anm.1 r e p o r t schedule 3 rrnthe after .d of year OPERATING PERPORWI)(CE UEe r g o p e r a t e I n a c c o r d a n c e w l t h 4.04 ( a ) - s a n d ~ t i l i t yp r - t i c e s through ( f ) Water l e a k a g e a d waste d e t e c t i o n Supplrrnt.1 - Letter F ~ N A N C I A L wveN*HTs Water r a t e increamell and financl.1 4.04(g)(h) - Water r a t e . r r e k t e r rate. r r . i n c r c a e e d I n PY76 a d 7 7 t o l e v e l s r s t e of r e t u r n and S u p p l e increased mub- B c e e d i w . ~ . r % e . r q u l r e d . S p e c i f i e d flnanci.1 r a t e s manta1 L e t t e r mr.nti.11y but of r e t u r n of 62 ware . c h i n a d on r e p o r t e d n e t f i r e d ...eta t a r g e t ratem of f o r a11 S ? . e x c e p t J-bi i n 1981, b u t the.= - r e c a l a l s r e t u r n -re n o t t c d on u n r w a l u e d n e t f1z.d ..set. v h i c h a1.o d i d n o t met I n c l u d e p r o j e c t ..*at. i n o p e r a t i o n but n o t y r t f o r u l l y tramf.lr.d t o t h e ma. Audlted f i n a n c i a l ..t.tuente and Report. The P d 1 t . d f l n a n c l a l s t m t a e n t . and u d i t r e p o r t s f o r 1 9 8 a u d i t r e p o r t 8 t d be s u b m i t t e d a l m y a sub- due by Jmt 3 0 , I 9 8 1 ware . B d t t e d t o t h e 8 . I f o r 4 me not l a t e r than -nth# after mt.nti.11~ i n Mrdl 1982 a n d f o r t h e o t h e r LE I n J u l y 1982. T h m e t h e end of e a c h y e a r brhind ached- f o r 1 9 8 1 , due by J m e 30. l 9 U . ~ . Y C n o t been r c e a i r e d f o r - ule a- of t h e ma. The r e p o r t . h.ve n o t been i n f o r u r l v . o n c u * t m a q a m ~ c t *of an d i r . C o r r r n e n t &p.rtmenta t o pay 4.05 ( b ) - The b a c k l q of unpaid b i l k r r e o e t l y p a i d i n 1976 b u t einc. t h a t tl.. only p a r t i a l or i n year. no payments w a t e r b l l l . o r d t o VE. rhen due or r i t h i n 6 0 dry.; GO1 t o h.*e been made. Umpaid b i l k tot.1 Rp 641 111110n a t p r a p t l y make l i q u i d fmdm a v a i l - mr& 1981. D l r e c c o r C.n*ral d C i p t a K a q a w o r e an No- a b l e f o r t h a t purpome -b.r 11, I 9 8 1 t o m n i a t r y of H M M f a l n raqueatilyl p q r n t of b i l k , b u t chi. and p r w l o u . r q w m t a sent t o v a r i o u e RIt+l.trl.. h u e h d nu prce1v.d rcmulte. P a y r n r of d e b t l e r v i c e by ma to 3.04 ( b ) ( l i i ) C o r n c i w W i l l n w 8ecul.r of &lay. 1m p r o j e c t c a p l e t i o n . GO1 r h r q h l u w GO1 and P r o j e c t 2/1/81 .tart 2/1/83 i m t q of Pinanc. e U t & d t h e S r a c r p e r i o d on 1o.w f a r 2 LO., AgrC year, m o amoral &k ~ . r v l c e all c a l n c r on 2/1/83. ment H a r e r . i t did not r i v e t h e I n t e r a t f o r t h e 2 - p a r p e r i o d t o 1 / 1 / 8 3 . which all b. p q a b l e I n 1983. e r n - a b i l i t y t o p q I s quc.tlOn.ble. INSTIIUTIOH*L Org.nirIng a d .tlucturing m . 1976177 m e p a r a t i n g t h e i r .met. and scca~tind I r a t h e municip.li- tle., m.t.bll.hIng public util- i t y .ccountla~ syata.. training i n man.g"rnt and oper.tlone Admlni.tr.tirc d t r c l o p m t n t of DSE Suppl.rnt.1 4/1/75 9/78 O r y n h a t l o n a l . t N c t u r e , m t d f l w and u n r g - n t myetae Letter f o r DSE h l l e been d.rc1op.d .ccordlng t o r e c m r n & t i o n e o f ~00~1t.nt.. m E and Lnteraal A f f a i r s e h l d b p r o m t h e i r . o n l t a r i n g .).eta of m .. T r a l n i w d ttchnlc.1 and una-nt t**et. r r . . . t l ~ f a e t o r l l y c o n t c t e d by c o w multant. and W e staff f o r t h e fiv. p r o j e c t w. and othe". - &7 - INDORESIA IIVX CITIKS U n R SUPPLY PROJECT (LJAU 1049-IND) - A M X 3 PPOJCCT OOnPLeTIOR BEPORT Ca).rimoa of Appraim.1. M v i s e d d Actual Implemmtation Schdula I 1 I I I 1 I 1 I Calendarpar.: 1 1974 1 1971 1976 1 1 1971 1 1978 1 1979 1 1990 1 1981 1 puarrar.: I I I11 11111 I V I f I11 IIIII I V I I 111 11111 IVI I I11 11111 I V I I I11 IIIII I V l I 111 11111 1 V I I I11 11111 I V I I I11 I1111 IV1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 I I I I I I I I I I I l I I 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ~upplyContracts l I I l l I l l I 1 I l l I I I l l I l I I l l l I l I I I I l I V~hiclca I I I I I I I I~ l l I \ I l l I l l 1 1 1 1 1 I I I I I I I I ! -~ppr.isal 1 I I I I 1 1 I I I I I I I I I I I I ...... I I 1 I 1 1 1 1 1 1 1 1 1 1 1 1 \ 1 1 1 I I . . I ~ . " ~ I I I I I I I I I I I I I I I I I -UY~.L~ - Actual I l I l I I I I I I ~ I I ~ ~ I I I .............. I I l ~ I I I I 1 I 1 1 1 1 1 1 I I I I I I I I I I I I I I I I I I I l u.termter. I I I I I l l l I 1 l I I I I I I I I I I l l I l l I l l l l I l -Appl.i..l -~..i.ed I I I I I I I ...... I I I I I I I I I I I I 1 . . ..... \...I I I I I I t I I I I I I I I I I I I I I I I I I I ! I ! I ! I - Actual t l l I I I l l I --- ............ l I 1 I I l I I \ I I \ t l I I I I I I I I I I I l 1 I I I I I I I I I I I I I I I I l l ...... I I I I I I I ..... I I I I I I I I I I I I I I I I I -Rerimad I ~ I I I ~ ! I I ~ ~ I . . ~ I ~ I ~ ~ I I t I - Actual I I I I I I I I I -------- - ................. I I I I I I I I I I I I I I l l l l l l l l l l l r l l l l l l 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ....I I I I I I I I I I I I I I I I I I I -Revi.ed - Actual I I 1 1-1- I I I I I I I \ . . I I l I I I ............ I I I l l I I I I I l C E ui h PAKaiaal l nt t i I \I I I I I I I I I I I I I I I I l I I I l I I I I I I I I 1 I I m - r.....- - r ; I I l I I I I I I I l I I I I I I 1 I 1 I I 1 I 11 1 1 1 1 I I I l I 1 i I I I I I I I 1 1 1 1 1 l I I I I I ) I I I t I I I I I I -Revised I 1 \ I I 1 I 1- 1 I I t . . I ~ I ~ I ~ t I ~ ( I t I ! t ~ I - Actual I I I I I I I I I I ........... I I I I I I I I I I I I Pips&V.lve~ 1 1 1 I I I I 1 I I I I l I I I I I l I I I I I l I l I l l 1 1 l l I I I I I I I I I I I I I I I I I I I 1 .................... I ... I I I I I I I I I I I I I I I -Revied I I I I 1 I \ - - I I I ..I ...I ...I I I 1 I I I I I I I 1 I - ~ctual I I I l l I l l I 1 ............................ I I I I I I I I I I I I I I I I I I I I I I Samarlndarreat-I u a t ~ q u \ i p Ic In It II II I ! I I I I I I I I I I I I I I I I I ! I I I 1 I I I I I I I I I I I I I I I I I I 1 1 1 I 1 1 I I I I I I I I I I I I I I I I I I I I - Actul 1 I t I I \ I I ! I ...............................I I t I I I I I I I I I I I 1 I 1 1 1 1 7 1 7 1 1 I I I I I I I I I I I I I I I COn.trYCti..C~ntr.~t I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I 1 l . : I n t . L l ' l I l I I I l I 1 I I I I I I I I l I I I l I I I I I l l I 1 I Iraatwnt lark* I I I I 1 1 1 l 1 l 1 1 1 1 1 1 1 1 1 l l I I I I I I -Ravimrd I I I I I I 1- I I I *****...* * . b* . *. * .. * *. . ** * .* * ** * ** * ** * I I I 1 1 1 I I - Actul I I I I I t I I I I I I I *b*.*.*.*~*.~*** b**.~...***.***.