Document of The World Bank ReportNo: 25941-IND FOROFFICIAL USEONLY PROJECTAPPRAISALDOCUMENT ONA PROPOSEDLOAN INTHEAMOUNT OFUSS45.0MILLION AND A PROPOSEDCREDIT INTHE AMOUNT OF SDR 17.9 MILLION(US$25.0 MILLIONEQUIVALENT) TO THE REPUBLIC OF INDONESIA FORTHE WATER RESOURCES& IRRIGATIONSECTORMANAGEMENT PROGRAM INSUPPORTOF THEFIRSTPHASEOFTHE WATER RESOURCES & IRRIGATION SECTORPROGRAM May23,2003 Rural Development and Natural Resources Sector Unit Indonesia Country Unit East Asia & Pacific Region This document has arestricted distribution andmaybe usedby recipientsonly inthe performanceoftheir officialduties. Its contentsmay not otherwise be disclosedwithout World Bankauthorization. CURRENCY EQUIVALENTS (ExchangeRateEffective04/14/2003) CurrencyUnit = Rupiah IDR 1,000 = US$.113 US$1 = IDR8,853 FISCALYEAR GovernmentofIndonesiaJanuary 1 -- December31 ABBREVIATIONSAND ACRONYMS ADB Asian Development Bank ADP Agricultural Development Project AMDAL FullEnvironmental Assessments APBD (K) Kabupaten Government Budget APBD (P) ProvincialGovernment Budget APBN Central Government Budget APL Adaptable Program Loan ASEM Asia and Europe Management Fund AWP Annual Work Plan Balai PSDA River Basin Management Unit Bangda DGRegional Development, MoHA Bappenas National Development Planning Agency Bapedalda Local Government Environmental Office Bawasda Regional Internal Auditors BPKP Government Audit Agency BRI Bank Rakyat Indonesia BULOG Rice and Commodities Regulatory Body BWRC Basin Water Resources CounciVCommittee BWRh4 Basin Water Resources Management BWRMP Basin Water Resources Management Planning CAS Country Assistance Strategy CDD Community Driven Development co Community Organizer CQ Consultant's Qualifications DAFEP Decentralized Agric. & Forestry Extension Project DAU Dana Alokasi Umum, General Budget Allocation to APBD DC Direct Contracting DGWR Directorate General o f Water Resources, Min.o f Kimpraswil Dinas PUP Public Worksmater Resources Dept. of Local Government DIPP Development Budget Allocation to APBD DIPP-LN Foreign-originDevelopment Budget Allocation to APBD DPIK KabupatenIrrigation Improvement Facility (KIIF) DSA Dam Safety Assurance DSC Dam Safety Commission EMP EnvironmentalManagement Plan EOM Efficient Operationand Maintenance FMIS Farmer Managed Irrigation System FMR Financial Monitoring Report Go1 Government of Indonesia FOROFFICIAL USEONLY GP3AIIP3A FederatiodApex body o f Water Users Associations (WUAF) GPN General Procurement Notice GTZ German Technical Assistance I C B InternationalCompetitive Bidding IET Independent Evaluation Team ILGRIP Initiatives for Local Governance ReformProject IMEU Impact Monitoring and Evaluation Unit IMRP Irrigation Management Reform Program INSUS Crops Intensification Program IOMP Irrigation Operation and Maintenance Policy IPEDA Land Tax ISF Irrigation Service Fee ISSP I1 Irrigation Subsector Project I1 IWIRIP Indonesia Water Resources & Irr.Reform Implem. Project JIWMP Java Irrigation Improvement & Water Management Project Juru Irrigation gate operator K D P Kecamatan Development Project KGRIP Kabupaten Governance Reform Initiative Project KIIF Kabupaten Irrigation Improvement Facility (DPIK) Kimpraswil Ministryo f Settlement and Regional Infrastructure KLH State Ministry Of Environment KPKN Central Government Treasury Local Branch KPIU Kabupaten Project ImplementationUnit K P L Field Facilitator KPMU Kabupaten Project Management Unit MOA MinistryOfAgriculture M o H A Ministry OfHome Affairs and Regional Autonomy NBB Needs Based Budget N C B National Competitive Bidding N P I U National Project ImplementationUnit N P M U National Project Management Unit N S National Shopping NSCWR National Steering Committee For Water Resources N W C National Water Resources Council O&M Operationand Maintenance PBB Land & Building Tax PCAR Procurement Capacity Assessment Report Perum Government-owned Corporation PISP Participatory Irrigation Sector Project (ADB) P I U Project ImplementationUnit PJT 1/11 BulkWater Supplier Corporation I/ I1 PKPI Irrigation Management Reform Policy P M M Project Management Manual POJ Jatiluhur Authority Corporation(= PJT 11) P O M Plan o f Operation and Maintenance PPIU Provincial Project Management Unit PPMU Provincial Project Management Unit PPTPA River Basin Water Resources Mgt. Committee PROKASIH Clean Rivers Program PSW Procurement of Small Works PWRC Provincial Water Resources CounciliCommittee QA Quality Assurance Thisdocument has a restricted distribution andmay beusedby recipients only in the performance of their official duties. I t s contents may not be otherwise disclosed without World Bank authorization. QBS Quality Based Selection QCBS Quality and Cost Based Selection RBC River Basin Corporation (PJT) RIM River InfrastructureMaintenance SECAL Sector Adjustment Loan SIL Sector Investment Loan SPP PaymentRequests Swakelola Force-Account UKLLJPL Environmental Management and MonitoringPlans VSL Variable-Spread Loan WATSAL Water Resources Sector Adjustment Loan WUAF Water Users Association Federation (GP3AIIP3A) W U A Water Users Association WUR Water Use Right Vice President: Jemal-ud-din Kassum, EAPVP Country ManageriDirector: Andrew Steer, EACIF Sector ManagedDirector: Mark D.Wilson, EASRD Task Team Leader/Task Manager: Guy Alaerts, EASRD INDONESIA WATERRESOURCES& IRRIGATIONSECTORMANAGEMENTPROGRAM CONTENTS A. ProgramPurpose andProjectDevelopment Objective Page 1. Programpurpose and programphasing 3 2. Project development objective 5 3. Key performance indicators 5 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 6 2. Main sector issues and Government strategy 6 3. Sector issues to be addressedbythe project and strategic choices 9 4. Programdescriptionand performance triggers for subsequentloans 11 C. Programand Project Description Summary 1. Project components 14 2. Key policy and institutionalreforms supported by the project 21 3. Benefits and target population 22 4. Institutional and implementationarrangements 23 D.Project Rationale 1. Project alternatives considered andreasons for rejection 27 2. Major relatedprojects financedby the Bank andor other development agencies 29 3. Lessons learned and reflected inthe project design 30 4. Indications o fborrower commitment and ownership 31 5. Value added o f Bank support inthis project 31 E.Summary ProjectAnalysis 1. Economic 31 2. Financial 33 3. Technical 35 4. Institutional 35 5. Environmental 38 6. Social 40 7. Safeguard Policies 43 F. Sustainabilityand Risks 1. Sustainability 44 2. Critical risks 45 3. Possible controversialaspects 46 G. Main Conditions 1. Effectiveness Condition 47 2. Other 47 H. Readinessfor Implementation 54 I.CompliancewithBankPolicies 54 Annexes Annex 1: Project Design Summary 55 Annex 2: DetailedProject Description 68 Annex 3: Estimated Project Costs 98 Annex 4: Cost Benefit Analysis Summary, or Cost-Effectiveness Analysis Summary 101 Annex 5: Financial Summary for Revenue-Earning Project Entities, or Financial Summary 112 Annex 6: (A) Procurement Arrangements 119 (B)FinancialManagement andDisbursement Arrangements 131 Annex 7: Project Processing Schedule 144 Annex 8: Documents inthe Project File 145 Annex 9: Statement o f Loans andCredits 147 Annex 10: Country at a Glance 149 Annex 11: Social SafeguardsFrameworks 151 Annex 12: Environmental Guidelines 156 Annex 13: The Water Resources Sector ReformunderWATSAL 160 Annex 14: Monitoring and Evaluation 163 Annex 15: Major RelatedProjects Financed by The World Bank and Other Donor Agencies 168 Annex 16: Anti-Corruption Strategy 170 BORROWER 30.48 I 0.00 I 30.48 IBRD 13.01 31.99 45.00 IDA 7.23 17.77 25.00 LOCAL COMMUNITIES 1.12 0.00 1.12 NETHERLANDS:MIN.OF FOREIGNAFFAIRS / MIN.OF 4.05 9.95 14.00 Total: 55.89 I 59.71 I 115.60 Borrower: GO1 RepublicofIndonesia Responsibleagency: DIRECTORATEGENERALFORWATER RESOURCES.MIN.KIMPRASWIL DIRECTORATEGENERAL REGIONALDEVELOPMENT7Min.HomeAffairs & Reg.Autonomy DIRECTORATEGENERAL AGRICULTURALFACILITIES,Min.Agriculture ProvincesandKabupaten BAPPENAS, for Project ImplementationCoordination Address: MINISTRYOF SETTLEMENTAND REGIONALINFRASTRUCTURE(KIMPRASWIL) DirectorateGeneralof Water Resources JI. Pattimura20 JakartaSelatan Contact Person: Drh.RoestamSyarief, Director Generalof Water Resources Tel: (6221)7262805;7203962;7395588 Fax: (6221)7260769 Email: Other Agency(ies): MINISTRYOF HOMEAFFAIRS DirectorateGeneralRegionalDevelopment(BANGDA) Address: JI. MakamPahlawan, Jakarta,Indonesia Contact Person: Dr. SemanWidjojo, DirectorGeneral Tel: (62-21) 722-7823/4 Fax: (6221) 726-7531 Email: BAPPENAS(Project ImplementationCoordinator) Address: JalanTaman Suropati, 2 JakartaPusat ContactPerson: Dr.Ir.SuyonoDikun Tel: (6221) 334-731 Fax: (6221)314-5374 Email: sydikun@cbn.net.id FY 2004 2005 2006 2007 Annual 6.57 17.29 23.41 22.73 Cumulative 6.57 23.86 47.27 70.00 Project implementationperiod: APL 1: October 2003 to June 2007 ~ Expectedeffectivenessdate: 11/01/2003 Expectedclosing date: 12/31/2007 5 sAP. P I D F"*r"II_ " 0 - 2 - A. Program Purpose and Project DevelopmentObjective 1. Program purpose and program phasing: Strategic Context. The objectives and design o f the Water Resources and IrrigationSector Management Program (WISMP) reflect a new approach to sector development. In broad terms, Indonesia's water resources and irrigation sector recently has gone through a sequence o f three distinct periods, from an investment period to one inwhich more efficient and effective use o f resourcesi s emphasized: Betweenthe 60s and the late 8Os, development o f the resource and infrastructure was priority. The implementation o f this policy benefited from a centralized government administration, as technical capacities were a limiting factor. It spurredeconomic growth and reducedpoverty. Inthe late 80s and90s, itbecameapparentthat this supply-drivenapproach ledto neglect ofproper maintenance o f the infrastructure, and unsustainable use o f the resource. It failed to achieve cost recovery. It proved arduous to change government policy until in 1998 the new government embarked on a sector reform. This reform aimed at sustainable management o f the resource and infrastructure, and emphasized a demand-responsive and decentralized service delivery. After 1997 the Bank played a leadership role with its support to the regulatory reform (Water Resources Sector Adjustment Loan(WATSAL, Ln.4469-IND) (1999 -2003)) andthe large-scale fieldpilotingof new institutional arrangements for irrigation and river basin management (Java Irrigation Improvement and Water Management Project (JIWMP, Ln. 37624") (1995 - 2002) and Indonesia Water and Irrigation ReformImplementation Project (IWIRIP, TF 29896) (2001 -2004). 0 The Government o f Indonesia (GoI) intends to implement these reforms during the coming decade. Even with the proper "facilitating" national-government regulations now issued, few local governments are able to act upon them. Water users, and especially farmer irrigators, are illprepared to assume their new responsibilities. This development must often progress at slow pace as it needs to adjust to the rate at which the local governments, newly empowered by the 1999 Regional Autonomy Laws, and civil society-based organizations can develop the requisite local consensus, and absorb the new opportunities. WISMP is the responseto the challenges o f the reform implementation. It i s structured as a three-tranche, 11-year APL. Building Upon Experience. WISMP i s an extension and consolidation o f the broad and coherent support the Bank has provided since approximately 1997. This support has emphasized institutional development. This has taken both the forms o f gradual introduction o fnew administrativeand regulatory mechanisms at local and national levels, and the extensive piloting thereof in the field. JIWMP first introduced and piloted novel irrigation management arrangements on Java and notably set up, and "coached" a large number o f autonomous, self-governing Federations o f Water User Associations (WUAFs) of irrigators. JIWMP also introduced and supported River Basin Management Units under provincial governments (Balai PSDA)and Water ResourcesManagement Committees to foster integrated resource management and enhance accountability. Inparallel, WATSAL built on this new body o f field experience, and supported the development o f a broad-based framework o f policy, legal, regulatory and administrative reforms at national and local levels. Thereafter, IWIRIP replicated the piloting o f these reforms in seven provinces outside Java, whilst continuing support in the Java provinces. The pilot reforms under JIWMP andIWIRIP have been very successful to date as demonstrated ina representative household survey completed in April 2003 (see Annex 13). They appear robust after four solid years o f field implementation, and the gradual consolidation of the new legal and regulatory frameworks at national level. They covered approximately 235,000 ha in 70 kabupatens in 12 provinces. WISMP is a consistent and systematic extension o f this prior support, whilst offering the opportunity to further improve and adapt the institutional designs to Indonesia's diversity. - 3 - Other Donor agencies. Other Donors active in Indonesia's water sector are now very supportive o f the Water Resources Sector Reform. A formal Donor Water Resources Sector Support Group has been established in October 2000. ADB and JBIC, both holding larger water resources portfolios than the World Bank, have increasingly adopted principles and concepts emerging from the JIWMP and WATSAL. ADB has adjusted two o f its new project designs in 2001 to coordinate better with the Bank's approachesinthe sharedprovinces. ADB will appraise in2003 its Participatory IrrigationSector Project (PISP) that emulates the goals and institutional model proposed inWISMP. JBIC is preparing a new-generation irrigationloan that will now also adopt participatory irrigation principles similar to those o f WISMP. The Netherlands government financed 1WIRT.P andwill co-finance WISMP Phase 1, as well as ADB's PISP. Program Objectives. (see Annex 1and its Attachment 1, Statement o f Go1Sector Policy): The Program's purpose is to implement the sector reforms inapproximately halfo f the country. Because o f the weak capacity and lack o f governance experience at local government level, and among the farmer-irrigators, it i s expected that such program will require approximately 10 years. With the parallel support o f ADB and JBIC, it i s expected that the whole country can be covered in this time span. The Program's objectives are: (a) Sustainable and equitable management of surface water resources and their utilization infrastructure by: (i) transparent sector governance institutions and, (ii) accountable and better performing more sector agencies. (b) Increased irrigationfarm household incomes and improved regionalfood security as result o fraising the overall productivity irrigated agriculture and reducing its vulnerability to natural and economic shocks through: (i) sustainable participatory irrigation management for more reliable and equitable water provisionand, (ii) better agricultural and marketing support services for members o f irrigation water user associations. (c) More cost-effective andfiscally sustainable management of sector agencies. These objectives would be achieved by strengtheningboth new and existing institutions and government agencies, and buildingthe capacity o f their staff, or members inthe case o f the WAFs. Inline with the goals o f the Water Resources Sector Reform and WATSAL, the Program seeks: (a) a shift from supply (investmen?)-dnven policies to demand-driven and locally responsive approaches; (b) enabling the expanded sectoral authority o f provincial and kabupaten (district) governments to be usedwith economy and efficiency, and in an accountable manner; (c) the unbundling of irrigation and basin management service provision by devolving some o f the operations and maintenance (O&M) functions to self-financing river basin corporations in the largest and most developed river basins, and in the case o f irrigation, to WAFs; and (d) separation of operational and regulatoryfunctions within sector agencies where feasible. This effort will necessitate an adaptable approach. Firstly, the approximately 200 imgation-dependent kabupatens and the 31 provinces each pose particular challenges related to their geomorphology and social-economic and institutional attributes. Their capacity to adapt to the reform has proven to vary greatly, and the piloting experience has shown that some local governments, and WUAFs, can reach institutional targets within three years while neighboring kabupatens need more than six. Thus, a successful approach must be based on a long-term critical engagement and continued "hand-holding'' - at the pace o f the local government and communities. Experience in the pilots suggests that deadlines imposedby the organization o f the Project often encumber mainstreaming o f the local reforms and are an incentive for counterproductive "quick fixes". Second, the diversity in the country still requires that - 4 - "best practices" need to be W h e r developed, and this should best take the form o f a "rolling learning platform". This will allow to optimize replication speed towards reachingthe overall coverage targets. ProgramPhasing. The program will be implemented from FY04 to FY 14with an Adaptable Program Loan (APL) comprising three comparatively short phases to allow swift adaptation to lessons learned. The institutional development "life-cycle" of a local government inirrigation management is estimated to be 5-7 years, and for river basin management 7-10 years. Thus, Phase Iwill "complete" the reforms inthe local governments in half o f the first cohort o f participating kabupatens that migrate out o f the JIWMP and IWIRIP projects. Phases IIand IIIwill then complete the reforms in the slower performing half of this first cohort, and replicate the reforms to the remaining local governments. The 11-year WISMP will provide, for river basin management, basic, institutional support to a total o f 60 BaIai PSDA in 18 provinces, but will concentrate its technical support to 34 o f them. For irrigation, WISMP aims to cover 3.5 million ha out o f approximately 6.5 million ha "functional" irrigated area, in 100kabupatens. 2. Projectdevelopmentobjective: (see Annex 1) For APL PhaseI(WISMP 1) (a) Water allocation, water quality and water conservation improved in Project basins, and river infrastructure better maintained, through strengthened capacity for planning and management; and investments. (b) Sector governance enhanced, and sector fiscal sustainability strengthened, nationally, and in Project basins, through setting up Water ResourcesCouncils; ensuring stakeholders involvement; unbundling o f operational tasks, and Private Sector Participation; andimproved cost recovery. (c) Increased agricultural productivity and improved performance o f irrigation, based on participatory irrigation management, through setting up and strengthening WUAFs; strengthening restructured Dinas PUP of local government; financing rehabilitation and improvement o f existing irrigation schemes; and facilitating access to agricultural support services andmicro-credit. 3. Keyperformanceindicators: (see Annex 1) Governance: National Water Council established and focusing on implementation o f the National Water Policy (as a transitional arrangement, the National Coordination Team (of Ministers) for Water ResourcesManagement i s upgraded). Basin policy decisions andbasin agency operations are transparent and reviewed by provincial and basin councils or committees that include stakeholders (including representation o f the interests o f women and vulnerable isolated indigenous peoples). All irrigations schemes governed by W U A F s in partnership with kabupatens via the Komisi Irigasi, which have stakeholder representation. Water use rights system piloted for more rational and fair water allocation and providing for in-river needs. Management Performance of Sector Agencies: Management audits show that kabupaten Department assistance to WUAFs i s participatory and effective. MIS systembeingmaintained, hydrology operations improving, andNationalWater Quality MonitoringNetwork operational inpilot sites. Fiscal Sustainability of Sector: Cost recovery mechanisms for river infrastructure maintenance identified and arrangements prepared. Arrangements for fees for effluent discharges and for water abstraction operationalized intwo basins. KIIF hnds disbursement on a matchingbasis under way. (Initiation 08Integrated Approach to Irrigated Agriculture Support: Farmers use extension services more regularly,raise income. - 5 - B. Strategic Context 1.Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: 21580-IND, 246084" Date of latest CAS discussion: September 3, 2002 The Bank's Country Assistance Strategy (2001) has three areas of focus: (a) promoting broad-based growth; (b) building national institutions for accountable government; and (c) delivering better public services to the poor. It proposes to support local governments that put reform into practice. WISMP 1 contributes substantially to the second and third objective by supporting GoI's ongoing water resources and imgation sector reform -- which in concept and practice i s a decentralization program -- and strengthening regional governments' capacities to meet their citizens' demand. The reform emphasizes the leading role o f communities, and good governance through oversight and transparency. The Project also contributes to the first objective through increasing rural income and minimizing the inequalities o f unbalanced economic growth; the field experience with four years o f piloting the irrigation reformunder JIWMP andIWIRIP (see Annex 13), demonstratesthat farmers now feel much more secureintheir water supply, feel less vulnerable, and see newbusiness opportunities. Contribution to CAS Poverty Reduction Focus. Typically one quarter to over halfo f the communities living in imgated areas can be classified as poor or otherwise particularly vulnerable. This is especially true on Java where average irrigated landholdings are on average only 0.3 ha. The 2001 ADB Poverty Assessment identifies the Java provinces, with the exception o f West Java, as among the structurally poorer provinces. The imgation investment support priorities are targeted to the poorer kabupatens, whereas improved governance in water management, and improved river water quality benefit in particular the poor in the long run. The sectoral focus in this program in principle precludes an unambiguous focus on poverty mitigation, because sustainable water management imposes an inclusive and comprehensive approach, thus affecting, within each imgation system both richer and poorer farmers; and within each river basin both the wealthier and the more vulnerable communities. Fostering cooperative action between these groups i s a precondition for structural poverty alleviation. Thus, the program is expected to have a pronounced positive effect on the reduction o f poverty and vulnerability (see Section 6.1). 2. M a i n sector issuesandGovernment strategy: The New Water Resources Management Paradigm. Under the Water Resources Sector Reform, a revised water resources law and regulations will realize the goals to improve governance and control public expenditure inthe following ways: (a) A National Water Resources Council composed o f sector ministers and non-governmental stakeholders will be established, while provincial, and river basin water resources councils or committees will be established locally. The councils will advise on, andreview policies and budgets for water allocation, conjunctive use, monitoring and evaluation, water quality management, managemento f flood anddrought contingencies, and investmentplanning. (b) A framework will be established for water allocation basedon water use rights, including for in-river ecologicalneeds. (c) River basin agencies will implement these policies on basin scale - in the form o f Corporations in highly developed basins, and o f Basin Management Units (Balai PSDA) under the provincial government administration inless-developed basins. (d) Provisionofan improved framework for water pollutioncontrol andwater quality managementbased on, i.a., new economic regulatory instruments. (e) Establishment o f a decision-support system, an institution to ensure the integrity o f hydrological data, and a national water quality monitoringnetwork. - 6 - The New Irrigation Management Paradigm. The Regional Autonomy laws devolve irrigation management to kabupaten governments, and, where the schemes cross kabupaten boundaries, to provincial governments. The Irrigation Management Policy (Government Regulation 77 (2001)) in turn transfers the governance over the network management to the water users associations (WUAs). It applies a participatory concept involving transfer o f irrigation authority and management responsibility to legally empowered and self-financing WUAs and WUAFs; WUAFs and kabupaten irrigation departments conclude a memorandum o f understanding in which the technical responsibilities for O&M o f each side is agreed. WAFSare nested institutions, where a Federation (WUAF) represents a series o f WUAs at the secondary-canal level, and an apex federation (IP3A) comprises all WUAFs at full-scheme level, thus creating critical mass with respect to finance and technical competence. Inorder to ensure willingness to accept management transfer, two major administrative and organizational changes are provided: (a) the role o f kabupaten irrigation departments includes capacity building, and technical and financial support o f WUAs; and (b) new demand-based matching-grant financing programs such as the Kabupaten Irrigation Improvement Facility (KUF) are established to assist WUAFs in financing the repair and upgrading o fnetworks under their management control. Fiscal Sustainability of the Sector. To date, the political will and appropriate administrative procedures have not materialized to implement Government Regulation 6 (1981) on payment for water services. Although the National Water Policy, issuedunder WATSAL in2001, recognizes the economic value o f bulk water supply services, cost recovery and fiscal sustainability are not yet practiced. Notwithstanding, the two existing basin management Corporations, and some local governments have been already collecting water abstraction fees from large users for many years. Although the fiscal burden of O&M of hydraulic infrastructure and irrigation networks has now been transferred to local governments, no comprehensive concept has been established for the funding o f these tasks through national budget transfers, cost recovery for water services (especially in irrigation), or for setting tariffs. Of particular significance is the need to allow earmarking of tax and fee income for water-related management tasks, such as for water abstraction and wastewater discharge, and the earmarking o f a portion of, e.g., the land property tax to pay for maintenance o f flood protection infrastructure. The unbundlingo f operational tasks inthe management o f infrastructure and resources to entities outside government is deemed increasingly feasible to reduce the expenditure burden on governmental budgets, and seek financial efficiencies. Inirrigation, autonomous WUAFs will increasingly assume O&M tasks over large parts o f the networks and contribute financially and in kind to the costs. In river basin management, the government established in 1991 a semi-commercial corporation (Perm) for river basin management on the Brantas River in East Java, which has emerged as a comparatively successful example o f a financially self-sustaining entity applying commercial principles. The realization o f this revenue potential will require sustained attention and support in the form o f staff skills, administrative procedures and regulatory frameworks. However, after the recent years o f inadequate maintenance, major rehabilitation o f infrastructure i s needed before a reliable bulk water supply can be ensured that would encourage customers to pay a reasonable price. Though the trend for Private Sector Participation and for "commercialization" o f agencies has moved further inthe water supply and sanitation sector, the sustainable resolution o f these issues offers opportunities inthe water resources sector as well. However, many incivil society remain suspicious o f these developments. - 7 - Tax Law 3412000 provides that water (resource) tax collection i s in most cases the prerogative o f provinces, but mustbe sharedwith kabupatens. However, no attempt is made yet to connect such income with relatedexpenditures, for example by earmarking or other reservations for the benefit o f maintaining the resource andthe infrastructure. Ingeneral, too little attention is paid to asset management based on adequate O&M funding or cost recovery, although both the National Planning Agency (Bappenas) and the Ministry o f Settlement and Regional Infrastructure (Kimpraswil) have started initiatives in this direction. Water Management in a Time of Intense Change: Integration, Decentralization and Governance. For over thirty years, the Ministry of Public Works (now Settlement and Regional Infrastructure, Kimpraswil) enjoyed a virtual monopoly in the use and development o f the nation's surface water resources andrelatedinfrastructure. Currently, this monopoly is challenged: (a) The regional autonomy shifts many responsibilities and budgets to kabupatens and provinces. They are now developing as new actors and decision-makers in the water resources sector, despite their relative lack o f experience and technical capacity. MoHA (DG Regional Development) has taken a lead in the empowerment o f local governments and WAFS,and established a Sub-directorate onWater Resources. (b) The political reform movement since 1998 has introduced concepts o f democracy and governance. The national as well as the local legislatures have become more vocal, introducing a demand for performance and accountability. Civil society, through activist NGOs and the media, is now pressing for better governance. (c) The competition for increasingly scarce water, and the recurrent floods and landslides, made abundantly clear that water needsto be managed in an integrated fashion, i.e., inwhich increased water use and development are balanced by catchment conservation, water pollution control, and the recognition o f the importance o f the aquatic ecology (with "values" ranging from productive fisheries to bio-diversity). Thus, other line agencies and Ministries, such as those of Environment, Agriculture and Forestry, need to become better able to assume tasks that are congruent with the aims o f integrated water resource management. These changes threaten the authority o f Kimpraswil, as it must adjust and shift from a centralized construction-oriented mode to one that guides local governments in meeting the demands o f their citizens, while also assuming the new task o f regulation and monitoring sector performance. At the same time, Kimpraswil has leading professionals and could grow into a national "center o f excellence" for one-off major infrastructure development, and for technical guidance, quality assurance and capacity buildingofthe regional governments. A large part of the approximately 25,000 staff on Kimpraswil`s payroll in 1999 were operators of irrigation schemes. The total staff complement has been reduced to around 8,500 in 2002. Nearly all o f this surplus staff have been decentralized to provincial governments. Inthe framework of the irrigation reform and with the strengthening o f the WUAFs, it i s advisable to gradually transfer the irrigation operator staff to employment under WAFS.Insome kabupatens this is taking place to some extent. - 8 - Irrigated Agriculture Development. Agriculture in Indonesia i s dominated by rice and, more generally, food crop cultivation. Over 80% of rice production is irrigated, o f which about 60% i s located on Java. Hence, commodity and input pricing policies are an essential aspect o f improvingrural income and ensuring a reasonable degree o f food (rice) self-sufficiency. Analysis suggests that some rationalization o f this situation in terms o f reallocation o f resources in the sector i s needed as, in many cases, rice cultivation yields lower incomes than more commercially oriented cultivation. International rice prices could exhibit a slight upward trend over the next five years but low farm income remains a pervasive problem in the rural areas, particularly on Java. In addition, over-reliance on one crop may increase vulnerability o f farmers. Given the pivotal function of water, Project interventions that lead to improved quantity and reliability o f water supply, create a favorable environment for complementary investments (highyield seeds, land improvements, harvest andpost-harvest machinery, etc.). Marketing infrastructure is weak in most areas. There i s limited market access and trader competition; farmers do not have enough market information; localmarkets are typically saturated, with seasonalgluts and low prices for popularly produced food and cash crops. This even pertains for rice. Transport and collectiodmarketing facilities are lacking and limited opportunity exists for contract or export-riented production. Provision o f agricultural infrastructure, inputs and extension advice i s dominated by government agencies which have limited effectiveness due to a number o f factors such as a vertical organizational structure in which emphasis i s laid on implementing "top-down" plans rather than responding to farmer-identified needs. Currently, farmer incomes from irrigated agriculture are adequate to allow a shift from a construction-driven approach under government expenditure, to one emphasizing O&M and optimization o f existing resources. Nonetheless, several irrigation schemes are producing far below capacity because they have never been completed, because o f deferred maintenance, or because o f competition from more attractive tree crop production. Hence, more efficient use o f irrigation resources must be promoted through coherent institutional reforms, cross-sectoral synergistic linkages (at local level), and investment Further, improving rural incomes will ensure that farmers are more willing to finance the O&M o f the irrigation systems and engage in crop diversification yet contribute to a high degree o f national rice self-sufficiency. 3. Sector issuesto be addressed by the project and strategic choices: Building on the regulatory and institutional reform under WATSAL, JIWMP, and IWIRIP, the Project will directly address the sector issues summarized below. Strengthening Governance in W a t e r Resources Management and Irrigation (a) Stakeholder involvement in water and river basin management The Project would support the National Water Council (and its predecessor, the Coordination Team (of Ministers) on Water Resources Management), and the Provincial and River Basin Water Resources Councils/Co"ittees, for which legislation is expected in 2003. However, the regional Councils/Co"ittees will still require regional decrees for their establishment and for administrative matters. An effort will also be made to develop sector awareness in regional legislatures in anticipation that this leads to both greater accountability, and willingness to allocate funds for infrastructure maintenance. As requirement to access funds from WISMP, Basin Water ResourcesCouncils/Co"ittees will be entitledto reviewthe Balai PSDA's Annual Work Plan and make recommendations to the Governor. - 9 - Empowered, autonomous user organizations for irrigation will: (i)keep the local government's irrigation agency more accountable for its "services" through a service agreement, and (ii) assure a higher degree o f internal governance as they are based on procedures for democratic election o f leadership, and transparent management. WAFSthat were set up under JIWMP tend to reasonably well represent poor farmers and women, but WUAF performance needs continuous monitoring and capacity building which WISMP will provide. To access WISMP proceeds the kabupatens will have to establish a Kabupaten Irrigation Commission ( Komisi Irigasi), with stakeholder respresentation, that will oversee the prioritization o f works in the irrigation schemes and manage the Kabupaten Irrigation Improvement Facility (KIIF). KIIF will channel funds from WISMP via the kabupaten budget to WUAFs. WUAFs will compete for these funds, destined to provide them with "matching finds" for larger maintenance and repairs. River basin water resources management and planning (BWRMP). As done successfully under JIWMP and IWIRIP, selectedparticipatingprovinces will establish a Basin Planning Unit in the provincial Dinas PUP. The Balai PSDA are to maintain a comprehensive data base on socio-economic, environmental and regional development, and mainstream environmental and social safeguards. Basin planning will require mandatory public consultation. Better governance i s further assured through mandatory involvement o f the new Basin Councils/Co"ittees in BWRMP formulation and review. The basin Balai PSDA would equally be required to seek recommendation from the Council/Committee for its work plans andbudgets. Water use rights (WUR). Formal recognition o f WUR (including environmental, social and traditional uses) is an important part o f sector governance as most rivers and basins are over-used and weaker users tend to have their rights appropriated by stronger parties. A WUR system would be established featuring, i.a., WUR data available for public inspection, and the contestability o f rights. WISMP 1 will pilot prototype systems for water allocation consistent with the WUR provision o f national Water Resources Sector Reform legislation, while the later ProgramPhases will focus on the adoption process o f a viable WUR administration and its wider implementation. Improve System Infrastructure and Management Performance of Sector Agencies Supportive Investments in Civil Works Rehabilitation and Improvement. The country's stock of infrastructure assets has seriously degraded because o f persistent underfunding o f O&M in the nineties, and the subsequent economic crisis (1997-2002). Further delays inrepair and rehabilitation would cause rapiddisintegration o f much o fthis infrastructure. The Programwill provide budget for small to medium investments in infrastructure rehabilitation and for equipment. For Phase 1 following principles will guide the selection o f investments: (a) for river infrastructure involving the Balai PSDA and Provincial Dinas PUP, loan proceeds for operational support will follow progress inthe organization's capabilities, i.e., initial annual programs will concentrate on its hydrological and water quality monitoring role, followed by a modest river infrastructure maintenance and rehabilitation program, that may increase in complexity after WISMP 1; and (b) for irrigation, rehabilitation and upgradingwill be minor inWISMP 1 and limitedto existingcanals. Budget for works will be provided only after the kabupaten and WUAF organization are found consistent with the irrigation reformguidelines (See Annex 2). Management Capacity. At the provincial level, WISMP 1 will focus on the Dinas PUP and the Balai PSDAs for water resources management (notably, planning, operation and water allocation, asset management, quality assurance (QA) and river and infrastructure maintenance). In the later Phases, attention will be shiftedto capacity buildingo f the Dinas' regulatoiy functions. Starting with the APL 1, the Program will introduce independent Technical and Management Audits of Balai PSDA to determine progress inimproving all management controls. -10- At the kabupaten level, the irrigation management function o f the Kabupaten Dinas PUP will be addressed, with emphasis on asset management and QA. Similarly, the capacity buildingprogram will also provide for improved social and communication skills and for the joint management o f irrigation schemes by the Dinas andWUAFs. Technical and managementaudits, as well as impact assessments and a third-party impact monitoring and complaint handling system, will be used to monitor, evaluate and guide this component. At the national level, the capacity would be strengthenedto facilitate and orient local government Dinas in the execution of their tasks, collect and manage data and make operational the MIS; develop a nation-wide capability to monitor impact and progress in sector development; and develop technical guidance and standard-setting capacity in basin water resources management planning and irrigation. In addition, WISMP will assist Go1to establish multi-agency oversight and policy making bodies. River Basin Corporations (RBCs). WISMP 1will: (a) support tariff and other studies to ensure a more sound revenue base for pilot basin Corporations; and (b) undertake management capacity building support for the Jratunseluna and Serayu-Bogowonto RBCs (both in Central Java) in whose basins the Bank has been active inthe past. Training and National Capacity Building Network Training packages oriented at management and implementation will be developed and institutionalized in the training programs. To introduce competency-based training, the programwill have to train master trainers. Similarly, "peer leaming" will also be introduced: agencies that have advanced well will be singled out as demonstration centers and venues for management workshops. A national network o f "capacity building institutions", especially engineering, agronomy, (aquatic) biology, and social sciencesleconomy departments in universities and polytechnics, but also NGOs and specialized research agencies, will be formed to influence academic curricula o f irrigation and agricultural specialists, andto create a national pool o f expertshowledge with intemational linkages that can influence in the long run the quality and pro-activeness o f the capacity buildingprograms. Irrigated Agriculture Initiatives. WISMP 1 will: (a) assist in identification and effective mobilization o f local service demand, notably through the WAFSthat are able to aggregate demands from 1000 - 3000 individual farmers; (b) facilitate complementary investments in physical and human capital; and (c) promote the integrated provision o f inputs, and credit and extension services in a client-focused manner for the purposes o f crop intensification. The decision about which complementary interventions for crop diversification are required, through the government or private-sector providers, will be channeled through a Kabupaten Inter-agency Extension Commission (with stakeholders) based on the experience inDAFEP. 4. Program description and performance triggers for subsequentloans: The WISMP APL i s founded on the regulatory and institutional reforms initiated under WATSAL, and o f which strategic parts have been piloted on a large scale under JIWMP and IWIRIP. The focus is on the implementation of these reforms at local government levels over an 11 year period by building capacity for better managing the nation's water resources, in combination with targeted investments in infrastructure rehabilitation and improvement. Specifically, it will: (a) Set up and strengthen river basin agencies (Balai PSDA) responsible for O&M o f the rivers andtheir infrastructure; and provide finance to carry out that task as well as for rehabilitation and improvement o f infrastructure. -11 - (b) Strengthen provincial river basin planning units (in Provincial Public Works DepartmentslDinas PUP), as well as other supportive activities such as hydrology, Quality Assurance procedures, and MIS. (c) Set up and strengthenWater Resources Councils/Committees at national, provincial and river basin levels, to increase stakeholder participation and enhanceaccountabilityo fgovernment agencies. (d) Set up andstrengthen WAFS governance authority and O&M capacity (participatory irrigation with management); and provide finance to carry out that task as well as for rehabilitation and improvement o f infrastructure. (e) Strengthen kabupaten and provincial Dinas PUP and Irrigation Commissions to carry out the local governments' part o f the O&M responsibility and facilitate WUAFs; and provide finance to carry out that task as well as for rehabilitationand improvement o f infrastructure. (9 Facilitateimprovementoftheproductivityofirrigatedagriculture andraise farmer incomes. Phase Z (WISMP 1) will last 4 years and assist Go1 and regional governments to consolidate the institutional reforms in the 5 Java provinces and their 45 kabupatens under JIWMP, and further implement the sector reform begun in 7 off-Java provinces and in their 25 kabupatens started under I W W . All selectedprovinces andkabupatens are those that have already beeninvolvedinthe two pilot JIWMP and IWIRIP projects, so as to ensure continuity with the earlier institution building. InPhase ZZ, the design of program activities will be adjusted to incorporate the experience o f the first phase. First, the programs initiated by WISMP 1in 12provinceswill be continued, and completedwhere appropriate. Second, WISMP 2 would expand the activities to 30 additional kabupatens and three provinces, along with increasing the scope and complexity o f planning, programming and budgeting for the investment components in selected basins. Duringthe second phase, safeguard policies would be further deepened and expanded to meet possible contingencies arising from river basin management in the last phases of the Program, and support to the sector civil service reform would be completed. WISMP 2 would also feature some investment towards completion o f partly built irrigation schemes, and for selecting and preparing detailed designs for modest, medium-sized river infrastructure works that are considered o f strategic importance for good water allocation, and that can facilitate cost recovery. Phase ZZZ will further improve program designs to the point that they can be considered robust yet sufficiently flexible to respond to local conditions, expand the activities and institutionalize its innovations as a sustainable modus operandi within the country. During this phase, the more complex and demanding parts o f the programs started under Phases Iand I1would be completed. WISMP 3 would also include higher levels o f investment for rehabilitation o f strategic river basin infrastructure, and further completion o f partly built irrigation schemes in the Outer Islands, as the institutions and cost recovery mechanisms that can guaranteebetter sustainability will be inplace by that time. Principlesof Program Design. 0 The type and the size o f the investments, and the local financing mechanisms, will be such that they can be assumed by the newly established local government administrations and WAFS ("learning-by-doing"). This will allow to: (i) build capacity at the pace o f absorption by these to organizations; (ii)introduce new incentives; and (iii) economic development. foster 0 A flexible process will ensure that the reforms are introduced gradually. This will also allow a certain degree o fpiloting so that the institutional design o f these reforms can be further improved and can be adjusted to local conditions andproperly internalized. Also, it i s recognizedthat it takes time to overcome entrenched attitudes and inappropriate staff skills mixes associated with the conventional supply-sidedinvestment culture. 0 Overall, the design and project implementation will prioritize the achievement o f the institutional development goals, rather than meeting disbursement targets on physical works ("expenditure pressure") . - 1 2 - 0 Provision o f funds will be organized in such a manner that local governments, andwithin kabupaten, WUAFs, have to compete for scarce funds on an annual basis, and must demonstrate improved governance structures and proper use o f the funds (see Annual Work Plan mechanism and cycle, Annex 2). The field experience under JIWMP andIWIRIP showed that the rate at which institutional development goals are achieved varies greatly from one local government to another. Thus, the inherent flexibility of the APL i s expected to facilitate the "coaching" o f the local governments on this course o f reform. The achievement o f certain institutional benchmarks has proven to proceed fast in certain kabupaten and provinces, and slower in others. Also, kabupaten heads and provincial govemors change, the rate o f reform implementation can fluctuate over time. Coverage Goals for the APL. The Table below provides the overview o f the proposed geographic coverage per APL Phase for the main components. Interms of activities, the Program's Phases will always first support the institutional development and capacity building in the participating provinces and kabupaten, respectively, followed by the start o f the physical infrastructure improvement. Thus, typically, inany such a region, the first 2-3 years are dedicated to institutional development and capacity building,thereafter a 2-3 year periodfollows with bothactivity types simultaneously, followedby a third period o f 2-3 years with little capacity buildingbut predominantly the infrastructure improvement. This staggering also allows to address first "small or simple parts" o f the irrigation schemes that can be addressed by still weak local institutions. The rate at which infrastructure improvement can be implemented and the funds absorbed i s constrained by the limitedtechnical capacities inthe regions. By APL 3, when local institutions will have become stronger, the more capital-intensive andor complex parts o f the improvement can be undertaken. APL 1 APL 2 APL 3 Total Project Cos1 115.60 157.50 192 .OO [Loadcredit Amount] (LJSrSM; [701 [1101 [1401) 12Provinces 12Provinces 15 Provinces 42 basins 3 m P r o v . 51 basin/l Corp 18 Provinces Development 1 Corporation 5 1basins (cont'd) 60 basins 1Corporation(cont'd) 3 m P r o v . 2 Corp. 9 basins 1 newcorp. Operation, and 11Provinces 11Provinces 12Provinces Infrastructure 16 core Balai 1 U P r o v . 3 U P r o v . 15 Provinces Improvement total 24 core Balai total 34 core Balai 34 Balai 1Corporation 1 Coruoration 1Com. lomponent B: 70 Kabupatens 70 Kabupatens 'articipatory Institutional 2,350,000 ha 2,350,000 ha 100 Kab. rrigation M m g t Development (cont'd) 30 U K a b . 3,550.000 ha 30 m K a b . 1,200,000 ha I 1,200,000 ha (cont'd) 70 Kabupatens 70 Kabupatens 70 Kabupatens Infrastructure 1,177,000 ha 1,177,000 ha (cont'd) 1,177,000 ha (cont'd 100Kab. Improvement (smallisimple 1,177,000 new (smallisimpleparts) 3,550,000 ha Parts) (smallisimpleparts) 70 Kabupatens (priority 2,350,000 ha largeicomplex. 30 m K a b . (large/complex parts scheme components I 600,000 ha 30 Kab. improved) (smallisimpleparts) 600,000 ha (cont'd) 600,000 =ha (small/simple parts) -13- Triggers to migrate to SubsequentPhases. From Phase Ito Phase 11: (a) Four fully functioning Balai PSDA that: (i) staffed adequately as are determinedby work load analysis and have been trained in aspects of management, technical, financial and communication skills, (ii)adequately funded up to 50% by provincial APBD funds for all administrative, operational and O&M aspects based on a Need-Based Budget, (iii) have full planning, budgetary and implementation control as evidenced by designating the Balai PSDA Staff as Project Manager or as Sub-Project Manager with full spending authority, (iv) have introduced and implemented an asset management and quality assurance program for managing the river infrastructure asset as evidenced by the Balai PSDA annual Asset Management Report, (v) have completed the required data base for basin water resources management and implemented an MIS, (vi) have implemented any or all basin activities, that are o f importance and agreed to by BWRC, in the area o f bulk water allocation, water quality monitoring and river infrastructure management as evidenced by the Balai PSDA annual report, and (vii) have obtained a satisfactory rating in the annual Balai PSDA institutional evaluation by the Dinas PUP; (b) Fifty W A F S legally established and functional with respect to governance, maintenance and rehabilitation of schemes, financial sustainability; and using extension services and credit; (c) Operational Guideline agreed on river basin management incl. environmental and social safeguards; (d) Fiftypercent o f external funding disbursed. From Phase I1to Phase 111: (a) Governance, management and fiscal performance improved in four Java provinces. (b) Four Balai PSDA in off-Java provinces established and functional as described above. (c) Fifty W A F S in off-Java provinces established and functional with respect to good governance, maintenance and rehabilitation o f schemes, financial sustainability; and using extension services and credit. (d) Sixty percent o f external funding disbursed. C. Program and Project Description Summary 1. Project components(see Annex 2 for a detaileddescriptionand Annex 3 for a detailed cost breakdown): WISMP 1 will support the following 12 provinces with strengthening, notably, their river basin management, and 70 kabupatens (number between brackets) with strengthening their participatory irrigation activities see Annex 2 for detailed list). All kabupatens mentioned have been involved in the JIWMP and/or IWIRIP programs. North Sumatra (2) West Sumatra (2) South Sumatra (2) Lampung(2) East Nusa Tenggara (2) Central Sulawesi (3) South Sulawesi (12) West Java (8) Central Java (17) DIYogyakarta (5) East Java (15) Banten(only river basin management) Component A. Basin Water ResourcesManagement (Base Cost US$56.7 M) - 1. Sector Governance andBasin Planning (Base Cost US$14.1 M) - This sub-component will assist inthe establishment and/or strengtheningo fthe following national sector institutions: (a) the National Water Council (NWC) and its precursor the Coordination Team (of Ministers) for Water Resources Management, with their Secretariats; (b) the National Steering Committee for Water Resources(NSCWR) withits Secretariat; (c) the Provincial Water Resources Council or Committee (PWRC) with its Secretariat, in each o f the - 1 4 - 12Project provinces; (d) Basin Water Resources Councils or Committees (BWRC) inriver basins that are supported by the Project; and (e) the DamSafety Commission (DSC) and Dam Safety Unit. Inaddition, Provincial Planning Units will be established as well as the Central Basin Planning Unit. Technical Assistance will be provided to national-level andprovincialentities for Basin Water Resources Management Planning (BWRMP). Many o f the basins and provinces already have CoordinatiodManagement Committees (Panitia Tata PengaturanAir, and Panitia Pelakanaan Tata PengaturanAir, PTPA and PPTPA, respectively), but for the purpose o f the Project these will be upgraded to include the stakeholder representatives. Their task and authority will be specified in the Decree the Provincial Govemor will issue, based on a Surat the Director General Water Resources,Kimpraswil, has issued inMay 2003. The Project will also fund facilities and some incremental operating costs for the Councils/Committees and Secretariats' operation. Support will be providedto firther develop and adopt Dam Safety Assurance policy, and legislative and regulatory frameworks, to reposition and strengthen the Dam Safety Commission (DSC)/Dam Safety Unit (DSU) and to integrate activities as part o f the national/provincial water resourcesmanagement function. A national TA for Basin Water Resources Management Planning (BWRMP) will be supported. 2. Management Capacity of BasinAgencies (Base Cost US$10.4 M)- This component will assist in the establishment andor strengthening o f the Balai PSDA (River Basin Management Units, under provincial budget) and Basin Corporations (PJTs). The following activities will be eligible for funding to the Balai PSDA that are operational, and for provincialDinas PUP and PJTycontingent upon the AWP review. Enhancement o fDinas PUPmanagement and supervision skills improved for basin management activities through operational guidelines, training, study tours and management audits; 0 Preparation o f Balai PSDA Quality Assurance, institutional performance reviews, asset management and cost accounting manuals; staff training modules; training workshops and courses; technical andmanagement audits; annual inspection and reporting system; e Balai PSDA management and skills improvement training by introducing gender-sensitive courses; e Dinas PUPK management skills improved in selected kabupatens for basin management through training and comparative study; e Detailed studies and preparation o f procedures manuals for sector MIS and decision support system; computers and communications; data collection, compilation and entry work; Floodmeasurement support, data analysis and verification; workshops etc.; Public awarenesscampaigns; National TA for Basin Water ResourcesManagement (BWRM); and Technical staff and incremental costs for the NPMUandNPIUs. 