Completion Report

Project Number: 38479-034 Loan Number: 2817 October 2020

Indonesia: Regional Roads Development Project

This document is being disclosed to the public in accordance with ADB’s Access to Information Policy.

CURRENCY EQUIVALENTS

Currency unit – rupiah (Rp)

At Appraisal At Project Completion (30 October 2011) (30 November 2018)

Rp1.00 = $0.00011 $0.000070 $1.00 = Rp9,090 Rp14,323

ABBREVIATIONS AADT – annual average daily traffic ADB – Asian Development Bank BAPPENAS – Badan Perencanaan dan Pembangunan

Nasional (National Development Planning Agency) BIMP-EAGA – Brunei Darussalam, Indonesia, Malaysia, Philippines – East

ASEAN growth area CW – civil works CSP – consulting service package CTC – core team consultant DGH – Directorate General of Highways DSC

EA – –

design and supervision consultant executing agency

EIRR – economic internal rate of return EMP – environment management plan GDP – gross domestic product IsDB – Islamic Development Bank IEE – initial environmental examination km – kilometer LARP – land acquisition and resettlement plan MOF – Ministry of Finance MOT – Ministry of Transport PCR – project completion review PMU – project management unit TA – technical assistance VOC – vehicle operating cost

NOTE{S}

(i) The fiscal year (FY) of the Republic of Indonesia ends on 31 December. “FY” before a calendar year denotes the year in which the fiscal year ends, e.g., FY2020 ends on 31 December 2020.

(ii) In this report, “$” refers to United States dollars.

Vice-President Ahmed M. Saeed, Operations 2 Director General Ramesh Subramaniam, Southeast Asia Department (SERD) Director Hiroaki Yamaguchi, Transport and Communication Division, SERD Winfried F. Wicklein, Country Director, Indonesia Resident Mission (IRM),

SERD Team leader Helena Lawira, Senior Project Officer, IRM, SERD Team member{s} Nao Ikemoto, PAU Head, IRM, SERD

Susan Lim, Senior Transport Specialist, SETC, SERD1) Naning Mardiniah, Senior Safeguards Officer (Resettlement), IRM, SERD

Budiono Saputra, Environment Safeguards Specialist (Consultant), IRM, SERD

Yutirsa Yunus, Project Analyst, IRM, SERD Ratih Widhiarti, Senior Operations Assistant, IRM, SERD

1) outposted to the Indonesia Resident Mission

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page

BASIC DATA i

I. PROJECT DESCRIPTION 1

II. DESIGN AND IMPLEMENTATION 1

A. Project Design and Formulation 1 B. Project Outputs 2 C. Project Costs and Financing 3 D. Disbursements 4 E. Project Schedule 4 F. Implementation Arrangements 5 G. Technical Assistance 6 H. Consultant Recruitment and Procurement 6 I. Gender Equity 7 J. Safeguards 8 K. Monitoring and Reporting 10

III. EVALUATION OF PERFORMANCE 11

A. Relevance 11 B. Effectiveness 11 C. Efficiency 12 D. Sustainability 12 E. Development Impact 13 F. Performance of the Borrower and the Executing Agency 13 G. Performance of the Cofinancier 14 H. Performance of the Asian Development Bank 14 I. Overall Assessment 14

IV. ISSUES, LESSONS, AND RECOMMENDATIONS 15

A. Issues and Lessons 15 B. Recommendations 15

APPENDIXES

1. Design and Monitoring Framework 16

2. Project Roads Description 18

3. Project Cost at Appraisal and Actual 19

4. Project Cost by Financier 20

5. Disbursement of ADB Loan and Grant Proceeds 22

6. Contract Awards of ADB Loan Proceeds 23

7. Appraisal and Actual Implementation Schedules Compared 24

8. Chronology of Main Events 25

9. Organization framework for Project Implementation 27

10. Project Contract Packages 28

11. Status of Compliance with Loan Covenants 29

12. Economic Reevaluation 36

13. Contribution to ADB Results Framework 44

BASIC DATA A. Loan Identification

1. Country Republic of Indonesia 2. Loan number and financing source L2817, ordinary capital resources 3. Project title Regional Roads Development Project 4. Borrower Republic of Indonesia 5. Executing agency Directorate General of Highways, Ministry

of Public Works and Housing 6. Amount of loan Original: $180.0 million

Actual: $160.0 million 7. Financing modality Project loan

B. Loan Data

1. Appraisal – Date started – Date completed

10 May 2010 14 May 2010

2. Loan negotiations – Date started – Date completed

30 June 2011 30 June 2011

3. Date of Board approval 24 November 2011 4. Date of loan agreement 7 May 2012 5. Date of loan effectiveness – In loan agreement – Actual – Number of extensions

4 August 2012 3 July 2012 None

6. Project completion date – Appraisal – Actual

29 February 2016 30 November 2018

7. Loan closing date – In loan agreement – Actual – Number of extensions

31 August 2016 30 November 2018 2

8. Financial closing date – Actual

29 May 2019

9. Terms of loan – Interest rate – Maturity – Grace period

London interbank offered rate (LIBOR)-based 25 years 5 years

10. Disbursements

a. Dates

Initial Disbursement 9 October 2013

Final Disbursement 18 December 2018

Time Interval 62 Months

Effective Date

3 July 2012

Actual Closing Date 30 November 2018

Time Interval 77 months

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b. Amount ($)

Category

Original Allocation

(1)

Increased during

Implementation (2)

Canceled during

Implementation (3)

Last Revised Allocation (4=1+2–3)

Amount Disbursed

(5)

Undisbursed Balance (6 = 4–5)

1. Works 155,000,000 0 9,500,000 145,500,000 145,492,478 7,522 2. Road Safety Equipment

1,300,000 0 565,000 735,0000 733,310 1,690

3. Consulting Services

21,100,000 0 7,335,000 13,765,000 13,738,552 26,448

4. Unallocated 2,600,000 0 2,600,000 0 0 0 Total 180,000,000 0 20,000,0001) 160,000,000 159,964,340 35,6602) 1. During implementation, the first loan partial cancellation of $8.0 million was made on 1 August 2018 and the second

partial cancellation of $12 million was made on 11 January 2019. 2. The undisbursed amount was cancelled upon financial closure of the loan.

