Document of The World Bank FOR OFFICIAL USE ONLY Report No: 25720-ID IMPLEMENTATION COMPLETION REPORT (CPL-38540; SCL-3854A; SCPD-3854S; PPFB-P1701) ON A LOAN IN THE AMOUNT OF US$136 MILLION TO THE REPUBLIC OF INDONESIA FOR A KALIMANTAN URBAN DEVELOPMENT PROJECT June 24, 2003 Urban Development Sector Unit East Asia and Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective December 31, 2002) Currency Unit = Rupiah Rp 1 = US$ 0.000112139 US$ 1 = Rp 8,917.50 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ACSD - Abolition and Combination, Simplification, Decentralization BAPPENAS - National Development Planning Agency BOD - Biochemical Oxygen Demand DPRD - Local Level Parliament EIRR - Economic Internal Rate of Return FIRR - Financial Internal Rate of Return GOI - Government of Indonesia IPLT - Sludge Treatment Facility IUIDP - Integrated Urban Infrastructure Development Program (or Project) KIMPRASWIL - Ministry of Settlements and Regional Infrastructure KIP - Kampung (poor neighborhood) Improvement Program LARAP - Land Acquisition and Resettlement Action Plan LG - Local Government LKMD - Community Organization MIP - Market Improvement Program MOF - Ministry of Finance MSRI - Ministry of Settlement and Regional Infrastructure NGO - Non-governmental Organization O&M - Operations and Maintenance PDAM - Local Government Water Enterprise Pemda - Local Government PJM - Medium-term Expenditure Program PMO - Local Government Monitoring Office (under the local planning board) PMU - Project Management Unit (under the local department of public works) QCBS - Quality and Cost-Based Selection (of procurement) RIAP - Revenue Improvement Action Plan SAR - Staff Appraisal Report SLA - Subsidiary Loan Agreement TA - Technical Assistance TPA - Final Solid Waste Disposal Site UfW - Unaccounted For Water UPT-PAL - Technical Service Unit - Waste Water Treatment VOC - Vehicle Operating Costs Vice President: Mr. Jemal-ud-din Kassum Country Manager/Director: Mr. Andrew Steer, EACIF Sector Manager/Director: Mr. Keshav Varma, EASUR Task Team Leader/Task Manager: Mr. George Soraya, EASUR INDONESIA KALIMANTAN URBAN DEVELOPMENT PROJECT CONTENTS Page No. 1. Project Data 1 2. Principal Performance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry 2 4. Achievement of Objective and Outputs 5 5. Major Factors Affecting Implementation and Outcome 16 6. Sustainability 19 7. Bank and Borrower Performance 21 8. Lessons Learned 25 9. Partner Comments 27 10. Additional Information n/a Annex 1. Key Performance Indicators/Log Frame Matrix 30 Annex 2. Project Costs and Financing 33 Annex 3. Economic Costs and Benefits 35 Annex 4. Bank Inputs 45 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 49 Annex 6. Ratings of Bank and Borrower Performance 50 Annex 7. List of Supporting Documents 51 Annex 8. Additional Sectoral Assessment of Solid Waste Management 52 Annex 9. Project Cost Summary by Subsector 53 Annex 10. Technical Assistance 54 Annex 11. Resettlement Experience in KUDP 55 Project ID: P003951 Project Name: KALIMANTAN URBAN DEVELOPMENT PROJECT Team Leader: George Soraya TL Unit: EASUR ICR Type: Core ICR Report Date: June 27, 2003 1. Project Data Name: KALIMANTAN URBAN DEVELOPMENT L/C/TF Number: CPL-38540; SCL-3854A; PROJECT SCPD-3854S; PPFB-P1701 Country/Department: INDONESIA Region: East Asia and Pacific Region Sector/subsector: General water/sanitation/flood protection sector (50%); Roads & highways (20%); Housing construction (10%); Sub-national government administration (10%); Central government administration (10%) Theme: Municipal finance (P); Access to urban services for the poor (P); Other urban development (P); Municipal governance and institution building (S) KEY DATES Original Revised/Actual PCD: 10/10/1989 Effective: 11/02/1995 Appraisal: 03/24/1994 MTR: 10/01/1997 05/10/1999 Approval: 03/21/1995 Closing: 06/30/2001 12/31/2002 Borrower/Implementing Agency: Republic of Indonesia/Participating Cities and their Water Utilities Other Partners: STAFF Current At Appraisal Vice President: Mr. Jemal-ud-din Kassum Mr. Gautam Kaji Country Director: Mr. Andrew D. Steer Ms. Marianne Haug Sector Manager: Mr. Keshav Varma Mr. Anupam Khanna Team Leader at ICR: Mr. George Soraya Ms. Frida Johansen ICR Primary Author: George Soraya 2. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome:S Sustainability:L Institutional Development Impact:M Bank Performance:S Borrower Performance:S QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: No 3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: Introduction. The Indonesia's share of Kalimantan covers the southern three-quarters of the island of Borneo. It comprises 30% of Indonesia's total land mass, but includes only 5% of the country's population. In 1990, about 2.5 million people lived in Kalimantan's urban areas, of which 1.9 million lived in the five largest cities of Pontianak, Banjarmasin, Balikpapan, Samarinda, and Palangka Raya. Urban services in these five cities were significantly backlogged. Local water entreprises (PDAMs) supplied between 25-50% of the population with water, either through house connections (28-38%) or public taps (2-8%). Service tended to be rather unreliable, especially in the dry season. Most people depended on low quality water from shallow wells, rivers and canals as well as rain water and high-priced vendor water. Only 50-60% of the population had solid waste collection. Flooding was a major environmental problem in the low-lying cities. Motorized traffic was growing quickly; however roads are narrow, rights-of-way were experiencing encroachment, and traffic management was inadequate. Together, these resulted in frequent traffic congestion. Other typical urban deficiencies such as inadequate budgetary provision for operations and maintenance (O&M) and inadequate revenue generation. With these problems in the back-drop, in 1990, the Government of Indonesia (GOI) requested Bank support for the Kalimantan Urban Development Project (KUDP), designed using GOI's Integrated Urban Infrastructure Development Project (IUIDP) approach. This approach was developed in the mid-1980s and integrated the development of urban infrastructure investments in urban transport, water supply, sewerage and sanitation, flood control, drainage, solid waste management and kampung (poor neighborhood) improvements under one package. The main objectives of KUDP were: (a) to improve the provision of urban infrastructure and services and the efficiency of urban investments; (b) to promote stronger, more autonomous, and financially more independent municipal governments; and (c) to contribute towards urban poverty reduction, mainly through better access to essential services and an improved urban environment; and to improve the urban environment. Assessment of Objectives. The objectives were clear and consistent with GOI's Five-Year Development Plan (Repelita V) in meeting the basic service delivery and local government capacities, and also fully consistent with the Bank Group's 1994 CAS, which emphasized interregional equity, delivering higher levels of services and enhancing competitiveness in a climate of macroeconomic stability which reigned at the time. The project was relatively complex. It covered five cities and at least seven components in each city. Geographically, the project sites were widely dispersed, covering four provinces on Borneo. However, the cities chosen were medium-sized cities, which made coverage of multiple components more manageable. Overall, the project risks were acceptable. 3.2 Revised Objective: There were no major changes in the project objectives during implementation. - 2 - 3.3 Original Components: The project was to support a five-year program of high priority expenditures in the five cities of Balikpapan, Banjarmasin, Palangka Raya, Pontianak and Samarinda. These expenditures were allocated for water supply, urban roads, solid waste management, sanitation, a Kampung (poor neighborhood) Improvement Program (KIP) and a Market Improvement Program (MIP), and drainage. Institutional support and training complemented the physical investments. A brief description by component follows. Water Supply (US$44 million). This component included investments for water treatment plants and transmission and distribution networks, investments in rehabilitation and leakage control, and increased operations and maintenance. Expected achievements were five new reservoirs, 105,000 new connections to the piped water system, more reliable services, and better quality water. Urban Roads (US$55.9 million). The five cities had an urban road network of some 1000 km including national, provincial and local roads. The project was to improve their routine maintenance, contribute to the periodic overlays/rehabilitation of 125 km of roads and improve (widen, upgrade or other works) some 280 km more. In addition, the project would assist in constructing 30 km of new major roads needed to accommodate rising traffic flows. Solid Waste Management (US$8.3 million). This component consisted of construction of new final disposal sites for each city, procurement of bulldozers, dump trucks and containers, and construction of transfer stations. Sanitation/Human Waste Disposal (US$11.8 million). This component consisted of the construction of on-site facilities of pilot sewerage/interceptor schemes and septic sludge disposal sites within the solid waste disposal sites, and procurement of septic sludge disposal trucks. KIP/MIP/Infrastructure for Low-cost Housing (US$21.1 million). This component was to improve all poor villages (kampungs) by 1999. Sixty-four kampungs with an area of about 1000 ha would be upgraded through provision of roads, paths, drainage, water supply, sanitation, with community participation. The component would also provide infrastructure, mainly roads, for new low-cost housing developments covering a total area of about 100 ha, and roads for three pilot urban renewal programs, covering 64 ha in downtown areas. The component would also improve infrastructure of 24 markets in very poor condition, covering an area of about 134 ha. Drainage (US$23.8 million). This component included the rehabilitation and improvement of primary and secondary drains, normalization of river banks and deferred and incremental O&M. Project Implementation Support TA (US$10.3 million). This provided engineering services to assist with the final design stages of the work in the program and supervision of their construction. Institutional Development Technical Assistance and Training (US$11.7 million). This consisted of assistance for program management and monitoring, improved environmental and resettlement practices, institutional capacity building for each agency and technical and managerial training for the water enterprises. The project also included assistance to the National Planning Agency (BAPPENAS) to further the Integrated Urban Development Program (IUDP) concept and practice. This also included the preparation of strategic urban plans and medium-term expenditure programs (PJS) to follow the project period. - 3 - Assessment of Project Design. The project design was satisfactory. Although there could have been more participation by the local governments (LGs) in the overall design process, the project had relatively more input from them than any similar type project from this era. The project components, and the IUIDP approach in general, were clearly linked to achieving the project's objectives. The assumption that the LGs would be able to play a stronger role in project implementation proved valid as LG ownership progressed during the course of the project. The project's physical investments were robust, and during the financial crisis, the components became even more relevant. However, on institutional development, the design could have been more realistic, considering some of the proposed improvements. For example, any proposal for agency reorganizations required changes beyond the control of the Executing Agency and the implementation agencies. Fortunately, the unexpected 1998 political reform and decentralization laws made some of these proposed changes more realistic. Although initially the project appeared demanding for the LGs, by Loan closing, they were generally able to step up and meet the challenges. For most of them, this was among their first project where significant decisions in planning, programming and implementation were actually carried out at the local level, and their performance in this regard improved considerably by the end of the project. The decision by GOI and the Bank to decentralize project implementation, especially during the early project period when government policy was tightly centralized, turned out to be an effective means of implementing the project, especially during the financial and political crisis in 1998. The project prepared the LGs well for the eventual implementation of decentralization Laws No. 22/1999 and 25/1999. 3.4 Revised Components: In order to mitigate the effects of the economic/financial crisis of 1998/99, a program of small labor-intensive civil works was added to reduce the rapidly increasing urban poverty rate. Furthermore, small scale programs such as the one-stop permit system, were added to promote good governance. The project scope was also amended to cover technical assistance for poverty alleviation activities in urban centers in northern East Java where the crises hit particularly hard. 3.5 Quality at Entry: Quality at entry was satisfactory. As mentioned above, the project was fully in line with GOI priorities, its strategy of using the IUIDP approach for urban investment projects, and with the Bank's 1994 CAS objectives. Annual programs, including major sub-projects, were generally well defined. After the first two years, some of the smaller sub-projects were programmatic, which provided flexibility in prioritizing investments and accommodating changes in city conditions. Detailed designs of the larger sub-projects for the first year were completed before Loan effectiveness, although further minor reviews were required before their implementation. A detailed list of technical assistance (TA) packages with the responsible agency clearly identified, was incorporated into the Staff Appraisal Report (SAR). The fact that the list of TAs had been pre-agreed between GOI and the implementing agencies of the TAs, reduced implementation time by avoiding having to spend extra time on consensus-building. The consultants for detailed design of the first year investments were in place relatively soon after Loan effectiveness. The institutional capacity assessment was largely close to reality, except for management of some of the complex technical assistance packages, where the capacity of the LGs was less than adequate. The mechanisms for financing and subsidiary lending were mostly ready on Loan effectiveness. Lessons from the on-going IUIDPs were generally reflected in the project, including the importance of decentralizing more of the design and implementation responsibilities to the local governments. The project also incorporated improvements to the - 4 - Project Implementation Agreement (PIA), based on experiences from the then-ongoing East Java Bali (Ln. 3304-IND) and Semarang Surakarta Urban Development (Ln. 3749-IND) Projects. Risk assumptions. The technical risks of the projects were adequately addressed during preparation and the covenants in the Loan Agreement were instrumental in mitigating the foreseen risks. In particular, the covenants targeted towards PDAMs on increasing tariffs regularly and restricting them from paying dividends to their local governments enabled the supervision team to enforce those principles when LGs were reluctant to abide by them. The appraisal mission's assumptions about external risk were mostly valid because of the long-term stability the country had seen at appraisal. The appraisal team could not have foreseen the serious financial, political, and social crisis in 1998, which affected project implementation, both in terms of the speed of implementation and prioritization of programs. However, because the project was mainly implemented by the LGs, the financial and institutional impacts were minimized, especially in relation to the provision of counterpart funds. Compliance with safeguard policies. The local governments' decrees for resettlement and environment reflected Bank policy and were issued prior to Board. The provisions in the Loan Agreement on these matters provided effective tools for supervision. 4. Achievement of Objective and Outputs 4.1 Outcome/achievement of objective: The overall objectives were satisfactorily met. With the exception of the market improvement and sanitation sub-components, the project's achievements went well beyond the expected outcomes defined at appraisal. The overall provision of infrastructure was substantially improved through the project. Table 1 below summarizes the ratings for achievement of objectives by component. Subsequent paragraphs provide details on the outcome of each component. Objective 1. Improve Provision of Urban Infrastructure and Services and the Efficiency of Urban Investment. Table 1: Ratings by Component Physical Component Rating Water Supply Satisfactory Drainage Satisfactory Urban Roads Satisfactory Solid Waste Marginally Satisfactory Human Waste Marginally Satisfactory KIP/MIIP/Other Satisfactory Water Supply. Overall, achievement of objectives for water supply is satisfactory. Most of the original works were completed ahead of the original Loan closing date. Two large sub-projects, raw water supply schemes in Samarinda and Pontianak, were added after the mid-term review, and had to be completed during the Loan extension period. The project delivered 132,666 new house connections or a 135% increase from the start of the project, and at least 900 l/s of clean water, in addition to assuring a fresh raw - 5 - water supply during droughts, especially in Pontianak and Samarinda. (This latter problem had caused serious health issues in 1998.) The coverage of clean piped water supply increased to 66%, an increase of 35 percentage points from the original level of coverage. In contrast, unaccounted-for water (UfW) was not signficantly reduced; in fact it was higher in two cities after project completion (see Tables 5.1 to 5.5 in Annex 3). Urban Roads. Achievements for urban roads are satisfactory. The project was able to improve accessibility within the cities by improving 25% of the existing roads. A total of 37 km of new arterial roads have been constructed, 20% more than the existing arterial network in the cities, significantly improving their traffic conditions. More details are presented in Annex 1, Table 6. Drainage. Achivements are satisfactory. The project was able to reduce the total flooded area by 1,608 ha or 14% of the total urban area, which is 6% higher than the SAR target. In addition, the project was also able to secure 111 km of river banks from encroachment by lining them. Details are presented in Annex 1, Table 2. Solid Waste Management. The achievement is marginally satisfactory. Solid waste management in all cities has improved compared to pre-project conditions. Waste collection and transport from the waste generator to the temporary and final disposal sites are managed better. In Balikpapan and Pontianak, innovative programs were even implemented to reduce waste volume. All cities reached their targets for waste collection, with results ranging