Document of The World Bank Report No: 61068-ID RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF URBAN SECTOR DEVELOPMENT REFORM PROJECT LOAN 7760-ID (FORMERLY LOAN 4786-IND) JUNE 7, 2005 TO THE REPUBLIC OF INDONESIA FEBRUARY 8, 2011 Indonesia Sustainable Development Unit East Asia and Pacific Regional Office Regional Vice President: James W. Adams Country Director: Stefan G. Koeberle Sector Manager: Franz Drees-Gross Task Team Leader: Indira Dharmapatni 2 INDONESIA URBAN SECTOR DEVELOPMENT REFORM PROJECT {Project ID} CONTENTS Page A. SUMMARY ................................................................................................................ 4 B. PROJECT STATUS.................................................................................................... 4 C. PROPOSED CHANGES ............................................................................................ 5 ANNEX 1 : REALLOCATION OF PROCEEDS .............................................................. 7 3 URBAN SECTOR DEVELOPMENT REFORM PROJECT RESTRUCTURING PAPER SUMMARY 1. The restructuring would (a) cancel US$6.565 million of the IBRD loan amount and (b) reallocate proceeds between disbursement categories. The restructuring does not affect project co-financing from the PHRD Grant. 2. The borrower requested the partial cancellation because plans to include three additional urban local governments (ULGs) as new participants in the project were dropped when it became apparent that the proposed subsidiary loan agreements would not be finalized in time for the subprojects to be completed before the project closing date. The reason for the reallocation is to (a) reflect the partial cancellation and (b) reallocate US$1 million in previously unallocated proceeds to the category of consultants' services, training and workshops, which mainly supports the project's local governance and reform activities and overall project management. PROJECT STATUS 3. Both overall implementation progress (IP) and progress toward achievement of development objectives (DO) are rated moderately satisfactory. For an extended period the IP had been rated moderately unsatisfactory, but in June 2010 it was upgraded in light of improved performance and a level-one restructuring (completed in June 2010) that clarified the PDO, revised the indicators, sharpened some of the project activities, and extended the closing date. 4. Disbursements are at 59 percent, which is 22 months behind the original projection but only 1 month behind the formally revised estimates. The main reason for the original lag is that there was considerable turnover in participating ULGs and delays in getting the reform and governance activities underway. The infrastructure investment subprojects that were approved in the early stages of the project proceeded relatively well, but the many setbacks and long process of completing the approval for new ULGs and subsidiary loan agreements held up new investments. 5. Urban Reform and Institutional Support Component is now back on track, and the Urban Investment Component is now focused only on subprojects that are either already underway or almost ready to begin. Although the 10 participating ULGs are fewer than originally anticipated, the project objective can still be achieved, and current project outcome and output indicators are not directly affected. Five markets and one bus terminal have been completed, six markets are at various stages of construction, and three more are in the advanced planning stage. All of the participating ULGs are making good progress on most elements of the project's urban reform and governance agenda, including better public consultation and feedback, more participatory planning 4 mechanisms, and more efficient, accountable, and transparent financial management and procurement practices. PROPOSED CHANGES Partial Cancellation 6. The restructuring would cancel US$6,565,000 of the loan amount that had been slated to finance local infrastructure subprojects proposed by three potential new participating ULGs. The planned investments were dropped after it became clear that the ULGs would not be able to finalize the subsidiary loan agreement and budget allocation process with the Ministry of Public Works and the Ministry of Finance in time to complete the subprojects before the closing date. The cancellation will not affect the ten current participating ULGs and does not require formal revision of project activities, objectives, or indicators. Reallocation between Disbursement Categories 7. The proposed reallocation will (a) reduce the allocation for subproject loans by the amount of the partial loan cancellation described above, and (b) reallocate US$1 million of unallocated proceeds to the category of consultants' services, training and workshops, which finances activities under the project's Urban Reform and Institutional Support component. The increased allocation for this category will mainly intensify and expand the project's assistance to the ten participating ULGs in implementing their reform agendas as well as strengthening overall project management and support for national urban strategy formulation and planning. 8. The reallocation will not affect the disbursement categories themselves or the financing percentages. The table in Annex 1 shows the current and revised allocation of proceeds. The allocation table also reflects the project costs, since the expenditure categories correspond to the project components. Category 1 finances Component B (Urban Investments) and Category 2 finances Component A (Urban Reform and Institutional Support). 5 ANNEX 1 Reallocation of Proceeds 1. Proceeds for the Indonesia Urban Sector Development Reform Project, Loan 7760-ID (formerly Loan 4786-IND), will be reallocated as follows: Amount of Loan Re- allocated (Expressed in Category of Expenditure US Dollars) Percent of Financing (1) Sub-project loans 33,710,000 100% of sub-project amount disbursed (2) Consultants' Services, 4,450,000 100% Training and Workshops* (3) Front end fee 225,000 Amount due under Section 2.04 of the Loan Agreement (4) Unallocated 50,000 Sub-total 38,435,000 Cancelled as of December 6,565,000 17, 2010 Original loan amount 45,000,000 * For the purposes of this table, "training and workshops" means project-related training and workshops (with priority for, but not limited to, staff of Participating ULGs and Additional Participating ULGs) conducted in the territory of the Borrower or abroad, including purchase and publication of materials, rental of facilities, non-degree course fees and travel and subsistence of trainees. 6