******** I I I I I I I I I I I I I I I I I 1 1 1 I I I I I I I I I I I I I l l P ~ ~ ~ ~ ~ ~ ~ ~ ~ : D ~ ~ ~ - I I I I I I I I I I ~ I I I I I I ~ I I I I I 1 1 1 1 1 1 1 1 1 1 l I I l I I l I I l l I - Actual I ~ I I I ~ I I I I I ~ I I ~ * * * * * * I I ~ I I I ~ I I I I ! / I I I l l l 1 l l 1 1 1 1 1 1 1 ) l 1 1 1 1 1 1 1 l I I I I I l I I I ~ u r r o b r t o : a l o r i - l I I I I I I l I l l I I I l I I I I I l l I 1 I l I l I I I l a a t i a n m a a 6 I I I I I I I ~ I t ~ I I l I I I I I I I I I I I I I ~ "m1lhou.a I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I -Apprde.l -&rimed -Actul / I I I ~ I I I I I I I I I I I I I I I I I I ~ ~ I I I I ~ I I I I * * * * * * * I I ~ I ~ I I I ~ I I I I I I I I I I I ~ I I I I I I I I I I T I I I I I I I I I I I W I . . .. .I . .. .. . *** .** *. I I ~ I I I I I I I I I I I I I I I I I I I ................. I I I I I I ~ I I I I B . n p n w i : B r a b \ 1 I I I I I l I I I I I I I I I I I I I I I t t I I I I t I I P r a m ~ u r ~ ~ u b . r 1 I I l l I I I I I I I I I I l I l l I l I I I I I I I l I I I i -Appr.imal - Revind - Actul I I l l 1 I I ! I l I I I I I I I I I I l I I I I T I I I I I I 1 I 1 ......................................... I I I I I l I l I 1 1 1 I I I I 1 I I I I I I I 1 I 1 I I I I I I I I I I I I I ( I I I I I I I I l I I J u b ~ : I n t ~ b L I l I l I I I l I l I l I l I I I l l I I l I l I I I l I I I I I T ~ ~ ~ ~ Y ~ ~ P ~ M ~ I I ~ I I I ~ I I I I I I ~ I ~ ~ -Appz.i.l I I ( 1 I I 1 I )*..*****b*.******..********************( I 1 1 I I I I I I I I I 1 I ..P d - i, I I I 1 I 1 1-1 I I I- * * *** . . * .*. *** . *...******...*****I I I I I I I I I - Aetul 1 ! 1 1 l I I I 1 1 1 1 n..*.....**......*.......*.......*..... I 1 --.isad I I I I 1 1 I 7 ( 1 I I ( I ....................................... I I I I1 1 1 - AcCu.1I I I I I I I I I - *.**** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ( I I I I I I I I I I I 1 1 l 1 I 1 I I I I I l I I I l l l S r u r i a d ~ : ~ b . r ~ ~ I I l I I I l I I I I l I I I I I I 1 I l I I I I 1 I I I I I i T r ~ a t u n t ~ a n t I I I I I I 1 I I I I I I I I I I 1 I I 1 I I I I I I I I I I I I -Appr.imal ~ ~ ! ~ I ~ ~ ~ t ~ ~ ~ ~ ~ ~ ~ I I I ~ l -brimad I ~ I ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ l ~ I ~ I ~ -~ctul I I I I I I I I I 1 I I l I l l l I l I l I I I I l l I * * * * * * * * * * * I 1 I l 1 1 l 1 1 l 1 1 1 1 1 1 1 l I I l I l l I I J l I l I I l I l ~1lcities:Tr.n~-l I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I m i ~ ~ i o n ~ ~ t r i b . I I I I I I I I I 1 I I I I I I I I 1 I I I I I I I I I I I I I I I I I I I I I I I I -brimad - Actul I 1 1 I 1 l 1 l I 1 I I I I I I I I I I I I I T I 1 I I 1 - I I I 1- I I I 1 I I l I l ***** I w~~.~~~~~............ I I I I I I I I I I Taadwriw L m r d ---- I a t t m r o f cradit ........ "***** Dmliwry Commtruction l o t.: Appraim.1 Sehadula b ud m p r A 1 i r i w r ) l onsiwriw i n N o v n k r 1913; revised s c h d u l a b e a d om d.tei1.d da.i(tn in J u l y 1976. Schadule for 9.b.r.w plant i n Sumrioda b u d ol. m i a i m a i n 1979 . ad a c t u l .chdula b . d 011 pvm-at report. 1NWNESlA FIVE c I r l e s WATER F UP PLY PRDJECT (LOAN 1 0 4 9 - 1 ~ 0 ) T ~ E PRDJECT COMPLETION RmORT An A n a l y a i s of Procur-ent Schedules ( F o r s u p p l i e s and c i v i l v o l t s ) No. of m n t h a ( a c t u a l ) No. of m n t h s ( plannit@ P r m tender P r m tender Delivcw F r m tender Delivery c a l l to call to t h e (or c a l l to t h e (or No. o f c o w Nationality l e t t e r of notice t o comtruc- notice t o comtntc- Itm tracts of c o n t r a c t o r ward proceed tion t h e ) proceed tlon t h e ) Renarks Procurement of S u p ~ l i e . (ICE) Motor v e h i c l e s I Local 6 1 Occurrence of s e v e r a l a d m i n i s t r a t i v e Lab equipment 1 Japan 6 1 end p r o c e d u r a l d e l a y s - a t v e r i r u s I!ater m e t e r s I USA 6 ) l e v e l s of C o v e r m e n t a g e n c i e s i n c l u - C h l o r i n a t i o n equipment I Japan 6 ) 1 % C i p t a Karya. M i n i s t r y of F i n a n c e Pumps end motors 1 Local 6 1 and BAPFtNAS - i n t h e s t a g e s of b i d P i p e s and v a l v e s ) e v a l u a t i o n . a p p r o n l and e s p e c i a l l y Pipes 4 Local - I 6-9 I t h e opening of t h e l e t t e r s of c r e Fittings (incl. in pipes) Japan - 1 6-9 1 d i t ; a p c i s l problem w i t h r e g a r d t o Singapore 2 1 d e l i v e r y of damaged p i p e s t o t h e job Intake pipe f o r S m a r i n d a 1 Singapore 6-9 1 s i t e s and d e l i v e r y of f l t L i w s and Treatment p l a n t equipment I 1 adaptore. for Slvasrlnds C i v i l Works and O t h e r L o c a l l y Procured - C o n t r a c t s (LCB) ~ Plalang s p r i n g i n t a k e p m p house 1 Local 3.00 5.0 18 5.00 20 - S l a r p r o g r e s s due t o rock f o m - and main t i o n i n t h e mrk a r e s . P i p e l a y i n g /B 8 Local 8.00 8.5 2- 6 9.00 20 - S t a r t - u p d e l a y a due t o d e l a y e d d e l i v e r y of p i p e s end f i t t i n g s . Other /b 12 Local 2.00 2.7 2- 3 NIA N/ A Purwkecto !Jell d r i l l i n g , w e l l house 2 Local 4.50 12.0 5 7 4.00 6 and c h l o r i n a t i o n Pipe laying / . 7 Local 1.00 2.0 3-14 9.00 20 - S t a r t - u p d e l a y s due t o delayed d e l i v e r y of p i p e s and f i t t i n g s . Other /b 8 Local 3.75 4.5 3- 6 NIA NIA Banylnangi Back p r e a s u r e c h m b e c I Loc.1 5.0 11 N/A N/A - P r o b l e n s due t o poor c o n s t r u ~ t l o n o f t h e c h m b e r ; l a t e r c o r r r c t e d by use of s e a l a n t s . /a Pipe l s y i n ~ 5 Local 1 .OO I .O 1-6 9.00 20 - S t a r t - u p d e l a y s due t o d e l a y e d d e l i v e r y of p i p e l end f i t t i n g s . Other /b 11 Local 2.50 3.7 2- 9 NIA N/A - Jmbi Treatment p l a n t and e l c v . I Local 1.SO 5.2 40 5.00 30 - Use of Dorrolive equipent, part t a d of h i c h was &asged i n s t o r a g e ; contractor-s inability t o i n s t a l l equipent; Rltuation l a t e r c o r r e c ted. Intake structure I Local 11.25 11.0 11 5.00 30 - Poor performance of t h e f i r s t C O W t r a c t o r ; second c o n t r a c t o r h i r e d t o f i n i s h t h e job. Pipe laying /B 3 Local 1 .OO 1.2 5 7 9.00 20 - S t a r t - u p delay. due t o delayed d e l i v e r y of p i p e s and f i t t i n g s . Other /b 27 Local 3.00 5.5 1-7 N/A N/A Samarinda Main t r e a u e n t p l a n t 1 Local 1 .OO 5.0 28 5.00 30 Seberang t r e a t m e n t p l a n t 2 Local 2 .OO 2 .5 8 NIA NlA - Deslqn r o r i s l o n r e p l a c i n g r i v e r and i n t a k e c r e s i n g of t h e p i p e l i n e from t h e main treatment p l a n t . Pipe laying /B 2 Local 1 .OO 2.0 69.6 9.00 20 - S t a r t - u p d c l a y a due t o d e l a y e d d e l i v e r y of p i p e s and f i t t i n g s . Other /b 13 Local 1.25 3.7 1-6 NIA N/ A - - - la C o n s t r u c t i o n of s e r