3. Fiscal and Cost Recovery Policy (Base Cost US$2.00 M) - This sub-component will assist in the establishment andor strengthening o f the fiscal position and cost recovery related to water management in river basins. The following activities will be eligible for funding to the Balai PSDA that are operational, PJT (Basin Corporations), provincial and kabupaten - 15- Bapedaldas (Environmental Management Offices) and provincial Dinas PUP, contingent upon the AWP review: Studies, and preparation o f the regulatory and administrative capacity to earmark water abstraction fees for river infrastructure O&M, including assessments on the willingness-to-pay o f water users in the basin, and on strategiesto affect this andfrom hydro-power generation; Studies, and preparation o f the regulatory and administrative capacity to use property and/or other appropriate tax revenues for flood control O&M; Effluent discharge monitoring and fee computations; river water quality monitoring and stream quality classification studies; studies, and preparation o f the regulatory and administrative capacity to introduce wastewater discharge permitting system, and revenue generation by collecting wastewater discharge fees and/or fines for water quality monitoring andmanagement; Studies to adjust the Civil Service (Kimpraswil, Dinas PUP at provincial and kabupaten levels, and others) to the future development, includingretraining strateges; Studies for policies and procedures and a regulatory system to set, review or renegotiate Basin Corporation tariffs, charges or fees; and Preparation o f guidelines/models for Balai PSDA needs-basedbudgeting and AWP programming and budgetingand institutionalperformance guideline. Basin Management and River Infrastructure Improvement (Base Cost US$28.7 M) - This sub-component would include the following: (a) support for an operational and monitoring system for (i)hydrology management that includes rationalizing the hydromet network and operationalizing the network, (ii) water allocation management that includes repairs to delivery and measuring infrastructure to ensure that water allocation can be monitored and managed, (iii) basin water quality management that includes establishing an ambient water quality network, monitoring and reporting system, and (iv) flood management; (b) a program for river infrastructuremaintenance (RIM)that includes operationalization o f an asset management system and carrying out routine maintenance; (c) prioritized urgent repairs o f key river and flood control infrastructure; and (d) establishment o f a National Water Quality Monitoring Network system. Specific activities to be financedinclude the following: Operational andmanagement activities for Dinas PUP hydrology unit/section and Balai PSDA for all hydrology activities inthe basin including installing new gauges, repairing gauges, data collection, analyses and reporting; Water allocation operations includingmonitoring, reporting and management andrepairs to supply/allocationmeasuring structures; Operationfor river water quality monitoring, processing and reporting activities; Basin flood managementactivities that include flood warning, flood fighting, flood monitoring, flood damage assessment andreporting; Annual River Infrastructure Maintenance (FUM)operational activities androutine maintenance; Support for Balai PSDA work for Basin Councils/Committees, watershed activities, and Balai PSDA operational TA; Support for Balai PSDA priority maintenance o f key river and flood control structures and other flood warning infrastructure andits operation; and Procurement o f laboratory and field monitoringequipment, data processing and retrieval procedures and software, training and field monitoring operations for the National Water Quality Monitoring Network, includingthe activities o f the State Ministry o f Environment, Bapedaldas andBalai PSDA or PJTs and for the involvement o f riparian communities for the purpose of community-based water quality monitoring. The water quality monitoring tools will include bio-monitoring tools, and the water quality indicators will encompass aquatic ecology and biodiversity aspects. -16- Physical Sub-projects underRiver Infrastructure Maintenance (RIM)include the following: (a) Sub-projects RIM-A: Repair o f small to medium-sized river infrastructure works or river channel works, confirmed as o f strategic priority by the Balai PSDA as operator o f the river basin, and carried out by the ProvincialDinas PUP. (b) Sub-projects RIM-B: Repair of small river infrastructure works or silt removal works carried out by the Balai PSDA. These works are small in size and most can be carried out through force-account (swakelola). The Sub-projects underthe RIMfor the first year havebeenidentifiedandappraised. 5. NationalCapacity BuildingNetwork(Base Cost US$1.6 M) - To develop a sustainable human resources capacity building process for water resources and irrigation management, it i s necessary to reorient higher education programs towards multi-disciplinary and integrated approaches and to strengthen the economic and social sciences inthe sector. Integrated Water ResourcesManagement is understood to notably include water management aspectspertaining to aquatic ecology and biodiversity. The responsibility of educational program development is and will remain with the educational institutions under supervision o f the national accreditation board. A national water sector capacity buildingnetwork with links to international networks will be established and developed to facilitate the process o f reorientation and continuous curriculum development. This will result in updated needs assessments, modules in regular educational programs and short courses and training programs for the water resourcesand irrigation management institutions. The Project will support: (a) the initial cost for establishment of a network secretariat, (b) the development o f a national strategy for sustainable human resources development in the water resources and participatory irrigation management sector, (c) workshops, training and upgrading to improve curriculums at national level, inuniversities, (d) training and upgradingo f faculty and educational staff at polytechnics and vocational schools in the multi-disciplinary and integrating aspects o f water resources and participatory irrigation management practices, and (e) general awarenessprograms. ComponentB. ParticipatoryIrrigation Management (Base Cost US43.0 M) - 1.Water User AssociationsCapacityBuilding(Base Cost US$8.3M) - This sub-component will support the establishment and functioning o f the following: (a) Kabupaten Irrigation Commissions (Komisi Irigasi), consisting o f representatives Kabupaten Dinas, W U A F s as well as other stakeholders and with sensitivity to gender; and (b) scheme-level or apex WUAFs, and individual WAS,with active voluntary participation o f women (GP3A, IF'3A) in all irrigation scheme. These community-based institutions would play a decisive role in: (i) formation o f scheme management programmingwith respect to bulk water delivery services, settingpriorities inuse o f agency and WUAF funds for maintenance and rehabilitation works; (ii) collection o f WUAF cash contributions needed for matching local govt. O&M and KIIF grants; (iii)water dispute resolution between individual local W A S ;(iv) construction monitoringunder Dinas authority; and (iv) catalyzing and organizing WUAF collective action. -17- To achieve these outcomes, a WUAF establishment and development program following the irrigation reform principles (Pembaharuan Kebijaksanaan Pengelolaan Irigasi-PKPI) and the agreed framework o f action (Kerangka Acuan Kegiatan) as described in Annexes 2 and 13 will be undertaken in a staggered manner for all irrigation systems in the participating Kabupaten. This program includes a management skills training program for all W A F Executive Committees. Periodic scheme and kabupaten workshops will be held to exchange experiences with program managers and establish a WUAF Support Group (and possibly a regionalAssociation or Network) o f successful WUAFs to guide weaker organizations. Technical and management audits would be carried out to assess progress in WUAF capacity building. A national TA for Irrigation Management Reform Program (IMRP)will be supported. 2. IrrigationDepartment Capacity Building (Base Cost US$5.1 M) - In order to improve institutional capacity and operations at kabupaten level, and recognizing that the functional mandates o f Kabupaten Dinas PUP are changing to reflect their facilitating role and that the agencies are to be reorganized so that technical staff, with the extension workers (KF'L) andCommunity Organizers, are able to work with W A F Sand provide technicaUmanagement guidance for O&M and construction, the component will support the following activities: Preparation o f management and communications skills training modules for Dinas staff after conductingDinas capacity buildingneeds assessment. Preparation o f prioritized improvement o f scheme headworks and canal components under local government management through participatory design and construction (limited to individual packages o fbelow S100/ha served-larger packagesrequiringeconomic analysis). Preparation o f computerized asset managementprocedures for irrigation schemes, staff training and computer procurement. Quality Assurance procedures prepared for Dinas management and staff; training o f trainers and staff. Preparation o f updated Dinas schedule o f rates, reintroduction o f efficient needs-based budgeting procedures and relatedtraining. Preparation o f management oriented field survey-based irrigation performance monitoring system andprocedures; staff training and survey implementation. Preparation o f StandardDesigns and other WUAF technical assistancemodules. Calibration o f key canal regulators anddivisionstructures. Provision of local TA to support local PIUS, i.a., Project management staff and technical staff includingjunior engineers. Irrigation Infrastructure Improvement (Base Cost US$26.8 M) - Kabupaten and province that have adopted the institutional model o f the irrigation reform PKPI (see Annexes 2 and 13) are eligible to access loan proceeds. When the kabupaten has established the institutions for the Kabupaten Irrigation Improvement Facility (KIIF) it can also access loan proceeds to finance activities implementedby the WUAF. The PKPImodel comprises conclusion o f an M o U ineach province between provincialand kabupaten governments specifying those irrigation network components that are under the O&M responsibility o f the Provincial Dinas PUP because they: (i) cross the border between kabupatens or are otherwise o f strategic importance to more than one kabupaten, or (ii) pose unusual technical problems (soft and sliding soils, tunnels, etc.) that cannot be addressed by the Kabupaten Dinas PUP. Secondly, within each kabupaten an MoU/Service Agreement is concluded -18- between Dinas PUP Kabupaten and WUAF that defines which parts o f the primary and secondary canal systems are under the O&M responsibility o f either party, and for which specific maintainance tasks the WUAF will assume responsibility (e.g., they may agree that silt removal in a primary canal will be responsibility o f the W A F but that repair and rehabilitation o f the structures in that part are under purview o f the Dinas PUP). Inthe irrigation systems under WUAF authority, the Project will finance three types o f investments inrepair, improvement and upgrading (RAJ): 0 Sub-projects A: These are works carried out in the irrigation network by the Dinas PUP in irrigation system components that are under the Dinas' responsibility, in accordance with the MoU/Service Agreement. Counterpart budget is provided from APBD Kabupaten. Each work i s (1) endorsed by the Komisi Irigasi and WUAF concerned, (2) applies the selection, design and construction principles outlined in the Project Management Manual, based on screening criteria and safeguards, and (3) follows the procedure o f participatory design, and unless unfeasible because o f technical complexity, follows the procedure o f participatory construction (contractor hires part o f its labor from among WUAF members). Works larger than US$150,000 will be required to be executed by the Provincial Dinas PUP. Small works (smaller than USS25,OOO) can be directly assignedfor execution to WUAFs. 0 Sub-projects B: These are works carried out in the irrigation network by the WUAF in irrigation system components that are under the WUAF's responsibility, in accordance with the MoU/Service Agreement. Financing i s provided from APBDK through the KIIF mechanism, managed by the Komisi Irigasi, based on a matching-fund principle with around 5-%% of the cost (in money and in kind) borne by the WAF. Counterpart budget, thus, i s provided from APBDK and the WUAF. Eachwork i s (1) selected by the Komisi Irigasi based on a competitive review among the WUAF inthe kabupaten, and (2) applies the selection, design and construction principles outlined in the Project Management Manual, based on screening criteria and safeguards. 0 Sub-projects C: These are works carried out in the irrigation network by the Provincial Dinas PUP in major irrigation system components that cross kabupaten boundaries (lintas batas) and fall under the Provincial Dinas' responsibility, in accordance with the M o U concluded between provincial and kabupaten governments. Counterpart budget is provided from APBD Province. Each work i s (a) endorsed by the respective Komisis Irigasi, (b) applies the selection, design and construction principles outlined in the Project Management Manual, based on screening criteria and safeguards, and (c) follows the procedure o f participatory design, and unless unfeasible because o f technical complexity, follows the procedure o f participatory construction (contractor hires part o f its labor from among WUAF members). 0 Works larger than $150,000 inirrigation system components that are under the Kabupaten Dinas' responsibility. Counterpart budget i s provided from APBD Kabupaten or APBD Province, as will be described in the Project Management Manual. Each work is: (a) endorsed by the Komisi Irigasi and the WUAF concerned, (b) applies the selection, design and construction principles outlined in the Project Management Manual, based on screening criteria and safeguards, and (c) follows the procedure o f participatory design, and unless unfeasible because o f technical complexity, follows the procedure o f participatory construction (contractor hires part o f its labor from among WUAF members). -19- 4. Irrigated AgricultureImprovement Program(IAIP) (Base Cost US$2.7 M) - The overall objective o f the IAIP sub-component under this Project would be to: (a) strengthen farmer organizations (WUAFs) so that they have the technical, organizational, and managerial capacity to formulate their demands and to enable them to interact efficiently and with bargaining power with service providers (research, extension, agricultural inputs, processing, credits, etc.); and (b) make the service providers, both public and private, more responsive (demand driven), farmer oriented and accountable to their clients. Implementation will be done at the kabupaten level utilizing and strengthening existing institutions like, for example, in DAFEP (the Decentralized Agriculture and Forestry Extension Project under MOAand funded by the Bank) kabupatens where Agricultural Extension Commissions (Komisi Penyuluhan) are already established. In other kabupatens where Komisi Penyuluhan has not been established, a similar inter-agency Task Force within the Komisi Irigasi (Pokja Penyuluhan Pertanian Kabupaten) will be established and provided with Terms of Reference. The piloting will be carried out in 11kabupatens, o f which 5 have prior successful experience with the DAFEP (see Annex 2 Attachment 3). - Kabupatens that have adopted PKPI and established legalized WAFS,can access funds, that are made available through the APBD Kabupaten. The activities comprise the testing o f agnculture development mechanisms inpilot projects in 11kabupatens (of which 5 are those with prior involvement in DAFEP) utilizing the potential o f the scale and the legal status o f the WUAFs and their apex bodies through: (a) the establishment and strengthening o f linkages and communication channels between the WUAFs and extension and demonstration activities, existing credit and loan mechanisms and other related existing and planned initiatives; (b) the increase o f the creditworthiness o f the WUAFs and reduction of market risks borne by credit providers through training programs; (b) the strengthening o f the bargaining position o f WUAFs and their membersregarding marketing, market information, quality control, supply of inputs, and access to technology; (d) establishment o f modest, flexible funding through a Kabupaten-based IAIP-Fund (up to a maximum o f US$50,000 equivalent per Kabupaten) that WUAFs can access after PRA assessments, with associated procedures to strengthen their organizational buildingto enable the WUAFs; and (9provision of operational fund for the PIUs and training funds for capabilities and to access the services o f their choice, (e) technical assistance in organizational capacity WUAFs. ComponentC. ProjectManagement (Base Cost US$8.1M) This Component will support the National Project Management Unit and the National Project Implementation Units, as well as the Provincial and Kabupaten Project Management and Project Implementation Units. Following are the main Technical Assistance packages to support Project management: (a) Financial Management Services (FMS); (b) Impact Monitoring and Evaluation Unit (IMEU); and(c) Preparation ofWISMP 2. - 20 - B.4 IrrigatedAgriculture Improvement 2.94 2.5 2.10 2.5 C. PROJECT MANAGEMENT 8.86 7.7 6.32 7.5 0.0 0.0 Total ProjectCosts 115.11 99.6 83.55 99.5 Front-end fee 0.45 0.4 0.45 0.5 Total Financing Required 115.56 100.0 84.00 100.0 2. Key policy and institutional reforms supported by the project: As described in Section B.2, the key policy and institutional reforms are taking place under the WATSAL framework (due to close in 2003). Many of the legislative and regulatory improvements are already, or are planned to soon be, in place for the Project to achieve its objectives. As Conditions for Effectiveness the following actions will be needed: the Joint Ministerial Decree on IrrigationFunding ( KIIF/DPIIK),a Surat Edaran (Circular) of the DG Budget o f MoF on the channelling of finance to the KIIF, andthe MinisterialDecree on Administrative Re-organization (Redeflnisi Tugas), are to be issued, acceptable to the Association. However, a number o f the national policies and institutional reforms are only "enabling" and need to be made operational by Go1and local governments ifthe Program objectives and design are to be relevant. The proposed Program and Phase IProject aim at implementing the new sector paradigms, policies and institutions established by the Water Resources Sector Reform-related enabling legislation. WISMP 1 aims to prepare for gradual introduction o f additional policy and institutional reforms, regarding: 0 a cost recovery policy based on fiscal sustainability considerations for: (a) maintenance (and, possibly in some instances, partial amortization) o f key river infrastructure using earmarked charges and revenue sources; and (b) mandatory contributions from beneficiaries for irrigation water delivery; 0 use of effluent discharge fees, and use o f fee revenue to defray the costs of water quality monitoring; and 0 introduction o f a water use rights system that improves equitable water allocation. -21 - 3. Benefits and target population: The Project (WISMP 1) would generatebroadbenefits for the rural and urbanpopulations on Java and in the 7 other provinces because it aims at developing and mainstreaming "institutional models" that can be replicated beyond the geographic limitations o f the Project area. The primary target population comprises: 0 The water users in the Project's river basins in the 12 Project provinces, notably men and women farmers, urban and rural settlements, industries, and communities that depend for their livelihood on water from the rivers. 0 Menand women farmers, as well as landless laborers and by extension the rural population, inthe Project areas, as they will benefit from better water availability and from programs to assist in strengthening the rural economy. As the Project intends to cover approximately 2.35 million ha o f irrigated area, it will affect around 6.7 million farmer households or 40 million rural dwellers who directly depend on irrigation, whilst an additional group's income in the rural space depends indirectly on the performance o f the irrigated agriculture. 0 The populationon Java as food security and environmental quality will improve. 0 The communities that live inthe upper catchment areas inthe Project areas and that will be assisted with programs to improve the managementofthe soils and landcover to reduce soil erosion. At least 1.3 million poor farm families, especially share-croppers, as well as possibly 1 million daily laborers are likely to benefit directly from the more reliable irrigation service and increased income, and indirectly from improved access to agricultural information and extension services, and new business opportunities. Itwill also benefit women`s groups and women-farmers (widows, divorcees, households in which the husband is away from home for prolonged periods earning a salary in the non-agricultural sector) since they would have better access to water for household use, for production o f high value crops, like vegetables, inthe home garden, and to enhance the rearing o f poultry and small livestock. In addition, under the JIWMP and IWIRIP activities, women have been shown greater participation in the WUAFs, notably as treasurers. The Project i s expected to yield the following benefits: A more sustainable use o f a key natural resource o f the nation, through improved governance of water resources services, and more reliable and equitable water allocation, including improvement o f water quality. A more efficient use o f of public and community resources (budgetary and others), and hence better returns from them, through improved rural governance and economically more rational decision-malung byplacing public irrigationscheme beneficiaries in a governing role. Improved rural income by: (a) improved irrigation services, and (b) new business opportunities for agricultural enterprises centered around the new farmer Water User Associations. Decreased fiscal burden on revenue-strapped regional governments, while improving their managerial performance and cost-effectiveness. Extending the economic life o f key publicly financed assets by better prioritization o f repairs and improvements o f expensive structures sufferingfrom deferred maintenance. - 22 - 4. Institutionaland implementationarrangements: At the CentralLevel(Annex 2, and Attachment 1to Annex 6B): Four ministries will be involved in the project execution, and have each a National Project ImplementationUnit (NPIU) with the primary task o f guiding and monitoring the activities undertakenby the local governments: DGWR of the Ministry o f Settlement and Regional Infrastructure (Kimpruswil), DGBangda of MoHA, Ministry o f Agriculture, and KLH(State Ministryo f Environment). Kimpruswil and Bangda have complementary roles in the strengthening o f local institutions. These respective roles have been defined during a workshop in October 2002. The Ministry o f Agriculture will be involved because o f the linkage with agricultural extension, crop intensification, training and related rural services at the WUA level. KLHwill be involved for activities pertaining to the establishment o f the National Water Quality Monitoring Network, and the regulatory and administrative aspects o f pollution control and wastewater discharge fee collection. Project execution will be guided at policy level by the National Steering Committee (on Water Resources) chaired by Bappenas. The executive agencies are members of the NSCWR, as well as MoF. The NSCWR will have a non-government organization with observer status. The NSCWR will have an Executive Secretariat that will function as National Project Management Unit (NPMU) that carries out Project management and coordination, and financial management. The NPMU will be headed by Bappenas and will have members from the executive agencies. NSCWR and NPMU have been established. The NSCWR will review the Annual Work Plans andbudgetrequests submittedby the local governments for the subsequent year (see Annex 2 - Attachment 1). This bottom-up procedure i s consistent with the spirit o f the Decree 35 (2003) o f the Minister o f Finance on On-lending and On-granting o f Intemational Fundsto Local Govemments. A Provincial Project Management Unit (PPMU) will be established in each province to coordinate provincial-level project activities, and to consolidate financial and accounting management, also o f the kabupaten inthat province. The "national" TA, the Impact Monitoring and Evaluation Unit (IMEU) (see Annex 14), the central Financial Management Services consultant, and the national sector capacity building activity will be centrally prepared, procured and managed, but are geared at supporting local government activities, and are subject to regional inputs and variations. Loanproceeds for this Project and for use by Local Governments will be providedthrough the DIPP-LN mechanism on an on-grant basis, against a Local Government counterpart budget covering a percentage o f total cost. At the Provincialand LocalLevels (Annex 2, andAttachment 1to Annex 6B): Local governments will have to adopt Irrigation Reform policies and include them in their Renstrudu (Regional Five-Year Strategy) and have the implementing Perdu (Local Decree) issued. They will prepare their Annual Work Plan for the first year o f activity (January December 2004) by September - 2003, and have it agreedby November 2003. This procedure has been used successfully in JIWMP and IWIRIP, and the participating local governments are familiar with this process. To become eligible for accessing the loan proceeds, local governments must adopt a number o f administrative guidelines pertaining to financial management, procurement, corruption mitigation, transparency, and social and - 23 - environmental safeguards. Inaddition, they will have to submit an Annual Work Plan to request budget for the subsequent year. These requirements and procedures are outlined in the Project Management Manual. Provincial and kabupaten governments will be responsible for the implementation o f reform programs, associated institutional development (training) and infrastructure investments. Each provincial government and each kabupaten will establish a Project Management Unit, located in the Buppedu (Local Planning Department), to set policy, coordinate, and decide on budgets. They will also establish PIUs for implementing their portions o f the program: in provinces, in the Dinus PUP (which will also appoint sub-project managers at each Bului PSDA so as to allow the Bului Chief to have spending authority) and Bupeduldu (in some provinces, the Bupeduldu can be part o f the Buppedu PMU); and in kabupaten, in the Dinus PUP and, in the 11 pilot kabupatens which will have the irrigated agriculture improvement component, the Dinus responsible for agricultural extension services. The PMUs are located in the regional planning agencies (Buppedus) to ensure commitment to counterpart budget allocation. Civil Society Organizations: Civil Society Organizations will participate in the implementation o f WISMP at both the provincial and kabupaten levels. At the provincial level, civil society organizations will participate in policy coordination and consultation meetings o f the Provincial and Basin CouncilsICommittees, on which they would have representatives. At the kabupaten level, NGOs would participate in the Kabupaten Komisi Irigusi and Task Force and in providing facilitators and Community Organizers for KIF,WUAFiWUA training andinassisting the agricultural extension. Civil society organizations and universities will assist inmonitoring the implementationofgovernance reforms and sub-projects through a separatecontract for Impact MonitoringandEvaluation Unit. - 24 - WISMP: ResponsibilitiesandInvolvementofAgencies in Components Agency Responsibility Involvement in Project Components BAPPENAS Policy coordination; Cost recovery policy; application o fWater Programcoordination Resources Reformguidelines for provincial and kabupatenlegislation; impact monitoring K I M P R A S W I L (DGWR) National support, quality assurance, MIS, All, except community imgation (WUAFNUA) Hydrology, monitoring and oversight o f govemance, imgated agriculture support, and water technical aspectso fwater resources and quality aspects irrigation components M o H A (BANGDA) National support, quality assurance, WUAiWUAF establishment and monitoring and oversight of irrigation and capacity building; institutional rural govemancecomponents, and oflocal strengthening o flocal govemments and budgetsand cost recovery financialifiscal procedures,community organizer training Agriculture National guidance for agricultural Coordination of agricultural extension services extension KLH Oversight ofNational Water Quality River basinmanagement capacity, MonitoringNetwork; effluent discharge National Water Quality Monitoring Network fees and other financial incentives for oollution control Provincial Level Eligible Provincial Governments Provincial and basingovemance; Provincial aspects o fgovemance & planning Balai PSDA capacity; fiscal sustainability capacity; River basin management capacity; ofRiver InfrastructureMaintenance Provincial aspects of fiscal & cost recovery policy (RIM); basinmanagement & planning; implementation; and investments in river basin andWater Use Rights infrastructure improvement. Eligible Kabupaten Governments Imgation govemance, Kabupaten Dinas WUA capacity building; irrigation agency capacity PUP upgrading; irrigation financing and building; investmentsinirrigation infrastructure irrigated agriculture support improvement through Dinas PUP and WUAFs (KIIF); local aspects of fiscal & cost recovery policy implementation; and imgatedagriculture support Roles of Local Government Association and Civil Society Organizations Civil Society Organizations Participation inNWC, Provincial and Governance & planning capacity; Basin Water Resources Councils; WUA capacity building; and assistingand organizing WUAFsNUAs; irrigated agriculture support; Impact monitoring Execute Independent Monitoring& Evaluation Flow of Funds, The fiscal decentralization, started in 2000 with a first phase o f transfer o f General Budget Allocation (Dana Alokasi Umum, DAU) from MoF to the Kabupaten and Provincial budgets ( APBDK and APBDP, respectively), is now in a reasonable state of consolidation. The Project's design aspectsthat are relevant inthis context are the following, and are synthesized inthe Table below: (a) Loanproceeds to local governmentbudgets. The responsibility for the majority o f the tasks under Basin Water Resources Management and under Participatory IrrigationManagement, lies at the level o f participating provinces and the kabupatens. Minister o f Finance Decree 35 (2003) stipulates that loan proceeds for this sector and for use by Local Governments will be provided through the DIPP- LNmechanism on an on-grant basis, against a local counterpart budget covering a percentage oftotal cost that depends on the wealth status o f the Region. This Decree has not yet been complemented with the implementation arrangementsbut these arrangements have been confirmed for this Project. - 2 5 - (b) Loan proceeds to Ministries' budgets. Loan proceeds for tasks executed by national Ministries will be channeled inthe conventional way through (national budget) DIP. (c) Counterpart budgets. The counterpart budgets will have to be provided from the APBDK or P (kabupaten and provincial budget, respectively), for tasks executed by the respective local governments; and fromAPBN for the tasks executed by the national Ministries. (d) Earmarked local funds for proper O&M and administration.An important project requirement i s that the local government expresses its "ownership" o f the outputs o f the Project, notably rehabilitated or improved infrastructure as well as administrative procedures (e.g., hydrology, MIS, and Water Resources Councils/Co"ittees), by earmarking routine budget in its APBD for their maintenance andoperation, andtakingsteps to ensure adequate cost recovery where that i s possible. (e) Contributionsfrom non-governmentalentities, Part o f the loan proceeds are destined for use as investment by WUAFs. In the case o f irrigation management the W A F S will be eligible for receiving this funding through the Kabupaten Irrigation Improvement Facility attached to the KabupatenAPBDK budget; these entities will be required to contribute their share inthe "counterpart funding". Inthe case of river basin development investments that would have to be implementedby the Corporations, funds will be provided to the Corporation's budget from APBN, or via Kimpraswil`sProject Offices, inthe case o fconstruction. Managementof LoanProceeds, andOriginof CounterpartBudgets and Secured RoutineO&M Budgets Recipientof Sub-project Earmarked Component Loanproceeds Counterpart Routinebudget budget from ProvincialDinas PUP, BasinWater Resources Balai PSDA Bapedalda Earmarkedcost Mgmt. RiverBasin Corporations I I ~ Nationalagencies: APBN MIS,Guidance,TA, etc. APBN Works under Dinas Kab.: APBDK APBDK ParticipatoryIrrigation KabupatenDinas PUP Mgmt. Works under DinasProv.: APBDP APBDP Province Dinas PUP Works under WUAF: WUAF (in cash WUAF Water User Ass'n. and inkind); and Via APBDK to KIIF APBDK "Nat." TA, Guidance: APBN APBN NationalMinistries, APBN APBN PMUs, PIUs: APBDP, APBDK APBDP, APBDK The Indonesian Pilot for EnhancedDisclosure of Information. InIndonesia, duringthe CAS and other consultations, both the government and civil society expressed interest in substantially greater - 26 - access to information on Bank activities, to allow broader public discussion o f Project implementation findings. Under the Indonesia pilot, the following arrangements for enhanced disclosure were agreed with Bappenasto create greater transparency: Agreement on the approach for disclosure o f information for new projects, including WISMP, to the effect that specific provision for enhanced disclosure will be built into the project arrangements during Project preparation (see Annex 16). Enhanced disclosure was agreed for: (i) annual audit reports will bemadepublicly final available by both the Borrower and the Bank; (ii) the mid-termreport on progress will be made publicly available by the Borrower; and (iii) the procurement process, where the Borrower has agreed that additional information concerning parts o f the procurement process will be made publicly available. The draft development credit agreement for the WISMP includes specific undertakings to effectuate these agreements. These undertakings would eliminate the need for Go1approval to be obtained prior to the public releaseo f such information. For documents other than those referred to in sub-paragraph (b) above the Bank will continue to consult Go1prior to disclosure o f such documents. Go1may consider moving to a more general practice o f automatic release o f such documents after the Government completes its review o f enhanced information disclosure concerning the public provisions o f services that it is currently undertaking. Inthis regard the anti-corruption guide for task teams, and the Annex 16 based on this guide are expected to facilitate the adoption of enhanceddisclosure. The experience under this pilot will be reviewedafter two years. D. Project Rationale 1. Project alternatives considered andreasons for rejection: Lending Instruments: APL versusconventional Sector Investment Loan (SIL). Implementing decentralization, improving governance institutions and sector management upgrading to be performance and service-oriented, are reform processes that take many years and need a flexible, adaptable approach. A conventional sector investment loan was rejected as it does not allow the Bank to engage with Go1and the regional governments in a long-term strategically sequenced management and fiscal reformprocess. Additional arguments to chose an APL format at this juncture in Indonesia are the following: This would be a "horizontal" APL. The fundamental policy, legal and regulatory improvements will be largely implemented through the Water Resources Sector Reform by the time the APL 1becomes effective. Local governments, as main executive agencies, would be eligible to participate in the Programcontingent upon their readiness to implementthe reforms at local level. WISMP in effect builds upon and replicates the "institutional models" that were piloted on large scale on Java since 1997 under JIWMP, and since 2001 under IWIRIP outside Java. Currently around 300 Federated Water User Associations are being or have been established. Twenty four o f the River BasinManagement Unitsare nowinvarious stages of operational development. This prior experience suggests that several factors contribute to differences in the rates o f progress in institutional development and inprogram implementation. A programmatic approach i s required that buildsinflexibility. The field experience with JIWMP strongly argues in favor o f a long-term, sustained focus on - 2 7 - institutional strengtheningand capacity building. An intimate partnership is required, to implement administrative reform, institute new incentives, and get the institutions inthe field working properly. A highlevel o f confidence of the counterparts needs to be developed that the Bankintendsto remain engageduntilthe key problems are resolved. Especially in the transient and still uncertain political environment that these governments now face inIndonesia, it is believedthat this level o f partnership can best be ensuredthrough an APL. Sector Coverage Due to complexity and fiduciary supervisionlimitations, WISMP would finance only sector water resources management or participatory irrigation management but not both. Experience under JIWMP and IWIRIP indicates that, as basin and irrigation management reforms are closely linked and under one provincial government and contingent several kabupaten governments, and as river water and irrigation water are physically inextricably linked, it is more effective to address both simultaneously, under the oversight o f regional Bappedas that control budgets and have considerable policy influence. Similarly, for effective water quality improvement in basin management, links have to be built with the Bapedaldas that have regulatory authority. While the separate Project approach would be more effective from Bank project managementperspective given the needto obtain adequate budgets for supervision, it does not contribute to hlfillingoverall Program Objectives with the same efficacy. A small WISMP 1would allow other Donors to compete for the same provinces, and may crowd out the World Bank's efforts in the sector. The comparatively modest Phase Io f the APL is fully consistent with the CAS' modest lendingscenarios under assumptions o f weak economic performance o f the national economy. Nonetheless, though the WISMP focuses on institutional strengthening, the investment effort in works and equipment amounts to over 60%. The investment effort in Phases I1and I11will be higher. As the economy would pick up in the years to come, the Bank would contemplate funding Projects additional to WISMP, which would retain its institutional focus. Such additional initiatives may include: (a) a poverty-focused lowland regional development and irrigation project, featuring similar participatory and institutional arrangements as WISMP; (b) support for improving irrigation in the 240,000 ha irrigation zone o f the Jatiluhur Authority (PJT 11); (c) a second Dam Safety Project; (d) a loanto enhance bulkwater supply; and (e) a flood mitigationloan. The predominant institutional nature o f WISMP does allow activity or investments by other Donors in the same provinces or kabupatens. As WISMP would be concerned with ensuring more performing O&M, management and cost recovery, ample scope exists for other Donors to support Go1 investment programs as well as other supportive initiatives (such as generic studies, developing national capacity in, e.g., hydrology, water quality management, MIS, etc.) that fit within the reformandor that would benefit from the strengthenednew organizations. Geographical Scope. The Project shouldfocus on selected Outer Island provincesand not on Java provincessince the Bank has already served Java under JIWMP. Java contains about two thirds of the national population, the largest urban population, and produces 60% o f its rice as well as the majority o f its manufacturing GDP. Rural poverty i s greater in general on Java, and its river infrastructure is economically the most strategic, and also the oldest. The Java provinces have been prepared for an institutional approach and a management focus over the last five years whereas an improved management focus is not yet a highpriority inthe outer Islands except for South Sulawesi and most o f Sumatra. ImplementingAgencies. Implementation arrangement with Kimpraswilas the sole implementing agency under the supervision of the inter-ministerialcommittee. This option was rejected as the - 28 - types o f management and fiscal reforms that are required are multi-faceted and beyond the mandate and capability o f Kimpraswil alone. Accordingly, MoHA, MoEnv (and to a lesser degree MOA)were added as implementing agencies o f WISMP with a proposed set up o f a coordination mechanism involving a neutral agency. 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned).(For Projects financed by the World Bank and other development agencies, see Annex 15) Sector Issue Project Implementation Development Bank-financed Progress (IP) Objective (DO) Support institutional reforms and ava IrrigationImprovement H S S planningandbasinoperations for ndWater Resources integrated water resourcemanagement danagement Project inselectedriver basin inJava, and contribute to achievingthe goals o f government's 1987policy statement for irrigationsub-sector. To reduce the riskofdamfailures in lam Safety Project Indonesia through establishment o f national dam safety institution and carrying out a programto improve the safety o f the existing dams. To support a structural adjustment Yater Resources Sector program o fpolicy, institutional, idjustment Loan regulatory, legal, and organizational reforminthe managementofwater - resourcesand irrigation sector. Other developmentagencies I PlDO Ratings: HS (HighlySatisfactory),S ( atisfactory),U (Unsatisfactory),HC Highly Unsatisfactory) - 29 - 3. Lessons learned and reflected inthe project design: Regarding irrigation, the lessons learned from the past 20 years o f irrigation policy in Indonesia are reviewed in part in Annex 13, and more exhaustively in the Report (on file) "Lessons Learned from Earlier Projects and ReflectedinProposedProjectDesign". On a national scale,the experience suggests that earlier attempts at increasing sector effectiveness, such as in 1987for the irrigation sub-sector, partly floundered because they (i)were not comprehensive enough and lacked binding, regulatory underpinnings; (ii) were undertaken in an state-administrative framework that remained centralized and lacked the political will to devolve some authority and operational tasks to local governments and the water users; and (iii) with a sector administration whose management increasingly prioritizednew dealt construction or rehabilitation over proper planning procedures, quality o f the execution o f works, and maintenance o f the infrastructure. These weaknesses were avoided in the case o f WISMP 1, where the regulatory reform took place under WATSAL, and at field pilot level under JIWMP andIWIRIP, prior to the Project. The sector experience with the broader water resources management suggests a persistent lack in capability to integrate the strategies and actions from different Ministries that impact upon the water system - such as those relating to water quality, or those where upper catchment management and river management interact. On the other hand, the country has launched two remarkable, pro-active initiatives that addressedpart o f these concerns. In 1976, the Jatiluhur Authority Corporation (POJ,since 1999PJT 11) was established, and in 1990 the Brantas Basin Corporation (PJT, since 1999PJT I) set up, to were operate and maintain key infrastructure in the Citarum and Brantas river basins, respectively. These semi-autonomous public corporations would earn income from bulk water supply and some ancillary activities. The PJT Imodel has shown much better performance andwill be replicatedunder WISMP as a reasonably successful model for river basin management. Water quality monitoring and management, and water pollution control, have been the subject o f a limited effort by Donors. The Government (KLH) has had a reasonable success reducing industrial pollution in the 90's with its PROKASM and PROPER programs which heavily relied on voluntary pollution control by industries. A small number o f industrial and municipal treatment plants have been established on Java under urban infrastructure projects, but most o f them suffer from persistent operational problems. At river level, in effect no coordinated effort has been made to mitigate growing pollution, but preliminary steps have been taken with issuance o f wastewater discharge permits. Major reasons for this mediocre performance are the lack o f political will at central level to shift resources to this topic, and the impossibility, so far, to integrate river management and water quality management. Provincial and kabupaten Bapedaldas are in principle responsible for water pollution control, but their domain is not sharply defined, and the organization i s generally financially and administratively very weak. At the same time, the peer and market pressure approaches based on public disclosure such as PROKASIH, have reached their limitations and suggest that a stronger regulatory action would be necessary. Therefore, this Program intends to facilitate a more integrated approach in which the river basin operators (Balai PSDA and River Basin Corporations) assume certain operational tasks from the Bapedaldas and collaborate with them, as they are technically, administratively and financially stronger. This model has already proven feasible on a number of accounts under the JIWMP Balai PSDA component. Specific lessons for project design were reported by a recent OED PPAR o f two irrigation projects, Central and West Java Provincial Irrigation Development Project (Loan 26494") and Irrigation Sub-sector I1(O&M) Project (Loan 3392-IND). These lessons are fully reflected inthe WISMP Program design. With respect to basin management, the JIWMP (Loan 3762-IND) i s the first project to address - 30 - this area. Its ICR suggests that: (a) Balai PSDA must be structural units and not temporary Dinas task forces (like in the past) if they are to retain good staff and be effective; (b) senior management o f Balai PSDA needs training incomplex management and public communications skills; and (c) to be effective, Balai PSDA Chiefs must be in control o f their budget and not depend on hand-outs from project managerso f temporary irrigatiodconstruction projects. 4. Indicationsof borrower commitmentandownership: 0 Go1 has issued the new decentralization legislation (Laws 22 and 25 o f 1999 -- on administrative regional autonomy and fiscal balance, respectively) as well as related regulations, placing regional and local governments incharge o f providingservices to their citizens inresponseto local needs and demands, and ina more transparent and accountable manner. 0 Go1has issued the intention to implement the major sector reforms through its Propenas (Five-year National Development Strategy) issued as Law in2000. 0 Go1has completed the most significant parts o f the Water Resources Sector Reform program upon which the Project is based, while all the 12 provinces and kabupatens designated to participate in WISMP 1 are already involved for 2-4 years in piloting river basin management and participatory irrigation management, andhave started or (nearly) completedthe reforms at local government level. 0 Around 70 kabupatens have adopted the irrigation reform principles and participate in the on-going JIWMP and IWIRIPprograms. WISMP would offer continuity intheir support. 0 To date 23 Balai PSDA have been established by provinces in all the river basin territories (SWS) o f Java and around 10have been formed in2002 inthe Outer Islandprovinces. 5. Value addedof Banksupport inthis project: The Bank, together with IMF, has been actively involved in policy dialogue on the decentralization program. The Bank conducted several AAA works and organized workshops. Under the overall coordination o f GTZ, the Bank works closely with a team o f advisors financed from bilateral and multilateral sources. The Bank also manages an ASEM (Asia andEurope Management Fund) grant to design and develop an intemal and fiscal reporting system. The Bank's latest Public Expenditure Review also pays due attention to the issue o f decentralization. Through JIWMP, IWIRIP and WATSAL, as well as in its agricultural, social and urban sector projects, the Bank has been deeply involved in buildinggovernment capacity at the provincial and kabupaten levels, and it can affect policy making. The Bank has also established constructive relations with civil organizations in the water sector under WATSAL, as well as through the Kecamatan Development Project, Urban Poverty Project, Community DrivenUrbanDevelopment Project; etc. The Bank has led the sector reform with WATSAL, co-opted the support o f other Donors and i s actively working to builda practical partnership with these extemal agencies to realize the vision of the proposed post-WATSAL Program - it should continue to show leadership in fostering the GoYDonor partnership to improve sector performance. E. Summary Project Analysis (Detailed assessmentsare inthe project file, see Annex 8) 0 Costbenefit 1. Economic (seeAnnex 4): -- -- NPV=US$158 million; ERR= 36 YO(see Annex 4) Cost effectiveness Other (specify) The economic benefits of the project will result from more reliable delivery and efficient water use, in tum leading to higher confidence among farmershrrigators in planning and implementing improved - 31 - agricultural practices. This should result in higher cropping intensity, higher input use, and diversification, thereby achieving improvements in farm output, incomes and economic value. In addition, there are several non-agricultural benefits that will flow directly from the project, for example, rehabilitation cost savings from appropriate and timely river infrastructure maintenance, savings in water treatment costs for specific investments relating to water supply, and cost savings relating to flood prevention. The analysis focuses on the irrigated agnculture component, as the benefits o f the basin water resource component, though demonstrable, are muchmore difficult to impute to the project. Approach (see also separate DetailedAnalysis Report, on file). The analysis has beenundertakentaking guidance from a Bank document ["`New Evaluation Procedures for a new Generation of Water-Related Projects - Cummings, Dinar and Olson, December 19961 that proposes alternative approaches to the evaluation o f water resource management projects, and also taking into account the existence o f an annual rolling program method o f implementation and that physical water and irrigation components will be included in the program only after satisfying individual tests o f economic and financial viability, in addition to social, environmental and technical tests. These tests are detailed in the Project Management Manual as a screening tool applying a simple benefit-cost ratio for smaller sub-projects, and a more elaborate economic rate o freturn analysis for larger sub-projects. Three levels o f analysis have been completed: (a) standard cost-benefit analysis, (b) standard enhanced analysis, and (c) minimum impact analysis. Firstly, a standard cost-benefit approach has been used to evaluate three irrigation scheme upgrading cases, two with varying levels o f infrastructure rehabilitation requirement, and a third with none. Irrigation rehabilitation investment will provide substantial incremental economic returns to the investment supported under the project. The analysis demonstrates this, but a standard enhanced analysis further evaluates the impact o f the WISMPPKPI approach by comparing the economic impact o f "traditional" rehabilitation programs (limited to physical investments), with the WISMPPKPI approach which includes the activities relating to human and institutional capacity, with a view to providing a justification o f these social-capital building activities. Thirdly, a "minimum impact" approach has been used to determine the minimum level of economic benefit (in this case o f agricultural production) that justifies all the investments o f the project, and then assess the likelihood or otherwise o f achieving this, based on the conclusions o f the first approach and the results o frecent field studies o fimpacts o f the irrigationreformprogram since 2001. StandardCost-Benefit Analysis. This approach selects the three scenarios for schemes inthe project area as follows: (a) schemes requiringmoderate physical improvements to bring the irrigation-scheme efficiency from 50% to 70% - investment cost Rp 410,000 per ha; (b) schemesrequiringmore significant physical improvements to bringthe irrigation-scheme efficiency from 30% to 70% - investment cost Rp 1,500,000 per ha. and (c) schemes requiringno physical improvements (for definitions, see Annex 4). In each case, the impact of the project is compared to a without-project situation in which scheme efficiencies would continue to decline over time. As summarized in Annex 4, the economic rates o f return for the three cases vary from 29% to 43%, with the average for the project area as a whole being 36%. The NPV for the project i s estimated at $158 million at a discount rate o f 12%. These results are based on a rice-only cropping system which can be expected to produce lower returns than those from schemes in which it i s feasible to produce other, higher-value crops taking into account marketing conditions and labor availability. Therefore, this i s a conservative approach from which to work to assess whether the project passes a minimumlevel o f feasibility. - 32 - The enhanced analysis further tests the justification o f applying the WISMP/PKPI approach by comparing this approach to that o f a traditional physical rehabilitation project, and thus the incremental investment costs relating to capacity building and PKPI implementation, as well as the costs associated with "asset maintenance" are included in the analysis. The purpose of the analysis is to demonstrate the economic impact o f PKPIcompared to the current practices o f delayed, periodic rehabilitation following periods o f declining water supply and reliability. The main assumptions that have been made concerning the decline inscheme efficiencies inthe "without-PKPI" situation are that efficiencies reduce by 2% p.a., and also that, without PKPI, schemes would require rehabilitation every 8 years. This simulates closely the past experience o f irrigationschemes inIndonesia. For each o f these cases, the impact o f the expected changes in agricultural practices has been identifiedby analyzing the impact o f better water supply (as measured by system efficiency) and the effect o f improved agricultural productivity that would result from increased confidence in water availability and consequent harvest results from PKPI. The result o f this analysis indicates that economic rates ofreturnof 32% would result fromthe incrementalinvestment associatedwith the implementationo f PKPIunder WISMP. The sensitivity o f the overall economic viability o f the project to changes in the main assumptions underlying the analysis was also evaluated. The main possible negative outcomes include impacts from the inability o f the project to improve scheme efficiencies following rehabilitation, not achieving expected increases in agricultural productivity, and overruns in rehabilitation costs. Also, since the main commodity involved i s rice, the analysis looked at the sensitivity o f rice prices on the overall economic return for the project. The results show that in all cases examined, the economic viability o f the project would not be seriously undermined by major risks (minimum ERR = 24%); the main impact on the analysis results would be from a reduction inrice prices o f 20% (ERR=22%). However, perhaps the most critical assumption concerns the mainstreaming o f the PKPI principles and the behavior changes that the project is introducing. The analysis examined the case inwhich no impact o f PKPIi s achieved at all. The analysis indicates that the overall rate o f return for the project would fall to 11%. This is made up o f the agricultural production gains made immediately following rehabilitation (but subsequently reducing over time) counteracted with the costs o f capacity building, the impact of which would be lost. This i s considered to be a worst case scenario. If50% o f the schemes inthe project were to adopt PKPIprinciples, with the remainder failing to do so, the analysis suggests that the rate o f return for the project as a whole would still be 31%. Minimum Impact The "minimum impact" analysis i s a simple analysis which attempts to identify what minimumlevel o f economic benefit would be requiredso that the investments will generate an acceptable minimumlevel o f economic benefit. Based on the assumptions set out in Annex 4, the analysis identifies that, for its projected investment and incremental recurrent costs to be economically viable (ERR > 12%0), the incremental returns requiredare inthe order o f Rp 200,000 per ha p.a. This would be achieved if overall system efficiencies were to improve by approximately 2%0, or ifproductivitywere to increase overall by 3.5%. Experience and field surveys (see Annex 4) have shown that PKPI has indeed led to efficiency gains and productivity increases inexcess o f these levels; hence, there i s a highdegree o f confidence that the overall economic return o f the project would be far inexcesso f 12%. 2. Financial(see Annex 4 and Annex 5): NPV=US$ million; FRR= % (see Annex 4) The financial impact o f the project on farmers was examined by analyzing the impact on incomes of participating farmers. The project places an obligation o f Rp 45,000 per ha as a contribution from - 33 - farmers. The analysis indicates that, in the sample schemes, incremental incomes per ha inthe range Rp 1,100,000 per ha to Rp 1,200,000 per ha can be expected ifchanges inagricultural practices are adopted. This reduces to Rp 800,000 per ha if no changes are introduced as would be the case where access to workmg capital for inputs i s a constraint. As this represents approximately 0.5% o f incremental incomes, it is clear that the farmer contributions are well covered bythis incremental income. Further, assuming that the typical land holding size i s 0.3 ha and approximately half the household income is derived from agriculture, the project would increase household incomes from approximately Rp 900,000, to Rp 1,120,000 if no agricultural practices are changed, and from Rp 900,000 to Rp 1,250,000 p.a if agricultural practices change. These changes represent 25% and 38% increases respectively in household incomes, after allowances made for the increased farmer contributions required. A detailed analysis ofthe financial position ofthe WUAF and theBalai cannot be undertaken at this time as their structures and obligations, and the emerging financial responsibilities and finds flows that result, are only slowly transpiring under the reform. At this time, these institutions are mechanisms for the flow o f finds, and are not expected to be independently financially self-supporting - i.e. with revenues generated in excess o f costs. The financial sustainability o f these institutions will be matters to be addressed under WISMP 2 and WISMP 3 when policy issues relating to cost recovery are clear, and implementationplans are made. Fiscal Impact: An analysis was undertaken of the budgetary positiono f the provinces and kabupatens to be included in WISMP, assess the potential impact o f WISMP counterpart funds requirements on these governments' budgets. At present the new water law is in process but has not been enacted. The law will be implemented according to government regulations, which are also in process. A transition period will follow as provincial and local administrations enact local regulations, including those for cost recovery. A caution must be added to the following analysis due to the relatively recent and wide-ranging impacts o f decentralization and regional autonomy in Indonesia. 