52448 INDONESIA PROJECT RESTRUCTURING REQUEST FOR BOARD APPROVAL URBAN SECTOR DEVELOPMENT REFORM PROJECT (USDRP) LOAN 7760-IND (FORMERLY LOAN 4786-IND) PROJECT ID - PO71296 COFINANCED by PHRD GRANT NO.TF053555-IND Table of Contents Memorandum of the President Data Sheet . I. Introductory Statement 5 11. Background and Reasons for Restructuring 5 111. Proposed Changes 8 IV. Analysis 11 V. Expected Outcomes 12 VI. Benefits and Risks 12 Annexes Annex I Performance Ratings Summary in Each Supervision Mission 13 Annex I1 Revised Performance Indicators 14 Annex I11 Revised Core Urban Reform Requirements and Rationale 19 Annex IV Proposed Reallocation of Unallocated Loan Proceeds 23 MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSAL TO RESTRUCTURE THE URBAN SECTOR DEVELOPMENT REFORM PROJECT (USDRP) LOAN NO.7760-IND (FORMERLY LOAN 4786-IND) FOR THE REPUBLIC OF INDONESIA 1. I submit for your approval a proposal to restructure the Urban Sector Development Reform Project (USDRP) Loan 7760-IND for the Republic of Indonesia 2. The proposed restructuring would (a) reword the project development objective (PDO) and reorient the project indicators; (b) simplify and refocus the requirements of the urban reform component; (c) revise the consultants services category to include training and workshops, and reallocate a portion of the funds from the ?unallocated? disbursement category to such category; and (d) include two new urban local governments (ULGs) in the project. 3. There are no relevant matters that the Borrower has requested not to be disclosed in this Project Paper. 4. Recommendation. I am satisfied that the proposed restructuring of the Republic of Indonesia: Urban Sector Development Reform Project (USDFW) Loan No. 7760 would comply with the Articles of Agreement of the Bank I recommend that the Executive Directors approve this proposal in accordance with the terms of this Memorandum and attached Project Paper. Upon approval, the Loan Agreement will be amended accordingly. Robert B. Zoellick President By Juan Jose Daboub Managing Director Washington DC March 24,201 0 INDONESIA URBAN SECTOR DEVELOPMENT REFORM PROJECT (USDRP) PROJECT PAPER DATA SHEET Date: March 18,2010 Task Team Leader: Ida Ayu Indira Dharmapatni Country: Republic of Indonesia Sector Manager: Sonia H m a m Project Name: Urban Sector Development Country Director: Joachim Von Amsberg Reform Project (USDRP) Environmental category: A Project ID: PO71296 Borrower : Republic of Indonesia Responsible agency: Ministry of Public Works - - Director General of Human Settlements J1. Pattimura No. 20, Kebayoran Baru, Jakarta Selatan 12110 Revised estimated disbursements (Bank FY/US$ millions) FY 2006 2007 2008 2009 2010 201 1 2012 Annual 0.23 2.01 6.27 4.53 5.96 17.69 8.32 Cumulative 0.23 2.24 8.50 13.03 18.99 36.68 45.00 Current closing date: June 30,201 1 Revised closing date: June 30,2012 Indicate if the restructuring is: Board approved X - RVP approved - Does the restructured project require any exceptions to Bank policies? - Yes &No Have these been approved by Bank management? - Yes -No Is approval for any policy exception sought from the Board? - Yes ENo Revised project development objective/outcomes: The project development objective is to assist the Borrower to strengthen local governance and improve the provision of selected urban services by participating urban local governments (ULGs) and additional participating ULGs. Does the restructured project trigger any new safeguard policies? No fwther safeguard policy will be triggered by the proposed restructure; however Environmental Assessment (OP/BP/GP 4.01) and Involuntary Resettlement (OP/BP 4.12) were triggered at project design and will continue to be applicable (see paragraph 18 below). Financing Plan IBRD Others (Japan PHRD) I. Introductory Statement 1. This Project Paper seeks the approval of the Executive Directors to introduce the following changes in the Republic of Indonesia: Urban Sector Development Reform Project (USDRP), Loan 7760-IND (formerly Loan 4786-IND), PO71296 and any accompanying amendments to the project's legal documents. 2. The four principal changes proposed are to (a) state the project development objective (PDO) more clearly and accurately, and also make corresponding modifications to the project's performance indicators to provide an improved results framework for measuring progress toward, and attainment of, project outputs and outcomes; (b) simplify and refocus the requirements of the urban reform component; (c) revise the consultants services category to include training and workshops, and reallocate a portion of funds from the "unallocated" disbursement category in the amount of US$0.95 million to such category to finance technical assistance for component A, specifically for UIDP, capacity building program and management support to the CPMU, and (d) include two new participating urban local governments (ULGs) in the project. This Project Paper also proposes to extend the original project closing date by 12 months, from June 30, 201 1 to June 30, 2012, to permit a realistic timeframe within which to accomplish the objectives of the project. This is the first extension of the original closing date for this project. 