C. Project Data

1. Project cost ($ million)

Cost Appraisal Estimate Actual Foreign exchange cost - - Local currency cost 380.5 271.9 Total 380.5 271.9

2. Financing plan ($ million)

Cost Appraisal Estimate Actual Implementation cost Borrower financed 125.9 69.9 ADB financed 180.0 160.0 Other external financing (IsDB) 65.0 36.5 Total implementation cost 370.9 266.4 Interest during construction costs Borrower financed 9.6 5.6 ADB financed 0.0 0.0 Other external financing 0.0 0.0 Total interest during construction cost 9.6 5.6

ADB = Asian Development Bank, IsDB = Islamic Development Bank. 3. Cost breakdown by project component ($ million)

Component Appraisal Estimate Actual A. Base Cost 1. Development of national and strategic roads i. Land acquisition and resettlement 0.7 4.0 ii. Civil works 274.2 236.3 iii. Consultant services 15.2 10.3 2. Road sector development program i. Road safety strengthening subprogram 6.9 4.1 ii. Road sector subprogram 3.3 1.5 3. Taxes and duties 22.1 10.1 Subtotal (A) 322.4 266.3 B. Contingencies 48.5 0.0 C. Financial Charges during implementation 9.6 5.6 Total (A+B+C) 380.5 271.9

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4. Project schedule

Item Appraisal Estimate Actual Date of contract with consultants (i) Core Team Consultant (CSP-1) 1 December 2011 25 February 2014 (ii) Design and Supervision Consultant Kalimantan (CSP-2) 1 April 2012 16 December 2013 (iii) Design and Supervision Consultant East Java (CSP-3) 1 April 2012 16 October 2013 (iv) Road Safety Engineering Support (CSP-4) 1 September 2012 7 October 2015 (v) Institutional Capacity Development Program (CSP-5) 1 September 2012 7 December 2017 (vi) Road Safety Awareness Campaign and Training (CSP-6) 1 September 2012 11 December 2017 (vii) Enforcement Capability Road Infrastructure Protection

Program (CSP-7) 1 September 2012 7 January 2016

(viii) Indonesia Transport Sector Development Strategy and Policy Study (CSP-8)

1 September 2012 22 September 2016

(ix) Integrated Vehicle Overloading Control Strategy (CSP-9) 1 September 2012 cancelled (x) HIV/AIDS and Anti Trafficking Prevention Program (CSP-10)

1 September 2012

7 October 2015

Completion of engineering designs

Q2 2011–Q1 2012 Q2 2011–Q1 2012

Civil works contracts (i) Jolosutro–Sendang Biru (CW-04) Date of award Completion of work

1 April 2012

31 March 2014

21 August 2013

12 April 2016

(ii) Sosok–Tayan; Tanjung–Sanggau border (CW-05) Date of award Completion of work

1 December 2011

30 November 2013

24 November 2013 10 November 2018

(iii) Tebas–Singkawang; Sambas Bypass; Sambas–Galing

(CW-06) Date of award Completion of work

1 December 2011 31 May 2014

14 November 2013 22 December 2017

(iv) Galing–Simpang Tanjung–Aruk (CW-07)

Date of award Completion of work

1 December 2011

30 November 2014

26 November 2013 27 September 2017

(v) Tanjung Selor–Sekatak Buji (Section1) (CW-08) Date of award Completion of work

1 December 2011

30 November 2014

3 November 2014 30 January 2018

(vi) Simpang Tanjung Palas–Sekatak Buji (CW-09)

Date of award Completion of work

1 December 2011

30 November 2013

25 June 2014

20 March 2017

(vii) Simpang 3 Apas–Simanggaris (Section1) (CW-10) Date of award Completion of work

1 December 2011

30 November 2013

11 April 2014 9 April 2017

(viii) Simpang 3 Apas–Simanggaris (Section2)–Border (CW-11)

Date of award Completion of work

1 December 2011

30 November 2014

11 April 2014 25 June 2018

Equipment and supplies Dates First procurement 1 September 2013 April 2018 Last procurement - April 2018 Completion of equipment installation 31 May 2014

June 2018

Start of operations (with 2 years defect notification period) 2015 2018 Q = quarter, CSP= Consulting Service Package, CW= Civil Works

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5. Project performance report ratings

Implementation Period Single Project Rating From 1 January 2012 to 31 August 2012 On track From 1 September 2012 to 30 November 2012 Potential problem From 1 December 2012 to 31 December 2012 Actual problem From 1 January 2013 to 31 December 2013 Actual problem From 1 January 2014 to 28 February 2014 Potential problem From 1 March 2014 to 31 May 2014 On track From 1 June 2014 to 31 December 2014 Potential problem From 1 January 2015 to 31 May 2015 Potential problem From 1 June 2015 to 31 December 2015 On track From 1 January 2016 to 31 December 2016 On track From 1 January 2017 to 31 December 2017 On track From 1 January 2018 to 30 December 2018 On track

D. Data on Asian Development Bank Missions

Name of Mission Date No. of

Persons No. of

Person-Days Specialization of Membersa

Fact finding 10–14 May 2010 6 30 a, a, b, c, d, e Technical discussion 18–20 August 2010 4 12 a, b, e, f Inception 8–16 March 2012 3 20 a, e, e Reconnaissance 1–5 October 2012 2 10 g, h Review 1 15–20 December 2013 3 18 g, h, c Midterm Review 23 September–26 November 2014

(intermittent) 2 30 g, c

Review 2 14 September–12 November 2015 (intermittent)

2 30 g, i

Review 3 18 July–5 August 2016 2 38 g, i Review 4 13 April–15 May 2017 3 9 e, c, d Review 5 15 November–12 December 2017 5 70 e, a, d, j, j Review 6 3 October–12 November 2018 6 90 e, c, f, j, j Completion review 14–23 October 2019 2 10 e, j

a a = transport specialist, b = counsel, c = resettlement officer, d = environment officer, e = program/project officer, f = project analyst, g = project implementation officer, h = procurement officer, i = social specialist, j = staff consultant

I. PROJECT DESCRIPTION 1. At the request of the Government of the Republic of Indonesia, the Asian Development Bank (ADB) approved a loan of $180.0 million on 24 November 2011 for the Regional Roads Development Project.1 The expected impact was increased efficiency of road transport to support integrated and sustainable economic growth along the project corridors. The planned outcome of the project was improved capacity and safety of national and strategic roads. The rehabilitation and capacity expansion of road corridors would strengthen national and regional connectivity, and improve people’s access to markets, job opportunities, and social services. The national road network in the southern Java corridor was incomplete, with some road sections of the southern Trans Java Highway not yet constructed, resulting in gaps in network coverage; other sections are constructed below national standards and are in poor condition. Improved road infrastructure in southern Java was necessary to remove constraints to economic growth and facilitate investment in this isolated area. Java is Indonesia’s most populous island, with the country’s capital, Jakarta, at its northwest tip. Similarly, road network improvements are needed to support economic development in less developed and remote districts of northern Kalimantan on the island of Borneo.