2001 i s the first and only year for which information o f this kindi s available. Therefore, the analysis cannot track trends and make projections as to future levels o f expenditures and revenues. Fiscal Impact at Provincial Level. While responsibility for water resource management i s shared among national, provincial, and district governments, provincial governments bear the main responsibility for water resources. Provincial governments through their Dinas PUP and its Balai PSDA units are responsible for providing finding for water resource management. An analysis was undertaken for four provinces o f the fiscal impact o f WISMP interventions on provincial budgets, and in particular the availability o fthe counterpart finds required. The total expenditure by the provincial governments for operations, maintenance, and capital improvements for water resources and irrigation averaged less than Rp 30,000 (about US$2.70) per hectare o f imgated land. The relatively low level o f expenditure on water resource management and irrigationappears to result from lack o f commitment to a high standard o f sector performance rather than budget constraints. The counterpart finds requirements for provincial level governments involved inWISMP 1 is estimated at Rp 176.5 billion over 3 years for all 12 provinces. This relates to an average o f Rp 4.9 billionp.a. for each province. Since the average budget surplus for each province involved i s Rp 196 billion, it is clear that WISMP counterpart obligations should not impact budget allocations to other provincialpriorities or - 34 - activities. An essential objective o f WISMP will be to raise awarenesswithin provincial governments o f the importance to the community of adequatelevels o f finance for water resources andirrigation, andfor this awarenessto beaddressedby budget decisions at provincial government level. Improvements incost recovery, though an important objective, will take time to achieve and will dependon broader budgetand local political issues. Fiscal Impact at Kabupaten level. Whilst the responsibility for water resource management i s shared among national, provincial, and district governments, district governments bear the main responsibility for funding irrigation capital costs, including rehabilitation, periodic maintenance, upgrading and modernization. To analyze the fiscal impact o f WISMP interventions, in particular the availability o f counterpart funds requiredunder the project, the fiscal position o f a total o f 66 kabupatens, out o f the 70 planned for inclusion under WISMP was examined. None o f the kabupaten falls in the fiscally "rich" category (Class 1). The allocations to water resources at kabupatens level show a similar position to that at provincial level. In2001 the total allocation for water resourcemanagementof 66 WISMP target districts was only 4% of the combineddevelopment budget, equivalent to only 1%o ftotal revenue. The counterpart funds requirementsfor kabupaten governments involvedinWISMP 1is estimated at Rp 149.8 billion over 3 years for all 70 kabupatens. This relates to an average o f Rp 0.7 billionp.a. for each kabupatens. Since the average budget surplus for kabupatens with "medium" and"poor"fisca1 capacity is Rp 29.3 billion and Rp 26.4 billion respectively, it is clear that WISMP counterpart obligations can be metwithout any impact onbudgetallocations to other priorities or activities at kabupatens level. 3. Technical: There are no major technical issues anticipated in this project: the civil works technology and designs have been developed and are well known. An effort will be made to cater for the capabilities o f WUAFs inthe manner pilotedunder JIWMP. This involves use of demonstration structures and works that can be used to guide the work o f W A F Sand every effort would be made to use replace broken gates by fimctional but not sophisticated structures innetworks under WUAF management. Standard designs and maintenance procedures would be developed for W A F use. 4. Institutional: 4.1 Executingagencies: 4.1 Executing and implementationagencies: The Project's approach relatedto the coordination of multiple executing agencies has been elaborated in Section C.4. Nearly all o f the implementationwill be camed out at the level o f provinces and kabupatens which will receive the loan proceeds through an on-granting arrangement (DIPP-LN) from the national government. A National Steering Committee for Water Resources (NSCWR) is established, chaired by Bappenas, and with representatives from Kimpraswil, M o m , Ministry o f Agriculture, and State Ministry of Environment, as well as resource persons from civil society. The executive agencies at national level, i.e., the Ministries o f KimpraswiZ (DG Water Resources), MoHA (Bangda), Agriculture and Environment will each have a National Project Implementation Unit (NPIU). The activities o f these N P I U s comprise notably the guidance and monitoring o f the activities o f local governments, and the procurement o f the "national" TA packages. - 35 - The main implementing agencies are the local governments (12 provinces and 70 kabupatens). An agreement exists between Kimpruswil and MoHA regarding the distribution o f tasks in the support to local governments with respect to irrigation. MoHA i s responsible for capacity buildingandguidance o f the WUAFs and for budgetary management, whereas Kimpruswil is responsible for technical aspects including the capacity building o f the DinusPUP. The Ministries o f Agriculture and o f Environment are responsible to support local governments for small sub-components (agricultural intensification, and water quality monitoring, respectively). The national sector capacity building will also be managed at this level. 4.2 Project management: A National Project Management Unit (NPMU) will be located in the Executive Secretariat o f the NSCWR (see Annex 2, and for diagram, Attachment 1 to Annex 6B). The NPMU will oversee, guide and coordinate the implementation activities at national, provincial and kabupaten levels. The NPMU will be have provincial outreach to coordinate activities within each province, administrate the disbursement flows and centralize the accounting consolidation from the kabupaten. The NSCWR will receive consolidated reports prepared by the third-party Impact Monitoring and Evaluation Unit (see Annex 14). The local governments will each establish a Provincial or Kabupaten Project PMU, chaired by the respective Bappeda, and comprising the main technical departments (Dinus) involved for the implementationcoordination. This PMUwill supervise and coordinate activities at the level o f that local government, and consolidate the financial management. Each implementing agency will have a distinct PIU, staffed by a Pimprmr Bugpro (Project managers). This PIU will undertake budgetary control, procurement and processing payments for all project-financed activities undertaken at its locus. Ineach province a PIU is envisaged for Dinus PUP (Public Works Dept.) and, where feasible, for the Bupedaldu (Environmental Management Office). InKabupaten, a PIU will be established in the Dinus PUP and the Dinus Pertuniun (Agriculture Dept.). Project financial statements will be concentrated at designated PMUs. The provincial P M U will in addition assume the function o f consolidating the Provincial and Kabupaten financial statements and take charge o f accounting (see Annex 6B). 4.3 Procurement issues: Procurement procedures and standards adopted under JIWMP and IWIRP, which are consistent with the Bank's Procurement Guidelines, will be adapted to the Project. These notably provide for community-based procurement, and procurement by local governments. The Program also foresees a limitednumber of medium-sized works for which adequate experience and routines exist inthe country. However, it will be required to provide assistance and training to local (government) agencies that may not yet be fully conversant on Bank procedures. Standard BiddingDocuments will be used for all Bank financed procurement. The project team includes accredited procurement experts who will provide support to the implementation and supervision o f procurement duringproject execution. The key issues identified in Indonesia CPAR (see Annex 6A, and as separate complete report on file) that are likely to have an impact on procurement under the project will be addressedduringthe preparation o f the Project Implementation Plan and the Project Management Manual. As this is a demand-driven operation involving many agencies and regional governments, it would be difficult to develop a procurement plan with all works and other procurement identifiedup-front. However, the PIP provides for a framework and procurement plan for the first year o f activities. The capacity o f implementing agencies to implement procurement will be assessed, taking into account the requirement specified in OCSPRs instruction datedAugust 11, 1988. - 36 - 4.4 Financial management issues: The financial management assessment was conductedby a Bank Financial Management Specialist during a pre-appraisal mission inDecember 2002. Details o f the assessment are provided inAnnex 6B. As a part o f this assessment, an evaluationwas conducted o f the risks inherent inthe project implementingentities, as well as specific risks arising from the proposed project design and implementation arrangements. In addition, consideration was given to the overall control environment inthe country, as determined by the Country Financial Accountability Assessment report, a diagnostic study undertaken by the Bank in year 2001. The financial management assessment has concluded that the overall financial management risks are substantial. The geographically diverse spread o f the project, complex organization structure and inherently weak financial management capacity in the regions impose substantial risks on financial accounting and reporting. Kimpraswil, which is a key executive agency, has prior experience in managing donor financed projects. However, there are many agencies involved in project implementation, including agencies from the central govemment, regional govemments and non-structural entities in the regions. Financial management capacity is generally low in the regions, which could weaken financial accountability o f expenditures under this project. Measures have been proposed to mitigate these risks for purposes o f this project, including clarification o f the roles and authorities o f each agency andthe appointment o f financial management consultants to assist in financial accounting. It is proposed that financial accounting for project expenditure will be undertaken at the 12 Provincial PMUs, where accounting information will be collected from over 200 project implementing locations nationwide, and consolidated financial statements and financial management reports prepared. Responsibility for financial controls and contract management will however be decentralized to the regions where project staff will be located. Current Government accounting systems do not generate information that will be required for financial management o f this project's expenditure, for instance by aggregating expenditure by expenditure categories as well as by program components. Quarterly Financial Management Reports and annual financial statements will therefore be generated by stand-alone computer systems and in formats prescribedby the Bank and in line with Bank guidelines. These would be reconciledquarterly with internal Government reporting to ensure consistency. A firm o f professional accountants will be appointed as financial management consultants to assist with the financial accounting. Detailed procedures for maintenance o f financial controls and financial managementare included inthe Project Management Manual. The national internal audit agency (BPKP) will be appointed as auditors for this project. Disbursements from the community irrigation funds (KIIF) would also be subject to technical audits o f BPKP on a sample basis, though these would be outside the project financial accounting system since these include matching community contributions. Terms o f Reference for these audits will be based on combined audits o f project financial statementsand Special Accounts andwill be agreed at negotiations. All project audit reports will be publicly disclosed, the detailed mechanisms for which are detailed in the Project Management manual. Central directives were issued to ensure that BPKP is provided unrestrictedaccess to all project activities inthe regions for purposes o faudit. The following disbursementprocedures pertain: About 85% o f the project expenditure is expected to be below prior review thresholds, and will be disbursed based on quarterly FMR procedures. These procedures will be applied to all payments - 37 - below the equivalent o fUS$lOO,OOO. Expenditures inexcess o f this amount for contracts will be paid under direct payment methods. Disbursement into community managed irrigation funds will be authorized from central or regional treasury offices in progressive installments based on normal Govemment procedures, based on irrigation rehabilitation or investment programs approved by community decentralized oversight agencies (Irrigation Commissions). A Special Account will be established for the expenditure, with an authorized allocation of $10 million. Actual initial deposits will be determined after a review o f fundingneeds from time to time. The Withdrawal Applications for reimbursements into this account will be prepared and managedby the NPMU. Disbursements will be based on quarterly Financial MonitoringReports (FMR) prepared inline with Bankguidelines. This project will involve disbursements from both central government treasuries (KPKN) for centrally administered project activities and regional treasuries for decentralized activities. Since the national government accounting systems are not integrated with those inthe regions, project financial statements will be regularly reconciled with the Special Accounts. BPKP will also be requested to issue an integrated audit report on the project financial account and Special Accounts. The financial management assessment o f the key executive agency (DG Water Resources, Kimpruswil) was conducted by a Bank Financial Management Specialist during a pre-appraisal mission in December 2002. Details o f the assessment are provided in Annex 6B. As a part o f this assessment, an evaluation was conducted of the risks inherent inthe choice o f Kimpruswil as primary project implementing entity, as well as specific risks arising from the proposed project design and implementation arrangements. In addition, consideration was given to the overall control environment in the country, as determined by the Country Financial Accountability Assessment report, a diagnostic study undertaken by the Bank in year 2001. 5. Environmental: Environmental Category: B (Partial Assessment) 5.1 Summarize the steps undertaken for environmental assessment and EMPpreparation (including consultationand disclosure) and the significant issues and their treatment emerging from this analysis. InPhase I,two sub-components involve physical works. Under A.4, RiverInfrastructure Improvement, eligible activities will include repair, rehabilitation and calibration of river basin management infrastructure - hydrologic and meteorological gauging stations, flow measurement weirs, key flood control structures and warning systems, and related short stretches o f river channels, canals and embankments including minor dredging. Under B.3, Irrigation Infrastructure Improvement, the loan funds may be used to finance small works (typically on the order o f US$20,000 though can be up to US$200,000) involvingrepair, rehabilitation and improvement of existing canals and other infrastructure. The activities may include: canal lining; repair o f diversion boxes, gates, weirs, bunds and hkes; restoration and seasonal maintenance o f short stretches o f canals and embankments; and emergency clearing and repairs in cases o f landslides and dike failures. None o f these works will have significant, complex or irreversible adverse environmental effects, and, since they will be carried only within existing irrigated areas, they will not endanger protected or vulnerable areas or habitats. Potential impacts will be short-term, localized, and readily prevented or mitigated by good engineering design and constructionpractices, reinforced by adequate supervision inthe field. The sector and river basin management component o f WISMP 1, on the other hand, will have beneficial effects for the environment because it will: (a) gradually implement water quality management and pollution control in pilot river basins, (b) improve resource management both at localized and regional - 38 - levels, (c) raise the importance o f cooperative action between upstream and downstream water users, and (d) introduce andpilot water use rights, and as such introduce the recognitiono fecological and in-stream water uses. Importantly, the river basin management units are prerequisites for any form o f integrated water resources management. DuringWISMP 1 a Working Group on Operational Guidelinesfor River Water Management will be set up, which will notably develop an Operational Guideline for River Water Management. This Guideline will include social and environmental safeguards relating to land acquisition, resettlement, andindigenous and vulnerable peoples, as well as those pertaining to integrated water resources managementwith adequateattention to aquatic ecology andbiovidersity. Its satisfactory adoption by all Balai PSDA andPJTs will be a condition for migration fromWISMP 1to WISMP 2. No works will be undertaken that could affect protected or vulnerable ecosystems and forests. WISMP 1 will not finance procurement or application o fpesticides. Where pesticides are inuse inareas served by irrigation systems beingrepairedor rehabilitatedunder WISMP 1, the subproject concerned will finance training in Integrated Pest Management (IPM). The Kabupaten selected for agricultural extension are already possessingprior training on IPM. InEast Nusa Tenggara, the Project will not engage inactivities on the river that i s shared with Timor Leste. The Project will provide a small support for dam safety activities but these are limited to institutional support to the National Dam Safety Commission, and support for data collection andmonitoring inconnection with dams managedbyBalai PSDA or PJT. Annex 12 gives the Environmental Guidelines inthe Project Management Manual. 5.2 What are the main features o f the EMP and are they adequate? Given the very limitedpotential impacts o f Phase Iactivities and the fact that the physical works are such that adequate impact mitigation can be achieved through good engineering design and construction practices, reinforced by adequate supervision in the field, no separate EMP i s being prepared. Looking ahead to subsequent phases o f WISMP, Phase Iwill strengthen the planning capacity o f the provincial Dinas PUP for river basins, and support the Balai PSDA as river basin managers. This will include support to develop a generic strategic framework for environmental management and environmental assessment. This framework will gradually become mainstreamed to guide basin planning and management. The Framework will be ready before the start o f WISMP 2. Its preparation will be supervised by the new National Water Council. 5.3 For Category A and B projects, timeline and status o f EA: Date o f receipt o f final draft: N/A 5.4 How have stakeholders been consulted at the stage o f (a) environmental screening and (b) draft EA report on the environmental impacts and proposed environment managementplan? Describe mechanisms o f consultationthat were usedandwhich groups were consulted? The institutional model adopted in WISMP is based on the reforms implemented under WATSAL. An important part o f the preparationo f WATSAL was a Sectoral EA basedon extensive public consultations across the country (this was considered highly satisfactory by QAG). Currently, public consultation has become a standard feature o f WATSAL activities and it will as such be continued duringthe preparation o f Phase Ias well as subsequent Phases. Ample experience has been acquired on public consultations with respect to the process, selection of representatives o f affected groups and stakeholders, reporting, and review. The consultations are carried out by NGOs with a history o f independence and sectoral experience. The draft EA report, in Indonesian, will be distributedto civil society representatives and reviewed during one-day consultations, at the level o f the villages, o f local government, and o f the provinces. In addition, other mechanisms consistent with Bank and Go1 procedures will be applied to ensure adequate appeal opportunity inthe design phase - 39 - 5.5 What mechanisms have been established to monitor and evaluate the impact o fthe project on the environment? Do the indicators reflect the objectives andresults o f the EMP? (a) Regular supervision missions will monitor the reports from the Komisi Irigusi in each kabupaten and from the Water Resources CouncilsKommittees that exist or are to be established at provincialandriver basin levels. (b) An Impact Monitoring & Evaluation Unit will be established tasked to conduct field surveys to assess project outcome impact. This includes the social and the environmentalimpacts. 6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes. Overall impact. With its key objective to improve governance, accountability and the performance o f water resource management, including security o f access to the resource, most impacts o f WISMP 1 are expected to be positive on social indicators, and no impacts are expected to be negative. Where physical works are involved, or where resource (water) allocation policies are concerned, special attention will be paid to the issues mentioned below. Where possible, the Project will avoid financing activities in this Phase that may have a negative impact. Notwithstanding, inthe long run it is probable that the stronger river basin management agencies will have to engage in policy development that will, in one way or another, affect vulnerable, isolated or indigenous communities. Thus, the Project provides funding to prepare for these future challenges. The Project Implementation Plan does not include a social assessment, but draws on the 2002-2003 social survey and detailed assessments on the impact o f the irrigation reform under JIWMP on a variety of farmer communities (the poor, sharecroppers, women, upstream vs. tail-end farmers, non-farmers). Resettlement and Land Acquisition: Although a limited number o f medium-sized construction works (inthe order of magnitude ofbelow US$lOO,OOO-1,000,000) wouldbe undertaken these wouldnot affect households, or squatter groups illegally occupying the public right-of-way in the vicinity o f the works sites. Nonetheless, the Project's Framework for Resettlement and the Acquisition o f Land and other Assets provides for procedures and training to investigate if any resettlement or land acquisition issues may arise, but it i s anticipated that there will be none. Some minor, very localized negative impacts on individual households may occur due to rehabilitation or upgrading o f existing infrastructure carried out by WAFS by local agencies. The Framework also provides for procedures to locally resolve such or marginal land or asset acquisition through voluntary contribution and compensation, and to address complaints. (See Annex 11). Indigenous People. The Project will apply the definitionprovided in OD 4.20 to include "social groups with a distinct social and cultural identity that makes them vulnerable to being disadvantaged in the development process" (See Annex 11). The project will not undertake physical works, or develop policies regarding resource (water) use that would negatively affect indigenous people. A rapid mapping exercise showed that all the project activities are in downstream areas where, in the provinces participating in the project, no indigenous isolated or vulnerable peoples reside. However, in the subsequent APL Phases river basin management units will become stronger and develop more comprehensive programs that in all likelihood in some provinces will affect such communities. The Project will fund the development o f an Operational Guideline for this purpose, acceptable to the Bank, that mustbe adopted as "trigger" to allow migration to the secondphaseo f the APL. Poverty Impact Due T o Irrigation Management Transfer. The Program and Phase Iwould have a positive impact on stabilizing and increasing the productivity o f labor, land and water resources, particularly for poor households, bothinterms o f pathways and factors affecting the impacts and interms -40 - o f the size o f possible impacts. In addition to relatively direct impacts on agricultural production and labor demand, irrigation may have more indirect effects, including multiplier effects on the local economy. Many irrigation systems supply water not just for crops but also for domestic water supply, both directly and by replenishing local groundwater. The poor may be particularly affected by water pollution, reductions in quantity and other water resource problems. Secure access to water i s assumed to constitute an important asset for household livelihoods, and influence investments inlanddevelopment and agricultural diversification. Effortsto empower water user organizations and strengthen rights to use water and manage irrigation infrastructure are critical, but may needparticular attention during program design to ensure that the approaches are inclusive, equitable, and take account o f multiple water uses, while stimulating efficiency inthe use ofwater and financial resources. An extensive field survey o f the experience with JIWMP and IWIRIP strongly suggests the following impacts (See also Annex 13). All o f these pertain to the particular position and characteristics o f the WUAF as compared to the more conventional, prior situation where government IrrigationDepartments managedthe water and infrastructure. (a) The new arrangement leads to better water allocation, and the poor segments in the WUAF membership, including women and other vulnerable groups, stand to receive comparatively larger benefits from this improvement: more water i s available; the water provision i s more reliable (by season and as compared to the agreeddelivery schedule), and it is inbetter balance with the structure o f the demand. This will optimize water allocation and increase productivity and income. Better access o f women and other vulnerable groups to water would enhance their contribution to the household income by allowing them to produce high value crops in the home garden and integrate small animals inbackyardproduction. (b) The new arrangement leads to more optimal mobilization of thefinancial resources pooled in the WUAF, and, again, the poor stand to benefit comparatively more. This pertains to the following factors: 0 When the water can be used for purposes that yield higher revenue (e.g., fish ponds, horticulture, vegetable production, etc.), the farmers can now decide for this strategy through their WUAF and better pool their financial resources for the required investment. Because the WUAF has a cash-flow and is likely to be a sustainable organization because o f the importance o f the irrigation system to the farmers' livelihood, the WUAF and farmers can have better access to credit. Through the "pooling effect" o f the W A F , it will be easier to mitigate risks (related, e.g., to drought or flood damage, pests, risky investment in new crops or technology, etc.). This will benefitthe poor and vulnerable farmers inparticular. (c) The WUAF provides a more effective internal communication mechanism, through its regular (usually monthly) meetings. This allows information (on new crops, markets, etc.) and extension services to be better spread among the farmers. Poverty Impact Due To BasinWater Management. Two areas can be discerned where the poor men and women farmers stand to gain from improved and more sustainable resource management. (a) As development o f a basin increases and institutionalized water users emerge (such as municipal water supplies, industries, hydro-electric plants, etc.) these tend to start exerting their de facto stronger water rights, and crowd out the traditional water users who are usually economically weaker. In competitive environments where rights are not dealt with in a transparent fashion but rather through an opaque and thus politicized process, weaker parties always lose out. The Project will introduce in pilot mode a system for water use right administration that will help increase -41 - security, and at the same time allows for more easy tradability o f seasonalwater use rights. (b) Where access to infrastructure is constrained, it are usually those better off who get the full service. The effectiveness o f the infrastructure in delivering its service i s highly subject to the degree to which it i s operated and maintained properly. The Project strengthens proper operation and maintenance practices, and will put in place asset management procedures. The Water Resources Councils/Committees will improve the degree to which water users can influence decision makingin water management. 6.2 ParticipatoryApproach: How are key stakeholdersparticipatinginthe project? As outlined in the Project Description, the Programwould help establish Water Resources Councils at National, Provincial and River Basin levels, which would provide a forum for policy malung and/or regulatory activities inwhich the governmental and non-governmental stakeholders will participate. The Project would ensure that vulnerable groups such as ethnic minorities, farmers in the downstream drier areas, and poorer farmers, as well as women participate inthese councils. The Program aims in addition at developing a variety o f institutional measures specially designed to increase the levels of governance, transparency and accountability inthe sector. Inirrigation management, the Programwill help establish and develop WUAFs which pre-eminently are "stakeholder"-based organizations. Inaddition, each kabupaten will establish its Komisi Irigasi that will set irrigation policy within the kabupaten and review proposals for kabupaten matching-fimd grants to the WUAFs through the KIIF mechanism. The Komisi will comprise stakeholders from the WUAFs and from civil society. The Impact Monitoring and Evaluation Unit will routinely assess outcomes and impacts o f the project, and act as mechanism to collect andhandle gnevances. 6.3 How does the project involve consultations or collaboration with NGOs or other civil society organizations? The Water Resources Councils/Co"ittees that will feature a broader representation, in many cases, would include representation by civil society representatives, notably NGOs, and women`s groups. Similarly, the kabupaten Komisi Irigasi will comprise NGOrepresentatives. It is envisaged that the Bank supervision missions will consult on a regular basis with the Councils/Committees, as well as with civil society representatives, as the missions will want to gauge the performance on account o f governance and accountability. Inirrigation, the current procedures under JIWMP and IWIRIP will be followed inwhich NGOs are hiredas community organizers and as advisers to the WUAs. This experience so far is deemed very satisfactory, also by the W A F S concerned. Under WATSAL regular and intensive public consultation has become routine. In those instances the consultation i s carried out and organized by NGOs supported by academics. The WATSAL worlung groups that developed the institutional model be implemented with the assistance o f WISMP, have had vocal NGO representation from the early beginnings. 6.4 What institutional arrangements have beenprovided to ensure the project achieves its social development outcomes? (a) The Project Implementation Plan does not include a separate social assessment, but draws on the 2002-2003 social survey and detailed assessments on the impact o f the irrigation reform under JIWMP and IWIRIP on a variety o f farmer communities (poor, sharecroppers, women, upstream vs. tail-end farmers). This will help set an information baseline. (b) Because o f the very localized nature o f all o f the activities under Phase I,a generalized and simplified framework for local environmental impact mitigation, resettlement and land acquisition will be adopted similar to the one agreed between Go1 and the World Bank for Community-Driven Development projects. This framework will become part o f the Project -42 - Management Manual. The Manual will specify eligibility criteria for the local govemments and for the new local organizations that are to be set up and inprinciple could get access to the grants and credits for imgationnetwork maintenance and relatedagricultural initiatives. (c) As it is anticipated that in the Phases I1 and I11 the river basin management agencies could gradually develop policies and initiatives pertaining to the introduction o f no-tillage practices to reduce soil erosion in upper catchments, and assume more complex tasks in water allocation, it becomes possible that traditional communities and indigenous people will be affected outside Java. It is likely that this impact will be beneficial. Therefore, during Phase Ia policy framework and Operational Manual will be prepared to identify the ways in which these communities might be affected, and to prepare suitable mechanisms and strategies to prevent and minimize any negative impacts. This plan must be ready and agreed upon before the start of Phase 11. (d) Improved governance will increase communication and allow to channel independent "field"-based information to Bank. The supervision missions will routinely review progress on governance and on field impact on social indicators. A third-party Impact Monitoring & Evaluation Unit will be established, including a complaint review mechanism. At regular intervals, but at least by the end o f each Program Phase, separate poverty assessments will be carried out to monitor the program's impact and provide feed-back to program design and capacity building,notably through the adaptation o f programtraining manuals. 6.5 How will the project monitor performance interms o f social development outcomes? Tasks of, and TORSfor Consultants to the Project Management and Implementation Units, will specify that the Consultants will monitor compliance and salient issues. The central NPMU, inside the NSCWR, will have the oversight over compliance by the provincial and kabupaten-based ImplementationUnits. Supervision missions. Third-party Impact Monitoring & Evaluation Unit (see Annex 14). They will be specifically fielded to routinely monitor the Project, and evaluate the Project's outcomes and impacts after 1.5 and 3 years. They will report to the National Project Steering Committee. They will also act as independent channel for expression andresolution o f grievances. Separateimpact studies. Safeguard Policies: Policy Triggered EnvironmentalAssessment (OP 4.01, BP 4.01, GP 4.01) 0 Yes - NO Natural Habitats (OP 4.04, BP 4.04, GP 4.04) Yes Forestry(OP 4.36, GP 4.36) -- 0NO Yes 0 NO Pest Management (OP 4.09) Yes 0 NO Cultural Property (OPN 11.03) -- 0NO Yes Indigenous Peoples(OD 4.20) Yes 0 NO Involuntary Resettlement (OP/BP 4.12) - Yes NO Safety of Dams (OP 4.37, BP 4.37) Yes NO ProjectsinInternational Waters (OP 7.50, BP 7.50, GP 7.50) Yes 0 NO Projectsin DisputedAreas (OP 7.60, BP 7.60, GP 7.60)* --- 0 Yes 0 NO -43- 7.2 Describe provisions madeby the project to ensure compliance with applicable safeguardpolicies. The main vehicle for communicating the safeguards requirements o f this project i s the Project Management Manual (PMM). It will contain the frameworks for land acquisition and resettlement (See Annex 11) as well as the screening procedure to ensure projects with environmentalimpacts beyond the limits established for WISMP 1will not be approved for financing (See Annex 12). The P M M will also contain the standards o f good design and construction practice that are to be followed in implementing the physical works that this project can support. Overall environmental oversight of the project will be accomplished through the participation o f the State Ministry for Environment on the NSCWR. More practical management o f safeguards compliance will be the responsibility o f the NPMU. The NSCWR has the responsibility o f reviewing and approving the Annual Work Plans o f the provinces and kabupatens and will only give approval once it is clear that the implementing unit has committed to appropriate safeguards in accordance with the PMM. The Impact Monitoring and Evaluation Unit will review safeguardscompliance and report to the NSCWR. F. Sustainability and Risks 1. Sustainability: WISMP will improve the governance quality o f the national, provincial and kabupaten governments by ensuring that the Water Resources Sector Reform provisions related to stakeholder participation, transparency and accountability, are sustained through a long-term institutional development program. Fiscal sustainability and cost recovery objectives are part o f the WISMP 1 design through sub-components devoted to this objective. The improved governance (accountability) and fiscal sustainability will increase the likelihoodthat the support to sector agencies will in turn yield outcomes that are sustainable. While the APL framework expects government commitment to sustainability in Phases I1and 111, it is difficult to predict how democracy and agency discipline in Indonesia will evolve in the longer term. However, during Phase I,the sustainability-related components will be closely monitored at least twice a year during Project supervision (with more intensive supervision during the early stages o f implementation to ensure clear understanding o f the performance standards): since they are part o f the Project design, signs that Project support will not be sustainable can be addressed by the Bank, and if necessary remedies can be taken, with the extreme option o f not allowing migration to the next Phase. Importantly, it should be recognized that WISMP will replicate the four-year field experience with similar institutional arrangementsunder JIWMP and IWIRIP. These experiences have been assessed late 2002 and were found to confirm the overall improvement o f governance and cost sharing, and the demand from both localgovernments andwater users for the new institutional model. The new institutions establish better checks and balances by offering non-government stakeholders (water users, and civil society representatives) institutionalized seats on bodies with authority to review budgets,procurement decisions, andannual work plans. Technical audits and studies conducted in2002 on a representative sample o f irrigationschemes under JIWMP, found that the emergence of WUAFs has lead to a significant increase in the technical quality o f the works, and thus to sustainability o f the infrastructure, as well as to betterwater allocation, accountability and ownership byusers. - 44 - 2. Critical Risks(reflecting the failure o f critical assumptions found inthe fourth column o f Annex 1): Risk Risk Rating Risk Mitiaation Measure 1. Governance & PlanningCapacity M 1.1 Project support for Secretariat incremental 1.1NWC Secretariat will be active. costs. 1.2 RBCs and Balai PSDA will not abide N 1.2 Country's democratic atmospherereduces by Basin CounciKommittee this risk;supervision review ofBasin recommendations. Council/Co"ittee MinutesenablesBank to take action. 1.3 Sector agencies will dominate the M 1.3 Stakeholder members inBasin BWRMPpublic consultationprocess. Council/Comm. will complain. IMEUwill report this. 1.4 Provincial governments not willing to M 1.4 Service Area flow measurement and Basin assignWater Use Rightsto irrigation Water Use Balance are supportedby the schemes (afraid o f litigationifthey Project while WUR for irrigationschemes are cannot deliver). provided for innew water resources legislation. 1.5 Management transfer will not be M 1.5 The Project design i s based on an incentive acceptedbymost W A F Sas the packageo f empowerment, technical and incentivepackage i s not attractive. financial assistance from irrigationagencies and, water use rights. Project preparation and loan covenants will ensure that Kabupaten not offeringadequate MT incentives will not be eligible for support. 1.6 Management training o f W A F M 1.6 The Project will devote adequateresources executive committees i s inadequate. to develop training modules and training-of-trainer programs. 2. River Basin Management Capacity S 2.1 Qualified and experienced Indonesian 2.1 International firms will provide the consultants cannot be found for expertise and train domestic consultants in preparation of QA and asset management delivering the training modules; project support training module preparation; agency i s dependent on institutingmanagement managerswill not implement QA and controls as specified inloan covenants. asset management. 2.2 Provincial and Kabupaten S 2.2 The Project will support incremental Governments will not devote resourcestc expenditure and MIS data collection will be a collect and process the MIS data project covenant. required. 2.3 Dinas PUPSwill not devote vehicles, S 2.3 The Project will support incremental qualified staff and budget to hydrology expenditure and resources for hydrology operations, especially for operations will be a project covenant. resource-consuming flood measurement. 2.4 Private firms capable o f undertaking 2.4 Ifprivate firms cannot be found, hydrology hydrology service contracts will not be operations will remain a government activity found. subject to item2.3 above. 2.5 Adequate technical assistance will 2.5 A loancondition i s that the mandateso f not be urovided for WUAFs. irrigationagencies are formallv altered to - 45 - lprovide support for WUAFs. 3. Implementationo f Fiscal & Cost Recovery Policy 3.1 Provincial and local governments will 3.1 Willingnessto review cost recovery policy not agree to initiating studies for: (i) issues will be an important aspect inProject earmarking o frevenues as Balai PSDA preparation and a condition for provincial service charges (ii) earmarking o f some eligibility for Projectwater resources property tax revenue for flood control; management support. and (iii)to effluent discharge fees. 3.2 Irrigation agencies seek to sabotage M 3.2 Clear criteria suitedto WUAF works IUIFby reporting poor quality ofworks. implementation will be specified for technical audits. 4. General MoF rules that part o f funds mustbe M Project must be re-designed and reduced insize on-lent to local governments instead o f as fewer local governments will be willing to on-granted. borrow than to receive grants. Ministry o f Kimpraswil reneges on its S Project works with several Ministries that are commitments to Water Resources Sector more reform-minded. Project may needto be Reform. Parliament blocks reforms. re-designed, or suspended. From Componentsto Outputs Counterpart funding for civil works will M DuringProject preparation, the source of be limited. counterpart funding (National or provincial/ kabupaten) will be determinedand adequate counterpart funding will be a loan covenant. Competency-basedtraining modules will M International consultants will be used if be difficult to develop. necessary W A F Swill findit difficult to prepare M The mandates and roles ofKabupaten Dinas KIIF proposals of adequate standard and PUP will be changedto assure that they will not bepreparedto provide matching prepare proposals and/or a voucher system will funds at an adequatelevel. be developedwhereby private designers can prepare proposals for WUAFs. The new policy requires WUAFs to provide some matching funds for repairs to their secondary network; however the works can be broken down into small packagesand undertaken incrementally so that farmers can afford the matchingportion o f their cost eachyear. Farmers will not be willing to take loans M The loan system i s beingimplemented for improving their agriculture. successfully inIBRDagricultural projects. Overall Risk Rating M Risk Rating- H (High Risk),S (Substantial Ris M (ModestRisk), N(Negligib1e or Low Risk) 3. Possible ControversialAspects: A minority o f vocal NGOs claim that cost recovery policies and irrigation management transfer to farmers mean that poverty will be increased. Some NGOs perceive the new draft Water Resources Law as a door opening to the sale o f the nation's water resources to multinationals. A widespread public consultation process has been engaged in on both these issues. It has been found, after one year, that in - 46 - civil society, in government as well as in Parliament, general consensus prevails that these are smaller risks. G. Main Loan Conditions 1. Effectiveness Conditions Project Management Manual (PMM) adopted, acceptableto the Association. Joint Ministerial Decree on Irrigation Financing (KIIF/DPIQ, and Ministerial Decree on Administrative Re-organization (Redefinisi Tugas), issued, acceptable to the Association. Letter o f the Director General Water Resources (Ministry o f Settlement and Regional Infrastructure) to the Governors of the 12 participating Provinces to authorize issuance o f Governor Decrees on Basin Water Resources Management Commission (PPTPA) and Provincial Water ResourcesCommission (PTPA) providingfor stakeholder representation. NPMU (National Project Management Unit) staff appointed, and NPIUs (National Project Implementation Units), and PrUs (Project Implementation Units) o f the participating provinces (PPIUs) and 18participatingkabupatens(KPIUs), established and staffed. Consultant Firmfor Project Financial Management Services selected. Thirty kabupatenswithin the Participating Provinces have issued a letter o f intent confirming: (i) their intent to participate inthe Project, (ii) adoption, or intent to adopt within a reasonable their timeframe, o f PKPI, (iii)their adoption of a Propinsi-Kabupaten MOU, and (iv) their commitment to apply the Project Management Manual throughout their participation in the Project. Provide Accounting and Financial Monitoring Report training to project /consultant staff. Ministry of Home Affairs to issue directive to regions to provide full access of accounting information to BPKP (Government Audit Agency) for project audits, acceptable to the Association. As part ofCondition (a), onPMM, the government will: (i) Adopt mechanisms for public disclosure o f all audit reports, acceptable to the Association. (ii) Issuemodifiedprocedures for verification andauthorization o fpayments for project activity, acceptable to the Association. 2. Other [classify according to covenant types usedinthe Legal Agreements.] At Negotiations, following was provided: Letters o f Intent from 18 kabupatens (stating acceptance regarding required counterpart budget, AWP cycle, and principles o f the Project Management Manual), and with Work Plans for 1st year (scheduled activities, cost, feasibility/design, financing plan) ready. Letters o f Intent from 12 provinces (stating acceptance regarding required counterpart budget, AWP cycle, and principles o f the Project Management Manual), and with Work Plans for 1st year (scheduled activities, cost, feasibility/design, financing plan) ready. Draft Project Management Manual (PMM). Decree establishing National Project Management Unit and appointing key staff (Project Manager, DeputyProject Manager, Financial Management Officer) appointed. Frameworks for Resettlement, Land and Asset Acquisition; and for Indigenous Peoples, adopted by the Directorate General of Regional Development (Ministry o f Home Affairs); and Environmental Guidelines adopted by the Directorate General o f Water Resources (Ministry o f - 47 - Settlement and Regional Infrastructure). The Frameworks and the Guidelines are each legally bindinguponthe Borrower inaccordance with the laws o fthe Republic ofIndonesia. ProjectManagementandImplementation The Borrower shall carry out or cause to be carried out the Project with due diligence and efficiency and in conformity with appropriate adrxunistrative, economic, financial, water resource management, educational, and engineering practices, and with sound ecological, environmental and social standards, and shall provide, promptly as needed, the funds, facilities and other resources required for the Project. The Borrower shall establish and thereafter maintain, or cause to be established and thereafter maintained, until completion o f the Project, the following organizations and units, with terms o f reference acceptable to the Association: (a) NSCWR; (b) the NPMU and the NPIUs; (c) the PPMU and PPIUs in each Participating Province; and (d) the KPMUand KPIUs within each Participating Kabupaten. The Borrower shall also provide, or cause to be provided, each Unit at all times with adequate funds and other resources, and with qualified and experienced personnel in adequate numbers, acceptable to the Association and in all cases as shall be necessaryto accomplish its terms o f reference and objectives. The Borrower, through NSCWR, shall adopt and thereafter cause the NPMU, the NPIUs, and each PPMU, PPIU, KPMUand KPIU, and each o f the Participating Provinces and kabupatens, to apply, a Project Management Manual acceptable to the Association for the carrying out o f the Project or their respective responsibilities therefore. Such Project Management Manual shall include the description o f inter alia: The institutional arrangementsfor canying out the Project, including: (a) the TOR of the Units referred to above, and (b) the responsibilities o fBapedaldas,Dinas PUPSand Dinas Pertanian inthe ParticipatingProvinces andParticipating Kabupatens, Bald PSDAs andPJTs underPart A.4 o f the Project, Komisi Irigasi under Part B o f the Project, and Community Organizers and W A F SunderPartsB.l and B.3 o fthe Project; the procurement procedures set out inAnnex 6A; standardprocurement documentation; reporting requirements, financial management procedures and audit procedures; the Project Performance Indicators of the Project; the eligibility criteria and procedures for kabupatens to become Participating kabupatens and for Provinces to become ParticipatingProvinces; the requirements for preparing andprocessing Annual Work Plans (AWPs); and the eligibility requirements, and preparation, appraisal and selection procedures, for Sub-Projects. Except as the Association may otherwise agree, the Borrower shall not amend, suspend, abrogate or waive the PMMor part thereof. The Borrower shall carry out the Components A, B and C inaccordance with the P M M as agreedby the Association, which the Borrower shall not amend, delete, suspend or waive the whole or part thereof without the prior approval o f the Association. Without limitation on the provisions o f Schedule 3 to the Development Credit Agreement and of the Association`s Procurement Guidelines, the following provisions shall apply in respect o f goods, works and consultants' services to be procured under the Project: -48- To ensure end-user participation in the procurement o f goods, works and consultant services under the Project, the requestoduser o f such goods, works or consultant services to be acquired, shall be represented on the relevant procurement/selection committee. The criteria for the selection of procurement committee/selection members shall in all cases be consistent with the provisionsofthe Procurement Guidelines and the PMM. The annual procurement plans and consultant selection plans shall be made publicly available promptly after their finalization. All biddingdocuments and requests for proposals shall be made available to any member of the public promptly upon request, subject only to payment o f a reasonable fee to cover the cost o f printingand delivery. In the case o f requests for proposals, the relevant documents will only be made available after notification of award to the successful firm. Each such document will continue to be made publicly available until a year after completion o f the contract entered into for the goods, works or consultants' services inquestion. All short-lists of consultants and, in cases of pre-qualification, lists o f pre-qualified contractors and suppliers shall be made available to any member o f the public promptly upon request. A summary o fthe evaluationof all bids andproposals for specific contracts shallbe disclosed to all bidders and parties submitting proposals therefore, promptly after the notification of award to the successful bidder/consultant. Information in such summaries will be limitedto a list o fbidders/consultants, all bidprices and financial proposals as read out at public openings for bids and financial proposals, all bids and proposals declared nonresponsive (together with reasons for such an assessment), the name o f winningbidder/consultant and the contract price. Such summaries will be made available to any member o f the public promptly uponrequest. Contract award information for all contracts for goods and works above $100,000 equivalent and all contracts for consultants above $50,000 equivalent shall be made publicly available and published widely, and be made available to any member o f the public upon request, promptly after such award. A list o f all contracts awarded in the three months preceding the date o f such request, including, with respect to each such contract, the name o f the contractor/consultant selected, the contract amount, the number o f biddedmakers o f proposals in respect thereof, the procurement method followed and the purpose o f such contract shall be made available, promptly upon request by member o fthe public. Representatives of the end-users o f goods or works being procured shall be permitted to attendpublic bidopenings. The Borrower shall cause all training components under the Project to be carried out in accordance with a training program acceptable to the Association, which program's first year of activities shall be prepared by NPMU by no later than November 1, 2003 and included in the AWP ofthe Provinces and Kabupaten. 0 The Borrower shall: (a) cause each Province and Kabupaten to prepare and furnish to NSCWR by not later than September 1 in each year, commencing September 1, 2003, for the following Fiscal Year, for its review an AWP, which shall include: (i) detailed description of the activities under Parts a A and B o fthe Project that the Province or Kabupatenproposes to undertake inthe following Fiscal Year and for which it seeks funding (which description i s to include timeliness, an economic feasibility analysis, proposed social and environmental safeguards, and, where appropriate, Gantt charts); (ii)the proposed budget allocation for each activity; (iii)a breakdown o f the amounts for each line item to be financed from the Credit proceeds and the corresponding amount o f counterpart fundingto be provided from either national, Province or -49- Kabupaten fiscal sources, or, inthe case o f B-Sub-Projects, the counterpart contribution o f the WUAFs; (iv) with respect to each AWP submitted by a Province that includes proposals for carrying out C-Sub-Projects, confirmation that a Propinsi-Kabupaten M O U between the Province and the Kabupaten has been entered into; and with respect to each A W P submitted by a Kabupaten that includes proposals for A-Sub-projects under which certain activities are to be carried out by WUAFs, confirmation that a Kabupaten-WAF MOUhas been entered into; (b) furnish to the Associationbyno later than October 15 ineachyear, commencing October 15, 2003, the AWPs; (c) exchange views in a timely manner with each Province and Kabupaten on their AWP, taking into account the comments o f the Association; (d) by no later than December 1 of each year, commencing December 1, 2003, confirm to each Province and Kabupaten the approved AWPs after a mutually agreedamendment; and (e) thereafter cause the approved AWPs to be carried out in accordance with their provisions. In carrying out Part A.l of the Project, the Borrower shall ensure that each Provincial Water Resources Council/Committee (PWRC) and Basin Water Resources CounciKommittee (BWRC) i s established by no later than July 1, 2004, in accordance with the P M M and with a membership that includes appropriate representation o f all relevant stakeholders. In carrying out Part A 1 of the Project, the Borrower shall ensure that the planning activities by Kimpraswil and the planning unit in the Dinas PUP of each Province are in conformity with the provisions o f the P M M and include: (a) the use of public consultation procedures in plan formulation, and (b) a timely process for the review o f proposed basin water management plans andprograms bythe relevant PWRCsand BWRCsor equivalent institutions. Flow and Use of Project Funds For Kabupaten to become eligible as Participating Kabupaten, the criteria shall include: (i) formal a commitment to provide adequate counterpart funds for Project activities, (ii)a formal written assurance that adequate funds for routine operation and maintenance will be provided for water and irrigation infrastructure within said Kabupaten, and (iii)a formal commitment to transparency in budget allocation and use, including committing to the participation o f stakeholders in all tendering proceduresunder the Project. For Sub-projects to become eligible for funding, the requirements, and preparation, appraisal and selection procedures, shall include: (i) arrangements for, and the carrying out of, timely public and stakeholder consultations; (ii) technical standards and design criteria; and (iii) standards and the criteria set out inthe Environmental Plan, the LandAcquisition and Resettlement Guidelines and the IsolatedVulnerable People Development Framework. The requirements for preparing and processing Annual Work Plans, shall include (i)the timely public consultations in the preparation process, (ii)submitting only such proposed Annual Work Plans as have been endorsed by the Komisi Irigasi in the case o f irrigation Sub-projects under B.3, and by the BWRC inthe case o f river infrastructure works under A.3, (iii) the publication of Annual Work Plans and financial overviews relating thereto; and (iv) the provision o f access to the NPMU, the IMEU, and all relevant official national and Propinsi-level audit agencies, to all data and informationpertaining to the Project. - 50 - 0 A Balai PSDA shall only be eligible to receive assistanceunder Part A.2 of the Project and carry out RIM-Sub-projects underPart A.4 o f the Project, where: (a) aPerdu has been enactedfor the establishment o fthe Balai PSDA and a decree on the staffing has beenissuedby the Governor; (b) an appropriate programfor upgradingthe skills of staff ofthe Balai PSDA has beenprepared; (c) the Province has formally committed APBD resources for the financing o fthe staffand the basic operation o f the Balai PSDA; and (d) Balai PSDA chiefs or memberso ftheir staff either: (i) been designatedas project managers have or sub-project managers with spending authority; or (ii) function as agents with executive power, to disburse Project finds. 