v i c e line. f o r house c o n n e c t i o n s s t i l l m & r p r o g r e s s i n l a t e 1982. - Ib I n c l u d e s t h e p r o v i a i o n of facilities such an 8 t o r . g e t a n k s , p u b l i c t a p s , c m m m a l L t r i n - , warehousea. L b o r a t o r i w end s t a f f h r u s e s , e t c . INDJlreSIA TIE FIVE CITIES WATER SUPPLY PROJECT (LOAN 1049-IND) PROJECT COIIPLETION REPORT An Overviev of S p e c i f i c Procurement R o b l m s Posmible meamurew f o r f u t u r e Item C i t i e a involved Outline of problem Brwolutioa of the problem avoidance of mimilar problems A. Rocuremmt of Suppliew (ICB) & 1. Pips. h l a n g , Jambi. P u r w k e r t o Because of no inspection a t p o r t of The c o n t r a c t o r (from Japan) coopers- S u p p l i e r t o d e l i v e r m a t e r i a l a t the e n t r y . no awmewsmt f o r m a t e r i a l ted i n furnimhing t e c h n i c a l guidance job a i t e r a t h e r than a t the p o r t of d-~ew made (about o n s t h i r d of the (at h i 8 ovri expense) on how t o c a r r y e n t r y , thereby e l i m i n a t i n g the con- d u c t i l e - i r o n pie. were i n damaged out the r e p a i r s . But the Government f u s i o n on l i a b i l i t y f o r d u a e d condition). had t o pay f o r repair.. materials. 2. Ugular fitting. A l l cities Delayed d e l i v e r y i n furnishing f i t - The l o c a l c i ~ i w l r b contractor ( a ) B e t t e r p r e q u a l i f i c a t i o n of con- t i n g s by two contractorm (one Indo- mtarted procuring t h e f i t t i n g w t r a c t o r ~ ; m d ( b ) c o n t r a c t o r # - pay- nemian; t h e o t h e r f r m Singapore). l o c a l l y (with t h e imported item8 t o u n t s t o be linked t o the aimulta- be l a t e r used a m reserves). neolu delivwry of pipes m d f i t t i n g # i n one packale. 3. Spacial f i t t i n g . (adwptora) Supply of flange8 by c o n t r a c t o r 8 The l o c a l c i v i l w r b contractorm (a) N o d e v i a t i o n t o be allowad f r m ( f r m Item A.2) d i d w t n e t speci- furnished missing adaptor. f r m s t r i c t adbcrence t o a s i n g l e f l q c / f i e d IS0 wtandardw; a180 delays l o c a l s o u r c e . Thiw increased the j o i n t i w standard (IS0 o r o t h e r v i n ) ; i n d e l i v e r i n g t h e adaptor#. c a s t of t h e o v e r a l l pipe l a y i n g (b) b e t t e r p r a q u l i f i c a t i o n proem- contractw. dures f o r c o n t r u t o r s f o r t b e i r abi- l i t y t o d e l i v e r on t i n r l t h a bonru provision f o r u r l y d e l i v a r i a w . a d ( c ) ~ o n t r a c t o r mp ~ a m t s to b . linked t o w i ~ l t ~ m d re ul i v a r y of both p i p m and f i t t i n g . i n OM pack- age. I. C i v i l V o r b Conwtruetion & (La) I 1. Pipe l a y i n g hnprangi Adequate depth cover w t maintained Contractor agreed t o f i x t h e w r k st ( a ) T r a i n i n g of 6 a v a r m e n t s t a f f i n 0 P f o r the t r ~ d s s i o n l i n e per spaci- him o m e x p n s e . s k i l l a d s i t e s u p e r ~ i w i o n ;amd (b) ficstiona - sbout 300 meterm of 250 -plopeat of u p e r i e n c d warnmi- b I pipeline. mar8 a t l a r k s i t e . 2. Treatment plant W r b (8psci.l probla) Saurinda The o r i g i n a l l y p r o p o n d r i v e r crowm- A b e t t e r s o l u t i o n , involving the The problem a r o s s h c u u e the i n g of the p i p e l i n e t o s e r v e w u t h - provimion of u l l treatment p l a n t a p p r a i u l r s done on the b a a i s of e r n a r e a s h d t o be abandoned when ( a t Seberang) n w deviwed. ~ f e a s i b i l i t y l p r w l i l i ~ rengineering. mare d e t a i l e d i o f o r u t i o n on r i v e r Detailed e q i n e e r i n g i m add. b o t t m condition8 h c n e a v a i l a b l e d u r i n g the conwtruction s t a g e of the p r o j e c t ; thiw redewign, of course. caused w i g n i f i c m t delays. 3. Y i n civil w r b ( R e r a l l u p a b i l i t y of t h e c o n t r a c t o r The c o n t r a c t o r r w e v e n t ~ ~ l re- ly B e t t e r p r e q u l i f i c a t i o n aad n 1 e t o p e r f o n t h e job r w very poor; he placed r l t h c m p e t e n t contractorw t i o n of l o c a l c o n t r a c t o r s u t o had l i t t l e s k i l l o r i n t e r e s t t o f o r major c o n t r a c t item.. their p h ~ i c a l / f i ~ c i u spl bili- i n m t a l l the mechanical e q u i p e a t tie.. ( f i l t e r u n i t s , c t c . ) ; he a l w delayed the canwtrurtion of t h e r i v e r i n t a k e wtructure, elevated s t o r a g e tank and the tranniwmion line. 6. Conwtruction s u p a t v i s i o n and u n a g m c l t All c i t i e s Counterpart l o c a l wupawisiop m g i - The conwultsnt t c u ( f r m Japan) f o r ( a ) Training i n water l a r k s con- n e e r s f o r the Goverment r r e mostly conmtruction wuperviwion n s very mtruction superrimion aad m a m g a e n t inexperienced and had only l i m i t e d e f f e c t i v e and paid d i l i g e n t a t t e n - i w c r u c i a l l y needed f o r the i n u p e r a i t e wuperviwion c a p a b i l i t i e w . t i o n t o a l o t of s i t e problems. But ienced ( m d mostly young) l o c a l becaume of the l i m i t e d mupewiwion engineer.; and (b) continued e r p - c a p a b i l i t i e s of l o c a l u n s g e r a , t h e t r i a t e wervices i n the s u p e w i s i o n consultant t c u could have b e n e f i t e d a s p e c t s of n t e r wrkm is very v i t a l from having an a d d i t i o n a l i n d i v i d u a l i n t h i s mector f o r the f o r e s e e a b l e on t h e i r team. near f u t u r e u n t i l the Indonesian e x p e r t i s e i s b u i l t up t o a conmider- a b l e degree. /a These items had been s u b j e c t t o s e v e r a l a d m i n i s t r a t i v e d e l a y s i n the e a r l i e r wtages of tendering. approval, contrmct award and opening of l e t t e r . of c r e d i t (wee Annex 4 f o r d e t a i l s ) . These i t u s had a I w been s u b j e c t t o considerable delay8 i n the a l l o c a t i o n of t h e rupiah budget from c e n t r a l government sources. INDONESIA THE FIVE CITIES WATER SUPPLY PROJECT (LOAN 1049-IND) PROJECT COMPLETION REPORT Comparison of T o t a l P r o j e c t C o s t s f o r A p p r a i s a l and Actual C o n d i t i o n s Appraisal estimate E a t h a t e d actual X increase ( o r decrease) Total l a T o t a l /b over appraisal estimate Local Foreinn RD mln S mln Local Foreinn RD mln S mln Local Poreinn p ( ~ mln) ($ ebuiv. i q u i v . ( u p mln) ($ nl;l) Guiv. Guiv. costs Malang C i v i l works Na t e r i a l and equipment Engineering Contingencies Subtotal Purwokerto C i v i l vorks M a t e r i a l and equipment Engineering Contingencies Subtotal Banywangi C i v i l works M a t e r i a l and equipment Engineering Contingencies Subtotal J & c i v i l works M a t e r i a l and equipment Engineering Contingencies Subtotal S amarinda c i v i l works 466.19 - M a t e r i a l and equipment - 1.04 Engineering 48.00 0.39 Contingencies 682.31 0.92 Subtotal 1,196.50 2.35 2,170.70 5.23 2,997.64 2.22 4,314.87 7.02 150 Taral 4,406.62 12.13 9,442.34 22.75 9,274.13 11.60 16,066.87 26.46 110 tlanagement and t e c h n i c a l assistance 187.75 1.30 726.25 1.75 - 0.93 418.80 0.93 Feasibilitv studies 145.25 0.55 373.50 0.90 - 1.60 666.60 1.60 Ic Ic T o t a l P r o j e c t Cost 4,738.62 13.98 10,542.09 -- 25.60 9,274.13 -16.13 1 7 , 1 5 2 . 