The World Bank Western Indonesia National Roads Improvement Project (P090990) REPORT NO.: RES34088 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF WESTERN INDONESIA NATIONAL ROADS IMPROVEMENT PROJECT APPROVED ON MAY 26, 2011 TO REPUBLIC OF INDONESIA TRANSPORT EAST ASIA AND PACIFIC Regional Vice President: Victoria Kwakwa Country Director: Rodrigo A. Chaves Senior Global Practice Director: Guangzhe Chen Practice Manager/Manager: Almud Weitz Task Team Leader: Elena Y. Chesheva The World Bank Western Indonesia National Roads Improvement Project (P090990) ABBREVIATIONS AND ACRONYMS AP Affected People CTC Core Team Consultant DGH Directorate General of Highways DSC Design and Supervision Consultant EA Environmental Assessment ESMF Environmental and Social Safeguards Management Framework GoI Government of Indonesia KIAT Indonesia Australia Partnership for Infrastructure LARAP Resettlement Plan LARPF Resettlement Policy Framework MPWH Ministry of Public Works and Housing MS Moderately Satisfactory PDO Project Development Objective PIP Project Implementation Plan PIU Project Implementation Unit PMM Project Management Manual PMU Project Management 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-2018 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-2018 250.00 180.01 69.99 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 the project management support (Core Team Consultant - CTC) and engineering design consultants (Design and Supervision Consultant - DSC) had to be hired and designs prepared before the procurement of the civil works could start, which took time. In addition, project implementation has been slow because of coordination problems between the entities involved in project implementation, delays in reaching agreements on procurement aspects not originally envisaged in the loan agreement, such as the use of post-qualification and e-procurement, slow resettlement plan implementation, and suboptimal performance of some of the civil works contractors. 2. The implementation progress has picked up considerably since late 2015, however, the project continues to be behind schedule given the significant initial delays. Fourteen out of eighteen road packages are completed and three are well advanced reaching physical progress above 85%. One package (number 21) had to be terminated with only 55% completed works because the contractor was not performing due to financial and operational problems. A new procurement process for the finalization of the civil works (package 21A) has been started with the bids being currently reviewed and the respective works are expected to go on for five months. For package 5, the original engineering design did not reflect the reality on the ground and large quantities of additional slope cutting was necessary. This also resulted in steep slopes, which require additional protection. Under the slope protection design and management study completed in July 2018, the necessary slope protection measures were specified. The procurement process for the implementation of these measures (packages 5A) has failed twice, partly due the limited experience of local companies implementing this kind of measures. The DGH is revisiting the bidding document and the engineering estimates and will will launch a new process shortly. The works to implement these measures are expected to go on for ten months. 3. Despite the Bank's quality inspections undertaken regularly since late 2015 to identify quality shortcomings and the corrective measures implemented by the Directorate General of Highways (DGH), civil works quality remains a concern for the ongoing and completed packages. The field inspection carried out by the Bank’s Pavement Specialist and subsequent discussions held in October and November 2018 revealed that inadequate pavement design seems to be persistent in many of the DGH road preservation investment projects. Poor quality of data input into designs along with weak enforcement of vehicle capacity restrictions result in the road actual life being less than the designed life. Given its relevance to the DGH’s core business, it was agreed to organize a meeting with the Directorate of Road Preservation and the Directorate of Road Network Development on this topic. 4. The implementation support to the PMU through the CTC and the DSC has not been fully satisfactory mainly in terms of civil works supervision. Measures, such as replacing team leaders and adding staff, have been taken to correct shortcomings, but civil work supervision is still experiencing some issues. The contract on slope protection design and management has been completed and the final contract addendum is being prepared. 5. In packages 13, 14, and 15, several affected people (APs) did not agree to the proposed compensation amounts and/or the size of the affected assets. Consequently, it was not possible to acquire the necessary land to widen the road, and engineering design changes were prepared. While for package 14 these changes only affect the shoulders and the drainage system, for packages 13 and 15 they result in road sections with different widths, which might endanger road users if not properly handled. Road safety enhancements for the designs of these narrowed sections have been recommended. The Bank team requested the DGH to ensure that the road safety measures are fully implemented. 