0 For the purposes o f carrying out Part B o f the Project, the Borrower shall cause each Province, through its Governor, to enter into, and thereafter maintain in effect, a Propinsi-Kabupaten MOU with each Kabupaten within the province, for the delineation o f tasks regarding irrigation management. 0 For the purposes o f carrying out Parts A.4 and B.3 o f the Project, the Borrower shall: ensure that the following actions have been taken and eligibility criteria have been applied for the financing o f proposed Sub-Projects: (A) For RIM-A Sub-Projects:(i)the Participating Province within whose geographical boundaries the proposed Sub-project is to be camed out shall have adopted, through a Surat Keputusan o f the Governor, the PMM, confirming, inter alia, the application o f the provisions o f the manualto all RIM-A-Sub-project activities which the Dinas PUP o f the province or a Balai PSDA established by a Perdu o f the province intends to carry out and to the use o f all RIM-A-Sub-project Funding Allocation resources which are made available to it; and (ii) such proposed RIM-A-Sub-project shall have: (a) beenendorsed by the Dinas PUP o f the Province as beingof strategic or economic priority, (b) been formally allocated an adequate O&M budget by the BaIai PSDA, and (c) beenreviewedand recommendedby the relevant RBWC. (B) For RIM-B-Sub-Projects: (i)the BaIai PSDA inwhosejurisdiction the proposed Sub-project i s to take place shall have adopted, through a Surut Keputusan o f the Head of the Dinas PUP of the Province, the PMM, confirming its commitment to apply the provisions o f the manual to all RIM-B-Sub-project activities which it intends to carry out; and (ii)the proposed RIM-B-Sub-project shall have been (a) endorsed by the BaIai PSDA as being o f strategic or economic priority, and (b) formally allocated an adequateO&M budget by the Balai PSDA. (C) For A-Sub-Projects: (i)Each Kabupaten within whose geographical boundaries the proposed Sub-project i s to take place shall have: (a) adopted ,through a Surat Keputusan o f the Bupati o f said Kabupaten the PMM, confirming the application o f the provisions o f the manual to all A-Sub-project activities within the geographical boundaries o f the Kabupaten; (b) through the Bupati, entered into a Propinsi-Kabupaten M O U with the Province within whose geographical boundaries the Kabupaten i s located; (c) adopted the P P I through the issuance o f a Surut Keputusan from the Bupati o f the Kabupaten; (d) formally established a Komisi Irigasi and appointed all members thereof by the issuance o f a Surat Keputusan by the Bupati, o f which membersno less than one third shall be representatives o f WUAFs of the Kabupaten; and (ii) The proposed A-Sub-project shall have received the endorsement o f the Komisi Irigasi for it to be eligible for funding. -51 - (D)For B-Sub-Projects: (i)The Participating Kabupaten within whose geographical boundaries the proposed B-Sub-project i s to take place shall: (a) through the Bupati, have entered into: (a) a Kabupaten-WUAF M O U with each WUAF that intends to participate in a B-Sub-project for which a B-Sub-project Funding Allocation i s being requested; and (b) a B-Sub-project Contract with each said WUAF which i s legally bindingon the parties accordingto its terms and pursuant to which, inter alia, the WUAF commits to the application o f all relevant provisions o fthe PMM, including the principles o f participatory design and participatory construction described; and (b) established a KIIF through the issuanceo f a Swat Keputusan by the Bupati o f the Kabupaten; (ii) The proposed B-Sub-project must have received the endorsement o f the Komisi Irigasi for the Kabupaten for it to be eligible for funding. (E) For C-Sub-Projects: (i)The Province within whose geographical boundaries the proposed C-Sub-project i s to take place shall have: (a) adopted, through a Surut Keputusan o f the Governor, the PMM, confirming the application o f the provisions o f the manual to all C-Sub-project activities and to the use o f C-Sub-project Funding Allocation resources; (b) adopted the PKPI through a letter from the Governor; and (c) entered into a Propinsi-Kabupaten M O Uwith each Kabupaten inwhose territory the activities for the proposed C-Sub-project are to take place; (ii) The proposed C-Sub-project must have received the endorsement o f the Komisi Irigasi o f the Kabupaten within whose geographical boundaries it i s to take place. (F) For IAIP-Sub-Projects: The Participating Kabupaten within whose geographical boundaries the proposed IAIP-Sub-project is to take place shall: (i) adopted, through a Surut Keputusan have o f the Bupati the PMM, confirming the application o f the manual to all IAIP-Sub-project activities and to the use o f IAIP-Sub-project Funding Allocation resources; (ii)formally established a Komisi Penyuluhan by Surat Keputusan o f the Bupati, o f which members no less than one third shall be representatives o f WUAFs; (iii) established an IAIP Fund through the issuance o f a Swat Keputusan by the Bupati; and (iv) through the Bupati, have entered into an IAIP-Sub-project Contract with each WUAF or WUA that seeks to receive an IAIP-Sub-project Funding Allocation, which is legally binding on the parties to which, inter alia, the WUAF commits to the application o f all relevant provisions o f the Project Management Manual, including the principles o f financial contribution, participatory design and participatory construction. The proposedIAIP-Sub-project must have receivedthe endorsement of the Komisi Penyuluhan for it to be eligible for funding. 0 In addition, the Borrower shall further ensure that a Sub-project proposal shall only be eligible for financing: (a) where its proposal is determined by the Borrower to be technically feasible, economically warranted and cost effective, and to have been designed on the basis o f appropriate water resources indicators and priorities; (b) for which such sub-project proposal has been prepared incompliance with the Environmental Guidelines; (c) for which sub-project proposalthe Borrower has, where the acquisition o f land or assets or the displacement o f any person is unavoidable, made or caused to made available to all Displaced Persons under such sub-project proposal, before the works are carried out which would result in such acquisition or displacement, compensation in accordancewith principles and guidelines set out inthe Framework for Resettlement and Acquisition o f Landand Assets; and (d) for which sub-project proposal, concerned Isolated Vulnerable People, if any, have been involved, through a process o f informed participation, in its design in compliance withthe IsolatedVulnerable People DevelopmentGuidelines. - 52 - Environmental and Social Covenants The Borrower shall carry out the Project inaccordancewith the measures stipulated under: e the Environmental Guidelines. the Framework for Resettlement, Land and Asset Acquisition, and the Framework for Vulnerable IsolatedIndigenous Peoples. Monitoring, Reporting and Audits The Borrower shall: (a) provide the Association with annual financial audits conducted by an independent auditor and based on a TOR acceptable to the Association; and (b) make publicly available each annual audit report o f the Project promptly after its finalization. The Borrower shall, through NPMU: (a) furnish to the Association, not later than November 1 in each year, commencing November 1,2003, for review and approval, an annual work program for the Project (and, commencing November 1, 2004, a report reviewing performance o f the annual work program o f the year to date), based, inrespect o f Parts A and B o f the Project, upon the annual work plans referred to above, for the implementation o f the Project inthe following year; and (b) regularly exchange views with Association on said program and, thereafter, promptly take all actions necessaryto implement saidprogram, taking into account the views o f the Association on the matter. The Borrower shall : (a) maintain policies and procedures adequate to enable it to monitor and evaluate on an ongoing basis, satisfactory to the Association, and in accordance with the Performance Indicators and with the PMM, the carrying out o f the Project and the achievement o fthe objectives thereof; (b) engage, by no later than June 30, 2004, and thereafter retain consultants to constitute the Impact Monitoring and Evaluation Unit (IMEU), with terms o f reference acceptable to the Association for the purpose o f carrying out independentmonitoringand evaluation ofthe Project; (c) ensure that the IMEUshall have access ina timely manner to all documents it considers necessary for the discharge o f its responsibilities pursuant to its terms o f reference; (d) prepare, under terms o f reference satisfactory to the Association, and furnish to the Association, by May 1 and November 1 o f each year, commencing May 1, 2004, and until completion o f the Project, a report integrating the results o f the monitoring and evaluation activities performed, on the progress achieved in the carrying out o f the Project during the preceding six months and setting out the measures recommended to ensure the efficient carrying out o f the Project duringthe six months following such date, which measures shall include: (i) in each report due by November 1 in any year, a detailed procurement plan for carrying out the Project during the next fiscal year following the date o f such report, and (ii)ineach report due by May 1inany year, an update of the detailed procurement plan for the fiscal year in which such month falls; (e) review with the Association, on or about May 15 and November 15 o f each year, commencing 2004, the above report, and, thereafter, take all measures required to ensure the efficient carrying out o f the Project and the achievement o f the objectives during the twelve months thereafter; (9 by November 1, 2005, prepare under terms o f reference satisfactory to the Association and furnish to the Association, a report integrating the results o f the monitoring and evaluation activities, on the progress achieved in carrying out the Project duringthe periodprecedingthe date o f said report and settingout the measures recommended to ensure the efficient carrying out o f the Project and the achievement o f the objectives during the remainder o f the Project; (g) review with the Association, on or about January 15, 2006, the report referred above, and, thereafter, take all measures required to ensure the efficient completion o f the Project and the achievement o f the objectives thereof; and (h) make publicly available the above report at the same time it i s furnished to the Association. - 53 - H. Readinessfor Implementation 5 1.a) Theengineeringdesigndocumentsforthefirstyear'sactivitiesarecompleteandreadyfor the 3 7 start o f project implementation. I 1. b) Not applicable. - -2. The procurement documents for the first year's activities are complete and ready for the start o f project implementation. -3.TheProject ImplementationPlan has beenappraised and found to be realistic and o f satisfactory quality. -' 4. The following items are lacking and are discussedunder loan conditions (Section G): This Project is largely demand-driven and in its first year (2004) will see only minor works in a small number o f locations, and activities that are technically or managerially not complex. The Project Implementation Plan (PIP) and the Project Management Manual (PMM) are in a stage that allowed appraisal. They were found to be acceptable and demonstrated readinessonbehalfo f the national and the local govemments that will implement the first year o f the Project. Nonetheless, both the PIP and P M M need to be hrther completed, especially where it concerns the details of activity description, and the details o f TORSand procurement documents. Go1has its Consultants at its disposal to complete these documents. The first steps for the procurement o f the TA packageswill be taken inJune 2003. I. Compliance with Bank Policies - 1. This project complies with all applicable Bank policies. r-- 2. The following exceptions to Bankpolicies are recommended for approval. The project complies with all other applicable Bank policies. Guy J. Alaerts Mark D. Wilson Andrew D. Steer Team Leader Sector Director Country Director - 54 - Annex I:Project Design Summary INDONESIA: Water Resources & lrriga 3n Sector Management Program Data Collection Strategy I Critical Assumptions Sector/ countryreports: [fromGoalto Bank Mission) I.Promotingbroad-basedgrowth. I 1. Increase in ruralper capitaGDP ,2. Go1reportson socialand 1. Economic recovery maintained. :conomicdevelopment;CAS Progress 2. Benefits of economic recovery 2. Better services for the poor 2. Decreasein disparity in economic leport. ,each the poor. opportunity and vulnerability. 1. Donors' sector studies &public 3. Buildinginstitutions for 3. Strengthenedpoliticaland social :onsultations. accountablegovernment in a institutions. 1. Go1budget & expendituredata: decentralizedstructure. 4. Water sector investments better )erformancedata from sector MIS 4. Sustainablemanagement ofnatural planned, operatedand maintained; lata-base. (water) resources. better inter-agencycoordination; de facto accessto water resources more productive, equitableand sustainable; natural function ofwater resources better valued. Jrogramreports: (from Purposeto Goal) 1. Riverbasin water resources and 1. I.Allocation ofwater more I.1. CY 2005 Propenas, and 1. irrigation water deliveriesmanaged equitablefor all competing uses and 3evelopment Plans o f provinces (a) Governmentremains committed tc more sustainably, transparently and needs (incl. environmental)(>go% of reform in the water sector. equitably, by institutions that are: (i) demand beingmet in each (b) Sustainedimprovement of fiscally more sustainableand robust; sub-sector), and 50% of water national economy that allows that a (ii)basedonincreasedunbundlingof pollutionsourcesregisteredand sustainable aquatic environment tasks; (iii)participation of farmers controlled in targeted Programbasins. becomes politicallymore important. and commercial entities; (iv) 1.2. Economic losses minimized as (c) lmproving incomesin irrigated responsiveto stakeholder views and water infrastructuredevelopment and I.2. Water use anddemandsupply areas and in upper-catchment environmentalconservationneeds; O&M, are defined by regional .eports using data from MIS set up vulnerable zones avoidsshort-term and (v) water allocation basedon priorities and, sustainedmaintenance mder Program, groundwaterdata, rent-seekingfrom soils, forestry and Water Use Rights for consumptive and replacement.. water quality reports. water resources. and non-consumptivewater uses. 1.3. National, provincial, basin& (d) Maturedparliamentary kabupaten Water ResourceCouncils I.3. Reportsandmeetingminutesof democracy, govemance, and civil influence policy and operations; he Water Resources Councils at all servicereformthat ensure more DPRDs informedabout water issues. evels, Kabupaten Irrigation effective stakeholder participationani 1.4. Irrigationand River Basin 2ommissionsand Impact M&E Unit. accountability ofgovernment agencies more effective in carrying agencies. out their allocatedtasks; water use, I.4Managementauditsoftheriver (e) National and regional govemment hydrological andwater quality data ,asin agencies. willing to introduce costrecovery reliable and adequate; MIS and mechanismsand earmarking their decision-supportsystemeffective; revenue for the sector. agency management improvedby (0Nationalandregional application of Quality Assurance governments will continue to pursue (QA) procedures. policy of irrigation management 1.5. Recognition and enhancementof reform through: (i)empowermentof role of women in sector govemance self-goveming and self-financing institutions; stakeholders, especially 1.5. IMEU reportsand surveys WUA organizations; (ii)require poorerand traditional water users feel irrigation departments to provide better served. technical andcapacity building 1.6. Number of servicecontracts and support to WUAFs; and (c) provide concessionary arrangementsincreases 1.6. Nehvork Rationalization Studies; sustainable financial assistanceto 1.7. A Water Use Rights systems Hydrology Review Reports; MIS& W A F Swith network management applied by provincial govemments. Decision Support assessment; responsibilities on a matchinggrant 1.8. 100% ofpublic irrigation periodic O&M expenditurereviews. basis. schemesin Programarea are 1.7. Reports of Water Use Rightspilo eflective/y governed by scheme-level programs; regulationsand decrees; WUAF (IP3A); at least 80% of WUR Registers. secondary canal service areas 1.8 . Managementaudits of transferredto WUAF mgmt.; Govt. Kabupaten and provincial irrigation - 55 - O&M budget cost-sharing for gencies; and, KabupatenIrrigation networkstransferred to WUAF; asset :ommissions, IMEU reports; management ofheadworksand mrovincialand kabupatenirrigation irrigation networksunder Govt. A&E reports. mgmt. basedon effective QA, needs-basedbudgeting procedures; and private service providersusedby WUAFs; Kabupaten Irrigation Commissionsare an effective means of representationofscheme-levelapex WUAFs and managingKIFfunds for asset investmentassistanceto WUAFs with management responsibilitiesfor network assets. Improved food security and farm 2.I.Overall production of rice and ,.1. Nationaleconomic and !. householdincomes raised in Program other crops from irrigated agriculture agricultural production and demand a) Globalization and long-term kabupatenby interventions that: (i) in the Program area covers minimum reports; and data on commodity and :ommodity price developments raise the productivity and value of supply; and its irrigation system able rice markets, and imports. xomote crop diversification; irrigated agriculture; (ii) restore to help meet future demand. :ommunity driven, demand-based equitableand sustained irrigation 2.2. Increasein net farm income. igriculturalsupport is more effective water delivery; (iii) reduce 2.2. Baselinesurvey updates based han supply-driveninput programs. vulnerability to natural and economic i.a. on Participatory Rural Appraisals b) Improved productivity in shocks; and (iv) provide better access and annual kabupatensparticipatory rrigationalso improvespositiono f to agricultural support and credit irrigation management and )oar farmers. services. 2.3. Water delivery sustainably production reports. c) No climatic or economic shocks. restoredin all pans of irrigation 2.3. Data from MIS to be set up under d) Government pursuespoverty networksunder the Program. Program. .eductionpolicies. 3. Restructuredwater and irrigation 3.1. Reduction of govt. expenditures 3.1. Management audits of kabupaten %. sector agencies are more for staffoverheads through greater irrigation departments.and provincial a) Kabupaten govts. will require cost-effectiveand their services useof community contributions, and national water resources natchinggrants for infrastructure fiscally sustainable. subsidiaryconcessionsinperforming departments. nvestment and agri-business support; govemment WR management irovincialgovts. willing to use services. :oncessionary mechanisms to perform 3.2. Reduction on govt. expenditures 3.2. Recurrentand development heir WRM services more and longer expectedeconomic life of budgetsofregional and national :ost-effectively. river and irrigation infrastructuredue govemments and river basin :b) Provincial and kabupatens to improved asset management. corporation balance sheets; periodic governments provide sustainableand 3.3. Sustainable service fees and other Irrigation ExpenditureReports; idequatebudget supportfor timely cost recovery mechanismsreduce the Provincialand KabupatenDinas PUP .ecurrent and periodic maintenance fiscal burden of infrastructureO&M Technical Audit Reports. ifter asset rehabilitation. and water resources management c) Provincialand kabupatens servicesprovidedby sector agencies 3.3. National and regional Zovemmentswill apply various cost and corporations. govemment revenueand deferred -ecoverymechanismsto reduce the maintenanceexpendituredata. fiscal burdenofsustainable water 'esources management services. I - 56 - Key Performance Data Collection Strategy Hierarchy of Objectives Indicators Critical Assumotions 'rojectDevelopment lutcomeI Impact lroject reports: from Objectiveto Purpose) )bjective: idicators: ,.Improved Water ResourcesSector .Improved Water ResourcesSector ,.Improved Water ResourcesSecfor ;enera1 'erformance erformance krform once I,1. Parliamentarydemocracy,civil ,Water allocation, water quality and 1 Allocation ofdeliverablewater .I. useanddemandisupply Water iervice andgovemancereform ensure 'ater conservationimproved in lore equitablefor all competinguses alance reports; water quality :ffective stakeholder participation and roject basins. id needs (incl. environmental)(> ianagement report; groundwater iccountability of govemment 5% of demandbeing met in each alance & managementreports; igencies. ib-sector), in 5 Project basins. ,WRM Plans. I.2. Fiscalpressures,and local .2.System ofwater pollution 2.Annualreportsandbalance iemandforce improvement inagency ionitoring and control, incl. ieets ofRBCorps.andBalai PSDA; nanagementperformance,service ischargepermitsand fees, effective ianagementaudits. ielivery, and cost-effective I 1Projectbasin. investment. 1.3. Improving economyallows that a justainable aquatic environment Jecomespoliticallymore important. .River infrastructure better 1. Economic lossesreducedas river .I.For3DinasPUPand5Balai 4. Improved Wafer ResourcesSectof iaintained and more operationalin ifrastructuredevelopment and O&M 'SDA,unit costs of Balai PSDA Performance roject basins. 'e better gearedto regionalpriorities perationsare available: maintenance i d sustained cost recovery. ost estimates and structure 2.1. NWC or predecessor meets .2. In 3 basins, Balai PSDAs Dinas :placement costed. regularly; its Secretariat well staffed UP plan basinoperations and .2 Decision-support& MIS set up and funded. ivestmentbasedon BWRMPs. nder Project. 2.2. BasinCouncilsiCommittees .3. Demonstrable improvementin .3 NetworkRationalization Studies; developexperience andconfidencein mstruction quality and contract Iydrology data reporting; establishingstakeholder contribution. ianagement; annual work programs ianagement audits. 2.3. Difficulties in establishingRBC ased on cost-effectiveness; improved .4 BWRMPreports on Java overcome and mentoring of iter-agency coordination. new RBC under PJT Brantasproves effective. 2.4 Bapedaldas (i) issuestream classifications and (ii)implement eMuent discharge fees. 2.5. Provincial govts. improve managementcontrols to improve agency accountability and performance. 2.6. Provincial govts. adopt BWRMPs. 2.7 Public consultationseffective in raisingawarenessin civil society; DPRD awarenessraised. 2.8. Provincial andkabupaten governments apply adequate fee & ta revenue earmarking. 2.9. National, provincialand kabupatengovemmentssupportstaff rationalization and administration re-organization. ,Sector govemanceenhanced, and ,1NWC and its Secretariat develop i,1, Minutes o neetinesan eports. - ector fiscal sustainability olicies for fiscal sustainability and 1.2.Stakeholder participationreports trengthened, nationally, and in ector govemance: and resolve md surveys. Third-party Impact M&I 'roject basins. iter-agencyconflict. Jnit. .2. In 12 Provincial and 15 Basin 5.3. More contributions from NGOs Vater Resource Councils/ ]ut fewer complaints. 'ommittees, consistingof men and 5.4.Balancesheets of RBCorps. and !omen, and representingalso 3alai PSDA, and local govt. accounts ulnerableindigenouspeople, where 5.5. Human resources inventory. pplicable. demonstrablyinfluence :gulations, water allocation, ivestmentsand budgets. .3. Three Basin Water Resources lanagementPlans adopted by - 57 - DPRDs andProvincial Water Resources Councils. 3.4 In 3 basins, earmarked Pemda budget allocation covers 50% ofBalai I PSDA operatingcosts; abstraction and effluent discharge fee revenue covers 25 % of operationalexpenditure ofa new RBC. I 3.5. Operational frameworkprepared to pilot morecommercialapproachin M L 11. /.Improved Irrigation Managemen1 B. Improved Irrigation Management 1. Improved Irrigation Mngmt. and B.Improved Irrigation Management nd Agricultural Productivity and Agricultural Productivity Igric. productivity and Agricultural Productivity , Improved performance of irrigation 4.1. 50% o fpublic irrigationschemes 4.1. Commodity pricespromotecrop zency servicesand Water User in 70 kabupatens are governedby .I.Participatoryirrigation diversification; community driven and ssociationFederations(WUAF) IP3NWUAF in partnershipwith ianagementreport. demand-based agricultural support ased on participatory management in kabupatengovt.; at least 25% of .2. Annual kabupatenand province effective. roject schemes. secondarycanal serviceareas are rrigation and agricultural production 4.2. WUAFs develop into a viable managed by WUAFs with technical tatistics andMIS data set up under long-term vehicle for introducing and matchinggrant financial support; 'roject. agricultural support programs for KabupatenInigationCommissions .3. Participatory rural appraisal& imgated agriculture and attract operationalin 70 kabupatens. nanagementaudits. Impact M&E private sector participationin 4.2. Active participationofwomen Jnit. agricultural market intensification. farmers in WUAs and WUAFs .4. Management audits ofKabupaten 4.3. Govt. continuesliberalization of enhanced. rrigation departments. food cropping decisionsby farmers. 4.3. Capacity of 70 Kabupatens 4.4. Kabupaten irrigation depts. Irrigation Departmentsimproved. willing to support WUAFs, improve their quality assurance and managementcontrols. Improved fiscal sustainability of 5.1. Reductionin govt. rehabilitation 8.1. Accountsof local govemments. ublic imgation schemes. investment expenditures by I O %by 1.2.Accountsof Kabupatens transfer of tasks andbudget to rrigation Commissions. WUAFs. 5.2. Matchingcontributions from WUAFs for O&M of schemesare at least 20 % o fexpenditurein half of schemes, and increasein all schemes. 5.3. Irrigation O&M budgetsof I 1 provinces and 70 kabupatensreacha satisfactoryand sustainable level. Increasedagricultural productivity 6.1. No decrease in average and i.1. Baselinesurveyandupdatebased id family incomes in the Project medianfarm income in 30 irrigated m annual kabupatenand province 'eas, through better water kabupatens,and mechanisms inplace rrigationand agricultural production iailability, facilitated agricultural that will increase incomeover tatistics andM&E data. ipport servicesand access to WISMP 2. 1.2Economic & financial analysis licro-credit. 6.2. Increasein ERR ofbenefitsbased ipdatesfrom WISMP 1 appraisal on income from higher riceyield and :stimates, basedon annual Bappeda higher value crops; and improved mgation and agricultural production farm gate prices. ,tatistics,income surveys, SMERU ,urveysand data from MIS set up inderProject. - 58 - Data Collection Strateav Critical Assumptions Output from each Output Indicators: 'roject reports: (fromOutputs to Objective) Component: A, Water ResourcesManagement A. Water ResourcesManagement i.WaterResourcesMgmt. General 1. Governance & Basin Planning 1. Governance & Basin Planning I.Governance& BasinPlanning 1.1. The National Water Council 1.1. The NWC andNSCWR I.1 IMEU Reports andNWC :a) Decentralizationimplemented, and (NWC) or its predecessor,and the Secretariatsfully staffed, funded and klinutes; StakeholderParticipation localgovts. willing to cooperatewith National SteeringCommittee for monitor implementationofNWC Zeport :ach other. Water Resources(NSCWR) decisions. :b) WATSAL conceptsand principles operational. 1.2. 12 Provincial WR Councilsand 1.2 Ditto implemented. 1.2. Provincial and Basin Water 12 River BasinCouncilsiCommittees :c) Fiscalpressures, and local demand Resources Councils/Committees meet regularly on policy, water force improvementin agency operational,and awareness and allocation, regulation,and agencies' managementperformance, service transparency increased. activities. jelivery, and cost-effective 1.3. An understandingo f water 1.3. 12 provincial and 186 investment. resources needs & issues is developed kabupatensDPRDs (within 42 basins 1.3 Ditto :d) Qualifiedand experienced in the DPR, DPRDs & stakeholder managedby Balai PSDA) are well Indonesianconsultants and firms can groups. informed about water sector issues be found for implementation. 1.4. Public consultation procedures 1.4. Public Consultationsreduce civil [e) Donor policies synergistic. for basin planning and management society and stakeholder complaints. I.4 Annual IMEUPublic Complaints (f) Improvingeconomyallows that a are operational. 1.5. WUR pilot operationalin 2 large Zeports. sustainableaquatic environment 1.5. Water Use Rights Framework river basins. becomespolitically more imponant; developed andapplied on a pilot 1.6, Ciliwung-Cisadane BWRMP 1.5 Water Use Rights (WUR) Pilot and politicians more aware o f basis. completed by a suitably funded & Zepon. resource mgmt. issues. 1.6. Capability for integrated, staffedCentral Planning Unit. At I.6 ProvincialWR FrameworkPlan (g) Fiscalpressures and scarce environmental,fiscal and socially least 4 new ProvincialPlanning Units `or BWRMPpreparation, BWRMP externalaid will force policies on cost sustainablebasin planningdeveloping (PPUs) established staffed& funded; `eports and 3 BWRMP adoption recovery and unbundling to be at the national andprovincial levels 3 Java PPUs complete a 10-year iecrees. implemented. alongwith use ofpublic consultation Water Resources FrameworkPlan for in basin plan formulation and BWRMP preparation; 3 BWRMPs adoption. adoptedby Provincial WR 1.7. Interlinkednational and CouncilsiCommittees. provincial water databases (including I.7. (a) DGWR Water ResourcesData hydrology) for basin planningand Center operational; basic water management decision support resourcesdata baseestablishedby 6 developing. PPUs; Action Plan for Integrated I.7 (a) Water ResourcesPlanningand 1.8 Dam safety assurance improved Inter-AgencyWater Resources UanagementDatabaseReport. by strengtheningits regulatory Management Information System b) Hydrology administrative decrees framework & institutions [Dam (WRMIS) completed. (b) National ind role-sharingagreements; Safety Commission (DSC) and its hydrology quality assuranceimproved lrovincial Hydrology Unit annual Dam Safety Unit (DSU)]. includingissue of administrative 'epons. decrees; conclusion ofrole-sharing agreementsbetween Provincial HydrologicalUnits, Balai PSDAsand PJTs. 1.8. Dam Safety Assurance Regulation issued; DSU has 20 full-time staffand has certified 65 dams. I.8 DamSafetyAssurancereports. 2. Basin Agency Mgmt Capacity 2. BasinAgency Mgmt Capacity 1. Basin Agency Mgmt Capacity 2.1 Balui PSDA and Dinas PUP 2.1. Five new Bului PSDA 2.1. Balui PSDA QA, cost accounting organizationcapacity building and established. Proceduresfor cost mdasset managementprocedure management control improvement accounting,budgeting, asset nanuals andtraining manuals underway to achieve effective, management, procurementand quality :ompleted; Bald PSDA Management accountableand service-oriented assurance (QA) operationally 4udit reports; Training Evaluation basin regulation and management effective in 15 `Core' Balai PSDA. md Capacity Building report. performance. 2.2. The RBCs established under 2.2. PJT annual & MTR reports; PJ7 2.2. Jratunseluna and WISMP 1 adequately staffed & ManagementAudit Repon cost accounting & budgeting, QA, asset management,procurementand O&M. 2.3. Human Resource(HR) 2.3. Water ResourcesManagement :WRM) HR Assessment Repon - 59 - Plan (incl. staff rationalization plan) WRM HR Optimizationand & 2.3. Assessment completed of completed for Kimpraswil and i 2 DevelopmentReport. national and provincial water provinces resources agency human resources 2.4. Staff, equipmentand funding for 2.4. Provincial HydrologicalUnit (HR) needs and HR development flood measurement capacity :PHU) and Balai PSDA annual framework formulated. satisfactoryin 10 'Core'Balai PSDA; qydrologydata reports. 1 2.4 Quality andreliability of hydrometry activities for Citarum and provincial hydrological datasystem Brantas rivers delegatedto PJT 1 and improved. PJTI1 2.5. CDMU operationalfor all 2.5. Dam Safety AssuranceMTR and DGWR-owned dams; provincial & xoject closurereports. Bulai PSDA DMUsin Java monitor 2.5 Capacity ofdam safety and maintain Basic Dam Safety monitoring units (Central DMUand Facilities (BDSF). provinciaVBalaiPSDA DMUs) for DGWR-owned dams sustained. 3. Fiscal & Cost Recovery Policy 3. Fiscal& Cost RecoveryPolicy 3. Fiscal & Cost Recovery Policy 3.1, Provinces & kabupatensadopt 3.1. Enablinginstrumentsissuedand 3.1. O&M Funding Analysis and sustainable O&M policy basedon administrative framework formulated fost Recovery Report; RBC balance cost recovery mechanisms to reduce for river and flood infrastructure sheets and localgovemmentaccounts. the fiscal burdenofpublic includingheadworks. 3.2. Industrial Effluent Treatment infrastructure for bulk water supply, 3.2. Draft regulationspreparedfor Financial Incentive Study. flood control and sustainable aquifer piloting pollutioncontrol financial management. incentivesinthe Brantas river basin. 3.2. Financial incentive framework 3.3. Fifty percent of the recurrent 3.3 Balai PSDA Balai PSDA for wastewater treatmentby industry operationalcosts of 15 'Core' and ManagementAudit reports. formulated. about 6 'Base' Balai PSDA are 3.3. Fiscal sustainability ofBalai covered by provincial APBD budget. PSDA improving. 3.4. Servicefees renegotiated for PJT 3.4. Cost recoveryadequacyfor PJT I,PJTIIandfornewRBCs 3.4 Tariff Agreements, annual services improved by renegotiationof establishedunder the Project. Financial BalanceSheets ofPJTs bulk water supply and power charges. 4. Basin Management and River 4. Basin Management, and River Infrastructure Improvement 4. Basin Management and River Infrastructure Improvement 4.1. (a) Hydromet Network Infrastructure Improvement 4.1. Improvement inhydrology asset Rationalization Plan completed for 43 4.1. NetworkRationalization Study; maintenance. basins; hydromet network optimized Hydrology Management& and fully operational in at least 5 Core Hydrometry ReliabilityReport; Balui BalaiPSDA; (b) hydrology assets PSDA annual hydrologydata reports. transferred to at least 15 CoreBalai PSDA; and (c) 50% ofhydromet O&M budgetprovidedas routine budget from APBD. 4.2. (a) Dry season Water Demand-SupplyBalanceframework 4.2. Water Demand-SupplyBalance 4.2 Completion ofprogram of repairs completedfor 7 river basinsby 5 Core Report (including Drought Allocation and calibration ofkey river Balai PSDA and PJT I& 11; and (b) Plans); WUR Pilot ProgramReport; infrastructure (including Service Area headworks flow measurement Water Quality ManagementReport; off-takes) to ensure reliable water structures repairedand calibrated in annualBWRM Sub-projectPlanning allocation managementby Balai basins of 10 other Core Balai PSDAs. and Completion Reports. PSDAs and new PJTs). 4.3. (a) In-streamwater quality monitoring (WQM), data reliability 4.3. BalaiPSDA WQM Report; and annual reporting improved in 5 KWQMN Rationalization Study 4.3 Ambient water quality data CoreBalai PSDA and PJT I& 11; (b) (including procedures); annualBalai reliability improved in selected Java framework for Nat. WQM Network PSDA WQM yearbooks. basins and National Water Quality prepared. MonitoringNetwork (NWQMN) 4.4. Monitoring of effluent discharges formulated. begun by PJT Iand PP 8212001 4.4. Effluent DischargeFee Report. implementation decrees issuedfor 4.4. Effluent DischargeFee system Brantas basin. for BrantasBasinwater pollution 4.5. Five Core Balai PSDAs on Java 4.5. Balai PSDA FloodManagement control under establishment. undertakean O&M program for flood Report. protectionworks. 4.5. Flood management practices and operations introducedin selected 5. Sational Capacity Building 5. National Capacity Building basins. Nehvork Network 5.1. A National Water Resources 5.1. NationalWater Resources - 60 - 15. National Capacity Building ISector CapacityBuilding Policy ipacity BuildingNetwork Report. Network issued; national sector HR unit 5.1, Issuance ofaNational Water establishedwithin the NWC Resources Sector Capacity Building Secretariat. Policy. 5.2. Nationalwater resources 2. NationalWater Resources capacitybuilding programintroduced ipacity BuildingNetwork Report. in at least 10universitiesor 5.2. OperationalNational Water polytechnics& 5 new IWRM modules ResourcesCapacity Building Network available. established. 5.3. Implementationframework for 3. NationalWater Resources the National Water ResourcesArchive .chive Plan. formulated. 5.3. Establishmento fa nationalWater ResourcesArchive. B. Participatory Irrigation B. Participatory Irrigation Participatory Irrigation I.Participatory Irrigation Management Management anagement 4anagemenl 1. Water User AssociationCapacity 1. Water User Association Capacity Water UserAssociation Capacity a) The incentivesare adequatefor I.1. Govemmentirrigation 1.1. Govemments of 70 kabupatens 1. IssuedDecrees and Agreements; WAFSIO accept network management govemance improved as: and 1Iprovinceshave: (a) issued a id-term and Final Participatoty ianagementtransfer (MT). (a) policy, legal and administrative PKPI-basedPerda for irrigation; (b) igationManagementreports; b) Irrigation Depts., local politicians framework for PKPIimplementation revised the mandate & tasks oftheir nual M&E data. nd Nat. govt. support MT. established; and (b) Kabupaten irrigation departmentsto include c) Kabupaten govemments agree to IrrigationCommissions(KICs)--with support for WUAFs; (c) enteredinto )&M budgetsharingwith WUAF. apex WUAF (IP3A) representation, of PKPIand O&M role-sharing d) Improvedwater delivery due to all irrigation schemes--are agreements: and (d) 70 KICs are letter O&M by WUAFs with effective operational. operationalwith oversightover 2,500 vater allocation. schemescovering about 2.3 million e) Irrigation M T stimulates ha. 2. Participatory Irrigation iroductivity of irrigated land. 1.2. Irrigation scheme govemance 1.2. (a) 1,125 new IP3AIWUAFs anagement reports; annual M&E f)Commodity pricespromote improved by: (a) WUAFs/JP3A that: establishedwith representation Ita; IMEU reports. ialancedcrop diversification; (i) express WUA views to Dinas PUP authority over irrigationnetworks ommunity driven and demand-based about irrigation services& scheme serving about I.I25 million ha; (b) .gricultural support effective. asset management, and (ii) are WUAF govemanceand O&M g) Access to rural financing and responsibleto WUAs for equitable activities are supported by WUA ,xtensionservices is well targeted, water distribution and other intemal membership fees; and (c) transfer of loes not distort properincentives. govemancematters; and (b) designated network area management empowermentofWUAFs/lP3A who to about 575 WUAFs on an have undertaken responsibility for agreed,performance and matching secondary canal (or larger) O&M and grant basis. asset management underTransfer and ServiceAgreements. 1.3. (a) Management, financial & 3. Training Evaluation and Capacity technical skills improved for all 1.3. (a) Standardtraining program uilding report; annual M&E data WUAF oEcials. (b) Kabupatenand completedfor about 1,125 WUAF provincial-level mutual feedback and and WUA Executive Committees comparativestudy learning together; (b) 70 mutual feedback opportunities facilitated for W A F S workshops held for inter-WUAF and and most WUA Executive WUA Committeesand 450 Committees. comparativeleaming opportunities. 2. Kabupaten IrrigationDept. 2. Kabupaten Irrigation Kabupaten Irrigation Capacity Department Capacity epartment Capacity 2.1. KabupatenDinas PUPSand 2.1. For 70 kabupatensand 11 1. Kab. Dinas PUPReorganization irrigation-related units in provincial provinces: (a) staff inventory and id PerformanceReport (basedon Dinas PUPSreorganized, re-staffed capacitybuilding needsassessment chnical and management audits of and personnel retrainedfor PKPI completed; (b) communication skills ab. Dinas PUP). -related tasks and services o f training for kab. Dinas PUP; technical.financial and capacity completed; and (c) project logistics buildingsupport to WUAFs. needs and budgetensured. Reorganizationfor 45 Java kabupatens includes: (i)recruitment of new professional& technical staff; and (ii)gate operators & laborers transferredto control or employ of WUAFs. 2. QA and Asset Management 2.2. QA and basic asset management 2.2. QA and Ah4 training completed eport (based on management audits (AM)uroceduresintroduced into for Kab. Dinas PUPstaff; all unit 'Kab. Dinas PUP): vearlv AWP - 61 - 1Kab.Dinas PUP for management Imanagem trained in basic .oposals; Training Evaluation and control; rolling program goals & management skills; computers used apacity Building report. needs-basedbudgeting(NBB) used for A M data processing in 18 large for preparing AWPs. schemes; AM and NBB basedon seasonalfield inspections and PRA. 3. Irrigation ServicePerformance 2.3. Seasonal canal water delivery 2.3 Main structuresservingWUAF eport; annualM&E reports. planning and scheduling confirmed service areascalibrated. maintained with scheme IP3NWUAFs and bulk and operatedin I,125 schemes supply of available water to WUAFs accordingto water delivery plans and equitably enforced. agreements. .4 Baselinesurvey and Project 2.4. Management-orientedirrigation 2.4. M&E system applied by losureBaselineSurveyUpdate; performance monitoring and kabupatengovernment over an area of inual M&E reports; project closure evaluationlinked to statistics on 2.3 million ha with detailedprogress utcomesurvey cropping intensity, irrigationservice monitored over 1.125 million ha by and crop production. kabupatenPMUs. 3. Irrigation Infrastructure 3. Irrigation Infrastructure .Irrigation Infrastructure Improvement Improvement nprovement 3.1 KabupatenDinas PUP share their 3.1. Adequate irrigation O&M budget .I.IrrigationExpenditureReport; O&M budget resourceswith WUAFs allocation of at least Rp 70,000iyear inual M&E data reports. under irrigation managementtransfer from APBD sources applied in 70 (IMT) on a matchingcontribution kabupatensand 11provincesfor a basis; all kabupatens and provinces total scheme area of 2.3 millionha); allocate an agreedDinas PUP budget sharingfor secondary canal irrigationO&M budget. system O&M applied to 575 WUAF under IMT covering about 575,000 3.2. KIIF funds managedby KICs ha. operationaland partiallysustainable, 3.2. KIIF funds disbursedin at least .2. KIIF Report(based on award transparently providing matching 35 kabupatens; all 35 kabupatens udit data); annual KIC reports; grant assistance to WUAFs under reacha 3rd year APBD contribution nnualM&E reports. IMT for major repairs to networks. into the KIFfund amounting to Rp 60,000halyear over their total area 3.3. Rehabilitationofcanal networks already under IMT. by kabupaten and provincial Dinas is 3.3. (a) Priority light rehabilitation by basedon: (i) participatory design kabupatensDinas PUP completedfor .3. Participatory Design reports with endorsed by a KIC; (ii)participatory about 125,000 ha; (b) medium ignedWUAF clearance procurement and construction rehabilitation for networks serving berita acara);annual KIC reports; procedures; and (iii)Dinas PUP about 16,000 ha, 'ender Documents and AWP certification o fworks contract 'roposals;annual M&E reports. completion ajier joint inspection with IP3AlWUAFs. 4. Irrigated Agriculture 4. Irrigated Agriculture .Irrigated Agriculture Improvement Improvement mprovement 4.1. KabupatenExtension 4.1. ExtensionCommissionsor .I.BaselineSurveyUpdate;Irrigatec Commissionsor FarmerExtension PPPK active in 70 Kabupatensand igriculture ImprovementReport. Task Forces(PokjaPenyuluhan have identified new opportunities in Petani Kabupaten -PPPQ with crop input service and post-harvest university and private sector opportunities. participation promoting integrated approachto irrigated agriculture improvementfor WUAFmembers has been successful in opening new production and income opportunities that are being increasingly utilizedby irrigation farmers. 1.2. Agricultural Support Fund 4.2. Pilot program for demand-based, teport, annualproject and IMEU transparentaccess of WUAF member 4.2 There is a largedemand for PPPK rl&E reports. groups in 1 1 kabupatento a US$I.1 extension-relatedcompetitive-access million fund has raisedthe incomeof Fundsestablished in 11 KICs. The participating groups and is ready for Fundsare effectively managed by the replication under WISMP 2. PPPK using the KIIF-model. C. Project Management C.Project Management 3. Project Management 1. The Project Managementstructure I.NPMUandNPIUsareeffectivein I.Projectsupervision aide memoires; and organization is effective in: (a) ensuringthat: (a) the AWP budgeting 3orrower'sMTR report,project ICR. fosteringcoordination betweenfour processremainsfocusedon project nat.implementingagencies, (b) outcomes; (b) implementation follow! ensuring that all agenciesfocus on the PMM; (c) agreedprocurement, - 62 - achieving projectoutcomes & accountingand financial management impacts; (c) preparingWISMP 2; and proceduresand reponing are (d) serving as a modelfor parallel followed; (d) inter-agency issues are donor-supportedprojectsto improve resolvedin a timely manner; (e) sector performance. project M&Edata and IMEUfindings are usedin guiding project management; and (e) dated covenants of the Credit Agreementare fulfilled on time. - 63 - Key Performance Data CollectionStrategy Hierarchyof Objectives Indicators CriticalAssumptions 'roject ComponentsI iputs: (budget for each 'roject reports: from Componentsto Sub-components: omponent) )utputs) 4. WaterResourcesManagement .WaterResourcesManaeement L.WaterResourcesManagement Project Ext. Finance I Sector govemanceandbasin SO15.0 M [US$10.9M] .idememoires; IMEUand MIS ,I. willagreetopayfees. Public ilanning :ports; andconsultants' progress 2.Localgovemmentswilling to I 1Sector govemance :ports. ubscribe to Projectprinciples. L 2 Basin planning capacity I Managementcapacityof basin SS11.1 M [US$8.I M] igencies 3 Fiscaland cost recoverypolicies SS2.1 M [US$1.4M] 1 Basin water management & River SS30.5 M [USS21.6M] nfrastructureimprovement 1 1 Basin water management capacity 11 1 Hydrology $ 1 2 Water allocation 11 3 Water quality 114 Flood management 12 Riverinfrastructureimprovement 12 1River infrastructureoperational management 12 2 Rehabilitation ofprioritized river infrastructure 5 Nationalcapacitybuilding lSS1.7 M [US$1.3 M] networks B. Participatory Irrigation I. Participatory Irrigation 3.Participatory Irrigation Management fanagement Management 1 Water User Associations capacity JSS8.8 M [US6.5 M] 2.1. Local governmentswilling to 2 Kabupaten Imgation Dept JSS5.5 M [US$4.OM] subscribe to Projectprinciples. capacity 2.2. WUAFs accept Management 3 Imgationinfrastructure JSS28.6 M [US$21.3M] Transfer. improvement 2.3. WUAFs will be able to prepare 4 Imgatedagncultureimprovement JSS2.9 M [US$2.1M] KIIFproposals and bewilling to provide matching funds. 2.4. WUA memberswill be willing to take group loans and seek extension servicesand advice. C. Project management :.Project management JS$8.9 M [US$6.3M] - 64 - Attachment 1to Annex 1: Letter of Sector Policy of the Deputy Minister of NationalDevelopment (Bappenas) - 65 - 2 - 66 - 3 - 67 - Annex 2: Detailed Project Description INDONESIA Water Resources& Irrigation Sector Management Program By Component: Project Component 1 US$56.70 million - A. BasinWater ResourcesManagement This component includes the national-level sectoral activities. The Work Plan and Cost Table for the first year (calendar year 2004) for this Component is attached as Attachment 5. A.1 Sector GovernanceandBasinPlanning(Base Cost US$14.1M) - 1.1 Sector Governance 1.2 Basin PlanningCapacity This sub-component will assist inthe establishment and/or strengthening o f the following national sector institutions: (a) the National Water Council (NWC) withits Secretariat, (b) the National Steering Committee for Water Resources(NSCWR) with its Secretariat, (c) the Provincial Water ResourcesCouncil or Committee (PWRC) with its Secretariat, ineach o f the 12 Project provinces, (d) Basin Water ResourcesCouncils or Committees (BWRC) inriver basins that are supported by the Project, and (e) the DamSafety Commission(DSC) and DamSafety Unit. The Water CouncilsICommittees will be established as follows. In the case o f the NWC, the President, based on reformprinciples enunciated inthe regulations issued under WATSAL, will issue a Presidential Decree for its establishment. A further decree by the NWC Chairman will establish the Secretariat o f the NWC. Inthe case o f the PWRC and BWRC, the Provincial Government, based on reform principles enunciated inthe regulations issued under WATSAL, will issue a Decree for its establishment. A further Decree by the Chairmen o f PWRC will establish a Secretariat The Project will provide technical and financial assistance to prepare the Regional Decrees necessary to formally set up the Councils and their Secretariats, as well as select and appoint the members. PWRCs and BWRCs will be established by July 1, 2004. The NSCWR is established in 2003 under Bappenas and is a multi-agency commission. Whereas the NWC has Ministers as members and, thus, will primarily focus on policy and policy coordination, the NSCWR will focus on operational strategy, investment prioritization and technical coordination between national agencies, and betweennational and local government levels. As a transitional measure,the existingNationalCoordination Team (of Ministers) for Water Resources Management will function as the precursor to the NWC. Many o f the basins and provinces already have Coordination Committees (Punitiu Tutu Penguturun Air, and Punitiu Peluhxunuun Tutu Penguturun Air, PTPA and PPTPA, respectively), but these will be upgraded to include the stakeholder representatives. Their task and authority will be specified in the Decree the provincial Governor will issue, based on a Surut Keputusun the Director General Water Resources, Kimpruswil, has issued to authorize such - 68 - change. The Project will also find facilities and some incremental operating costs for the Councils'/Committee's and Secretariats'operation. The PWRCs and BWRCs will comprise representatives from related technical agencies, as well as o f key stakeholders, and represent the interests o f women, and, where applicable, o f the vulnerable indigenous isolated peoples residingin the basin territory. The NWRC and PWRC will coordinate the sector policy and strategy and provide the President and Governors, respectively, recommendation on sector policy implementation and conflict mitigation. The RBCs will have the authority to advise their respective Balai PSDAs and PJTs on policy, managerial, budgetary and basin management issues; review its performance and issue an annual report; and make recommendations on the Annual Work Plan (AWP -- see Attachment 1 to this Annex) for the next fiscal year to the Governor. Such review will be a precondition for accessingo f the loan proceeds by the Province for the purpose o f activities inthat basin. Support will be provided to further develop and adopt Dam Safety Assurance policy, legislative and regulatory frameworks, to reposition and strengthen the Dam Safety Commission (DSC)/Dam Safety Unit (DSU) and to integrate activities as part of the national/provincial water resources management function. The sub-component will provide fundingto eligible Dinas PUP, Balai PSDA and PJTS with which the respective CouncildCommittees are associated, for the following activities: (a) to assist in establishing the regulatory framework, and strengthening Provincial and Basin Water Resources Councils/Committees; (b) workshops and awareness raising regarding understanding o f water resources needsand issues, innational, regional and local parliaments; (c) activities to improve andinstitutionalize public consultation procedures notably for Basin Water Resources Management Plans (BWRMPs); (d) develop on a pilot basis in two river basins, a Water Use Rights and water allocation framework and administrative framework; (e) developing an integrated planningcapability at the national and provincial levels using BWRMPs as an instrument for (i)linking regional development plans with water infrastructure development, (ii) setting long-term water resources management goals, and (iii) focusing on long-term regional policy and sector institutional development issues, (iv) developing a provincial sector data base/MIS that i s compatible with the National Data Base/MIS system; (f) preparation and adoption o f a comprehensive basin water management manual that would include a framework to deal with interventions that affect traditional, vulnerable and indigenous groups; (g) preparationand adoption o f a River Infrastructure 0 & M program based on piloting in selected basins; (h) preparation and adoption o f a policy anddeveloping Legal instruments for non-structural elements in flood management; and (i) strengthening o f the Dam Safety Assurance (DSA) inspection and certification program and the DSA information system The structure for Project Management is giveninAttachment 1to Annex 6(B). TA Packagefor BasinWater ResourcesManagementPlanning(BWRMP) The TA for BWRMP is intendedto support Kimpraswil and selected ProvincialDinas PUP to implement activities under Part A.l Sector Governance and Basin Planning and A.3 Fiscal and Cost Recovery Policy. The TA support will be provided over a period o f two years by a team o f international and national experts, and will be procured by Kimpraswil. The TA will be implemented by the National Project Implementation Unit (NPIU) in Kimpraswil and managed by Directorate o f PSDA in DGWR, with the assistance fromthe DirectoratePSDA's TimTeknis established underJIWMPNIRIP. The TA support will focus primarilyon the Sub-Directorate o f Planninginthe Directorate o f PSDA and the Provincial PlanningUnitsin selectedDinas PUPSand is aimed at developing an integratedplanning - 69 - capability at the national and provincial levels to (a) link spatial plans to water resources infrastructure development plans, (b) set long-term regional sector policy and institutional development, and (c) develop long term water resources financing and institutional goals by using the basin water resources managementplans as the instrument. Specifically, the TA support for Part A.l will be for (a) refining the public consultation procedures in plan formulation and legalization, (b) developing BWRMP guidelines and training, (c) assistance to the Central Planning Unit inthe preparation o f BWRM plans for selected basins, (d) strengthening capacity of the Sub-Directorate o f Planning for plan review and guidance to Provincial Planning Units, e) guide Provincial Planning Units in the preparation of Provincial Water Resources Framework Plans and BWRMplans for selectedbasins, and (0assistDinas PUP inthe development o f a sector database/MIS that is compatible and linked to the Central data base/MIS inDGWR. The TA support for Part A.3 will be for (a) study to develop a flood control infrastructure 0 & M financing, (b) study for river infrastructure 0 & Mfinancing, and (c) water quality and effluent discharge monitoringfinancing. These studies will develop the policies and strategies related to direct and/or indirect cost recovery from beneficiaries and polluters and propose a financing plan for the respective activities. A.2. Management Capacity of BasinAgencies (Base Cost US$10.4 M)- This component will assist in the establishment and/or strengthening of the Balai PSDA (River Basin Management Units, under provincial budget) and Basin Corporations (PJTs). The following activities will be eligible for funding to the Balai PSDA that are operational, and for provincialDinas PUP and PJT? contingent upon the AWP review. For the AWP process, see Attachment 1 to this Annex. For conditions upon which local governments can access loanproceeds, see Attachment 2 to this Annex. The activities will be conducted in 12 provinces, in 16 "core" Balai (with higher level o f support including RIM) and "base" Balai with only institutional and generic support. The basins and provinces are enumeratedinAttachments 3 and 4 to this Annex. Dinas PUP and in Kabupaten PUP (selected) management and coordination skills improved through training, workshops and study tours; Preparation o f Balai PSDA Quality Assurance programs; Asset Management programs; cost accounting procedures manuals; staff training modules, training workshops and courses, study tours; and technical & managementaudits; Balai PSDA management and skills improvement training by introducing courses that are gender-sensitive and raise in general the capability o f the staff to communicate more effectively with the diverse communities and stakeholders inthe river basin; Detailed studies and preparation of procedures manuals for sector MIS and decision support system; computers and telecommunications; data collection, compilation and entry work for the DinasPUP,Balai PSDA's andPJT's; Transfer o f hydromet network management and operational hydrology from the Dinas PUP to Balai PSDA 's and PJT's, improve performance ofhydromet network, quality andreliability o fthe hydrological data, data base and reporting; Establishment and strengthening o f basin corporation( s) for Jratunseluna and Serayu-Bogowanto basins that includes the legal framework, management structure, feasibility studies, concession contracts, facilities, equipment and training; Incremental support to Dam Monitoring Units (DMU) in Balai PSDAs for training, DSA monitoring, reporting, information system implementation, facilitiedequipment and incremental operating cost; and Preparation o f and studies for the development o f an Operational Framework and Guideline for river basinmanagement. - 70 - TA Packagefor BasinWater ResourcesManagement (BWRM) The TA for BWRM i s intended to support Kimpraswil and MoE (KLH) and for the Project Province basin management agencies such as Dinas PUP, Balai PSDA, PJT's and Provincial and Kabupaten Bapedaldas for implementing activities under A.2. Management Capacities of Basin Agencies, and A. 4. Basin Water Operational Management. The TA support will be provided over a period o f 3.5 years by a team o f international and national experts and will be procured by Kimpraswil. The TA will be implementedby the National Project ImplementationUnit (NPIU) and managedby Directorate o f PSDA inDGWR, with assistancefrom the Directorate PSDA's TimTeknisestablishedunderJIWMPhWIRIP. The T A support will primarily be to: (a) the various eligible Balai PSDA's in the participating Province, (b) to the Dinas PUP and BWRC's in basin management coordination, (b) to the proposed PJT's to be established under WISMP 1, and (d) the Directorate o f PSDA in DGWR to guide and supervise the implementationo f the various component activities. Specifically the TA support for sub-component A.l.l will be for (a) developing a structured 0 & M program for river and flood infrastructure works, its financing, budgeting and management, and (b) formulation o f a framework for use o f non-structural measures in flood management and a strategy to adopt. For sub-component A.2 the T A will support (a) training related to management, administration, budgeting, technical skills improvement, communication and documentation, (b) quality assurance training and program for asset management, annual inspectiodmonitoring, improvement o f data quality, procurement, supervision and operations, and (c) assist the Dinas PUP Tim Teknis and BWRC in strengthening the oversight roles. For sub-component A.4 the TA will support (a) developinglstrengtheningof Balai PSDNPJT data base, (b) developinglstrengthening of basin hydrology program, (c) implementing an appropriate water allocation and monitoring program, (d) national/basin water quality network establishment, network operation, monitoring and regulatory management, (e) basin flood management, (f) implementing as appropriate a RIM program in selected basins, and (g) programpreparationo fprioritizedkey river infrastructure rehabilitation. A.3. Fiscal and Cost Recovery Policy (Base Cost US$2.00 M) - This sub-component will assist in the establishment andor strengthening of the fiscal position and cost recovery related to water management in river basins. The following activities will be eligible for fimding to the Balai PSDA that are operational, PJT (Basin Management Corporations), provincial and kabupaten Bapedaldas (Local Govt. Environmental Management Office) and provincial Dinas PUP, contingent upon the AWP review: The activities include: 0 Studies, and preparation o f the regulatory and administrative capacity to earmark water abstraction fees for river infrastructure O&M, including assessments on the willingness-to-pay o f water users in thebasin, and on strategiesto affect this and from hydro-power generation. 