2 7 7 ~ 96 1 / a Based on t h e exchange r a t e of $1.00 - -- Rp 415 a t a p p r a i s a l i n 1973. - Ib $1.00 - Based on t h e exchange r a t e of $ 1 . 0 0 Rp 415 f o r e x p e n d i t u r e s up t o November 1 5 , 1978, and a t t h e d e v a l u e d r a t e of Kp 6 2 5 f o r e x p e n d i t u r e s i n c u r r e d t h e r e a f t e r . - - /C Average c o n v e r s i o n r a t e d u r i n g p r o j e c t implemention p e r i o d : $1.00 Rp. 592. Note: Average i n f l a t i o n r a t e s (%) a r e a s follovs: 1975 - - 1977 - 1976 - 1979 - 1978 - 1980 - 1981 Appraisal - Local 15.0 12.0 12.0 12.0 12.0 Foreign 11.0 7.5 7.5 7.5 7.5 Actual - Local 19.0 19.8 11.0 8.1 21.9 18.5 12.3 Forelgn 11.1 8.3 8.4 7.2 9.2 11.9 10.0 INWNESIA THE FIVE CITIES WATER SUPPLY PROJECT (LOAN 1049-IND) PROJECT COUPLETION REPORT Actual and Appraisal Loan Disbursement P r o f i l e s Bank F i s c a l Year i n Quarters I Loan amount ( 5 m i l l i o n ) Per loan Category Agreement Actual 1. Equipment, m a t e r i a l s h s u p p l i e s 2. Consultants' s e r v i c e s 3. Unallocated - Total IwmnesIA TIE FIVE CITIES WATER SUPPLY FUOJECT (LOAN 1049-IND) PROJECT C(IIPLE1IOI IErnRT -1. - Y.t.r mterprI.= tu-brto Wmter P a t e r p r I w b n ~ . . n n * I Hatmr Ent.rpr1.c Jamb1 Hater Eaterpr1.e S a u r l n d . Water Enterprime Five Water Pat.rprisem c a b l n e d ~ppr.L..le.c. Acw t 1 . Actu.1 ~ppr.l..l rat. rcrwl A p p r a i u l ear. ~ c t w l kt. W ~ C t - I Awmt % I homt X Amount I Amount X Amount 2 hount I h u n t X hount X Amount X .pm. e.t . Advuce. ( n e t ) mad -It- t.nee. t o 1-1 ,o.-t /. - - 118.7 5.2 - - 0.6 - - - 11.6 1.0 - - (2b.5)& (0.5) - - 73.6 1.3 - - 379.8 1.9 379.8 Total ~pllc.tlos. 3,467.7 100.0 6.W6.4 100.0 1.270.6 100.0 2.418.5 100.0 383.9 100.0 1,174.2 100.0 2.570.1 100.0 6.611.6 LOO.O 2.336.7 100.0 5.541.1 100.0 10,CW.8 100.0 19.831.8 100.0 9,L)2).0 ' U, - /b lin.. of .I..ac=. t o YC f r a lec.1 'over-t a e r advaocem t o l e a l gov.r-nt. INDONESIA- THE FIVE CITIES WTER SUPPLY PROJECT (LOAN 1049-IND) PROJEa COMPLETION RPORT Malang k t e r E n t e r p r i s e Income S t a t e m e n t s (Rp m i l l i o n ) F i s c a l y e a r ending: 03/75 03/76 12/75 03/77 12/76 03/78 12/77 03/79 12/78 03/80 12/79 03/81 12/80 0 3/82 12/81 APP~. APP~. APP~. APP~. APP~. APPr- APPr. APP~. est. est. Actual est. Actual est. Actual est. Actual est. Actual est. Act1181 est. Actual Water prodlred ('000 c u m ) 8,260 Water sold ('000 c u m) 5,800 X unaccounted-f o r m t e r 30 Number of connect i o n s 13,500 Average m t e r r a t e (Rplcu m) 5.5 Ope a t i n g Revenue Water s a l e s 31.9 Pleter r e n t a l - Other 1.5 Total Billings Less provision f o r bad d e b t s 0.7 0.7 1.2 1.9 0.2 2.5 0.2 5.8 0.3 7.3 0.1 9.6 0.4 10.1 1.1 I T o t a l Operating Revenue - - - - - - - - - - - - - - 32.7 32.7 92.4 91.1 123.3 121.5 150.0 282.2 374.6 356.7 382.4 469.8 462.2 497.3 1,117.0 m Operating Expense Personnel ( s a l a r i e s and a llotances) E l e c t r i c i t y and f u e l Chenica 1s R e p a i r s and maintenance Off i c e s u p p l i e s Insurance Taxes Other Depreciation T o t a l Operating Expense Income before l n t e r e s t Interest Net Income (Loss) Operating expense a s X of o p e r a t i n g revenue 134 160 77 80 77 97 86 83 40 a1 58 74 67 66 66 Average n e t f i x e d a s s e t s i n a e r v l c e ( l e s s consumer con- tributions) 339 320 451 521 440 1,543 432 2,836 421 3,230 515 3.043 610 2,853 589 Rate of r e t u r n ( 4 , ) - - 4.6 3.5 6.6 0 .2 4.9 1.7 52.8 2.1 31.3 4.1 25.0 6.0 64.1 $ W - /a No breakdown c m p a r a b l e t o previous y e a r s Is available. I n c l u d e s "Property r e r l t a l expenses" of Rp 181.4 m i l l i o n (US$295,000 e q u i v a l e n t ) . which i s RP 132.4 m i l l i o n more than a s i m i l a r expense f o r t h e preceding year; no i n f o m a t l o n i s a v a i l a b l e on s w h r e n t a l s o r t o whm they were paid. \O & TtIE FIVE CITIES WATER SUPPLY PROJECT (LOAN 1049-IND) PROJECT COMPLETION BEPORT llalang Water h t e r p r i s e Sources and A p p l i c a t i o n s of Funds (Rp a i l l i o n ) F i s c a l year ending: 03/75 03/76 12/75 03/77 12/76 03/78 12/77 03/79 12/78 03/80 12/79 03/81 12/80 03/82 12/81 Appr. Appr. APP~. APP~. APP~. APP~. APP~. Appr. Actual eat. e s t . Actual est. Actual est. Actual est. Actual eat. Actual est. Actual est. /adj. Depreciation I n c r e a s e i n accounts payable Consumer c o n t r i b u t i o n s 0t h e r I1 - Total Loans from n a t i o n a l government Equity from National Government Project I Nonproject I T o t a l Sources A p p l i c a t i o n s of Funds C a p i t a l Expenditures Project construction Other vorks Repayments on p r o j e c t equity Debt Service Interest Principal T o t a l Debt Service Increase i n receivables Increase i n inventories Advances 6 remittances t o l o c a l government Other T o t a l Applications I n c r e a s e (decrease) in cash Cash a t beginning Cash a t end I Debt s e r v i c e coverage Belence Sheet. (Ip million) As of: 03/75 03/76 12/75 03/77 12/76 03/78 12/77 03/79 12/78 03/80 12/79 1 * 12/80 03/82 12/81 Appr. Appr. *ppr. Appr. APP~. ApPr. bpr. Appr. ACLUII eet. *st. Actu.1 eat. Actual .st. Actual *st. Acme1 net. Actual emt. Actuml eot. edjumted - Aeeete l i m d Aeutm ~uildi~m,plentendequipnt 380.0 380.0 472.9 840.3 491.1 2.549.5 526.0 3.669.7 543.8 3.679.3 675.2 3,686.3 731.6 3.686.3 814.9 Lee. eccumuleted deprecimrion 48.0 64.0 26.8 87.6 55.8 147.0 88.2 253.1 125.0 377.8 43.7 502.8 94.6 627.9 160.2 Net ? i m d Aeaete - 332.0 316.0 - - 446.1 - 752.7 - 435.3 437.8 3.416.6 418.8 3,301.5 631.5 3,183.5 637.0 3,058.4 Conetructim i n R o ~ r e e e Project 173.2 460.3 - 1.709.2 - 1.111.0 - - 1.632.1 - 4.739.9 Other w o r k 0.2 Tot.1 l i m d Aeeets - 505.2 - 776.3 - . 446.1 21( 119 . 435.3 3,535 437.8 3,416.6 418.8 3,301.5 631.J 3.183.5 2,269.1 3,058.4 5.394.8 c u r r e n t Aseate C. h Accountm r e c e i v e b l e Other receiveblee Inventorie. Prepeyxencs T0t.l A. t L i e b i l i c i e e end E q u i t y ProJ.ct uonpro j e e r I b l&licit) Aecumuleted e z ~ l u ( Coo.-r contributions Lonyterm debt N e t i o ~ . l ~ o v e r m o n t1-n h o e current u t u r i t i a e Current L i e b i l i t i u Accounts pmyeblm cultmr.