The World Bank Western Indonesia National Roads Improvement Project (P090990) REPORT NO.: RES28431 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF WESTERN INDONESIA NATIONAL ROADS IMPROVEMENT PROJECT APPROVED ON MAY 26, 2011 TO REPUBLIC OF INDONESIA TRANSPORT & ICT EAST ASIA AND PACIFIC Regional Vice President: Victoria Kwakwa Country Director: Rodrigo A. Chaves Senior Global Practice Director: Jose Luis Irigoyen Practice Manager/Manager: Almud Weitz Task Team Leader: Elisabeth Goller The World Bank Western Indonesia National Roads Improvement Project (P090990) ABBREVIATIONS AND ACRONYMS AADT Annual Average Daily Traffic CTC Core Team Consultant DGH Directorate General of Highways DSC Design and Supervision Consultant EA Environmental Assessment INT Integrity Vice Presidency MPWH Ministry of Public Works and Housing MS Moderately Satisfactory MU Moderately Unsatisfactory PDO Project Development Objective PIU Project Implementation Unit RPIU Regional Project Implementation Unit WINRIP Western Indonesia National Roads Improvement Project The World Bank Western Indonesia National Roads Improvement Project (P090990) BASIC DATA Product Information Project ID Financing Instrument P090990 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 26-May-2011 31-Dec-2017 Organizations Borrower Responsible Agency Republic of Indonesia DGH - MPWH Project Development Objective (PDO) Original PDO The Project Development Objective (PDO) is to increase the effective use of selected sections of national roads along theWesternSumatera Corridor by reducing road user costs. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IBRD-80430 26-May-2011 14-Dec-2011 12-Mar-2012 31-Dec-2017 250.00 137.56 112.44 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Western Indonesia National Roads Improvement Project (P090990) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Project Status 1. This project had a slow start because of the need to hire the project management support (Core Team Consultant - CTC) and engineering design consultants (Design and Supervision Consultant - DSC) before the procurement of the civil works could start. In addition, project implementation in general has been slow for various reasons, including (i) coordination problems between the various entities involved in project implementation, (ii) at times, not enough project ownership, (iii) lengthy discussions to agree on procurement aspects not originally envisaged in the loan agreement, such as the use of post-qualification and e- procurement, and on contract modifications, (iv) slow resettlement plan implementation, and (v) suboptimal performance of some of the civil works contractors. 2. Since late 2015 the implementation progress has picked up considerably, but this has not been sufficient to catch up with the initial delay of almost two years. Six road civil works are completed and the remaining 12 civil works are ongoing. Four of the ongoing civil works are likely to still be completed before the end of 2017. 3. In terms of road works quality, the Bank team obtained a grant to intensify work supervision and help the Director General for Highways (DGH) improve road work quality through regular field inspections carried out by independent inspectors. These inspections have been instrumental in identifying quality shortcomings and trigger the necessary responses from the contractors. 4. As for implementation support, the DSC and CTC are both operational, but their performance has not always been fully satisfactory. Measures such as replacing team leaders and adding staff have been taken to correct shortcomings but civil works supervision is still experiencing some issues. The final study on slope protection design and management is ongoing and is expected to be completed by mid-2018. 5. The Project Development Objective (PDO) is currently rated Moderately Unsatisfactory (MU) due to the impossibility to achieve the PDO within the current loan closing date. Once the closing date of the project is extended, the PDO will be achievable again. Fiduciary aspects under the project have been handled in a largely satisfactory way. The loan is not subject to suspension of disbursements and there are no outstanding or unsatisfactory audit reports. The compliance with social safeguard requirements, including the handling of labor influx from outside Sumatra, has been satisfactory, but the implementation of the resettlement plans has been slow. In terms of environmental safeguards, problems with the contractor’s base camp management led the team to downgrade the respective rating to MU. With the support of the World Bank team, DGH prepared an action plan to improve base camp management. This action plan is currently under implementation, and a field mission to check the progress on the site is planned for December 2017. Overall, the Borrower’s performance is rated Moderately Satisfactory (MS). There is an ongoing INT case because one bidder, who was not awarded the contract, included false documents in his bid. B. Rationale for Restructuring 6. This is the second restructuring for this project. The first restructuring took place in early 2016 and was needed because of a shift in the priorities of DGH, which had just seen a change in its management. The main modifications included in this first restructuring were the cancellation of two road packages and the cancellation of the project component on institutional