11. Background and Reasons for Restructuring 3. The project was approved by the Bank's Board of Directors on June 7, 2005 and became effective on January 18, 2006. The original closing date is June 30, 201 1. The project has been formally amended on three occasions: (a) on January 18, 2006, to deal with delays by several ULGs in meeting the effectiveness condition of adopting the Project Management Manual (PMM); (b) on March 26, 2007, to include Least Cost Selection as a procurement method; and (c) on July 14, 2008, to add four new participating ULGs to partially compensate for the eight ULGs that had either dropped out of the program or failed to launch project activities. This project is one of a number of sub-national projects currently financed by the World Bank that support the Indonesian government's ambitious decentralization agenda. The projects are being implemented in a highly complex and challenging environment, and are seeking to break through on vital issues related to effective implementation of Indonesia's decentralization program. 4. Project Development Objective (PDO). The Project Appraisal Document dated May 11, 2005 states that "The project's principal development objective is to improve urban services in the participating Urban Local Governments (ULG). This is the first step toward achieving the Government of Indonesia's (GOI) long-term goal to develop self- reliant cities. To achieve this objective, the project focuses on reforming municipal governance, developing institutional capacity and financing priority urban investments." The PDO as stated in Schedule 2 of the Loan Agreement (LA) dated October 20,2005 is ". ...to assist the Borrower in improving the provision of urban services by Participating ULGs and Additional Participating ULGs." 5 5. Project Design and Scope. The project is supported through an IBRD loan in the amount of US$45 million, accompanied by a grant of US$5 million from Japan under the Policy and Human Resources Development Fund (PHRD). Section B of the PAD describes the project as consisting of two components: Component A: Urban Reform and Institutional Support, is comprised of two subcomponents. Subcomponent A. 1, Urban Institutional Development Reform Program (UIDP), supports participating ULGs in implementation of urban reform programs in the areas of (a) core governance reforms in the areas of civic participation and transparency, procurement and financial management; (b) long-term urban development strategies and plans, including local economic development and urban poverty reduction strategies; and (c) institutional and capacity development programs identified by ULGs, including professionalization of municipal managers and staff as well as e-governance. This subcomponent also helps the Government of Indonesia to formulate national urban policies on key strategic areas, particularly urban finance, poverty reduction and local economic development. Subcomponent &, Project Implementation Support, provides technical assistance to the Central Project Management Unit (CPMU) for project management, coordination and supervision. Component B: Urban Investment, finances priority investments for improving urban services in the participating ULGs. 6. The project originally allocated US$2.5 million of the Bank loan to the Urban Reform and Institutional Support Component, US$40.27 million to the Urban Investment Component, US$2 million was left unallocated, and the front-end fee was US$0.23 million. The entire US$5 million of the PHRD grant was allocated to the Urban Reform Component. The PAD and the LA anticipated that USDRP would support 13 participating ULGs fiom 8 different provinces. 7. Status of Project Implementation. Since project effectiveness, slightly more than 60 percent (8 of 13) of the ULGs have withdrawn from the project, mainly for reasons beyond the control of the project. The most common issues were (a) a non- conducive political environment due to local elections; (b) failure to secure final approval fiom the local representative council (DPRD); (c) prolonged delays in settlement of arrears to the Ministry of Finance (MoF), (d) prolonged delays in processing of subproject approval and subproject loan agreements (SLAs), and/or (e) disagreement with the internal subproject loan channeling mechanisms ratified by MoF. 8. Project Performance. Overall Implementation Progress (IP) has been rated "moderately unsatisfactory" since June 2008 because of significant lags in overall implementation progress and disbursements, mainly related to the turnover in participating ULGs (which has prevented the start of new investment subprojects) and delays in hiring consultants for the reform component. Although a midterm review (MTR) of the project, carried out hom March 16, 2009 to June 12,2009, found signs of improvement, there was not sufficient justification to upgrade the IP rating in the most recent Implementation Status and Results Report (ISR), archived in November 2009. 