6. The Project Development Objective (PDO) is currently rated Moderately Satisfactory (MS) because although there has been considerable progress in civil works implementation, shortcomings in terms of quality are still frequent. 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 The World Bank Western Indonesia National Roads Improvement Project (P090990) no outstanding or unsatisfactory audit reports. The compliance with social safeguard requirements is Satisfactory because the resettlement plans (LARAPs) implementation has been completed for all the packages and the land acquisition-related activities are in line with the project’s Resettlement Policy Framework (LARPF). In terms of environmental safeguards, continued improvements in basecamp environmental management and progress in closing the observed gaps in environmental housekeeping led the team to upgrade the respective rating to MS in May 2018. Overall, the Borrower’s performance is rated MS because although the project management team was strengthened through the addition of quality engineers, the project still faces challenges related to the decentralized project implementation, weaknesses in field supervision, and delays in ensuring sufficient budget allocation. 7. Following devastating earthquakes and tsunami that struck the island of Sulawesi in September 2018, the Government of Indonesia (GoI) requested the Bank to trigger the contingency for disaster risk response component under WINRIP. This would enable rapid reallocation of unused loan proceeds to rehabilitate and reconstruct a number of damaged road sections across the city of Palu and the regencies of Donggala and Sigi. Specifically, the DGH has proposed carrying out the rehabilitation and reconstruction (RR) of two road packages: RR-01 (Jalan Tompe - Dalam Kota Palu – Surumana, with a length of 54.2 km) and RR- 02 (Jalan Palupi - Simoro, Kalukubula - Kalawara, Birobuli - Palolo, and Jalan Akses Huntap, with a length of 26.8 km). The preliminary designs for these packages might be developed with the support of the Indonesia Australia Partnership for Infrastructure (KIAT), which will be confirmed after discussion with all counterparts. 8. The Loan Agreement for the project stipulates the following requirements for triggering this component: (a) the Bank and the Borrower have agreed in writing that a disaster, emergency and/or catastrophic event has occurred; and (b) the Bank and the Borrower have entered into a written arrangement and/or the Borrower shall have adopted a supplement to the Project Management Manual (PMM), the Environmental and Social Safeguards Management Framework (ESMF), the Land Acquisition and Resettlement Policy Framework (LARPF) and the Environmental Codes of Practice and other documents as required by the Borrower and the Bank, and a supplement to the Project Implementation Plan (PIP), in each case satisfactory to the Borrower and the Bank, which defines the scope of activities, implementation arrangements, environmental and social safeguards arrangements and disbursement arrangements for this component. B. Rationale for restructuring 9. This is the third restructuring for this project. The first and second restructurings took place in February 2016 and November 2017 respectively. The first restructuring was needed because of a shift in the priorities of the DGH, which had just seen a change in its management, and the main modifications included were the cancellation of two road packages and the cancellation of the project component on institutional development. The second restructuring extended the closing date by one year to factor in the delays in starting civil works pointed out in paragraph 1. This third restructuring is needed to successfully complete the works under packages 5A and 21A and to activate the disaster risk response component for rehabilitation of selected sections of national and sub-national roads in Central Sulawesi damaged by devastating earthquakes and tsunami in September 2018. II. DESCRIPTION OF PROPOSED CHANGES 10. The changes proposed under this restructuring include (i) the adjustment of the Project Development Objective (PDO) to include Central Sulawesi as a new location for rehabilitation works; (ii) changes in results framework; (iii) change in the cost of all the project components; (iv) the extension of the project closing date from December 31, 2018 to February 28, 2021; (v) the reallocation of funds between disbursement categories; (vi) an update of the disbursement estimates; (vii) a minor change to the implementation arrangements to include Balai XIV as the regional Project Implementation Unit (PIU) in Central Sulawesi; and, (viii) an update in the economic analysis to reflect the new road packages. 