II. DESIGN AND IMPLEMENTATION A. Project Design and Formulation 2. Indonesia has varied development across its provinces and islands. The government’s medium-term development goals2 committed to increasing sustainable economic growth, creating jobs, and accelerating achievement of the millennium development goals. Infrastructure development and investment—including road transport—were critical to meeting these objectives. Improving road infrastructure was a key priority of the government's 2010–2014 five-year medium-term strategy.3 It was also consistent with ADB’s transport sector assessment, strategy, and road map for Indonesia.4 At appraisal and completion, the project was consistent with the government's medium-term strategy and the priorities of the ADB country strategy and program for Indonesia, through its support for investment in transport infrastructure to promote inclusive growth and reduce disparities across less-developed areas of the country. Roads are the dominant mode of transport in Indonesia, meeting 83% of passenger and 70% of freight transport demand. At appraisal, Indonesia had a vast network of roads, but the density of the national road network was relatively low and was significantly lower in less developed areas. Road transport demand in the country had been growing significantly, and congestion on the arterial road network had become a widespread problem, especially in Java. The proposed project would improve strategic and national road corridors in North and West Kalimantan provinces and in Central and East Java provinces to support economic growth in these less developed and poorer areas of the country.

3. ADB approved project preparatory technical assistance (TA) in 2008 to design and formulate this loan project.5 The TA project included all activities required to facilitate preparation

1 ADB. Republic of Indonesia: Regional Roads Development Project. 2 Government of Indonesia. 2010. National Medium Term Development Plan (Rencana Pembangunan Jangka

Menengah Nasional - RPJMN) 2010–2014. Jakarta 3 Government of Indonesia, Ministry of Public Works. 2009. National Road Assessment 2005–2009 and Strategic Plan

2010–2014. Jakarta. 4 ADB. 2006. Country Strategy and Program: Indonesia, 2006–2009. Manila; and ADB. 2010. Country Operations

Business Plan: Indonesia, 2011–2013. Manila. 5 ADB. 2008. Technical Assistance to the Republic of Indonesia for Preparing the Regional Roads Development

Project. Manila.

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of the loan project, and also included a component to address regulatory and institutional strengthening of the Directorate General of Highways (DGH) of the Ministry of Public Works and Housing. The design and preparation of the loan project were generally adequate to ensure achievement of the intended outcome and impact. No major changes in project design occurred during project implementation. There were two minor changes in 2017 that occurred because of the cancellation of one Ministry of Transport (MOT)-led subprogram (para. 7) and the partial shifting of another MOT-led subprogram to the DGH (para. 14). B. Project Outputs 4. The project consisted of two outputs: (i) development of national and strategic roads, and (ii) road sector development program implemented to improve road safety, road investment planning, overloading control, and the capacity of road agencies. The project design and monitoring framework, including an assessment of project achievements, is in Appendix 1.

5. Output 1: Development of national and strategic roads. The target was to rehabilitate and widen 476 kilometers (km) of roads in West Kalimantan, East Kalimantan, East Java and Central Java provinces by 2015. Eighteen road sections of national highways and strategic roads totaling 486.1 km were constructed, rehabilitated, or improved in these provinces, exceeding the 476 km target by 10.1 km. The works included new construction (63 km), reconstruction (283.0 km), and widening and re-surfacing (140.1 km). The improved project roads have a carriage width of 6.0–7.0 meters; 2.0- to 2.5-meter shoulders; asphalt concrete pavement; and newly added or improved culverts, retaining walls, and traffic safety facilities. A summary description of project roads is in Appendix 2. During implementation, the project road components underwent the following changes:

(i) The design and supervision consultants (DSCs) updated the detailed design of the

project roads, as a result of which the road alignments were decreased to total 473.1 km.

(ii) The missing road segment of “Tanjung Harapan–Sambas Bypass” was added to civil works (CW) package 06 (CW-06) in West Kalimantan, which increased the road length of that package from 55.9 km to 68.2 km.

(iii) Additional earthwork was added to fix road deterioration caused by implementation delays and landslides; to add traffic safety and environmental facilities to increase sustainability of the roads; and to widen the last 11 km of the border road in West Kalimantan from two lanes to four lanes.6

6. Output 2: Road sector development program. At appraisal, seven subprograms and one road safety equipment procurement package were designed under this output. The seven subprograms comprised three road safety strengthening subprograms and four road sector development subprograms. However, only six subprograms plus the road safety equipment package were implemented. 7. The integrated vehicle overloading control subprogram was cancelled following the advice from the MOT in September 2017. The reason was that the handover of the weight bridge scale from the local government to the central government was ongoing, and the MOT was conducting measures to mitigate against overloading. Further intervention was not needed during the transition from the local to the central government. A summary of the road sector development

6 As instructed by the President of Indonesia, the road along the border with Sarawak Malaysia was expanded from

two lanes to four lanes. The lane expansion was limited to only the last 11 km of the 52 km border road because of low traffic volume and for safeguard reasons.

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program is in Table 1.

Table 1: Summary of Road Sector Development Program

Package Road Sector Development

Program

Implementing Agency

Planned Cost

($ million)

Actual Cost

($ million) Activities

Road safety strengthening: CSP-04 Road Safety

Support DGH 0.40 0.24 Increase road safety

awareness and capacity among stakeholders within the DGH through workshops and road safety audits

CSP-06 Road Safety Awareness Campaign and Training

MOT (partially taken over by DGH)

3.00 0.29 Increase the level of roadside community safety awareness, particularly among children and other vulnerable road users or groups, through campaigns

CSP-07 Enforcement Capability Road Infrastructure Protection Program

National Traffic Police Corps

2.20 2.87 Enforcement system and training to improve road safety and reduce overloaded vehicle

GEP-1 Road Safety Equipment

National Traffic Police Corps

1.30 0.73 Equipment purchased to support the subprogram to improve enforcement of speeding and overloading (CSP-07)

Road sector development: CSP-05 Institutional

Development for Road Network Management

DGH 0.90 0.45 Development and delivery of trainings in road and bridge construction and maintenance

CSP-08 Indonesia Transport Sector Development Strategy and Policy Study

BAPPENAS 1.30 0.89 Support the government to prepare Transport Sector Development Strategy, and a midterm (2020–2024) transport sector development plan

CSP-09 Integrated Vehicle Overloading Control Strategy

MOT 0.80

cancelled

CSP-10 HIV/AIDS & Anti-trafficking Program

DGH 0.30 0.19 Campaign in the project sites to disseminate information and enhance knowledge of human trafficking and HIV/AIDS