from 61% (Banjarmasin) to 82% (Samarinda), as can be seen from Annex 1, Table 3. In all cities, except Samarinda, new landfill sites were constructed with various degrees of success, but in two places they are poorly operated. Sanitation. The achievement of objectives in sanitation is also marginally satisfactory. On-site sanitation achievements varies from city to city, but generally are marginally satisfactory to unsatisfactory. In four cities (not Samarinda), sludge disposal and treatment plants (IPLT) were built but are not in operation except for Pontianak. Sludge trucks were purchased but are not in use due to various institutional reasons. The off-site sanitation pilot schemes in Banjarmasin as well as in Balikpapan are satisfactory. The targets for sewer connections were achieved, the effluent complies with the wastewater quality standard, and the system is functioning. KIP and Urban Renewal. The implementation of KIP was highly satisfactory. The project was able to improve 181 locations within poor neighborhoods, covering an area of 2,658 ha, and directly benefiting 46% of the urban population. This achievement is more than 2.5 times the SAR target. Details are presented in Table 4, Annex 1. The program also established a new mechanism for working with community organizations (LKMD), which was adopted by some of the LGs. The mechanism allows the LKMD to manage the project directly, builds more ownership, and expands the available budget through community contributions. Market Improvement. The overall achievement is unsatisfactory. Of the 26 markets that have been newly built or renovated, only half are fully delivering the intended benefits. The market objectives were met in Pontianak and marginally met in Balikpapan and Samarinda, but not met in Banjarmasin and Palangka Raya. A comparison of the SAR targets and actual implementation can be seen in Annex 1, Table 5. - 6 - Objective 2. Promote stronger, more autonomous, and financially more independent municipal governments. Overall this objective is met, partly because of the project efforts, but mostly due to the enactment of the decentralization law. Municipal Planning and Implementation. This objective is satisfactorily met. From the outset the project design expanded the LG role in project planning and programming. Even before the implementation of Laws 22 and 25/1999, which broadly provide the framework for more autonomous local government, LGs were already more involved in planning and programming their respective projects. They have implemented more than 60% of the overall works, both physical and technical assistance, in the project. Their staff headed the Project Management Units. With a few exceptions, they also managed their own TA contracts. All these are relatively unique for urban projects designed during this period. The project also established the "One-Stop Permit System" aimed at streamlining and simplifying local government public services in issuing permits. This program was initiated and supported under the Municipal Innovations Project (Ln. 4400-IND). This program was implemented in all project cities with different levels of success. This program's sustainability is likely because of local government ownership of it. In Pontianak, the project was able to improve participation of the community in formulating the city's strategic plan, following the City Development Strategy approach that is being piloted by the Bank in selected cities in Indonesia. This plan is been formally considered in the city budgeting for 2003. In Pontianak and Banjarmasin the project promoted the privatization of government services for solid waste management. In Pontianak such effort resulted in a substantial decrease in the number of workers being managed by the agency, because the workers were transferred to private operators. PDAMs. This objective was met for the water utilities (PDAMs). The PDAMs are owned by their respective LGs, and the mayors used to head the PDAM Supervisory Boards. During the project, PDAMs implemented Ministry of Home Affairs Regulation No.7/1998 changing the composition of the Supervisory Boards, giving the PDAMs more autonomy. Board membership has changed from five to three representatives. Where there used to be five bureaucrats on the Board headed by the mayor, only one now remains. The other two Board members are a consumer representative and a private individual. This Board composition exposes the PDAMs to more professionalism and business sense. All the project cities promptly implemented this Regulation, and thus became the first cities in the country to have Supervisory Boards under the new set-up. Water tariffs used to be approved only by the mayor. But since the fall of President Suharto, Local Parliaments (DPRD) have demanded to review all requests for water tariff increases. Raising tariffs was a major problem early in the project. However, with more transparency and dialogue between the PDAMs and their DPRDs, tariff increases became easier. At project closing, Balikpapan, Banjarmasin, and Pontianak had tariffs that exceeded their costs of production plus interest and depreciation. In Pontianak and Banjarmasin, the PDAMs' audited financial reports were published in the local newspapers as a sign of transparency. Municipal Finance. Based on the SAR indicators, the participating cities were, in general, able to gain financial strength in spite of the economic crisis that hit in 1997. The rupiah depreciated from Rp 2,154 to a US dollar at the time of appraisal, to Rp 15,500 at the height of the crisis in mid-1998, and eventually improving to around Rp 9,000 at project completion. The country experienced hyper-inflation in 1998 at 65%. The country implemented Law No. 22/1999 on Administrative Decentralization giving more - 7 - financial autonomy to LGs. Law No. 25/1999 on Intergovernmental Fiscal Relations and Law No. 34/1999 on Regional Taxes and Levies streamlined local taxes and charges, eliminating minor ones or grouping similar accounts together, or reclassifying taxes and charges properly. Law 25/1999 rationalized taxes and charges to the institution that has the authority to impose it. Since the LGs' capacity to improve their income generation had occurred before the crisis, and with the confidence they gained in implementing their own local taxes and charges, these were able to grow almost at the same rate or higher than the growth rate seen during the five-year period before appraisal. Palangka Raya, the smallest city in the project and with the slowest growth rate before the project, was able to attain a 28% growth rate in its local taxes and charges. The lowest growth rate in local taxes and charges during the project period was Banjarmasin was at 13%, but this is not far from the growth rate of 15% for the five-year period before project appraisal. Table 2 shows the growth rates of specific local revenues of each local government from (Bank) FY 1994/95 before the project started to FY02 when the project was completed. Water Utility Finance. The PDAMs were significantly affected by the economic crisis, when costs of chemicals rose as high as four times the pre-crisis cost. The PDAMs could not easily implement tariffs because of the political instability that ensued. The PDAMs were required to prepare financial recovery action plans aimed at focusing on improving operational performance. At the end of the Project, except for Palangka Raya, all of them exceeded the projected new connections (Table 1 of Annex 1). Balikpapan, Pontianak and Banjarmasin were able to eventually recover and attain their financial covenants (Table 3, Annex 3), especially of having sufficient revenues to cover operating expenses including depreciation. Samarinda had difficulties with its raw water supply which was remedied with the completion of the Loa Kulu raw water supply intake. As new connections were added, average consumption per connection gradually went down from 26 m3 to as low as 21 m3. A tariff increase scheduled in 2001 was withdrawn after it created violent reactions from consumers. Still, all the PDAMs need to reschedule their loans before they can fully recover. A comparison between appraisal and actual figures attained can be seen in Annex 3 Table 5. - 8 - Table 2. Local Revenues, SAR vs. Actual, in Rp Million 2002 Figures in Current Prices Balikpapan Banjarmasin Samarinda Palangka Raya Pontianak SAR,1992 Budget,2002 SAR,1992 Budget,2002 SAR,1992 Budget,2002 SAR,1992 Budget,2002 SAR,1992 Budget,2002 Local Taxes/Charges 6,033 82,660 4,318 23,812 4,980 35,133 587 8,689 5,224 27,836 % Annual Growth, 1986-1992 14% 15% 22% 12% 21% % Annual Growth, 1996-2002 31% 13% 23% 28% 17% Land and Building Tax (PBB) 4,900 23,356 616 6,850 5,306 15,000 240 3,700 1,499 7,326 % Annual Growth, 1986-1992 37% 18% 43% 19% 41% % Annual Growth, 1996-2002 10% 9% 8% 5% 10% Other 325 47,026 170 6,875 80 24,700 457 9,100 118 11,328 Total 11,258 153,042 5,104 37,537 10,366 74,833 1,284 21,489 6,841 46,490 % Annual Growth, 1986-1992 22% 16% 31% 31% 24% % Annual Growth, 1996-2002 18% 14% 20% 22% 18% 2002 Figures in constant prices Balikpapan Banjarmasin Samarinda Palangka Raya Pontianak SAR,1992 Budget,2002 SAR,1992 Budget,2002 SAR,1992 Budget,2002 SAR,1992 Budget,2002 SAR,1992 Budget,2002 Local Taxes/Charges 6,033 51,435 4,318 13,289 4,980 15,560 587 2,268 5,224 17,321 % Annual Growth, 1986-1992 14% 15% 22% 12% 21% % Annual Growth, 1996-2002 23% 5% 11% 4% 5% Land and Building Tax (PBB) 4,900 14,533 616 3,823 5,306 6,643 240 966 1,499 4,558 % Annual Growth, 1986-1992 37% 18% 43% 19% 41% % Annual Growth, 1996-2002 4% 1% -2% -15% -1% Other 325 29,262 170 3,837 80 10,939 457 2,375 118 7,049 Total 11,258 95,229 5,104 20,948 10,366 33,142 1,284 5,609 6,841 28,928 % Annual Growth, 1986-1992 22% 16% 31% 31% 24% % Annual Growth, 1996-2002 19% 6% 9% -1% 7% Objective 3a. Contribute towards urban poverty reduction, mainly through better access to essential services and an improved urban environment. The project has significantly contributed to reducing poverty and improving the environment through various components; therefore this objective is satisfactorily met. On water supply, a significant number of new house connections and public hydrants were targeted in low income areas, which otherwise would have had to pay water vendors' substantially higher prices. Two major raw water supply schemes were added in Pontianak and Samarinda, ensuring the availability of fresh water during the dry season. This was important to the cities because, previously, sea water which could not be processed by the system, would go upstream during the long dry months. Because of the high salinity water, the water supply distribution had to be stopped. This stoppage resulted in an outbreak of cholera in poor neighborhoods in these two cities in 1998. The two raw water schemes now provide continuously available water supply, including the poor. On sanitation, in addition to communal septic tanks in poor areas of the city, the pilot off-site system also provided a sewer system to 1,200 households in poor areas of Balikpapan. In Banjarmasin, half of the house connections to the off-site system were directed toward the poor. On the KIP and urban renewal program, the project aimed at improving living conditions in poor - 9 - neighborhoods. KIP activities benefited over 46% of the population, including a significant portion of poor residents. During the 1998 economic crisis, the Loan Agreement was amended to include labor-intensive civil works to provide temporary relief from the serious unemployment situation in the five cities. The works covered construction of infrastructure in the poorer areas of the city, for a total cost of about $0.9 million, most of it disbursed for salaries. The Project also provided critical technical assistance for supervision of a poverty alleviation program in the northern region of Java Island covering 1300 poor urban villages. The technical assistance provided support for disbursements of grants to poor communities, affecting about 600,000 families. These funds were required because of a shortage of funds under the on-going Urban Poverty Project (Cr. 3210-IND). Objective 3b. Improve the urban environment. This objective was met. The cities are markedly cleaner now than before implementation. Solid waste management and collection of human waste were significantly increased over the course of the project, thus improving urban health conditions. Closing down the poorly managed old landfill sites that were in close proximity to human settlements, has had a positive impact on the environment. The pilot off-site system also provided a good example of a functional sewer system in the cities. This is expected to further increase public awareness, and eventually create strong public pressure on LGs to manage wastewater better. Although at this stage coverage is small, the LGs of Banjarmasin and Balikpapan, as well as Central Government have committed to continue the expansion of the pilot systems using domestic funds. Most of the KIP areas were dedicated to making environmental improvements in poor neighborhoods. To mitigate against any negative environmental impacts caused by the subprojects, elements of the SAR's mitigation plan (annex 13) were incorporated into the bidding documents for all physical work contracts, and the terms of reference of the supervisory consultants also included making sure that the contractors adhered to those environmental mitigation plans. 4.2 Outputs by components: Almost all components reached their intended physical outputs. While the quality of the works were generally acceptable, some poor quality works were also identified during Bank supervision. The quality of works varies among cities and components. Overall, the quality of work in Pontianak and Balikpapan is better than in the other cities. In most cases the quality of works was determined by the quality of the supervision consultants. Water Supply. The water supply component is rated satisfactory. To a large extent, this component reached the intended service levels. The upgrading works for the production unit, network expansion and associated support facilities and activities (pumps, reservoirs, workshops, laboratory, training, consumer campaign) were also completed satisfactorily. Table 3 below shows the achievement of primary indicators in four of the five cities (excluding Palangka Raya). From the Loan savings, the project was also able to provide two large raw water supply schemes in Samarinda and Pontianak. The project made critical investments to secure fresh water for these cities during the dry season. For additional house connections, the SAR target was surpassed by about 30%, except for Palangka Raya which was over-targetted in the first place, due to a flaw in the assumption of demand. It was able to connect only 5,196 connections out of the 14,020 SAR target. Details on new connections are presented in Annex 1 Table 1. - 10 - As mentioned above, UfW reduction was not significant, although a close look at the figures shows general improvement towards project closing. A sudden increase in UfW could be explained by increased pressure brought about by enhanced production capacity (Samarinda, Balikpapan, Banjarmasin). The inconsistent UfW rate could be due to inaccurate flow measurements (Palangkaraya). It is only in Pontianak that a consistently declining rate was noted, except for a sudden drop in 1999. The UfW reduction program could not achieve its objectives for the reason that physical works alone are not an effective way of reducing leakages. The physical UfW reduction program was not fully carried out in parallel with non-physical activities such as adminsitrative and institutional improvements, thus reducing the overall effectiveness of the intervention. A comparison of key water supply indicators based on the SAR and actual achievements is presented in Annex 1 Table 1. Table 3. Water Supply Primary Indicators Balikpapan Samarinda Banjarmasin Pontianak Palangkaraya Upgrading existing WTP upgrading and New WTP and Emergency measures New WTP and new New WTP completed (or constructing new) new wells completed additional works for for raw water canal booster pumps for but under utilized headworks (WTP, new intake (Loa improvement (Riam raw water mains well development, Kulu) completed Kanan) completed (Penepat) completed intake) Network New pipes installed, New pipes installed New pipes installed New installed and New pipes installed rehabilitation and additional booster rehabilitated pipes far expansion pumps constructed exceed the SAR target Installation of New connections New connections New connections New connections New connections far additional exceed target exceed target exceed target exceed target below target connections Supporting facilities N/A N/A N/A New office completed Workshop and by own borrowing laboratory completed Training and Conducted but no Conducted but no N/A Conducted but no Conducted but no consumer campaign specific results specific results specific results specific results Drainage. The project's achievements went significantly beyond the SAR targets for drainage, so the component is rated satisfactory. The main achievement of this component was reducing the total area of inundated areas, both in terms of the duration and frequency (see Table 2, Annex 1.) The Project also improved 111 km of primary drains. Most of these primary drains are tributaries of rivers passing through the city. Lining these rivers will continue to substantially reduce the risk of encroachment which has afflicted many rivers in urban areas and which has serious implications for urban flooding. The benefits of these investments will be even stronger in the future, because these Kalimantan cities are experiencing rapid growth, and the risk of encroachment is serious. Solid Waste Management. Solid waste management in all cities has significantly improved compared to pre-project conditions. Waste collection and transport from the waste generator to the temporary and final disposal sites are now managed better. Balikpapan and Pontianak experimented with innovative programs to reduce waste volume, by involving the community in the overall up-stream management of waste generation. All cities reached the targets for waste collection, with results ranging from 61% (Banjarmasin) to 83% (Pontianak), as can be seen from Table 3, Annex 1. All final disposal sites (TPA) and associated equipment financed by KUDP have been fully constructed and placed in operation. However, operation and maintenance of the TPAs still fall short of standards for sanitary landfills or even controlled landfills, with the single exception of Balikpapan. For this reason, the overall achievement is rated marginally satisfactory. Sanitation. Community septic tanks have been in general successful elements of the sanitation component - 11 - in all cities, except for Samarinda which saw poor quality works and a lack of community participation. In Pontianak, the systems are now maintained by users' groups in the communities served. The groups collect a fee from customers and pay the Sanitation Department for pump-out services. Overall however, this component did not meet the intended purpose where the Government and community were expected to expand the program. There is one successful pilot operation in wastewater collection and treatment, and a second shows great promise. These are nearly unique in Indonesia and should serve as examples for