The World Bank Public Financial Management and Revenue Administration Reform Program (P152551) REPORT NO.: RES31653 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF PUBLIC FINANCIAL MANAGEMENT AND REVENUE ADMINISTRATION REFORM PROGRAM APPROVED ON MARCH 1, 2016 TO MINISTRY OF FINANCE GOVERNANCE EAST ASIA AND PACIFIC Regional Vice President: Victoria Kwakwa Country Director: Rodrigo A. Chaves Senior Global Practice Director: James A. Brumby Practice Manager/Manager: Arturo Herrera Gutierrez Task Team Leader: Hari Purnomo, Arun Arya The World Bank Public Financial Management and Revenue Administration Reform Program (P152551) ABBREVIATIONS AND ACRONYMS Bappenas National Planning and Development Agency (Badan Perencanaan dan Pembangunan Nasional) CD Country Director CTO Center of Transformation Office DG Directorate General DIPA Government Budget Document (Daftar Isian Penggunaan Anggaran) EA Environmental Assessment EBS Oracle E-Business Suite GOI Government of Indonesia MCM Management Committee Meeting MOF Ministry of Finance PDO Project Development Objective PEFA Public Expenditure and Financial Accountability PFM Public Financial Management PFM MDTF Public Financial Management Multi Donors Trust Fund PIU Project Implementing Unit PLPSE Center for Electronic Procurement Service Unit (Pusat Layanan Pengadaan Secara Electronik) under the MOF Secretary General but it is now just merged with the Bureau of General Affairs PSSU Project Secretariat and Support Unit under the Seceretary General of Ministry of Finance PUSINTEK Center of Information and Technology (Pusat Informasi dan Teknologi), Ministry of Finance Organta Organization and Business Process (Organisasi dan Tata Laksana), Ministry of Finance Rocenkeu Bureau of Planning and Finance, Ministry of Finance (Biro Perencanaan dan Keuangan) SPAN Government Financial Management Information System (Sistem Pembendaharaan dan Anggaran Negara) TA Technical Assistance TF Trust Fund The World Bank Public Financial Management and Revenue Administration Reform Program (P152551) BASIC DATA Product Information Project ID Financing Instrument P152551 Investment Project Financing Original EA Category Current EA Category Not Required (C) Not Required (C) Approval Date Current Closing Date 01-Mar-2016 28-Feb-2018 Organizations Borrower Responsible Agency Ministry of Finance (Indonesia),Directorate General of Ministry of Finance Taxes Project Development Objective (PDO) Original PDO To improve the capacity of the Ministry of Finance to undertake more efficient, timely, and transparent public financial management OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net TF Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed TF-A1903 01-Mar-2016 21-Mar-2016 21-Mar-2016 28-Feb-2018 2.70 1.80 .90 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Public Financial Management and Revenue Administration Reform Program (P152551) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING 1. TF0A1903 became effective on March 21, 2016. It is currently being implemented by two ministries, namely the Ministry of Finance (MOF) and Bappenas. There are four participating Echelon I units under MOF and one under Bappenas. The 5 echelon I include Directorate General of Tax, Directorate General of Treasury, Directorate of Budget, Secretary General of MOF and Deputy of Development Funding of Bappenas. Except MOF Secretary General which has two PIUs, PSSU and PUSINTEK, each of other echelon I has one project implementing unit (PIU) that covers some of underneath directorates (Echelon II) as beneficiaries. In total, there are 15 Echelon II units involved in project implementation. The overall program is under the leadership of MOF Secretary General, with the minister’s expert staff is actively involved in the day to day project's oversight. PSSU, the Project Secretariat and Support Unit, plays the coordination and oversight role on project implementation in close collaboration with the World Bank's team. 2. At the beginning of the project implementation, the progress was slow due to the time needed for complying to the government’s administrative requirements, mainly in putting funds into the GOI budget allotment documents (DIPA). Furthermore, the program also encountered challenges in the procurement process for consultants, due to the lack of familiarity of the government’s officials with the Bank’s procurement guidelines. There are also activities that were only approved by the Management Committee Meeting (MCM) in early 2017, in addition to some activities that were already approved by the MC between 2014-2016. The government prepared the activities proposal based on their need assessment against the state budget. Thus, those activities being proposed were not prepared in a strategic framework (one-time approval) but rather on a piece-meal or individual basis. 