Total ($ million) 10.20 5.60 BAPPENAS = National Development Planning Agency, DGH = Directorate General of Highways, MOT = Ministry of Transport, CSP= Consulting Service Package. Source: Asian Development Bank C. Project Costs and Financing 8. At appraisal, the total project cost was estimated at $380.5 million equivalent, which included the base cost, contingencies, and financial charges of the loan. At project completion, the total project cost was $271.9 million equivalent, which was about 28.5% lower than the

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appraisal estimate. Compared with the appraisal estimate, actual costs decreased by (i) $37.9 million for civil works, mainly because of lower contract prices and depreciation of the local currency;7 (ii) $9.5 million for consulting services because of lower contract prices and cancellation of one consulting service under the MOT; and (iii) $4.0 million for financial charges as a result of the decrease in the loan amount and lower interest rates. Meanwhile, actual land acquisition and resettlement (LAR) costs increased by $3.3 million, mainly because these costs were underestimated at appraisal based on the preliminary design. Appendix 3 compares actual project costs with the appraisal estimates. 9. At appraisal, the project was to be financed by the ADB loan of $180.0 million (47.3% of the total cost), an Islamic Development Bank (IsDB) loan of $65.0 million (17.1%),8 and a government fund of $135.5 million equivalent (35.6%).9 In 2018, the government reassessed the actual funding requirements to complete the civil works and consulting services, then requested a partial loan cancellation of $8.0 million, which ADB approved on 1 August 2018. Based on the final project funding requirements, ADB approved a second partial loan cancellation of $12.0 million on 11 January 2019. The actual project financing at completion was $160.0 million (58.8% of the total cost) from the ADB loan, $36.5 million equivalent (13.4%) from the IsDB loan, and $75.5 million equivalent (27.8%) from the government counterpart funds. Appendix 4 compares project costs by financier at appraisal and completion. D. Disbursements 10. The ADB loan proceeds were disbursed in accordance with ADB’s Loan Disbursement Handbook (2007, as amended from time to time). The loan proceeds were disbursed directly to the contractors, suppliers, and consultants based on approved contracts using ADB’s direct payment procedures. Because of initial project implementation delays (paras. 11–13), the loan disbursement progress was initially very slow, totaling only $6 million in 2013. Along with the progress of procurement and implementation of civil works, loan disbursements began to accelerate in 2015 ($27 million) and 2016 ($34 million), then reached its peak in 2017 ($49 million). The loan was reallocated three times to move funds within consulting service subcategories and between the consulting service subcategory and the equipment subcategory. Upon financial closure of the loan account on 29 May 2019, total ADB loan proceeds of $159.96 million had been disbursed—about 88.9% of the original loan amount. Appendix 5 outlines actual annual disbursements of the ADB loan proceeds; Appendix 6 outlines actual annual contract awards. E. Project Schedule 11. At appraisal, it was envisaged that the project would be implemented from November 2011 to February 2016. The loan became effective on 3 July 2012. Because of initial delays in recruiting consultants and procuring civil works, the loan closing date was extended twice from the original 31 August 2016—first to 31 July 2018 and then to 30 November 2018 (27 months total).10 In accordance with ADB Loan Disbursement Handbook, the loan account was kept open with a winding-up period of 6 months for pending eligible withdrawal applications until the loan financial

7 The accepted bidding prices for the civil works contracts were 5.5%–31.9% lower than owner’s (executing agency)

estimates. 8 It was arranged at appraisal that the IsDB loan would finance the costs for civil works of the package CW-01, CW-

02, and CW-03, and related consulting services for civil works supervision. 9 The government funds would finance land acquisition and resettlement, 30% of the civil works costs, full taxes and

duties, financial charges to the loans, and part of the project contingency. 10 The first extension was approved by ADB on 5 June 2015, and the second extension was approved on 27 July 2018.

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closing. Under the advanced procurement arrangement, the recruitment of consultants and the procurement of civil works contracts for the ADB-financed packages started in December 2011.11 The first civil works contract was awarded in August 2013 (CW-04), while the other ADB-financed contracts were awarded from November 2013 to November 2014. The three civil works contracts for the IsDB-financed packages were awarded in January 2015. Procurement of civil works contracts were delayed 13–35 months for the ADB-financed packages and about 28 months for the IsDB-financed packages. The civil works commenced in October 2013. 12. The ADB midterm review mission in September–November 2014 found that contract awards at that point reached 52% of the total loan amount, while disbursement reached only 8.6% of the total loan amount. The slow progress was mainly attributed to (i) rebidding of one major civil works contract,12 (ii) delays in recruitment of the civil works DSCs and the consultants to support the project management unit (PMU), and (iii) depreciation of the local currency. The mission concluded that a loan extension of about 23 months was required to complete the work. The first civil works contract was completed in April 2016 (CW-04) and the last one was completed in November 2018 (CW-05). Compared with the appraisal estimates, the completion of civil works was delayed 30 months for the ADB-financed packages and 35 months for the IsDB-financed packages. 13. Recruitment of the consulting services was also delayed. Eventually, the contract for the core team consultant (CTC) to support the PMU was awarded in February 2014, while the contracts for the DSCs were awarded from October 2013 to April 2015.13 The contracts for the road sector development subprograms were awarded during October 2015–December 2017. Appendix 7 compares the actual implementation schedule with the schedule at appraisal, while Appendix 8 contains a chronology of main events. F. Implementation Arrangements 14. The project implementation arrangements as outlined in the report and recommendation of the president were followed. DGH as the executing agency (EA) was responsible for overall project management and established a PMU within its Directorate of Planning.14 The DGH was also responsible for implementing the civil works packages of output 1 (national road development). For output 2 (road sector development program), the MOT was responsible for the road safety awareness subprogram and the integrated vehicle overloading control subprogram. The National Traffic Police Corps was responsible for the enforcement capability and road-infrastructure-protection subprogram, and the road safety equipment subprogram. BAPPENAS (Indonesia’s National Development Planning Agency) implemented the transport sector development strategy and policy study. In 2017, the MOT formally withdrew from the project and the implementation of the road safety awareness subprogram was partially shifted to the DGH. ADB approved the change on 3 February 2017. The MOT’s other subprogram (integrated vehicle overloading control) was cancelled (para. 7). 15. The PMU, headed by the director of planning (who later became the director of road network development) of DGH, was composed of five staff for day-to-day project implementation. The director and staff worked intermittently at the PMU. The PMU, supported by the CTC, developed annual and monthly work programs, consolidated the unaudited project financial

11 The procurement of the civil works contracts for the IsDB-financed packages started in January 2012. 12 CW-05: Sosok-Tayan—Tanjung Sanggau Road Construction. The first bid was cancelled because of irregularities. 13 The contracts for the DSCs for the ADB-financed packages were awarded on 21 August 2013 and 16 October 2013;

the contract for the IsDB-financed package was awarded in April 2015. 14 In July 2015, the Directorate of Planning was reorganized as Directorate of Road Network Development.