other cities as they respond to new (2001) water pollution control regulations that oblige LGs to better manage wastewater from domestic sources. In Banjarmasin, the secondary treatment plant accomplishes such a high level of BOD and suspended solids removal (as shown by the diligently maintained monitoring records) that the effluent is cleaner than the receiving stream, and is reused by the poor living near the installation. It is rated highly satisfactory as a KUDP sub-component. Customers have shown a willingness to pay for the service, even in poor neighborhoods, and a sliding-scale tariff has now been phased in. The operation of the facility has been entrusted to UPT-PAL (Unit Pelayanan Teknis-Pengolahan Air Limbah), which carries out its responsibilities with obvious pride and with very good results. At Balikpapan, the project implementing unit has achieved a 100% connection ratio in the service area. However, there is still no confirmation in terms of what agency will operate and maintain the facility, so operation has not yet begun. Septic tank sludge treatment facilities (IPLT) were no more successful in the KUDP cities than anywhere else in Indonesia. None of the facilities is operating near capacity because of a lack of incentives and enforcement. Most operate sporadically if at all. In Pontianak, land subsidence is affecting the imhoff tank and ramp; however the Government has been able to operate and establish an institution to manage this, making this city the only one that may have a sustainaible IPLT. In Palangka Raya the access ramp is too steep for the pump-out trucks. In Banjarmasin, the question of the agency responsibility for operation has not been resolved, and in Balikpapan, a water supply has not been connected to the facility. IPLT construction (design, function, and completeness) and operation are unsatisfactory in all cities. Kampung Improvement Program. This component could easily be rated highly satisfactory. The project was able reach more than twice the original area, in term of hectares (1036 ha versus 2370 ha). KIP activities have taken place in 181 locations versus the target of 99 locations in the SAR. The reason for this success rate was that the implementation arrangements, whereby the money was managed directly by the community (LKMD), resulted in lower construction costs. These arrangements also included drawing significant contributions from the community, thus contributing to expanding KIP coverage. Because of savings from currency fluctuations, GOI allocated more funds to this component, especially in the last year of the project. The project also supported a few pilot urban renewal activities in poor neighborhoods along the river in Balikpapan and Banjarmasin. In Balikpapan the urban renewal scheme at Gunung Sari Ilir was so successful that it was presented in various conferences as a sample of best practice in urban renewal. Market Improvement Program. Although this component's physical targets were far exceeded, it was not effective in three of the project cities, and is therefore rated unsatisfactory (see Table 5, Annex 1). With the exception of the programs in Pontianak and Balikpapan, the utilization of the markets has not been encouraging because of the limited participation by the beneficiaries and poor design. In Banjarmasin the MIP subproject was designed with limited input from the beneficiaries, resulting in a lack of beneficiary support. Consequently the improved market has seen limited utilization and impact. Palangka Raya is generally the poorest performer among the five in terms of utilization of investments. Urban Roads. This component's achievement is rated satisfactory. The project completed improvements to 560 km of roads, or about 126 km over the SAR target (see Table 6 of Annex 1). Four new major arterials roads, including a 400 m bridge, were constructed, resulting in significantly improved traffic flows. For - 12 - example, Banjarmasin's Liang Anggang Trisakti Road, a new 22 km arterial road with a 400 m bridge, has significantly eased the city's traffic congestion. Furthermore, this road will help direct the city's development along the lines set out in the approved master plan. Most of the arterial and collector roads have been widened and upgraded to hot rolled sheet to reduce O&M costs and to lengthen the roads' life span. The Iswahyudi and Supadio Roads, two other new arterial roads, considerably improved access to the rapidly growing airports of Balikpapan and Pontianak, respectively. Overall, about 2.6 km of bridges of different types and sizes were replaced or improved. In Banjarmasin alone, the project replaced most of the substandard wooden bridges with wider and stronger concrete bridges, thus improving traffic security and easing bottlenecks. Project Implementation Support. Overall, this component was implemented in accordance with the SAR, and the performance is rated satisfactory. Unlike many other Bank-financed urban projects before, most of the management of this project's TA was decentralized to the respective LG. Funds were allocated to all LGs for detailed design and supervision of the sub-projects, as a supplement to the in-house design capacity of the LG. In most cases these consultants performed marginally satisfactorily, and some strengthening had to be provided from the central advisory team. The quality of design and supervision for sanitation components and market sub-components was generally poor except for the sewerage pilot project, which was handled by the central government. It is clear that LG capacity in the management of a complex TA (consultant) should be improved. Furthermore, because of the geographic location, and lack of financial incentives due to the QCBS selection procedure, the LGs were not able to engage better consultants. The centrally managed supervisory team was effective in terms of managing the project, and advising the LGs, despite their limited staff during the last year of the project. All of the LGs consistently provided the required domestic budget for detailed design and supervision of the simple works. In the KIP program the local governments, from their domestic funding, had hired NGOs to improve community participation and transparency of the project. Institutional Development Technical Assistance and Training. The performance of this component is rated marginally satisfactory. Under the project all LGs were assisted by two packages of TA, i.e., PDAM advisory services, and Revenue Improvement Action Plan advisory services. The effectiveness of these TAs varied among LGs. It is obvious that TA is not the strongest vehicle for institutional change. The impact of this TA depends largely on the quality of the leadership of the agency, and more importantly, on the willingness and commitment of that agency. In Pontianak, for example, because the head of the cleansing agency was very committed and dedicated, its small TA was extremely effective in affecting change and it enabled the privatization of various services of the agency. Whereas in other cities, such as Balikpapan and Banjarmasin, much larger consultant teams could hardly make any changes. A similar experience is also found in the PDAM advisory services. Pontianak was most effective in utilizing this TA package. The Water Supply Development Study was fruitful and resulted in some effective investments. Similarly, the Waste Water Development Study resulted in two successful pilot sewerage schemes. The Traffic Management Study was also effective and some of the outcomes of the study were implemented. Balikpapan, Samarinda and Banjarmasin benefited most from this study. After Laws No 22/1999 and 25/1999 were enacted, the project provided support to LGs to help them respond to their newly acquired responsibilities. This component supported the establishment of the One-Stop Permit system so that the public would have to go to only one office to obtain permits. The activities in establishing the One-Stop Permit system included TA to undertake the so called ACSD Study (permit simplification through Abolition and Combination of overlapping and similar permits, S implification and Decentralization) of permit procedures and processing; software development for the simplified permit system; computerization for permit processing; training for the staff of the relevant agencies and the one-roof permit system office; and dissemination of information on the new permit system. Results and outcomes, in terms of the reduced time needed for permit issuance and response of the relevant - 13 - agencies in processing permits, vary across municipalities. The overall impact of this study is generally satisfactory, except in Palangka Raya. In Pontianak a participative development City Development Strategy was also carried out. The output of the study has been endorsed by the LG and has been used as a main source of budgeting decision-making for the government's FY 2003. Details of the performances of each consultants package are summarized in Annex 10. 4.3 Net Present Value/Economic rate of return: Urban Roads. In the SAR, EIRRs for urban road subprojects were estimated. Re-estimation of the EIRR for selected subprojects followed the SAR methodology, thus providing a basis for comparing subproject economic feasibility before and after completion. Selection was made based on the size of capital investments. The benefits included savings in vehicle operating costs due to reduced congestion and travel distances and travel time. For the project to be economically justified, the EIRR had to be at least 10% without travel time savings. Of the 21 assessed subprojects, 16 have EIRR higher than the SAR estimates. Even without savings in travel time, they are found to be economically justified, with EIRRs ranging from 11.1% to 40.5%. Three large subprojects with investment costs of Rp 3,026 - 10,422 million resulted in EIRRs of 2.0-4.2% due to high costs relative to the benefits accruing to them. Two medium-size subprojects, Jl. Tjilik Riwut in Palangkaraya, and Jl. Sohor in Pontianak, did not satisfy the minimum EIRR requirement of 10 percent. Jl. Tjilik Riwut is a case where unit investment cost was average and the choice of subproject location was ideal. However, the town's socio-political conditions at appraisal differed vastly from current conditions. Central planners looked to the town then as a possible future site for the regional capital. Therefore, the 1.5 km primary road improvement connecting the town government center and the airport would have proven highly beneficial. This barely materialized as reflected in the EIRR. Jl. Sohor, on the other hand, proved to be an expensive investment. Unit cost per meter of improvement is estimated at Rp 1.7 million, but with a lower actual average daily traffic volume after implementation, the subproject failed to register a positive impact. This was verified through actual traffic counts conducted as part of benefits monitoring activities. During appraisal, the urban roads component represented 31% of the total project cost. The actual cost of urban roads, after adjusting for inflation, arrives at 29% of the total actual project cost. Drainage/Flood Control. EIRRs for the drainage and flood control subprojects were not calculated in the SAR because the expected benefits, such as reductions in flood-related physical damage, traffic disruptions and health problems, are not easily quantifiable. In lieu of a EIRR, a cost-benefit ratio using increases in land value was estimated. The project is economically justified if land values increase 0.3 to 29.5%. For the completed subprojects, the EIRR was estimated applying increase in land value as main benefit. The results show that 22 of the 27 subprojects analyzed showed increases in land value higher than the SAR upper limit of 29.5%. Sixteen out of the total 27 reflected positive ERRs, with 11 of these ranging between 41.3% and 119.7%. Eleven subprojects registered negative returns due to limited coverage relative to benefits arising from increased land value. Subproject Klandasan Besar in Balikpapan had total investments amounting to Rp 4,677 million but covered only 15 hectares. Subproject Parit Jl. Cokroaminoto in Pontianak had a total investment cost of Rp 1,090 million for a service area of only two hectares. Two subprojects (Sepinggan in Balikpapan and S. Damai in Samarinda) were limited by a small coverage area as well as a low base cost of Rp 25,000 per hectare. - 14 - The results of the EIRR calculations are shown in Tables 1 and 2 of Annex 3. 4.4 Financial rate of return: Water Supply. For the water supply component, no EIRR was calculated in the SAR as the overall benefits, including reduced morbidity, are not easily quantifiable. Based on the SAR, the main benefits are increased piped water availability at reduced costs to users. As a main measure of economic viability, PDAMs were expected to attain full cost recovery by the end of the project while limiting house connection tariffs to less than 10% of vendor prices. But PDAMS were bound to increase tariff to such levels as to ensure that operating expenses, including depreciation and interest, were matched by sufficient revenues. They were also bound to suspend payments of dividends to their LGs unless strict conditions on availability of counterpart funds were met. The debt coverage requirement was 1.5 by the end of the grace period, maintained annually. Table 3 of Annex 3 shows compliance with financial covenants. The covenant on net operating ratio was not met due to delays in completing project investments, resulting in delayed installation of new connections, and tariffs that were not raised as often as required. At project closing in December 2002, all PDAMs had complied with the covenant of not paying dividends to their LGs. In Balikpapan and Banjarmasin, tariffs were increased to attain a net income after depreciation. Pontianak, Palangka Raya and Samarinda raised tariffs in 2002, which should enable them to their comply with this covenant in 2003. Considering the difficulties in first obtaining approval to increase tariffs, and second, being able to increase the tariff to a point where the average tariff is higher than the SAR targets, compliance is already a big achievement for the PDAMs. Target connections in the SAR were eventually surpassed, except in Palangka Raya were the target was not realistic in the first place. The consultants did not properly determine demand projections for Palangka Raya. UfW was not correctly addressed in the project, thereby producing erratic results, and resulting UfW rates that were still quite high at closing. The UFW program was not fully developed and incorporated in the project design, because it was assumed that it will be developed under a separate technical assistance during implementation. However, these technical assistance packagess were ineffective, so UfW was not addressed in the end. The PDAMs were able to improve their staffing ratio to five or six employees per 1000 connections at project closing. They were also able to shorten their collection periods to an acceptable level at the end of the project in an effort to improve their cash condition. The PDAMs need to reschedule their loans in order to have a reprieve from debt repayment of a few years, to give them a chance to adjust their tariffs to the required levels, and to generate more revenue through the investments financed by part of the funds intended for loan repayment. The five PDAMs will probably be able to sustain their good performance based on these premises. Details of the financial performance of the five PDAMs are given in Annex 3. FIRRs were estimated for each PDAM to measure project financial performance. Actual cost and revenue data have been used as historical basis for FIRR projections. The results of the assessment are shown in Table 4 of Annex 3. PDAM Banjarmasin has the highest FIRR of 27.3%, followed by PDAM Pontianak, 25% and Balikpapan, 23.7%. PDAM Palangka Raya has the lowest FIRR at 11.8% which is almost at par with the interest rate of 11.75%. - 15 - 4.5 Institutional development impact: Overall, the project generated a modest institutional development impact. The establishment of the PMO, PMU and PFO at city level has helped local governments gain more control over all the development projects in their cities during the course of project implementation. The PMU, which was headed by a LG official, gained important experience in managing projects by reviewing contracts. The PMO also gained experience in integrating and approving programs of the city as well as those from the central and provincial levels. LKMD, NGO. Through the KIP program the project helped improve LG capacity to collaborate with the community in a more transparent and constructive way. This approach has also been adopted by some of the LGs in the neighborhood improvement works. Furthermore by providing an opportunity for the LKMD to manage the KIP, substantial capacity was developed at this level of community organization. Procurement. Overall, the project improved procurement practices in the LGs. Specifically in Pontianak, in the last stage of the project, the LG started following the project's procurement procedures, especially post qualification procedures, for locally financed projects. This has resulted in very competitive tenders and lower priced contracts. Privatization of Services. In some cities (Pontianak and Banjamarsin) contracting out certain government services to private operators was initiated for solid waste management. In Pontianak this action resulted in a substantial reduction in the number of temporary staff required in the unit. The LG is continuing the process of contracting out O&M for other city cleaning services as well. Also, most of the cleaning of markets has been contracted out. Balikpapan has also agreed to initiate this process. One-Stop Permit System. Although this program came late in the project, it was instrumental in helping the LGs initiate the process of improving the city permit system. This process is still evolving. LARAP. In some of the local governments where land acquisition was required, the process of preparing a Land Acquisition and Resettlement Action Plan (LARAP) helped the LG in planning and implementing projects in a more participative way. In Banjarmasin and Samarinda, for example, the LG also used LARAP and the tracer study approach for its own land acquisition. 