3. Summary of component wise allocations is presented below: Table I: Allocation and Commitment by Component as of January 31, 2018 (in USD) Part # Implementing Agency Approved Allocation Commitment 1 PSSU - MOF 470,375 280,194 2 Bappenas 80,000 38,492 3 DG Budget - MOF 263,400 253,953 Bureau of Planning and Finance - MOF 150,000 0 4 DG Treasury 960,000 459,565 5 PLPSE - MOF 64,000 64,000 6 DG Taxes 316,412 306,683 8 Center of Information and Technology (PUSINTEK) 160,395 108,271 Bureau of Organization and Business Process (Organta) - MOF 33,925 33,904 Center of Transformation Office (CTO) - MOF 47,120 22,080 Total All Parts 2,545,627 1,567,142 4. As the coordinator of the PFM-MDTF on the government side, PSSU was the only unit to start the implementation in time, when they started implementing activities from mid-2016. The rest of the PIUs only started implementation towards the end of the 2nd quarter of 2017. Out of 24 activities that were approved by the Management Committee, 10 major activities were completed and 2 cancelled. The remaining 12 activities are waiting for implementation. Major outputs include reports from several trainings and visit that have been completed by DG of Taxes, CTO, DG of Treasury, and MOF Procurement-Unit, and report on findings and recommendations from Operations and Security Management Specialists that have been submitted and received by PUSINTEK as well as the monitoring and evaluation report by iv The World Bank Public Financial Management and Revenue Administration Reform Program (P152551) PSSU. In the remaining period, it is expected the project will deliver the reports on PFM Roadmap Development and EBS Technical Assistance. The detail status of activities is described in Annex I: Now, most of the planned activities have already been launched after obtaining the MDTF donors’ and MOF Secretary General’s endorsement through some MC meetings, with some major capacity building activities and few technical assistances have been implemented and completed. The remaining planned activities that have been earlier endorsed by MC Meetings shall be on-hold pending the effectiveness of new extended closing date. Once the closing date is extended, the activities will be included in the budget document and the procurement process can be launched. 5. The project ratings on the progress towards achievement of the PDO and overall implementation progress (IP) are moderately satisfactory. As of December 2017, all four PDO indicators have achieved the target, though not yet in a complete and comprehensive performances as expected. These four indicators are: (i) reduction in the time lapsed of financial reporting on public expenditures after the fiscal year; (ii) percentage of trained SPAN users staff able to fully understand the conceptual framework of accrual accounting and to use the system in producing the accrual based accounting system at minimum require; and (iii) Improved the quality of sub-national governments data that is available in digitalized format, as well as (iv) Number of trained staff in forensic investigation unit able to use forensic methods and tools to investigate tax criminal cases. The only Intermediate Result indicator set for this Grant - percentage of major capacity building activities are successfully completed as planned - is also showing progress towards the target. 6. Reason for Extension: a. It took six (6) months for the project being effective on March 2016 after it was approved on October 2015 due to a longer time needed to prepare and sign the grant agreement. Then, it took another several months after the effectiveness date for the government to officially establish all PIUs and assign the staff to work in each of respective PIU. Hence, essentially there were only a few activities that could be implemented in FY 2016. b. Due to the longer time needed by the government’s officials to be familiar with project implementation manual, a few recipients executed activities were delayed in the project start, and therefore, cannot be completed by February 28, 2018. The government counterparts want to complete the ongoing activities. If additional time is allowed, they can be completed satisfactorily. c. The Trust Fund has sufficient funds available to complete the pending activities and no additional funding is required. d. Given the unfamiliarity of Government’s staff with the Bank