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report, monitored the progress of physical achievements and expenditures, and ensured that the project complied with ADB’s safeguard policies and procurement procedures. The PMU prepared quarterly and annual progress reports on overall project implementation and submitted them to ADB. The DGH’s technical regional offices (Balai) were responsible for civil works contract procurement and administration, construction supervision, and project site management. These arrangements were generally adequate for delivering the project outputs and achieving the intended project outcome. However, the PMU experienced frequent staff changes at the outset and also lacked the authority to coordinate effectively with the Balai offices and other government agencies and ministries. The PMU’s capacity improved as the counterpart staff gradually gained experience and the CTC was filled with a qualified team leader and experts. The project’s organizational chart is in Appendix 9. G. Technical Assistance 16. Project preparatory TA funded by the Japan Special Fund in the amount of $1,300,000 (footnote 5), was approved on 28 May 2008 to prepare the project through: (i) an assessment of existing national and strategic roads within the northern Kalimantan and southern Java corridors, and feasibility studies for prioritized improvement works for selected road sections within these corridors; and (ii) an assessment of key road-related issues and policies, including institutional and implementation arrangements of the project. The TA project contributed to achieving the performance targets of the ensuing loan project as it produced a design and monitoring framework for the ensuing loan and identified priority road sections to be constructed or improved. Another TA15 under the TA cluster of Sustainable Infrastructure Assistance Program, funded by the Government of Australia ($0.8 million), also contributed to strengthening the capacity of key stakeholders to implement community participation and produced knowledge products as well as training workshops. H. Consultant Recruitment and Procurement 17. There were 10 consulting service packages planned at appraisal to be funded by ADB: a CTC, two DSCs, and seven consultant teams for the road sector development subprograms. Nine consultants were recruited in accordance with ADB’s Guidelines on the Use of Consultants (2007, as amended from time to time). One consulting service (CSP 9 - Integrated Vehicle Overloading Control Strategy) under MOT was cancelled (para.7). IsDB financed one DSC, for the Central Java works packages. Recruitment started in December 2011 using quality- and cost-based selection procedures. The contract award projection after project effectiveness set a very high projection for 2012 ($12.2 million) and 2013 ($162 million) for both consulting service and civil works. However, only two consulting services packages were awarded in 2013 ($5.1 million), one package in 2014 ($3.7 million) and six remaining packages were awarded in 2015-2017 ($4.9 million). The bidding, processing and awarding of contracts took 12 to 20 months. The consultant recruitment process was slow mainly because there were many clarification and queries requested to the procurement committees (para. 20) before ADB approval. 18. During implementation, the CTC supported the DGH and the PMU in project management, monitoring, reporting, and trainings. The replacement of the CTC team leader and key experts at the initial stage of implementation hampered the project. A safeguard consultant team at CTC monitored LAR and environment impacts. The DSCs acted as the “engineers,” responsible for reviewing engineering designs and supervising construction as well as testing materials and reviewing civil works’ contract variation orders. It was noted that in several cases, DSCs

15 ADB. 2013. INO. Strengthening Community Participation in Project Design, Implementation, and Monitoring in

Regional Roads Development Projects. Manila (TA 8530).

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performed poorly in reviewing design and civil works contract variations, and DSC for Kalimantan failed to provide sufficient inputs for the environment and social safeguard monitoring reports. The safeguard team in the DSC for the Kalimantan package did not deliver their inputs in full, despite an ADB request to the executing agency to make the Kalimantan DSC accountable for timely mobilization of replacements to the safeguard experts. The consultants for the road sector development program (output 2) delivered the required outputs and reports. 19. As planned at appraisal, 11 civil works packages were procured, including eight packages under ADB financing (CW-04 to CW-11) and three packages under IsDB financing (CW-01 to CW-03). For the ADB-financed packages, procurement used international competitive bidding procedures in accordance with ADB’s Procurement Guidelines (2010, as amended from time to time). There was only one post-qualification process adopted—for the re-tendering of package CW-05 in West Kalimantan. The procurement process for this package took only 5 months to complete. For the other ADB-funded packages, procurement time varied widely, from about 19 months for CW-04 to 33 months for CW-08. On average, procurement commenced about 5–6 months later than the planned commencement of construction during appraisal. The delays were attributed mainly to a prolonged prequalification process and slow decisions by the procurement committees. These committees, which were based in the DGH’s Balai offices, often took a long time to organize joint meetings with the PMU in Jakarta and review the bidding documents. Following the completion of the prequalification process, the actual bidding process went relatively smoothly—bid submission to selection of the first ranked bidder took about 4 to 6 months. 20. DGH held a procurement workshop in September 2012 on procurement standards and guidelines for ADB and IDB packages for the procurement committees and staff of DGH’s Balai. During the procurement process, the procurement committee organized pre-bid meetings and site visits for tenders for all packages, as specified in the bid documents. During implementation, the civil works contracts underwent many variations, contributing to delays. The average variation amounted to about 40% of the corresponding contract cost. The main reasons for the variations were poor detailed engineering designs due to tight government’s budget and cash-flow problems among the contractors. The environmental safeguards monitoring reports stated that some contractors did not fully implement the required environment measures. 21. The bidding process for goods (road safety equipment) commenced in October 2017. Because the procurement committee at the national traffic police corps only received one bid and the announcement of the invitation was not made on the ADB website, ADB suggested a re-tendering and advised the procurement committee that the off the shelf goods could be purchased through the shopping method. ADB also proposed that the overloading and speeding control equipment be procured through national competitive bidding using ADB's standard bidding documents in English translated into the local language. Advertisements for shopping of goods using national competitive bidding were published in national newspapers in March 2018. The contract for the equipment was signed on 20 April 2018. The equipment was delivered during June–August 2018. The quality of the equipment and the performance of the supplier were satisfactory. Appendix 10 summarizes contract packages for the project, including contracted costs, actual costs, and financing. I. Gender Equity 22. At appraisal, the project was categorized as some gender elements. The potential adverse social impacts of the project were an increased risk of exposure to HIV, and human trafficking of women and children during construction and operation. These risks were addressed through an anti-HIV and human trafficking awareness and prevention program that focused on supporting