- &PO.it. Current dabt u t u r i t i e e contiwency i n c m t e x provieion Other T o t e l Current U e b i l i t i e e 0 t b . r deferred credit. Total Uebiliti.e end E q u i t x Debt . a Z of t o t e l d e b t end e q u i t y - & e qd A c c ~ l e t ~ u i t y ( L e e r e w y x m t e on e q u i t y ) provided f o r p r o j e c t by r m t i o t u l gov.rnment. / b Act-leted e q u i t y o t h e r t h a n f o r p r o h c t . INDONESIA THE FIVE CITIES UATEK SUPPLY PROJECT (LOAN 1049-IND) PROJECT ODHPLETION RlPORT Purwokerto Water E n t e r p r i s e Incme Statements (Rp m i l l i o n ) P i s c a l y e a r ending: 03/75 .- ADD^. est. 03!76 A. P- P ~ . ast. 12/75 Actual 03/77 A.P.P ~ . est. 12/76 Actual 03/78 APP~ ~ est. - 12/77 Actual 03/79 Appr. ~ est. ~ 12/78 0 3 / 8 0 Actual AP. pr est. - . 12/79 0 3 / 8 1 Actual AP pr. - est. ~ 12/80 Actual 03/82 AP . pr. . eat. 12/81, Actual Water produced ('000 c u m) Water s o l d ('000 c u m) X unaccounted-f o r wr t e r m e r of c o n n e c t i o n s Average wr t e r r a t e (Rplcu m) O p e r a t i n g Revenue Veter s a l e s k t e r rental O t h e r , i n c l u d i n g connection f e e s Amort. of constmer contributions M i e c e l h n e o u a incane Total Billinga Less p r o v i s i o n f o r bad d e b t s T o t a l Operating Revenue O p e r a t i n g Expense la P e r s o n n e l ( s a l a r i e s and a l l o c a n c e s ) 4.3 7.5 12.7 9.9 1 E l e c t r i c i t y and f u e l - - - - 1 Chemicals R e o a i r s and maintenance ~ f ' f i c es u p p l i e s Insurance Taae s Other Depreciation T o t a l O p e r a t i n g Expense - 7.0 - 10.8 44.8 20.4 53.5 46 .2 58.7 70 .9 102.1 103.4 125.8 95.9 Income b e f o r e i n t e r e s t Interest 0.7 - (3.1) - (24.0) - 4.0 - - (7.1) 9.8 - !.9 - 11.4 - 19.0 - 21.0 - 23.4 - 40.3 - 67.2 - 56.1 76.1 N e t Incape (Loss) - 0.7 (3.1)(24.0) 4 ((7.1) 9 . 19 11.4 19 21.0 (u) O p e r a t i n g expense a s X of o p e r a t i n g revenue 91 140 215 84 115 83 5i 86 77 81 82 72 65 63 Average n e t f i x e d a s s e t s i n s e r v i c e l e s s consmer contributions) 46 41 440 157 433 559 413 962 406 1.049 405 975 407 903 R a t e of r e t u r n ( I ) 1.5 - - 2.5 - 1.8 0.4 1.2 4.7 2.0 5.8 4.1 16.5 b.2 - /a No breakdom of o p e r a r i n g expenses comparable t o o t h e r y e a r s i s r e a d l l y a v a i l a b l e f o r t h e a c t u a l s t a t e m e n t s f o r r he y e a r s 1976-8U. INDONESIA TW PIYE CITIES WATER SUPPLY PROJECT (LOAN 1049-IND) PROJECT COMPLETION REPORT Water E n t e r p r i s e Pur~kert0 Sources and Applications of Funds (Rp m i l l i o n ) F i s c a l year ending: 03/75 03/76 12/75 03/77 12/76 03/78 12/77 03/79 12/78 03/80 12/79 03/81 12/80 03/82 12/81 APP~. APP~. est. e s t . Actual Appr. e s t . Actual Appr est. Actual Appr est. Actual Appr est. - Actual Appr. est. Actual Appr. ~ c t u a l / eat. adjusted Sources of Funds I n t e r n a l Cash Generation Net income before i n t e r e s t Depreciation Increase i n accounts payable 0.2 0.2 (0.1) 0.1 0.1 0.3 (0.2) 0.4 0.4 0.3 0.2 0.4 (0.4) 0.2 10.4 Advances from l o c a l govt.-payroll - - 4.1 - - - - - (4.1) - - - 4.6 - - Consumer contrfbut i o n s - - 4.2 16.6 4.5 46.9 . 32 30.6 1.5 30.6 7.8 28.4 9.2 24.4 5.5 Other - - 0.1 - 0.3 - . 03 - 0.3 - 0.4 - 0.7 - - - Total - - - - - - - - - - - - - - - . 39 6.3 13.8 27.4 132.1 29.4 79.9 37.5 82.3 52.7 97.6 70.1 114.8 125.2 126.4 Loans from n a t i o n a l government 47.5 140.1 - 440.0 - 220.7 - - - - - - - - 1.382.4 Equity from ~ational-Government project Nonpro j e c t Total Sources Applications of Funds C a p i t a l Expenditures Project construction Other works Repayments on p r o j e c t e q u i t y Debt Service Interest Principal Total Debt Service - - - - - - - - - - - - - - - - - - --- - - - -- -86.8- - Increase i n receivables Increase i n i n v e n t o r i e s Advances 6 remittances t o l o c a l government Other Total Applications - -- 71.8 206.4 16.4 - 655.9 - 27.7 - 394.6 - 23.1 -81.7 - 56.6 - 96.9 - - 63.9 93.8 - 114.1 - 89.6 2,097.8 I n c r e a s e (decrease) i n cash Cash a t beginning Cash a t end Debt s e r v i c e coverage - - - - - - - - - - - - - 1.17 - INDONESIA THE FIVE CITIES WATER SUPPLY PROJECT (LOAN 1049-IND) PROJECT CONPLETION REPORT P u r v o k e r t o Water h t e r p r i n e Balance S h e e t s (Rp m i l l i o n ) Aa of: 03/75 03/76 12/75 03/77 12/76 03/78 12/77 03/79 12/78 03/80 12/79 03/81 12/80 03/82 12/81 Appr. Appr. APP~. APP~. APP~. APP~. APP~. Appr . Actual/ eat. e a t . Actual e a t . Actual eat. Actual eat. Actual eat. Actual eat. Actual eat. adjusted - Aaaeta Fixed Aaseta B u i l d i n u s . p l a n t and equipment . . L e a s accumulated d e p r e c i a t i o n Net Fixed Aaseta Construction i n Rogreaa Project O t h e r worka T o t a l Fixed Aaaeta C u r r e n t Aaaeta Cash Accounts r e c e i v a b l e Other receivables Inventories T o t a l C u r r e n t Aaaeta Advances t o l o c a l government T o t a l Aaaeta L i a b i l i t i e s and E q u i t y %%rnment Equity Project Ja onp project & Accumulated a u r p l u s ( d e f i c i t ) T o t a l Equity Consumer c o n t r i b u t i o n a Long-tern Debt N a t i o n a l government l o a n Lena c u r r e n t m s t u r i t i e a T o t a l Long-Term Debt Current L i a b i l i t i e s Accounts p a y a b l e Cuatomera- d e p o a i t a Current debt m s t u r i t i e s T o t a l Current L i a b i l i t i e a T o t a l L i a b i l i t i e a and E q u i t y Debt am X of t o t a l d e b t and e q u i t y - /A Accumulated e q u i t y (1e.a repayments on e q u i t y ) provided f o r p r o j e c t by n a t i o n a l government. - /b Accumulated e q u i t y o t h e r t h a n Lor p r o j e c t . I, OOOOIO ? I I I I m P- 4ONOP- U d N Vr - 4 N m m A :?ym m o o u .. ION 1 m 4 0 .. P-N I 3O o o m o u IOrnNOO mu, m - N N .1 1 I I 4 0 o oooy IOOOO mu, -- n m 4 71 4 4 I I I I4 N d rl Y W 0 VI3 Y r( n H u u m Y g u ; u 2 :x w ""' o n H 0, s : o x :Be 0 5 C U Y C Y , u 4 U O Y M U C o c a * 0 r l c o m w Z U U m m O 4 c m u * 0 0 U * U V Y * 4 8 4 1 INDONESIA THE FIVE CITIES WATE L R SUPPLY PROJECT ( OAN 1049-IND) PROJECT COnPLETION REPORT Banyuwangi Water Enterprise Sources and Applications of Funds (Rp m i l l i o n ) F i s c a l year ending: 03/75 03/76 12/75 03/77 12/76 03/78 12/77 03/79 12/78 03/80 12/79 03/81 12/80 03/82 12/81 Appr - - . Appr - - . APP~ APP~. APP~ APP~ APP~. Appr. Actual/ est. e a t . Actual e s t . Actual ent. Actual e a t . Actual e s t . Actual e s t . Actual e i t . adjusted Sources of Funds I n t e r n a l h s h Generation Net 1nco.e before i n t e r e s t Depreciation Increase i n accounts payable Advances from local gov't - payroll Consurer contributions Other Total Loans from national government Equity from National Government Project Nonproject T o t a l Sources Applications of Funds Capital Expenditures Project construction 0th;r works Repayments on project equity Debt Service Interest Principal