6 Although these lags have persisted for some time, the project has nevertheless made substantial progress to date in many respects (see Annex I for detailed ISR ratings): (a) Five of the eight subprojects approved for subsidiary loans in the original participating ULGs have been completed, three more are in the construction stage, and one is in the pre-construction stage. Two of the participating ULGs that joined the project in the third project amendment have started construction, while one is in the process of obtaining its SLA. (b) The two new participating ULGs included in the current project restructuring are in the process of obtaining SLAs. Another ULG is under consideration as a potential participating ULGs, has met the key eligibility criteria, and may be added to the project at a later date as an additional participating ULG after it finalizes the feasibility study for its subproject proposal. (c) Two key UIDP consultancies (UIDP Management and UIDP National Urban Strategy and Policy Development) have been awarded and are now under implementation, and some technical assistance for ULGs to support implementation of their reform programs has been provided despite continuing delays in selection of a PHRD-financed consultant for the UIDP Local Governance Reform package. (d) All ULGs are making relatively good progress toward achieving the intended results indicators for core urban reforms, despite the delays mentioned above in awarding a key consultancy. This progress has been achieved as a result of the ULGs' strong commitment and with their own institutional capacity and resources, with some technical assistance provided by a bridging consultant and individual consultants carrying out other parts of the UIDP component. Preparation of the UIDP business plan (BP) has started. 9. It is expected that in the next 6-12 months, the DO and IP ratings will improve further a result of (a) the SLA being signed by one new participating ULG that is currently in the SLA process, (b) mobilization of the consultant for the UIDP Local Governance Reform Package, (c) two ULGs starting to process SLAs, and (d) at least one ULG starting construction. 10. Disbursement Level. The project now has eight participating ULGs. The original project design included 13 ULGs, but 8 of the original ULGs were dropped from the program and four new ones included in the third project amendment. Due to this situation, at the end of 2009 the disbursement lag was approximately 63 percent (US$14.06 million of the US$37.7 million originally projected to be disbursed by the end of 2009). Disbursement of the PHRD grant portion of the project that finances technical assistance for the ULGs has reached US$1.38 million, which represents a lag of 54 percent (US$1.38 million of a projected US$3.0 million). While this disbursement performance does not in itself compare unfavorably with general experience in the sector and country for projects at a similar stage of implementation, disbursement is expected to continue to lag behind the original estimates, particularly for subproject loans because the 7 project now has only four participating ULGs at the subproject construction or completion stage, while three other ULGs have just started their construction. 11. Two of the four additional participating ULGs in the third project amendment have now signed SLAs and started work on their subprojects, and another ULG is close to finalizing its SLA (one of those four ULGs has withdrawn from the project). Furthermore, as mentioned above, two additional ULGs have been approved to participate in the project under the current restructuring proposal, and it is possible that a third will be added to the project later. The PHRD-funded individual technical assistance consultants to support ULGs implementing the reform agenda have been mobilized since July 2007. The UIDP management consultant intended to strengthen the capacity of the Central Project Management Unit (CPMU) in overseeing implementation of the ULGs' reform agenda and to develop the UIDP Business Plan was mobilized in January 2009. 