8

local communities in designing, implementing, and monitoring community-based, gender-responsive awareness activities. During implementation, provisions were made in the bidding documents for the contractors to encourage employment of the poor, particularly women, and to not differentiate wages between men and women. About 5% of the unskilled workers used by the project were women. A total of 325 construction workers and more than 200 local community members attended the road safety campaign. The project completion review (PCR) mission noticed that project road improvements have facilitated and promoted fast-growing public transport in the project area, which has enabled women to travel further and participate in more socioeconomic activities. Many shops along that have sprung up along the project roads are operated mainly by women. J. Safeguards 23. Environmental safeguards. At appraisal, the project was classified category B for environmental safeguards in accordance with the ADB Safeguard Policy Statement (2009). Public consultations were conducted from September 2008 to August 2011 involving about 275 people comprising affected people, community leaders, nongovernment organizations, and national and provincial government officials. An initial environment examination (IEE) was prepared by the DGH in 2011, cleared by ADB in October 2011, and disclosed on the ADB website. The IEE concluded that the project could have adverse environmental impacts, but that they would be short-term, temporary, and reversible, and could be managed through mitigation measures. These impacts were primarily related to road construction—namely increased dust levels, siltation of nearby water courses, and hydrocarbon spills from asphalt mixing plants. Accordingly, DGH developed an environmental management plan (EMP) with a set of mitigation and management measures to avoid, reduce, mitigate, or compensate for the adverse environmental impacts. 24. The DGH took overall responsibility for executing and supervising EMP implementation. To ensure that the contractors accepted and implemented the environmental measures, the DGH integrated the provisions of the IEE–EMP into the civil works contracts, requiring all contractors to make an effort to fulfill their contractual obligation to adopt the mitigation measures during construction works. The safeguard consultants were also embedded within the DSCs. The CTC assisted the PMU to coordinate EMP implementation and carry out regular monitoring and reporting. The contractors collected environmental data semiannually, the CTC and DSCs prepared the environmental monitoring reports to be submitted to ADB by DGH. ADB disclosed the reports on the ADB website. ADB review missions during 2014–2016 noted a lack of environmental monitoring data in the semiannual monitoring reports and inadequate waste management practices at construction sites and requested that the DGH strengthen the environmental monitoring and reporting capability of the and DSC. Adverse environmental impacts were minimized, and no major complaint was received during project implementation. Nonetheless, the environmental safeguard covenants were only partially complied with, as several road construction packages and asphalt mixing plants and quarries lacked environmental assessment documents and government environmental permits (Appendix 11). 25. Involuntary resettlement. The project was classified category A for involuntary resettlement. Land acquisition and resettlement plans (LARPs) for five subprojects and a due diligence report for the Wawar–Congot road section (CW-3) in Central Java were approved by ADB in 2011.16 In addition, ADB approved LARPs for the additional road sections of CW-6 and

16 Five LARPs were prepared during project preparation, for (i) Central Java, (ii) East Java, (iii) Sambas–Singkawang,

(iv) Sanggau, and (v) East Kalimantan.

9

CW-7 in West Kalimantan in February 2017 and August 2017. During implementation, no LARP required updating as no significant realignment of the subproject right-of-way occurred. The LARPs were prepared based on inventories of losses and detailed measurement surveys and in close consultations with affected persons and stakeholders, with attention paid to vulnerable groups and severely affected persons. Leaflets in Bahasa Indonesia disclosed key information from the LARPs to the affected persons and stakeholders, while full LARP documents were disclosed on the ADB website. A series of consultations with affected persons and stakeholders, including local governments and civil society organizations working for community empowerment and community-based organizations, were conducted during the preparation and implementation of the LARPs. The DGH, with assistance from ADB, held workshops and/or training programs in 2013, 2014, and 2016 that targeted local government, implementing agency, and EA staff. 17 The workshops aimed to strengthen participants’ knowledge of social safeguards and communication and participation. In addition, social safeguard meetings involving implementing agency and local government staff responsible for land acquisition were conducted to discuss and settle social safeguard issues during implementation. 26. The DGH, through its PMU, was responsible for overall social safeguard implementation. The PMU worked closely with the DGH subdirectorate of environmental and road safety, which was responsible for social and environment safeguards for all DGH projects. The district government offices provided funds and the main workforce to prepare and implement the LARPs. The head of districts established land acquisition committees through decrees. A grievance redress mechanism was established to address complaints or grievances in each subproject following the LARPs and prevailing government regulations. Records of complaints handled were documented in semiannual monitoring reports by DGH. Major issues included compensation gaps because the local government adopted depreciation on non-land assets, rejection of the compensation as agreed in the LARPs by some affected households, and lost trees along road shoulders during construction in North Kalimantan, have been settled. Upon completion, 250,160 square meters of land had been acquired and 2,588 households had been affected, including 295 vulnerable households. The contractor paid the compensation for the lost trees owned by 146 affected households during construction in North Kalimantan. DGH allowed the trees owners to take the cut trees that have been compensated. Meanwhile, the local governments implemented livelihood restoration programs focusing on severely affected and vulnerable households that addressed the needs of business and agriculture equipment, trainings, and top-up compensation. 27. To report the implementation of the LARPs, DGH submitted semiannual social internal monitoring reports, which were disclosed on ADB’s website. Independent monitoring agencies conducted external monitoring during 2014–2018. The latest external monitoring report (2019) concluded that the project has been in full compliance with the principles of social safeguards set forth in the LARPs and Land Acquisition and Resettlement, Customary Community Plan (LARCCP) and the ADB Safeguard Policy Statement. The report found that 31% of affected households reported that their living standards were higher than before the project, while 65% were at pre-project levels and only 4% were worse off. Gender has been considered in consultations and in the livelihood restoration program. 28. Indigenous peoples. At appraisal, the project was classified category B for indigenous peoples in line with the Safeguard Policy Statement. Indigenous peoples (Dayak ethnic with several sub-ethnics) lived along the project road in West and North Kalimantan were triggered. In

17 ADB Back to Office Report. 5 June 2013. Land Acquisition and Resettlement Issues and Action Plans. Indonesia

Resident Mission.