11. Adjustment of the PDO: The current PDO is exclusively related to the increase of the effective use of selected national roads along the Western Sumatra Corridor. To reflect the envisaged rehabilitation and reconstruction road works in Central Sulawesi, The World Bank Western Indonesia National Roads Improvement Project (P090990) the PDO needs to be expanded. Thus, the original PDO is maintained but the sentence “to restore the functionality of selected sections of national and sub-national roads in disaster-affected areas in Central Sulawesi” will be added. 12. Changes in results framework: The inclusion of a new project objective, as described in the paragraph 11 above, leads to the definition of three new indicators as follows:  PDO indicator: Number of road infrastructure sections recovered to pre-disaster good condition.  Intermediate indicators: o Number of km of rehabilitated/reconstructed national roads in Central Sulawesi. o Number of km of rehabilitated/reconstructed sub-national roads in Central Sulawesi. 13. Changes in the cost of the project components: The cost of Component 1 “Betterment and Capacity Expansion of National Roads” will be decreased from USD 322.04 million to USD 292.86 million due to the lower price escalation than expected and the appreciation of the United States Dollar vis-à-vis the Indonesian Rupiah since the second project restructuring. On the other hand, the cost of Component 2 “Implementation Support” and Component 4 “Contingency for Disaster Risk Response” will be increased by USD 3.00 and 25.00 million respectively to prepare, implement, and supervise the rehabilitation and reconstruction works in Central Sulawesi. 14. Change in loan closing date: The extension of the project closing date from December 31, 2018 to February 28, 2021 is necessary to implement the packages 5A, 21A, RR-01, and RR-02 mentioned above, as well as to complete the DSC and CTC final project reports. The Bank and the Borrower have agreed on the actions necessary to complete the project before the new proposed closing date. There is not any outstanding audit report. The Bank received the FY 2017 audit report with an unqualified opinion provided by the auditor. All the finding of this report has been completely followed up. 15. Reallocation of funds between Disbursement Categories: This is necessary because of the activation of the disaster risk response component. USD 3.00 million will be reallocated from the Disbursement Category 1, related to the road capacity expansion civil works, to the Disbursement Category 2, related to the implementation support, resulting in USD 20.00 million allocated under the Disbursement Category 2. USD 17.40 and 7.60 million will be reallocated from the Disbursement Categories 1 and 5 (“Unallocated”) respectively to the Disbursement Category 4, related to disaster risk response, resulting in USD 25.00 million allocated under the Disbursement Category 4. After completing this funds reallocation, USD 205.00 million will remain allocated under the Disbursement Category 1 and the balance for Disbursement Category 5 will be zero. 16. Update in disbursement estimates: The disbursement estimates will be adjusted to take into account the implementation of the packages 5A, 21A, and RR-01 and RR-02 in Sulawesi as shown in the table “Disbursement Estimates” in the section IV. 17. Update in the institutional arrangements: The provincial office of DGH in Central Sulawesi (Balai XIV) need to be included in the implementation arrangements for the project as the PIU responsible for the implementation of these sub-projects. 18. Update in the economic analysis: The Bank team carried out a simplified economic analysis for the two new road rehabilitation and reconstruction packages. The results of this analysis show that, with an Economic Internal Rate of Return (EIRR) of 25.26%, the project is viable. Both packages are largely above the Bank’s current reference mark of 6.00% (45.45% and 13.10% for packages RR-01 and RR-02 respectively). This analysis has been performed based on the available data and will be later finetuned as full data and costs are available. The World Bank Western Indonesia National Roads Improvement Project (P090990) III. SUMMARY OF CHANGES Changed Not Changed Project's Development Objectives ✔ Results Framework ✔ Components and Cost ✔ Loan Closing Date(s) ✔ Reallocation between Disbursement Categories ✔ Disbursement Estimates ✔ Institutional Arrangements ✔ Implementation Schedule ✔ Economic and Financial Analysis ✔ Implementing Agency ✔ DDO Status ✔ Cancellations Proposed ✔ Disbursements Arrangements ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Financial Management ✔ Procurement ✔ Other Change(s) ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ The World Bank Western Indonesia National Roads Improvement Project (P090990) IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_PDO_TABLE PROJECT DEVELOPMENT OBJECTIVE Current 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. Proposed New PDO The Project Development Objective (PDO) is to increase the effective use of selected sections of national roads along the Western Sumatera Corridor by reducing road user costs and to restore the functionality of selected sections of national and sub-national roads in disaster-affected areas in Central Sulawesi. 