111. Proposed Changes 12. Modify PDO and Reorient Project Indicators. The principal indicators in the Results Framework Matrix (PAD Annex 3) are worded in a way that does not allow them to respond to the need for change as described above. Moreover, the indicators call for absolute numbers as a gauge of the progress toward outcomes (with the risk of these becoming meaningless in a changed context), rather than as a percentage. In their current formulation, the PDO and indicators also fail to capture appropriate measures of improved governance. The proposed rewording of the PDO as stated below will provide greater precision in expressing the intended achievements of the project interventions. The revised Results Matrix (detailed in Annex 11) will provide clearer measures of the achievement of the intended outputs and outcomes. Original PDO in the PAD (Data Sheet of PAD, Report No: 28393-ID, May I I , 2005) The project's development objective is to improve urban services in the participating ULGs. This is the first step toward achieving the above mentioned GOI's long-term goal to develop self sustaining cities. To achieve this objective, the project focuses on reforming municipal governance, developing institutional capacity and financing priority urban investments. Original PDO in the Loan Agreement (Schedule 2, Loan Agreement, October 20, 2005) The project's development objective is to assist the Borrower in improving the provision of urban services by Participating ULGs and Additional Participating ULGs. Proposed Revised PDO The project development objective is to assist the Borrower to strengthen local governance and improve the provision of selected urban services by participating ULGs and additional participating ULGs. 8 13. Simplify and Refocus the Requirements of the Urban Reform Component. Some of the reform requirements developed during project preparation or at the initial stage of project implementation are no longer relevant or are incompatible with other regulations, are unrealistically difficult or not achievable by the ULGs, or are already covered by other activities in USDRP or by central government regulations. The project's reform requirements are therefore simplified and tailored to the current needs and capacity of the ULGs. In doing so, the project will have a more relevant, narrowly targeted, and better defined set of reform activities that will help achieve more tangible and useful outcomes for the ULGs. 14. Below is a brief summary of the reform areas with general information about the types of changes made to the project's activities and requirements in each area. For a detailed list of the activities, see Annex 111. Reform area I original activities Summary of changes Transparenc: , Participation and Accountability (TPA) 1. Improve access to public One of the activities, development of an integrated information documents (three activities) system, was changed to development and/or improvement of official websites for information dissemination. 2. More systematic handling of Unchanged. public complaints (three activities) 3. Promote public participation Activities are unchanged but will be focused specifically on in decision making (three strengthening the process for making block grants from ULGs activities) to kecamatan (sub-district) or kelurahan (villages, andor developing indicative budgets for development activities. 4. Improve the role of Urban Unchanged. Forums 5. Issue local regulations on More flexibility in type of regulatory instrument used. public participation 6. Issue local regulations to More flexibility in type of regulatory instrument used. improve transparency Financial Management 1. Institutional and legal More flexibility in type of regulatory instrument used. frameworks (two activities) 2. Planning and budgeting Two of the requirements were dropped because they were (issue decree or local already covered either by other central government regulations regulations with five specific or another part of the USDRP Urban Reform Component. requirements) ~~ ~ 3. Budget execution and For one requirement, more flexibility is allowed in type of 9 Reform area / original activities Summary of changes monitoring (six activities or regulatory instrument used. Three activities or regulatory specific decrees) measures were dropped because they are already covered by other central government requirements. 4. Accounting and financial More flexibility in type of regulatory instruments used, and reporting (two mayoral one requirement was modified to reflect coverage of some decrees) aspects by other parts of USDW or to be compatible with central government regulations. 5. Capacity building No longer included because it is beyond the scope of the project and can be more effectively addressed through current training programs conducted by the central government. Procurement 1. Establish procurement anchor Unchanged unit (PAU) 2. Regulatory reform and Only one requirement, adoption of standard bidding streamlining of local documents, is retained. The other five are already stipulated in regulations (six requirements national regulations. / activities) ~ 3. Improve information systems The number of specific requirements for publishing bidding (three requirements on and procurement information was dropped from eight to only publishing bidding and six. Publication of Procurement Bulletin may be in either print procurement information) or electronic form. 4. Improve control, auditing, Only one requirement, awarding 75% of bids within the bid and feedback systems at the validity period, was retained. The others are already covered district level (six activities) by national regulations. 