0 Studies, and preparation o f the regulatory and administrative capacity to use property tax revenues for flood control O&M. Effluent discharge monitoring and fee computations; river water quality monitoring and stream quality classification studies; studies, and preparation o f the regulatory and administrative capacity to introduce wastewater discharge permitting system, and revenue generation by collecting wastewater discharge fees and/or fines for water quality monitoringandmanagement. -71 - Studies on Civil Service reform for Kimpraswil and Dinas PUP at provincial and kabupaten levels, related to policy, strategy and a financing plan for staff rationalization and for retraining. Studies for policies and procedures and a regulatory system to set, review or renegotiate Basin Corporationtariffs, charges or fees. Preparation o f guidelineslmodels for Balai PSDA needs-basedbudgetingand AWP programmingand budgeting and institutionalperformance guideline. e Study to develop a strategy on how irrigation scheme management can become financially sustainable ina time frame o f 10years. For the TA support for this sub-component, see underA. 1. A.4. BasinWater ManagementandRiver InfrastructureImprovement(Base Cost US$28.7 M) - A.4.1 Basin Water Management Capacity 4.1.1 Hydrology 4.1.2 Water Allocation 4.1.3 Water Quality 4.1.4 FloodManagement A.4.2 River Infrastructure Improvement 4.2.1 River InfrastructureOperational Management 4.2.2 Rehabilitation o f Prioritized River Infrastructure This sub-component will assist inimplementinglstrengtheningan operational and monitoring system for hydrology management, data base management, water allocation management, water quality monitoring and management, flood management, river infrastructure management and the repair, rehabilitation and calibration o f river infrastructure that i s strategic for proper water management in the river basin. The following activities will be eligible for funding to the Bului PSDA that are operational, PJT s, and provincial Dinas PUP, contingent upon the AWP review: For conditions upon which local governments can access loan proceeds, see Appendix 3 to this Annex. The activities will be conducted in 12 provinces, in 16 "core" Balai (with higher level o f support including RIM) and "base" Balai with only institutional and generic support. The basins and provinces are enumerated in Attachments 3 and 4 to this Annex. River Infrastructure Management (RIM) activities that include routine maintenance, carried out by ProvincialDinasPUP,Balai PSDA and P f l . Balai PSDA/ PJT hydrological and other data collection and processinglreporting activities including installing new gauges, repairing gauges and hydromet network asset management. Balai PSDA and kabupaten and provincial Bapedaldas, water quality monitoring equipment and operational costs. Balai PSDA water allocation and seasonal water use monitoring including repairs o f measuring structures, its calibration and flow measurement;. Balai PSDA and Dinas PUP work for Provincial and Basin Water CouncilsICommittees, and PSDA operational TA. Balai PSDA and Dinas PUP operation and management o f flood control infrastructure including early flood waming infrastructure. State Ministry o f Environment, Bapedaldus and Balai PSDA or PJTs activities to establish and operationalize the National Water Quality Monitoring Network for piloting in 3 basins (procurement o f laboratory and field monitoring equipment, data processing andretrieval procedures and software, training and field monitoringoperations). This will include the involvement o f riparian communities - 72 - for the purpose o f community-based water quality monitoring. The water quality monitoring tools will include bio-monitoring tools and approaches, and the water quality indicators will encompass aquatic ecology andaquatic biodiversity aspects. Sub-projects underRIMinclude the following: Sub-projects RIM-A: Works carried out on the river infrastructure or in the river bed by the Provincial Dinas PUP and costing more than $15,000. These works (a) follow the guidelines inthe Project Management Manual, based on social and environmental safeguards, (b) have a proposal, design, and cost estimate and are cleared for economic and technical feasibility, (c) are confirmed as o f economic or strategic priority by the Bald PSDA as operator o f the river basin and cleared by DinasPUP, (d) securedprovision of O&M budget onthe Balai PSDA budget, and (e) are endorsed bythe BWRC through itsreview o fthe Annual Work Plan. Sub-projectsRIM-B: Works carriedout on the river-relatedinfrastructure or inthe river bedby the Balai PSDA and costing less than $15,000. These works (a) are small in size and may be carried out through force-account (swakelola) and are cleared by Dinas PUP, (b) follow the guidelines in the Project Management Manual, based on safeguards, (c) have a proposal, costing and receive O&M budget, and (d)are endorsedbythe BWRC through its review o fthe Annual Work Plan. The Sub-projects under the FUMfor the first year will be identifiedand appraised by Negotiations, meet the requirementso f the above Sub-projects except those pertaining to clearance by the BWRC, and all preparation completed by Loan effectiveness date. The work packages' size (excluding engineering services) can be inthe range o f US$lO,OOO - 1,000,000 but will be typically in the order o f US$50,000 - 100,000. They can encompass, i.a., repairs, rehabilitation and improvement o f 0 hydrological and meteorological measuring stations and gauges, including minor earth works, grass cutting and debris removal, fencing to protect against animals and theft, etc.; 0 (short stretches of) river and canal beds and embankments, including small amounts removal o f sand and silt; 0 (components of) existing infrastructure such as measuring weirs and other weirs, flow diversion structures, gates, check-dams, river training infrastructure, retaining walls, bunds and dikes, revetments, etc.; and 0 buildings andhardsurfacesappurtenant to operation rooms, access areas, etc. Requirements to be Fulfilledby Regions inorder to Access Loan Proceedsfor Works: See Attachment 2 to this Annex. AS. NationalCapacityBuildingNetwork(Base Cost US$1.60M) - To develop a sustainable human resources capacity buildingprocess for the water resources sector and participatory irrigation management a reorientation is necessary o f higher education programs towards multi-disciplinary and integrated approachesand strengtheningo f the economic and social sciences inthe sector. Integrated Water Resources Management is understood to notably include water management aspectspertaining to aquatic ecology andbiodiversity. - 73 - The responsibility o f educational program development remains with the educational institutions under supervision o f the national accreditation board. These institutions, based on their own initiative and interest, will carry out the process o f curriculum development through networking. A national water sector capacity building network with links to international networks will be established and developed to facilitate the process o freorientationand continuous curriculum development.through the exchange of experience and knowledge among national institutions o f higher education and the sector. This should result in updated needs assessments, modules in regular educational programs and short courses and training programs for the water resources and irrigation management institutions. It i s necessary to reorient higher education programs towards multi-disciplinary and integrated approaches and to strengthen the economic and social sciences in the sector. Integrated Water Resources Management is understood to notably include water management aspects pertaining to aquatic ecology and biodiversity. The further development and intensification i s encouraged of the exchange o f experience and knowledge among national and institutions o f higher education and the sector through the establishment and development of a national water sector capacity buildingnetwork with links to international networks to facilitate this process o freorientationandcontinuous curriculum development. For this purpose, the following activities will be financed from loanproceeds: 0 the initial support of a network secretariat, its communication and computer facilities and training o f staff in organizing and facilitating the process o f exchange o f experience, knowledge and educational materials. 0 the development o f a national strategy for sustainable human resources development inthe water resources and participatory irrigation management sector. 0 the support of a national workshop to define the mid and long term capacity buildingneeds and the consequentrequirements for curriculum development. 0 workshops and technical assistance to improve curriculums at national level, in universities (engineering, social, economics, and biologylaquatic ecology departments), including upgrading o f university faculty, in subjects related to Integrated Water Resources Management (notably includingaquatic ecology and biodiversity), participatory irrigation management, and economics and social sciences inwater resourcesmanagement. 0 training andupgrading o f faculty and educational staff at polytechnics and vocational schools in the multi-disciplinary and integrating aspects o f water resources and participatory irrigation management practices; and development o f the capacity of NGOs and the implementation o f awarenessprograms inthe broader civil society. ProjectComponent2 US$43.00 million - Component B. Participatory Irrigation Management The activities will be conducted in70 kabupatens (see Attachment 3 to this Annex). The Work PlanandCost Tables for the first year (calendar year 2004) are attached as Attachment 5. This component contributes to: (a) improved performance o f irrigation agency services and water users associations; (b) improved fiscal sustainability o f public irrigation systems, and (c) increased agricultural productivity and family incomes in the project area through better water availability, facilitated agricultural support services and access to micro-credit. - 74 - The Irrigation Management Reform Program (IMRP)or Pembaharuan Kebijaksanaan Pengelolaan Irigasi (PKPQ o f Indonesia i s a fundamentally new paradigm for the governance, management, and financing o f the irrigation sector and for provision o f support services to farmers in irrigated agriculture. The IMRP is based upon Presidential Instruction 311999, Government Regulation 7712000, several ministerial decrees and subsequent regulations and instructions that have been and will be issued at provincial andkabupaten levels. The IMRP consists o f five basic principles: (a) Empowerment o f water users, (b) Reorientationo f irrigation sector organizations, (c) Transfer o firrigation managementauthority, (d) Farmer-based financing o f irrigation systems, (e) Irrigationmanagement for environmental sustainability. IMRP empowers water users by organizing them into democratic water users associations at tertiary-block level (WUAS)[A typical Water User Associations (WUA or P3A) is responsiblefor all irrigation and drainage infrastructure related activities within a tertiary unit. A WUAF (Gabungan P3A or GP3A) is a legalised federation of WUAs with a bank account along one hydrological unit like a secondary canal or a small scheme and if they desire to do so, they can be transferred to them the authority to manage the irrigation system within their area. In larger schemes the WUAFs may federate themselves again in an Apex body (Induk P3A or IP3A).] that are legal entities that federate up to the scheme level into Federations (WUAFs) and in the case where large WUAFs jointly depend on one water source, WUAFs can further associate to form an apex body (Induk) which typically will focus more on water allocation issues. Dinas PUP at kabupaten and province levels reorient themselves by gradually withdrawing from direct management of irrigation systems and refocusing on facilitating the formation and capacity buildingo f WUAFs, providingsupport services to WUAFs, and regulating the sector. When irrigation management authority i s transferred to WUAFs, they become the governing authority to define what irrigation services will be provided and oversee management and financing o f irrigation infrastructure and services at each level o f the irrigation system. WUAs and W A F Sset and collect irrigation service fees and directly utilize all finds collected. Irrigation infrastructure repairs and improvements will be financed and administered jointly between government and the WUAFs through the Kabupaten Irrigation Improvement Facility KIIF). W A F Swill have representation in river basin councils and will share responsibility with government to ensure environmentally sustainable practices o f landand water managementwithin their areas o fjurisdiction. The IMRP component contributes to: (a) improved performance of irrigation agency services and water users associations; (b) improved fiscal sustainability o f public irrigation systems; and (c) increased agricultural productivity and family incomes in the project area through better water availability, facilitated agricultural support services andaccess to micro-credit. A province or kabupaten i s eligible to receive funding for this component when its government has issued a Letter o f Intent to confirm that it has adopted the IMRP principles (PKPI Pembaharuan - Kebijakan Pengelolaan Irigasi), and will implement the activity in accordance with the Project Management Manual (see Appendix 3 to this Annex). The PKPI comprises: The Go1regulations on irrigation (PP 77/2001), andthe four MinisterialDecrees on WUAF Empowerment, Transfero f IrrigationManagement Authority to WUAFs, Kabupaten Irrigation ImprovementFacility (KIIF),and TasWAdministrative Redefinition, respectively, all issued in 2001or scheduled to be issued in2003). The 12 ImplementationManuals, as upgraded, o fPKPI and the agreedframework o f action (Kerangka Acuan Kegiatan) as developed and consolidated under JIWMP. The establishment ineachkabupateno f aKomisi Irigasi, with ample stakeholder participation -75- (WUAF representatives as well as representativeso f civil society, and consisting o fboth men and women members). 0 The establishment o f an M o Uwiththe provincial government to agreeon which parts o fthe irrigation aredinfrastructure are to be operated and maintainedby the ProvincialDinas PUP (see B.3). 0 The establishment and empowerment o fWater User Association Federations WUAFs (GP3A) and their schemelevel apex bodies (IP3A) 0 The transfer o firrigationmanagementauthority to the WUAFs (GP3A) and their scheme level apex bodies (IP3A). 0 The establishment o fa service agreementbetweenthe Kabupaten Dinas PUP and the W A F or their apexbody that defines whichparts ofthe primary and secondary canal systems are under the O&M responsibility ofeither party while maintainingthe managementauthority at WUAF. TA Packagefor IrrigationManagement ReformProgram (IMRP) (A) Objective. The objective o f the TA for implementation o f the irrigation management reform program i s to assist the National, Provincial and Kabupaten Governments to (i) improve the performance o f irrigation agency services and water users associations; (ii)improve fiscal sustainability o f public irrigation systems; and (iii) increase agncultural productivity and family incomes in the project area through better water availability, facilitated agricultural support services and access to micro-credit. (B) Scopeo fWork. The technical assistancewill be provided to the appropriate PIUs to: Create an enabling environment for and implement the irrigation management reform program (P-0 including the transfer o f irrigation system management authority (PPI) by: (a) establishment, legalization, strengthening and empowerment o f water user association federations, their apex body on scheme level and the Kabupaten Komisi Irigasi; (b) strengthening of community organizers, KPL and relevant agencies staff implementing PPI and PKPA (c) development of WUAF networks; and (d) development and institutionalizationo f WUAF technical, financial andmanagement audits. Strengthen Kabupaten and Provincial Irrigation Agencies in their new roles by (a) delivery o f training for management, communication andO&M shlls; (b) introduction o f asset management, needs based budgeting, service delivery performance monitoring and quality assurance procedures for irrigation schemes, including staff training and computer procurement; (c) Preparation o f Standard Designs and other WUAF technical assistance modules and calibration o f key canal regulators and division structures; (d) study on civil service rationalization, and ahnistrative reorganization; and (e) a program initiated to promote private sector providers for irrigation, data base and decision-support services. Improve Irrigation Infrastructure under WUAF and Kabupaten and Provincial Irrigation Agencies responsibility by (a) establishment and operationalization o f the Kabupaten Irrigation Improvement Facility (KIIF); (b) introduction, training and assistance in procurement, participatory design and construction for WUAF and Kabupaten and Provincial Irrigation Departments; and (c) assistance to development o f guidelines for evaluationof W A F works proposals by and for the Komisi Irigasi. Test in pilot projects through the Irrigated Agriculture Improvement Program: (a) the creation o f linkages between the WUAFs and existing agricultural extension and demonstration activities, existingcredit and loan mechanisms and other related existing - 76 - and planned initiatives; (b) the increase o f the creditworthiness of the W A F Sand to reduce market risks o f credit providers through training programs; and (c) the strengthening o f the bargaining position of WUAFs and their members regarding marketing, market information, quality control, supply o f inputs, access to technology. Four sub-componentswill be eligible for funding contingent uponAWP review: B.1. Water User Association Capacity B.2. Kabupaten Irrigation Department & Financial Capacity B.3. Irrigation Infrastructure Improvement B.4. IrrigatedAgricultural Support B.1. Water User AssociationsCapacity (BaseCost - US$8.3 M) For conditions upon which local governments can access loan proceeds for Component B, see Appendix 3 to this Annex. The kabupaten selectedfor activities are enumerated inAttachment 3 to this Annex. Under the IMRP,water users association federations (WUAFs) will be established through a process o f dialogue and group problem identification and analysis, using techniques o f participatory rural appraisal. The WUAF establishment will buildon the Water UsersAssociations (WUAs), a base unit organization that i s formed at tertiary unit service areas or in small-scale irrigation systems and have boundaries o f jurisdiction based on contiguous hydraulic service areas. W A Swill federate up to secondary and primarycanal levels anda scheme-level WUAFwill encompassthe entire irrigationsystem. The WUAF is a democratically constituted legal entity with elected officers and constitutions, by-laws and annual irrigation service plans that are approved by the general body o f members. All water users who own or cultivate land within the service area o f an irrigation system are entitled and requiredto become members o f the WUA. Generally, the two most senior elected officers from each WUA will be members o f the WUAF Committee at the next higher level. WUAs and WUAFs should be formed and developed inall schemes, bothpublic and traditionally farmer-managed ones. Special community organizers and/or the Field Facilitator Team (KPL)will facilitate establishment and capacity buildingo f the WUAF. Normally, this will be done within 2 to 4 years, depending on the size and complexity o f the irrigation system and the extent to which WUAs may have already been democratically established in the scheme. The kabupaten government will be responsible to conduct a long-term program of capacity building o f the WUAs and WUAFs to enable them to become effective and self reliant in technical, financial and organizational aspects o f irrigation system governance and management. Scheme-level WUAFs (apex body o f WUAFs) will be represented directly or indirectly on the Komisi Irigasi Kabupaten and in river basin councils. It i s also expected that they will form information and support associations at the kabupaten, provincial and, perhaps eventually, national levels. After WUAFs have been democratically and legally established, and they have had one year of on-the-job training by Dinas PUP staff to prepare and oversee implementation o f their Irrigation Service Plan, the WUAF and kabupaten govemment will prepare an Irrigation Management Transfer Agreement that specifies the terms and conditions o f management transfer to the WUAF; (a) new rights, authority, and responsibilitieso fthe WUAF andkabupaten government; (b) minimumO&M service standards to be upheld by the WUAF; (c) protocol and terms o f conditions for provision o f support services to the WUAF; and (d) terms and conditions o f possible cancellation o f the transfer. After the Transfer Agreement is signed, the WUAF is consideredto bethe primary decision-maker for the irrigationsystem. - 77 - Lack o f technical skills or inability o f the W A F to finance all o f the costs o f irrigation system management (including repairs and improvements) should NOT be grounds to defer transfer. As long as the WUAF can function as a democratic, collective organization to define what irrigation service will be provided, who will provide them, and under what terms and conditions, it can take over governing authority for its area o f jurisdiction. While the WUAF governs the irrigation system, it doesn't necessarily provide all irrigation services by itself. It may request assistance from Dinas PUP to provide some water delivery or canal maintenance services, in which case it will prepare an Irrigation Service Agreement that specifies what services will be provided at what standards and cost. The Service Agreement will be signed by the WUAF and the Dinas PUP or third party contracted to provide the services. Legally constituted and democratically managed WUAFs and their scheme level apex bodies should be able to effectively work to: (a) distribute water equitably and productively among WUAs (tertiary canal blocks) and resolve most disputes; (b) organize collective maintenance and other action by WUAs; (c) collect agreed Irrigation Service Contributions from WUAs to complement government O&M expenses for canals under their management; (d) manage audited ledgers and bank accounts; (e) regularly report their financial transactions and technical activities to WUAs; (9 prepare and submit KIIF applications (including setting and collecting matching grant amount commitments); and (g) hire small contractorshechnicians for repairs, and infrastructure improvements using KIIF funds and Kabupaten Dinas PUP technical guidance. The following activities will be eligible for fundingto the eligible kabupaten, contingent upon the AWP review: Awareness raisingcampaigns for WUA/WUAF and their apex body establishment. Establishment, development and strengthening o f WUAFs and their apex bodies through the services o f community organizers and local level agency field staff (KPL). WUAF management skills training program for all WUAF and their apex body's Executive Committees. Its content would be determined by a survey and PRA exercise to determine the skills that WUAFs felt they need most, and training would be provided through flexible training modules imparted by Community Organizers (COS) that are associated with this particular kabupaten, dedicated trainers and NGOfacilitators. The legalizationprocess o fthe W A F (notary public, registration, opening o f bank account). A Social-economic analysis ofthe communities inthe irrigation area. The establishment and development o f the local task forces to implement the PKPI and the associated development o f WUAF, and management transfer. These task forces, with their WUAF representatives,will evolve into the Kabupaten Komisi Irigasi. Periodic scheme andkabupaten workshops to exchange experiences with program managers and establish a WUAF Support Group. The workshops would also develop an Action Program to guide and develop a common strategy to overcome emerging problems and constraints. Setting up and supporting the activities o f a Association or Network at regional level o f successful WUAFs with the intention to guide weaker organizations and share best practices. Development and institutionalizationo f technical andmanagement audits . Technical and managerial audits to assess progress inWUAF capacity building. WISMP 1 funds will not be provided to kabupaten governments to assist WUAFs for repairs and improvements untilafter irrigation system management authority has been transferred to the secondary or scheme-level WUAF. - 78 - The targets for institutional strengthening and reform o f WISMP 1 are based on the experience accumulated during the period 1998-2003 with the JIWMP and IWIRIP projects. In this period, the achievement o f the reform benchmark ("legalized", "established") has occurred to the largest extent duringthe last year (2002), suggestingthat such achievement occurs after a gestationipreparation period of 2-3 years. These experiences, andthe WISMP 1targets are specified inthe Table below. Comparison o f the figures shows that the WISMP 1targets are conservatively chosen. ReformProgressTo Date WISMP 1Targets Java Provinces (excl. Banten) Status date December 2002 July 2007 386 [85% o f total] 1125 [50% o f total] No. o f WUAF legalized (66Y (1125) [to WISMP21 total: 452 total: 2250 [excl. ones existing per December 20021 No. ofPokja Irigasi 76 (precursor o fKomisi Irigasi) No. ofKomisi Irigasi 35 [+Banten: 41 70 (40) PPI Management Transfer - 105 [+Banten 11[40% o f total] 575 [25% o f total] (No. o f IrrigationSchemes) (76) [+Banten 31 (1675) [to WISMP21 total: 181 total: 2250 No. of Kabupaten total: 95 o f which 78 on Java, excl. Banten) 70 (of which 33 to be adopted by ADB's PISP) The IMRP will be formally adopted at the province level by a regional regulation (perdu) andor directives issued by the Governor. IMPR will be adopted at the kabupaten level by a Kabupatenperdu and by directives issued by the Bupati. IMPR mandates a change in the role o f Dinas PUP from having full authority over irrigation system management and development to focusing on the following four functions: Facilitating formation and capacity buildingo f WUAs and WUAFs, Providing technical, financial and organizationalsupport servicesto the WUAs through the apex WUAF (including assistancewith dispute resolution andpossible continuing provisiono f some O&M services), (c) Regulatingthe irrigationsub-sector, and (d) Developing new imgation systems. With the assistance ofNGOs, consultants, and, inthe future, experienced WUAF leaders, Dinas PUP at province and kabupaten levels will be responsible to facilitate establishment and capacity building o f WUAs and W A F Sup to the scheme level for all imgation systems within their jurisdiction. Capacity buildingwill be done through classroom and on-site, on-the-job training, through imgation management - 79 - audits, through farmer-to-farmer consulting and study tours, and through various other means. Dinas PUP will provide support services in the form o f technical and financial advice about preparation, implementationand monitoring o f Irrigation Service Plans, preparationo f Irrigation Service Agreements, and design and construction o f repairs and improvements. Dinas PUP may continue to provide certain water delivery and maintenance services at primary or secondary canal levels if requested by the scheme-level WUAF and formalized by an Irrigation Service Agreement. Government will promote agricultural and agri-business development extension services for WUAFs and an increased role for the private sector in provision o f support services to WUAFs. As Dinas PUP devolves authority and responsibility for irrigation system management to WUAFs, it will increase its activities and capacity to regulate the imgation sector and ensure compliance with the new IMRP framework. Dinas PUP will still be responsible to develop new irrigation systems, subject to approval o f River Basin CouncilsKommittees, IrrigationCommissions and a majority o f the local people effected. The activities under this sub-component will be undertaken with the following aims: (a) the functional mandates o f Kabupaten Dinas PUP have been changed to reflect their participatory role, and the agencies are reorganized so that technical staff are deployedto work with WUAFs and provide technical and management guidance for O&M and construction; (b) agreement on an MoU, after an exhaustive walk-through o f the system, between Kabupaten Dinas PUP and WUAFs on the irrigation network components that remain under operation and maintenance responsibility o f the kabupaten; (c) priority rehabilitation o f canal networks under kabupaten management, that i s problem-solving oriented and all based on participatory design (WUAFs involved in up-front prioritization, planning, and decision making) and participatory construction (e.g., (part of) sub-contracts awarded to WUAFs with apex WUAF body involved in construction management and supervision), and with Dinas PUP certifying proper construction quality o f completed contractor works after joint inspection with WUAFs; (d) QA (contract management & constructionquality) and needs-basedbudgeting(based on an updated Schedule o f Rates for civil works cost estimation) would be used for annual work programs; (e) computerized asset management systems introduced in kabupaten Dinas PUP for defining multi year cost projections for irrigation system management necessary for to allocate APBD funds for KIIF; (f) management-oriented imgation performance monitoring and evaluation linked to MIS statistics on cropping & irrigated intensityand, irrigationproduction; (g) Dinas PUP Kabupaten providingeffective technical assistance to WUAF accordingto technical/financial audit of agency O&M performance; (h) field technicians (Jurus) and gate operators (Penjaga Pintu) either employed under W A F and those not under WUAF employ, subject to annual evaluation by WUAF; and (i) seasonal canal water delivery planning and scheduling confirmed with scheme-level IP3A and maximudminimumflow enforced indry cropping seasons up to tertiary networks. To achieve these aims, the following activities will be eligible for funding to the eligible Kabupaten and ProvincialDinas PUP, contingent upon the AWP review: 0 Awareness raising campaign on the new role and responsibilities o f Irrigated Agriculture related Kabupaten Agencies 0 Preparation and delivery o f training modules for communications and management skills and O&M for kabupatenDinas staff after conductingDinas Capacity BuildingNeeds Assessment. 0 Preparation and operationalization o f asset management procedures for irrigation schemes with staff training and computer procurement enabling multi-year management cost projections to serve as a basis for decisionmaking on KIIF funding, 0 Quality Assurance (QA) procedures prepared for kabupaten Dinas management and staff; training o f trainers, and staff. 0 Preparation o f updated Dinas Schedule o f Rates, reintroduction o f efficient needs-based - 80 - budgetingprocedures and related training. e Preparation o f management oriented field survey-based irrigation performance monitoring systemand procedures; staff training and survey implementation. e Preparation o f Standard Designs and other WUAF technical assistancemodules. e Calibration o f key canal regulators and division structures. For the AWP review process, see Attachment 1to this Annex. B.3. IrrigationInfrastructureImprovement(Base Cost US$26.8 M) - Once the kabupaten and province have adopted the institutional model o f the irrigation reform ( Pembaharuan Kebijakan Pengelolaan Irigasi-PPI) they are eligible to access loan proceeds. The model includes the conclusion o f a M o U in each province between provincial and kabupaten governments specifying those irrigation network components that are under the O&M responsibility o f the provincial Dinas PUP because they: (a) cross the border between kabupatens or are otherwise o f strategic importance to more thanone kabupaten, or (b) pose unusual technical problems (soft and sliding soils, tunnels,etc.) that cannot be addressed by the Kabupaten Dinas PU. Secondly, within each kabupaten a MoUIService Agreement (nota kesepakatan) i s concluded between Dinas PUP Kabupaten and WUAF that defines which parts of the primary and secondary canal systems are under the O&M responsibility o f either party (e.g., they may agree that silt removal in a primary canal will be responsibility o f the WUAF but that repair and rehabilitation o f the structures in that part are under purviewofthe DinasPUP). All works under this component of irrigation infrastructure improvement will originate from W A F proposals and will have to be endorsed by the Komisi Irigasi. For conditions upon which local governments can access loanproceeds for Component B, see Attachment 2 to this Annex. Three types o f sub-projects are identified: Sub-projects A: works implementedby the Kabupaten Dinas PUP Sub-projects B:works implementedby or through the WUAF usingthe KIIF Sub-projects C: works implementedby the ProvincialDinas PUP B.3.1 Kabupaten IrrigationImprovementFacility (KIIF) (Sub-projects B) - The Kabupaten Irrigation Improvement Facility (KIIF) financing mechanism, and the procedures to submit and receive funds from this Facility, are presented inAttachment 2 and 3 to Annex 6(B). KIIF is a "people's fund" (dana masyarakat) originating from Central, Provincial, Kabupaten Government and other sources to be managed by and for the WUAF through the IrrigationCommission ( Komisi Irigasi). The kabupaten has access to loan proceeds to support activities implemented by the WUAF through KIIF once it established the institutions for KIIF: (a) a sufficient number o f empowered W A F Sto enable competition, (b) transferred irrigation systems (c) an operational Komisi Irigasi with an equal voting share for the representatives o f the WUAFs as for those o f the Kabupaten Government agencies (d) the Kabupaten Government ensures provision o f minimum irrigation service levels [Minimum service levels are the result of a negotiation between the WUAFs and the Kabupaten Government on the minimum delivery of water throughout the irrigation systems. Kabupaten Government is responsibleto supply funds to ensure such minimum service levels.] andthe supplies the KIIF account with funds from their own resourcesto at least maintain these minimumirrigation service levels. -81 - KIIF allocations can only be made based on a proposal by and from the WUAF for areas under the authority o f WUAFs or their Apex body. The proposed works can relate to: (a) strengthening of the organization o f the WUAFlGP3A by for example CO assistance or training o f WUAF officials; (b) technical assistance for advice, investigations or preparation o f works; (c) physical works on irrigation and drainage in the area o f jurisdiction o f the WUAFIGP3A other than (i) routine operation and maintenance, and (ii) all works inside the tertiary units which are underthejurisdictiono f the P3A. KIIF allocations are decided upon in a competitive manner, on the basis o f proposals submitted by eligible WUAFs and evaluated by the Komisi Irigasi applying agreed and publishedcriteria. Water Users Association Federations (WUAFlGP3A) or their Apex bodies (IP3A) are eligible to funding from KIIF if they: (a) are established and recognized as a legal body with a bank account; (b) establish and collect contributions and fees from their members; (c) carry out the required routine operation and maintenance works in their area o fjurisdiction; (d) present proposals for support basedon a real needs assessment; and (e) provide "matching" contribution for the works envisaged in terms o f money, materials and/or labor. The works under this sub-component are carried out inthe irrigation network by the WUAF in irrigation system components that are under the WUAF's responsibility, in accordance with the MoUIService Agreement between the Dinas PUP and the WUAF. Financing is provided through the Kabupaten Irrigation Improvement Facility (KIIF) or Dana PengeZoZaan Irigasi Kabupaten (DPK) mechanism, managed by the Komisi Irigasi, based on a matching-fund principle with around 5-50% o f the cost (in cash and inkind) borne by the WUAF. Counterpart budget i s provided from APBD Kabupaten and the WUAF. Each work is (1) selected by the Komisi Irigasi based on a competitive review among the WUAF proposals in the kabupaten, and (2) applies the selection, design and construction principles outlined inthe Project Management Manual, basedon safeguards. The activities will follow the following guidelines and objectives: (a) the modalities for the establishment of the Kabupaten IrrigationInfrastructureFacility (KIIF), KIFdisbursement and audit criteria (e.g., only properly functioning WUAF with Bank account that have accepted Management Transfer are eligible, and W A F applications must pertain to total cost per package o f less than US$50,000, o f which 550% i s WUAF contribution in cash and in kind, and KIIF funds are being effectively and transparently disbursed; (b) all WUAFs using KIIF have had training in bookkeeping, credit and cash management, leadership shlls and contracting; (c) modalities for O&M budget sharing with WUAFs based on matchingcontributions are being implemented and agency fixed staff and other office and logistical costs have been reduced to a level agreed to by the IP3As; (d) O&M budget estimates are based on needs-based budgeting following asset management procedures; and (e) a program i s enacted to gradually transfer gate operators in secondary networks to WUAF employment or have participated in retraining programs for private employment. B.3.2. Kabupaten IrrigationServices (Sub-projects A) These are works carried out inthe irrigation network by the Dinas PUP in irrigation systemcomponents that are under the Dinas' responsibility, in accordance with the M o U and Service Agreement. Counterpart budget is provided from APBD Kabupaten. Eachwork follows the process identical to those proposed for KIIF funding meaning: (i) the works are proposed and endorsed by the WUAF concerned based on the asset management plan prepared in collaboration with the Dinas DPUP; (ii) the works are approved and endorsed and by the Komisi Irigasi, (iii)applies the selection, design and construction principles outlined in the Project Management Manual, based on safeguards, and (iv) follows the procedure o f participatory design, and unless unfeasible because o f technical complexity, follows the - 82 - procedure o f participatory construction (contractor hires part o f its labor from among WUAF members). Works on major components o fthe infrastructure larger than $150,000 will be requiredto be executed by the Provincial Dinus PUP. Small works (smaller than $50,000) can be directly assignedfor execution to W U A F S . B.3.3 - Provincial Irrigation Services (Sub-projects C) These are works carried out in the irrigation network by the Provincial Dinus PUP inmajor irrigation systemcomponents that: 0 are situated across kabupaten boundaries (lintus butus) and fall under the Provincial Dinus' responsibility, in accordance with an M o U Agreement concluded between provincial and kabupatengovernments. Counterpart budget is provided from APBD Province. Eachwork i s (1) endorsed by the respective Komisi Irigusi, (2) applies the selection, design and construction principles outlined inthe Project Manual, based on safeguards, and (3) follows the procedure o f participatory design, and unless unfeasible because o f technical complexity, follows the procedure o f participatory construction (contractor hires part o f its labor from among WUAF members). 0 works larger than $150,000 in undividable irrigation system components that are under the Kabupaten Dinus' responsibility. Counterpart budget i s provided from APBDP or APBDK. Each work is (1) endorsed by the Komisi Irigusi, (2) applies the selection, design and construction principles outlined in the Project Manual, based on safeguards, and (3) follows the procedure o fparticipatory design, and unless unfeasible becauseo f technical complexity, follows the procedure o f participatory construction(contractor hires part o f its labor from among WUAF members). The work packages' size (excluding engineeringservices) can be inthe range o fUS$l,OOO 200,000 but - typically inthe order o f USS20,OOO. They can encompass, i.a., repairs, rehabilitation andimprovement Of: 0 (components of) existing infrastructure and canals, such as canal lining, division boxes, culverts, canal tunnels, gates, weirs, bunds and dikes, revetments, footbridges, etc.; 0 (short stretches of) canal beds and embankments, includingseasonalremoval o f sand and silt; 0 emergency clearing and repairs, such as after landslides, and dike breaches; and 0 buildingsandhard surfacesappurtenant to access areas, etc. For the AWP review process, see Attachment 1to this Annex. B.4. Irrigated AgricultureImprovementProgram(IAIP) (Base Cost US$2.7 M) - The overall objective of the IAIP sub-component would be to alleviate rural poverty, especially o f farmers in irrigated areas, through agricultural productivity improvements, through an enhanced agribusiness system, achieved by delivering better agricultural services to farmers (WUA members). The main activities will be: (a) strengthening farmer organizations (WUAFs) so that they have the technical, organizational, and managerial capacity to formulate their demands and to enable them to interact efficiently and with bargaining power with service providers (research, extension, agricultural inputs, processing, credits, etc.); and (b) making the service providers, both public and private, to be responsive (become demand driven), farmer orientedand accountable to their clients. - 83 - Implementation will be done at the kabupaten level utilizing (and if necessary adjusting) and strengthening existing institutions like notably in DAFEP (Decentralized Agriculture and Forestry Extension Program, under MOA and funded by the Bank) kabupatens where Agricultural Extension Commissions (Komisi Penyuluhan) are already established with membersfrom variousDinases, farmers' representatives, research institutions, university, NGOs and private sector). In other kabupatens where Komisi Penyuluhan has not yet been established, a similar inter-agency Task Force within the Komisi Zrigasi will be established (Pokja Penyuluhan Pertanian Kabupaten - PPPK) and provided with clear Terms o f Reference. Kabupaten that have adopted PKPI and established legalized WUAFs, can access these funds, that are made available through the APBD Kabupaten. The Project will test the concept in pilot projects in 11 Kabupatens (of which 5 are those with prior involvement in DAFEP --see Attachment 3) utilizing the potential o f scale and the legal status o fthe WUAFs and their apex bodies through: the establishment and strengthening o f linkages and communication channels between the WUAFs and existing agricultural agencies: extension and demonstration activities, existing credit and loan mechanisms andother relatedexisting andplanned initiatives; the increase of the creditworthiness o fthe WUAFs and to reduce market risks of credit providers through training programs to strengthen that also strengthen the weaker groups within the WUAF; the strengthening o f the bargaining position o f WUAFs and their members through the establishment of internal awareness to recognize common agricultural interest by field days, training and the facilitation o f development o f working plans regarding marketing, market information, quality control, supply o f inputs, access to technology; the establishment o f a flexible Kabupaten-based Fund that WUAFs can access (up to maximum o f USS50,OOO equivalent per Kabupaten) with associated procedures to strengthen their organizational capabilities and to acquire services and physical facilities, to be inbetter position to: (i)access information regarding market requirements (price, product characteristics, quantities, and timing); (ii) negotiate with private companies for the marketing o f their products and the provision o f inputs; (iii) organize a regular supply o f agricultural products; (iv) access information, technology, and knowledge from the public or private agricultural research and extension systems; and (v) access credits; technical assistanceinorganizational capacity buildingto enable the WUAFs; and provision o f operational find for the KabupatenPIUs and training finds for WUAFs. The flexible fundingfor WUAFs will be determined by the WUAFs submitting proposals. The WUAFs demand will be based on a Participatory Rural Appraisal (PRA) within their area to identify potential promising business opportunities. The proposals should contain a detailed workplan and investment proposal, following the guidelines prepared by the KKKPIKomisi Penyuluhan acceptable to the Bank. The proposals will be submitted through the KKKP/Komisi Penyuluhan for review and approval, and follow up by KPIUs. After approval, funds will be made available to the W A F Sto implement the pilot activities. The WUAFs will keep separate accounts for this pilot activity and report quarterly to the KKKPIKomisi Penyuluhan. Proposals that will be prepared by WUAFs should include, among others, the following aspects: (a) objectives; (b) activities that would be carried out; (c) detailed workplan (when, by who etc.); (d) detailed costs and proposed financing, including farmers' contribution (in cash and in kind) and from other sources, ifany; (e) expected benefits; (f) risks that may arise; (g) plans for administering the funds; and (h) plans for sustainability. - 84 - TA for this sub-component is included in the package on Participatory Irrigated Agriculture (Sub-component B). Aggregate budgetrequestshave to be submitted on an annual basis by the kabupatento the NPMU through the AWP. For the AWP review process, see Attachment 1to this Annex. Project Component 3 US$8.10 million - Component C. Project Management The structure for the Project Management i s given inAttachment 1to Annex 6 (B). The Technical Assistance packages are included in the respective component descriptions, except for the packages that directly support the NPMU. 1. Preparation of WISMP 2. To be described at later stage, basedupon the progress and experiences o f WISMP 1. 2. Financial Management Services. Consultant for completing financing accounting and monitoring financial monitoring reports. This Project will involve a multiplicity o f implementation agencies and institutions, wide geographic spread with 70 kabupatens and over 200 project implementation locations. The accounting capacity at regional levels is likely to be generally weak and variable. Further, this Project will be one o f the first projects that will experience disbursements under the new fiscal transfer systems, where both regional and central treasury offices will be involved. In this situation the task o f project financial accounting, preparation o f provincial and consolidated financial statements and reconciliation o f special accounts will be more complex and require relatively highstandards, accounting skills and time targets. The Project therefore will provide TA to ensure accounting activities will be done at a smaller number o f selected provincial offices. A national local accounting firm will be appointed to provide conduct financial accounting for the entire Project at these locations and for preparation o f consolidated financial statements at the NPMU. This assistance will be critical to help prepare accurate and timely financial reports and FMRs on a quarterly basis, as also to train Go1 staff in maintenance o f these accounting systems and buildcapacity for the future phaseso f this Project. The specific tasks of this consultant will include regular collection o f transaction documents (SPM, contracts) from the implementing locations, arrange data entry into a computerized accounting system, preparation o f project financial statements on a quarterly basis for each PIU location as well as a consolidated one for the project, collection o f information on implementationprogress and procurement progress from each PIU location and incorporation o f these into Financial Monitoring Reports (FMR), and analysis o f key variances inthe FMRs. 3. Impact Monitoring and Evaluation Unit(IMEU) WISMP 1supports operationalization o fnew concepts, organizations andprocesseso f institutional and infrastructure development. Because o fthis new ground, an Impact Monitoringand Evaluation Unit (IMEU)will becontractedto ensure that WISMP is aneffectiveandadaptable leamingprocess.The IMEUwill monitor and evaluate key outcomes andimpactsofthewater andirrigationsector reforms and document perceptions andrecommendations o f stakeholders about WISMP activities (see Annex 14 for more details). The four basic objectives o fthe M&E systemare to: - 85 (a) produce pertinent, objective, and timely information about the progress, problems, andresults o f WISMP; this information focuses on the project's outcomes and impacts (on poverty, productivity, equity, environmental and social values, governance, finance, etc.), and on process quality; (b) develop a baseline data set to allow measuremento f change over time, inthe future; (c) provide a forum for receiving complaints and advice from stakeholders; and (d) convey important findings to key decisionmakers and other stakeholders within government and civil society. The IES will be implemented byan ImpactEvaluation Team (IET), which will be an independent consultingorganization, possibly selectedfrom an association o f researchand development institutes, universities, and NGOs. The consultant will be selectedby the NSCWRthrough a competitive bidding process. The IMEUwill report directly to the NSCWR. - 86 - Attachment 1to Annex 2 Annual Work Plan(AWP) ReviewProcess The processconsists ofthe following steps: 0 By September 1 of each year, the eligible implementing agency submits its AWP and budget, including (i)report o f achievements over the previous period o f the current year, (ii) goals and a the plan for a rolling plan o f a period o f 3 to 4 years, (iii) current budget situation, (iv) analysis o f the significance and feasibility of the proposed expenditures, and (v) the requested budget allocation from the loan for the subsequent budget year. This AWP i s submitted to the Project National Steering Committee for Water Resources (NSCWR) via the National Project Management Unit (NPMU). 0 The AWPs are reviewed by the NPMU, in the light o f (i)the budget available, (ii)preliminary allocation estimates, (iii)the quality and significance of the respective proposals, (iv) the endorsementby the respective CouncilICommittee in the case of AWP from Balai PSDA and Dinas P U for river basin related activities, by the Komisi Irigasi in the case o f irrigation-related activities, and by the m / K o m i s i Penyuluhan (v) compliance with the Project Management Manual and with the World Bank safeguards, (vi) the confirmed availability of counterpart budget, and (vi) other relevant considerations. 0 The NPMU reviewsand amends, inconsultationwith the submittingagency, the AWP, and proposes the allocation. The NSCWR endorses the consolidated allocations, and attaches any remarks and preconditions to this decision. 0 The NSCWR submits the aggregate work plan and budget to the Bank for review and comments by October 15. By December 1the NSCWR will confirm the AWP to all PKJs. - 87 - Attachment 2 to Annex 2 Requirements to be Fulfilled by Regions in order to Access Loan Proceeds Inorder to access loan proceeds (for works and other expenditures), the Kabupatedprovince will meet the following requirements. The Kabupatedprovince will sign a Letter to this intent, and will demonstrate compliance. Use the loan proceeds for the designated purpose, and with efficiency and economy. The national government, the provinces and kabupatens will take measures to minimize the risk o f corruption and other misuse o f funds. Put inplace arrangements that ensure that the project activities and the use o f the project funds take place ina fully transparent and democratic manner. Inproject selection and implementation, apply rules for resettlement; landacquisition; protectionof indigenous and minority, or otherwise vulnerable groups; and environmentalprotection, that conform with Indonesian guidelines for EA and are acceptable to the Bank (see Social and Environmental Safeguards Framework - Annexes 11and 12). (For kabupaten): Establish a Komisi Irigasi, with representative stakeholders, for the purpose o f setting the irrigation policy and fund use, andreview and confirm all proposals for physicalworks, for all irrigation activities in the kabupaten but notably o f the KIIF, o f the kabupaten, in a manner that is acceptable to the Bank. The Komisi will be requiredto issue annually a Statement that it agrees with the past and plannedactivities o f the DinasPUP o f the kabupatedprovince. (For provinces): Establish a Provincial Water Resources Council or Committee and, for each river basin, a River Basin Water ResourcesCouncil or Committee, all with representative stakeholders, for the purpose o f advising the provincial government andthe Balai PSDA, respectively, on policy, water resource management, conservation o f water, nature and catchments, budgets, and water allocation, as well as for each proposal for physical works, all in a manner acceptable to the Bank (see Social and Environmental Safeguards Frameworks). The Councils/Committees will be required to issue annually a Statementthat they agreewith the past and planned activities o f the provincial Dinas PUP and Balai PSDA, respectively. They will have authority to review and endorse AWPs, as well as any proposal for works. Maintain and keep all records relating to financial management, procurement and project management decisions, and make them accessible for review and audits by the Project's National Management Unit,national and regional audit agencies, the Bank, and other designated parties such as the Impact Monitoring& Evaluation Unit. Put in place arrangements to conduct financial management in a way that i s professional and acceptable to the Bank. Put in place arrangements to procure goods, works and services in a way that are transparent and acceptable to the Bank. Prepareand submit Annual Work Plans and Budgetsby August 31o f each year. - 88 - 0 Compile and make available to the national government, the NSCWR, andother parties designatedto monitor and evaluate project implementation progress, all physical, economic, financial and other data pertainingto project implementation. 