development. The rationale for this proposed second restructuring lays in the delays in starting civil works pointed out in paragraph 1. To successfully complete the project civil works and achieve the PDO, it is necessary to extend the closing date. This restructuring also provides an opportunity to revise some indicators and institutional arrangements to reflect the evolution of the project. The World Bank Western Indonesia National Roads Improvement Project (P090990) II. DESCRIPTION OF PROPOSED CHANGES 7. The changes proposed under this restructuring include (i) the cancellation of road work package 10 (Simpang Empat – Sp. Air Balam) and a change in the cost of the civil works-related Component 1 “Betterment and Capacity Expansion of National Roads”; (ii) the adjustment of three indicator end target values and of one baseline; (iii) the reallocation of funds; (iv) an update of the disbursement estimates; (v) a one-year loan closing date extension; and (vi) a minor change to the institutional arrangements to reflect DGH’s organizational restructuring. 8. Change in components and cost: Package 10 will be cancelled from Component 1 because the widening and rehabilitation of this road section ceased to be among DGH’s key priorities given that it was in relatively good condition and widening was not needed immediately. The cost of Component 1 will be increased from USD 314.90 million to USD 322.04 million to cover higher bidding prices than those estimated in the PAD for some packages, contract modifications, additional price adjustments due to project implementation delays, and a possible devaluation of the United States Dollar vis-à-vis the Indonesian Rupiah. The additional funds needed will come from the proceeds originally allocated to Package 10, from a partial reallocation from the category “Unallocated”, and from counterpart funds. 9. Change in results framework: The results framework will be changed as follows:  The baseline of 8,241 vehicles and the target value of 14,947 vehicles of the PDO indicator related to the increase of the average annual daily traffic (AADT) will be changed to reflect the reduction in the number of packages under the project from 19 to 18. The new values are 7,505 and 14,544 for 2018, respectively.  The target values of the two intermediate indicators related to the km of national roads to be improved and the km of rural roads to be rehabilitated, which were 640 km, need to be adjusted. The value for the new targets of both indicators is 578 km. 10. Reallocation between disbursement categories: As mentioned above, USD 5 million out of the USD 12.6 million available under the disbursement category “Unallocated” will be reallocated to disbursement Category 1 “Betterment and Capacity Expansion of National Roads”. The Bank team suggested to cancel the remaining funds under the category “Unallocated” (USD 7.6 million), but the Government of Indonesia insisted on keeping them for contingencies. 11. Change in disbursement estimates: The disbursement estimates will be adjusted to take into account the delays in project implementation, as shown in table “Reallocation between disbursement categories” in section IV. 12. Change in loan closing date: The extension of the project closing date by one year from December 31, 2017 to December 31, 2018 is necessary due to the delays in project implementation mentioned above. The Bank and the Borrower have agreed on the actions necessary to complete the project before the new proposed closing date. 13. Change in institutional arrangements: As a result of DGH’s organizational restructuring approved in May 2016 through Ministerial Regulation No.20/PRT/M/2016, “Project Implementation Unit” (PIU) “Balai I”, responsible for the implementation of sub-projects in the province of North Sumatra, was renamed to “Regional Project Implementation Unit” (RPIU) “Balai II”. There was no change in the responsibilities. PIU “Balai II”, in charge of implementing sub-projects in West Sumatra, was renamed to RPIU “Balai III” and became responsible also for the province of Bengkulu. PIU “Balai III” was renamed to RPIU “Balai V”, kept the responsibility of implementing sub-projects in Lampung, but transferred the implementation of sub-projects in Bengkulu to RPIU “Balai III”. This did not imply any substantial changes in the project’s institutional arrangements. The World Bank Western Indonesia National Roads Improvement Project (P090990) 14. Change in economic analysis: The actual cost of the road civil works has increased by 7.7% since the first project restructuring in February, 2016, from Rp. 3,349,217.4 million (USD 257.6 million) to Rp. 3,606,986.5 million (USD 277.5 million). This increase is due to (i) the higher bid prices of the last four road packages, which follow DGH’s new pavement manual that increased design standards, and (ii) contract modifications under four packages that were necessary because the conditions on the ground had changed. Given this increase in road civil works costs and the availability of actual traffic data, the Bank team updated the economic analysis for this project. The revised analysis uses the above-mentioned increased capital cost, the new discount rate of 6.0% in line with Bank policy, and the compounded annual traffic growth rate of 8.7%, which is based on actual traffic growth data. The results of the analysis show that although the Economic Internal Rate of