5. Training and capacity Two activities related to assessing needs and providing building (three activities / training are dropped because training is already provided by requirements) the central government. ~ 6. Improve procurement Two new activities were added to help improve procurement services (new category) services: (a) periodically announcing the contractor/vendors with good performance records, and (b) establishing a Procurement Services Unit. Note: Annex I11 provides a detailed list of activities and requirements in each reform area, along with the changes proposed in the restructuring. 15. Reallocation of Loan Proceeds and Revision of Disbursement Category. The disbursement category for consultants' services will be amended to also include "training and workshops." Unallocated loan proceeds of US$0.95 million (out of US$2 million unallocated) will be reallocated to the consultant services, training, and workshops category to help finance technical assistance for the Urban Reform Component, specifically in the areas of (a) UIDP Local Governance Reform, (b) preparation and 10 implementation of the ULGs' urban development strategies and plans, and (c) capacity building and management support to the CPMU. Details are provided in Annex IV. 16. Additional Participating ULGs. The project's Inter-ministerial Steering Committee (IMSC) has approved two new participating ULGs for inclusion in the project: Kabupaten Morowali (Central Sulawesi) and Kota Banda Aceh (NAD Province). Both have fulfilled the project eligibility criteria of having (a) a Bupati or Mayoral Decree on the reform agenda; (b) a five-year Development Plan (RPJMD); (c) adequate borrowing capacity; and (d) no outstanding arrears. 17. Extension of Closing Date. The project closing date will be extended by 12 months, to June 30,2012, to enable the project to achieve its objectives. IV. Analysis 18. The proposed changes do not have a major effect on the original economic, financial, technical, institutional, or social aspects of the project as appraised. The rewording of the PDO and revision of the results matrix is intended to provide greater clarity around the intended outcomes of the project and more appropriate measures of that outcome. 19. Safeguards. None of the proposed changes affect the environmental category of the project (Category A) or trigger new safeguard policies. The Environmental Assessment {OP/BP/GP 4.01) and Involuntary Resettlement {OP/BP 4.12) safeguards will continue to be applicable for the restructured project and for the loan extension. All subprojects prepared by ULGs are evaluated and treated as either Bank environment category A or B and are required to develop the appropriate safeguard reports, plans, and instruments for that category. ULGs have to prepare land acquisition and resettlement actions plans (LARAPs) and environmental assessments (EAs) that are acceptable to the Bank, disclose these documents to the public, and hold consultations with stakeholders. If a ULG subproject to rebuild a market requires relocation of vendors to either temporary markets or a new one, the ULG has to prepare a LARAP in consultation with the affected traders, and the plan must be approved by the Bank prior to carrying out the subproject or beginning any relocation. The two new participating ULGs will follow the provisions of the Project Management Manual (PMM) pertaining to environmental and social safeguard guidelines. 20. Procurement. Procurement of goods, works and services (other than consultants' services) for the new ULGs will be carried out in accordance with the provision of Section I of the "Guidelines for Procurement under IBRD Loans and IDA Credits" dated May 2004, which was revised in October 2006. All consultants' services shall be procured in accordance with Sections I and IV of the Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004, which was revised in October 2006. The new ULGs will use the current project's methods of procurement of goods, works and services (other than consultants' services) and of procurement of consultants' services for the new ULGs, which are elaborated in the PMM. 11 21. Financial Management. The Bank has received acceptable annual audit reports throughout project implementation. Since the MTR, the rating for FM has been upgraded due to to `c~ati~fa~tory7' more timely submission and improved quality of reports and documentation to the Bank. The Financial Management arrangements for the new ULGs will follow the existing financial management system of the project. 22. Urban Reforms. The new participating ULGs will carry out a reform agenda that is in line with the existing project requirements as specified in the PMM. Rapid assessment for the two ULGs indicated that both are implementing reform activities in the direction of the reform areas that are promoted by the project. . 