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 322.04 Revised 292.86 Expansion of National Roads Expansion of National Roads Implementation Support 17.00 Revised Implementation Support 20.00 Road Sector Institutional Road Sector Institutional 0.00 No Change 0.00 Development Development Contingency for Disaster Risk Contingency for Disaster Risk 0.00 Revised 25.00 Response Response TOTAL 339.04 337.86 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 28-Feb-2021 28-Jun-2021 OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed IBRD-80430-001 | Currency: USD The World Bank Western Indonesia National Roads Improvement Project (P090990) iLap Category Sequence No: 1 Current Expenditure Category: LN 8043-CW PT 1 225,400,000.00 182,401,249.43 205,000,000.00 70.00 70.00 iLap Category Sequence No: 2 Current Expenditure Category: LN 8043-GO, Non CS, CS & IOC PT2 17,000,000.00 8,942,195.87 20,000,000.00 100.00 100.00 iLap Category Sequence No: 3 Current Expenditure Category: LN 8043-GO, Non CS, CS PT3 0.00 0.00 0.00 100.00 100.00 iLap Category Sequence No: 4 Current Expenditure Category: LN 8043-WO,GO,Non CS, CS & IOC PT4 0.00 0.00 25,000,000.00 100.00 100.00 iLap Category Sequence No: 5 Current Expenditure Category: UNALLOCATED 7,600,000.00 0.00 0.00 Total 250,000,000.00 191,343,445.30 250,000,000.00 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 2014 4,055,695.62 4,055,695.62 2015 17,427,962.73 17,427,962.73 2016 41,384,275.00 41,318,080.52 2017 54,018,413.95 54,084,608.43 2018 54,534,009.03 44,431,500.73 The World Bank Western Indonesia National Roads Improvement Project (P090990) 2019 68,771,728.67 46,185,043.40 2020 0.00 28,375,815.07 2021 0.00 11,913,378.49 2022 0.00 0.00 . The World Bank Western Indonesia National Roads Improvement Project (P090990) . Results framework COUNTRY: Indonesia Western Indonesia National Roads Improvement Project Project Development Objectives(s) 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. Project Development Objective Indicators by Objectives/ Outcomes RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline End Target Restoring the functionality of selected sections of national and sub-national roads in Sulawesi (Action: This Objective is New) Number of road infrastructure sections recovered to pre-disaster 0.00 5.00 good condition (Number) Action: This indicator is New Increasing the effective use of selected sections of national roads along Western Sumatera (Action: This Objective is New) Increase of AADT on project road sections (all vehicle types) 7,505.00 14,544.00 (Number) Average vehicle operating cost for a typical car reduced by at least 5% on project roads (base year operating cost: 0.00 5.00 US$0.19/veh-km) (Percentage) Average vehicle operating cost for a typical bus reduced by at least 8% on project roads (base year operating cost: 0.00 8.00 US$0.35/veh-km) (Percentage) Average vehicle operating cost for a typical heavy truck reduced by 10% on project roads (base year operating cost: US$0.65 veh- 0.00 10.00 km) (Percentage) The World Bank Western Indonesia National Roads Improvement Project (P090990) RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline End Target Average passenger travel time for light vehicles reduced by at least 20% on project roads (base year speed: 51 km/h) 0.00 20.00 (Percentage) Average passenger travel time for large buses reduced by at least 0.00 20.00 20% on project roads (base year speed: 46 km/h) (Percentage) Average passenger travel time for heavy trucks reduced by at least 20% on project roads (base year speed: 40 km/h) 0.00 20.00 (Percentage) PDO Table SPACE Intermediate Results Indicators by Components RESULT_FRAME_TBL_IO Indicator Name DLI Baseline End Target Component 1: Betterment and Capacity Expansion of National Roads (Action: This Component is New) Number of km of improved national roads in the project region 0.00 578.00 as planned (Kilometers) Number of meters of improved bridges (Meter(m)) 0.00 160.00 Roads rehabilitated, Rural (Kilometers) 0.00 578.00 Component 2: Implementaiton Support (Action: This Component is New) Satisfactory completion of slope protection designs (Number) 0.00 3.00 Satisfactory completion of technical audits for all road projects of 0.00 100.00 component 1 (Percentage) Satisfactory completion of road safety audits for all road projects 0.00 100.00 of component 1 (Percentage) Component 4: Disaster Risk Response in Central Sulawesi (Action: This Component is New) The World Bank Western Indonesia National Roads Improvement Project (P090990) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline End Target Number of km of rehabilitated/reconstructed national roads in 0.00 54.20 Central Sulawesi (Kilometers) Action: This indicator is New Number of km of rehabilitated/reconstructed sub-national roads 0.00 26.80 in Central Sulawesi (Kilometers) Action: This indicator is New IO Table SPACE The World Bank Western Indonesia National Roads Improvement Project (P090990)