Return (EIRR) decreased from 30% to 26% compared to the original economic analysis, the project is still viable. Only package 5 has a relatively low EIRR (9.5%), but it is still above the Bank’s current reference mark of 6.0%. III. SUMMARY OF CHANGES Changed Not Changed Change in Results Framework ✔ Change in Components and Cost ✔ Change in Loan Closing Date(s) ✔ Reallocation between Disbursement Categories ✔ Change in Disbursement Estimates ✔ Change in Institutional Arrangements ✔ Change in Implementation Schedule ✔ Change in Economic and Financial Analysis ✔ Change in Implementing Agency ✔ Change in DDO Status ✔ Change in Project's Development Objectives ✔ Cancellations Proposed ✔ Change in Disbursements Arrangements ✔ Change in Systematic Operations Risk-Rating Tool ✔ (SORT) Change in Safeguard Policies Triggered ✔ Change of EA category ✔ Change in Legal Covenants ✔ Change in Financial Management ✔ The World Bank Western Indonesia National Roads Improvement Project (P090990) Change in Procurement ✔ Other Change(s) ✔ Change in Technical Analysis ✔ Change in Social Analysis ✔ Change in Environmental Analysis ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_RESULTS_TABLE RESULTS FRAMEWORK Project Development Objective Indicators PDO_IND_TABLE Increase of AADT on project road sections (all vehicle types) Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 7505.00 13613.00 14544.00 Revised Date 31-Dec-2010 30-Dec-2016 31-Dec-2018 Average vehicle operating cost for a typical car reduced by at least 5% on project roads (base year operating cost: US$0.19/veh-km) Unit of Measure: Percentage Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 5.00 Revised Date 31-Dec-2010 31-Aug-2017 31-Dec-2018 Average vehicle operating cost for a typical bus reduced by at least 8% on project roads (base year operating cost: US$0.35/veh-km) Unit of Measure: Percentage Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 8.00 Revised Date 31-Dec-2010 31-Aug-2017 31-Dec-2018 Average vehicle operating cost for a typical heavy truck reduced by 10% on project roads (base year operating cost: US$0.65 veh-km) Unit of Measure: Percentage The World Bank Western Indonesia National Roads Improvement Project (P090990) Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 10.00 Revised Date 31-Dec-2010 31-Aug-2017 31-Dec-2018 Average passenger travel time for light vehicles reduced by at least 20% on project roads (base year speed: 51 km/h) Unit of Measure: Percentage Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 19.61 20.00 Revised Date 31-Dec-2010 31-Aug-2017 31-Dec-2018 Average passenger travel time for large buses reduced by at least 20% on project roads (base year speed: 46 km/h) Unit of Measure: Percentage Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 15.22 20.00 Revised Date 31-Dec-2010 31-Aug-2017 31-Dec-2018 Average passenger travel time for heavy trucks reduced by at least 20% on project roads (base year speed: 40 km/h) Unit of Measure: Percentage Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 12.50 20.00 Revised Date 31-Dec-2010 31-Aug-2017 31-Dec-2018 Intermediate Indicators IO_IND_TABLE Satisfactory completion of slope protection designs Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 3.00 Revised Date 15-Dec-2015 31-Aug-2017 31-Dec-2018 The World Bank Western Indonesia National Roads Improvement Project (P090990) Number of km of improved national roads in the project region as planned Unit of Measure: Kilometers Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 414.00 578.00 Revised Date 31-Dec-2010 31-Aug-2017 31-Dec-2018 Number of meters of improved bridges Unit of Measure: Meter(m) Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 100.00 160.00 Revised Date 31-Dec-2010 31-Aug-2017 31-Dec-2018 Satisfactory completion of technical audits for all road projects of component 1 Unit of Measure: Percentage Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 100.00 100.00 Revised Date 31-Dec-2010 31-Aug-2017 31-Dec-2018 Satisfactory completion of road safety audits for all road projects of component 1 Unit of Measure: Percentage Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 100.00 100.00 Revised Date 31-Dec-2010 31-Aug-2017 31-Dec-2018 Roads rehabilitated, Rural Unit of Measure: Kilometers Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 414.00 578.00 Revised Date 31-Dec-2010 31-Aug-2017 31-Dec-2018 The World Bank Western Indonesia National Roads Improvement Project (P090990) OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) Betterment and Capacity Betterment and Capacity 314.90 Revised 322.04 Expansion of National Roads Expansion of National Roads Implementation Support 17.00 Implementation Support 17.00 Road Sector Institutional Road Sector Institutional 0.00 0.00 Development Development Contingency for Disaster Risk Contingency for Disaster Risk 0.00 0.00 Response Response TOTAL 331.90 339.04 OPS_DETAILEDCHANGES_LOANCLOSING_TABLE LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications IBRD-80430 Effective 31-Dec-2017 31-Dec-2018 30-Apr-2019 OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed 2011 0.00 0.00 2012 0.00 0.00 2013 2,207,915.00 2,207,915.00 The World Bank Western Indonesia National Roads Improvement Project (P090990) 2014 4,055,695.62 4,055,695.62 2015 17,427,962.73 17,427,962.73 2016 41,384,275.00 41,384,275.00 2017 80,000,000.00 54,018,413.95 2018 104,924,151.65 54,534,009.03 2019 0.00 68,771,728.67