23. Exceptions to Bank Policy. The proposed restructuring does not involve any exceptions to Bank policies. V. Expected Outcomes 24. The combined effect of the clarified PDO and the revised Results Framework matrix, along with an extended implementation period, simplification of the Urban Reform Component, the reallocation of a portion of funds from the "unallocated" disbursement category to the consultants' services, training, and workshops category, and inclusion of new participating ULGs, will strengthen project implementation and facilitate the achievement of more targeted and clearly defined governance and service delivery objectives in the participating ULGs. VI. Benefits and Risks 25. The risk that participating ULGs may lack the political commitment or have insufficient capacity to carry out reforms was rated at project appraisal as "substantial" even after mitigation measures. In retrospect the risk may more accurately have been rated as "high" given that at a local level continuity of political commitment is often inextricably interwoven with elections and changing administrations. Experience with this project through midterm reinforces this lesson, as 8 of the original 13 ULGs identified at the appraisal stage have dropped out of the project. 26. On the other hand, experience with the project does provide some reason for optimism. There has been a growing willingness and commitment of the participating ULGs to implement reforms, and all of them have made progress toward achieving their reform agenda, with their own resources and capacity, and some assistance from the project's UIDP consultants. Almost all participating ULGs are quite advanced in transparency, participation and accountability (TPA) reform, particularly in public complaints handling and information dissemination. Some ULGs are implementing reforms beyond the core reform agenda. 12 Annex I: Performance Ratings Summary in Each Supervision Mission . ISR# 1 ISR#2 ISR#3 ISR#4 ISRkt5 ISR#6 ISR#7 03/29/06 05/23/07 1 1/07/07 06/23/08 08/26/08 04/15/09 11/09/09 Project Development S MS MS MS MS MS MS Objective Implementation S MS MS Mu Mu Mu Mu") Progress Financial Management S Mu Mu Mu MS MS S Project Management S MS Mu MS MS MS MS Counterpart Funding S S S S S S S Environmental and Social S S MS MS MS MS MS Safeguards Procurement S MS MS MS MS MS MS Monitoring and Evaluation S MS MS Mu Mu MS MS 13 I Annex l:Revised Performance Indicators Project development objective Original: Assist the Borrower in improving the provision of urban services by participating ULGs and additional participating ULGs. Revised: Assist the Borrower to strengthen local governance and improve the provision of selected urban services by participating ULGs and additional participating ULGs. 14 - .- m VI J= 9 3 .- e M C 8 m .- C .- Q .- U E 0 *;'e a"= 02 2 Zm m m m m .. .. .. .. 3 3 3 3 t-~mrnw 1 Annex 1 1 Revised Core Urban Reform Requirements and Rationale 1. Rationale for the changes of reform requirements. The project was prepared during the initial stage of the country's decentralization and democratization process. Project implementation has progressed along with the advancement of decentralization and democratization process. Since loan negotiation in 2005, Central Government has issued new regulations, some of which, are directly or indirectly related to the three project's core urban reform areas designed during project preparation. Some of the requirements and activities to implement these core urban reform areas are in line with these new regulations, but some others are no longer relevant. Furthermore, some requirements and activities are already systematically implemented by the local governments as required by the national regulations. There is also a case that the Central Government is now in the stage of finalizing a Presidential Decree and a Guideline for complaint handling and procurement audit, which would duplicate the current activities in the project procurement reform areas. Given this situation, while the project keeps the three core urban reform areas, the scope of requirements and activities to achieve these will have to either be simplified, discontinued, and/or refocused in such a way that they will be more and provide more useful impacts for the ULGs and at the same time will achieve the revised PDO by the new loan closing date. 2. Changes of the core urban reform requirements. As described in the PAD, the participating Urban Local Governments (ULGs) are required to implement urban core reform in three areas (as part of the project's Component A), i.e., transparency, public participation, and accountability; procurement and financial management reforms. Table 1 below presented the proposed changes of scope of the requirements and activities for the ULGs in implementing these reforms. 