10

the project design, the DGH attempted to avoid relocation of customary communities (indigenous peoples) that would result in adverse impacts on their identity, culture, and customary livelihoods. Affected customary communities and leaders participated in consultation meetings for the LARPs and LARCCP preparation. Actions related to customary communities were included in the LARPs and LARCCP, however, there was less comprehensive plan on IP inclusion in other project activities such as road safety campaign and HIV/AIDS awareness program. During project implementation, the local government for the land acquisition process and the contractors held consultations with leaders and other members of customary communities before commencement of civil works. The construction activities did not adversely affect the socioeconomic condition of these communities nor lead to any disruption in their life or culture. In fact, the improved transport infrastructure augmented their access to socioeconomic facilities, such as schools and markets. Customary communities’ members benefit from the livelihood restoration program delivered by the local government and awareness campaign on road safety. Social safeguards, including involuntary resettlement and indigenous people, were included as a topic in capacity building trainings, and stakeholder communication and participation training materials (footnote 15). K. Monitoring and Reporting 29. The DGH as the EA provided adequate oversight, coordination, and counterpart funding, and complied with most of the loan covenants for the project. Measures for environmental and social safeguards were incorporated into the contracts and implemented, although several matters remained outstanding at project completion. DGH submitted its audited project financial statements to ADB on time. The final audited project financial statement of fiscal year (FY) 2018 indicated a difference of 5.6% between the total audited expenditures from ADB funds (Rp2.04 trillion) and the loan financial information system record (Rp2.16 trillion). This difference was due to exchange rate fluctuation. The submitted audited financial statements did not include the IsDB fund, despite the fact that the IsDB fund was included in the project cost estimates and financing plan, and also mentioned in the loan agreement as part of the project definition. The IsDB funding was administered under the Istisna’A agreement18 between the government and IsDB; it was parallel cofinancing and was not administered by ADB. The framework cofinancing agreement between ADB and IsDB19 also contained no language about sharing the audited financial statement. DGH prepared the project progress reports and monitoring reports as required and submitted them to ADB in a timely manner. The government submitted its project completion report to ADB in November 2018. Out of 23 loan covenants, five were only partially complied with: (i) the audited project financial statement as stated in the loan agreement, article IV, section 4.05, because it did not include the IsDB fund; (ii) project implementation in accordance with the project administration manual (loan agreement, schedule 5, para. 1), because the project performance monitoring system was not developed; (iii) environmental safeguards monitoring and reporting (loan agreement, schedule 5, para. 2), because of noncompliance of the monitoring with the EMP and insufficient reporting frequency; (iv) adequate budget for road maintenance (loan agreement, schedule 5, para. 15), because several road sections were not repaired in a timely manner; and (v) control of overloading of vehicles (loan agreement, schedule 5, para. 16), because a monitoring system was not developed and one project component (the MOT’s integrated vehicle overloading control strategy subprogram) was cancelled. Appendix 11 summarizes the status of compliance with the loan covenants.

18 Istisna’a Agreement between The Government of the Republic of Indonesia and Islamic Development Bank,

concerning the Regional Roads Development Project in Indonesia. No. IND-0161, $65.0 million, LIBOR based interest rate, 16 years of repayment and 4 years of grace period.

19 25 November 2011. Framework Co-financing Agreement between the Asian Development Bank and Islamic Development Bank Group.

11

III. EVALUATION OF PERFORMANCE A. Relevance 30. At both appraisal and completion, the project was rated relevant, as the project was part of the government’s strategy for economic growth and poverty reduction. The Government of Indonesia planned to promote sustainable economic growth by significantly increasing infrastructure investment. To achieve more equitable development across the country, the government recognized the urgent need to (i) improve transport accessibility in less-developed areas, which would also reduce poverty in local communities; and (ii) expand long-term growth opportunities and attract investment through the development of stronger trade ties under regional cooperation initiatives. Improvement of road infrastructure was a key priority under the government's 2010–2014 5-year medium-term strategy (footnote 3) and was consistent with Indonesia transport sector assessment and strategy and with the road map of ADB (footnote 3). At project completion, the project remained aligned with country development priorities and remained pertinent to ADB country and corporate strategies. The project’s focus on infrastructure and road development in remote areas and on border connectivity remain consistent with the government’s medium-term development plan, 2015–201920 and with ADB’s country partnership strategy for Indonesia, 2016–201921. 31. The project roads were designed and implemented to improve strategic and national road corridors in Kalimantan and Java to support economic growth in these two less-developed areas. The project design was appropriate to deliver the intended project outputs and outcomes, and no major project design change was needed during implementation. Improved road connections in Kalimantan to the Malaysian border support the Brunei Darussalam, Indonesia, Malaysia, Philippines–East ASEAN Growth Area (BIMP-EAGA) transport initiatives, and also complement other BIMP-EAGA programs to reduce nonphysical barriers to trade by improving customs, immigration, quarantine, and security. Improved road infrastructure in southern Java is necessary to remove existing constraints to economic growth and investment in this isolated area. B. Effectiveness 32. The project is rated effective as the outcome indicators were substantially achieved. The volume/capacity ratio along the southern Java road corridors was reduced from 0.8 to less than 0.5, and the traffic volume on North Kalimantan roads increased from an average of 535 vehicles per day in 2008 to an average of 2,604 vehicles per day in 2019, which exceeded the target of doubling traffic volume from 2010 to 2018. The outcome indicator to reduce the average number of road accident fatalities in project corridors from 15 deaths per 10,000 vehicles to fewer than 10 by the end of 2016 was likely achieved (the average was 2.2 deaths per 10,000 vehicles in the four provinces in 2018—but this figure included all roads in these provinces, not just the project corridors). The achievement of this outcome indicator was mostly due to the high increase in vehicle numbers, as the four project provinces and national road accident number shows increasing trend in 2015-2019. 33. Out of seven output indicators, one indicator exceeded the target, five indicators were fully achieved, and one indicator was partially achieved. Output 1 achieved 486.1 km of national roads rehabilitated and improved, exceeding the target indicator of 476 km. The targets for output 2

20 Government of Indonesia. 2015. National Medium Term Development Plan (Rencana Pembangunan Jangka

Menengah Nasional – RPJMN) 2015-2019 21 ADB. 2016. Country Partnership Strategy: Indonesia, 2016-2019. Manila.