5. Major Factors Affecting Implementation and Outcome 5.1 Factors outside the control of government or implementing agency: Impact of the Economic/Financial Crisis. The financial crisis that hit Southeast Asia in 1997/1998 affected the project to a large extent. Indonesia was the worst hit country in the region, and the situation was exacerbated by the ensuing political instability. The rupiah depreciated from Rp 2,154 at the time of appraisal to Rp 15,500 at the height of the crisis in mid-1998, and settled to around Rp 9,000 at project completion. The country experienced hyper-inflation that peaked at 65% in 1998. The value of contracts measured in foreign currency decreased. All contracts had to be reviewed. Some large contracts had to be terminated because the contractors could no longer fulfill their contractual obligations under the original contract price. Government issued a regulation allowing contractors seriously affected by the crisis to terminate with penalty. Tendering slowed down. Fewer contracts with reduced values were implemented, which slowed disbursements. Counterpart funding requirements for civil works were adjusted from 40% to - 16 - 20% of the contract. The generation of local revenue decreased as economic activity slowed down. Provisions for operations and maintenance were among the first to be cut out of local government budgets. PDAMs suffered as costs for water treatment chemicals rose as much as four-fold. Power rates, maintenance materials and salaries also rose sharply. Subsidiary loans already signed became insufficient to complete the projects. The repayment capability of borrowing local governments and PDAMs was greatly reduced. Civil disturbances in Pontianak, Palangka Raya and Banjarmasin, brought about by the outbreak of ethnic clashes in these areas, seriously disrupted project implementation. This instability occured at different levels between 1999-2001. In Pontianak and Palangka Raya most of the contracts had to be extended due to a lack of labor during the periods of turmoil. In Palangka Raya, the protracted ethnic tensions meant that neither the Bank nor the Executing Agency could carry out significant supervision. Similarly, most of the project activities in Banjarmasin had to be delayed because of political unrest in that city before the 1997 elections. Furthermore, in FY 2000 the Palangka Raja government building, housing most of the project files, was destroyed by fire. Political instability and the resulting uncertainties that arose in 1998 negatively affected the decision-making process. Decisions related to public services, such as tariff-setting for water supply and solid waste were particularly hard hit. During this period, law enforcement was also weakened; many contractors complained of security issues (materials being stolen etc). Natural calamity. The project continued to suffer from the seasonal haze that engulfed the cities due to forest fires in the interior regions of Borneo. Implementation of the project in Palangka Raya was adversely affected when the haze hovered for over a month. No works could be implemented because most people had to stay at home and transportation to and from Palangka Raya was cut off. 5.2 Factors generally subject to government control: Decision-making during preparation. This project took almost six years to prepare because of the poor performance of the preparation consultants and because of indecisiveness at both GOI and the Bank. The implementation of the project was to require a series of radical policy changes at the central government level and some agencies were reluctant to agree. Resistance mainly came because of the very decentralized nature of the project, under a centralized regime. The length of preparation, in turn, had a serious impact on the LGs' confidence in the project. In the end, certain cities implemented some of the priority programs with their own funding, although this was not fully reflected in the SAR. Delays in budget authorization. GOI's authorization process of channeling project funds (SPABP) was extremely slow in the initial stages. Although there were some improvements in 1998/1999, the process again slowed down in subsequent years. When funds authorization was delayed, implementation delays of several months resulted. Compounding this problem was the change in GOI's fiscal year from April to March, to January to December starting from FY 2000. Nevertheless, this problem of late budget authorization could have been overcome had the Ministry of Finance been willing to decentralize the process to provincial level. Counterpart budget. Many of the large sub-projects received their counterpart budgets directly from the central government. After the financial crisis, the central government faced difficulties in providing the required budget, despite the Bank's agreement to reduce the counterpart budget requirement for civil works from 40% to 20%. This also contributed to implementation delays. - 17 - Implementation of new laws. The passing of the new laws on decentralization (Laws No. 22/1999 and No. 25/1999) caused much confusion at the local government level. Project cities suddenly had more responsibilities thrust upon them and had to manage staff who transferred from the central government. This transition adversely affected project implementation. Furthermore, following the political crisis, there were continuous changes within the Executing Agency, including serveral reorganizations and staff changes, which slowed down the decision making process. Also, the enactment of Law No. 18 on tax reform considerably reduced taxes and fees that cities could collect, hampering efforts to improve local revenue generation. Selection and management of consultants. The project initially suffered from poorly performing consultants which in turn resulted in poor quality design and supervision. The management of consultants was also weak. The project manager often had only a minimal understanding of the overall scope of the project, resulting in his providing limited guidance to consultants. 5.3 Factors generally subject to implementing agency control: Selection and management consultants. As in the case of factors subject to the Executing Agency's control, the quality of consultants selected and the project management by these consultants were poor. Because of the remoteness of some project cities (like Palangka Raya) and the cost factor in the selection process, there was a lack of qualified consultants available to the project. The consultants selected were generally inexperienced in managing relatively large contracts. They were not able to provide proper quality control and guidance for the project. These shortcomings adversely affected the proper utilization of the investments. Tariff setting was seriously politicized after the decentralization laws were passed. In many cases, even if the beneficiaries had already agreed to the new tariff level, the local parliaments still objected to the increase for political reasons. This case was apparent in Samarinda, where the city violated the financial covenant of maintaining a tariff level covering depreciation and operational costs. Participation and socialization. Especially in the early part of the decentralization era, the capacity of the LGs to engage the beneficiaries in program development and implementation was weak. The result was that the beneficiaries did not fully utilize the investments such as the IPLT in all cities and the market improvements in Banjarmasin and Palangka Raya. Continuous staff rotation at the local government. Delays were often caused by the continuous rotation of staff at the local level and a weak system of orienting the new staff to the project. No systematic orientation programs were in place during the project implementation. Misprocurement. Over 960 contracts implemented in the project. An ex-post review found irregularities in some of the contracts, costing $208,126, mainly in the city of Banjarmasin. The Bank declared misprocurement on these cases. As mentioned above, continuous staff rotations at local government level and ineffective orientation programs for newcomers presented continual implementation challenges. These staff changes meant that tender committees changed continually, and this in turn, resulted in a lack of familiarity with the Bank procurement procedures and requirements. In four out of five misprocurement cases, violations were due to unfamiliarity with the Bank guidelines. (It was found that staff were following GOI procurement rules instead of Bank Guidelines.) The one remaining case of misprocurement involving Balikpapan's PDAM was due to collusion among the contractors. The Government audit agency was requested to conduct a review of the case and eventually confirmed the mission's findings that there has been collusion; the case then was forwarded to the Bank's - 18 - Integrity Unit. The Bank sanctioned the contractors involved in collusive practices, and by the end of the project, those firms had been officially debarred from the Bank-financed projects. This action will likely minimize the number of similar cases in future Bank operations. In last year of project, the procurement system underwent further improvements which are likely to reduce the risk of collusion. 5.4 Costs and financing: Overall the project was completed without major delays. The originally appraised programs were completed before the closing date. The extension was required to complete additional works added at the time of the mid term review (October 1997) in order to utilize Loan savings. The original project cost at appraisal was US$251.3 million, while the latest project figures indicate a total cost of US$153.1 million. The total amount of the Loan was reduced due to savings from the depreciation of the rupiah. In spite of this, the project was able to produce more outputs than envisaged during appraisal. For instance, the Kampung Improvement Project was able to achieve 250% of the target at $14.4 million, compared to the SAR figure of U$21.1 million. There were some realignments in the project costs by component between appraisal and actual costs. The water supply component increased as a percentage of total project cost from 18% in the SAR to 26% at completion. This is due to the addition of large, raw water supply schemes for Loa Kulu in Samarinda and Penepat in Pontianak. Incremental O&M decreased as a percentage of total project cost, from a target of 8% in the SAR to an actual of only 4%. (O&M was one of the budget components that was reduced by local governments to deal with the effects of the economic crisis.) The institutional development TA grew as a percentage of total project costs from 5% in the SAR to an actual of 9%. There are three reasons why TA increased: (a) decentralization and the introduction of the one-roof permit system required more support; (b) many TAs were implemented before the economic crisis when the rupiah stood stronger against the US dollar; and (c) many expatriate consultants were paid in foreign currency. Annex 2 provides further details. In the end, central government contributed 10% of total project costs compared to the 17% targeted at appraisal. Local governments also contributed less, 12% out of the SAR target of 16%. PDAMs contributed less than SAR targets as well, 7% only out of 11%. These decreases are due chiefly to reduced counterpart funding requirements in FY98 and FY99. Cost comparisons are shown in the financing plan in Annex 2. The Loan closing date was extended twice for a total of 18 months to enable the completion of the Loa Kulu raw water supply scheme in Samarinda, and completion of additional KIP programs intended to minimize the impact of the economic crisis and social conflict. The additional KIP programs were funded from Loan savings resulting from the depreciation of the rupiah, and lower construction costs of works carried out by the communities. 6. Sustainability 6.1 Rationale for sustainability rating: Overall sustainability is considered likely, although it is closely linked to Indonesia's economic recovery and to its resolution of the remaining decentralization issues. One of the key elements in the project's sustainability is the local government commitment to provide sufficient annual O&M budget. This particularly applies to the drainage, solid waste management and sanitation components. For the largest investments in roads and water supply, the attention given by the LGs is adequate, so sustainability is likely. - 19 - Water Supply. The sustainability of the water supply investments is likely, except for Palangka Raya. The main risk to sustainability in this component is availability of raw water and regular tariff adjustments. In three cities, i.e., Palangka Raya, Pontianak and Samarinda, the raw water source is now secure. In Balikpapan, improvements made to the Manggar Dam have secured its raw water supply for the near future. On tariffs, although by the end of the project, most PDAMs had adjusted their tariffs to meet the operation and depreciation requirements, future adjustments remain uncertain. The latest tariff increase, benefitting from the new decentralization law, went beyond the Loan covenant requirements, and was carried out through a transparent and participatory mechanism. If this is maintained, there is a likelihood that adjustments can be made regularly. Debt service arrears will also need to be rescheduled and currently two of the PDAMs are in the process of loan-rescheduling. With the exception of Palangka Raya, and to some extent Samarinda, staffing is adequate to maintain and expand the facilities. (As noted earlier, Palangka Raya's water program suffered from the beginning from overestimated demands and thus overdesigned facilities.) Finally, two of these PDAMs, Pontianak and Banjarmasin, are planning to participate in the proposed Urban Water Supply and Sanitation Project, currently under preparation for FY05. Participation in this project will allow these PDAMs to further benefit from Bank supervision and new investments. Sanitation. Overall, the sustainability of this component is unlikely except for the pilot off-site sanitation component in Banjarmasin, where both the institutional and financial set-up are already in place. In Balikpapan, at closing, the institutional set-up remained unresolved; sustainability of this component depends on the successful resolution of the institutional issues within the next few months. If the institutional set-up issue can be resolved soon, there is a strong likelihood the facility will be sustainable. Sustainability for off-site sanitation in Samarinda in unlikely due to unresolved questions regarding the institutional set-up. The sustainability of the on-site sanitation scheme is also unlikely because of the poor design and implementation quality, as well as limited beneficiary participation and awareness. Solid Waste. Sustainability is mixed. From the trend seen during implementation, the level of service to the people, indicated by service coverage, will likely be sustainable. During the course of the project, the collection coverage continued to increase, and the domestic budget provided by GOI for this service continued to increase, indicating GOI's commitment to the component. With the exception of Balikpapan, landfill sites are unlikely to be maintained at acceptable levels because of the limited O&M budget and attention given it. Drainage. Sustainability is unlikely because of the limited O&M budget provided for cleaning of the drainage due to limited resources especially as the country struggles to recover from the economic crisis. Exceptions exist in Pontianak and Balikapan where the O&M budget has been increasing. KIP, Urban Renewal. The sustainability of this component is likely because of the communities' ownership of the infrastructure built under the project. This sustainability will be enhanced by greater democracy at the local level, placing greater emphasis on community participation, and resulting in the implementation of more community based projects after the enactment of the decentralization laws. Market Improvement. With the exception of Pontianak and Balikpapan, the sustainability of all other market improvements is unlikely. The main reason is the lack of participation, and as a consequence, lack of ownership, of the beneficiaries during sub-project design and implementation. The lack of clarity in the institutional arrangements for overall maintenance and facilities, as well as low budget for O&M, adds to the difficulties of ensuring sustainability. - 20 - Roads. GOI has traditionally giving high priority to urban road improvement. Improvements in the allocation of O&M for roads have been seen following enactment of the decentralization laws. The sustainability for arterial and collector roads is likely, and less likely for local roads due to limited local government budget support. 6.2 Transition arrangement to regular operations: The project was designed to ensure that most of the projects implemented by the agency responsible were ultimately their responsibility with regards to their operations and management. Therefore, the transition arrangements to regular operations are generally not at issue. Exceptions are on some of the centrally managed large water supply schemes and off-site sanitation projects. During the implementation of these sub-projects, arrangements had been made that the staff of the agency ultimately responsible would be actively involved from the beginning of the process. With exception of a small off-site sanitation scheme in Samarinda, the facilities were handed over to the responsible agency upon completion. 7. Bank and Borrower Performance Bank 7.1 Lending: The Bank's performance in project identification is satisfactory. The project was designed and prepared following the IUIDP approach, consistent with GOI policy and the Bank's CAS. There was no sector work to draw on at the time, especially for water and sanitation. The five cities chosen for participation in the project were considered the main engines of growth on Borneo, and were in serious need of infrastructure development to enable them to strengthen their roles as such. Preparation. The Bank's performance in preparation is considered mixed. The project preparation period lasted almost six years, an excessively long period, and resulted in considerable frustration among the participating LGs. The project preparation team faced serious challenges in getting GOI to agree on a set of procedures to operationalize of the Statement of Policies for Urban Development (1987) during the heavily centralized regime, but remained firm through GOI indecisiveness. Finally, the momentum for project preparation picked up after the November 1992 mission. The project preparation team combined experts in their respective fields and had provided generally useful guidance to the consultants, although the continuous changes in the team up to pre-appraisal reduced its effectiveness. Substantive input and support from field office staff provided more local perspective to the project preparation which was helpful. Appraisal. The Bank's performance in appraisal was satisfactory. The appraisal team's composition was sound and consisted of a well-balanced team of experts, including the Bank's negotiating team. The team's assessment of Government commitment was generally accurate. Assessment of the local government capacity, although optimistic considering the centralized regime, turned out to be realistic with a minor exception on technical assistance management. Considering the long standing stability in the country during the time of appraisal, the risk assessment was reasonably accurate. The multiple crises that afflicted the country during project implementation could have not been foreseen. The performance indicators under the project could have been simplified and could have focussed more on impacts rather than outputs. There was about a one-year lapse between appraisal departure and Board. The main reason for this was delays in the Government's meeting the conditions of the negotiations, especially the production of a satisfactory Resettlement Action Plan and the Project Implementation Agreement. These delays were understandable because of the novel nature of these policies for Indonesia at the time. - 21 - Overall the performance in lending is satisfactory. 