19 Urban Core Reform Area 1: Transparency, Participation and Accountability Revised Reform Requirements and Activities - No. ORIGINAL REFORM REVISED REFORM REQUIREMENTS AND REQUIREMENTS AS DESCRIBED IN ACTIVITIES THE PAD AND ACTIVITIES AS AGREED BY THE ULGs AT APPRAISAL - 1. Improve access of people to public This requirement is unchanged documents through the following activities: a. Utilization of various media for All activities remain the same, except for the information dissemination development of integrated information system b. Utilization of media for monitoring will be replaced by developinghmproving development activities official website. C. Development of integrated - inforination system 2. Carry out a more systematic way of This requirement is unchanged. public complaint handling through the following activities: a. Develop legal and institutional All activities remain unchanged foundation b. Develop Standard Operating Procedures - C. Develop medidtools 3. Promote public participation in decision This requirement is unchanged. making through the following activities: These activities will be focused towards a. Develop legal framework strengthening participatory planning process for b. Develop Standard Operating block grants to kecamatan (subdistrict) or Procedures or mechanisms kelurahan (village) level, developing C. Carry out public consultation in indicative budget for development activities development planning activity proposed through participatory planning process. - 4. Improve the roles of Urban Forums This requirement remains unchanged, ULGs are encouraged to strengthen the existing Urban Forums according to local conditions - 5. Issue a local regulation (PERDA) on This requirement remains unchanged but ULGs participation in public decision making are given an option to have different legal basis, Le. Mayor or Bupati regulation. - 6 . Issue a PERDA for improved This requirement remains unchanged but ULGs transparency are given an option to have different type of legal basis, i.e. Mayor or Bupati regulation. - 20 Urban Core Reform Area 2: Financial Management Revised Reform Requirements and Activities ORIGINAL REFORM REOUIREMENTS AS REVISED REFORM DESCRIBED IN THE PAD AND ACTIVITIES REOUIREMENTS AND AS AGREED BY THE ULGs AT APPRAISAL ACTIVITIES Institutional and legal framework issues through the This requirement remains unchanged following activities: but ULGs are given an option to a. PERDA on the Principles of Regional Finance issue different type of legal basis, as required by Government regulation 58/2005 i.e. Mayor or Bupati regulation. b. BupatiMayor RegulationDecree on the policies, systems, and procedure for the preparation and execution of APBD Planning and budgeting process through: This requirement remains a. the issuance of a Decree or local regulations unchanged. which stipulates that : This activity remains unchanged, (i) Bank accounts to receive or disburse public except it does not include points (ii) funds can be opened only with and (iii) authorization from Head of Kabupaten/Kota (ii) Head of each unit shall submit quarterly reports to finance department and BupatiMayor declaring the name, location, and balances of all bank accounts in the name of units or officials thereof (iii) Allocation of a minimum percentage (proposed at 5 % at entry and 10 % by the end of the project) of the annual budget to support programs/activities identified during the participatory planning process (iv) SK to authorize local government officials to make mid-year revisions in the annual budget allocation or target line items subject within certain pre-determined financial limits, similar to authorities given to central government officials (v) Local regulation that specifies clear criteria for expenditures that shall be funded from `contingency budget (belanja tidak terduga)' & procedure governing the authorization and commitment Budget execution and monitoring mechanism, This requirement remain unchanged through the following activities: but ULGs are given an option to a. Issue decree (SK) requiring issue different type of legal basis, (i) Department Heads to issue annually a Le. Mayor or Bupati regulation, or Statement of Responsibility to MayorlBupati, be included in the PERDA or with copy to Bawasda, affirming compliance MayorlBupati regulations on with applicable rules and regulations Principles of Regional Financial (ii) all revenue collected and donations received Management. are deposited to the authorized Kas Daerah 21 bank accounts (this does not apply to BUMD) b. Instruct Bagian Keuangan to undertake This item will no longer be included periodic comprehensive reconciliation of cash account covering accounting records, bank statements, official and temporary proof of This item will no longer be included collections and actual cash collection. C. To improve checks and balances in the functioning of local treasuries, discontinue the existing practice of locating regional treasury office (Kas Daerah) at the same premises as This item will no longer be included regional development banks (Bank Pembangunan Daerah). d. Issue a Decree of MayorlBupati that stipulates (0 A clear segregation of the functions of the Finance Department (which shall be