0 Provide the counterpart budgetin accordancewith the agreement with the Bank, 0 The agreementbetweenRegion and national government pertaining to the use ofthe loanproceedsis govemedby the Loan Agreement and the Project Management Manual. SyntheticTable DescribingProvince/KabupatenConditionsfor Access to LoanProceedsfor ComponentB Level Type of Action Monitorable/LAOutput EligibleExpenditures (cumulative) l a "Kabupaten adoptsIrrigation Letter o f Intent Training, COS,TA & IReform Principles (PKPI)" 1I Publicized inKabupaten Letter o f Intent lb Princides(PKPI)" I"Province adoptsIrrigationReform Publicized inProvince I \ 2 "Kabupaten and Province implement Local Regulations issued' In addition: Irrigation ReformPrinciples (PKPI)" ~ ~rrjgaSi~established'~ i Sub-project A, Sub-project C, i IAIP 3 "Kabupaten adopts and Letter of Intent In addition: implementsKabupaten Irrigation Kabupaten intemal Sub-project B Improvement Facility (KIF) procedures' orincides" ' The Project will apply the models that have been developed under JIWMPDWIRIP in 2000-2003, as well as follow the MinisterialDecrees, scheduled to be issued in2003, that provide the Guidelines. - 89 - Attachment 3 to Annex 2 Regions ParticiDatine in WISMP 1(Provincial and Kabuoaten Governments) Regions have either low or medium fiscal capacity (MoF 2003 Classification) mble StarKabupaten als nvolvedin DAFEP / Hatch: Kabupaten scheduled for ILGRP NO. N A M E LEVEL OF GOVERNMENT 1 Banten Province 2 West Java Province 3 Central Java Province Kabupaten 4 Yogyakarta Province Kabupaten 5 East Java Province Bondowoso Kabupaten 6 North Sumatera Province Situbondo Kabupaten 7 West Sumatera Province Probolineeo Kabuuaten 8 South Sumatera Province Kabupaten 9 Lampung Utara Province Kabupaten 10 Central Sulawesi Province Kabupaten 11 South Sulawesi Province Bangkalan Kabupaten 12 East Nusa Tenggara Province Neaniuk Kabuuaten Kabupaten Mojokerto Kabupaten Kabupaten Kabuoaten Kabupaten 57 lpasuruan Kabupaten Kabupaten (Central Sulawesi) Kabupaten 58 lBuol Toli Toli Kabupaten Kabupaten 59/60 IDonggala (split) Kabupaten Kabupaten (South Sulawesi) Kabupaten 61 Soppeng Kabupaten Kabupaten 62 Wajo Kabupaten 63 Sidenreng Rappang Kabupaten 64 Enrekang Kabupaten Kabupaten 65 Pinrang Kabupaten Kabupaten 66 Polewali Mamasa Kabupaten Kabupaten 67 Luwu Kabupaten Kabupaten 68 Jeneoonto # Kabuoaten Kabupaten 69 IGowa ** # Kabupaten Kabupaten 70 IPangkajene Kabupaten Rembang Kabupaten I 71 IBarm Kabuuaten Pati Kabupaten 72 IMamuju II Kabupaten 29 Jepara Kabupaten (North Sumatera) 30 Kudus * Kabupaten 73 lsimalungun ** Kabupaten 31 Demak # Kabupaten 74 lDeli Serdang Kabupaten 32 Bovolali # Kabupaten (West Sumatera) Kabupaten 75 [Solok # Kabupaten Kabupaten 76 ITanahDatar # Kabupaten Kabupaten Kabupaten 77 logan Komering Ulu I I Kabupaten Kabupaten 78 IMusiRawas Kabupaten (Lampung) Kabupaten 79 ILampung Utara # Kabupaten Kabupaten 80 ITulang Bawang Kabupaten Kabupaten (East Nusa Tenggara) 41 Isleman Kabupaten 81 ISumba Timur Kabupaten 42 IKota Yoevakarta Kabuoaten 82 IManeearai Kabuoaten - 90 - Attachment 4 to Annex 2 1 IList of Core and Base BalaiWISMP 1 - II Balai PSDA Provinsl Provlnsl Ba PSDA I Core Base Core Ease ~~ 1Banten 1 CiujungCiliman 1Sumatra Utara 1 BelawanBelumai Uliv 1 Nias 2 Wampu Besitang 3 BarumunKualuh 2 J a w Barat 1 Cimanuk Cisanggaung 1 Ciliwng Cisadane 4 BatangTau 2 CitanduyCiwulan 2 Citarum 5 BahBdmAsahan 3 CisadeaCimandiri 6 LauRenunLauBiang 1 Jratun 1 PmdiCcmA 2 Sffay Citanduy 2 8.Sdo Hulu 2 Sumatra Barat 1 KuantanlndraGirl 1 BatangHari 3 Seluna 3 Prcbdo 3 Sumatra Selatan 1 Musi 1 Sugihan Smpean 1 BmdoydoMayang 4 Lampung 1 MesujiTI. Bawang 2 Madiun 2 G m k n gPekalen 5 Sulawesl Selatan 1 Jeneberang 1 Saddang 3 B. Solo Hilir 3 BangoGedangan 2 PanpenganLarma 4 BuntungPaketingan 3 WaianaeCenranae 5 PuncuSdcdono 4 Kduku Karma 6 Madura 6 NTT 1 Tima SumbaAla 1 Flaes Lmbata Lmblen 1 Prcgoopak oyo 1 Sermo 7 Sulawesi Tengah 1 PduLariang 2 PariaiPffio B: BaseBalai: 27 C: Core Balai: 16 -91 - Attachment 5 to Annex 2 2004 Work Planand Cost Table for Component A 1.Introduction The attached tables provide, in summary, the AWP 2004 for Basin Water ResourcesManagement Part A o f WISMP. The total AWP is about USS11.4 Million; the amount is about 24 YOo f the total project costs. National-level Project Management and Technical Assistance are included inPart C. 2. Programdescription. Al. Sector Governance and BasinPlanning. Under Al.l Sector Governance a number o f WISMP national support activities are scheduled to commence inFY2004. 1. Support to the establishment o f the Secretariat o f the NationalWater ResourcesCouncil NWRC 2. DPRDmembers awareness building 3. Capacity buildingo fprovincial and basin water resourcescouncil members including establishment o f secretariats 4. Water ResourcesandIrrigationData Base & MIS framework for Provincial and Kabupaten agencies 5. Water Use Rights concept framework Also included under A.l are activities related to capacity strengthening o f the Dam Safety institutions (Dam Safety Commission DSC, Dam Safety Unit DSU and Dam Monitoring Units (DMU) including improving the institutional and legal framework. Basin Planning: The function of the Central Basin Planning Unit will be further strengthened with a focus on staff training and development, review, update and drafting o f basin planning guidelines. Support will be provided to the Provincial Basin Planning Units in capacity building to undertake BWRMP activities depending on the status o f their organization and demand for planning support. Work on Basin Water ResourcesManagement Plans inselected basins will be initiated. A2. Management Capacity of BasinAgencies. The Capacity Buildingprogram will be implementedin the Provincial and Balai Agencies in a phased manner in groups o f three provinces. In 2004 work will commence in six provinces with three Java provinces inthe first group. A baseline survey o f all the Balai PSDAs in the program will be undertaken. The water resources management organizations staffing at provincial level will be reviewed and subsequently mission statements, structures and tasks updated and where necessaryreformulated. The full water resources management function will be taken up including management, planning, hydrology, asset management, quality assurance, program management, design and supervision. A Human Resources Development program will be based on these findings. Programs for training delivery in the provinces will be formulated in consultation with the provincial institutions. Subsequently, the Province will arrange implementation o f the program. DG SDA (Kimpraswil)will guide andsupervise inBalai capacity development activities. A3. Sector Fiscal and Cost Recovery Policy: Fiscal sustainability policy studies will be initiatedunder the "Pokja" (Working Group) systemwith assistance from consultants. A4. Basin Water Management and River Basin Infrastructure Improvement. Activities o f the Basin Management project will continue, initially in the Balais with active programs under the current - 92 - Project. Current program elements will be continued with a gradual enlargement to the full scale o f Balai management tasks that include hydromet management, water quality, bulk water allocation, river infrastructuremanagementand flood management. Selective river infrastructure improvement works will be carried out. The long-list with US$15.0 Million works has been screenedand prioritized and reduced to US$6.6 Million o f works suitable for inclusion in the program. The Basin Water Resources Councils will further review the proposed work prior to inclusion into the program, before November 2003, which would further reduce the amount o f works eligible. The Cost Table and Procurement Plan (see Annex 6A) reflect the selected short-list approved by the BankAppraisal Team. 3. Cost Table Component Total Works Goods T&W A1 I Sector Governance and Planning A1.l Sector Governance 1.990 0.000 0.050 1.940 Al.2 Basin Planning Capacity 0.810 0.810 I 1 Total A1 I 2.800 I 1 0.050 1 2.750 I A2 Basin WM Agency Capacity Building I I Total A2 I 1.930 1 0.200 I 0.710 I 1.020 I A3 Fiscal and Cost Recovery Policy Total A3 0.350 0.350 A4 River B. Infrastructure Improvement and Management A4.1 River Basin Management 1.970 0.370 0.650 0.950 lA4.2 I Prioritv Rehabilitation Selected K e v Structure I 3.650 I 3.270 I 0.170 I 0.210 1 ~ Total A4 5.620 3.640 0.820 1.160 A5 National Water Resources Capacity Sub-total A5 0.360 0.200 0.160 A Total A 11.060 3.840 1.780 5.440 *inUS$Millions - 93 - 2004 WorkPlan andCost Table for ComponentB 1. ContinuedPreparationfor IrrigationManagementReform In 2004 WISMP 1 will continue the preparation for Irrigation Management Reform implementationat kabupaten level for those kabupaten also included in IWIRIP (and previously in JIWMP) with the exception o f 11 kabupatens in South Sulawesi. Thus, there are 59 out o f a total o f 70 kabupatens. The activities comprise: e Public Awareness Campaign e Establishment o fKomisi Irigasi with balancedrepresentation e Establishment o f DPIK e Finalization o fPERDA on Irrigationaccording to PP77101etc. 2. Start PreparationinnewKabupaten In2004, the 11 additional kabupatens in South Sulawesi with limitedprior exposure to the Reform will not be added yet, these will be started in2005. 3. CapacityBuildingfor Kabupaten(Sub)Dinas Pengairan This activity will be started inthe 18 kabupatens and those where the KIIF may be started according to the criteria o f Component B.3 (see higher): Cianjur, Karawang and Bogor (West Java), Grobogan, Pati, Kudus, Wonogiri and Magelang (Central Java), Kulon Progo (Yogyakarta), Jember, Probolinggo, Nganjuk, Jombang and Mojokerto (East Java), Lampung Utara (Lampung), Donggala (C. Sulawesi), Pinrang (S. Sulawesi), Simalungun (N. Sumatera), Tanah Datar (W. Sumatera), Ogun Komering Ulu(S. Sumatera) and Manggarai(NTT). The activities comprise: e Facilitation o freview of mission, structure andtask o f the (Sub) Dinas. e Formulationof training program, includingtraining needs assessment e Formulation o f aprogram for asset managementinthe irrigation systems served by the (Sub) Dinas, and start implementation. e Formulation and initiation o f a program for Quality Assurance andCore Teams e Formulation and initiation o f a programfor performance monitoring 4. Supportfor Formation and StrengtheningofWUAF in All IrrigationSchemes In 2004 activities for formation and strengthening of all WUAFs in all public irrigation systems inthe participating kabupatens that were included in IWIRIP will start. This will be done in the same 59 kabupatensas under 1. Activities comprise: e Training and Assignment of Community Organizers, in cooperation with the Field Guidance Teams (KPL) fromDinas Pengairan, Pertanian and Local Government. e Implementationo f Participatory RuralAssessment (PRA) andpreparationof annual and five year programs for irrigation management. e Comparative Studies to other advanced irrigation schemes. - 94 - 5. Firstyear implementationof KIIF/DPIK Preparation for KIIF can be completed under IWIRIP by end o f 2003 for a number o f kabupatens, where sufficient WUAFs have beenempowered with authority over irrigationmanagement intheir unit. This is envisaged to be in: Cianjur, Karawang and Bogor (West Java), Kudus, Wonogiri and Magelang (Central Java), Kulon Progo (Yogyakarta), Jember, Probolinggo, Jombang and Mojokerto (East Java), and LampungUtara (Lampung). 6. Implementationof PriorityRehabilitation(SelectedImprovement)Works For five kabupatens, participatory design works are available and appraised, and can be implemented in: Cianjur, Kudus, Semarang, Temanggung and Magelang. 7. Implementationof Pilots for IrrigatedAgriculture Support For 11kabupatens, a program is formulated and initiated for Irrigated Agriculture Improvement (IAIP). These are in the 5 kabupatens where both WISMP and the Decentralized Agriculture and Forestry Extension Program (DAFEP) are implemented, and in another six kabupatens where good potential i s envisaged: Cianjur and Bogor (West Java), Kudus and Magelang (also DAFEP) (Central Java), Kulon Progo and Bantu1 (both also DAFEP, Yogyakarta), Jember, Probolinggo and Mojokerto (East Java), Gowa (also DAFEP, South Sulawesi) and Simalungun (also DAFEP, North Sumatra). - 95 - - 96 - 2004 Work Plan and Cost Table and for the large T A packages Procurement o f consultancy services will commence already before the effectiveness o f the Credit Agreement. Selection o f the Financial Management Service Consultants is to be completed before Effectiveness. In total, there are six large consultancy packages with detail presented below including the project disbursementsfor Go1FY 2003 andFY2004. TA 2003 2004 US$ thousand U S $ thousand I P4 1 Financial Management Services I 150 I 150 I P5 Impact Monitoring and Evaluation 0 70 P6 WISMP -2 Preparation 0 0 Total 150 7.250 - 97 - Annex 3: Estimated Project Costs INDONESIA Water Resources & Irrigation Sector Management Program Locd Foreigl Totd US$rillim USWllim USWllim 7.0 7.0 14.1 5.2 5.2 10.4 1.o 1.o 20 16.0 127 28.7 1.0 0.6 1.6 4.2 4.2 8.3 26 26 5.1 18.6 8.2 26.8 1.4 1.4 27 28 5.3 8.1 58.8 48.C 107.8 4.4 26 7.3 64.2 50.E 115.1 0.4: 115.E - 98 - Components Detailed Program Cost (Rupiah Billion) (US$ Million) % %Total Foreign Base Local Foreign Total Local Foreign Total Exchange Costs A. Basin Water Resources Management 1. Sector Governance and Basin Planning 1.1 Sector Governance 32.1 32.1 64.2 3.61 3.61 7.21 50 6.3 1.2 Basin Planning Capacity 30.5 30.5 61.1 3.43 3.43 6.86 50 6.0 2. Management Capacity of Basin Agencles 2.1 Provincial and Basin Management Agencies (Dinasllalai) 35.4 35.4 70.7 3.97 3.97 7.95 50 6.9 2.2 Public Corporation Basin Agencies (PJT) 10.8 10.8 21.5 1.21 1.21 2.42 50 2.1 3. Fiscal and Cost Recovery Policy 8.8 8.8 17.6 0.99 0.99 1.98 50 1.7 4. Basin Water Management and River Infrastructure Improvement 4.1 Basin Water Management Capacity 37.4 56.1 93.5 4.20 6.30 10.51 60 9.1 4.2 River Infrastructure Improvement 105.2 56.6 161.8 11.82 6.36 18.18 35 15.8 5 National Capacity Building Networks 9.2 5.0 14.2 1.04 0.56 1.60 35 1.4 Subtotal part A 269.3 235.2 504.6 30.27 26.43 56.70 47 49.3 E. Participatory Irrigation Management 1.Water User Association Capacity 37.0 37.0 74.1 4.16 4.16 8.32 50 7.2 2. Kabupaten Irrigation Depattment 8 Financial Capacity 22.8 22.8 45.7 2.57 2.57 5.13 50 4.5 3. Irrigation Infrastructure Improvement 3.1 Kabupaten Irrigation Improvement Facility 62.3 20.8 83.1 7.00 2.33 9.34 25 8.1 3.2 Kabupaten Irrigation Services 85.6 46.1 131.8 9.62 5.18 14.81 35 12.9 3.3 Provincial Irrigation Services 17.4 5.8 23.3 1.96 0.65 2.61 25 2.3 4. irrigated Agricultural Support 12.2 12.2 24.4 1.37 1.37 2.75 50 2.4 Subtotal part B 237.5 144.8 382.3 26.69 16.27 42.96 38 37.3 C. Project Management 25.3 47.0 72.3 2.85 5.28 8.13 65 7.1 Total BASELINE COSTS 532.2 427.1 959.2 59.80 47.99 107.79 45 93.6 Physical Contingencies Price contingencies 130.7 87.1 217.7 4.39 2.93 7.32 40 6.4 Total PROJECT COSTS 662.8 514.1 1,177.0 64.19 50.92 115.11 44 100.0 Interest During Construction Commitment ChargeslFEF 4.0 4.0 - 0.45 0.45 100.0 - Total Costs to be Financed 662.8 518.1 1,181.0 64.19 51.37 115.56 44 100.4 - 99 - .. la1 ai la9 16.9 8.4 583 1.8 1.9 0.9 6.6 16.9 ias 9.5 555 -- as 2.1 21.9 1 1.1 6.2 - 11.2 - as 21.3 21.3 la6 643 1.3 24 2 4 1.2 7.2 7.5 7.5 1 7 19.6 0.1 0.8 0.8 0.4 2 2 27 53 5 3 27 160 -- 0.3 0.6 0.6 0.3 1.6 --. . 19.4 X2 E 2 13.1 810 - 22 29 29 1.5 9.6 37.5 43.8 43.8 21.9 lQ.l 4 2 49 4 9 25 az 16.5 si 143.9 1 2 3.9 3.9 1.9 129 a 4 0.4 a 4 1.5 143.9 71.9 4587 -.- 11.1 ihz 16.2 ai 51.5 - 254 147 ias 8.4 67.3 - 2s 1.7 21 as 7.6 . 6.2 124 159 7.1 41.5 - 0.7 1.4 1.8 0.8 4 7 7.4 x5 31.5 140 n.3 0.8 27 1 5 1.6 a7 29 41.7 a 6 P 8 1220 a3 4 7 6.0 27 13.7 1 4 6.4 a2 1 6 21.5 --- 0.4 0.7 0.9 0.4 2 4 - 21 7.0 9.0 40 222 0.2 a8 1.0 0.5 25 47.3 1066 137.1 6a9 351.9 .. 5.3 120 154 6.8 3.5 1.3 17.8 16.3 16.3 140 658 0.2 20 1.8 1.8 1.6 7.4 1.3 1642 2S.8 297.2 1468 875.4 0.2 185 3 a O 3l4 16.5 985 0.1 16.1 25.1 27.7 13.0 828 0.0 1.8 28 3.1 1.5 9.3 1.5 180.3 291.9 3a4s 160.6 m . 2 0.2 2a3 320 345 16.0 107.8 0.1 17.0 428 657 421 167.6 0.0 0.6 1.5 22 1.4 56 0.0 5 3 110 19.6 123 ai 0.0 0.2 0.4 0.7 a 4 1.7 0.1 223 556 813 543 217.7 0.0 0.8 1.9 2 9 1.8 7.3 0.1 223 558 053 543 217.7 0.0 an 1.91 2s in 7.3 1.6 Zm6 347.6 410.2 2149 1,177.0 0.2 21.0 347 39.4 198 1151 - 100- Annex 4: Cost BenefitAnalysis Summary INDONESIA:Water Resources & IrrigationSector Management Program [For projectswith benefitsthat are measuredin monetaryterms] Benefits: See Table below - I - I I I I costs: I See Table below II Net Benefits: See Table below Annex 5 Annex 5 IRR: See Table below `Ifthe difference betweenthe present value o ffinancial andeconomic flows islarge andcannot be explained by taxes and subsidies, a briefexplanation o f the difference is warranted, e.g. "The value o f financial benefits is less than that o f economic benefits because o f controls on electricity tariffs." Summary of BenefitsandCosts: The project focuses on activities in water resources and participatory management, involving both investments in physical resources and water management systems, as well as substantial investments in human and institutional resources, including capacity building for improvements in management, fiscal sustainability, accountability, transparency and stakeholder participation at all levels (e.g. Dinas, Balai, WUA andWUAF). As a result, the project is concerned as much with changesinbehavior towards water and imgation managementpractices on the part o f users, service providers, regulators andplanners as it i s on physical aspects. This investment i s considered an integral part o f the project which, when combined with participatory approaches in implementing physical water infrastructure investment, will result in reductions in cost, improvements in quality o f works, and increased commitment (including financial) on the part o f W A F Sfor O&M [Improved Accountability and Performance in Irrigation Works Delivery through Participatory Arrangements - Lessons from a survey of cases from Central Java Province" - JIWMP May/June 2002.1 leading to longer economic life o f physical infrastructure. The activities and approach o f the project will lead to more reliable and efficient water use, in turn leading to higher confidence among farmers/irrigators in planning and implementing improved agricultural practices (e.g., higher cropping intensity, higher input use, diversification) and achieving improvements in farm output, incomes and economic value. In addition, there are several non-agricultural benefits that will flow directly from the project, for example, rehabilitation cost savings from appropriate and timely river infrastructure maintenance, savings inwater treatment costs for specific investments relating to water supply, and cost savings relatingto flood prevention. The following table indicates the economic rates o f return for the overall project, and for three typical casesiirrigation schemes with varying degrees o f need for repair investment, based on standard cost-benefit analysis: -101 - Case InfrastructureInvestment ERR costslha Case 1-- Schemewith Rp410,000 43% Moderate Rehabilitation 11 Case 2 -- Scheme with Substantial Rehabilitation Case 3 -- Schemewith I Rp 1,500,000 No rehabilitation II 36% I Overall Project Area 36% MainAssumptions: TheApproach The analysis has been undertakentaking guidance from a Bank document ["New Evaluation Procedures for a new Generation of Water-Related Projects - Cummings, Dinar and Olson, December 19961 that proposes alternative approaches to the evaluation o f water resource management projects, and also taking into account the existence o f an annual rolling program method o f implementation and that physical water and irrigation components will be included in the program only after satisfying individual tests o f economic and financial viability, in addition to social, environmental and technical tests. These tests will be detailed in the Project Management Manual and will involve a simple benefit cost ratio for smaller sub-projects, and a more elaborate economic rate o freturn analysis for larger sub-projects. Three levels o f analysis have been completed: (a) standard cost-benefit analysis, (b) standard enhanced analysis, and (c) minimumimpact analysis. Firstly, a standard cost-benefit approach has been used to evaluate three irrigation scheme upgrading cases, two with varying levels o f infrastructure rehabilitation requirement, and a third with none. Irrigation rehabilitation investment, in most circumstances, will provide substantial incremental economic returns to the incremental investment involved. The analysis demonstrates this, but, secondly, an "enhanced" analysis further evaluates the impact o f the WISMPIPKPI [Imgation Policy Reform] approach by comparing the economic impact o f "traditional" rehabilitation programs (limited to physical investments), with the WISMPIPKPI approach which includes the activities relating to human and institutional capacity, with a view to providing a justification o f these further activities. Thirdly, a "minimum impact" approach has beenused to determine the minimumlevel of economic benefit (inthis case o f agricultural production) that justifies all the investments o f the project, and then assess the likelihoodor otherwise o f achieving this, based on the conclusions o f the first approach. To determine the costs to be included in the analysis, the starting point i s the rehabilitation costs and incremental asset maintenance and O&M costs at scheme level. In addition, the investment costs associatedwith the introduction o f the irrigationreformprogram have been apportioned over the area to be covered by the project, as have a proportion o f the basin infrastructure investment costs (80% to correspond with the estimated usage o f water for agricultural production purposes). This approach has been taken to reflect the necessary linkages in"overhead' costs at central, provincial and kabupaten level as part o f the reform program that relate directly to the changes in scheme-level management that the analysis i s quantifjmg. - 102 - StandardCost-Benefit Analysis (Table3) This approach selectsthe three scenarios for schemesinthe project areaas follows: 1. Schemerequiringmoderatephysical improvements to bringthe efficiency from 50% to 70% - investment cost Rp410,000 per ha. 2. Schemerequiringmore significant physical improvements to bringthe efficiency from 30% to 70% - investment cost Rp 1,500,000 per ha. 3. Schemerequiringno physical improvements. [ Definition o f "Scheme Efficiency": In Indonesia there are three growing seasons. At full maximum use o f the land without water or other restriction, "cropping intensity" would be 300% (inreality, only around 290% is the theoretical maximum that can be achieved). "Irrigation scheme efficiency" is 100% if it manages to direct all the technically available water in its direct environment, to the arable land. This would usually lead to a maximum technical cropping intensity that is lower than the theoretical maximum as in most cases water is a constraining factor. Furthermore, because o f losses and decaying infrastructure inthe irrigation scheme, usually an irrigation scheme efficiency o fmuchbelow 100%is achieved.] Ineach case, the impact of the project i s compared to a without-project situation in which the main assumption is that scheme efficiencies would fall by 2% p.a. over time to a minimum level o f 30%. The main assumptions in the with-project cases are that (a) scheme efficiencies are restored to 70% initially, and rising to 80% over time to take into account the improvement in scheme management and asset maintenance; and (b) agricultural productivity will rise with increased confidence o f the reliability o f water. For this analysis, the investment costs that relate to capacity buildingand main scheme works of the project were allocated on a per hectare basis. The total capacity buildingandoverhead costs are spreadover the full 2.3 million hectares-the targeted irrigated area inthe 70 kabupatens included inthe project. For river infrastructure, 80% o f the costs are taken into consideration as approximately 20% over the water can be expected to be used for other purposes (e.g. household and industrial water supply). The imgation infrastructure costs are assumed to apply to 600,000 ha o f the total area o f 2.3 million ha in WISMP 1. The project will introduce concepts o f asset maintenance which, together with regular operation and maintenance, will involve an incremental cost Rp 100,000 per hap.a. Economic rates o freturn for the three cases vary from 29% to 43%, with the average for the project area as a whole being 36%. These results are based on a rice-only cropping system. Investment in rice-only schemes can be expected to produce lower returns than those from schemes in which it is feasible to produce other, higher-value crops taking into account marketing conditions and labor availability. Therefore, this is a conservative case from which to work to assess whether the project passes a minimumlevel o f feasibility. StandardEnhancedAnalysis (Table4) The enhanced analysis further tests the justification of applying the WISMPIPKPI approach by comparing this approach to that o f a traditional physical rehabilitation project, and thus the incremental investment costs relating to capacity building and PKPIimplementation, as well as the costs associated with "asset maintenance" are included inthe analysis. The purpose of the analysis is to demonstrate the economic impact o fPKPIcompared to the current practices o f delayed, periodic rehabilitation following periods o f declining water supply and reliability. The main assumptions that have been made concerning the decline inscheme efficiencies inthe "without-Pel" situation are that efficiencies reduce by 2% p.a., and also that, without PPI, schemes would require rehabilitation every 8 years. This simulates closely the past experience o fimgation schemes inIndonesia. For each ofthese cases, the impact o fthe expected changes in agricultural practices has been identified by analyzing the impact o f better water supply (as measured by system efficiency) and the effect o f improved agncultural productivity that would result from increased confidence inwater availability and consequent harvest results fromPKPI. - 103- The result o f this analysis indicates that economic rates of return o f 32% would result from the incremental investmentassociatedwith the implementationo fPKPI underWISMP. MinimumImpact(Table 5) Although the traditional analysis attempts to assess the overall feasibility of the project based on the results o f selected sample schemes, it i s expected that a wide variety o f conditions will be addressedby the project, in terms o f the nature of the communities involved, the condition and rehabilitation requirements of the schemes themselves, past history with Government services, and agro-climatic and market opportunities for agricultural systems. The "minimum impact" analysis i s a simple analysis which attempts to identify what minimumlevel of economic benefit would be required so that the investments will produce an acceptable minimumlevel of economic benefit. For this analysis, the total investment costs o f the project were allocated on a per hectare basis. The total capacity buildingand overhead costs are spreadover the full 2.3 million hectares- the targeted irrigated area in the 70 kabupatens included inthe project. For river infrastructure, 80% o f the costs are taken into consideration as approximately 20% over the water can be expected to be used for other purposes (e.g. household and industrial water supply). The irrigation infrastructure costs are assumed to apply to 600,000 ha of the total area of 2.3 million ha inWISMP 1. The project will introduce concepts of asset maintenance which, together with regular operation and maintenance, will involve an incremental cost Rp 100,000 per ha p.a.. The analysis identifies that, for these investment and incrementalrecurrent costs to be economically viable (ERR > 12%), the incremental returnrequired i s inthe order o f Rp200,000 per hap.a. This would be achieved ifoverall system efficiencies were to improve by approximately 2%, or if productivity were to increase overall by 3.5%. The conclusion can be drawn that the overall economic return of the project has a very high possibility of achieving a rate o f return far in excess o f 12% based on experience and field surveys [Impact Study of the Irrigation Reform under Java Irrigation and Water Management Project, Yogyakarta, UGM, May 20031 which have shown that PKPI has indeed led to efficiency gains and productivity increases far in excess o f these levels. This extensive field survey was undertaken by an academic consultant consortium to study preliminary impacts o f PKPI in the areas covered by JIWMP and IWIRIP. The study covered 12 districts with 60 respondents per district or 720 respondents and 20 key informants per district or 240 respondents. The main findings of this survey are summarized inthe following tables: Improvementsin agriculturalproductionresultingfrom implementationofPKPI as reportedby farmer beneficiaries Issued discussed with respondents - farmer beneficiaries : What % respondents reporting improvement is the impact o f the implementation o f practical aspects of the in situation after implementation o f PKPI invow irrigation scheme on agricultural asaects: farmer emaowerment under PKPI I 1 I Paddv vields increased I 2 I Farm 153% I incomes improved 151% 3 Household food supply improved 49% 4 Harvest certainty increased 43% 5 Food availability at village level improved 40% 6 , 37% I intensities increased 7 I Crouuing Agricultural employment opportunities increased 133% - 104- Issued discussed with respondents - farmer beneficiaries : What % respondents reporting improvement is the impact o f the implementation of practical aspects of the in situation after implementation of PKPI in your irrigation scheme on irrigation water delivery farmer empowermentunderPKPI aspects: 1 Farmer perception of Water Users Association concept 87% imoroved 2 Farmercontribution to O&M activities improved 77% 3 Farmers participation inO&M activities improved 61% 4 Irrigation infrastructuremaintenanceimproved 61% 5 water conflicts imoroved 58% 6 Quality of irrigation infra structure improved 57% 7 II Resolutionofwater Faimess of distribution improved 56% 8 Farmerattendanceof WUA meetingsimproved 55% 9 Quality ofoperation irrigationinfrastructure improved 55% 10 Cost effectivenessof O&M improved 50% 11 Protection of irrigationstructure imDroved - 50% 12 Environmentalprotection o f irrigated areas improved 50% 13 II Water use efficiencv imaroved II 47% - 1 14 Relation betweenIIPR andpoverty alleviation improved 40% 15 Knowledge of WUA's by-laws improved 28 % 16 Irrigatedarea improvements 28% The findings o f the survey show that the majority of the farmer-respondents report improvements in key areas related to agricultural production and imgation water management. They find that agricultural productivity and their farm incomes have improved since implementation in their area o f the P P I farmer empowerment program. Sensitivity analysisI Switching values of critical items: The impact on the overall economic viability o f the project o f several of the main assumptions underlying the analysis was then evaluated. The main negative outcomes that would affect the project are: (a) the underachievement o f the project's objectives o f not improving scheme efficiencies following rehabilitation inexcess o f 70%, (b) not achieving expected increases inagricultural productivity, and (c) increases in rehabilitation costs over those expected. Also, since the main commodity involved is rice, the analysis looked at the sensitivity o f rice prices on the overall economic return for the project. The following table summarizes the results: Base Case Rehabilitation Maximum 70% No change in 20% decrease in costs >20% system agricultural economic price efficiency productivity Minor 55% 38% 37% 34% 33% Rehabilitation I 16% 1 25% 25% 22% 21% !:habilitation I 36% II36% II23% II25% Overall 36% 34% 24% 24% 22% Project Area III - 105- Perhaps the most critical assumption concerns the uptake of the PKPI principles and the behavior changes that the project is introducing. The analysis examined the case in which no change in scheme managementpractices is achieved. Inthis case, all project investments are made, but no contributions to asset maintenance are made, schemes resume the gradual decline in efficiency as in the past, rehabilitation is required after 8 years, and no agricultural productivity gains are achieved. The analysis indicates that the overall rate o f return for the project would fall to 11%. This i s made up o f the agricultural production gains made immediately following rehabilitation (but subsequentlyreducing over time) counteracted with the costs o f capacity building, the impact of which would be lost. This is considered to be a worst case scenario. Finally, if50% of the schemes inthe project were to adopt PKPIprinciples, with the remainder failing to do so, the analysis suggests that the rate o f return for the project as a whole would be 31%. - 106- Indonesia Water and IrrigationSector Management Project - EconomicAnalyrls Table 1 -Economic Prices I Rice I Expoffllmport substitute Notell Imported ExDorted Marker product location 21 Thailand Thailand Qualityof marker product 31 5% broken(milled rice) 5% broken 2003 2005 2010 2003 2005 2010 US$/ton Indicatorprice- 1990base 41 191.4 221 226 4 1914 221 226 4 Indicator price- 2W3 base 51 ia5.0 213 6 218.8 1850 213 6 2188 Qualitydifferential 61 X 0.9 0 9 0 9 0 9 la6 o i 0.9 X 0 9 Equivalentvalue of indonesianProduct 71 157 26 18158 157 26 181 5a 186 01 Freight 8 insurancecast 81 25.0 25 0 211.o 25.0 na 0 0 0 0 0 0 Value at Jakarta pwt 182.3 206 6 157 3 1816 1860 Rpikg Value at Jakarta pwt 91 1640.3 18592 1899.1 14153 16342 1674 1 Port charoes 101 120.0 1200 1200 1200 1200 1200 Internal handlingltransportcosts - nearport 111 ++ 1000 1000 100.0 1000 1000 1000 Value at whoiesale market 1860.3 2079 2 2119.1 11953 14142 1454 1 Transport costs local to wholesalemarkei 121 50 0 50 0 500 50 0 50 0 50 0 Processingcosts 131 74.4 83 2 84.8 47 8 566 58 2 Value at local markeUprmessor(paddy) 141 1041.5 1167 6 1190.6 658 5 784 6 a07 6 Transport cost - farmgaie to local market 151 50 0 50 0 50.0 50 0 50 0 50 0 Value at farmgate 991.5 11176 1140.6 808 5 734 6 757 6 Commodity I Urea I Expoffllmporisubstitute Note:ll Exraned Imported Marker product lmation 21 N Europe USA Qualityof marker product 31 N % 46 P % 36 2003 zoo5 2010 2003 2005 2010 US$lton Indicator price- 1990base 41 = 113.80 131.60 12630 = 130.40 12980 126.30 Indicatorprice - 2003 base 51 = 110.00 127.20 12208 126 04 12546 12208 Qualitydifferential 61 X 100 100 100 0 77 0 77 0 77 Equivalentvalue of Indonesianproduct 71 = 110.00 127.20 12208 97 05 9661 9400 Freight 8 insurancecast 61 + 35.00 3500 3500 Value at Jakarta pat = 11000 12720 122.0a 132.05 131.61 129.W RNkg Value at Jakarta pwf 91 = gag99 14484 098.73 i.18a.49 i.ia4.47 1,161 03 Port charges 101 na 10000 loo.w 100.00 Internalhandiingltransportcosts 111 + 15000 150.00 150.00 150.00 150.W 150.00 Value at wholesale market 141 = 1,139.99 294.84 24873 1.43849 1,434 47 1,41103 Transportcost - whoiesale lo farmgate 151 50.00 50.00 5000 50.00 5000 50.00 Value at farmgate (fertiliser) = 1,18999 1,344a4 1.298.73 1.488.49 1.48447 1.461.03 Average200512010 1,321.79 1,47275 Value at farmgate (nutrient) 2.58694 2,923 57 2,823.34 3,235.85 3,227.11 3.176.14 Fertiliser fwm at farmgale bagged bagged Cmmodity r I I ExporVimportsubstitute Notell imported KCI Imported DAP Marker productlmation 21 Canada Quality of marker product 31 K % 60 N % 21 P% 46 Yr 2003 2005 2010 Yr2003 2005 2010 US$/ton Indicator price 1990base 41 124.20 117.50 110.60 = 16040 16920 165% Indicator price 2003 base -- 51 120.05 ii3.5a 10691 = 15504 16355 15997 Ouality differential 61 X 1.oo 100 1.00 x 1 w 100 1 w Equivalentvalue of Indonesianproduct 71 12005 11358 10691 = 15504 16355 15997 Freight 8 insurancecast 81 + 35 00 3500 3500 + 3500 3500 3500 Value at Jakarta port 155 05 14858 14191 = 19004 19855 19497 Rpikg Value at Jakarta pwt 91 1.395.47 1,337.18 1.277.15 1,71038 1,786.94 1,75475 Port charges 101 100.00 100.00 100.00 =+ 100.00 100.00 10000 Internalhandlingltransportcosts 111 ++ 15000 15000 150.00 + 15000 150.00 150.00 Value at wholesale market 141 1.645.47 1,587.18 1.527.15 = 1,960.38 2,036.94 2,004.75 Transport cost - wholesaleto farmgate 151 + 50 00 5000 5000 + 50.00 50.00 50.00 Value at farmgate (fertliser) 1,695.47 i.637.1a 1,577.15 = 2.010.3a 2.oa6.94 2.054.75 Average 200512010 1,60717 2.070.84 Value at farmgate (nutnent) 3,685.79 3.559.09 3.428.59 Fertiliserform at farmgate bagged bagged Notes: 11 Import SubsUtutelimported or exported product 21 Source of marker product or of product imwrted into Indonesia 31 Quallty standard of marker product 41 Price in constant 1990US$. World Bank CommodityPrice Projections.Oct 2001 51 Price in constant 2003 US$ World Bank CommodityPrice Projectims, Oct 2001 having applied MUV factor of: 0.9666 61 Value of Indonesian producuvalueof marker product 71 ai Marker pricex quaiitydifferentialfactor Costof Insuranceand freight betweenmarker product locationand Jakarta port 91 US$fion value convertedto RNkg at US$=Rp 9000 101 Costs of port handlingand othercharges in Indonesia. 111 Costs of transport, handlingetc, betweenwholesale market and Jakarta port 121 Costs of transpott, handlingetc. betweenlocaland whdesaie market 13/ Processing wsts as % of processed product r 4 Processing wsts as % of processed product -- E 10 141 Conversion rates - ricelpaddy 0 6 151 Transpofflhandiing cost betweenfarmgate and local market - 107- Indonesia-WaterandIrrigationSectwManagementProject EconMnicAnalysis Table2 - CropBudget Rice - RP" Financial Economic Crop ce Rice Rice ce Rice Rice Seasnn I All All I All All lmgatedrainfed igated lmgated lmgated igated Irrigated Irrigated yieldf m KG GUG GUG KG GKG GKG WPMIOP 'OP WOP WP 'OP WOP WP Year 2m2005/10 2005110 200320@5/10 2005110 OurPurS Mainproduct 1,070.00 4,070.00 4,070.00 3,668.68 4,177.70 4,177.7 INPUTS Saedslplantirgmaterial 39.60 39.60 39.60 35.70 40.65 40.6 Fertilisers: --- KCL Urea 186.00 186.00 186.00 176.50 198.27 198.2 DSP 75.00 75.00 75.00 74.42 73.64 73.6 -zA -Other -m &&emicals: -- Pestiade- type a -- Hemade Pestiade typeb - 120.00 120.00 120.00 120.00 120.00 120.c Rcdertticide 16.00 16.00 16.00 16.00 16.00 16.C Mecharisation: -Draftpower 125.00 125.00 125.00 125.00 125.00 125.C -Tractor 125.00 125.00 125.00 125.00 125.00 125.C -Thresher -- Sprayer 10.00 10.00 10.00 10.00 10.00 1o.c other Otherphysicalinpns: - BagsJsaCks -- Equipment 37.00 37.00 37.00 37.00 37.00 37s 20.00 20.00 20.00 20.00 20.00 20.c Privateimgation -Other Subtotal(a) 753.60 753.60 753.60 74162 765.55 765.5 Labour: --Male 990.00 990.00 990.00 792.00 792.00 792.c Female 935.00 935.00 935.00 748.00 748.00 748.c Subtotal(b) 1,925.00 1,925.00 1,925.00 1,540.00 1,540.00 1.540.( Other: -Landtax 20.00 20.00 20.w -TertiaryOBMfee - Otherwater 20.00 20.00 20.00 20.00 20.00 20.( charges 20.00 20.00 20.00 -Other subtotal(c) 60.00 60.00 60.w 20.00 20.00 20.( Tctalccsts 2,738.60 2,738.60 2,738.60 2,301.62 2,325.55 2,325.: Netrevenue 1,331.40 1,331.40 1,331.40 1,367.06 1,852.15 1,852.1 Without'and sNith project' cropyields Tonnesper hectare, perseason. Crop Imgatedrainfed Season Variety O o p f m Y r 2 W Yr2010 -Rice lmpmvedirrigated All HW GKG 3.2 3.7 -Rice Unimprwedimgated All HW GKG 3.2 3.7 - 108- 1367 GSl 1,367w 1.367.w 1.36701 1 . 3 6 7 ~ 1 . 3 6 7 ~ 1 . 3 5 7 ~ 136700 1 , 3 5 7 ~ 136700 i . m m 50% 48% 45% 44% 42% 40% 36% 36% 34% 32% 30% 30% 563 W 55615 62662 0148 57414 y680 11946 49212 a 7 8 43744 41010 1 1 O i O 056 m w ,0532 22166 27390 12792 MSM l W M l W M 1WM r W W 1WW lOOW I W M iMw I W W 056 31032 13266 37390 22792 I" ,woo I W M , O O M ,wm I W M IMM 1367 1,367 1367 1.367 1,367 1,4188 1,630 1,731 1,652 1,852 1,852 1,552 80% 48% 46% 70% 72% 74% 75% 75% 80% 80% 80% 80% 562 92 11564 19615 563W 78632 1 M l 3 3 1.12328 12WO7 1,38172 136542 1,38913 1.38913 IO 581 (910321 (49266) (i84B) 18238 46453 60382 757% 91694 94798 97903 97909 N% 41010 41010 41010 410 10 41010 41010 410 10 410 10 410$0 41010 41010 41010 058 $0532 7% m 22156 273 90 ,2792 IS0 M 1MM ,caw imm imm imm 4wm iwm 1MW 4" 058 655 32 977 56 37390 22792 I M W IMW ' W M 1WM t W M lMM lMoO 1.367w 136700 1,367110 1357w 1.367M 1418829 i,M957 1.73086 1,55215 1.852iS 1852215 1 1 1 2 i S 30% 30% 30% 70% 72% 74% 76% 76% 80% 80% 80% 60% 41010 41010 4,0,0 956 90 -24 1 l O l 3 3 1,22328 138007 148172 1,45172 ,48172 < l a 1 7 2 40952 I445221 1567 561 553 w 75632 1 . ~ 4 3 3 1,12328 1.2yin7 1,368172 1 x 1 7 2 138172 1 3 8 i i 2 1367W ,367w ,36700 1,36700 ,36700 1.367 w 1,367w l367W 136700 1,35700 I36700 1.567m 70% 65% 66% 61% 62% 60% 56% 564 64% 12% YIP( 48% 1.367M 92956 90222 874 56 647 5d 5M M 792 66 755 52 735 15 730% 563 80 656 $5 058 273 90 12792 100M 1wm ,cam i w m i w w i w w iOOW 4ww i M W ,caw 10056 379 90 227 92 I W W iww I W M ioow 1ww imm I W M i,367 iM 1 M i'UYI ,610 1.731 1.852 ,552 1.852 i812 70% ?6% 78% 80% 80% 804 W% 80% 80.I 80% 1266 42 665 02 -34 1,09093 1,,87W 1,26156 1,38172 1,36172 1.36112 1,38172 IIW561 (205861 (9 m1 270 4? 394 80 519 17 4364 57056 5% 22 725 86 86% 7-0 1") (21.2741 (32.4401 0.3861 13.663 34.09) 45,286 56,816 73,427 73427 smo 1321 9,510 19,042 32 515 39.225 48.198 53,439 53439 53,419 53,439 4,0300 (17.213) 195,632) 14,325) 127,102 185,556 244010 302.454 31S113 325,163 111.013 147mi 190,5081 28 YYI 193710 270ffi7 347 055 ,24675 439811 455 029 46,879 16% 1412 I 15880 - 109- 205.00 205.m 205.W 20500 20500 205m . 205.W 205.W - 1.367 1.367 1.367.m 1,357.W 1.367.00 1,36703 1,367.m 1,367.W 1,367.00 1,367.W 1,36700 1,367.W 50% 48% 45% 70% 68% 65% 64% 52% 83% 58% 58% 54% 683.50 451.16 423.82 95690 929.56 902.22 874.68 847.54 820.20 587.68 58352 n a i a 0.58 105.32 227.68 27390 127.92 20500 205 m 1mW lm.00 loam iwm imm 100.00 1W.W 1WOO 100.00 058 31032 432.65 373.90 227.92 loo.m 100.W 1m.W 1W.W 103.00 1m.00 100.W 1,367 1,367 1.367 1.367 1.367 1.488 1.579 1,647 1.852 1.652 1.852 1.862 50% 48% 46% 70% 72% 74% 76% 78% 80% 80% 60% 81% 682.92 345.84 196.16 583.W 756.32 1.m1.u 1.1W.23 1.11.03 11.381.72 1,385.42 1.389.13 1.32.83 (0 58) 110532) 1227661 (373.90) (173.24) 99.11 225.35 33749 561.52 797.56 828.63 654.65 32% 1.367.m 1.367.00 1.367.m 1.367.00 1,367.W 1.367.cO 1.367.03 1,357.00 1.367.00 1,367.W 1,367.00 1.367.W 30% 28% 26% 70% 68% 66% 64% 62% 90% 58% 56% 54% . 205M 205W - 20500 205W 1.367.m 1,367.00 1.367.m 1,36700 1,367.~ 1 , 3 6 7 ~ 1,36703 1,367~ 1 , 3 6 7 ~ 1,367.~ 1,36700 1,36700 70% 68% 65% 64% 62% 50% 58% 56% 54% 52% 50% 50% 1.367.~ 929.56 902.22 874.88 64754 82020 792.68 78552 73618 71084 478.50 478.50 058 105.32 227.66 273.90 127.92 . imm 1w.w l o o m IM.W imm iwm 100.m ~ m w IM.QO 1m.00 imm toow 1m.58 205.32 327.66 373.90 227.92 lOOm 1OO.W 1mOO 1m.00 1M.00 1m.W 100.W 1,367 1.367 1,367 1,367 1,367 1.488 1,579 1,641 1.852 1,852 1.852 1,852 70% n% 74% 76% 78% 80% 80% 80% 83% 60% 80% 80% 1.266.42 778.92 689.92 665.02 a%.% i.090.63 1.163.40 (217.98 1,381.72 1.381.72 1.381.72 1.361.72 11M.58) (15064) (218.33) (209.65) (9.20) 270.43 37054 45145 643.54 670.88 903.22 90322 3% - 110- Indoneria-Watcsnd lrdgiltionSector Mangemnt PrOjQ Economichlysis TaMe 5 MinimumImpsctApproach Section 1-Calculation ofEcc"lc fnwstment Co& !mha 2003 2004 2005 2006 2047 2003 2004 2005 20% 2007 Base Cost(RupiahBillion) Base Cost (Rlpiah000 wr ha) A BasinWatsrRHoursa Maagmnt 1. S c t o i G ~ w m andBasinPlanning a ~ 1.1SectcrGomnam 15.10 1593 18 93 8 45 7.m 7.35 7 35 3.67 1.2Bas," Pia"CapacRy 8.13 1895 18 95 9.47 3.51 8.24 8 24 4.12 2. MaragementCapsitydBasin&snsIsr 2.1 PrhlincialandBesin Mamgement Agenues (DinaJiBaIai) 11.18 21.25 21.25 10.63 4.86 9.24 9.24 4.62 2 2 Pubis CmpOTabon Basin Agencies(PJT) 059 7.48 7.48 3.74 039 3.25 3 25 1.63 3. FissalandCost k ~ o v r r yPdiq 2.57 534 5 34 2.67 1.16 2.32 2.32 1.15 4. B&n mar Mnqemnt and Rivw Infr~tNctureInproMmnt 4.1 BS," Waler ManagementCapmty 19.36 25 25 26.25 13.12 842 11.41 11.41 5.71 4 2 River lnirastruduehprwemen 37.53 43 e1 43.81 21.91 13.05 15.24 15.24 752 5 NationalCapacityBuildingNetwork 3.20 3.88 3 85 1.94 1.39 169 1.69 0.84 Subtotalpart* 99.07 143.86 143.85 71.93 39.81 58.74 58.74 29.37 6.PartisiptoryIrrigationManagement 1.Waisr U r AssociationCapacity 25.37 1469 18.89 8.39 33.w 19.15 24.53 10.95 2. KabupatenIrrimionD-rhmnt A Financiai Capacity 6.22 12.35 15.85 7.05 5.11 15.11 20.72 9.21 3. Imigationhfrastrudure 1m)rovenwnt 3.1 Kabupatenlrr@lion lmpwement Fklllty 7.38 24.47 31.45 13.95 19.26 83.84 82.07 35.48 3 2 Kabllpalen irrgatlo" SRV- 2.85 41.70 53.51 23.83 7.47 108.78 139.86 52.16 3.3 PrwmciaiinigatDnSWvlaeP 3.35 5.35 8 18 3 64 8 75 16.80 21 34 9.49 4. Irrigawd~risulhlralSupport 2.14 106m 7 03 9.04 4 02 0.35 1.17 151 067 Subtm part6 47.33 137 08 60.92 77.03 225.66 293.14 128.95 c. ProjectMsoagemnt 1.33 17.80 1532 15.32 1399 0.55 7.74 7.10 7 10 5.08 Total Costs 1.33 164.19 266.78 297 24 146.83 0.55 12458 291 49 355.97 184.40 Noh: F o r ~ ~ p u p o u ~ o f t h e a n a i y . i ~ , t h ~ s o ~ t ~ f w P a ~ ~ ~ ~ d C d t h e p r o j ~ d w i l l a f f e c t t h e t O t ah~buprtenSunderth~project(i,~.2lmillion l r e a O f t h e 7 0 ha) Fw Basininflilitiwtum.BOY dthe mrts awplied to inigaionbnefits.me remainedhavingmimpst onwstw sypplyandfloodmitiistion. FOTCrigstioninfm~mctw.,theana wered w o u l b.approximatelyW0,WOha oL* dthe totalarea of 2.3 million haof the 70 bbuptms. Section 2 Calculation ofMinimum E m n a i c Bemflts to JuPtltythe Investment ~ Rp OW ?r ha Inbestmen@is 058 12458 29149 35597 18440 18440 lnCmmenblO8MlAs5el Maintenance i w w imw i w m IMW loom iwoo imm i w m ioom 0.58 124.58 291.49 455.97 m.40 2~4.40 1m.m 1w.m ioow 1m.m 1oo.m io0.m 86.67 1 3 3 s m w zmw 2w.m zmm zwm 2w.00 2m.w 20000 aom Net Benefits (0.58) (57.91) (15818) (255.90 (64.40) (5440) 1m.w loom io000 1mm i w m 100m ElRR 12% ConcIuLlion: That a n o w e annu& nu bmefitfromagrisdturzipodvctlon In.XC.U of of Rp 200,WOwr hais muiredtojvnify the total imesbnentdthe project Thisequals an incmasain podustiond IBO kpsof lis. per ha. Section3 -Analysis of MininumReductionChanges Required to J s t i tho Inwstmmt System EffiChnLy Yield CroPdng Cumnt Situation Change Change intnrity Rice p l d kgs p r ha 3700 37w 3850 3700 Area C-ed under WlSMP 1 600000 500300 moo00 8 W O O systm eniciency 50% 62.WA 60% 60% CroppingImalSity 200% 2M% 204% 207% PrcducPm (MillionLomer) 2,654 2,753 2,772 2.757 Econmic Farm Gab prim d Rse (Rp p r kg] 1.141 1.141 1,141 1.141 Valued Pfcduclim (Rp Billtons) 3,039 3,140 3,162 3.145 Ovelll valueof Pr06lctm p ha 5,064 5.233 5,270 5,242 Target RcduuionValue 5.264 5.2M 5.254 5,264 Conclusion:Justifiedif qstmd17fisiency changes in~XUSS d 2%ourall, or prabction incI(Luei inweales by inexcem of 3.5% - 111- Annex 5: Financial Summary INDONESIA:Water Resources & Irrigation Sector Management Program Financial Summary Calendar Years Ending 31st December " Recurrent Costs Total Project Costs Interest During Construction :inancing IBRDlDNGON 0.57 15.19 25.22 28.60 14.41 84.00 Government National 0.05 2.91 4.59 5.21 2.65 15.42 Provincial 1.77 2.20 2.53 1.27 7.78 Kabupaten 1.21 2.24 2.53 1.30 7.28 Local CommunitieslWater User Associations 0.40 0.45 0.23 1.08 Co-financiers Others rota1Program Financing 0.62 21.08 34.65 39.32 19.86I 115.56 I Year 2003 = July to December; 2007 = January to June Disbursements By Financiers - 112- "t Disbursementacountsby financiers ExternalFinanc Tax pald by Government Total IBRD I IDA I GON entral Province Kabupaten Communi 1' SectorGovernanceand Basin I A1 Planning Al.l SectorGovernance 3.20 1.78 0.62 5.60 1.40 * 1.40 0.70 1.70 7.70 A1.2 BasinPlanningCapacity 4.06 1.70 0.59 5.31, 1.27 0.07 - 1.33 0.66 0.01 1.67 7.36 ManagementCapacityof Basin A 2 Agencies _ - _ . . Provincialand Basin ManagementAgencler A2.1 (DinaslBalai) 3.a 1.97 0.69 6.20 0.82 0.72 1.54 0.70 0.07 u.n 8.51 Public CorporationBasin A2.2 Agencies(PJT) 1.08 0.60 0.21 1.90 0.06 0.41 0.47 0.20 0.04 D.24 2.60 A 3 Fiscal and Cost RecoveryPolicy 0.88 0.49 0.17 1.54 0.38 --- 0.34 0.19 u.19 2.12 BasinWater Managemnt and A 4 River lnfrrstructureimprovement . - - . . BasinWater Management A4.1 Capacity 4.67 2.60 0.91 8.18 0.16 1.87 . 2.04 0.83 0.19 1.02 11.23 A4.2 River InfrastructureImprovement 6.61 3.93 3.54 14.08 - 3.52 - 3.52 1.41 0.35 1.76 19.36 NationalCapadty Building A 5 NeWorks 0.71 0.39 0.14 1.24 0.31 . 0.31 0.15 0.15 1.70 Sub-totalpari A 23.76 13.47 6.87 44.10 4.41 6.59 - 10.99 4.84 0.88 5.50 60.59 partB 0.1 Water UserAssociationCapacity 3.69 2.05 0.71 6.45 0.29 1.32 1.61 0.67 0.13 0.80 8.86 KabupatenIrrigationDepattmen' 8.2 airrigationinfrastructure FinancialCapacity ' I 2.29 1.27 0.44 4.01 0.56 0.44 1.00 0.46 0.04 0.50 5.51 6.3 Improvement Kabupatnnirrigation 8.3.1 improvementFacility 4.10 2.28 0.31 6.69 0.M 1.64 1.67 0.L 0.50 0.12 0.07 0.70 10.01 8.3.2 KsbupatnnlrrlgationSewices 5.03 2.79 3.98 11.78 2.95 2.95 0.94 0.24 1.18 15.91 8.3.3 ProvincialIrrigation& N h S 0.84 0.46 0.77 2.07 -- 0.52 - 0.52 0.17 0.04 0.21 2.8( 8.4 IrrigatedAgriculturalSupport 1.20 0.67 0.2: 2.10 0.07 0.46 0.52 0.07 0.22 0.05 0.01 0.27 2.9! Sub-totalpar( E 17.14 9.52 6.42 33.10 0.95 0.52 6.70 8.17 1.m 2.95 0.04 0.54 0.08 3.65 45.9, lPartC Projacl Managemnt I 3.61 2.01 0.7C 6.32 1 . 9 - 1.57 0.79 0.79 8.G Total PartsA + B + C 44.52 25.00 14,OC 83.52 6.81 7.m 6.70 20.64 1.04 8.52 0.70 0.58 0.08 9.88 115.1: Frontend Fee 0.45 0.45 I I I 0.4 84.00 [ 6.87 7.08 6.70 20.64 1 1.04 Fiscal Impact Analysis. An analysis was undertaken o f the budgetary position o f the provinces and kabupatensto be included inWISMP, assess the potential impact o f WISMP counterpart funds requirements on these governments' budgets. At present the new water law i s in process but has not been enacted. The law will be implementedaccording to government regulations, which are also inprocess. A transition period will follow as provincial and local administrations enact local regulations, includingthose for cost recovery. A caution mustbe added to the following analysis due to the relatively recent and wide-ranging impacts of decentralization and regional autonomy inIndonesia. 2001 i s the first andonly year for which information of this kindi s available. Therefore, the analysis cannot track trends and make projections as to future levels o f expenditures and revenues. In addition, there has been major rises in fuel taxes since 2001 and this could lead to major differences in the figures as indicated below. However, at a minimum, the analysis can examine the current levels o f budgetallocation to the water sector at provincialand district levels inrelation to the overall expenditure pattern, and examine the extent of the impact on government budgets o f the counterpart funds requirements under WISMP 1. Fiscal Impact at Provincial Level. While responsibility for water resource management i s shared among national, provincial, and district governments, provincialgovernments bear the main responsibility for water resources. Provincial governments through their Dinas PUP and its Balai PSDA units are responsible for providing funding for water resource management. An analysis was undertaken for four provinces o f the fiscal impact o f WISMP interventions on provincial budgets, and in particular the availability o f the counterpart funds required. The total expenditure by the provincial governments for operations, maintenance, and capital improvements for water resources and irrigation averaged less than Rp 30,000 (about USS2.70) per hectare o f irrigated land. (The area o f irrigated land within a province is usedhere as a proxy for the scale of water resources - 113- management activities and residual irrigation responsibilities of provinces. It is recognized that this i s perhaps a poor proxy inprovinces with large cities and industrial sectors, however the conclusions reached here remain valid,) Allocations for Water Resources and Irrigation 2. Selected data from provincial budgets: 2001 Province Development 0 &M Total Irrigated Total (RP. M) (RP. m) (RP. m) (Hand2 (RpBa) West Java 25,389 25,389 1.012 25,088 Central Java 31,311 See 31,311 1.059 29,567 West Sumatra 6,364 note' 6,364 0.212 30,018 South Sulawesi 6,565 6,565 0.359 18,286 Total 69,629 69,629 2.642 26,355 Percentages 100% 0% 100% Note: 1Routinebudgets recordO&M for offices andother administrative facilities. Development budgets record both O&M and capital expenditures for infrastructure. 2 Total irrigated land per province - 114 - In 2001, the total allocation for water resource management of the 12 WISMP target provinces was just under 7% of the combined development budget, equivalent to only 2% of total revenue. (This may be compared with an allocation 13% o f the combined development budget for state apparatus and control, equivalent to 4% o f total revenue.) Further, an analysis o f all o f the 12 provinces to be included under WISMP indicatedthat the combined budget surplus o f these provinces was 20% o f total revenue. Revenue and Expenditure Patterns for WISMP Provinces (Rp. Billions) (%I Revenue Own tax (all sources) 4,301 3 7% User charges (all sectors) 173 I% Shared tax (including propertytax) 1,004 9% General grant (DAU) 3,35 1 28% Other 2,950 25% Total revenue 11,778 100% Exuenditures Routine budget 5,909 50% Staff cost 2,299 20% Subsidy to districts 300 3% Other routine cost 3,3 11 28% Development budget 3,520 30% Water & irrigation 230 2% State apparatus & control 463 4% Other 2,827 24% Total expenditures 9,429 80% Budget surulus 2,349 20% Provinces 12 Population (million) 151 The relatively low level of expenditure on water resource management and irrigationappears to result from the past lack ofcommitment to a highstandardo f sector performance rather thanbudgetconstraints. The counterpart funds requirements for provincial level governments involved in WISMP 1 i s estimated at Rp 176.5 billion over 3 years for all 12provinces. This relates to an averageo f Rp 4.9 billion p.a. for each province. Since the average budget surplus for each province involved i s Rp 196 billion, it i s clear that WISMP counterpart obligations should not impact budget allocations to other provincial priorities or activities. An essential objective o f WISMP will be to raise awareness within provincialgovernments o f the importance to the community o f adequate levels o f finance for water resources and irrigation, and for this awareness to be addressed by budget decisions at provincial government level. Improvements in cost recovery, though an important objective, will take time to achieve and will depend on broader budget and localpolitical issues. Fiscal Impact at Kabupaten level. Whilst the responsibility for water resource management i s shared among national, provincial, and district governments, district governments bear the main responsibility for finding irrigation capital costs, including rehabilitation, periodic maintenance, upgrading and modernization. To analyze the fiscal impact o f WISMP interventions, in particular the availability o f counterpart funds required under the project, the fiscal position o f a total o f 66 kabupatens, out o f the 70 planned for inclusion under WISMP was examined. None o f the kabupatens falls in the fiscally "rich" category (Class 1). - 115- Revenueand ExpenditurePatternsfor WISMP Districts (Rp. Billions) All districts (?A) Class 2 (%) Class3 (?A) Revenue Owntax (all sources) 440 2% 223 2% 216 3% User charges (all sectors) 526 3% 247 2% 279 3% Sharedtax (including property tax) 1,298 7% 762 7% 536 7% Generalgrant (DAU) 14,581 79% 8,099 79% 6,482 79% Subsidy from provinces 303 2% 136 1% 167 2% Other 1,344 7% 802 8% 541 7% Total revenue 18,491 100% 10,269 100% 8,222 100% Expenditures Routine budget 12,563 68% 6,457 63% 6,106 74% Staff cost 9,857 53% 4,958 48% 4,900 60% Other routine cost 2,706 15% 1,499 15% 1,206 15% Development budget 4,061 22% 2,580 25% 1,481 18% Water & irrigation 163 1% 110 I% 53 1% Stateapparatus & control 551 3% 353 3% 198 2% Other 3,347 18% 2,116 21% 1,231 15% Total expenditures 16,624 90% 9,036 88% 7,588 92% Budget surdus 1,867 10% 1,233 12% 634 8% Districts 66 42 24 Net revenue per capita (Rp.'OOO) /I 136 182 97 Dev.B. water/irriigation/ha irrigated ('Rp.000) 70 93 46 Budget surplus/ha irrigated land ('Rp 000) 804 1,044 556 Population(million) 63.6 29.2 34.3 Average population (million) 0.96 0.70 1.43 Irrigated land (million hectares) 2.3 1.2 1.1 Irrigatedlandper district ('000 hectares) 35.2 28.1 47.5 Populationper district (million) 0.96 0.70 1.43 Population (personsha irrigated land) 27 25 30 Population(familiedha irrigated land) 5 5 6 l/Classes are base on the applicaton of a simplified version of the method described in KMK 35/2003. No kabupatens in class 1 (richest) are included. The formula inKMK35/2003 provides for grants with three counterpartfunding requirement classes based on total revenue committed expenditures(including salaries). The simplified formula usedhere is: total revenue staffbudgetdivided by population. Districts and cities in the first quintile were taken as class 1and those in the lowest quintile as class 3. The allocations to water resources at kabupaten level show a similar position to that at provincial level. In 2001, the total allocation for water resource management of 66 WISMP target districts was only 4% o f the combined development budget, equivalent to only 1% o f total revenue. (This may be compared with an allocation of about 12% o f the combined development budget for state apparatus and control, equivalent to 3% o f total revenue.) Further, since the budget surpluses o f the 66 districts rangedbetween 8 % and 12 % o f total revenue, the constraints to adequate funding at kabupaten level, as i s the case at provincial level, appears to be institutional and political rather than budgetary. - 116- The counterpart funds requirements for kabupaten governments involved in WISMP 1 is estimated at Rp 149.8 billion over 3 years for all 70 kabupatens. This relates to an average o f Rp 0.7 billion p.a. for each kabupaten. Since the average budget surplus for "medium" and "poor" kabupatens involved i s Rp 29.3 billion and Rp 26.4 billion respectively, it i s clear that WISMP counterpart obligations can be met without any impact on budget allocations to other priorities or activities at kabupaten level. Costs and Cost SharingunderWISMP Provinces/Districts. Only with the Indonesian FY 2000 (starting January 2000) did provinces and districts (kabupaten) for the first time receive the authority and the fiscal transfers to develop and implement a local budget. Only with the FY 2003 do they also receive direct access to Loadcredit proceeds. The latter is contingent upon their adoption o f the project`s management principles, and their provision o f counterpart budget. Based on the experience with other Bank Loans/Grants in the same sector (JWMP and WIRIP) over the period 1998-2003 it is assumed that the prospective local governments will indeed meet these conditions. The majority o f local governments targeted for this Project have been already involved in the mentionedearlier Bank activities. User Fees. This includes both financial and in-kindformal contributions from the Water User Association Federations (WUAF) members to the Project. Based on the experience with prior Bank LoansiGrants inthe same sector (JIWMP and WIRIP)over the period 1998-2003 it i s assumed that the (fee and contribution) collection rate achieved in the "core" W A Swill: (i) gradually further increase, and (ii) replicated in be other WUAs inother districts. The following diagram gives an indication as to the expected costs o f sustainable operation o f irrigation schemes. Under WISMP, the rehabilitation investment costs are provided by government, and the long-term annual costs for sustainable operations will be increased from their present levels o f Rp 100,000 per ha to Rp 200,000 per ha. Under WISMP, the government subsidy will reduce over time to approximately Rp 155,000 per ha p.a. When the new water law and its regulation are implemented, revenue raising mechanisms to cover the government's share o f sustainable operation costs will be examined. - 117- 300 250 System efficiency reaching 70% 200 0 P E B 150 Farmer Contribuhon n Govermnt contribuhor ~ E 100 50 Required level for sustainable operation = RP 0 200,000 pa per 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 ha. Year - Financial analysis on Irrigation The financial impact o f the project on farmers was examined by analyzing the impact on incomes of participating farmers. The project places an obligation o f Rp 45,000 per ha as a contribution from farmers. The analysis indicates that, in the sample schemes, incremental incomes per ha in the range Rp 1,100,000 per ha to Rp 1,200,000 per ha can be expected ifchanges in agricultural practices are adopted. This reduces to Rp 800,000 per ha if no changes are introduced as would be the case where access to working capital for inputs is a constraint. As this represents approximately 0.5% o f incremental incomes, it is clear that the farmer contributions are well coveredbythis incremental income. Further, assuming that the typical land holding size is 0.3 ha and approximately half the household income is derived from agriculture, the project would increase household incomes from approximately Rp 900,000, to Rp 1,120,000 if no agricultural practices are changed, and from Rp 900,000 to Rp 1,250,000 p.a if agricultural practices change. These changes represent 25% and 38% increases respectively in household incomes, after allowances made for the increased farmer contributions required. A detailed analysis o fthe financial position o fthe W A F and the Balaicannot be undertaken at this time as their structures andobligations, and the emerging financial responsibilities and funds flows that result, are only slowly transpiring under the reform. At this time, these institutions are mechanisms for the flow o f funds, and are not expected to be independently financially self-supporting - i.e. with revenues generated in excess o f costs. The financial sustainability o f these institutions will be matters to be addressed under WISMP 2 and WISMP 3 when policy issues relating to cost recovery are clear, and implementationplans are made. - 118- Annex 6(A): Procurement Arrangements INDONESIA:Water Resources & Irrigation Sector Management Program Procurement General 1. Procurement Responsibilities. Procurement under the project will be carried out by Project Implementation Units (PIUs) located in three levels o f government organization at: (a) National government level (within Ministries -Kimpraswil, MoHA, MOA,and KLH), (b) Provincial level (Dinas Technical Departments) and basin management unit (Balais PSDA), and (c) Kabupaten level (Dinas Technical Departments). Parts o f the project budgets, Kabupaten Irrigation Improvement Facility (KIIF), will be implementedthrough Community Driven Development (CDD) approach, for which the technical guidelines and procedures shall be outlined in detail by the borrower in the Project Management Manual (PMM) by LoanEffectiveness ina manner agreeable to the Bank. 2. Procurement Categories. Expenditures underthe Project will consist o f the following categories: Civil Works (US$54.1 million); Goods (US$13.4 million), Consulting Services (USS34.4 million), and IncrementalOperating Cost and Training (US$30.9 million). Details are given inTables A and B. ProcurementProcedures 3. Procurement o f goods and works will be carried out in accordance with the World Bank`s Guidelines on Procurement Under IBRD Loans and IDA Credits (January 1995, revised January and August 1996, September 1997, and January 1999). Procurement of services will be done inaccordance with the World Bank`s Guidelines on Selection and Employment of Consultants by World Bank Borrowers (January 1997, revised September 1997, January 1999, andMay 2002). Any procurement not financed by the Bank will be carried out in accordance to the public procurement regulations acceptable to the Bank. The Project will involve end-users Water User Association Federations (WAFS)in the procurement o f irrigation works. The end-users will participate in the pre-bid meeting, bids opening, signing of minutes of bid opening, and in the handing-over o f completed works from contractor to the project manager. StandardBiddingDocuments 4. The World Bank`s standard biddingdocuments for goods and works will be used, as appropriate, for project procurement. Model biddingdocuments for Procurement o f Small Works (PSW), a quotation solicitation form, and contract form for small civil works and goods shall be developed and approved by the Bank before procurement o f the first contract in each PIU i s carried out. Procurements, using the CDD approach for KIIF shall use "Technical Guidance for KIIF" developed for the Project in the P M M to be approved by the Bank. For consulting services, the Bank's Standard Request for Proposals, sample evaluationreport, and standard contracts will be used. Advertisement 5. A General ProcurementNotice (GPN) is publishedinthe UnitedNations DevelopmentBusiness, announcing all procurements on the basis o f International Competitive Bidding (ICB) and major consulting services to be procured under the Project. The GPN will be updated annually for all outstanding procurement over the lifetime o f the Project. Invitation for Expression o f Interests for all consulting assignments at and above US$200,000 per contract will also be published in the Development - 119- Business. Specific Procurement Notices for specific contracts shall be advertised in at least one newspaper o f national or regional circulation in the country, in accordance with the Bank's letter to the government dated September 23, 2002. The use o f Development Gateway (electronic advertising) is encouraged and arrangements for it will be discussedduringthe project launchworkshop. Summary of Procurement Capacity Assessment of Implementing Agencies and Suggested Measuresfor Strengthening 6. Procurement Capacity Assessment Report (PCAR). In accordance with the Bank's Operational Policies and Procedures (OPBP 1l.OO), an assessment o f the procurement capacity o f various levels of PIUs was conducted. The PCAR is available inthe project file. The assessment covers legal aspects and procurement practices, procurement cycle management, support and control systems, record keeping, staffing, and general procurement environment. The report also covers overall risk assessment and proposes an action plan to buildthe PIUs' capacity. 