procurement guidelines, some activities that will have to be implemented through procurement (mostly to hire consulting firms) have encountered some delays. However, if the one-year extension is granted, the team expect these activities to be successfully implemented. e. During the project implementation, the PIU continues to face procurement challenges, especially in getting qualified consultants for technical assistance causing some activities delayed. With the close supervision from the Bank’s Procurement team, government has now improved their procurement capacity and at end last year they were ready to launch their procurement activity. However, they could not continue the procurement process because the closing date is due on February 28, 2018. f. One major activity that has been pending under this grant is the consultancy on PFM Roadmap Development (Technical Assistance). This activity was ready for implementation last year but the selected consultant cancelled the assignment due to personal reason. This TA is very important, critical and strategic as well. Its main objective will be to develop government’s PFM strategy based on the result of PEFA and the PFM MDTF Mid-Term Review. Now the minister has endorsed this activity and the selected consultant, it is very important the project can be extended. v The World Bank Public Financial Management and Revenue Administration Reform Program (P152551) g. Another major activity is the Consultancy on Enhancement of the Budget Preparation and Oracle EBS to Optimize the Effectiveness of the FMIS (SPAN) Investment and Sustainability of the System. Despite the successful launch of SPAN in 2015, there is a need to continue enhance the application in coping with the changed regulations. DG Treasury planned to hire a consulting firm to support them in enhancing the SPAN for more effective budget preparation and treasury management. This activity was planned to be implemented in 2017, but it is postponed since in the second semester of 2017, DG Treasury focused to complete the SPAN Information System Audit (funded under BETF) that has helped them to understand the system weaknesses, risks and deficiencies. 7. During the extension period, the Project Management Office for this grant will continue to be under the office of MOF's Secretary General and work closely with the Bank’s team to supervise the implementation during the extended period. PSSU will play critical role to ensure remaining activities will be fully implemented by February 28, 2019. II. DESCRIPTION OF PROPOSED CHANGES 8. The closing date for the Public Financial Management and Revenue Administration Reform Program (P152551) will be extended from February 28, 2018 to February 28, 2019. This extension is in line with Government’s projection for completting all planned activities. The request for extension has also been endorsed by the donors. There is no additional funding required and it will be a no-cost extension. The proposed extension of the closing date will help enhance impact of the overall PFM Reform Agenda of the government. Although the disbursement to the Special Account has only reached about 67%, the utilization of available funds has reached 90%. The proposed 12-months extension will enable satisfactorily completion of all activities. 9. However, given the extension of closing date of the parent TF (TF071375) has not yet been completed, this project will go through interim extension up to April 30, 2018. Further extension up to February 28, 2019 will be granted after the parent TF extension completed. The team will prepare the notification letter that specifies that "grace period" for submitting withdrawal applications shall now be only 2 months. The team is confident and has given written assurance to DFPTF that if client submits withdrawal applications beyond a two-months grace period, our unit will resolve the matter directly with the client so that Bank is not obligated to honor such late withdrawal requests. III. SUMMARY OF CHANGES Changed Not Changed Change in Loan Closing Date(s) ✔ Change in Overall Risk Rating ✔ Change in Implementation Schedule ✔ Change in Implementing Agency ✔ Change in Project's Development Objectives ✔ Change in Results Framework ✔ Change in Components and Cost ✔ vi The World Bank Public Financial Management and Revenue Administration Reform Program (P152551) Cancellations Proposed ✔ Additional Financing Proposed ✔ Reallocation between Disbursement Categories ✔ Change in Disbursements Arrangements ✔ Change in Disbursement Estimates ✔ Change in Safeguard Policies Triggered ✔ Change of EA category ✔ Change