7.2 Supervision: The Bank supervision was quite satisfactory. In terms of staffing, this project saw an exemplary combination of headquarters and field office staff working together. The seasoned HQ economist who lead appraisal and negotiations continued to lead supervision missions for the first few years of implementation, and a key Jakarta-based national staff participated in each mission. Over time, the HQ team member groomed the field-based national to take over. A seamless transition ensued, with the national staff taking over as task team leader in 1998. The field office conducted frequent and intensive supervisions in the early part of the project. Because the project was managed from the field office for most of its duration, many follow-up meetings, report reviews and short visits to the cities were easily conducted. Also follow-up supervision was carried out in between formal supervision missions. (Short missions are not listed in Annex 4.) The team established a good working relationship with the LGs and the Executing Agency. Sectoral issues were adequately addressed. In particular the supervision of the water supply component was one of the most consistent among the Indonesia urban projects, resulting in physical achievements beyond the target. Indeed, the supervision's team's strong continuity and consistent approach and messages were among its strengths. Supervision slowed down during the political and economic crisis in 1998-2000. For example, no formal supervision was carried out to Palangka Raya for about two years because of the travel ban imposed due to the ongoing social conflict. This lack of supervision adversely affected the quality of implementation in Palangka Raya. However, overall the team was in continuous contact with the five participating cities. Compared to similar projects, the delays due to the economic crisis were significantly mitigated in Kalimantan. Close and continuous supervision played a key role in the original program's being completed by the original closing date. During the crisis, and subsequent political instability in the country, the task team extended its role as facilitator between the project staff (local government level) and the various parties such as the local parliaments and NGOs, and helped resolve various issues related to project implementation. The task team met with various local parliamentarians about tariff increases, sectoral policies, procurement and counterpart budget requirements. The task team also met with NGOs to explain the project, especially when GOI's credibility was questioned during the political crisis. Adequacy of reporting. The team submitted regular back to office reports following each mission. Ratings were realistic. Actions identified in the aide-memoires were highlighted in the management letters and PSRs, and were followed up adequately between missions. Enforcement of Loan covenants. Compliance with Loan covenants was covered in sufficient detail, particularly covenants pertaining to water supply. The team's financial analyst participated in bi-annual supervisions and provided ample details on the financial situation of each of the five PDAMs and LGs. From beginning to end, the team focused on the fiduciary and safeguard elements of the project. During the crisis the Bank accommodated the borrower's needs by amending the Loan to allow for lower counterpart funding requirements. This action allowed project implementation to proceed when it might have otherwise stalled. To mitigate the impact of the crisis on the poor, an amendment was made to add a labor-intensive programs to reduce unemployment in urban areas. Finally, the Loan Agreement was also amended to allow the use of Loan savings to implement a poverty alleviation project in northern East Java. - 22 - 7.3 Overall Bank performance: Overall Bank performance is rated satisfactory. The Bank's satisfactory performance in lending and particuarly in supervision was strong. Strong team continuity from preparation and throughout the eight-year implementation period is particularly commendable. Borrower 7.4 Preparation: The identification of the project was strong and consistent with Government policy. GOI's choice of the IUIDP approach for secondary cities proved effective in addressing urban development issues. There was indecisiveness in the early part of project preparation, and the consultants selected first performed poorly, which made for a protracted preparation period. However, GOI's performance picked up in November 1992 when new consultants were appointed. In the latter part of preparation, GOI assigned a very capable project manager who led preparation until negotiations. Overall borrower performance, especially in the latter part of the preparation was satisfactory. 7.5 Government implementation performance: Overall the Government's performance in implementation was also satisfactory. The borrowers' commitment was strong and they actively participated in project supervision. In most cases they were pro-active in following up on pending action plans agreed during the supervision missions. The Government was able to navigate the project through the most difficult period of the crisis and was able to minimize its impact through the amendments mentioned in paragraph 7.2. GOI's success in getting the project through the crisis is demonstrated by the fact that most of the original sub-projects were completed to an acceptable quality standard by the original Loan closing date. GOI's performance, however, could have been better if it had been able to issue budget authorizations in a timely manner. A basic shortcoming that needs to be mentioned is the failure of the central government to ensure that Samarinda would meet the covenant for the water tariff increase, and to be firm when the covenant was violated. 7.6 Implementing Agency: The project had an Executing Agency, the Ministry of Settlement and Regional Infrastructure (MSRI), and five main implementing agencies, one in each city. There were some other implementation agencies at the central government, but they managed an insignificant number of contracts. Executing Agency Performance. At the beginning of implementation, MSRI did a good job of transfering knowledge to the implementation units. Relative to similar urban projects, the consultants were recruited in a timely fashion, and the central government played an important role in helping the local governments select them. The capacity of MSRI increased progressively during the course of the project implementation and was pro-active, particularly later in implementation. However, since 1999 when the new decentralization law enacted there was some confusion about their role. But they seem to be able to slowly find their proper role at the end of the project implementation. Overall, they provided timely guidance to the local governments and helped them mobilize consultants in a relatively timely manner, compared to most of the other IUIDPs under implementation during the period. However, the Executing Agency was not as effective in supervising contracts under its own ministry. In addition to the difficult financial and political crisis that - 23 - hit at the peak of implementation, the Executing Agency continued to reorganize and reshuffle staff between 1999 to 2002. But despite such major changes they were able to maintain some continuity. Against this complex back-drop, the Executing Agency performed satisfactorily. Performances of the Participating Cities. The performance of each city is summarized in Table 1 below. Pontianak stands above the other local governments in its overall management of the project. Its local officials were pro-active and consistent in following up on all agreed action plans in the aide-memoire. Bank missions noted that in this city, the PMO and PMU had always been very committed and dedicated to the project. The performance of Palangka Raya is the poorest, especially in pro-activity and supervision quality. However, it should be noted that Palangka Raya also received the lowest level of attention from both Central Government and the Bank during project implementation because of various social problems beyond local control. Samarinda had a mixed performance; it should be noted that there was limited commitment to meet their covenants despite many reminders. Adjusting the water supply tariff is one example where the local government did not take its commitments seriously. Resettlement. All cities in KUDP had sub-projects requiring land acquisition and/or resettlement, particularly for road widening, development or expansion of final dump sites, and drainage construction. Nearly all sub-projects involved a small number of project affected persons (less than 40 families). There were also temporary relocations of traders for market redevelopment in Banjarmasin and Pontianak. Almost all of the small-scale land acquisition adopted cash compensation or voluntary release of land agreed with the project affected persons. In general, these small-scale land acquisitions were carried out and had fairly satisfactory results. The socialization, consultations and negotiations were relatively well done, and ultimately land was acquired with compensation as agreed. Details on two different resettlement experiences in Banjarmasin and Samarinda are provided in Annex 11. Table 1. Performance of Local Governments by Project Component Component Balikpapan Banjarmasin Palangka Raya Pontianak Samarinda Overall Water Supply S S U S MS S Drainage S S S S S S Roads S S S S S S Sanitation MS S U MS U MS Solid Waste Management S MS U S U MS KIP S S HS HS HS HS MIIP MS U U S U U Urban Renewal S S S S Environmental Management S S S S S S Resettlement Management S S S S U S Project Management Office Management S S U HS MS S Project Management Unit Management U MS U HS U U OVERALL S S U S MS S MS=marginally satisfactory 7.7 Overall Borrower performance: The overall Borrower's performance is satisfactory. - 24 - 8. Lessons Learned There are five main lessons arising from the implementation of KUDP. 1(a). The quality and attitude of leadership are the main elements that affected project performance. While intellectual, technical and financial capacity are important factors affecting the performance of a project's implementing agencies, it is the willingness, commitment and care to decide upon and carry out the right things, for the benefit of the public, by the leaders and key staff that make the real difference. It has been proven repeatedly that project implementation success or failure is closely linked to the commitment and attitude of the associated leaders in serving the public. The Bank's standard approach has been to provide "traditional" technical assistance, assuming that technical understanding and skill alone would automatically and significantly facilitate project implementation. However, this has not been validated under KUDP. In most cases, the agency being supported for management improvement, such as a PDAM, did have the minimum understanding and skill required to implement its component(s), but its leadership lacked the willingness or commitment to carry it out. The fact that the sewerage pilot in Banjarmasin succeeded, for example, was, to a large part, determined by the strong commitment, dedication and integrity of the project manager. A dedicated leader in the agency receiving a small technical assistance package for solid waste in Pontianak was able to make a big difference, whereas a similar technical assistance package for agencies with much greater technical capacity had little impact in the other cities. Similar situations continued to emerge during project implementation in all sectors. In PDAMs, this is far more obvious. Despite several high capacity technical assistance packages provided to the PDAMs, little change took place until a new, committed director came in. In the future, before agreeing to any support for technical assistance to enhance capacity, or any support, the attitude and commitment of the agency's leadership should first be assessed. It must be linked to clear indicators of performance improvement that are mainly determined by the agency itself. While appreciating the great extent of subjectivity in assessing such leadership qualities, the Bank should invest serious thought and effort in this aspect before agreeing to any technical assistance, with the understanding that just focusing on and assessing technical capacity and skill are simply not sufficient to meet the intended objective. Lessons 1(b) is that TA packages should be phased, with clear benchmarks, in such a way that allows the Bank to monitor the willingness of the agency to grow and improve. This is critical for TA packages to improve an agency's management. 2. Establishing client ownership of covenants early in implementation is essential. During project preparation, the Bank must emphasize the importance of the proposed legal covenants, not so much because they are project requirements, but because meeting the covenants themselves will ultimately benefit the client. Having the client simply agreeing to certain conditions and covenants on paper, or accepting them as project requirements will not ensure effective implementation. The Bank needs to foster an understanding of and appreciation for the rationale behind the covenant. A good example is the covenant on water tariff increases. Despite the covenant, some local governments gave various reasons for not implementing it. But in one city, after a series of discussions, an understanding was reached with the client that the tariff increase was essential for the sustainability of the PDAM's operations. As a result, the tariff was increased beyond the minimum level required under the covenant. - 25 - 3. Integrated urban development projects are suitable for secondary cities (less than 1 million inhabitants). The integrated approach can be useful in addressing urban development issues in a comprehensive manner. This is even more valid now in the decentralized environment of Indonesia. In reality, LGs will be required to think and operate in an integrated manner for their annual budgeting and programing, whether there is a Bank project or not. One of the major concerns raised in previous experiences (see Report No. 22214-IND, ICR of Surabaya Urban Development Project and Report No. 23588-IND for Semarang Surakarta Urban Development Project on paragraph Lessons Learned) was the lack of a sectoral agenda under an integrated approach. This was not such a major issue in this project, because the cities were relatively small and the works less complex. Furthermore under the new decentralization law, most of the decisions are now made at city level, which facilitates project coordination. This was not the case in both the Semarang and Surabaya projects which were implemented earlier. Because of the local nature of various issues related to urban development, many more policies are now determined at the local level than at the central level. Sectoral issues can be addressed adequately, when duly supported by appropriate expertise from the Bank. For example in water supply, the project was able to assist in implementing various sector policies. Furthermore, progress can be made faster by implementing policies which interlink sectors such as water and sanitation. The physical components (roads, water, sanitation, drainage) of urban projects are also closely interlinked. All these can be addressed more easily using an integrated approach. 4. Participation and consultation with the beneficiaries significantly increase ownership of the investments. The Bank and local governments should invest the necessary time and resources to build the beneficiary's understanding of and appreciation for the project investments. In the case of the sewerage schemes in Banjamasin and Balikpapan, significant time was invested to educate and increase the understanding of the beneficiaries -- the citizens themselves -- resulting in their strong support for the investments. Despite the serious effects of the financial and economic crisis, the cities of Banjarmasin, Pontianak and Balikpapan were able to increase water tariffs substantially after intensive beneficiary consultations and discussions, facilitated by various NGOs. Such an approach requires a more flexible project implementation timetable, because the amount of time required for this cannot be accurately predicted. The KIP component in this project also allowed more community participation in design and implementation, but sometimes this process had to be cut short because the budgeting and financing processes were incompatible with the participation process. The design of future projects will need greater flexibility to address this matter. 