Total Debt Service Increase i n receivables Increase i n inventories Advances 6 remittances to local gov't Other Total Applications Increase (decrease) in cash Cash a t beginning Cash a t end Debt service coverage INDONESIA Tm FIVE CITIES HATER SUPPLY PROJECT (LOAN 1049-IND) PILarern COWDLETlON BBPORT B a n y u v . q i & t a r Knterprise Balance Sheets As o f : - 03/75 03/76 12/75 03/77 12/76 03/78 12/77 03/79 12/78 03/00 12/79 03/81 12/80 03/82 12/81 APP~. APP~. APP~. ~ppr. APpr- Appr. ~ppr. Appr. ~ c t u a l l eat. e a t . Actual e a t . Actual e a t . Actual wt. Actual ut. Actual e a t . Actual e s t . adjusted - Asseta Fixed Assets Buildinas. ~ h and ~ WuiDDI?Clt t Less a c c u i u i a t e d d e p r e c i a i i o n Net Fixed Assets Construction i n Rogrees Project Other w r k s T o t a l Fixed b e e t s Current Assets Cash Accounts r e c e i v a b l e Other r e c e i v a b l e s Inventories Prepayments T o t a l Current Assets Advances t o l o c a l p v e r n v n t T o t a l Assets L i a b i l i t i e s and Equity % ro- % Eguitr Project l a ~ o n ~j r eox & Accumulated s u r p l u s ( d e f i c i t ) T o t a l Equity Consumer c o n t r i b u t i o n s Long-term Debt National government loan Less c u r r e n t m t u r i t i e s T o t a l Long-Term Dcbt Current L i a b i l i t i e s Accounts payable Custo=rs' deposits C u r r e n t debt m a t u r i t i e s Deferred c r e d i t s T o t a l Current L i a b i l i t i e m T o t a l L i a b i l i t i e s and Fquity Debt a s X of t o t a l debt and e q u i t y - la Accumulated e q u i t y ( l e s s m p a y m n t s oa e q u i t y ) provided f o r p r o j e c t by umtional government. - /b Accumulated e q u i t y o t h e r than f o r p r o j e c t . INDONESIA FIVE CTTIES WATER SUPPLY PROJECT (LOAN 1049-IND) PROJECT CDMPLETION REPORT Jambi Water E n t e r p r i s e Income S t a t e m e n t s (Rp m i l l i o n ) F i s c a l y e a r ending: 03/75 03/76 12/75 03/77 12/76 03/78 12/77 03/79 12/78 03/80 12/79 03/81 12/80 03/82 12/81 Appr. Appr. APP~. APP~. APP~. APP~. APP~. APP~. eat. est. Actual est. Actual est. Actual est. Actual est. Actual est Actual est. Actual Water produced ( ' 0 0 0 cu m ) Water s o l d ('000 cu m) X unaccounted-for w a t e r Number of c o n n e c t i o n s Average water r a t e (Rp/cu m) Operat t n g Revenue Water s a l e s Meter r e n t a l Other revenues on w a t e r s a l e s Connection f e e s A m o r t i z a t i o n of consumer c o n t r i b . Miscel laneous income Total Billings Less p r o v i s i o n f o r bad d e b t s T o t a l O p e r a t i n g Revenue O p e r a t i n g Expense p e r s o n n e l ( s a l a r i e s and allowances) E l e c t r i c i t y and f u e l Chemicals R e p a i r s and maintenance Office supplies Insurance Taxes Other Depreciation T o t a l O p e r a t i n g Expense Income b e f o r e i n t e r e s t Interest Net Income (Loss) Operating expense a s % of o p e r a t i n g revenue Average n e t f i x e d a s s e t s i n s e r v i c e ( l e s s consumer c o n t r i b u t i o n s ) Rate of r e t u r n (%) / a Before Rp 8.9 m i l l i o n expenses of r e h a b i l i t a t i n g a m u n i c i p a l swimming pool and Rp 20.3 m i l l i o n reimbursement by t h e P r o v i n c e t o t h e W - E for relocating dis- t r i b u t i o n mains. The IJE i n c l u d e s t h e s e items i n i t s income s t a t e m e n t a s e x t r a o r d i n a r y expenses and g a i n s , r e s p e c t i v e l y . The r e s u l t i n g n e t l o s s of Rp 0.5 m i l l i o n i s shown i n t h e Sources and A p p l i c a t i o n s of Funds Statement. - /b N o breakdown comparable t o p r e v i o u s y e a r s i s a v a i l a b l e . INDONESIA C~T- WATER SUPPLY PROJECT (LOAN 1049-IND) PROJECT COnPLETION REPORT Jambi UIter E n c e r p r i r e Source8 mnd Applicationr of Pundr (Rp m i l l i o n ) P i e c a l year endins1 - 03/75 Appi. 03/76 Appr. 12/75 03/77 APP~. 12/76 03/78 12/77 APP~ 03/79 12/78 APP~ 03/80 12/79 APPr. 03/81 12/80 APP~. 03/82 12/81 Appr. A c t u a l 1 arc. ssC. Actual a t . Actual est. Actual c a t . Actual e s t . Actual est. Actual eat. adjusted l)ourcrs of Pundr tntrraal Carh Cmnerarion Net income before i n c e r e r t Drpreciation I n c r e a s e i n rccounts payable Advrncee from l o c a l g v ' c Conauwr cont r i b u t i o n s - payroll Othrr -Total Loane from n a t i o n a l @veinsent Equity from National Cavrrnwnc Pro Jec t on projec t T o t a l Sources A p p l i c a t i o n s of P u d r C a p i t r l &ponditurea Pro l e c t cone t r u c t i o n 0th;r work8 Repayments on p r e j e c t e q u i t y Debt Service Interest Principal T o t a l Debt S e r v i c t Increase in receivables Increase in inventories Advances 6 remittances t o l o e e l p v ' f T o t a l Applications Increnae (decrease) i n cash Cllh a t beginning Caeh a t end Drbt s t r v i c t coverage - - - - - - - - - 1.53 - J u b i Water l h t a r p r i a a Balanca m a t . (Ip d l l i o n ) h of: 03/75 03/76 12/75 03/77 12/76 03/78 12/77 03/79 12/78 03/80 12/79 03/81 12/80 03/82 12/81 A P P ~ . APP~. eat. emt. Actual AvP~. eat. Actual APP~. ant. Actual APP~. eet. Actual eat. Actual &PI. eat. Actual Appr eat. . ~ctualr adjusted - Assets Plxed h a e t a Buildings, plant and e q u i p u n t 266.0 316.0 352.9 758.0 394.4 1,807.3 426.8 2.700.5 U4.3 2,706.0 629.9 2,706.0 661.8 2,706.0 675.8 Less a c c w l a t e d depreciation 31.1 44.2 57.6 66.1 93.9 114.9 136.7 198.6 184.0 298.5 226.0 398.5 265.4 498.5 298.9 Net Fixed h a e t s - 234.9 - 271.8 - 295.3 691.9 - - 300.5 1.692.4 290.1 2,501.9 ?60.) 2.407.5 403.9 2.307.5 39(.4 2,207.5 376.9 Construction i n R o l r e a s Project Other works 162.5 442.0 - 1 - 1,049.3 - 884.6 - 157.7 - - 157.7 - - 157.7 - 243.2 - - 243.2 - - 4,109.9 243.2 T o t a l Pixed k s e t a --- 397.4 713.8 453.0 1.741.2 458.2 2,577.0 2,501.9 418.0 2,407.5 647.1 2,307.5 639.6 : 207.5 4,730.0 Current k s e t s Cash 1.1 2.1 2.6 2.9 6.8 4.0 3.2 7.7 13.9 9.9 29.3 11.9 22.8 126.1 11.9 Accounts r e c e i v a b l e 2.4 6.5 33.8 7.9 45.2 9.1 54.4 42.9 78.5 57.4 84.9 71.0 104.3 78.0 155.3 Leas allowance f o r b d d e b t s Other receivables - - - (18.9) 0.4 - - (24.3) 0.6 - - (33.7) 3.9 - - (36.9) 8.6 - - (37.5) 8.1 - - (37.8) 12.8 - - 39.2 15.2 Inventories 5.3 6.3 2.7 15.2 3.2 36.1 9.8 54.0 5.8 54.1 14.3 54.1 13.3 54.1 16.1 T o t a l Current h s e t a - 8.8 14.9 - - 20.6 -- - - - - - - - - - - 26.0 31.5 49.2 37.6 140.6 69.9 121.4 99.1 137.0 115.4 258.2 159.3 Advances t o l o c a l pve-t - - 20.1 - 0.9 - 2.6 - 7.1 - 7.1 - 7.1 T o t a l AIaet. * L i a b i l i t i e s and Bguitr %%r-nt Iionpro j e c t & Accumlated surplus ( d a f i e i t ) 45.0170.8 342.3 342.3 (49.2) (56.2) - 510.8 (69.2) 583.3 342.3 558.8 (74.1)(107.5) - 932.0 342.3 551.3 (126.2)(116.7) - 836.9 - 342.3 554.3 (100.2)(122.5) 659.9 342.3 804.3 - (52.2)(119.2) 440.7 342.3 804.3 - 33.3 (118.4) 440.71.644.0 342.3 29.0 818.3 (135.4) Total Equitr 338.1 - - 456.9 - 441.6 -- 851.5 451.3 1,148.1 1,079.0 431.8 9SO.O 685.1 816.3 685.9 812.0 2,326.9 Conauur contributions - 5.5 - 19.5 - 50.5 5.0 98.0 5.0 148.4 12.9 196.7 14.2 239.5 18.2 l o n g t e m Dcbt Rational goverpwnt loan Lea8 c u r r e n t r t u r l t i e s 67.5265.2 - - - 894.8 - - - 1,425.6 - - 1.425.6 - - 1.425.6 - - 1.425.6 18.0 - - 1,407.62.465.9 19.8 - T o t a l Long-Term Dcbt - -- 67.5 265.2 - -- - 894.8 1,425.6 1,425.6 1.425.6 1,407.6 -= 1,387.8 2,465.9 Current liabilities Accounts payable 0.6 1.1 32.0 1.4 49.5 C w t o r r s ' depoaits Current debt r t u r i t i e a - - - - 2.3 -2.0 31.8 4.2 3.9 - - 33.0 5.8 4.9 - - 28.9 7.2 - 5.9 - 18.0 29.6 8.1 - 6.6 - 19.8 42.7 10.5 - T o t a l Current L i a b i l i t i e s Advances from l o c a l p v e r n m n t ---- T o t a l LZabi1iti.s - and Equity Debt u X of t o t a l debt and a q u i t y - --------------- - - - 0.6 - 406.2 17 1.1 - 727.8 37 32.0 473.6 - - - 1.4 - 1 767.2 51 51.8 6.7 - 2,626.2 - - 2.0 - 10.7 55 36.0 486.3 - - - 3.9 - 2.606.5 57 38.8 14.9 490.5 - - - 4.9 - 2,528.9 60 15 36.1 19.2 3. - )2 - - - - 23.9 - 444.5 63 37.7 24.3 762.1 - 26.4 - 2,465.7 64 53.2 32.2 4,896.4 51 - Is ~ c c u m l a t a dq u i t , (lass repapanta o. e q u i t y ) provided f o r p r o j e c t bl ~ t i o n a lppvarm*nt. - Ib A c c w l a t e d equity o t h e r t h o f o r p r o j e t . -1TIES WATER SUPPLY PROJECT (LOAN 1049- IND) PROJECT (XXfPLETION REPORT Sanarinda Water E n t e r p r i s e Income Statements (Rp m i l l i o n ) F i s c a l y e a r ending: 12/74 12/75 12/76 12/77 12/78 12/79 12/80 12/81 Appr. Appr. APP~. APPr. APP~. APPr APP~. APPr. est. est. Actual est. Actual eat. Actual eat. Actual est. Actual est. Actual eat. Actual Water produced ('000 cu Water s o l d ('000 cu a ) X unaccounted-for w t e r Number of c o n n e c t i o n s Average w a t e r r a t e (Rplcu a) O p e r a t i n g Revenue Water s a l e s 4.6 18.6 44.8 Ueter r e n t a l - - 0.4 O t h e r revenues on water s a l e s - - 1.2 Connection f e e s - - 16.4 k o r t i r a t i o n of coaaumer c o n t r i b . - - - U i s c e l l a n e o u s income - - 10.0 Total Billings - 4.6 - - 18.6 72.8 Less p r o v i s i o n f o r bad d e b t s 0.1 0.4 - T o t a l Operating Revenue - - - 4.5 18.2 72.8 Operating Expense Personnel ( s a l a r i e s and allowances) 5.8 9.6 14.7 E l e c t r i c i t y and f u e l Chemicals R e p a i r s and m i n t e n a n c e Office supplies Insurance Taxes Other Depreciation T o t a l Operating Expense - 22.2 - 36.2 - 90.7 Income b e f o r e i n t e r e s t Interest Net Incone (Loss) (17.7)(18.0)(17.9) Operating expense a s Z of o p e r a t i n g revenue 493 199 124 Average n e t f i x e d a s s e t s i n s e r v i c e ( l e s s consumer c o n t r i b u t i o n s ) 233 319 749 Rate of r e t u r n (X) - - - - - /a No breakdown comparable t o p r e v i o u s y e a r s i s a v a i l a b l e . THE PWF, aT1E.q WATER SUPPLY PROJECT (LOAN 1049-IND) PROJECT COMPLETION REPORT Samarinda Water Enterprise Sources and Applications of Punds (Rp mtllion) Fiscal year ending: 121 74 12/75 12/76 121 77 121 78 121 79 12/80 12/81 APPr- A P P ~ . APP~. APP~. APP~. APP~. APP~ ~ppr. ~ctual/ eat. eat. Actual eat. Actual eat. Actual eat. Actual eet. Actual eat. Actual eat. adjusted Sources of Funds Internal Cash Generation Net income before interest (17.7) (18.0) (17.9) (5.2) 16.1 Depreciation 11.2 14.8 48.1 19.5 68.8 Increase in accounts payable 0.5 0.4 - 0.2 5.8 Advances from local go v't - payroll - - 4.4 - 4.0 Consumer contributions (net of mort.) - - 2.8 - 40.0 4.7 9.0 - 28.6 5.6 Other - Total Loans from national government 67.3 59.8 - 584.0 - Equity from National Cove-nt Roject Nonproject Total Sources Applications of Funds Capital Expenditures Project c ~ n s t r ~ ~ t i ~ n Other works Repayments on project equity Debt Service Interest - - - - - Principal Total Debt Service Increase in receivables Increase in inventories o Advances 6 reoittancee from local gvt ' Total Applications Increase (decrease) in cash Cash at beginning Cash at end Debt service coverage - - IWMNESIA TW PNL CITIES uAnR SUPPLY PROJECT (LOAN 1069-IND) PROJECT COMPLETION REPORT Swrind. Water B n t c r p r i a c Ealancs Sheet. (Rp m i l l i o n ) - - . - - - - - - --- As o f : 12/76 Appr. eat. eat. 12/75 ktual APP~. eat. 12/76 Actual APP~. eat. 12/77 ktual APP~. eet. 12/78 ktrul APP~. eat. 12/79 - . - IZldC, APP~ A~tosi est. ktual Appr e3t. 12/81 . .kt.,aT xdlrn:.rd - - Assets Fixed A s s e t s B u i l d i n g s . p l a n t and e q u i p e n t Less accmulated depreciation Net s l x e d A s s e t s C o n s t r u c t i o n i n Progrcma Project Other works T o t a l Fixed A s s e t s Current Assets Cash Accounts r e c e i v a b l e Other recelvsbles Inuentorles Other T o t s 1 Current Assets M v a n c r a to l o c a l government Total Assets Liabilities and E q u i t y esultr ~onprajez fi Accmulated aurplva ( d e f i c i t ) Total Equitr Consumer c o n t r i b u t i o n s U n g - t e r n deb^ Natlonal government loan Less c u r r e n t m a t u r i t i e s Current L i s b l l l t i e s k c o u n t n payable Cuatmers' deposits Current debt m a t u r i t i e s Other T o t s 1 Current Li.bilit!e. - T o t a l L i a b i l i t i e s And E q u i t r Debt as Z of t o t a l d e b t and e q u i t y - /a A c c m u l s t e d e q u i t y ( l e s s r a p s y e n t s on e q u i t y ) provided f o r p r o j e c t by n a t i o n a l government. - /b k c m u l a t e d e q u i t y other than f o r project. THE FIVE CITIES WATER SUPPLY PRGJECT (LOAN 1049-Im) I! PROJECT COWPLETIO?! REPORT Summary of F i n a n c i a l R e s u l t s of \later Enterpriser: Based on Revalued Fixed Asnetn and Assuming by 1984 t h e I n s t a l l a t i o n of i k l a y e d S e r v i c e Connections and I n c r e a s e s i n Water Retea t o Achieve 6% Rote of Return (Rp m i l l i o n ) Malang Purwkerto Ranyuuangi Jambi Sansr ind a Actual Ac t u a l Actual Actual Actual a s adj. R oj e c t e d a s adj. Projected a s ndj. Projected as adj. Projected as adj. Projected 1981 1982 1983 1984 1981 1982 1983 1984 19R1 1982 1993 1984 1981 1982 1983 1984 1991 1?3? 