responsible for the issuance of the payment This requirement is unchanged instructions - SPM) and the Local Treasury (Kas Daerah) (ii) Instruct Regional Treasuries not to receive, disburse or hold cash. 4. Accounting and financial reporting systems through This requirement is unchanged the following activities: Issue a MayorlBupati decree ensuring This is unchanged but ULGs are completion and publication of financialhudget given an option to include this realization reports every quarter within 2 activity in the PERLIA or months of quarter ends MayorlBupati regulations on Issue a MayorlBupati decree to make available Principles of Regional Financial to public and civil society details of budget, Management.. program information, annual financial or This activity is no longer budget realization report and audit follow-up implemented as summary of reports from audited units local budget and its realization will be put in the website. According to the Permendagri 1312006 pertaining Guidelines for Regional Financial Management, only BPK's annual audited report is _. published. 5. Capacity building This requirement is no longer be included, as the need for capacity building in financial management for ULGs is beyond the scope of the project. Also, central government agencies are now giving regular trainings to local government particularly in relation to the issuance of new regulations. 22 Urban Core Reform Area 3: Procurement Revised Reform Requirements and Activities No. ORIGINAL REFORM REVISED REFORM REQUIREMENTS AND REQUIREMENTS AS DESCRIBED IN ACTIVITIES THE PAD AND ACTIVITIES AS AGREED BY THE ULGs AT APPRAISAL - 1. Institutional reform by establishing a This requirement is unchanged procurement anchor unit (PAU) 2. Regulatory reform affecting This requirement is unchanged, but only include procurement, including streamlining all for the activity point b. Other activities are existing local procurement regulations, already stipulated in the national regulation through the following activities: pertaining procurement process (Keppres a. MayorlBupati's Decree on the 80/2 003) Keppres 8012003 operation at the local level b. Adoption of Standard Bidding Documents C. Establishment of mechanism for recording and handling of procurement complaints d. Enforcement & public disclosure of sanctions e. Removal Pre-Qualification and use the Post Qualification for contracts < IDR. 50 Billion f. Removal of bid restrictions to bidders registered in the respective district only - 3. Improving information system on This requirement is unchanged procurement, through the following activities: a. Publish of bid evaluation, winner This activity is unchanged except for bid contracts, contract scope & price evaluation b. Publish the Procurement Bulletin This activity is unchanged but could be in other type of media C. Publish the procurement plan, This activity is unchanged except for contract rosters and Droaess reDort procurement plan 4. Improving controlling, auditing, This requirement is unchanged, but only feedback system at the district level, includes activity of point e, as all others are through the following activities: already regulated in or beyond the Keppres a. Publish trends of unit rates for 80/2003. major components of civil & goods contracts b. A qualified members of civil society participate in the bid evaluation process c. Annual survev on bidders' 23 experience in ULG procurement and civil society perception on ULG procurement practices d. 75 % of complaints could be handled appropriately and within the established deadlines e. 75% of the bids could be awarded within the bid validity period f. The procurement activities audited by Bawasda and results of the audits are included in Bawasda's regular audit report 5. Training and capacity building of staff This requirement is unchanged, except for the involved in procurement, through the activities first two points, as all local staff following activities: involved in tender process are given regular a. Asses the capacity building need for trainings by central government agencies the tendering committee, Bawasda b. Implementation procurement training This activity is unchanged C. At least 50% of PPK, members of tender committee and Bawasda staff involved in procurement audits have - national urocurement certified 6. Improve procurement services, include New requirements the following activities: a. Announce contractodvendors who have good performance b. Establish a Procurement Service 24 Annex IV F Proposed Reallocation of Unallocated Loan Proceeds Proposed utilization Category Activities Amount (US$) I I 1 PBME Consultant (Management Support) 190,000 Addendum to Technical and Advisory Services Consultants Services, 311,126 1 Consultant to C P W Training, and Workshops Individual Consultant of Transparency, 200,000 Participation and Accountability (TPA) UIDP Local Governance Reform I 248,874 950,000 Note: US$1.05 million would still remain unallocated after the restructuring. 25