in Legal Covenants ✔ Change in Institutional Arrangements ✔ Change in Financial Management ✔ Change in Procurement ✔ Other Change(s) ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_LOANCLOSING_TABLE LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline TF Status Closing Closing(s) Closing for Withdrawal Applications TF-A1903 Effective 28-Feb-2018 30-Apr-2018 30-Jun-2018 OPS_DETAILEDCHANGES_SORT_TABLE OVERALL RISK RATING Risk Category Rating at Approval Current Rating Overall  Moderate vii The World Bank Public Financial Management and Revenue Administration Reform Program (P152551) Annex I: Activities and Status as of January 31, 2018 (in USD) Component Amount Status as of Jan 31, 2018 Better oversight of PFM reform processes, leading to an adequate sequencing and coordination of I reform activities 1.1 Consultancy Services to Support the Development of a Road Map for the Implementation of PFM Minister has approved the selected candidate. This TA and Revenue Administration Reforms 120,000.00 will be launched once the extension is completed 1.3 PFM MDTF Program Management Technical Assistance to PSSU (3 items: PMA, Bilingual Secretary and Administrative Staff) 174,340.00 Completed 2016-2017 1.6 PFM MDTF Program Management Technical Assistance to PSSU 176,035.00 On-going since 2017 II More targeted allocation of public funds to development priorities - Consultancy completed; Workshop completed; 2.2 Support to Bappenas in Building the Capacity to Conduct Spending Review 80,000.00 Overseas training to be done 2018 III Better links between budgetary spending and improvement of public services - 3.3 In-country Training and Knowledge Sharing for Developing Capacity of DG Budget 106,000.00 Completed 2017 3.5 Training, Consultancy, Advisory and Analytical Activities (AAA) for ROCANKEU, MOF 150,000.00 Not yet started 3.7 In-country Training for Developing Capacity of DG Budget, Ministry of Finance to better links between budgetary spending and improvement in public services 157,400.00 Completed in 2017 IV Improved budget execution and reporting - 4.2 Consultancy to Enhance the Budget Preparation and EBS to Optimize the Effectiveness of the SPAN NOL has been issued; Procurement resceduled to Investment and Sustainability of the System 350,000.00 2018 Consultancy for Developing a Data Warehouse to Optimize the Use of SPAN; Output: Application Subject matter was covered in a Pusintek Study. 4.3 system with document 100,000.00 Activity will be cancelled. 3 In country training completed; Overseas training to 4.4 Enhancement of MOF staff Capacity for Better Cash Management (Training) 150,000.00 be done in 2018. 4.6 Support the SAKTI Roll-out and the Training of Selected Users 360,000.00 Completed in 2017 V Enhanced compliance and value-for-money in the use of public resources - 5.4 Technical Assistance for Audit Report Analysis - Cancelled In-country Training and Capacity Development for the Staff of the Regional Procurement Service 5.8 Unit (ULPD) 64,000.00 Completed VI Increased Fiscal Revenues through improved customs, tax and non-tax revenues 6.4 Training and Certification for Digital Forensic Investigator (Jakarta) 64,975.00 On-going for in-country training; 6.5 Capacity Building to Enhance Internal Investigation and Strategic Planning 147,382.00 6.6 Development of CRM Framework - Workshop with Neighboring Countries 27,935.00 Benchmarking Study to IRS on Tax Intelligence Technique and Methodology Standard Operating To be done in 2018 - to be shifted to another country. 6.7 Procedure (SOP) and HR Management, United Kingdom 20,320.00 Benchmarking Study to IRS on Tax Intelligence Technique and Methodology, Standard Operating Completed 6.8 Procedure (SOP) and HR Management, United States 55,800.00 VIII Strengthening/Transforming institutional capacity for PFM - 8.1 Consultancy for Data Center Operations Management Specialist 55,000.00 Completed in 2017 8.2 Consultancy for Data Center Infrastructure Management Specialist 50,000.00 Completed in 2017 8.3 Consultancy for Security Specialist 55,395.00 No final decision on consultancy 8.4 Training & Coaching in Development of SOP & Business Process Mapping with RASCI (Responsible, 33,925.00 Completed in 2017 Accountable, Support, Consulted, Informed) 8.6 In-country Training for ICT Governance and Management (Activity Proposal to be resubmitted to Management Committee) - Cancelled 8.9 Benchmarking Program in Support of Transformational Leadership, Human Capital Management Benchmarcking to Australia completed; In-country and PPP Development Strategy Scheme 47,120.00 training not yet finalized Total 2,545,627.00 viii