5. Facilitation role of Bank missions. To accommodate significant circumstantial changes such as those experienced by Indonesia during this project, the role of Bank missions will necessarily have to stretch well beyond traditional supervision. The team needs to be pro-active and play an important role in facilitating communication among various government agencies. Usually in a crisis accompanied by profound institutional changes, communication and trust among the various agencies break down, resulting in slow decision-making and therefore slow implementation progress. As part of supervision, the Bank team, all Jakarta office staff, took the time to meet with each city's parliament and explain the various project issues, covenants and requirements, and was, in general, warmly welcomed by both the implementing agencies and the parliaments. These efforts were instrumental to maintaining project implementation momentum during the crisis. - 26 - 9. Partner Comments (a) Borrower/implementing agency: REPUBLIC OF INDONESIA MINISTRY OF SETTLEMENTS AND REGIONAL INFRASTRUCTURE Jalan Pattimura No. 20 Kebayoran 8aru-Jakarta Selatan 12110 Telp. (021) 72796155, Fex. 72796155 June 17, 2003 Mr. Keshav Varma Sector Director Urban Development Sector Unit East Asia and Pacific Region 1818 H Street N.W. Washington, D.C. 20433 U.S.A Re: Kalimantan Urban Development Project (Loan 3854-IND) The Government Opinion on the Draft ICR Dear Mr. Keshav Varma, Referring to your letter dated 5 June 2003, herewith we are pleased to forward you the opinions to the Bank's Draft Implementation Completion Report for Kalimantan Urban Development Project (KUDP). As stated in the Draft ICR that the overall performance of the Kalimantan UDP is rated satisfactory, we could accept it and expecting to have further development for the sustainability of the project. We thank you for your continuous cooperation, Sincerely, Budiman Arif Director General, Rural and Urban Development Cc: 1. Mr. Andrew D. Steer, Country Manager! World Bank Office, Jakarta 2. Director of Urban and Rural Developmen4 Bappenas 3. Director Settlement and Housing Development, Bappenas 4. Director of External Funds, MOF 5. Director of Central Region, DGURD, MSRI - 27 - 1. Principal Performance Ratings Although the overall result is different in some extent, the Government of Indonesia (Gol) believes that the different is due to differences in defining the scale of parameters or assessment indicator. But in certain degree the Government is basically agree to the overall result summarized by the Bank. 2. The Achievement of Objective and Outputs The Government of Indonesia (GoI) agree that in general the overall objectives were met, even in particular sectors the project has been able to achieve well above the expected outcome. However, in improving provision of Urban Infrastructure and Services as well as the efficiency of Urban Investment, the Government concerns in some aspects: · The utilization of the on site Sanitation, of which the built up facilities are in general not really in use, which was believed due to some Institutional reason. · In terms of improving water supply service, increasing water tariff seems to be the main concerns to the Bank's side. In fact the most population's purchasing power remains low. Some efforts are to be done to ensure that the project, particularly in water supply improvement, has really met the targets. In terms of contribution toward urban poverty alleviation, the Government believes that efforts have been done mainly through the KIP program, to which the community-based development has also been promoted through the involvement of LKMD. Hence, regarding the sustainability of the program the local Governments, provoked by the Bank, is to promote a self-financing maintenance of the built-up areas. In terms of improving the urban environment, the Government agrees that in some extent the objectives have been met mainly through the improving Mumcipal Solid Waste Management and promoting the off-site sanitation system. by setting up the pilot off-site system in a particular housing areas. The Government main concerns is then to ensure that the revenue or the retribution would cover the operational cost of both Solid Waste Final Disposal and Waste Water Treatment plan. Therefore. in certain degree Private Sector Participation should be vigorously promoted. to attract investment in these sectors as well as promoting operational efficiency. In addition, to maintain the urban environment quality, efforts still have to be done by improving public awareness. In line with Water Enterprise Recovery Program, Ministry of "Kimprawil" has issued a letter addresses to all Walikota and Bupati throughout Indonesia (copy as attached), that PDAM who will follow the program should comply with regulations established by Sub-committee of Water Enterprise Recovery. Therefore, all support would be given to PDAMs who commit with the regulation. Regarding The Economic rate of return (EIRR) of both Urban Roads and Drainage, the Government agrees that the Project has benefited KUDP cities through the development of Urban Roads. Despite that huge investment. (31 % of total project cost) has been spent on the sector. - 28 - 3. Major Factors Affecting Implementation and Outcome The Gol agree that Financial Crisis, Civil Disturbances in Pontianak, Palangkaraya and Banjarmsin, Political instability and Natural Calamity were become the major factors beyond the control of government which affecting the implementation and outcome of the project. However, the Government concerns that the selection and Management of Consultants was become the main factor within the government control that affects the performance of Project outcome. Efforts should be made to build the capacity of Project Manager in selecting an appropriate consultant. 4. Sustainability The Govermnent agrees in the Bank's ways of rating the Sustainability likeliness in each component. The Government remains concerns of the unlikeness of Sanitation component to become sustainable, as this component would help to improve urban enviromnent quality in general. Effort should be done in setting up institution, which totally dedicated to manage the urban sanitation as a whole. In addition, Directorate General of Urban and Rural Development is preparing a letter addressed to all 5 mayors (Walikota) to take some actions such as provision of 0 & M budget, providing net operating income, increasing water tariff, setting up institutional etc. as recommended by the Bank, in order to comply with either loan covenant or sustainability. 5. Bank and Borrower Performance The Government agrees in rating the Bank performance of lending and supervision was being satisfactory. The aide memoirs issue has helped the Government to trace the project performance in the process of evaluation. However, the government very concerns in ways the Bank issuing the No Objection Letter (NOL), as in many cases the delay in issuing NOL was significantly affecting the performance of the projects. In terms of the Government performance in implementing the project, in this case MSRI, it is agreed that the MSRI had been continuing to built its capacity in implementing such urban development project, despite in a certain degree the Ministry has not be able to be effectively in supervising some contracts. However, the Ministry continues to built its capacity to keep up with this. (b) Cofinanciers: n.a. (c) Other partners (NGOs/private sector): n.a. 10. Additional Information - 29 - Annex 1. Key Performance Indicators/Log Frame Matrix Table 1. Water supply S A R Total Connections New Connections Population Coverage PDAM Users ' 000 City House Other Public Total House Other Public Total Proj. Beneficiaries 1993 2000 1993 2000 1993 2000 2000 Balikpapan 24,610 2,030 40 26,680 20,800 na 350 21,150 40% 62% 152 312 160 Banjarmasin 18,271 4,118 318 22,707 33,500 na 250 33,750 28% 62% 141 367 226 Palangkaraya 3,570 229 50 3,849 11,430 2,420 170 14,020 24% 80% 26 112 86 Pontianak 16,385 2,729 150 19,264 17,640 7,468 400 25,508 25% 50% 113 258 145 Samarinda 22,970 2,430 370 25,770 17,400 na 420 17,820 38% 53% 176 321 145 Total 85,806 11,536 928 98,270 100,770 na 1,590 102,360 31% 61% 608 1,370 762 Implementation New Connections New Connections Population Coverage PDAM Users ' 000 City House Other Public Total House Other Public Total Proj. Beneficiaries 2000 2002 2000 2002 2000 2002 2000 2002 Balikpapan 17,787 1,237 33 19,057 20,279 1,404 72 21,755 64% 63% 319 338 167 186 Banjarmasin 22,985 796 494 24,275 39,005 1,429 679 41,113 68% 85% 396 510 255 369 Palangkaraya 3,443 191 -45 3,589 4,771 479 -54 5,196 34% 37% 49 56 23 30 Pontianak 29,195 1,818 83 31,096 33,084 2,453 168 35,705 66% 70% 321 353 208 240 Samarinda 20,695 1,510 54 22,259 27,211 1,545 141 28,897 52% 56% 321 368 145 192 Total 94,105 5,552 619 100,276 124,350 7,310 1,006 132,666 60% 66% 1,406 1,626 798 1,018 Table 2. Drainage and flood control Drainage Improvement (km) Affected Area City New Primary Secondary Tert Total Ha % 0f City SAR Balikpapan 5 6 17 18 45 214 10% Banjarmasin 8 5 16 28 330 15% Palangkaraya 25 17 19 60 160 14% Pontianak 15 8 18 41 160 5% Samarinda 5 6 3 14 78 3% Total 5 58 51 74 188 942 8% Implementation Balikpapan 20 13 24 57 296 10% Banjarmasin 19 9 20 48 585 33% Palangkaraya 21 17 23 61 158 10% Pontianak 44 20 18 82 355 8% Samarinda 7 8 25 40 214 7% Total - 111 66 111 288 1,608 14% - 30 - Table 3. Solid waste Solid Waste, 1993 % Collected by Solid Waste, 2000 Solid Waste, 2002 City m3/day lcd % Collected 2000 m3/day lcd % Collected m3/day lcd % Collected SAR Implementation Balikpapan 1,159 3.0 56% 80% 1,493 3.0 80% 1,743 3.0 75% Banjarmasin 1,319 2.6 58% 60% 1,734 2.8 60% 1,812 2.8 61% Palangkaraya 333 3.0 56% 80% 441 2.5 80% 484 2.5 81% Pontianak 1,317 3.0 47% 80% 1,800 3.0 75% 1,879 3.0 83% Samarinda 1,483 3.2 62% 80% 1,901 3.2 82% 2,012 3.2 82% Table 4. KIP (Slum upgrading) KIPs Infrastructure for : Totals City Low cost housing Urban renewal % City Locats Ha 1000 pop. Ha 1000 pop. Ha 1000 pop. Ha 1000 pop. area pop. SAR Balikpapan 23 232 108 24 5 256 113 12 29 Banjarmasin 26 258 130 5 1 20 4 283 135 11 26 Palangkaraya 3 90 19 30 8 120 27 11 17 Pontianak 20 204 100 7 2 211 102 7 23 Samarinda 27 232 100 60 17 20 4 312 121 12 26 Total 99 1,016 457 102 28 64 13 1,182 498 12 26 Implementation Balikpapan 37 326 185 100 20 426 205 7 37 Banjarmasin 68 614 340 5 1 619 341 20 77 Palangkaraya 18 316 90 15 4 331 94 6 56 Pontianak 21 682 105 88 17.6 770 123 3 25 Samarinda 37 432 185 42 12 38 7.6 512 204 6 38 Total 181 2,370 905 57 16 231 46 2,658 967 8 46 Table 5. Market improvement # Markets ha Suprastructure # Markets ha Suprastructure City SAR Implementation Balikpapan 3 17 2,250 m 2 2 5 4,164 m2 Banjarmasin 8 40 4,500 m 2 6 20 5,660 m2 Palangkaraya 3 25 2,250 m 2 4 33 6,538 m2 Pontianak 6 40 3,445 m 2 8 16 2,900 m2 Samarinda 4 12 3,455 m 2 6 30 4,934 m2 Total 24 134 15,900 m2 26 104 24,196 m 2 - 31 - Table 6. Roads, in km. SAR Implementation City Primary Primary Secondary Secondary Primary Primary Secondary Secondary Local Roads Total Local Roads Total arterial collector arterial collector arterial collector arterial collector Balikpapan p.m. 1991 length 25 37 81 143 279 Improvement 13 12 59 84 16 9 20 44 Rehab/overlay 2 1 1 4 4 3 46 52 New 4 4 4 4 Subtotal 20 1 0 13 59 92 19 4 0 12 65 100 Banjarmasin p.m. 1991 length 5 5 15 11 154 191 304 Improvement 12 3 5 9 69 98 3 1 15 25 40 84 Rehab/overlay 8 1 12 21 1 0 3 11 86 101 New 14 14 22 22 Subtotal 34 3 7 21 69 134 26 2 17 36 126 207 Palangkaraya p.m. 1991 length 3 12 28 26 240 308 593 Improvement 4 3 6 12 25 2 0 6 21 30 Rehab/overlay 7 7 6 20 9 3 7 19 Subtotal 11 0 3 13 18 45 11 0 0 9 28 48 Pontianak p.m. 1991 length 25 12 34 22 71 165 238 Improvement 2 6 5 13 12 2 7 5 27 Rehab/overlay 17 11 16 33 77 4 10 17 33 63 New 12 12 15 15 Subtotal 29 0 13 21 38 102 30 0 13 24 38 105 Samarinda p.m. 1991 length 14 9 12 22 186 243 783 Improvement 8 4 1 7 40 60 5 1 3 15 31 55 Rehab/overlay 2 2 13 4 6 19 42 New 0 2 2 Subtotal 8 4 4 7 40 63 18 1 9 21 51 99 Five Cities p.m. 1991 length 72 39 126 74 732 1,050 2,195 Improvement 38 7 11 39 185 280 38 2 21 62 118 240 Rehab/overlay 34 1 15 35 39 124 30 0 17 40 190 277 New 30 0 0 0 0 30 37 4 2 0 0 43 Total KUDP 103 8 26 74 224 434 105 6 39 101 308 560 - 32 - Annex 2. Project Costs and Financing (US$ million) Actual / Latest Appraisal Estimate Estimate % of Project Cost by Component Amount % Amount % Appraisal Water supply 44.0 18% 39.7 26% 90% Drainage 23.8 10% 18.5 12% 78% Urban roads 55.9 22% 38.4 25% 69% Solid waste 8.3 3% 6.0 4% 73% Human waste 11.8 5% 6.7 4% 56% KIP/MIP/Other 21.1 8% 14.4 9% 68% Incremental O&M 20.9 8% 6.2 4% 29% Implementation support TA 10.3 4% 6.4 4% 62% Institutional development TA 11.7 5% 14.1 9% 121% Administration 5.2 2% 1.2 1% 23% Total Base Cost 213.0 0% Physical contingencies 16.2 6% 0% Price contingencies 20.4 8% 0% PPF Repayment 1.7 1.7 100% Total Project Cost 251.3 153.1 61% Total Financing Required 251.3 100% 153.1 100% 61% See also Annex 9, Project Costs by Subsector Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent) 1 Procurement Method Expenditure Category ICB NCB 2 N.B.F. Total Cost Other 1. Works 37.30 113.00 0.00 0.00 150.30 (25.00) (74.70) (0.00) (0.00) (99.70) 2. Goods 10.00 6.00 2.00 12.00 30.00 (10.00) (4.00) (1.00) (0.00) (15.00) 3. Services 0.00 0.00 10.40 0.00 10.40 Engineering & Supervision (0.00) (0.00) (9.00) (0.00) (9.00) 4. TA and Training 0.00 0.00 11.80 0.00 11.80 (0.00) (0.00) (10.60) (0.00) (10.60) 5. Land, taxes, duties 0.00 0.00 0.00 21.00 21.00 (0.00) (0.00) (0.00) (0.00) (0.00) 6. Incremental O&M and 0.00 0.00 0.00 26.10 26.10 administration (0.00) (0.00) (0.00) (0.00) (0.00) Total 47.30 119.00 24.20 59.10 249.60 (35.00) (78.70) (20.60) (0.00) (134.30) Final project cost also included reimbursement of a PPF for $1.7 million. - 33 - Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent) 1 Procurement Method Expenditure Category ICB NCB 2 N.B.F. Total Cost Other 1. Works 14.70 53.97 0.91 3.92 73.50 (10.40) (46.66) (0.91) (0.00) (57.97) 2. Goods 7.56 23.74 0.00 2.61 33.91 (6.71) (23.00) (0.00) (0.00) (29.71) 3. Services 6.36 0.00 6.36 Engineering & Supervision () () (5.61) (0.00) (5.61) 4. TA and Training 14.11 0.00 14.11 () () (12.45) (0.00) (12.45) 5. Land, taxes, duties 3.10 8.25 2.05 2.82 16.22 (0.00) (0.00) (0.00) (0.00) (0.00) 6. Incremental O&M and 0.00 0.00 0.00 7.34 7.34 administration (0.00) (0.00) (0.00) (0.00) (0.00) Total 25.36 85.96 23.43 16.69 151.44 (17.11) (69.66) (18.97) (0.00) (105.74) 1/Figures in parenthesis are the amounts to be financed by the Bank Loan. All costs include contingencies. 2/Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units. Financing Plan, at Appraisal and Actual (US$million) Appraisal Estimate Actual / Latest Estimate Percentage of Appraisal Financier Local Foreign Total % Local Foreign Total % Local Foreign Total Central Government 40.5 2.4 42.9 17% 11.9 3.8 15.7 10% 29% 157% 36% Provincial Government 3.2 3.2 1% 0.7 0.4 1.1 1% 22% 36% Local Government 39.0 2.0 41.0 16% 13.7 5.0 18.7 12% 35% 249% 46% Water Utilities 24.7 3.5 28.2 11% 7.7 2.5 10.2 7% 31% 72% 36% IBRD 61.3 74.7 136.0 54% 79.4 26.3 105.7 70% 130% 35% 78% Total Financing 168.7 82.6 251.3 100% 113.5 38.0 151.5 100% 67% 46% 60% - 34 - Annex 3. Economic Costs and Benefits Urban roads and drainage/flood control. The economic analysis of the urban road and drainage/flood control subprojects considered only directly quantifiable costs and benefits. As in the SAR, savings in vehicle operating costs (VOC) and travel time constitute the economic benefits of the urban road subprojects used in the ERR calculation. For the drainage/flood control subprojects, the economic benefit considered was the increase in land value in areas directly affected by the drainage/flood control projects. All costs and benefits were valued at 2002 prices. Financial costs were converted to their equivalent economic costs by removing taxes and duties, and applying appropriate conversion factors for tradables and unskilled labor. For tradable components, a shadow exchange rate factor of 1.06 was applied while for unskilled labor, a shadow wage rate factor of 0.75 was used. For non-tradable components, a standard conversion factor of 0.94 was applied. The VOC and travel time savings of the urban road subprojects were calculated based on monitoring data on traffic counts, VOC for with and without project, and travel time saved. Data were collected by the BME Consultant, with updates by the ICR consultant. Land value increases resulting from the drainage/flood control subprojects and estimates of the actual influence area were used as bases for the calculation of the annual economic benefit generated by each subproject. All net economic benefit streams of the urban road and drainage/flood control subprojects were discounted at their assumed economic life, as adopted in the SAR. For new roads, widening and general improvement subprojects, a 10-year economic life was assumed. For resurfacing and overlay subprojects, an economic life of five years was applied. In the case of drainage/flood control subprojects where a number of the subprojects involved improvement of existing drainage channels and construction of primary, secondary and tertiary systems, the economic life was assumed at five years. A comparison of the EIRR based on SAR targets and actual completed subprojects are presented in Tables 1 and 2 for urban roads and drainage/flood control, respectively. Water supply. For this component, FIRR was estimated. Historical information was used to form the bases for the financial projections. The main assumptions used include the number of existing and additional connections, minimal capacity utilization attained, reduced levels of UFW, new investments and loans, tariff increases, and profit generation for use in PDAM programs. SAR targets include DSCR of at least 1.5 by the end of the grace period, full cost recovery by the end of the project period and tariffs that are economically feasible. A comparison of the FIRR for water supply based on SAR targets and actual figures is presented in Table 4. A comparison of financial and operational indicators based on SAR targets and actual figures for the five participating PDAMs during project implementation (1995 - 2002) are shown in Table 5, while projections for years 2003 - 2012 are presented in Table 6. Solid waste management. At the end of the project, only Palangka Raya has attained full cost recovery on solid waste management. But this does not necessarily mean that it has a better managed solid waste system. Cleansing charges have improved during the project by improving collection efficiency, although tariffs were not increased as required. But local governments have realized that they need to provide more budget to support their operations, even if they had to fund them from other city funds. Banjarmasin and Pontianak have the highest growth rates in direct O&M expenditures for solid waste. Table 7 shows the - 35 - cost recovery attained by the participating cities. Table 1. Comparative EIRR: SAR Targets vs. Actual - Urban Roads SAR Estimates Actual Sector/Subproject\ EIRR With Time EIRR Without Time EIRR With Time EIRR Without Time Investment Cost Savings Savings Savings Savings (Rp Mill) Kota Banjarmasin 1. Jl H Basri > 10% Min. 10% 2.2% -0.9% 5,903 2. Jl Pinus > 10% Min. 10% 24.5% 22.3% 767 3. Jl Veteran > 10% Min. 10% 29.8% 27.8% 146 4. Jl Jend A Yani > 10% Min. 10% 30.1% 28.1% 1,440 5. Jl Trisakti > 10% Min. 10% 13.8% 11.1% 45,710 Kota Balikpapan 1. Jl Haryono MT > 10% Min. 10% 27.3% 24.7% 4,912 2. Jl Yos Sudarso > 10% Min. 10% 19.5% 16.9% 1,194 3. Jl Iswahyudi > 10% Min. 10% 15.4% 13.1% 6,957 Kota Palangkaraya 1. Jl RTA Milono > 10% Min. 10% 21.6% 20.2% 1,079 2. Jl Tjilik Riwut > 10% Min. 10% 6.7% 4.8% 426 3. Jl Imam Bonjol > 10% Min. 10% 13.3% 12.2% 731 4. Jl RA Kartini > 10% Min. 10% 43.2% 40.5% 695 Kota Pontianak 1. Jl M Sohor > 10% Min. 10% -1.2% -3.8% 1,677 2. Jl A Rahman > 10% Min. 10% 28.7% 27.1% 567 3. Jl Tanjung Raya > 10% Min. 10% 22.7% 20.9% 459 4. Jl Supadio > 10% Min. 10% 2.0% 0.3% 10,422 Kota Samarinda 1. JL Suprapto > 10% Min. 10% 19.5% 15.9% 3,538 2. JL Menuju RSS > 10% Min. 10% 21.7% 15.7% 426 3. Jl Pandan Wangi > 10% Min. 10% 14.6% 12.6% 6,018 4. Jl S Parman > 10% Min. 10% 4.2% 0.9% 3,026 5. Jl KHA Dahlan > 10% Min. 10% 21.6% 19.5% 230 Total Cost 96,322 - 36 - Table 2. Comparative EIRR: SAR Targets vs. Actual - Drainage and Flood Control SAR Estimates Actual Sector/Subproject\ EIRR Increase in Increase in Investment Cost Land Values EIRR Land Values (Rp Mill) Kota Banjarmasin 1. A Yani 0.3-29.5% 23.1% 35.9% 3,185 2. Saka Permai 0.3-29.5% 64.5% 31.1% 1,036 3. Teluk Dalam 0.3-29.5% 119.7% 25.7% 998 4. Sei Guring 0.3-29.5% 67.3% 35.9% 344 5. Sei Bilu 0.3-29.5% 82.4% 33.4% 1,046 Kota Balikpapan 6. Pandansari 0.3-29.5% 47.2% 25.7% 936 7. SMA 5 0.3-29.5% -13.0% 25.7% 783 8. Klandasan II 0.3-29.5% 51.3% 28.6% 1,551 9. Klandasan Besar 0.3-29.5% 0.0% 38.2% 4,677 10. Sepinggan 0.3-29.5% -14.4% 39.1% 549 11. Terusan Damai 0.3-29.5% -4.4% 33.4% 1,913 Kota Palangkaraya 12. D. Pengeringan I 0.3-29.5% 0.0% 30.3% 446 13 D. Pengeringan II 0.3-29.5% -13.6% 33.4% 646 14 D. Pengeringan IIIA 0.3-29.5% 19.3% 33.4% 432 15 D. Pengeringan IIIB 0.3-29.5% -26.8% 35.9% 1,009 16. D. Pengeringan IV 0.3-29.5% 92.8% 18.9% 210 17. D. Pengeringan V 0.3-29.5% -3.1% 39.1% 1,124 Kota Pontianak 18. Sei Pahang 0.3-29.5% 81.8% 33.4% 850 19. Parit Beliung 0.3-29.5% 6.8% 33.4% 565 20. Parit Jl H Cokroaminoto 0.3-29.5% 0.0% 38.2% 1,090 21. Parit Bangka Beliung 0.3-29.5% 45.1% 36.4% 473 22. Sei Bangkong 0.3-29.5% -4.4% 30.3% 865 23. Parit Tokaya 0.3-29.5% -16.9% 39.1% 2,406 Kota Samarinda 24. JL Air Putih 0.3-29.5% 41.3% 35.9% 704 25. Sei Pinang 0.3-29.5% 84.6% 22.3% 774 26. Sungai Air Hitam 0.3-29.5% -8.2% 29.7% 1,540 27. S Damai 0.3-29.5% -10.2% 35.9% 1,366 Total Cost 31,519 - 37 - Table 3. PDAM Compliance with Financial Covenants, 1995-2002 1995 1996 1997 1998 1999 2000 2001 2002 Balikpapan Net Income before depreciation 4,335 4,593 3,997 624 4,996 2,805 (1,172) 9,290 Net income after depreciation (1999 onwards) 79 460 356 (3,359) 126 (2,169) (9,441) 1,897 Tariff Increase Implementation Month/Year implemented Jul-99 Apr-02, Jul-02 % Increase in Tariff "A" 45% 60% To Average 979 1,170 