7. The risk assessment has come out with the overall rating o f the proposed project procurement as "high". At kabupaten (district) level especially in Off-Java provinces, the risk could be rated as "very high''. This different risk level is translated into action plans to build the PIU's capacity. The following reasons explain the assessmentresults: The procurement will be carried out in central government PIUs, and in PIUs in the project provinces and kabupatens. The bulk o f procurement activities will be in the project provinces and kabupatens. Although the national ministries and the provincial technical departments (Dinas), where some PIUs will be located, have experience o f Bank-financed projects, the persons assigned or to be assigned to these PIUs do not necessarily have adequate experience with Bank-financed projects. The government staff in the kabupatens, especially off-Java kabupatens have almost no experience o f Bank-financed projects, nor do they have experience o f handling contracts larger than US$ 100,000. Presidential Decree 18/2000 (the main guideline for national procurement) andits explanation do not have detailed and handyprocedures that can be usedby the procurement staff inthe field. If there are additional guidelines produced by the Governors or Bupatis, they only consist o f general guidance with a lack o f details and no provision o fprocurements ethics. There are some disparities between Presidential Decree 18/2000 and the Bank Guidelines. There is limited staff available with sufficient procurement capacity ingeneral. The general procurement environment is not healthy and collusive practices have been reported inpast projects. Sanctionsfor these practices were not enforced adequately andhave encouraged further collusion. The new decentralization laws and the rising power o f Kabupaten government will put more pressure on PIUS'staff to favor local firms or contractors. The following actions are proposedto mitigatethe "high" and "very high" risksmentionedabove 8. Procurement Capacity Enhancement: All PIUs shall include in their team a procurement specialist or staff with a minimum o f five years experience in the procurement o f goods, works and consultant selection. Should the mentioned staff not be available, the related PIU shall engage a procurement specialist who possessesthe minimumexperience mentionedabove for at least two years o f assignments, except in off-Java kabupatens - the Very high risk" kabupatens, where a minimumo f three years i s needed, until all proposedprocurement training for project PIU's staff has beencompleted. - 120- 9. Procurement Training: Procurement training for trainers will start before the loan becomes effective. The DGWR o f Kimpruswil and DGRegional Development o f MoHA will jointly arrange the events, while the Bank will provide inputs for training materials. The participants will come from central and provincial government offices. The selected trainees will be assigned as trainers duringthe first two years o f project implementation. During the first two years o f project implementation, procurement training will be carried out for staff from Kabupaten PIUs in each project province. Training will be providedby the trainers mentioned above, with assistance from implementationmanagement consultants, ifneeded.The training shallconsist ofpreparation ofprocurement plans, overall aspects ofprocurement o f goods, works and services, and monitoring and evaluation o f procurement plans, as well as procurement ethics. Furthermore, the P M M will provide very detailed guidelines on procurement in Bahasa Indonesia, and offer best practices. 10. Participatory Procurement: In addition to the above mitigation actions, procurement o f civil works in the province and kabupaten level that i s rated as "high" and "very high" risk, the following conditions are added: The tender committee for irrigation works shall include representatives from the end-users, in this case from the WUAF where the proposed works will be implemented. The mentioned representatives shall attend the pre-bid meeting, bid opening and sign the minutes o f the bid opening. The representatives o f the end-user shall also participate in the 100% mutual check upon handing-over o f completed works, and in signing o f the handing-over minutes from the contractor to the project staff. Enhanced planning and controlling mechanisms: A draft general procurement planfor the four-year implementationperiodof the Project, andthe first-year detailedprocurement plan have beenprepared for all PIUs consolidated by the National Project Management Unit (NPMU), and approved by the Bank. All PIUs will update their WISMP 1procurement plan as mentionedabove every year, and send it to the Bank through the Provincial Project Management Unit (PPMU) and NPMU for its review andapproval. Clarifications on NCB procedures, as detailed in Appendix 1, to be included in the draft Loadcredit Agreement. Procurement and implementation o f irrigation works with technical complexity, or larger contract costing above USS150,OOO per contract will be carried out by the Provincial Dinus Technical Department rather than the KabupatenDinas Technical Department. The P M M shall be prepared as a part o f Project Implementation Plan (PIP), consisting o f procedures to be followed by all PIUs, and i s condition to Effectiveness. The procurement section underthe manual will include: (i) Procurementmethodsandproceduresthatreflecttheclarifications/modifications onNCB, NS and CDD procedures acceptable to the Bank; (ii)TORofprocurementspecialist/officers; (iii)Standard biddingdocuments for ICB, NCB and RFP, adopted from Bank`s standard documents; (iv) Reportingrequirements complete with standard reporting forms inline with the FMR; - 121- (v) Guidance onproject documentation andfiling system inorder to get easy access, from time to time, to project files; and (vi) Project Organizationand Staffing. Procurement Arrangements 12. Procurement Methods (Table A) Project cost by categories and procurement method are summarized in Table A. Section methods for procurement o fconsultant services are summarized inTable A.1, and the thresholds for each category are given inTable B. (a) Procurement o f Goods Goods including equipment, materials, agriculture supplies and input to be financed by the Project will be procuredunder the following procedures: International Competitive Bidding(ICB): Procurement o f goods with a value at or above US$200,000 equivalent per contract shall be carried out through ICB procedures. National Competitive Bidding(NCB): Procurement o f goods below US$200,000 per contract will follow NCB procedures which are acceptable to the Bank, and any interested international suppliers shall be allowed to participate. National Shopping (NS): Procurement o f simple office and survey equipment, constructionmaterials for WUAFs, and small packages o f agriculture supplies will be carried out through National Shopping. The estimated cost will be less than US$25,000 per contract and the aggregated amount for NS i s USS 2,500,000. National Shopping will be conducted on the basis of a comparison of at least three written price quotations as stated in Articles 3.5 and 3.6 o f the Guidelines on Procurement under IBRD Loans and IDACredits. Direct Contracting (DC): In the case o f emergency such as flood, landslide or along drought season, procurement through direct contracting with estimated cost less than USS25,OOO per contract, and the aggregate amount not to exceed US$2,500,000, for goods may be allowed. All procurement documents will be subject to the Bank'sprior approval. (b) Procurement o fCivil Works National Competitive Bidding (NCB): Construction and rehabilitation o f irrigation networks, river improvement and management, and other needed rural infrastructure costing USS25,OOO and above per contract will follow NCB procedures. A model biddingdocument for National Competitive Biddingwas developed and approved by the Bank for use under the Project. Procurement shall follow the Bank's clarification on the NCB procedure described inthe LoanAgreement. Procurement o f Small Works (PSW): Rehabilitation and repair o f irrigation, other hydraulic infrastructures, and related rural infrastructure below USS25,OOO per contract may be procured under lump-sum, fixed-price contracts awarded on the basis of quotations obtained from minimum three (3) qualified domestic contractors inresponse to a written invitation. The invitation shall include a detailed description of the works, including basic specifications, the required completion date, a basic form o f agreement acceptable to the Bank, and relevant drawings. The award shall be made to the contractor - 122- who offers the lowest price quotation for the requiredwork, and who has the experience and resources to complete the contract successfully. The aggregateamount for PSW i s US$5,000,000. Procurement o f works under KIIF will adopt the CDD approach. It i s a follow-on o f the CDD approach implemented under previous Java Irrigation Improvement and Water Management Project (JIWMP), Loan No. 3762-IND, and the current Indonesia Water Resources and Irrigation Reform Implementation Project (IWIRIP) TF 027755. The detail procedures, "Guidelines for KIIF Implementation" will be contained in PMM, prepared by the government and approved by the Bank before Effectiveness. The maximumsize o fpackagethat can be carriedout under CDD procedures i s US$50,000. Small Works done under force-account (FAc) arrangement: An acceptable complexity o f works or periodic maintenance works under river improvement and irrigation management activities costing less than US$15,000 may be done through a force-account arrangement, implemented by the river basin management units (Bald SDA). Disbursements under this arrangement will be made on the basis o f agreed costs per unit o f output. (c) Consultant Services Quality and Cost Based Selection (QCBS): Selection for consulting services will follow the QCBS method. The weight factor used for financial proposal in combined-evaluation o f technical and financial proposal should not be less than 20% and not more than 30%. The latter will apply to simple assignmentswith Bank'sprior concurrence. Quality Based Selection (QBS): Selection for consulting services for studies which are more complex in nature will follow the QBS method. Selection Based on Consultant's Qualifications (CQ): CQ method may be used to select for consultant services with value o f services costing less than US$lOO,OOO or equivalent per contract. Individual Consultants (IC): Individual consultants needed during project implementation will be selected on the basis o f their qualifications for the assignment, following the provisions inparagraph 5.1 to 5.4 o f the Guidelines. The aggregatedamount for IC is US$500,000. In exceptional cases where sole source selection is justified, the Borrower may select the consulting services on a sole sourcebasis with the Bank's prior approval. (d) Others: Incremental Operating Cost: This cost is an augmentation to the agency recurrent budget, as a consequent o f the project implementation. It covers the costs o f the incremental cost o f project staff for supervision and implementation guidance, coordination, surveillance and monitoring activities, information collection andreporting. Eligible expenditures will consist o f travel and per diems, meeting facilities, stipends (non-staff salary), office supplies and consumables, and communications. These expenditures will follow government procedures, audited in accordance with the Development CrediULoan Agreement. Training and Workshop: Trainings and workshops are an integral parts o f the project`s institutional capacity buildingcomponent, including strengthening o f WUAFs. Most o f the training program will be conducted inthe country. Dependingon size and simplicity, WUAFs may also organize small trainings for their members. Cost o f training and workshop materials, renting o f facilities, transportation, food and - 123- board, and tuition for trainees will be funded through the Statement o f Expenditures (SOE) using Government Procedures, audited and acceptable to the Bank. Detail estimated costs for training and workshops will be approved by the Bank before any expenditure occurs. Selected training for central government staff and selectedprovincial or kabupaten staff, including those who have responsibilities for project implementation, may be provided abroad. Selection o f training courses, estimated costs, and lists o f candidates shall be prior reviewed and agreed by the Bank. Study tours will also follow the SOE procedures. The program and the list o f candidates for study tours as well as estimated costs shall be prior reviewed andagreedby the Bank. 13. Prior Review Thresholds (Table B) The thresholds for the Bank's prior review are summarized inTable B. Goods. Contracts for Goods with an estimated contract value at or above US$ 100,000 equivalent will be subject to prior review. Civil Works. Contracts for Civil Works with an estimated contract value at or above US$ 250,000 equivalent will be subject to prior review. Consulting Services. Contracts for Consulting firms valued at or above US$100,000 equivalent and contract for Individual Consultants valued at or above US$ 50,000 equivalent will be subject to prior review. The first contract for NCB, PSW, NS and for consulting services under prior review threshold, implementedineach ImplementingUnit will be subject to prior review. All contracts awarded onthe basis of direct contracting or single source selection will be subject to prior review. Frequencyof procurementsupervisionmissionsproposed 14. The Overall Procurement Risk Assessment i s rated ``high". Supervision mission is scheduled once every 6 months, includes special procurement supervision for post-review/audits once a year. 15. Procurement Plan: The project management units prepares Annual Work Plan (AWP) in September/October each year for the following fiscal year. The AWP o f irrigation works is discussed and agreed with Kabupaten Irrigation Commission, while AWP for RIM in basin management i s discussed in the Basin Water Resources CouncilKommittee. Based on those AWPs, each PKJprepares a detailed Procurement Plan and submits it to its local PMU, and hence the NPMUfor consolidation. The Consolidated Procurement Plan shall be reviewed and approved annually by the project team o f the WB and shall be monitored and implemented in accordance with the Bank's guidelines and the project legal agreement. The aggregated amount for each procurement method i s discussed, agreed and recorded in this annex as well as in the project's legal documentation. Should there be a need to change the procurement method or the aggregated amount for a particular contract or method before the annual review o f the procurement plan duringproject implementation, the Borrower shall seek the Bank's prior approval. The detailed 1st year implementationProcurement Planis described inTable 1. - 124- Table 1. First Year Project ProcurementPlan (2003-2004) dProcurement Notes: QBS :Quality Based Selection :QualityandCostBasedSelection CQ OCBS - . :ConsultantQualification DC :DirectContracting ICB InternationalCompetitive Bidding NCB National Competitive Bidding NS :Nationalshopping PSW Procurementof Small Works FAc ForceAccount IC :IndividualConsultants sss SingleSource Selection SOE: Statement of Expenses - 125- Appendix 1 Clarifications on NCB of Keppres 18/2000 procedures included in the DevelopmentCredit/Loan Apreement The procedures to be followed for NCB shall be those set forth in Presidential Decree 18/2000 of the Republic o f Indonesia with the clarifications and modifications described in the following paragraphs required for compliance with the provisions o f the "Guidelines for Procurement under IBRDLoans and IDA Credits" (the Guidelines). These clarifications are included in the Procurement Section of the Development CreditLoan Agreement: Registration (a) Biddingshall not berestrictedto pre-registered firms. (b) Where registration is required, bidders (i)shall be allowed a reasonable time to complete the registration process, and (ii)shall not be denied registration for reasons unrelated to their capability and resources to successfully perform the contract, which shall be verified through post-qualification. Prequalification Prequalification shall not be required under this Project. However for large or complex works, with Bank's prior concurrence, pre-qualification may be allowed and should be in accordance with the following: (a) Eligiblebidders (both national and foreign) shall not be deniedpre-qualification; and (b) Invitations to pre-qualify for biddingshall be advertised inat least one widely circulated national daily newspaper for a minimum o f 30 days prior to the deadline for the submission o f pre-qualification applications. Joint Ventures A bidder declared the lowest evaluated responsive bidder shall not be requiredto form ajoint venture or to sub-contract part of work or part o f the supply o f goods as a condition o f award o f the contract. Preferences (a) N o preference o f any kindshall be given to national bidders. (b) Regulations issued by a sectoral ministry, provincial regulations and local regulations, which restrict national competitive bidding procedures to a class o f contractors or a class o f suppliers shall not be applicable to procurement procedures under the Credit or the Loan. Advertising (a) Invitations to bid shall be advertised in at least one widely circulated national daily newspaper allowing a minimumo f 30 days for the preparationand submission o f bids andallowing potential bidders to purchase bidding documents up to 24 hours prior the deadline for the submission o f bids. (b) Bid documents shall be made available, by mail or in person, to all who are willing to pay the required fee. - 126- (c) Biddersdomiciled outside the area/district/province of the unit responsible for procurement shall be allowedto participate regardlessofthe estimated value ofthe contract. (d) Foreign bidders shall not be precluded from bidding. If a registration process i s required, a foreign firm declared the lowest evaluated bidder shall be given a reasonable opportunity to register. BidSecurity Bid security, at the bidder's option, shall be in the form o f a letter of credit or bank guarantee from a reputable bank. BidOueningand BidEvaluation (a) Bids shall be opened inpublic, immediately after the deadline for submission ofbids, andifbids are invited in two envelopes, both envelopes (technical and price) shall be opened at the same time. (b) Evaluation o f bids shall be made in strict adherence to the criteria declared in the bidding documents and contracts shall be awarded to the lowest evaluated bidder. (c) Bidders shall not be eliminated from detailed evaluation on the basis o f minor, non-substantial deviations. (d) No bidder shall be rejected merely on the basis of a comparison with the owner's estimate and budgetceilingwithout the AssociatiodBank's prior concurrence. Reiection of Bids (a) All bids shall not be rejected and new bids solicited without the AssociatiodBank's prior concurrence. (b) Whenthe number ofresponsive bids is lessthan three, re-bidding shallnot be carriedout without the AssociatiodBank's prior concurrence. - 127- Procurementmethods(TableA) Table A Project Costs by Procurement Arrangements (US$ million equivalent) Procurement Method' Expenditure Category ICB NCB Othe: N.B.F. Total Cost 1. Works 0.00 25.61 28.46 0.00 54.07 (0.00) (13.25) (14.72) (0.00) (27.97) 2. Goods 0.36 8.03 4.99 0.00 13.38 (0.29) (4.07) (3.17) (0.00) (7.53) 3. Services 0.00 0.00 34.37 0.00 34.37 (0.00) (0.00) (26.72) (0.00) (26.72) 4. Incr. Ops Cost and Training 0.00 0.00 30.91 0.00 30.91 (0.00) (0.00) (21.33) (0.00) (21.33) 5. Front-end fee 0.00 0.00 0.00 0.45 0.45 (0.00) (0.00) (0.00) (0.45) (0.45) Total 0.36 33.64 98.73 0.45 133.18 (0.29) (17.32) (65.94) (0.45) (84.00) *'Includescivil works to be procured throughPSW, force-account and CDD, goods to be procured through national shopping, consulting services, technical assistance services, and incremental operating costs and training. - 128- Table AI : Consultant Selection Arrangements (optional) (US$ million equivalent) Selection Method (18.74) (2.81) (0.00) (0.00) (8.20) (0.00) (0.00) (29.75) B. Individuals 0.00 0.00 0.00 0.00 0.00 1.30 0.00 1.30 (0.00) (0.00) (0.00) (0.00) (0.00) (1.17) (0.00) (1.17) Total 20.82 3.12 0.00 0.00 9.11 1.30 0.00 34.35 (18.74) (2.81) (0.00) (0.00) (8.20) (1.17) (0.00) (30.92) I\Including contingencies Note:QCBS = Quality-and Cost-BasedSelection QBS = Quality-basedSelection SFB = Selection under a Fixed Budget LCS= Least-CostSelection CQ = Selection Basedon Consultants'Qualifications Other = Selectionof individualconsultants (per Section V of ConsultantsGuidelines), Commercial Practices,etc. N.B.F. = Not Bank-financed Figures in parenthesesare the amounts to be financed bythe Bank Loan. - 129- Prior reviewthresholds(Table B) Table B: Thresholds for Procurement Methods and Prior Review' Contract Value Contracts Subject to Threshold Procurement Prior Review Expenditure Category (US$ thousands) Method (US$ millions) I.Works 100or above. NCB Yes, 8.11 25 or above NCB No Below 25 PSW Only first contractby each implementingunit Below 50 CDD No subject to guidelines - Below 15 ForceAccount No 2. Goods 200 andabove ICB Yes, 0.50 100to 200 NCB Yes, 3.59 above 25 NCB No, only first contractby each implementingunit) Below 25 N S No, only first contractby each implementing unit Below 25 Direct Contracting Yes 3. Services Firms: 100and above QCBS andQBS Yes, 19.92 Below 100 CQ Only first contractby each implementing unit na. Single Source Selection Yes Individual: IC Yes. 0.59 Q.Incr. Ops. Cost and rraining All other No (using SOE mechanism) 5. Miscellaneous 5. Miscellaneous Total value of contracts subject to prior review: US$32.71million Overall Procurement Risk Assessment: High Frequencyof procurement supervision missions proposed: One every 6 months (includes specialprocurement supervision for post-review/audits) Annually, 15%of SOE type (non-prior review) contractsand disbursementsmade at provincial and at national level, and20% at kabupaten level, will be reviewedex-post. - .- I\ Thresholds generally differ by country andproject. Consult "Assessment o fAgency's Capacityto Implement Procurement"and contactthe RegionalProcurementAdviser for guidance. - 130- Annex 6(B): Financial Management and Disbursement Arrangements INDONESIA:Water Resources 8, Irrigation Sector Management Program FinancialManagement 1. Summary of the FinancialManagementAssessment 1. The Water resources and Irrigation Sector Management Project Phase 1 (WISMP 1, in short - WISMP) is a logical extension o f several recent interventions: the Java Irrigation Improvement and Water Management Project (Loan 3762), closed December 31, 2002, and the Water Resources Sector Adjustment Loan (Loan 4469) and Indonesia Water Resources and Irrigation Sector Reform ImplementationProject (IWIRLP) (TF 027755), currently in progress. WISMP will consolidate, replicate and improve decentralized water resources sector and community irrigation management institutions established under the earlier projects. The on-going program o f reforms seek to shift emphasis from supply-driven policies to demand driven and locally responsive approaches in this sector; an increased recognition o f the roles o f decentralized governments; the unbundling o f water service provision by spinning O&M functions to autonomous entities and farmer associations; and separation of operational and regulatory functions. 2. The program will be carried out as an APL over an 11year period, in 3 phases. Phase 1(WISMP 1, over 4 years) will focus on building capacity at selected institutions at central and local levels at selected 12provinces on and off Java, and70 eligible kabupatens. 3. InPhase 2, the program of Phase 1will be consolidated and extended geographically to other provinces outside Java, and to additional areas such as planning and budgeting for investments. Some investments will also be financed for completion o f partly finished irrigation schemes. In Phase 3, the model o f the earlier phases will be further extended, with modestly higher investments in irrigation schemes and river infrastructure works. This financial management assessment is limitedto the activities proposed and corresponding financial management arrangements under Phase 1, as the activities and implementingarrangementsunder the balance two phases will be defined only at a later date. 4. The Project involves a total expenditure o f US$115.60 million, o f which Bank financing will comprise US$70 million, including a US$14 million grant from the Netherlands Government. O f this amount, 63% i s budgeted for civil works, 21% for technical assistance and training, and the balance sharedbetweenprocurement o f goods and incremental operating expenses. 5. There are four Executive Agencies at national level, but the lead Executing Agency is the Directorate General o f Water Resources in the Ministry o f Settlement and Regional Infrastructure ( Kimpraswil). Given the nature o f components in the Project, a large proportion o f the project activities and expenditure will actually be managed by decentralized entities, such as River Basin Management Units (in 12 Provinces) for the basin water resources component, and community-based entities such as Water Users Association Federations (WAFS)-- under supervision o f kabupaten-government Irrigation Commissions -- for the irrigation component (in 70 Kabupatens). This project organization i s consistent with the on-going decentralization in the country. Although Kimpraswil has had extensive prior experience in managing Bank financed projects, it is anticipated that weak implementation and financial management capacity in the regions will impose special challenges. Further, National Government regulations relating to fiscal transfers to the regions have only recently been issued, and this Project will be among the first few projects to be implemented under these regulations. Based on these factors, financial managementrisks inherent inthe project entity have been ratedas substantial. - 131 - 6. An analysis of project specific risks indicates that substantial risks may arise from several features. The geographically diverse spread o f the Project and inherently weak financial management capacity in the regions imposes substantial risks on financial accounting and reporting, particularly in view o f the new introduction o f quarterly Financial Monitoring Reporting (FMR) for the Project. The risks are sought to be mitigated by concentrating project accounting activities at the provincial PMU/ Dinas level and the recruitment of trained individual financial management consultants to assist Provincial Dinas offices in the preparation o f project financial statements. Accounting will be computerized. Payment validation systems have traditionally been weak in Bank-financed projects in Indonesia. Therefore, more intensive validation procedures, including community disclosure and oversight mechanisms where applicable, will be outlined inthe Project Management Manual (PMM). 7. Following the recent completion o f a peer review o f BPKP (such a review o f BPK has not yet been done) it is proposed that we continue BPKP as project auditors. Audit coverage presents substantial risks arising from the fact that under recent Government regulations the extemal audit agency (BPK) has jurisdiction over regional public expenditure, but not BPKP. Some regions may therefore resist audit by BPKP. To overcome this, National Government will issue an instruction to local authorities as a condition for CreditKOan Effectiveness. Summary of Project Description 8. WISMP will have two main components: The Basin Water Resources Management component comprises extensive civil work for improvement o f river basin infrastructure ($13.7 million), purchase o f related equipment ($5.4 million) and assorted training, studies and TA activities to strengthen the capacities o f the key institutions, such as Balai PSDA ($21.6 million). The Participatory Irrigation Management component will comprise funding o f the Kabupaten Irrigation Improvement Fund (KIIF) and Kabupaten Dinas works, through which substantial amounts for civil works are to be funded ($26.4 million). Training and TA activities will also be undertaken ($8.8 million) for enhancing capacities o f irrigation institutions such as the WUAFs and IrrigationCommission at Kabupaten level. 9. The Project has been designed in a manner that most o f the practical implementation and financial management decisions will be taken at the field level. These include matters such as selection o f individual works to be carried out on river rehabilitation and minor irrigationworks at village levels. For the latter, procurement decisions will largely be at community level and at kabupatenDinas level for irrigation works, and by provincial Dinas and Balai PSDA level for river infrastructure works. TA and training activities will be decided by central, provincial and kabupaten PMUs, in consultation with non-government stakeholders such as represented in the Basin and provincial Water Resources Councils/Committees, and the IrrigationCommissions. - 132- 10. A summary of expenditure (base cost) proposedeachcategory is as follows (Table 2). I Table 2. Summary of Expenditure (Base Cost) by Category (US$ million) component 14.1 0.3 2.2 4.2 6.9 10.4 0.4 0.9 4.0 4.8 20 0.6 1.3 28.7 13.7 5.4 8.6 I 1 5Natiml Capadty BuiidirgNet\icaks 1.6I 0.5I 0.6I 0.4 ::: ;:: 26.8 0.2 4. irrigatedPgncultlvdsuppat 27 0.7 0.4 1.9 c . P r o j e c t ~ 8.1 5.0 28 TotalPROJECTCOSrS 107.8 40.9 9.7 19.2 35.7 Project organization 11. At National Level, four Ministries will be involvedinproject implementation: Ministryof Home Affairs (MoHA) through DG Bangda, Ministry o f Regional Infrastructure (Kimpruswil) through DG Water Resources, Ministry o f Agriculture (MOA), and State Ministry for Environment (KLH). A National Steering Committee for Water resources (NSCWR) was established chaired by Bappenas, with members from these Ministries and with a representation from civil society. A key objective ofthe Project is to set up and strengthen new and existing institutions ina decentralized framework. The capacity buildingobjective will be in conjunction with targeted investments to achieve the development sectoral outcomes. A large number (total 113) o f local government agencies will be involved in project implementation in 12 provinces. Local disbursement mechanisms and administrative and operational procedures will have to be set up for them. Each kabupaten will set up two PIUs for project implementation and Kabupaten Project Management Unit, to be chaired by Bappeda (Regional Planning Agency). 12. A National Water Resources Council (NWC) composed o f sector ministers and non-government stakeholders wis scheduled to be established, while Provincial and River Basin Water Resources Management Councils or Committees have been or will be established locally. The CouncilsKommittees will set policies for water allocation, conjunctive use, monitoring and evaluation, water quality management and investment planning. Buluis PSDA and River Basin Corporations, under provincial governments, will implement these policies. WUAFs will be legally empowered and self-financing institutions, set up under a federated structure, to deliver imgation services and network maintenance. Civil society organizations will participate in implementation at provincial and regional levels, and together with universities will assist in monitoring implementation o f sub-projects and governance reforms. 13. Consultants will be appointed for assisting government agencies in financial management, including preparation o f project financial accounts, for the first 3 years o f the Project. A group o f consultants will be trained `as trainers' by Bank staff inthe preparation o f FMRs. Duringthe period o f 3 - 133- years staff o f the PMU will be suitably trained to continue financial accounting and reporting for the balance period of the Project. Impactof procurementarrangementson financialmanagement 14. Procurement for part o f the civil works i s expected to be drivenbyparticipatory institutions, such as WAFS.These packages are expected to be up to a maximum o f approximately Rp 250 million per transaction, and will mostly be procured through local shopping. Technical Assistance packages and training consulting contracts will be procured centrally as well as by regional agencies such as Balai PSDA. 15. Overall procurement risk has been assessed by the project DPS as "High" to "Very High". Project supervision will need to be intensive. Inthe area o f financial management this further implies a more stringent scrutiny o f payment validation systemsto mitigate risks o f collusion. Internalcontrolsandrisk analysis 16. A detailed analysis o f risks arising from the country situation, the proposed project entities and specific project features is attached as Table 4 in the full report (on file). These have been rated on a scale from High, Substantial, Moderate and Low. A summary o f the main findingson internal controls is giveninTable 3. A. Inherent Country Risks Seedetailed risk assessment attached as Table 4 of Full Report. Budgetary procedures Substantial CFAA diagnostic completed in2001 rated country control environment as weak. White Paper has been prepared by Government to address issues. N e w laws yet to be passed by Parliament. Minimal progress inimplementation o f C F A A recommendations. Public Sector Accounting Substantial National accounting continues on a single entry and cash basis with a semi-manual system. Public expenditure accounting standards not yet issued, though a Standards Board has been constituted. AuditingArrangements Moderate BPK now has legal mandate for extemal audit o fregional govemments. Institutional Development Plan for BPK under slow imalementation. Audit reuorts are not aubliclv disclosed. Substantial B. Project Entity specific I".. detailed risk assessments attached as Table 4 of Full Report. risks 1. Implementing Entity Substantial Lead implementing agency at central level DG Water Resources Organization (Kimpraswil) has prior experience inmanaging Bank projects. Multiple agencies at central, provincial and local level, including non-structural ones increase risks. Risk mitigation possible through clear documentation o f operating authorities and procedures. 2. Accounting capacity, staffing Substantial Generally poor accounting capacity inthe regional offices. Mitigation through use o f individual financial management consultants. 3. Funds Flow Substantial Risks may arise from first-time use o f new fiscal transfer systems and possible shortcomings in internal controls at regional treasury offices used for disbursements. I - 134- 4. Audit arrangements Substantial Risks arise from poor capacity at Bawasda (regional internal T auditors) and untestedcapacity o fBPK as externalauditors. Kimpraswil has prior history of qualified audit reports. 5. Information systems. Moderate Risks arise from manualaccounting systems in governmentagencies, Reporting andmonitoring. and lack of monitoring of quantitative parametersof development I activity. Overall Entity specific Risk Substantial C. PROJECT SPECIFIC See derailed risk assessmetit arrached as Table I ofFu1l Reporr. RISKS I I I 1. Organization Structure Moderate Large number (113) of potential accounting locationsin regions; poor accountingcapacity.Numerous community based non-structural organizations involved in implementation. 2. Completion ofproject works Civil work is generally vulnerableto collusion. Mitigation through & services Moderate oversightby community organizations. 3. Receipt ofproject goods Low Mostly expectedto be locally procured and subject to community oversight. 4. Paymentvalidation Substantial Traditionally a weak area in Bank financedprojects. To mitigate additional documentationrequirementsare proposed. 5. Disbursementand fund Risks arise from use ofbothKPKN and Regional Treasuries for flows Substantial disbursements, which could lead to vulnerability in overall reconciliation o f SpecialAccounts. Transaction SOE disbursements proposedinitially, FMR based disbursementto be consideredlater. 6. Project monitoringand Effective Community oversight for monitoring will require training. reporting Moderate FMR reporting will be introducedfrom inception. 7.Accounting Substantial Geographicalspread of accountinglocations and poor capacity increaserisks. Use of trained individual F Mconsultantsproposed. Computerizedaccounting to be concentratedin Project 12 provinces. 8. External audits Substantial Jurisdiction ofBPKP for audit inregionscan becomecontentious. Expenditureby WUAFs from KIIF normally not subject to audit. Working arrangements for cooperation betweenBPKP and I -.. ..-.... ...-.-......r--- Ruwasdu will he attemnted. Overall Project Specific Risks Substantial Strengths and weaknesses 17. Traditionally, investment projects have employed oversight mechanisms that rely on certification of completion o f work by project managers and his staff or extemal project consultants prior to payment, and annual audits of project financial statements by Government internal auditors. Fiduciary safeguards proposed to be built in the Project will be strengthened by some innovations. For instance, decentralization o f activities will provide an opportunity to involve public oversight mechanisms that are adaptations o f similar mechanisms successfully used in other CDD operations. Community based non-structural organizations involved in project activities will also be involved in reviewing and certifying completion o f outputs. Further, audit reports o f project financial statements and the management letters on internal controls issued by BPKP will be publicly disclosed. Specific arrangements or this have been agreed during negotiations. 18. One weakness in financial management arrangements could potentially arise from the specific organization structure of this Project, viz., multiplicity o f implementation agencies and institutions, wide geographic spread with 70 regions and over 200 project implementation locations, and generally weak - 135- and variable accounting capacity at regional levels. Further, this Project will be one o f the first projects that will experience disbursements under the new fiscal transfer systems, where bothregional and central treasury offices will be involved. In this situation there i s a risk that project financial accounting, preparation o f provincial and consolidated financial statements and reconciliation of special accounts will not meet the standards and time targets requiredby the Bank. Accountability for expenditure could get weakened as a result. 19. To mitigate these risks, a simplified accounting organization is proposed whereinaccounting will not be done at all implementationlocations but at a smaller numbero fprovincialoffices. A national local accounting firm will be appointed to provide financial accounting assistance to project teams at these locations and for preparation o f consolidated financial statements at the center. This assistance will be critical to help prepare accurate and timely financial reports and FMRs on a quarterly basis, as also to train Go1staff inmaintenance o f these accounting systems and buildcapacity for the future phases o f this Project. Appropriate training will be provided to a selected group o f consultants to function as trainers for other consultants andDinus financial managementstaff. 2. Audit Arrangements See below. 3. DisbursementArrangements Fundflows and disbursements 20. Methods o f disbursements: Loan fund disbursements will be a combination o f two streams: (a) Amounts paid out to contractors through Central Government treasury offices (KPKN) for activities that are centrally procured and paid for. These include primarily centrally procured technical assistance and training packagesand monitoring and evaluation contracts. (b) Amounts transferred or on-granted to regional governments through the DIPP-LN budgeting mechanism, wherein donor funds will be transferred to regional governments. Contractors will be paid partly through Central Government treasury offices (KPKN) as these channel the DZPP-LN fund, and partly through local-government treasury offices (Kus Daerah) as these channel the APBD (local) counterpart fund. 21. Existing government budgeting and payment mechanisms will be used for both these disbursement streams. Payments from IPKN offices will be based on duly approved payment requests (SPP) and contracts, and payment vouchers (SPMs) will be sent to project offices for accounting purposes. Payments from Kas Daerah will be similarly supported by approved payment vouchers (SPMU) and contracts. Payment o f advances into KIIF will be made based on approved proposals for project activities, in installments and linked to pre-approved proposals and progress achieved. These installments will be transferred into bank accounts maintained inthe names o f WUAFs, jointly operated by nominated representatives o f registered WUAFs. Actual expenditure o f funds by WUAFs will be accounted for to community oversight groups inthe WUAFs. 22 Payment validation methods. Detailed procedures for validation o f payments are being developed for each o f the following activities and will be included in the Financial Management Manual as part o f the PMM: (a) Civil Works arranged directly by the P M Uand fundedby both the Bank and GoI. (b) Civil works arranged by the community based organizations at kabupaten level by Irrigation - 136- Commissions and Basin and Provincial Water Resources Councils/Committees. (c) Technical Assistance and training activities procured and arranged at the central government level. (d) Training andtechnical assistance at decentralized levels inthe regions. (e) Incremental operating expenses to be reimbursed under the Project. 23. Financial controls requirements for each o f these activities are different and payment validation procedures will be based on the following principles to strengthen controls andreduce risks o f fraud and corruption: (a) Civil work completion will be verified and certified by end-users. Membership will be by annual rotation. At regional levels these committees will include representatives o f the Basin Water Resources Council/Committee (for the Basin Water Resources component) and the Irrigation Commission (for the Irrigation component). This will be required before each payment is approved by the PIU. (b) All civil work and decentralized training activities will be reviewed quarterlyby the community based organizations (Basin and Provincial Water Resources Councils, and Irrigation Commissions). Incase o f individual contracts exceeding Rp 500 million the completion will be certified bythese community bodies andpublicly disclosed. (c) For training activities undertaken at regional level, the agency receiving training will be required to certify satisfactory completion before training expensesare reimbursedto the provider. 24. Special Account management and replenishments. A special Account will be opened in Bank Indonesia with an authorized allocation o f US$7 million. The actual size of the initial deposit will be within this allocation and will be determined prior to effectiveness in consultation with the Borrower. Withdrawal from the Special Account will be based on payments by the KPKN offices and Kas Daerah offices. Replenishments into the Special Account will be based on quarterly Withdrawal Applications supported by Financial Monitoring Reports (FMRs) prepared by the project offices and approved by MinistryofFinance. The Withdrawal Applications will bepreparedbythe National ProjectManagement Unit(NPMU). Project Financial Management arrangements 25. Organization. The project organization is summarized inAttachment 1to this Annex. Payments processing. Payment requests (SPP) will be prepared and validated by project treasurers at each regional Dinas office and each o f the approximately 200 PIUs. A total o f 12 Provincial Dinas offices (Basin Water Resources component) and 70 Kabupaten Dinas offices (Participatory Irrigation component) are likely to be involved in project financial management, with respect to contract management and maintenance o f financial controls. A team o f Project Managers (Pimpros) and Project Treasurers will be formally appointed at each Dinas. Their capacity i s assessed to be generally weak, basedon experience with other projects. Accounting. The geographical spreado f PIUs will likely impose a strain on project financial accounting, especially at the regional level, and hence could disrupt preparation o f acceptable financial statements. Given capacity constraints expected in the regional offices, it is proposed that financial accounting is consolidated at 12 provincial P M U offices instead o f at each kabupaten PMU separately, for which the source documents will be collected at provincial P M U and reconciled monthly or quarterly with records o f "and Kas Daerah. Detailed arrangements for this will incorporatedinthe PMM. A professional - 137- accounting firm will be hiredas financial management consultants at provincial and central PMU levels, and which will be tasked with ensuring that project financial accounting reports and FMRs are prepared accurately and at regular quarterly intervals. They will also train government staff in the preparation o f FMRs. 26. Accountingpoliciesand procedures.Accounting will be on cashbasis, inline with government accounting standards. The formats for project financial statements prescribed by the Bank will include accounting for categories as specified in the Loan Agreement as well as components as stated in the PAD. Procedures will be agreed with project management to reconcile project financial accounts with financial reporting to local and central governments on a quarterly basis. A set o f FMRs will be required from the Project on a quarterly basis, initially for reporting purposes only, and subsequently to support withdrawal applications also. These reports will comprise information on procurement activity, implementation progress, sources and uses o f funds and a forecast o f funds required for the Project. Detailed formats for these were agreed. The first such reports will be required to be submitted no later than 45 days after the end o f the first quarter after Effectiveness, and thereafter every quarter within 45 days o f the quarter-end. 27. Audit Arrangements. The national internal audit agency (BPKP) will be appointed as auditors for this Project. Disbursements from the KIIFs would also be subject to technical audits o f BPKP on a sample basis. Terms o f reference for these audits were agreed. It i s intended that all project audit reports will be publicly disclosed. The detailedmechanisms for this will be outlined inthe PMM. Under current regulations, project activities at regional governments including disbursements from Kus Dueruh are underthe audit jurisdiction o fregional internal auditors (Bawasdu)andBPK as external auditors. Central directives would therefore be requiredto ensure that BPKP i s provided unrestricted access to all project activities for purposeso f audit. Action Plan 28. The following actions have been discussedand agreedwith the government to strengthenthe project financial management. Selected actions are conditions for negotiations or effectiveness: Table Next Steps Issue Action Responsibility Completion date/ Referencewith DCA Appoint a project manager and NSCWR, PPMU, PIUs. Before Credit arrangements a treasurer/FM staff at each Effectiveness provincial PMU. [DCA Article 6.01(c)] Select project financial NPMU Before Credit management consultants. Effectiveness [DCA Article 6.01(d)] Issue national regulation to Letter of DG Water Completed authorizerevision on regional Resources decrees for CouncilsiCommittees inwater and catchmentmanagement. Finalize the list and locations NPMU Completed of designatedproject accounting PMUs. -138 - Agree on final formats for NSCWR, NPMU Completed FMRs Provide accountingandFMR NSCWR, NPMU with Before Credit training to project and the Bank. Effectiveness consultantstaff. [DCA Article 6.0l(e)] 3. Audit Issue Letter to regions to Letter from DG Bangda Before Credit provide full access to BPKP for (MoHA) Effectiveness project audits. [DCA Article 6.01(h)] Finalize TOR for audit of NSCWR, NPMU, BPKP Completed project financial statements. Specify mechanismsfor public NPMU To be included inPMM disclosureo f all audit reports. 4. Payment Issue modified procedures for NPMU To be included in PMM Validation verification andauthorization o payments for project activity. 5. Project Adopt guidelines Kimpraswil, MoHA, Before Credit [mplementation for operation of KIIFs, MoF; NPMU; Effectiveness Komisi Irigasi, and IAIP Fund. Bupatis [DCAArticle 6.0I(b) and (93 Supervision arrangements 29. Given the geographic spread and complexity of the Project, and its overall risk classification, financial management supervision will be undertaken at two levels. Firstly, ex-post audits covering traditional SOE reviews and internal control reviews will be undertakenthrough contractors.In addition supervisionvisits by Bank FM staff will be undertaken annually. Quarterly FMRreports will be reviewed regularly through the year where financial, procurement and contract management issues will be reviewed. Riskratingsat appraisalwill be refreshedannually following supervision. Effectiveness Conditions See references inTable 4. - 139- Attachment 1to Annex 6(B) WISMP 1Projectand FinancialManagementStructure National Steering Committee Min.Finance I For Water Resources Bappenas(Chair) I Kimpraswil, MoHA, MoAg, KLH,MoF ...... DIP DIF'P-LN L r (I - (Provincial Bappeda) - (Kabupaten Bappeda) - -> Command line inproject administration Budgetary authority (DIPP-LN for province andkabupaten, and DIP for ........................................................ national agencies) Annual Work Plansubmission; Project progress reporting Reportingby Impact MonitoringLkEvaluationUnit, incl. Complaint Handling. ..................... + Technical supervision. NPMU Coordinationofpolicyandactivities at national andlocallevels. Project impact assessment. Centralized financial accounting and financial management. Review andconfirmation o fAnnual Work Plans o f implementingagencies. PIUs: Implementationof activities at national, provincial andkabupaten levels, respectively. - 140- Attachment 2 to Annex 6(B) Water Resources and Irrigation Sector Management Program (WISMP) Fundflow for participatory irrigation activities (Component B) Activities: Community Organizers Training Local TA Equipment Works inareas under Dinas responsibility RECOMMEKDATION MinFinance Proposals ____________________-- 2-4 timesivear KabupatenBudget 7 II ~ I Dinas Agic Dinas PUP KIIF RekeningKas Daerah IASP (Knh Gnvt Arrniint) IIII r------------- I ; l r ___------_-__, Component94 I KIIF Funds I v 4 I____-__------_ ComponentB3.2 4 v Activities: WUAF 2 Activities: Co"unity Organizers Community Organizers Extension services Training WUAF 3 Training Local TA Local TA Equipment Works Works inareas under Kab. + Equipment Dinas responsibility -------------, Activities: Community Organizers I ComponentB3.3 Training I _ _ _ _ _ _ -I-------'I Local TA I I Equipment Works inareasunder WUAFresponsibility ---------___- I ~ I _ComponentB3.3_ _ _ _ _ - _ _ _ _ _ _ _ i I Activities: Training Local TA Equipment Works inareas under Provincial Dinas responsibility - 141- Attachment 3 to Annex 6(B) Decision diagram to accessfunds from Kabupaten Irrigation Improvement Facility (KIIF) (Component B) WAFsubmitsproposaltoKomisiIrigasi and Dinasbasedonannual workplan (ex. la) Dinas verifiestechnical aspects of b propasal DINAS submits proposalto Komisi Irigasi basedon asset managementplanand palticipatorydesignprocess (ex. Ib) I l l KomisiIrigasi publishesreceivedpropo~al~, Modficationthrough technical assistance evaluates, ranksandendorses or rejectsproposal to WUAF by DINAS It c I Proposal Approved? I Yes Komisi lrigasi publishesoutcome I ~ K1preparestenderfor participatoryconmction (ex 5) plan and disbursementschedule 'r Tender 1r KI provides payments Implementationof works A Implementationof works (ex 4) participatoryconstruction Audit WAF I ROUTINEOPERATION AUDIT KIIF ~ AND MAINTENANCE - 142- DCA Category IDA (US$) BRD (US$) Works (Except under Part A4 and 83 of the Project) 138,000 240,000 Goods (Except under Part A4 and 83 of the Project) 2,488,000 4,485,000 Consultant`s Services (Except under Part A4 and B3 of the Project) 4,229,000 7,620,000 Training Workshops (Except under Part A4 and 83 of the Project) 7,324,000 13,195,000 RIM A Projects 3,213,000 5,315,000 RIM B Projects 719,000 1,295,000 A Sub-projects 2,792,000 5,030,000 B Sub-projects 2,280,000 4,100,000 C Sub-projects 463,000 835,000 IUnallocated Front-end Fee I 450,000 1,354,000 2,435,000 ExpenditureCategory Amount in USSmillion FinancingPercentage Works (except under Parts A.4 andB.3 o f 0.38 80 the Project) Goods (except under Parts A.4 andB.3 o f 6.97 100%of foreign expenditures and 80% the Project) of local expenditures Consultants' services (except underParts 11.85 80 A.4 and B.3 ofthe Project) Training, workshops (except under Parts 20.52 100%of foreign expenditures and 80% A.4 and B.3 ofthe Project) and of local expenditures Incremental ODerating Costs IRIM-A Sub-Proiects 8.53 80 IRIM-BSub-Proiects II 2.01 II 80 -A Sub-projects 7.82 80 B Sub-projects 6.38 80 C Sub-projects 1.30 80 IFront-endFee 0.45 Amount due under Section 2.04 o f the LoanAmeement IUnallocated II 3.79 II Total Project Costs with Bank Financing 70.00 Front-endfee 0.00 Total 7nnn - 143- Annex 7: Project ProcessingSchedule INDONESIA:Water Resources& IrrigationSector Management Program Project Schedule Planned Actual /Timetaken to preparethe project (months) 6 IFirst 8 Bank mission(identification) 01/09/200 1 02/26/2001 /Appraisal missiondeparture III 1010112002 III 03/17/2003 III Negotiations 01/1512003 05/13/2003 Planned Date of Effectiveness 11/01/2003 Prepared by: Ministryo f Settlement andRegionalInfrastructure J1. Pattimura20 Kebayoran Baru, Jakarta Preparation assistance: Government o fNetherlands Grant TF027755 - Indonesia Water Resources andIrrigationImplementation Program(IWIRIP) IBank staff who worked on the Droiect included: Name Speciality GuyAlaerts Task Team Leader, LeadWater Resources Specialist IlhamAbla Irrigation, Procurement Accredited Specialist Theodore Herman Consultant, Water Resources Specialist KikeriRamu Consultant, Water Resources Specialist Paul van Hofwegen Consultant, Irrigationand Capacity BuildingSpecialist Douglas Vermillion Consultant, Economist, Irrigation Specialist Timothy Lamrock Consultant, Economist and Financial Specialist Sumaryo Soemardjo Agricultural Specialist Rajiv Sondhi Financial Management Specialist Naseer Rana Procurement Specialist Thomas Walton Environment Specialist L i s Nainggolan Social Safeguards Specialist Isono Sadoko Social Specialist Anthony Toft Lawyer Yogana Prasta Senior Disbursement Officer StevenCharles Burgess Anti Corruption Specialist Cecilia Belita Program Assistant Cynthia Dharmajaya ProgramAssistant Sri Asih Wohon Team Assistant - 144 - Annex 8: Documentsin the Project File* INDONESIA:Water Resources& IrrigationSector Management Program A. ProjectimplementationPlan Project ImplementationPlan for the Water Resources and Irrigation Sector Management Project WISMP 1. DG Water Resources,Kimpruswil, May 2003. Project Management Manual for the Water Resources and Irrigation Sector Management Project WISMP 1. DGWater Resources,Kimpruswil,May 2003. A Review of Water Right Administration and Water Allocation Systems, as Applicable to Indonesia's River Basin Management. Sanyu Inc., Tokyo, June 2003. Draft TOR for five key Technical Assistance packages. B. Bank Staff Assessments Finaricial Management Assessment Report, March 2003. DetailedProcurement Capacity Assessment Report (PCAR), March2003. Lessons Learned from EarlierProjects and ReflectedinProposed Project Design, April 2002. Intensive Learning Implementation Completion Report, Java Irrigation Improvement and Water Management Project (JIWMP), The World Bank, May 2003. Economic Analysis o f WISMP 1. The World Bank, Jakarta, May 2003. C. Other Progress Report on IrrigationDevelopment and Turnover, Java IrrigationImprovement and Water Management Project. Vols. 1through 30, DHV & Associates, Jakarta, 1996-2002. Progress Report on Basin Water Management, Java Irrigation Improvement and Water Management Project. Vols. 1through 12, MottMcDonald& Associates, Jakarta, 1996-2002. Indonesia. A Review o f Public Agricultural Expenditures. Agnc. Ops. Dept., Country Dept. HI, East Asia and Pacific Region, The WorldBank, January 1997. IrrigationIssues inIndonesia - The Next 25 years. R.C. Varley, Research Triangle Institute, NC, 1997. Financing Issues for Water Resources Development. R.C. Varley, EASRD Report, The World Bank, October 1998. Essayson Agricultural Institutional andPolicy. EASRD, The World Bank, June 1999. Indonesia - Prioritiesfor Civil Service Reform. PREM, The World Bank, September2000. Alternative Financing o f Irrigation Management (Alternutif Mekunisme Pembiuyuun dun Pengeloluun Sistem Irigasi di Indonesia). U. Parhusip, Jakarta, April 2001. Study for Improvement o f Irrigation Management and Empowerment o f Water Users' Associations for Enhancement o f Turnover Program in the Republic o f Indonesia. Main Report and Annex. JICA, Jakarta, November 2001. Food Security and Rice Price Policy in Indonesia: Reviewing the Debate. Bappenas/USAID, Jakarta, June 2002. Audit on the Technical Quality of Works in Irrigation Scheme Rehabilitation (Vol 1. East Java and West Java)(Vol. 2 Central Java). Setyo Maharanto, Madiun, August 2002. Indonesia Public Expenditure Review. PREM, The World Bank, 2002. Impact Study on the Irrigation Reform under the Java IrrigationImprovement and Water Management Project. Yogyakarta, UGM, May 2003. Review o f Indonesia Irrigation Acreage (Raput Ketuhunun Pungun Il).DG Water Resources, Kimpraswil, January 2003. Participatory Irrigation Sector Project (PISP). Asian Development Bank, Ministry o f Settlement and Regional - 145- Infrastructure, Jakarta, 2002 (10 vol.) Legal Documents o fthe Republic o f Indonesia on Water Resources and Irrigation Management, 1973- 2003. *including electronic files - 146- Annex 9: Statementof Loans and Credits INDONESIA:Water Resources & Irrigation Sector Management Program 21-Mav-2003 Difference betweenexpected and actual Original Amount in US$ Millions disbursements' Project ID FY Purpose IBRD IDA GEF Cancel. Undisb. Orig Frm Rev'd PO40578 2002 ID-EasternIndonesiaRegionTransport 200.00 0.00 0.00 0.00 160.11 27.44 0.00 PO72852 2002 ID-URBANPOVERTYII 29.50 70.50 0.00 0.00 105.74 4.72 0.00 PO73970 2002 ID-GLOBALDEVLEARNING(LIQ 2.66 0.00 0.00 0.00 2.63 0.95 0.00 PO49539 2001 ID-PROVINCIALHEALTHII 63.20 40.00 0.00 0.00 100.15 34.00 0.00 PO40528 2001 ID-W.JAVA ENVMTMGMT 11.70 5.75 0.00 0.00 16.97 6.02 0.00 PO68051 2001 ID-GEF-W.JAVA ENVTMGMT 0.00 0.00 2.54 0.00 2.68 2.78 0.00 PO68949 2001 ID-LIBRARYDEVELOPMNT PROJECT. LlL 0.00 4.15 0.00 0.00 3.97 2.02 0.00 PO73025 2001 ID-SECONDKECAKATANDEVELOPMNT PROJ 208.90 111.30 0.00 0.00 306.50 -17.90 0.00 PO49545 2000 ID-PROVINCIALHEALTHI 0.00 38.00 0.00 0.00 28.51 11.93 0.00 PO59477 2000 ID-WSSLICII 0.00 77.40 0.00 0.00 67.02 -9.28 0.00 PO59930 2000 DECNT.AGRICULTURAUFORESTRYEXTENSI 13.00 5.00 0.00 0.00 9.25 2.86 0.00 PO56074 1999 ID-MUMCIPALINNOVS 5.00 0.00 0.00 0.00 0.92 0.92 0.92 PO55821 1999 ID-URBANPOVERTY 0.00 100.00 0.00 0.00 23.16 24.61 4.33 PO36049 1999 ID-EARLYCHILDDEVELOPMENT 21.50 0.00 0.00 10.65 4.07 14.42 14.42 PO40196 1999 ID-SUMATRABASIC EDUCUATION 54.50 20.10 0.00 0.00 32.02 20.29 0.00 PO63732 1999 ID-CORPORATERESTRUCTRG 31.50 0.00 0.00 24.50 1.17 25.67 0.32 PO03967 1999 ID-FIFTHHEALTHPROJECT 44.70 0.00 0.00 5.00 17.09 19.03 0.00 PO41895 1999 ID-SULAWESIBASIC EDUC. 47.90 15.93 0.00 0.00 37.67 31.85 0.00 PO64118 1999 WATSAL 300.00 0.00 0.00 0.00 150.00 150.00 50.00 PO39644 1998 ID-W. JAVA BASC EDUCATION 103.50 0.00 0.00 3.76 24.88 -7.52 0.00 PO40061 1998 BENGKULUREGIOML DEVELOPMENT 20.50 0.00 0.00 5.00 11.36 13.10 7.22 PO03993 1998 ID-SUMATRAREGLRDS 234.00 0.00 0.00 50.00 50.35 68.02 -20.28 PO40062 1998 CORAL REEF MGMT REHA 0.00 0.00 4.10 0.00 0.94 0.86 1.54 PO48715 1998 Indonesia IlDP - 34.50 0.00 0.00 8.50 6.78 15.28 6.78 PO36956 1998 ID-SAFEMOTHERHOOD 42.50 0.00 0.00 9.15 9.15 16.97 11.30 PO36048 1998 CORAL REEF MGMREHAB 6.90 0.00 4.10 0.00 2.46 2.46 1.43 PO42540 1997 ID-IODINEDEF.CONTROL 28.50 0.00 0.00 9.70 3.63 13.33 10.83 PO41894 1997 ID-SUMATRASECONDARYEDUCATION 98.00 0.00 0.00 0.23 15.22 15.45 0.00 PO03987 1997 ID-CENTRALINWNESIASEC. EDU. 104.00 0.00 0.00 0.00 27.98 27.98 0.00 PO03703 1997 ID-SolarHomeSystem 0.00 0.00 24.30 10.25 7.85 20.15 3.29 PO36047 1997 ID-BAL1URBANINFRA. 110.00 0.00 0.00 36.03 15.81 43.91 19.85 PO40195 1997 ID-QUALITYOFUNDERGRADUATEEDUC (QUE 71.20 0.00 0.00 9.89 12.52 19.88 10.19 PO49051 1997 BEPEKAAUDITMODERNIZATONPROJECT 16.40 0.00 0.00 0.90 6.76 7.66 6.76 PO04026 1997 ID-RailwayEffidency 105.00 0.00 0.00 47.33 34.37 81.69 5.51 PO04008 1996 NUSATENGGARA DEV. 27.00 0.00 0.00 4.90 0.17 5.07 0.17 PO04011 1996 SULAWESIAGRl AREA 26.80 0.00 0.00 3.70 1.26 4.76 0.36 PO37097 1996 ID-E.JAVASEC.EDUC. 99.00 0.00 0.00 3.63 20.47 24.11 0.00 PO04016 1996 ID-StrategicUrban Rds 86.90 0.00 0.00 10.00 0.95 10.95 -2.28 Total: 2248.76 488.13 35.04 253.13 1322.54 736.45 132.67 - 147- INDONESIA STATEMENT OF IFC's HeldandDisbursedPortfolio J u ~30 - 2002 InMillions US Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 2001 Dianlia 4.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 1994 KDLC Bali 0.00 1.72 0.00 0.00 0.00 1.72 0.00 0.00 1991 L YON-MLF-Ibis 2.01 0.00 0.00 2.01 2.01 0.00 0.00 2.01 1988 Manulife 0.00 0.32 0.00 0.00 0.00 0.32 0.00 0.00 1997 PT AdeS Alfindo 0.00 6.98 0.00 0.00 0.00 6.98 0.00 0.00 1989 PT Agro Muko 0.00 2.20 0.00 0.00 0.00 2.20 0.00 0.00 1997 PT Alumindo 13.16 0.00 0.00 10.00 13.16 0.00 0.00 10.00 1989191/94 PT Astra 0.00 5.82 0.00 0.00 0.00 5.82 0.00 0.00 1997 PT Astra Graphia 0.00 2.00 0.00 0.00 0.00 2.00 0.00 0.00 1993196 PT BBLDharmala 11.29 0.00 0.00 21.34 11.29 0.00 0.00 21.34 1995 PT BakriePipe 33.57 0.00 0.00 0.00 33.57 0.00 0.00 0.00 1997100 PT Bank NISP 5.00 0.00 5.00 0.00 5.00 0.00 4.97 0.00 1997 PT Berlian 7.42 20.00 0.00 18.72 7.42 16.65 0.00 18.72 PT Grahawita 2.16 0.00 0.00 0.00 2.16 0.00 0.00 0.00 1995 PT Indaci 0.00 0.00 1.44 0.00 0.00 0.00 1.44 0.00 1991 PT Indo-Rama 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1990191193195199101 PT KIA Keramik 16.51 0.00 0.00 53.49 16.51 0.00 0.00 53.49 1992194196 PT KIA Serpih 15.00 0.00 0.00 49.50 15.00 0.00 0.00 49.50 1995 PT Kalimantan 20.00 15.00 0.00 5.22 20.00 15.00 0.00 5.22 1997 PT Makro 0.00 1.32 0.00 0.00 0.00 0.79 0.00 0.00 1997100 PT Megaplast 7.00 2.50 0.00 0.00 7.00 2.50 0.00 0.00 1998 PT Nusantara 7.63 0.00 0.00 5.93 7.63 0.00 0.00 5.93 1993 PT Pramindo Ikat 25.00 3.94 25.00 36.18 25.00 3.94 25.00 36.18 1996 PT Samudera 0.00 5.00 0.00 0.00 0.00 5.00 0.00 0.00 1993 PT Sayap 7.50 0.00 0.00 6.00 7.50 0.00 0.00 6.00 1997 PT Sigma 0.00 3.00 0.00 0.00 0.00 3.00 0.00 0.00 2001 PT Viscose 20.31 0.00 0.00 23.33 20.31 0.00 0.00 23.33 1992195 PT Wings 6.51 0.00 0.00 6.40 6.51 0.00 0.00 6.40 1997 PTAstraOtopart 0.00 1.07 0.00 0.00 0.00 1.07 0.00 0.00 1997 Prudential Asia 0.00 2.24 0.00 0.00 0.00 2.24 0.00 0.00 1994 SEAVI Indonesia 0.00 1.26 0.00 0.00 0.00 1.26 0.00 0.00 1991 Semen Andalas 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1980187 Sunson 12.41 0.00 0.00 7.87 12.41 0.00 0.00 7.87 2001 Total Portfolio: 216.48 74.37 32.44 245.99 212.48 70.49 31.41 245.99 Approvals PendingCommitment FY Approval Company Loan Equity Quasi Partic 2001 PT BLT I1 12.00 0.00 0.00 0.00 2002 Wings Oil Palm 11.50 0.00 0.00 10.00 2002 NISP RI 0.00 0.00 3.64 0.00 1993 PT INDORAMA SWAP 10.00 0.00 0.00 0.00 2002 ManulifePrincipl 0.00 0.00 0.04 0.00 Total PendingCommitment: 33.50 0.00 3.68 10.00 - 148 - Annex IO: Country at a Glance INDONESIA Water Resources & Irrigation Sector Management Program East POVERTYand SOCIAL Asia B Low- Indonesia Pacific income Developmentdiamond' 2002 Population,mid-year(millions) 216.7 1,826 2,511 I Life expectancy GNI per capita (Atlas method, US$) 690 900 430 GNI (Atlasmethod, US$ billions) 149.9 1,649 1,069 T Average annual growth, 1996.02 Population ("A) 1.6 1.1 1.9 Labor force ("A) 2.5 1.3 2.3 Gross per - primary Most recent estimate (latest year available, 1996-02) capita enrollment Poverty Is`,ofpopulationbelow nationalpoverty line) 16 Urban popuiation ("Aof totalpopulation) 43 37 31 Life expectancyat birth (years) 66 69 59 - Infant mortality (per 1,000live births) 39 36 76 Child malnutrition (% of children under 5) 34 12 Access to improvedwater source - ~ Access to an improvedwater source ("Aofpopulation) 76 74 76 Illiteracy("Aofpopulafion age 15+) 12 14 37 Gross primaryenroilment Is`.of school-agepopulation) 108 107 96 Indonesia Male 110 106 103 I Low-incomegroup Female 106 108 88 KEY ECONOMIC RATIOS and LONG-TERMTRENDS 1982 1992 2001 2002 Economic ratios' GDP (US$ billions) 94.7 139.1 141.3 172.9 I Gross domestic investmenffGDP 27.8 30.5 21.8 20.2 Exportsof goods and services/GDP 25.3 27.9 42.3 35.4 I Trade Gross domestic savings/GDP 29.0 33.4 29.2 27.1 - Gross nationalsavings/GDP 29.4 26.9 23.4 Current account balance/GDP -5.6 -2.0 4.9 4.2 Interestpayments/GDP 1.6 2.7 4.2 2.7 Totai debffGDP 26.5 63.3 94.7 75.1 Total debt service/exports 43.8 49.7 Present value of debffGDP Present value of debffexports I Indebtedness 1982-92 1992-02 2001 2002 2002-06 (averageannual growth) GDP 6.9 2.5 3.4 3.7 4.1 -Indonesia GDP per capita 5.0 0.9 1.9 2.2 2.9 _ _ Low-incomegroup Exoortsof modsand services _r._.il ....__.. ... 6.. 3 1 9 1 9 -1- 2 5 5 STRUCTUREof the ECONOMY 1982 1992 2001 2002 Growth of investmentand GDP (YO) (% of GDP) I Agriculture 23.9 17.5 17.0 17.5 Industry 37.9 36.3 45.6 44.5 Manufacturing 11.9 19.1 25.0 25.0 Services 38.2 46.3 37.5 38.1 Private consumption 59.5 57.8 63.0 64.7 General governmentconsumption 11.5 8.0 7.8 8.2 Imports of goods and services 24.1 25.0 34.9 28.5 1982-92 1992-02 2001 2002 (averageannualgrowth) Growth of exports and imports (a) Agriculture 3.8 1.6 1.o 1.7 40- Industry 9.2 3.2 3.3 3.7 Manufacturing 12.6 4.7 4.1 4.0 Services 6.5 2.3 4.6 4.4 Private consumption 4.6 5.0 4.4 4.7 General governmentconsumption 4.9 0.4 9.0 12.8 Gross domestic investment 9.0 -0.6 7.7 -0.2 Importsof goods and services 3.0 1.9 8.1 -8.3 Note:2002 data arepreliminaryestimates, Groupdataare through 2001, `The diamondsshowfour key indicatorsinthecountry(inbold)conpard Mth its incom-groupaverage. Ifdataarenssing,the diamondwill be inconpiete. - 149- Indonesia PRICESand GOVERNMENTFINANCE 1982 1992 2001 2002 Domestic prices I inflation(YO) I Is',change) 80 - Consumer prices .. 7.6 11.5 11.9 ImplicitGDP deflator 6.1 5.4 10.8 7.2 Govemment finance (79of GDP,includescurrentgrants) Current revenue _. 17.2 20.7 18.6 I 97 98 99 00 01 Current budget balance .. -3.6 0.1 0.7 - "I Overallsurplus/deficit -2.4 -1.7 GDP deflator *CPI TRADE 1982 1992 2001 2002 (US$millions) Export and Importlevels (US$ mlll.) Total exports(fob) 33,796 57,364 57,342 75,WO - Fuel 10,671 12,648 11,549 Estatecrop 684 872 1,200 Manufactures ........ 14,224 22,275 19,263 Total imports(cif) .. 26,774 34.669 34,823 Food .. 1,274 2,497 2,581 Fuel and energy .. 2,104 5,523 6,100 Capital goods ._ 11,700 9,050 8,388 Exportprice index (1995=100) 86 27 28 96 97 98 99 00 01 02 Import price index (1995=100) 77 20 20 Exports .Imports Terms of trade (7995=700) .. 112 135 142 BALANCE of PAYMENTS 1982 1992 2001 2002 (US$ millions) Current account balanceto GDP (%) Exportsof goods and services 20,251 37,187 62,779 62,751 6 - Importsof goods and services 22,716 34,874 50,180 51,048 Resourcebalance -2,465 2,313 12,599 11,703 Net income -2,993 -5,664 -8,143 -6,508 Net current transfers 134 571 2,444 2,067 Current account balance -5,324 -2,780 6,900 7,262 Financingitems (net) 3,471 4,850 -8,278 -3,707 Changes in net reserves 1,853 -2,070 1,378 -3,555 - 4 - Memo: Reservesincludinggold (US$ millions) 27,890 31,445 Conversionrate (DEC, /ocal/US$) 661.4 2,029.9 10,260.9 9,311.2 EXTERNAL DEBT and RESOURCE FLOWS 1982 1992 2001 2002 (US$ millions) Composition of 2002 debt (US$ mill.) Total debt outstandingand disbursed 25,133 88,002 133,744 129,793 IBRD 1,735 10,840 11,435 10,728 IDA 707 814 722 794 Total debt service 29,056 32,335 IBRD 207 1,515 1,753 1,896 IDA 8 22 32 34 Compositionof net resourceflows Official grants 0 0 Official creditors 1,334 -1,436 Private creditors -13,590 -11,479 Foreigndirect investment Portfolioequity 0 0 World Bank program Commitments 645 103 A IBRD E . Bilateral Disbursements 583 1,003 585 419 B IDA -- D-Other multilateral F Pnvate - Principalrepayments 82 692 853 1,065 C . IMF G Shm-term ~ Net flows 501 311 -268 -646 Interestpayments 133 845 932 865 Net transfers 368 -533 -1,200 -1,511 - 150- Additional Annex 11: Social Safeguards Frameworks INDONESIA Water Resources & Irrigation Sector Management Program A. Frameworkfor Resettlement,LandandAsset Acquisition (Frameworks further outlined inBahasa Indonesia inthe Project Management Manual) Objectives 1. Landacquisition will be kept to a minimumand no person will be involuntarily displaced under sub-projects financed under the Project. Sub-project proposals that would require acquiring productive land will be carefully reviewedregarding their impacts, and alternative alignments, such as inthe case o f canals, will be sought. Proposals that require more than minor expansion along rights o f away will be reviewedcarefully. Landor other assets maybe acquiredthrough: (a) Voluntaly contribution: In irrigated areas, in accordance with traditional practices, this i s a common practice for farmers and people may be willing to voluntarily donate land for what they perceive as a greater benefit resulting from the Project. The CO (specially hired Community Organizer, or the local FarmerlIrrigation Extension StaffKPL)will make an assessment to ensure that the affectedperson does not suffer a substantial loss affecting hisltheireconomic viability as a result o f the donation and that there has not been any coercion. The CO or KPL should obtain a statement letter from the affected persons that they contribute their land or assets voluntarily without compensation. (b) Contribution against compensation. A contributor considered "affected" will be eligible for compensation. 2. These guidelines provide principles and instructions to compensate affected persons under 1.a and 1.babove, to ensure that all such personsnegatively affected, regardless of their tenure status, will be assistedto improve, or at least to restore, their living standard, income earning or production capacity to pre-project levels. Compensationprinciples 3. The Pokjal Komisi Irigasi Kabupaten in the case o f an irrigation sub-project, or the Balai PSDA together with the Basin Water Resources CounciK'ommittee in the case o f a river sub-project, shall ensure that any o f the following means o f compensation are provided ina timely way to affectedpersons (Loan proceeds cannotbe usedto pay compensation): (a) Replacement landwith an equally productive plot or other equivalent productive assets; (b) Materials and assistanceto replace hlly solid structures that will be demolished; (c) Replacement o f damagedor lost crops, at full replacements cost at marketvalue; (d) Other acceptable in-hndcompensation. ConsultationProcess 4. The Pol@/ Komisi Irigasi Kabupaten in the case o f an irrigation sub-project, or the Balai PSDA together with the Basin Water Resources CounciNCommittee in the case o f a river sub-project, will - 151- ensure that all occupants o f land and owners o f assets located in a proposed sub-project area are consulted (complete information provided to potentially affected households, and opportunity provided to express their opinion). There will be farmerlstakeholder meetings to inform farmers/stakeholders about their rights to compensation and options available in accordance with the Guidelines. The Community Organizer or KPL andor the Impact Monitoring & Evaluation Unit (IMEU)will, inaddition, hold a separatemeetingwith affected people to make sure that their agreement hadbeenobtained without undue social pressure. The Minutes o f farmer/stakeholder meeting shall reflect the discussion held, agreements reached, and include the following: (a) For any voluntary contributions, name o f contributor and details about the contribution; (b) For landasset acquisition against compensation, name o f affected persons anddetails about the nature and level of compensation. Summary ICompensation Amount IAgreement Reached 1. Amic. Land(m2) 12. Plots: I Area affected (m2) I I I houselstructure to be demolished (unitor m2) 3. Trees or crops affected 4. Signatures o f villager, Bupati 5. Record o f any complaints raised by affectedpersons 6. Map attached (showing affected areas and redacement areas) 5. The Community Organizer or KPL andor IMEUshall provide a copy o f the Minutes to affected persons and confirm in discussions with each o f them their request and preferences for compensation, agreements reached, andany eventual complaint. Copies will be recorded inproject documentation and be available for supervision. Sub-project Approval 6. In the event that a sub-project involves acquisition against compensation, the Community Organizer or KPL and/or IMEUshall: (a) Not approve the sub-project unless a satisfactory compensation has been agreed between the affected person and the Pokjal Komisi Irigasi Kabupaten in the case o f an irrigation sub-project, or the Balai PSDA together with the Basin Water Resources Council/Committee in the case o f a river sub-project, as mentionedabove. (b) Not allow works to start until the compensation has been completed satisfactorily to the affected persons. (c) Inthe highlyunlikelyevent that more than200personswere affected and required compensation ina village, a compensation planhas to be prepared, and approved by the Pokja/ Komisi Irigasi Kabupaten in the case o f an irrigation sub-project, or the Balai PSDA together with the Basin Water Resources Council/Committee inthe case o f a river sub-project, before the sub-project can be approved. - 152- Complaints and Grievances 7. All complaints should first be negotiated and recorded by the Community Organizer or KPL and/or the IMEU, to reach an agreement at the irrigated area level. If this fails, complaints and grievances about these Guidelines, implementationo f the agreements recorded inthe FarmeriStakeholder Minutes or any alleged irregularity in carrying out the Project can also be addressedby the affected persons or their representative at the Kecamatan or Kabupaten level in the case o f an irrigation sub-project, or at the level o f the Balai PSDA together with the Basin Water Resources CounciUCommittee inthe case o f a river sub-project. Verification 8. The FarmerlStakeholder Minutes and evidence o f compensation having been made shall be provided to the Community Organizer, KPL and/or IMEU,assisting the village to supervising engineers, auditors and socio-economic monitors when they undertake reviews under the Project. Prior Consultation 9. The PIP Preparation Consultant will consult with representative Water User Federations prior to finalization o f the Project Implementation Plan and the Operation Management Manual to articulate improved safeguards mechanisms. Before approval will be given to any Annual Work Plan involving works that may affect farmerslstakeholders, the potentially affected parties will be consulted. B. Framework for Indigenous People Objectives 1. The design of this Project is structured to ensure the participationand inclusion o f various groups within communities in local level decision making over resource allocation to irrigation and river management and sub-projects provision. However, the Project recognizes that indigenous people form a particular group that merits a different approach and specific support. Therefore, the following framework for addressing indigenous people will be adopted for the Project. The objectives o f this framework are to: (a) Ensurethat indigenous people benefit from the Projectunless after beingfully informedabout it, they choosenot to participate; (b) Avoid or minimizepotentially adverse effects o f the Project on indigenous people. Definitions 2. The terms "indigenous people", "indigenous ethnic minorities," and "tribal groups," describe social groups with a social and cultural identity distinct from the dominant society that makes them vulnerable to being disadvantaged or isolated in the development process. For the purposes here, "indigenous peoples" i s the term that will be usedto refer to these groups 3. Because o f the varied and changing contexts in which indigenous peoples are found, no single definition can capture their diversity. Indigenous people are commonly among the poorest segments o f a population. They engage in economic activities that range from shiftingagriculture in or near forests to wage labor or even small-scale market-oriented activities. Indigenous peoples can be identified in particular geographical areas bythe presence invarying degrees o fthe following characteristics: - 153 - (a) a close attachment to ancestral territories and to the natural resources inthese areas; (b) self-identification andidentificationby others as memberso f a distinct cultural group; (c) they are groups that socio-economically vulnerable or isolateddue to there: (i) indigenouslanguage,oftendifferentfromthemajoritylanguage; an (ii)presenceo f customary social andpolitical institutions; and/or (iii)primarily subsistence-orientedproduction. Framework 4. Indigenous peoples are not prevalent in most o f the potential Project locations and were not identified during the fieldwork for the sub-project schemes. It is possible that they could be found in some areas o f the provinces o f North and West Sumatra, Lampung and South and Central Sulawesi during implementationo fthe Project. However, the activities duringthe Project (i.e., WISMP 1as a first phase in a longer APL) will not yet be o f such nature as to adversely affect indigenous people. The following steps will be taken to ensure that, where indigenous peoples exist, the Project caters to their specific interests: In the Project's irrigation component, Community Organizers (CO) will be trained in the identification o f indigenous people during the Community Organizing training. This training will also be extended to the extension workers (KPL)working in the framework o f the Project. In the Project's river basin component, staff of the Balai PSDA will be trained in the identification o f indigenous people through the training. Usingbaseline surveys and community self-help exercises and discussions on poverty empowerment, COSwill identifythe presence and numbers o f indigenous peoples groups in the community and report this to the National Project Management Unit (PMU) and the respective provincelkabupaten Project Implementation Units (Prus). In the Project's river basin component no Project-financed activities will be undertaken that impact upon indigenous people. During the Project, however, the Project will fund a Working Group o f representatives o f different Balai PSDA, Min. Kimpraswil's Directorate Water Resources, Min. Home Affairs, Min. Environment, as well as civil society representatives to develop an Operational Framework/Guideline for River Basin Water Resource Management that will specifically provide guidance for dealing with the interests o f indigenous people in river basins. The adoption o f a Guideline, acceptable to the Bank, will be a condition to shift from the Project to the second Phase o fthe WISMP APL. For the areas where indigenous people are identified, the NPMU and PrUs will organize an orientation training for relevant COSor BalaiPSDA staff inhow to work with indigenous people in a useful way to identify mechanisms for effective participation, and address specific challenges in working with such groups, for example, as how to deal with groups that may be in conflict with the larger community. Since COSwill be hired locally to the extent possible, they are expected to be familiar with such groups. They will also be rotated as necessary to ensure that those that have been trained in working with isolated vulnerable groups, or have specific skills that would be beneficial in working with such groups, are made available inthe rightplaces. Where indigenous people are identified, they will be represented in the Irrigation Commission and the River Basin Water Resource Council/Committee, respectively, and that regular and formal communication is established with the group. Where the indigenous people speaks a language different from Bahasa Indonesia, relevant brochures and documents will be translated in the appropriate language. Provision has been made inthe project budget to allow for additional translations o f relevant project documents - 154- 5. These steps will be aimed at ensuring that indigenous people participate fully in the Project, are aware o f their rights and responsibilities, and are able to voice their needs during the socialleconomic preliminary surveylexercise and in the formulation of the Irrigation and River basin sub-projects and operational policies. Inaddition, they will be encouraged to submit sub-project proposals that cater to their group's needs. Consultation Process 6. The PokjalKomisi Irigasi Kabupaten in the Project's irrigation component, and the Balai PSDA together with the River Basin Water Resources CouncilICommittee in the river basin management component, will ensure that indigenous peoples are consulted for a proposed sub-project as well as for operational policies. The COSand/or the Impact Monitoring & Evaluation Unit will facilitate that the vulnerable communities within the Water User Association Federation, or within the river basin, will have the opportunity to have independent discussions among them and transmit their concerns to the Association or the River Basin Water Resources CounciVCommittee, respectively. This process should be designedto confirmthat their agreement hadbeen obtained without unduesocial pressure. Sub-project Approval 7. Inthe event that a sub-project involves indigenous people, the NPMU shall not approve the sub-project unless the Associations, or the Balai PSDA, are willing to address the concern o f the indigenous people. Monitoring and Grievance Procedures 8. The TOR for the Basin Water Resources Management TA Consultants will include the responsibility for monitoring the treatment of indigenous people inthe Project. Where indigenous people are identified, the Consultants will be required to report on their participation in the Project. Provisions will be made by the Impact Monitoring & Evaluation Unit to monitor the involvement o f indigenous people. This will be monitoredroutinely by the NPMU, as well as during supervision missions. 9. All complaints shouldfirst be negotiated andrecorded at the local level (by the CO inthe case of the irrigation component, and the Impact Monitoring & Evaluation Consultant in the case o f river basin component) to attempt to reach an agreement at the irrigated areal kabupatenlriver basin level. Unresolvedcomplaints thenwill be raised to either the Kabupaten P M U(where it concerns the irrigation sub-component) or the Provincial P M U (where it concerns the river basin management component), or the NPMU level. The NPMUwill ensure that grievance address mechanisms are developed inculturally appropriate ways in close collaboration with the relevant group. The Impact Monitoring & Evaluation Unitwill act as grievance mechanism of last resort, and will monitor occurrence and proper handling of grievances. 10. Project evaluation studies, i.a., by the Impact Monitoring & Evaluation Unit will include monitoring and evaluationo f the impact o f the Project on indigenous people. - 155- Additional Annex 12: Environmental Guidelines INDONESIA:Water Resources & Irrigation Sector Management Program Introduction The Project is expected to finance mainly small scale river basin management and irrigation infrastructure restoration, rehabilitation and improvement activities. The only new construction contemplated i s for installation o f hydrological and meteorological measuring stations, or for canal lining or minor works. All activities will be taking place within existing systems and rights of way. The maximum value of basin management sub-projects i s US$1 Million, but the average is expected to be on the order o f below USS100,OOO. The ceiling for irrigation sub-projects i s US$200,000, and the average will be about US$20,000. None o f these types o f activities i s therefore expected to have any large scale, significant or irreversible impacts. Environmental impacts come mostly from poor site management during the project construction activity. The Project has been classified as a Bank environmental category B. This annex outlines the environmental screening procedures and guidelines to ensure that the relevant OPs are followedshouldany negative environmental impacts be expected. Indonesia's environmental review procedure is generally consistent with the Bank's and will form the framework for WISMP 1's approach to environmental management. Because WISMP sub-projects will be small, no major adverse impacts are anticipated. However, the Project will institute screening, review, and "red-flag" procedures to help ensurethat problems are flagged and corrected. Basic Principles The basic environmental principles are: a Sub-projects should avoid or minimize negative environmental impacts, which they will do mainly by adhering to the guidelines for design and construction in the Project Management Manual (PMM). a Sub-projects and other project activities will be designed to take advantage o f opportunities to promote or enhance positive impacts. For example, where a subproject can enhance water quality or the condition o f a wetland area, thus contributing to conservation of aquatic ecosystemsand biodiversity, it will be designed to do so. a Inparticular, ifthere are "legacy" conditionsinsub-project areas that have causedor are causing adverse environmental impacts, the subproject design will incorporate measures to ameliorate those conditions, whenever practicable. a Environmentalimpact management measureswill be as fully as possible incorporatedinto design and construction documents and standardprocedures. a Any sub-project proposalentailing a negative environmentalimpact beyondthe normal localized impacts that can be mitigated by standard design and construction practice covered in the P M M shall be complemented by an environmental planto mitigate the impact. e No sub-project that would require a full ANDAL (environmental assessment) according to Indonesian regulations or would be considered Category A under OP 4.01 will be approved for WISMP financing. - 156- EnvironmentalScreeningCriteria Subprojects will be checked against Government o f Indonesia (GoI) screening criteria, supplemented by a negative list based on World Bank operational policies. Inan initial screening, the project type, scale, location, sensitivity, and the nature and magnitude o f potential impacts, will be identified to classify the proposal inone o f4 categories: Those that require ANDAL (full Environmental Assessments) for which the Ministry o f Environment has set criteria (see below). These will be eliminated from consideration for WISMP-financing. Those that require environmental management and monitoring plans (UKL and UPL) based on limited but site specific studies. The Ministry of Settlement and Regional Infrastructure ( Kimpruswil) has set criteria to determine the needfor UKL/UPL (see below for those that pertain to WISMP). Fav if any of the sub-projects in either the basin management or irrigation components wouldfall within the rangefor UKL/UPL. Those for which standard operating procedures (SOP) suffice, generic good practice would protect the environment adequately. It is expected that most sub-projects may full under this category. Those that require no environmental study, where no construction, disturbance o f land or water or discharge of pollutants are involved. It is expected that some sub-projects mayfall under this category. I Sectors and Proiects Units ANDAL UKL/LJPL >/= < >I= - 3. Inmediumtowns km 10 10-3 c. Insmall towns (villages) km 25 25 - 5 - 157- Additional Screening Criteria (Negative List) Ozone-depleting substances, tobacco or tobacco products: No subprojects using or producing these materials will be financed. [Tobacco cultivation, in Indonesia carried out typically on a small very localized scale and inthe dry season, is not related to the Project]. Pesticides: WISMP 1 will not finance procurement or application o f pesticides. Where pesticides are in use in areas served by irrigation systems being repaired or rehabilitated under WISMP 1, the subproject concerned will finance training inIntegrated Pest Management (IPM). The Kabupaten selected for the agricultural extension pilot (Irrigated Agriculture Improvement Program) are already possessingprior training on IPM. Asbestos. No asbestos-containing materials will be financed. Special mitigation measures to address any issues with existing asbestos in any proposed sub-project (e.g. renovation o f buildingsthat mayhave usedasbestos) will be applied. Hazardous materials and wastes. No sub-project will be financed that uses, produces, stores or transports hazardous materials (toxic, corrosive or explosive) or generates "B3" (hazardous) wastes. Development in protected areas. N o subproject will be financed that would be located in a protected area or might change the purpose andor designation of a protected area. Protected areas are identified in the Decree o f the State Minister of Environment o f the Republic of Indonesia Number KEP-171MENLW2001, entitled Concerning the Types of Businesses Activities Required to Complete an Environmental Impact Assessment. The list includes notably: forest protection area; marinelfreshwater conservation areas; nature tourism park; areas surrounding lakes and reservoirs; coastal mangrove areas; national parks; coastal edges; forest parks; cultural reserves; areas surrounding springs; scientific research areas; and nature conservation areas. World Bank O.P. 4.04's prohibitionon conversion o f critical natural habitat also applies andwould take precedence over KEP-17 incase o f conflictingresults. Cultural Property. N o sub-project will be financed that would degrade or damage cultural property, including not only physical artifacts and structures but also sites considered sacred or otherwise having spiritual importance. Natural Habitat. N o sub-project will be financed that would involve conversion o f critical natural habitat. Environmental Screening Process Initial screening o f proposed sub-projects will be carried out by the cognizant PIU. NPMU will review the screening as part of its review of AWP's prior to approval by the National Steering Committee for Water Resources. Environmental Management The P M Mwill containa matrix o f likely environmental impacts for the types o f activities to be financed, as well as steps with which to address them. SOP guidelines will also cover measures applicable to - 158- projects in general - e.g., measures to control dust, noise and traffic at construction sites; specifications for backfilling and re-vegetating disturbed areas to prevent erosion; etc. It will also contain specific design and constructionrecommendations for the range o f activities expected to be financed. For any sub-project identified during screening as requiring site-specific management and monitoring plans, (UKLAJPL will), the plans will have to be prepared by the cognizant PIU and approved by the NPMUbefore the sub-project can proceed. The PIU will ensure that the recommendations o f the UKL and UPL are incorporated as fully as possible in designs, construction contracts, and post-construction operating procedures, as appropriate. The PIU will be responsible for supervising the implementation o f environmental management and monitoring procedures, whether basedon SOP guidelines inthe P M M or set forth inUKLandUPL. Reporting Progress reporting will include a review o f environmental management measures implemented. PIU's will aggregate and review reports andflag themintheir quarterly reports. An experienced environmental consultant will be hired to summarize progress, monitor and measure the impact o f the Project on the environment as part ofthe performance evaluationo f the Project. ComplaintHandling An Impact Monitoring& Evaluation Unitwill: (a) monitor compliance to the above on a sampling basis; and (b) open a PO Box and email address and receive, and follow up on, complaints and grievances from individuals or groups. - 159- AdditionalAnnex 13: The Water Resources Sector Reform underWATSAL INDONESIA Water Resources& Irrigation Sector Management Program The Need for Reform. To date the Donors have financed around US$lO-12 billion o f physical assets in Indonesia's water resources and irrigation sector. Although much o f this investment spurred development, it has also become clear since the early eighties that the sector administration increasingly suffered from systemic deficiencies that negatively affected the effectiveness of these investments (experiences with earlier irrigation support and GoI's relatively ineffectual 1987 IOMP [Irrigation Operation and Management Policy] are reviewed in the Report "Lessons Leamed From Earlier Projects and Reflectedinthe ProposedProject Design" [on file]): 0 The highly centralized state administration (until2000) favored mono-sectoral approacheswith a bias towards large new public works at the expense o f balanced project selection, involvement o f users and local governments, quality o f works, and operation and maintenance (O&M). A Bank study suggested that the ensuing cycle of poor quality o f works, lack of cost recovery, and deferred maintenance has lead to high-cost rehabilitation every 8-10 years, at only half the economic lifetimeo f the infrastructure. Routine O&M funds from the (central) government would be absorbed by salary and admmistrative costs, leaving little for actual field improvement. Administrative budgets for supportive but essential services such as hydrology, data collection, quality assurance, etc., withered. 0 Inriver management, only few attempts were made to attain integrated managementof the water resource, align resource development with real demand for water, involve water users in policy and water allocation decisions, and achieve more sustainable levels o f cost recovery. 0 In irrigation, farmers were not given a function or authority inthe planningand operation of the irrigationschemes, nor were they truly participating intheir maintenance and improvement. As a consequence, many schemes are deteriorating, and opportunities to optimize the agricultural and economic output o f irrigated agriculture are beinglost. Water resourceswere not treated as goods with an economic value. Farmers were instructedto meet crop production targets and were allocated a fixed amount o fwater. On-going Sector Reform Goals. Go1 is engaged in a major program o f policy, legal, regulatory and adrmnistrative reforms o f the water resources and irrigation sector. This program covers the integrated management o f water resources with a focus on the management at river basin scale. It includes public irrigation management because o f irrigation's predominance in water resources. These reforms at the same time comprise GoI's commitment to the Bank under the Water Resources Sector Adjustment Loan (WATSAL) Letter o f Sector Policy and Policy Matrix. The WATSAL program has four general sector goals, namely to: (a) facilitate sustained government support for a necessary sector reform program which addresses water resources and irrigation sector problems and structural deficiencies through policy, legislative, regulatory and administrative adjustments; (b) enable the capacity-building o f professional expertise within the country to formulate a sector reformprogram inline with national needs and aspirations; (c) facilitate a process o f reaching inter-governmental consensus and intemalized "ownership" ofthe reforms; and (d) thus, improve sector performance. The reforms are oriented by four reform principles: empowerment, accountability, and Jinancial and environmental sustainability. In many instances, this is achieved through unbundling of service provision, and (to some extent) separation of operational and regulatory functions. The WATSAL Policy Matrix applies these principles in the following four areas for improvement of: (a) the national policy, legal, institutional and decision-support framework for water resources development and - 160- management; (b) the organizational, administrative and financial framework for river basin management; (c) regulatory institutions and implementation instruments for regional water quality management; and (d) irrigation management performance and fiscal sustainability through farmer organization empowerment for participatory irrigation management. The specific articulation o f the reforms draws heavily upon the lessons learned in Donor supported projects, especially the Java IrrigationImprovement and Water Management Project (JIWMP), and upon international best practices. Both in concept and in timing, the reforms coincide with the on-going administrative and fiscal decentralization in the country. Thus, these two reforms are mutually reinforcing. Nonetheless, the water sector reforms are robust and flexible enough to remain effective even if the current national decentralization policies would be implemented in different ways. Although the legislation package being prepared by an inter-agency WATSAL Task Force is not yet complete, the government's goals regarding focus, process, capacity-building and Donor support have in essence already been met to a large extent because o f the intensive cooperation among agencies, local governments and civil society, and the dissemination o f the new concepts. However, the decentralization and the drive for more efficient government have triggered a civil service reform, includingearly lay-offs. The Ministryo f Settlement and Regional Infrastructure i s particularly hit hard as the devolution to local governments and to user associations implies that large numbersofstaff becomeredundant. Thisprospect causes some unrest andmay delay reforms. For the water sector, the 1999-2000 RegionalAutonomy legislation impliesthe following: 0 Irrigation areas usually fall within the territory o f the kabupaten, and are thus to be managed by the kabupaten (district). Major canals or headworks that cross kabupaten boundaries are to be managed by the province (unless the kabupaten involved would agree to jointly assume this responsibility). 0 River water resources are to be managed inan integrated manner at river basin scale (inthe sense o f hydrologically coherent regions or Satuan Wilayah Sungai). These typically cross kabupaten boundaries, and are to be managed by the province. This offers the opportunity to address externalities, and ensures that river infrastructure which generally poses technical challenges, i s managedby the provincial Dinas PUP (Department o f Public Works or Irrigation) which usually has more technical capability than that o f a kabupaten. 0 Some o f the larger rivers cross provincial boundaries, or have a "strategic interest", and these would be managed by the national government. The laws suggest that provinces and kabupaten inthe catchment areparties to the resource management. The concerns with the sector as briefly outlined above pertain to a large extent to the operation and maintenance o f the resource and infrastructure. A serious issue that needs to be addressedmore cogently at a later stage i s the question about the new investment and development o f complex, large infrastructure. Although the Regional Autonomy laws define the authorities over the resource, they often do not address concerns regarding externalities, public goods o f national interest, and the discrepancy between the new authority o f kabupaten and their weak technical and institutional capacities. Ingeneral, the current period can be considered a period of learning and adjustment for national and local governments alike. The new water resources management paradigm, and the irrigation management paradigm the latter based on the irrigation reform policy (Pembaharuan Kebijakan Pengelolaan Irigasi-PUl) --arebriefly outlined in the main text, Section B.2. Under JIWMP and the Indonesia Water resources and Irrigation ReformImplementation Project (IWIRIP) these reforms have been piloted on a large scale at basin level and at the level o f irrigation schemes, respectively, already since 1998. Under JIWMP and IWIRIP over 400 W A F Shave been or are close to beingestablished. - 161- Salient Conclusions from the 2002/2003 Impact Study on Indonesia's Irrigation Reform A four-month study was conducted late 2002 and early 2003 to assess the medium-term outcomes and impacts o f the J W M P andIWIRIP with respect to the consequences o f the irrigationmanagementreform it developed. Household surveys were semi-quantitative and were held in 12 kabupatens in those schemes that were supported by the Bank-supported projects which were the only ones to implementthe reform. PRA and interviews were heldinan additional 9 kabupatens. The kabupatens are representative o f Java's provinces and conditions. Within each area a stratified sample o f 120 respondents was selected to represent head- and tail-end and mid-scheme irrigators (tail-end irrigators receive the least water and have the highestproportion o fpoor), and women (total number o f respondents around 2300). The results were also compared with a June/July 2002 audit on the technical quality o f a representative sample o f physical works carried out under the Projects, partly with and partly without WUAF participation. Conclusions are: No significant difference in outcome was detected between the irrigation areas that received special project support, and those - in the same or other kabupatens - that received lower levels o f support. This confirms the strengtho f the local demand. Governance has significantly improved at the level o f the kabupaten as well as inside the WUAF. Overall, transparency, and public scrutiny o f government decisions and actions (such as award o f contracts), have substantially improved. Partnerships between stakeholders andlocal governments work. This in turn has led to better targeted investments, savings in expenditures, and higher sustainability o f both infrastructure and water resource use. Some o f these savings accrued immediately and could be detected inthe survey, but others will appear only inthe long run, for example, those associated with better-quality physical works avoiding premature rehabilitation (poor quality o f works in the past, a persistent problem, led to an average annuitized loss over 20-30 years that has been estimated at $50/ha.yr). W A F Sare gradually developing their skills, capacities, as well as their internal governance quality. The W A F Sand local governments increasingly are capable to jointly addressthe issues regarding irrigation and water management. Levels o f conflict over access to water, earlier endemic, have dropped. In general, this partnership over water management proved to be an important vehicle to spur development o f humancapital. WUAFs collect increasing amounts of member contributions for activities inthe secondary and primary canalsand for emergencypurposes. These contributions are paidby land-owners as well as by tenants. They increasinglytake the form o f financial contributions. WUAF members report increasedoverall productivity from their land due to better and more equitable water allocation. This ledto higher incomes, also for the poor inthe irrigationarea. A rural environment emerges inwhich: (a) water supply proves substantially more reliable and secure for the next planting seasons as well as for the further future, and (b) the associations feel truly empowered to manage water for the sake of their own income, and relatively free from undue interference by government, which increases their confidence in the future. The associations start taking entrepreneurial initiatives regardingcropping andpost-harvest activities. Overall, farmer-irrigators confirm they feel less constrained by vulnerability and risks, seek new opportunities for business, and show greater willingnessto invest inthe future. - 162- Additional Annex 14: Impact Monitoring and Evaluation INDONESIA: Water Resources & Irrigation Sector Management Program 1. PurposeandObjectives The purpose o f impact monitoring and evaluation (M&E) for the Water Resources and Irrigation Sector Management Program (WISMP) is to promote successful implementation and achievement o f desired outcomes and impacts o f WISMP and the continued GoI's Water Resources Sector Reform Program (WATSEP) more generally. WISMP's sub-objectives are to (a) ensure more productive, equitable and sustainable use o f water and related resources within river basins, (b) improve the governance and delivery o f water services to people, (c) reduce poverty and the economic vulnerability o f rural people (especially women and indigenous and isolated vulnerable peoples), and (d) promote human and ecological health (including bio-diversity). The proposed M&E systemincludes WISMP activities at the national, provincial, and kabupaten levels o f government and within river basins and irrigation systems. The three basic objectives ofthe M&E systemare to: (a) produce pertinent, objective, and timely information about the progress, problems, and results o f WISMP; (b) provide a forum for receiving complaints andadvice from stakeholders; and (c) convey relevant findings to key decision makers and other stakeholders within government and civil society. 2. M&E Activities The National Project Steering Committee will ensure that the Technical Working Groups (Pokjas) existing under the National Steering Committee for Water Resources, become involved in the development and guidance, together with the NPMU, o f a Program Monitoring System (PMS) that will shape the M&E activities o f the government in relation to this and, by extension, other sectoral initiatives. The PMS will monitor WISMP implementation, including program inputs and outputs. Its main concerns on the short term will be to determine to what extent WISMP is being implemented as plannedand ifnot, why not. The M&E system will be conducted primarily by a third-party Impact Monitoring and Evaluation Unit (IMEU). The IMEUwill monitorWISMP outputs and evaluate its outcomes andimpacts, at the national, provincial, kabupaten, river basin and irrigation system levels. IMEUwill assess the perspectives o f key stakeholders about WISMP andprovide a forum whereby stakeholders can convey complaints and advice in an anonymous way to the government, media and civil society organizations. The Unitwill focus on answering the questions, "Is WISMP producing the desired outcomes and impacts?" "What are the perspectives o f different stakeholders about activities implemented under WISMP and especially their outcomes andimpacts?" The Unit will be an independent research andor consulting organization, with a track record in water management and irrigation and with demonstrated field survey capabilities, probably selected from a research and development institute, university, NGO, or association o f these. This consultant will be selected by the National Steering Committee for Water Resources through an open competitive biddingprocess. 3. Structure of the M&E System The overall M&E system for the WISMP i s made up by the Program Monitoring System and the Impact Monitoring & Evaluation System. The M&E system will be implemented at the national, provincial, and - 163- kabupaten sector levels and for WISMP river basins and irrigation systems. The PMS will focus mostly on monitoring program inputs provided and outputs produced, while the IES will focus mostly on evaluating outcomes and impacts (but also some outputs). Indicators for monitoring program inputs and outputs are selected from key tasks, Development Credit Agreement indicators, "triggers" and benchmarks, and WISMP objectives and performance indicators. Indicators for evaluating outcomes and impacts are selected from CAS and WISMP objectives and other relevant goals embedded in GoI's water resourcessector policy and strategy. Matrix 1 summarizes the structure o f the PMS and indicates key inputs and outputs to be monitored. Matrix 1 items in italics are Development Credit Agreement indicators. Matrix 2 summarizes the structure o f the IESand indicates key outcomes and impacts to be evaluated. IMatrix 1.ProgramMonitoringSystem I River I --- Kev Inmts --- National/Provincial Level BasinKabupaten Irrigation/Kabupaten I WISMP & counterpart WISMP & counterpartdisbursementsper WISMP & counterpartdisbursements disbursements per activity activity (including Bului budget from per activity APBD-Propinsi ---Key Outputs --- WATSEP framework estab. Index WATSEP framework estab. index IMRP framework establishment (province level) index Public awarenesscampaign Public awarenesscampaignactivities for Public awarenesscampaign for activities for WISMPNATSEP WISMPNATSEP WISMPNATSEP Training guides for river basin I1Basin, and Provincial Water Resources Komisi Irigasi establishmentindex mgt., incl. sociaUenviron CounciVCommittee(PWRC, BWRC) safeguards, cost recovery, dispute establishmentindex settlement, etc. Training guides for IMRP Balai PSDA establishmentindex Komisi Irigasi training & developmentindices Water use right admin system & Water use rights admin system pilotedin WUAF & scheme-levelWUAF guide developed 2 basins establishmentindex Establishmentindices for NWC, BWRC & Balai training & development WUAF training & development PWRC, CBPU, PBPU indices indices Training for NWC, PWRC, Arrangementsadoptedfor social & Irrigationmanagement transfer CBPU, PBPU- policy, environmentalsafeguards, pollution agreements communications, MIS, IWRM standards, economic reg. of pollution Developmentindices for NWC, Balai hydromet development index KIIF establishmentindex PWRC, CBPU, PBPU WATSEP training course modules # basins with asset managementplans, KIIF training & development indices inuniversity curricula MIS, QA & cost accounting MISframework establishment, # basins with water allocation plans & Dinas PUP plans for reorienting training & development indices abstractionfees, linked to MIS agency functions & right-sizing Hydromet transferred to Baluis # basins with water quality controlplans, linked to MIS CBPU conducts training for Dinas PUPplans for reorienting support PBPU in abstraction, cost functions & personnelright-sizing recovery, pollution control, asset mgt plans Training for IMRP (province level) Guide for reorienting support - 164- hnctions & personnel I right-sizing Strategy to link WISMP to agricultural development (DAFEP, LGRP & credit [ access) NWC = National Water Resources Council; PWRC = Provincial Water Resources CounciliCommittee; CBPU = Central Basin Planning Unit; PBPU = Provincial Basin Planning Unit; BWRC = Basin Water Resources CounciYCommittee; Balai PSDA = River Basin Corporation; Dinas PUP = Provincial Public Works Dept; KIIF = KabupatenIrrigation ImprovementFacility Sector Level River Basin Management Irrigation Management ---Key Outcomes --- Repeta related to Propenas & BWRC scrutinize, debate & regulate basin WUAF Irrig. Service Plans WATSEP policy, agency operations, investments & other interventions BWRMP's adoptedby PWRC BWRC reviews & approves Balai PSDA WUAF Irr.Serv. Agreements work plans & key decisions PWRC oversees audits of new BWRMP's adoptedby BWRC WUAF's submit proposals to Kom. Balais Irigasi for KIIF Reduction in excess staff & BWRC & Bald decisions consistent with KIIF allocs. to WUAFs with cost budgets & improvementsin cost newregulations & safeguards sharing(