1983 1984 Yater S a l e s (000 cu m) 9,758 11,300 12,700 14.100 2,010 2,280 2,550 2,820 1,880 1,993 2.112 2,239 1,265 2.130 2,995 3,R60 2,743 3,1C0 3,200 3,300 Nmber of Connections 14,000 18.100 22.200 26,300 4.560 5.510 6,460 7,400 4,235 4.485 4,735 4,985 2,570 5,313 8,C56 10,800 4,730 5,500 5,700 5,900 Water Rate (Rp/cu m) Average a l l c l a s s e s 109 109 120 132 76 76 110 160 62 67 90 121 137 168 222 294 157 250 293 340 Uousehold - 1 s t 15 cu m e 50 50 55 60 40 40 58 85 40 40 55 72 7C 80 1G5 140 75 115 135 155 I 0, I Operating Revenue Operating R p e n s e s l u c l . denrec ~ a . h *rating Depreciation .) iurplus - 444 153 ~ 228 ~ 287 7 325 y 79 I 110 G 133 g 145 - ~ 59 45 - & 65 61 -5 108 72 - 174 78 -16 lrB -36 1% - - 259 206 581 232 - 171 174 - 455 242 - 567 288 - 700 310 I Net i n c m e before interemt - 291 - 253 - 309 - 433 -37 - 5 57 - - 181 - 14 -4 - 36 - 96 - (92) - (72) -53 - 349 -3 - 213 - 279 -- 390 ) Average i n Operation Grons f i x e d a s s e t s 3,378 5.513 7,183 8.190 1,788 2.672 3,299 3.643 1.W5 1,523 1,811 1.948 2,904 4,526 5,736 6,453 4.202 6,059 7,339 7.065 ! Net fixed a s n e t s 3.168 5.113 6.527 7.221 1,541 2.304 2.809 3.015 929 1.302 1.524 1.606 2.554 4.167 5.324 5.822 3.527 5.166 6.181 6.508 Rate of Return (X) 9.2 4.9 4.7 6.0 2.4 0.2 2.0 6.0 1.5 0.3 2.4 6.0 - - 1.0 6.0 - 4.1 4.5 6.0 L Annual debt s e r v i c e Times covered - - -- 326 1.8 326 2.3 - - - - 140 1.4 140 2.3 - - - - 57 1.9 57 3.1 - - - - 2c4 1.0 254 2.3 - - - - 266 2.1 2h6 2.6 Deferred i n t . Payable - - 597 - - 249 - - - lo@ - - - 444 - - - 466 - Cash Surplus ( d e f i c i t ) - 444 4 8 1 0 4 3 2 G g(199)E - 59 - 65 (49) - - 117 - 16 - 86 - (439) -327 - 171 - 45: - (165) -434 See page 2 f o r footnotes. ANNEX 14 Page 2 of 2 A s s u n- /a - - ptions. P r o j e c t fixed a s s e t s ( n o t included i n the WE' a c c o u n t s ) were s p l a c e d i n o p e r a t i o n i n e q u a l amounts a n n u a l l y from 1980-82 d u r i n g and s h o r t l y a f t e r t h e c o n s t r u c t i o n of t h e d i s t r i b u t i o n f a c i l i t i e s . Fixed a s s e t s i n o p e r a t i o n , i n c l u d i n g n o n p r o j e c t w a t e r works a d d i t i o n s , were r e v a l u e d u s i n g p r e v a i l i n g i n f l a t i o n r a t e s t h r o u g h 1981 a n d , t h e r e a f t e r , p e r c e n t a g e r a t e s f o r l o c a l / f o r e i g n c o s t s of 1 0 / 8 i n 1982; 1317.5 i n 1983; a n d 1 0 / 7 i n 1984. The r e l a t i v e l y s m a l l amounts of o l d f i x e d a s s e t s o p e r a t e d by t h e l o c a l government d e p a r t m e n t s p r i o r t o t h e p r o j e c t were i n c l u d e d a t n e t book v a l u e s . I n t h e c a s e of Malang, t h e r e v a l u a t i o n i s c a r r i e d forward from one made by t h e WE i n 1979. For Malang, Purwokerto and Jambi W E s, the d e l a y e d s e r v i c e c o n n e c t i o n s would be i n s t a l l e d and t h e f u l l w a t e r d e l i v e r y c a p a c i t i e s planned f o r t h e p r o j e c t would be u t i l i z e d i n e q u a l a n n u a l i n c r e m e n t s from 1982-84; i n c r e a s e s f o r Banyuwangi and Samarinda were p r o j e c t d from 1981/82 r e s u l t s . The c o s t of s e r v i c e c o n n e c t i o n s would be r e c o v e r e d by t h e W E s from consumers a s i n c u r r e d o r , i f r e c o v e r e d o v e r a p e r i o d of s e v e r a l y e a r s , t h e r e c e i p t s would be used t o r e p a y o v e r a l i k e period loans received t o finance t h e connection c o s t s , i n e i t h e r case h a v i n g no m a t e r i a l e f f e c t on n e t income o r c a s h . O p e r a t i n g e x p e n s e s were i n c r e a s e d f o r t h e a d d i t i o n a l volumes of w a t e r produced and s o l d and = r e i n f l a t e d f o r assumed p r i c e i n c r e a s e s from 1982-84 a t t h e f o r e g o i n g i n f l a t i o n r a t e s applicable t o local costs. In projecting operating r e v e n u e s , w a t e r r a t e s a c t u a l l y i n e f f e c t were used f o r 1982 and were i n c r e a s e d f o r 1983-84 s u f f i c i e n t l y t o produce i n 1984 r a t e s of r e t u r n of 6 % on r e v a l u e d n e t f i x e d a s s e t s i n o p e r a t i o n . Taxes on n e t income ( a f t e r d e p r e c i a t i o n and i n t e r e s t ) would n o t be p a y a b l e i n 1984 because o f t a x l o s s c a r r y o v e r s from t h e p r e c e d i n g y e a r s ; w i t h o u t s u c h c a r r y o v e r s , t a x e s would be t h e e q u i v a l e n t of o n l y 2-4% of o p e r a t i n g r e v e n u e s i n 1984. / b Approximate r a t e f o r f i r s t 1 5 c u m monthly consumption of w a t e r under r a t e - s t r u c t u r e g u i d e l i n e s . The r a t e f o r Banyuwangi i s f o r a l l household con- s u m p t i o n , n o t l i m i t e d t o 1 5 cu m. / c D e f e r r e d i n t e r e s t p a y a b l e r e p r e s e n t s t h e i n t e r e s t a c c r u e d i n 1981-82 on t h e - l o a n s from G O 1 t o t h e W Es. Because of t h e d e l a y i n c o m p l e t i n g t h e p r o j e c t , t h e r e q u i r e m e n t f o r payment of s u c h i n t e r e s t was d e f e r r e d by GO1 u n t i l 1983. INDONESIA FIVE CITIES WATER SUPPLY PROJECTS ORGAN1ZATION CHART FOR WATER ENTERPRISES I I I r u m : .D Il,.. I I AND C U T - DIlllQ ISLI,IO*I PY. l 1 I ,l*.ICI., 1 CIS" I I , . ." li N I I O . nc.,O* YCIlOI I INDONESIA F I V E C I T I E S WATER SUPPLY P R O J E C T (LOAN 1 0 4 9 - I N D ) DIRECTORATE OF SANITARY ENGlNEERliva Organization Chart Plamlng SubOimctoratm - Derlun . Regional Englnaar Region I Management Dsvalopmant Section Transportation Sactlon - SUNO~ Reglonal Enginear Region II T Hl Procuremant - Enluetlon Regional Enginear Technical Section Section - Plsnnlng and Programrnlng Englneer Rb~lonel Region I V 1 Lnborstory Sac tlur~ Irl Anelyrl: Sutlon ANNEX 17 INDONESIA THE FIVE CITIES WATER SUPPLY PROJECT (LOAN 1049-IND) PROJECT COMPLETION REPORT I n t e r n a l F i n a n c i a l R a t e s of R e t u r n (IFRK) la (Rp m i l l i o n i n c o n s t a n t 1 9 8 1 p r i c e s ) Water e n t e r p r i s e MALANG - IFKR 0 , 6 % Project cost Other capital cost T o t a l C a p i t a l Cost Incremental revenue Incremental expense Net I n c r e m e n t a l Revenue Net B e n e f i t ( C o s t ) PURWOKERTO - IFRR m i n u s 3.5% Project cost Other c a p i t a l cost T o t a l C a p i t a l Cost Incremental revenue Incremental expense Net I n c r e m e n t a l Revenue Net B e n e f i t ( C o s t ) BANYUWANGI - IFRR m i n u s 1.5% Project cost Other c a p i t a l cost T o t a l C a p i t a l Cost I n c r e m e n t a l revenue Incremental expense Net I n c r e m e n t a l Revenue Net B e n e f i t ( C o s t ) JAMB1 - IFRR m i n u s 2.9% Project cost Other capital cost T o t a l C a p i t a l Cost Incremental revenue Incremental expense Net I n c r e m e n t a l Revenue Net B e n e f i t ( C o s t ) - SAMARINDA - IFKR 3.4% Project cost Other c a p i t a l cost T o t a l C a p i t a l Cost I n c r e m e n t a l revenue Incremental expense Net I n c r e m e n t a l Revenue tiet Benefit (Cost) /a - T h i s i s i l l u s t r a t i v e of t h e a s s u m p t i o n t h a t a l l f u t u r e w a t e r r a t e s ( f r o m 1 9 8 3 o n w a r d s ) w i l l be a d j u s t e d t o meet i n f l a t i o n . 1Poo 1ZSO 136' 140° I , - MAY 1986 T~OD 1i s 0 f, (7 d -'Bands Aceh r -, i ' 1.'[- \ -5 O &nQi+.aranQ I ! 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