1,157 1,001 1,677 1,680 1,720 2,448 Tariff "A" 547 547 547 547 793 793 793 Payment of dividends to PEMDA - - - - - - - - Banjarmasin Net Income before depreciation 2,339 (1,730) (1,760) 4,148 (5,379) (6,610) 6,605 17,176 Net income after depreciation (1999 onwards) (6,973) (11,209) (11,314) (3,918) (13,263) (15,931) (3,892) 7,268 Tariff Increase Implementation Month/Year implemented Aug-97 % Increase in Tariff "A" 25% 88% 25% To Average 813 806 1,048 1,048 1,048 1,048 1,971 2,382 Tariff "A" 400 500 450 450 450 Payment of dividends to PEMDA 930 - - - - - - Palangka Raya Net Income before depreciation 940 698 672 1,473 1,935 2,303 2,638 3,195 Net income after depreciation (1999 onwards) (886) (106) (1,402) (804) (863) (1,227) (1,619) (1,460) Tariff Increase Implementation Month/Year implemented Jul-01 Oct-02 % Increase in Tariff "A" 25% 67% To Average 688 761 931 1,204 1,325 1,299 1,478 1,726 Tariff "A" 320 320 320 530 630 Payment of dividends to PEMDA - - - - - - - Pontianak Net Income before depreciation 2,005 2,949 1,808 3,154 5,320 7,769 971 495 Net income after depreciation (1999 onwards) 383 952 (800) (593) 1,241 2,664 (3,821) (4,297) Tariff Increase Implementation Month/Year implemented Dec-95 Jul-99 May-02 % Increase in Tariff "A" 31% 50% To Average 801 1,003 1,016 953 1,129 1,571 1,463 2,048 Tariff "A" 400 400 400 400 524 524 524 950 Payment of dividends to PEMDA - - - - - 250 - - Samarinda Net Income before depreciation 3,851 4,111 1,754 1,964 2,566 2,156 (2,172) 4,602 Net income after depreciation (1999 onwards) 2,049 (700) (2,587) (2,986) (1,598) (1,613) (10,082) (3,030) Tariff Increase Implementation Month/Year implemented Apr-98 May&Nov-02 % Increase in Tariff "A" 40% 20% , 5% To Average 1,000 1,008 1,018 996 1,038 1,086 1,115 1,521 Tariff "A" 400 400 400 560 Payment of dividends to PEMDA - - - - - - - - PDAM Balikpapan did not attain a net operating income after depreciation until 2001. Debt service arrears had accumulated to Rp 28.24 billion at Loan closing. One reason for these arrears is the late and - 38 - insufficient implementation of tariff increases. As soon as the PDAM implemented a 60% tariff increase in April and July of 2002, it realized a net operating income after depreciation. Another reason is the late decision on the funding of additional wells to supplement existing wells during a prolonged drought. Unaccounted-for water was uncontrolled, starting at 24% at the start of the project, reaching its highest point of 35% in 1999, and settling down to 29% at closing. (As noted in the main text, there was no specific program in the project to address this.) The PDAM exerted efforts to meet new connection targets, slightly surpassing the SAR target by 605 connections at Loan closing. The PDAM further improved its staffing ratio from 7 to 5 staff per 1000 connections at the end of the project. It was able to shorten the collection period from 82 days at project start-up to only 58 days at completion. The PDAM is expected to have a net operating income for the next 10 years, as long as: (a) its debts are rescheduled; (b) it makes 18,500 new connections by 2009; (c) it reduces UfW 25% by year 2007; and (d) tariffs are increased by 15% to 20% every two years. The debt service ratio will be 1.5 times and higher starting 2004. Highlights of the PDAM's performance from 1995­2002 and projections for 2003 are shown in Tables 5.1. PDAM Banjarmasin. The PDAM had accumulated debt service arrears of Rp 15.56 billion at Loan closing, and had a net operating income only in the one year after implementing a tariff increase, which was not enough. This changed in 2001 when the PDAM was able to obtain approval to increase tariff periodically. Other reasons for not meeting financial covenants earlier are the delayed completion canal for the raw water supply, the inter-connection of transmission lines, and the subsequent installation of new connections. As soon as these were completed, the PDAM was able to make progress toward achieving the number of new connections targeted in the SAR, indeed even surpassed it by 7,363 connections at closing. UfW was not controlled. From 45% at the start of the project, it rose to 57% in 1997 and settled down to 39% at closing. (There was no program in the project specifically addressing this.) On the positive side, the PDAM was able to improve its staffing ratio from 10 to only 5 employees per 1000 connections at closing. It was able to shorten the collection period from 80 days to 60 days. The PDAM should have a net operating income for the next 10 years, as long as: (a) its debts are rescheduled; (b) it makes 35,500 new connections by 2008; (c) it reduces UfW to 30% by 2005; and (d) it increases tariffs by 20% in 2004 and 10% every two years thereafter. The debt service ratio will be 1.5 times, and higher starting 2004. Highlights of the PDAM's performance from 1995 ­ 2002 and projections for 2003 are shown in Tables 5.2 of this Annex. PDAM Palangka Raya had debt service arrears amounting to Rp 3.66 billion at Loan closing. It never attained a net operating income from the start of the project, until 2003 when tariffs were increased by 25% in July 2001, followed by a 67% increase in October 2002. The PDAM only installed 5,196 connections compared with the SAR target of 14,020. This could be because the PDAM's service area has very good alternative ground water sources and people prefer not connect to the PDAM's system. Average monthly consumption per connection was only 17 m3, very far behind the SAR assumption of 27 m3. UfW was erratic, starting with 24% at start-up, to 40% in 1998, settling down to 29% at closing. (There was no specific program in the project to address this.) The PDAM was able to improve its staffing ratio from 12:1000 at the start of the project to only 6:1000 at the end of the project. Its collection period improved from 140 days in 1995 to 120 days in 2002. The PDAM is expected to always have a net operating income for the next ten years, as long as: (a) its debts are rescheduled; (b) it makes 11,500 new connections by 2012; (c) it reduces UfW to 25% by 2006; and (d) it increases tariff by 20% in 2004 and 15% every two years thereafter. The debt service ratio will be 1.5 times and higher starting 2004. Highlights of the PDAM's performance from 1995­2002 and projections for 2003 are shown in Tables 5.3 of this Annex . PDAM Pontianak had debt service arrears amounting to Rp 19.25 billion at Loan closing. It attained net operating income one to two years after a tariff increase, and would incur a net loss because tariffs were not raised as required. The 50% tariff increase in 2002 and another 10% in 2003 will ensure a net - 39 - operating income for the coming years. To compensate, the PDAM was able to surpass the new connections target in the SAR by 10,197 connections at closing. Staffing ratio was greatly improved from 10:1000 at project start to 6:1000 at project closing. The duration of the collection period improved from 73 days in 1995 to only 45 days in 2002. Ufw was 60% at project start, reached its lowest level of 20% in 1999 and went up again to 40% by the end of the project. There was no specific program to address this in the project. The PDAM is expected to have a net operating income for the next ten years, as long as: (a) one of its two loans can be rescheduled; (b) it makes additional 43,000 new connections until 2010; (c) it reduces UfW to 25% by year 2007; and (d) it increases tariffs by 15% in 2005 and every two years thereafter. Its debt service ratio will be 1.5 times and higher starting 2004. Highlights of the PDAM's performance from 1995­2002 and projections for 2003 are shown in Tables 5.4. PDAM Samarinda had debt service arrears amounting to Rp 22.84 billion at Loan closing. It met the covenant for net income after depreciation for the first time at Loan closing. Tariffs were raised only in 1998 (40%) and then through a series of increases implemented in May (20%) and November (5%) 2002 which should give the PDAM a net operating income in 2003 that will be sustained thereafter. The completion of the 200 l/s water treatment plant was delayed. This was compounded by the prolonged drought that resulted in salty water being pumped from its existing raw water intake. The Loa Kulu raw water supply system was constructed upstream to respond to this. These caused the PDAM to be slow in making new connections, although it picked up once the WTP was completed, and surpassed the SAR target by 11,077 connections at Loan closing. PDAM Samarinda was the only PDAM that showed consistency in dealing with its UfW problem, which was 49% at project start, rising to 56% in 1997, but gradually improving to 38% at closing. The PDAM was able to still improve the very low staffing ratio at project start at 6:1000 to 5:1000 at project closing. Due to cash difficulties, the PDAM was prompted to improve its collection period from 117 days in 1998 to only 63 days in 2002. The PDAM is expected to have a net operating income for the next ten years, as long as: (a) its loans can be rescheduled; (b) it makes 14,000 new connections until 2008; (c) it reduces UFW to 25% by year 2007; and (d) it increases tariffs by 15% in 2005 and every two years thereafter. Its debt service ratio will be 1.5 times and higher in 2003 and starting from 2007. This ratio will be between 1.13 and 135 times during the rescheduling period of 2004-2006. Highlights of the PDAM's performance from 1995 ­ 2002 and projections for 2003 are shown in Tables 5.5. Table 4. Comparative FIRR: SAR Targets vs. Actual - Water Supply SAR Estimate Actual Cost Recovery Sector/Subproject\ Debt Cost Recovery Debt FIRR Capital Cost Coverage FIRR Capital Cost Coverage N P V (Rp Mill) O&M Cost O&M Cost + (Rp Mill) O&M Cost O&M Cost + (Rp Mill) Depreciation Ratio Depreciation Ratio PDAM Balikpapan 24,835 1995 1995 1996 23.7% 43,767 1995 2002 2004 68,359 PDAM Banjarmasin 30,315 1995 2000 2000 27.3% 43,455 1995 2002 2004 132,827 PDAM Palangkaraya 22,649 1995 1999 2000 11.8% 24,295 1995 2003 2004 765 PDAM Pontianak 43,853 1995 1997 1996 25.2% 68,206 1995 2003 2004 122,960 PDAM Samarinda 19,761 1995 1995 1996 16.7% 68,495 1995 2003 2003 33,085 Total Cost 141,413 248,219 - 40 - Table 5.1 PDAM Balikpapan Financial & Operational Indicators, SAR vs Actual - 1995-2002, and 2003 Projected Particulars 1995 1996 1997 1998 1999 2000 2001 2002 2003 SAR Total Connections 31,424 34,135 37,102 40,352 43,917 47,830 New Connections 2,478 2,711 2,967 3,251 3,564 3,913 Water Sold, m3 mill 11,858 13,543 15,590 17,170 17,170 17,170 Water Sold/Connection/Month, m3 31 33 35 35 33 30 Unaccounted-for-water, % Average Tariff, Rp/m3 931 - 1,066 - 1,173 - Total Revenues, Rp mill 12,343 14,079 18,662 18,684 21,486 21,486 Net Profit(Loss), Rp mill 441 3,751 4,519 4,118 6,896 4,254 Operating Ratio, % 86% 84% 71% 74% 66% 70% Debt Service Ratio 0.98 1.24 2.54 2.59 2.95 1.75 Actual Total Connections 38,928 42,306 46,561 50,001 52,808 55,473 56,288 58,171 61,171 New Connections 2,911 3,378 4,255 3,440 2,807 2,665 815 1,883 3,000 Water Sold, m3 mill 10.029 10.369 10.647 11.805 11.859 12.504 13.694 14.613 15.037 Water Sold/Connection/Month, m3 22 21 20 20 19 19 20 21 21 Unaccounted-for-water 24% 25% 29% 31% 35% 33% 29% 29% 29% Average Tariff, Rp/m3 979 1,170 1,157 1,001 1,677 1,680 1,720 2,448 2,448 Total Revenues, Rp mill 13,617 14,644 14,830 13,474 21,814 23,478 24,748 38,299 39,667 Net Profit(Loss), Rp mill 78 452 457 (3,245) 287 (1,798) (9,409) 1,707 278 Operating Ratio, % 51% 52% 58% 76% 63% 73% 88% 63% 71% Debt Service Ratio 1.38 Staff/1000 Connections 7 7 6 6 6 5 5 5 5 Collection Period, Days 82 66 46 56 53 55 53 58 55 - 41 - Table 5.2 PDAM Banjarmasin Financial & Operational Indicators, SAR vs Actual - 1995-2002, and 2003 Projected Particulars 1995 1996 1997 1998 1999 2000 2001 2002 2003 SAR Total Connections 29,097 33,076 37,692 43,045 49,255 56,457 New Connections 3,431 3,979 4,616 5,353 6,209 7,202 Water Sold, m3 mill 9,428 14,238 15,790 17,748 19,127 20,988 Water Sold/Connection/Month, m3 27 36 35 34 32 31 Unaccounted-for-water, % Average Tariff, Rp/m3 - 894 - 1,077 - - Total Revenues, Rp mill 6,759 13,269 14,715 21,503 23,173 33,057 Net Profit(Loss), Rp mill (9,375) (5,764) (6,155) (483) (1,055) 4,988 Operating Ratio, % 239% 143% 142% 102% 105% 72% Debt Service Ratio - - - - - 2.02 Actual Total Connections 26,675 32,397 37,864 42,794 46,522 48,791 58,914 65,629 71,629 New Connections 2,167 5,722 5,467 4,930 3,728 2,269 10,123 6,715 6,000 Water Sold, m3 mill 8.593 9.845 9.440 11.562 13.443 15.058 15.103 17.187 18.942 Water Sold/Connection/Month, m3 28 28 22 24 25 26 23 23 23 Unaccounted-for-water 45% 49% 57% 43% 36% 37% 41% 39% 35% Average Tariff, Rp/m3 813 806 1,048 1,048 1,048 1,048 1,971 2,382 2,464 Total Revenues, Rp mill 8,072 10,710 11,839 14,697 17,020 19,099 38,393 47,657 52,818 Net Profit(Loss), Rp mill (6,843) (11,072) (10,968) (3,538) (12,864) (15,347) (3,596) 6,541 6,518 Operating Ratio, % 71% 71% 76% 67% 73% 81% 58% 49% 57% Debt Service Ratio 1.08 Staff/1000 Connections 10 9 8 7 7 6 6 5 6 Collection Period, Days 80 75 83 87 86 80 57 60 60 Table 5.3 PDAM Palangka Raya Financial & Operational Indicators, SAR vs Actual - 1995-2002, and 2003 Projected Particulars 1995 1996 1997 1998 1999 2000 2001 2002 2003 SAR Total Connections 5,917 7,353 9,152 11,414 14,264 17,869 New Connections 1,148 1,436 1,799 2,261 2,851 3,605 Water Sold, m3 mill 1,195 1,797 2,946 4,281 5,310 5,766 Water Sold/Connection/Month, m3 17 20 27 31 31 27 Unaccounted-for-water, % Average Tariff, Rp/m3 - 844 - 1,028 - 1,239 Total Revenues, Rp mill 709 1,440 2,360 4,630 5,743 7,483 Net Profit(Loss), Rp mill (934) (1,367) (1,303) (248) 380 (24) Operating Ratio, % 232% 195% 155% 105% 93% 73% Debt Service Ratio - - - - - 3.18 Actual Total Connections 4,939 5,122 5,535 6,628 7,282 8,402 9,123 10,009 11,009 New Connections 126 183 413 1,093 654 1,120 721 886 1,000 Water Sold, m3 mill 1.284 1.284 1.284 1.284 1.583 1.637 1.771 1.923 2.112 Water Sold/Connection/Month, m3 22 21 20 18 19 17 17 17 17 Unaccounted-for-water, % 24% 27% 22% 40% 30% 21% 28% 29% 28% Average Tariff, Rp/m3 688 761 931 1,204 1,325 1,299 1,478 1,726 2,808 Total Revenues, Rp mill 946 1,376 1,349 1,758 2,660 2,640 2,893 3,566 6,245 Net Profit(Loss), Rp mill (886) (106) (1,402) (804) (863) (1,227) (1,619) (1,460) 15 Operating Ratio, % 99% 58% 70% 85% 79% 95% 96% 92% 63% Debt Service Ratio 0.46 Staff/1000 Connections 12 10 9 8 7 7 6 6 6 Collection Period, Days 140 122 123 124 128 131 135 120 100 - 42 - Table 5.4 PDAM Pontianak Financial & Operational Indicators, SAR vs Actual - 1995-2002, and 2003 Projected Particulars 1995 1996 1997 1998 1999 2000 2001 2002 2003 SAR Total Connections 24,384 27,474 30,988 34,990 39,556 44,772 New Connections 2,721 3,090 3,514 4,002 4,566 5,216 Water Sold, m3 mill 7,056 9,420 11,400 13,230 15,850 17,753 Water Sold/Connection/Month, m3 24 29 31 32 33 33 Unaccounted-for-water, % Average Tariff, Rp/m3 818 - 982 - 1,080 - Total Revenues, Rp mill 5,793 7,734 10,763 12,491 17,957 18,285 Net Profit(Loss), Rp mill (832) (1,197) 754 224 3,579 (686) Operating Ratio, % 232% 195% 155% 105% 93% 73% Debt Service Ratio 1.43 3.58 32.05 2.45 4.92 0.52 Actual Total Connections 25,496 30,117 33,968 36,936 42,407 53,160 55,552 57,769 60,769 New Connections 3,432 4,621 3,851 2,968 5,471 10,753 2,392 2,217 3,000 Water Sold, m3 mill 6.535 7.880 8.319 10.288 13.949 15.000 16.146 16.998 17.781 Water Sold/Connection/Month, m3 23 24 22 24 29 26 25 25 25 Unaccounted-for-water, % 60% 55% 47% 47% 29% 36% 38% 40% 35% Average Tariff, Rp/m3 801 1,003 1,016 953 1,129 1,571 1,463 2,048 2,536 Total Revenues, Rp mill 6,632 9,471 9,981 11,550 18,813 30,012 25,942 36,658 47,628 Net Profit(Loss), Rp mill 548 1,032 (479) (321) 1,149 2,243 (3,349) (4,297) 14,179 Operating Ratio, % 55% 51% 58% 63% 50% 57% 70% 59% 50% Debt Service Ratio 6.28 1.07 Staff/1000 Connections 10 9 9 8 8 7 6 6 6 Collection Period, Days 73 48 42 44 59 45 47 45 45 Table 5.5 PDAM Samarinda Financial & Operational Indicators, SAR vs Actual - 1994-2002, and 2003 Projected Particulars 1995 1996 1997 1998 1999 2000 2001 2002 2003 SAR Total Connections 29,875 32,192 34,704 37,429 40,384 43,590 New Connections 2,136 2,316 2,512 2,725 2,956 3,206 Water Sold, m3 mill 12,902 15,019 17,170 19,354 21,302 22,259 Water Sold/Connection/Month, m3 36 39 41 43 44 43 Unaccounted-for-water, % Average Tariff, Rp/m3 871 - 946 - 1,038 - Total Revenues, Rp mill 11,287 13,139 17,273 19,470 22,502 23,512 Net Profit(Loss), Rp mill 470 1,498 3,094 3,552 5,245 2,608 Operating Ratio, % 70% 73% 61% 67% 66% 69% Debt Service Ratio 1.35 1.83 3.15 2.95 3.64 1.07 Actual Total Connections 34,421 46,022 51,774 50,583 51,198 52,323 57,095 58,961 61,961 New Connections 4,357 11,601 5,752 (1,191) 615 1,125 4,772 1,866 3,000 Water Sold, m3 mill 9.182 10.353 10.811 11.963 13.142 15.047 17.052 17.052 17.776 Water Sold/Connection/Month, m3 24 21 18 19 22 24 26 24 25 Unaccounted-for-water, % 49% 52% 56% 50% 48% 42% 38% 38% 29% Average Tariff, Rp/m3 1,000 1,008 1,018 996 1,038 1,086 1,115 1,521 1,774 Total Revenues, Rp mill 11,501 13,543 12,856 13,529 15,474 18,077 23,542 30,276 36,648 Net Profit(Loss), Rp mill 1,844 (700) (2,587) (3,227) (1,527) (1,349) (9,347) (2,270) 1,123 Operating Ratio, % 67% 63% 80% 75% 73% 76% 85% 75% 68% Debt Service Ratio 10.69 Staff/1000 Connections 6 6 5 6 6 6 5 5 5 Collection Period, Days 113 113 115 117 94 76 63 63 55 - 43 - Table 7. Solid Waste Cost Recovery, Amounts in Rp Million 1994/95 1995/96 1996/97 1997/98 1998/99 1999/2000 2000 2001 2002 * Growth Balikpapan COST RECOVERY 95% 116% 123% 137% 130% 127% 114% 113% 51% Cleansing Charges (Retribusi Kebersihan) 1,183 1,718 1,798 2,087 2,158 2,191 1,654 2,395 2,394 4% Direct Operations and Maintenance Expenses 1,248 1,483 1,459 1,524 1,654 1,720 1,449 2,120 4,665 5% Samarinda COST RECOVERY 85% 108% 49% 54% 52% 51% 53% 24% 51% Cleansing Charges (Retribusi Kebersihan) 473 581 547 631 688 820 683 1,804 2,394 4% Direct Operations and Maintenance Expenses 556 538 1,124 1,162 1,318 1,601 1,284 7,646 4,665 5% Banjarmasin COST RECOVERY 105% 124% 96% 103% 55% 47% 30% 58% 44% Cleansing Charges (Retribusi Kebersihan) 765 829 860 920 739 755 568 1,627 1,880 12% Direct Operations and Maintenance Expenses 730 671 898 895 1,344 1,616 1,878 2,802 4,284 25% Pontianak COST RECOVERY 56% 47% 43% 61% 52% 37% 50% 67% 54% Cleansing Charges (Retribusi Kebersihan) 534 532 509 826 865 821 532 2,045 2,290 20% Direct Operations and Maintenance Expenses 946 1,129 1,194 1,348 1,678 2,197 1,060 3,066 4,257 21% Palangka Raya COST RECOVERY no data no data no data no data 50% 1138% 131% 426% 360% Cleansing Charges (Retribusi Kebersihan) no data no data no data no data 147 171 161 192 400 28% ** Direct Operations and Maintenance Expenses no data no data no data no data 293 15 123 45 111 -22% ** * Based on revised budget; actual figures not yet available ** Growth rate from BY 1998/99 to BY 2002; previous city records destroyed by fire - 44 - Annex 4. Bank Inputs (a) Missions: Stage of Project Cycle No. of Persons and Specialty Performance Rating (e.g. 2 Economists, 1 FMS, etc.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation February 1989 3 INSTITUTIONAL DEVELOPMENT (1); URBAN PLANNER (1); URBAN TRANSPORT ENGINEER (1) July 1989 2 INSTITUTIONAL DEVELOPMENT (1); ECONOMIST (1) December 1989 5 INSTITUTIONAL DEVELOPMENT (1); URBAN PLANNER (1); MUNICIPAL ENGINEER (1); OPERATIONS OFFICER (1); FINANCIAL ANALYST (1) March 1990 4 INSTITUTIONAL DEVELOPMENT (1); MUNICIPAL ENGINEER (1); OPERATIONS OFFICER (1); FINANCIAL ANALYST (1) November 1990 2 ECONOMIST (1); MUNICIPAL ENGINEER (1) November 1991 4 FINANCIAL ANALYST (1); MUNICIPAL ENGINEER (1); URBAN PLANNER (2); November 1992 10 FINANCIAL ANALYST (1); ECONOMIST (1); URBAN TRANSPORT (1); MUNICIPAL ENGINEER (1); URBAN PLANNERS (2); ENVIRONMENT (1); WATER ENGINEER (1); MUNICIPAL FINANCE (1); PROCUREMENT/OPERATION S OFFICER (1) Pre-appraisal 7 FINANCIAL ANALYST (1); November 1993 MUNICIPAL FINANCE (1); ENVIRONMENT (1); MUNICIPAL ENGINEER (1); WATER/SANITATION ENGINEER (1); ECONOMIST (1); URBAN TRANSPORT (1) Appraisal/Negotiation Appraisal: June 8 FINANCIAL ANALYST 1994 (1); URBAN TRANSPORT (2); WATER ENGINEER (1); - 45 - ENVIRONMENT/SANITAR Y ENGINEER (1); ECONOMIST (1); MUNICIPAL ENGINEER (1); URBAN PLANNER (1) Appraisal 5 SANITATION SPECIALIST (1); Follow-up: August SOCIAL DEVELOPMENT (2); 1994 MUNICIPAL ENGINEER (1); URBAN TRANSPORT (1) Follow-up: Sept 2 ECONOMIST (1); MUNICIPAL 1994 ENGINEER (1) Negotiations: 8 ECONOMIST (1); URBAN February 1995 PLANNER (1); URBAN ENVMT SPECIALIST (1); MUNICIPAL ENGINEER (1); COUNSEL (1); DISBURSEMENT OFFICERS (2) Supervision 10/13/1995 5 ENGINEER/WATER & S S SANI. (1); ECON,/TASK MANAGER (1); ENGINEER/IUIDP (1); PLANNER/FINANCIAL (1); ENGINEER/PROCUREME NT (1) 02/15/1996 3 ENGINEER (2); ECONOMIST, S S TM (1) 05/10/1996 7 ENGINEER (2); ECONOMIST S S (1); ECONOMIST, TM (1); FINANCIAL SPECIALIST (1); URBAN PLANNER (1); ENVIRONMENT SPECIALIST (1) 10/30/1996 4 PR. ECONOMIST, TM (1); S S SANITARY ENGINEER (1); ECONOMIST (1); RESETTLEMENT (1) 03/05/1997 6 PR. ECONOMIST, TM (1); S S CONSULTANT (1); FINANCIAL ANALYST (1); OPERATIONS OFFICER (1); SANITARY ENGINEER (1); FINANCIAL ANALYST (1) 12/22/1997 2 PR. ECONOMIST, TM (1); S S OPERATIONS OFFICER/MUNICIPAL ENGINEER (1) 11/03/1998 6 MUNICIPAL ENGINEER (1); S S FINANCIAL ANALYST (1); ENVIRONMENTAL (1); - 46 - WATER SUPPLY (1); RESETTLEMENT (1); FLOOD CONTROL (1) 06/10/1999 8 MUNICIPAL ENGINEER (1); S S MID TERM FINANCIAL ANALYST (1); REVIEW WATER SUPPLY (1); RESETTLEMENT (1); DRAINAGE (1); ENVIRONMENTAL SPECIALISTS (2); QUALITY ASSURANCE (1) 11/14/1999 6 MUNICIPAL ENGINEER (1); S S FINANCIAL ANALYST (1); ENVIRONMENTAL ( 1); WATER SUPPLY (1); RESETTLEMENT (1); PROCUREMENT SPECIALIST (1) 3/17/2000 1 TTL, OPERATIONS OFFICER S S 07/28/2000 5 TTL, OPERATIONS OFFICER S S (1); SANITARY ENGINEER (1); FINANCIAL ANALYST (1); RESETTLEMENT SPECIALIST (1); INSTITUTIONAL SPEC. (1) 06/21/2001 4 MUNICIPAL ENGINEER (1); S S FINANCIAL ANALYST (1); WATER SUPPLY (1); RESETTLEMENT (1) 12/03/2001 4 MUNICIPAL ENGINEER (1); S S FINANCIAL ANALYST (1); WATER SUPPLY (1); RESETTLEMENT (1) 05/03/2002 5 MUNICIPAL ENGINEER (1); S S SANITARY ENGINEER (1); FINANCIAL ANALYST (1); RESETTLEMET SPECIALIST (1); ENVIRONMENTAL SPECIALIST (1) 12/19/2002 4 MUNICIPAL ENGINEER (1); S S SANITARY ENGINEER (1); RESETTLEMET SPECIALIST (1); COMMUNITY DEVELOPMENT SPECIALIST (1) ICR 02/08/2003 8 TTL, MUNICIPAL S S ENGINEER (1); FINANCIAL ANALYST(1); SANITARY ENGINEER (1); RESETTLEMENT SPECIALIST(1); - 47 - ENVIRONMENTAL SPECIALIST (2); ECONOMIST (1); COMMUNITY DEVELOPMENT SPECIALIST (1) (b) Staff: Stage of Project Cycle Actual/Latest Estimate No. Staff weeks US$ ('000) Identification/Preparation 161.8 548.8 Appraisal/Negotiation 72.0 185.7 Supervision 300.8 742.1 ICR 12.0 28.0 Total 546.6 1,504.6 Costs incurred up to and including FY99 were increased 15% to take into account the differences in the new accounting system begun in FY00. - 48 - Annex 5. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Macro policies H SU M N NA Sector Policies H SU M N NA Physical H SU M N NA Financial H SU M N NA Institutional Development H SU M N NA Environmental H SU M N NA Social Poverty Reduction H SU M N NA Gender H SU M N NA Other (Please specify) H SU M N NA Private sector development H SU M N NA Public sector management H SU M N NA Other (Please specify) H SU M N NA - 49 - Annex 6. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6.1 Bank performance Rating Lending HS S U HU Supervision HS S U HU Overall HS S U HU 6.2 Borrower performance Rating Preparation HS S U HU Government implementation performance HS S U HU Implementation agency performance HS S U HU Overall HS S U HU - 50 - Annex 7. List of Supporting Documents 1. Aide-memoires of KUDP 2. Draft ICR reports of the PT Mutiara Wiyatadarma Consultants. 3. Final Reports and Quarterly Reports of PT Indah Karya in association with Montgomerry Watson and PT Kartika Pradiptaprima 4. ICR report of Surabaya Urban Development Report No.22214-IND 5. Staff Appraisal Report of Kalimantan Urban Development Project No. 13154-IND - 51 - Additional Annex 8. Additional Sectoral Assessment of Solid Waste Management All final disposal sites (TPA) and associated equipment financed by KUDP have been fully constructed and placed in operation. However, operation and maintenance of the TPAs fall short of standards for sanitary landfills or even controlled landfills, with the single exception of Balikpapan. In Pontianak and Banjarmasin, the operation of the TPA has been contracted out to the private sector, leaving Dinas Kebersihan (Cleansing Department) the responsibility of monitoring and supervising landfill operations. This is a learning experience for the Dinases, and there will still be a need to further improve their capacity to supervise the contractors. The contract operation shows promise but is not a panacea. In contrast, in Balikpapan the operations and maintenance of the landfill are still carried out by Dinas Kebersihan itself, but the results are very good (highly satisfactory). More details on each city's situation follow. Pontianak has developed a strategy and work program to improve solid waste management. It is a comprehensive approach involving privatization of landfill operations, collection, and overall waste management at major markets, and partnerships with NGOs for street cleaning. As its functions are transferred to contractors, the city's payroll for solid waste management has been reduced from 523 in 2000 to 92 in 2003. Tariff increases ensure that full cost recovery is achieved by the end of 2004. The Department is more or less on track in implementing the work plan A tariff increase was enacted and will take effect in 2003. It is already implemented for commercial customers and is being phased in for residential customers over a six-month "socialization" period. Pontianak has also improved its accounting systems so that it can measure the actual cost of solid waste management. Convincing the local parliament that proper solid waste management should be a high, long-term priority in Pontianak continues to prove challenging for the local administration. In Banjarmasin, the Cleanliness, Parks and Cemeteries Department (Dinas Kebersihan, Pertamanan dan Pemakaman or DKPP) still is facing some obstacles in terms of solid waste management, e.g., a lack of supporting budget from the LG, lack of revenue for service, lack of skilled personnel, etc. In addition, there are obstacles related to site conditions, e.g., lack of soil cover, bad weather, condition of the road to the landfill, etc. The DKPP has an approach to involve the private sector in landfill operation, but because of limited capacity in DKPP to monitor the activity, the condition of the landfill has not improved since the last mission visit. It is not clear how DKPP will solve the problem because it feels that city authorities, both executive and legislative, are not paying attention to these issues. Despite these problems, DKPP is trying to maintain good service, a fact which is visible in the overall cleanliness of the city. Balikpapan has the opposite condition. Although it is not very clear when the Cleanliness and Parks Department(Dinas Kebersihan dan Pertamanan or DKP) will implement its overall work plan, the DKP has drawn up several Memoranda of Understanding with some big companies in Balikpapan on solid waste management in the city, and even asked some private companies from Java for proposals to run the operation of the landfill. Another good example of the DKP plan is to train pro-poor families to carry out at source-separation of waste to decrease the overall amount of waste going to the landfill, and then teach them to produce compost from that waste by providing the necessary equipment and facilities. Palangka Raya has the same problem with Banjarmasin, which is weak capacity to solve solid waste management problems. The city does not have a plan to privatize the operation of the landfill. There are some innovations on revenue collection e.g. to involve NGOs and Camat, but they have not been implemented yet. After visiting the landfill site, it is clear that this Dinas Kebersihan does not have a clear plan to operate the facility properly. - 52 - Additional Annex 9. Project Cost Summary by Subsector Banjarmasin% of total Balikpapan % of total Palangka % of total Pontianak % of total Samarinda % of total Total % of total program program Raya program program program program Water Supply (PDAM) SAR 32,225 21% 26,407 26% 24,381 40% 44,528 33% 21,449 25% 148,990 28% Actual 43,455 19% 43,767 32% 24,295 35% 68,206 35% 68,495 42% 248,219 32% Drainage & Flood Control SAR 17,633 11% 11,080 11% 8,856 14% 29,231 22% 5,063 6% 71,863 13% Actual 24,653 11% 19,136 14% 12,622 18% 41,307 21% 14,491 9% 112,209 14% Urban Roads SAR 66,418 43% 29,128 28% 10,674 17% 36,344 27% 22,263 26% 164,827 31% Actual 103,763 46% 40,451 29% 11,606 17% 46,415 24% 43,133 27% 245,368 31% Solid Waste Management SAR 8,904 6% 7,197 7% 2,933 5% 9,083 7% 4,988 6% 33,105 6% Actual 12,149 5% 7,503 5% 4,353 6% 8,542 4% 7,615 5% 40,161 5% Sanitation SAR 8,826 6% 9,354 9% 2,670 4% 5,292 4% 7,444 9% 33,586 6% Actual 16,709 7% 9,939 7% 3,728 5% 4,467 2% 9,209 6% 44,053 6% Urban Renewal (KIP/MIP/Housing) SAR 14,788 10% 14,264 14% 7,212 12% 4,851 4% 18,934 22% 60,049 11% Actual 20,403 9% 12,363 9% 9,939 14% 18,865 10% 14,922 9% 76,492 10% TA Local SAR 5,126 3% 5,467 5% 4,742 8% 5,126 4% 4,742 6% 25,203 5% Actual 3,023 1% 5,438 4% 2,730 4% 5,528 3% 4,187 3% 20,907 3% Total SAR 153,920 100% 102,897 100% 61,468 100% 134,455 100% 84,883 100% 537,623 100% Actual 224,156 100% 138,597 100% 69,272 100% 193,331 100% 162,052 100% 787,408 100% - 53 - Additional Annex 10. Technical Assistance C o n t r a c t s o f C o n s u l t a n t s A G E N C Y C o s t P e r f o m a n c e I D E T A I L E N G I N E E R I N G A N D S U P E R V I S I O N 1 L O C A L D R A I N A G E , R O A D S , O N S I T E , S A N I T A T I O N S O L I D W A S T E a B a n j a r m a s i n 2 n d - 5 t h Y e a r D i n a s P U T k I I B a n j a r m a s i n 2 , 3 7 6 , 0 0 0 M S b P a l a n g k a r a y a 2 n d - 5 t h Y e a r D i n a s P U T k I I P a l a n g k a r a y a 7 8 2 , 0 0 0 U c B a l i k p a p a n 2 n d - 5 t h Y e a r D i n a s P U T k I I B a l i k p a p a n 3 , 8 6 5 , 3 6 9 M S d S a m a r i n d a 2 n d - 5 t h Y e a r D i n a s P U T k I I S a m a r i n d a 2 4 7 , 1 0 0 M S e P o n t i a n a k 2 n d - 5 t h Y e a r D i n a s P U T k I I P o n t i a n a k 2 , 3 4 0 , 0 0 0 S 2 W a t e r S u p p l y a B a n j a r m a s i n 2 n d - 5 t h Y e a r B i n t e k D G C i p t a K a r y a 9 6 6 , 0 0 6 S b P a l a n g k a r a y a 2 n d - 5 t h Y e a r P D A M P a l a n g k a r a y a 9 6 6 , 0 0 6 M S c B a l i k p a p a n 2 n d - 5 t h Y e a r P D A M B a l i k p a p a n 1 , 9 6 4 , 8 1 2 S d S a m a r i n d a 2 n d - 5 t h Y e a r P D A M S a m a r i n d a 2 , 8 3 1 , 4 9 0 M S e P o n t i a n a k 2 n d - 5 t h Y e a r P D A M P o n t i a n a k 2 , 6 5 9 , 6 1 9 S 3 N A T I O N A L R O A D S ( P R I M A R Y R O A D S ) C o n s u l t i n g S e r v i c e s f o r R e v i e w D e s i g n a n d B i n k o t , B i n a m a r g a 8 , 0 4 0 S C o n s t r u c t i o n S u p e r v i s i o n o f R o a d & B r i d g e W o r k s 4 P R I M A R Y D R A I N A G E - F E D & S u p e r v i s i o n m a j o r d r a i n a g e i n 5 t o w n s D J C K & R e l a t e d D i n a s P U 2 , 7 3 9 , 5 7 0 M S a n d f l o o d c o n t r o l w o r k s P o n t i a n a k , B a l i k p a p a n Tk II & S a m a r i n d a P a l a n g k a r a y a B a n j a r m a s i n 5 R I V E R P R O T E C T I O N D i t S u n g a i , P e n g a i r a n 3 9 8 , 0 8 1 M S 6 U R G E N T F I R S T Y E A R D E D & S U P E R V I S I O N D J C K 6 2 5 , 8 0 0 S ( C O M B I N E D I N I I , 1 a ) S U B T O T A L I 2 2 , 7 6 9 , 8 9 2 II I N S T I T U T I O N A L B U I L D I N G M A N A G E M E N T 1 a P r o j e c t M a n a g e m e n t A d v i s o r y S e r v i c e s ( f o r D J C K 7 , 2 5 0 , 7 9 0 M S l o c a l l e v e l ) P M O / P F O / C P M U 1 b P r o j e c t M a n a g e m e n t A d v i s o r y S e r v i c e s ( f o r D J C K 1 1 , 5 0 2 S l o c a l l e v e l ) P M O / P F O / C P M U 2 P D A M A D V I S O R Y A S S I S T A N C E a P D A M M a n a g e m e n t ( B a n j a r m a s i n ) P D A M B a n j a r m a s i n 7 9 3 , 6 0 0 M S b P D A M M a n a g e m e n t ( P a l a n g k a r a y a ) P D A M P a l a n g k a r a y a 8 9 4 , 0 0 0 U c P D A M M a n a g e m e n t ( B a l i k p a p a n ) P D A M B a l i k p a p a n 1 , 0 7 7 , 4 5 1 M S d P D A M M a n a g e m e n t ( S a m a r i n d a ) P D A M S a m a r i n d a 1 , 5 4 4 , 2 0 0 U e P D A M M a n a g e m e n t ( P o n t i a n a k ) P D A M P o n t i a n a k 1 , 6 0 8 , 0 8 2 S 3 P O M M S ( I m p r o v e m e n t O & M M a n a g e m e n t P U O D 1 , 6 1 1 , 3 0 1 U System for local Infrastructure 4 R I A P I M P L E M E N T A T I O N A S S I S T A N C E B a n j a r m a s i n D i s p e n d a T k I I B a n j a r m a s i n 2 6 8 , 8 8 0 M S P a l a n g k a r a y a D i s p e n d a T k I I P a l a n g k a r a y a 2 9 3 , 0 0 7 U B a l i k p a p a n D i s p e n d a T k I I B a l i k p a p a n 2 6 9 , 5 0 0 S S a m a r i n d a D i s p e n d a T k I I S a m a r i n d a 2 6 9 , 9 7 0 M S P o n t i a n a k D i s p e n d a T k I I P o n t i a n a k 2 6 9 , 3 5 4 M S 5 P R O J E C T M A N A G E M E N T T R A I N I N G P e m d a s 1 , 4 3 0 , 9 7 1 S 6 T R A F F I C M A N A G E M E N T P R O G R A M F O R D L L A J R T k I a n d D G L a n d & 2 4 2 , 1 7 4 S B A N J A R M A S I N , B A L I K P A P A N P O N T I A N A K T r a n s p o r t A N D S A M A R I N D A 7 L o w C o s t H o u s i n g & U r b a n R e n e w a l S e c t o r D J C K & R e l a t e d D i n a s P U 1 , 0 8 4 , 1 9 9 S P r o j e c t P e p a r a t i o n & D e v e l o p m e n t A c t i o n T k I P l a n f o r H O U S I N G & U r b a n R e n e w a l 8 D E V E L O P M E N T o f A p p r o p r i a t e W aste P u s l i t b a n g & R e l a t e d D i n a s 1 , 1 4 8 , 7 8 4 S D e s p o s a l S y s t e m f o r P o n t i a n a k , & S a m a r i n d a P U T k I I including impl of Pilot Project - 54 - Additional Annex 11. Resettlement Experience in KUDP All cities in KUDP had sub-projects requiring land acquisition and/or resettlement, particularly for road widening, development or expansion of final dump sites, and drainage construction. Except for the Karang Mumus in Samarinda, Jafri Zamzam in Banjarmasin and Loa Hulu road widening subprojects, all sub-projects generally involved a small number of project affected persons (less than 40 families). There were also temporary relocations of traders for market redevelopment in Banjarmasin and Pontianak. Almost all of the small-scale land acquisition adopted cash compensation or voluntary release of land agreed with the project affected persons. In general, these small-scale land acquisitions were carried out and had fairly satisfactory results. The socialization, consultations and negotiations were relatively well done, and ultimately land was acquired with compensation as agreed. For Banjarmasin the large scale resettlement was satisfactorily done; however, for large scale resettlement in Karang Mumus in Samarinda, the process and results are considered unsatisfactory. Details for these two large scale resettlements are described below. Jafri Zamzam Road Subproject - Banjarmasin The local government of Banjarmasin undertook a road widening subproject for the Jafri Zamzam road in 1998. The length of the road was about 1.2 km, with a total designed width of 13 m (original width was 5 m). Since the road ran parallel to a river, the widening subproject required relocating 250 households living along the riverbanks. The LG's commitment to providing a livable relocation site was quite strong. It prepared a relocation site in the Zahri Saleh area, about 7 km from Jafri Zamzam, including housing, local roads and drainage, public facilities (market, small mosque, etc) and utilities (water and electricity). The LG helped the children gain admission to the nearest school. Housing was financed by contributions from the Social Ministry, whereas infrastructure and facilities were financed by the local budget. The households had to pay for the houses in installments, but the land was free. At project closing, most of the families living at the new site were those who had been relocated. Most of them are happy with the new site. The market is active half-day, as is a neighborhood market; access to previous employment sites is relatively easy as public transportation reaches the area. Most kiosks in the market are occupied by families who previously were traders in Jafri Zamzam road. Moreover, public utilities function well. So far, only a few households have paid the installment though it is long overdue. However the LG has not sanctioned the majority of the families who have not paid the installment. Recently, the families inquired with the local government about the possibility of getting tenure security for the land plots and houses. The implementation of the resettlement scheme for Jafri Zamzam road widening has been successful at least in maintaining the living standard of the relocated families; therefore it is considered satisfactory. Karang Mumus-Bengkuring - Samarinda About 500 families from the Karang Mumus riverbank in Samarinda were resettled as part of the LG's efforts to reduce flooding and improve living conditions. The original project did not anticipate the resettlement program. However, because of the cholera outbreak and fire hazards - 55 - during a drought, the Government requested Bank support to accelarate ressetlement along the Karang Mumus River. About IDR 3.1 billion (about $300,000) for infrastructure (access road, local roads, drainage, and water) were allocated for this effort. The LG prepared a LARAP acceptable to the Bank. However, implementation of the LARAP was not fully consistent with the plan. The Bank monitored the implementation of LARAP closely during its first year of implementation. While the LG kept most of its promises, the monitoring and follow-up support for the affected people were very slow and minimal. The local market has not functioned well, and is only about half occupied. Many of the resettled people have changed jobs or kept their jobs at the original site. Overall, utility service is good, but with occasional drainage problems, and transportation access to the city is generally good. However there is a concern that the LG is not allocating sufficient budget to maintain the access roads. Overall the cost of the land and housing at the site place has increased considerably, which has benefitted the affected people. However because of limited post relocation economic support, the outcome has not been as positive as expected. Overall the implementation this scheme, particularly from a resettlement point of view, has been unsatisfactory and the Bank objected to financing the program further. - 56 - - 57 -