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(road sector development program) were substantially achieved, effectively improving the capacity of road authorities in the country, especially in road development planning and road safety awareness and audit. For output 2, five output indicators were fully achieved. One indicator (speed and overloading enforcement system successfully completed on all project roads) was only partially achieved because the integrated vehicle overloading control strategy subprogram under the MOT was cancelled. However, the National Traffic Police Corps improved speed and vehicle overloading enforcement by purchasing speed monitoring and mobile overloading measurement equipment. 34. The EA implemented safeguard-related plans (the resettlement plan and the environmental monitoring plan) and submitted social and environmental monitoring reports to ADB to be disclosed on the ADB website. C. Efficiency 35. The project is rated efficient in achieving its outcomes and outputs. The economic internal rate of return (EIRR) of the project was reevaluated using similar methodology at appraisal and with updated data. The economic benefits were recalculated by comparing the “with-project” and “without-project” cases, including reduced vehicle operating costs and savings in passenger travel time costs. The EIRR was recalculated at 15.5% for the whole project, compared with 13% at appraisal. The higher EIRR was mainly due to much higher actual traffic volume. The recalculated EIRR is above the ADB recommended discount rate of 12% at appraisal. The project is therefore considered continuously economic viable. The details of the economic reevaluation are in Appendix 12. 36. During implementation, the project experienced initial delays in recruitment of consultants and procurement of civil works contractors (para. 18-19). Subsequent delays were caused by the re-tendering of the civil works package, contract variations because of technical challenges, additions to the scope of works, and the poor quality of the detailed engineering design (para. 20). ADB approved two extensions of the loan closing date, totaling 27 months, which enabled the DGH to fully complete the civil works. Implementation delays negatively influenced the EIRR, but the EIRR remained greater than 12% despite the 27-month extension. D. Sustainability 37. The project is rated likely sustainable for the following reasons. 38. Road maintenance. The project roads, which were opened to traffic between April 2016 and September 2018, are maintained by the DGH’s 23 Balai offices. These offices are responsible for planning, constructing, and maintaining national roads and receive regular financial allocations for routine maintenance and major repairs. The total budget for road maintenance in the four project provinces increased from $84.7 million in 2017 to $121.4 million in 2019—a 43.3% increase. In the past 5 years, operation and maintenance for national roads in Indonesia has accounted for an average of 40% of the DGH total annual budget. The DGH has yearly plan and budget for road operation and maintenance. During the PCR mission, the PCR team observed that the project roads in North Kalimantan had serious damage, caused by unstable soil and heavy flooding, that has not been repaired. The road damage is expected to be restored with the routine maintenance budget. 39. Cross-border transport and road safety. At appraisal, the project was to develop two land-based transport corridors to facilitate cross-border transport to and from Malaysia. However,

13

the PCR team observed that one of the two borders, located in North Kalimantan, was not open, and that no border facilities had been established on either side. However, domestic traffic volume in North Kalimantan more than quadrupled from 2008 to 2019 (para. 33). Traffic volume on the Indonesian side of the second border, in West Kalimantan, showed a very high increase—(12,292 vehicles per day in 2019, compared with 920 vehicles per day at appraisal in 2008). The PCR team observed that the project roads exhibited many traffic safety features as well as slope and rockfall protection. The road safety subprograms provided safety campaigns and training to the community and DGH, Balai staff, and local government road agency staff. However, because of increased traffic volume, road accidents on project roads in the four provinces increased during 2015–2018. The MOT, DGH, National Traffic Police Corps, and local governments, whose staff received capacity building support on monitoring traffic accidents, have been monitoring statistics on road accidents. They should be able to analyze the causes of these accidents and identify black spots to reduce accident levels. 40. Road sector development programs. Output 2 of the project saw six (out of a planned seven) subprograms were implemented (Table 1). The road sector development program supported the built roads to be sustainably used and contributed to the economic development. Recommendations on enhancing the vehicle overloading and speeding management were conveyed to the governments. The national traffic police corps continues to improve the speeding and overloading enforcement system. E. Development Impact 41. The project’s development impact is rated satisfactory. Gross domestic product (GDP) in the nine project districts increased by an average of 57.9% during 2010–2018,22 while GDP in the four project provinces increased by an average of 51% over the same period. Unit vehicle operating costs on project roads declined by an average of 31%. Traffic volume on the 18 improved sections of national highways and strategic roads has significantly increased as a result of the project. Traffic on the project road approaching the border in West Kalimantan increased rapidly after road construction was completed, including a substantial increase in the volume of freight vehicles crossing the border. Therefore, the project has contributed to increasing the efficiency of road transport along the project corridors, which in turn supports increased economic growth in these areas. However, the border gate in North Kalimantan had not yet opened at the time of the PCR mission, and reliable cross-border trade data for the new border crossing in West Kalimantan is lacking. Therefore, the PCR team could not properly assess achievements related to cross-border transport costs and trade volume. F. Performance of the Borrower and the Executing Agency 42. While DGH failed to avoid the project start-up delays and to develop an adequate project performance monitoring system (para. 11 and 29), the overall performance of the borrower and the DGH as the EA is rated satisfactory. The EA, BAPPENAS, Ministry of Finance, and the National Traffic Police Corps, actively participated in the coordination and supervision of the project. PMU staff was capable and received effective supported from the CTC. The government provided sufficient and timely counterpart funding for the project. The PMU’s capacity and performance gradually improved as it gained experience and received more support from the

22 BPS-Statistics Indonesia. 2015. Gross Regional Domestic Product of Regencies/Municipalities in Indonesia (2010–

2014 and 2014-2018). Jakarta; BPS-Statistics Indonesia. 2019. Gross Regional Domestic Product of Regencies/Municipalities in Indonesia (2014-2018). Jakarta

14

growing CTC team. Upon completion, DGH arranged the road maintenance resources through DGH Balai office. G. Performance of the Cofinancier 43. The project was cofinanced by ADB and IsDB under the framework cofinancing agreement (footnote 18). The IsDB Istisna’A agreement between the government and IsDB was signed on 17 April 2012 and became effective on 29 April 2013 (footnote 19) .The total loan amount of $65.0 million was allocated for the civil works in Central Java (76.4 km, $53.5 million), consulting services (DSC for the IsDB-financed road sections) for $3 million, and contingencies for $8.5 million. The IsDB loan appraisal mission was fielded from 1 to 5 November 2010. IsDB also fielded four project review missions during project implementation, mostly as joint review missions with ADB. The IsDB loan was closed as originally scheduled on 19 June 2019 and there was no reallocation of the loan proceeds. Upon financial closing, $36.5 million was disbursed (56.1% of the original loan amount). Overall, the performance of IsDB was satisfactory. H. Performance of the Asian Development Bank 44. ADB’s overall performance was satisfactory. Project processing was undertaken by ADB headquarters and transferred to ADB’s Indonesia Resident Mission in October 2012. During implementation, ADB fielded 10 project review missions, including an inception mission in 2012, a midterm review mission in 2014, and the completion review mission in 2019. The ADB missions analyzed issues affecting project progress and provided substantial inputs in preparing action plans to expedite project implementation. The ADB project team and consultants provided regular training and other support for DGH and PMU staff, consultants, and the contractors on project management and safeguard policy compliance. I. Overall Assessment 45. Overall, the project is rated successful. The project was relevant to both the government’s development objectives and ADB’s country partnership strategy. The project was designed appropriately and implemented with minor changes to meet actual needs and adapt the project to unanticipated changes. The project was effective in achieving its outcomes. The project’s outputs and outcomes demonstrate that it was an effective intervention to promote sustainable economic growth and poverty reduction in the project areas, while enhancing institutional capacity to develop and maintain national and strategic roads. The project was rated efficient in achieving its outputs and outcomes, considering its robust EIRR recalculated at project completion and its continued economic viability. The project roads substantially improved connectivity in the project provinces, paving the way for rapid socioeconomic development. The project is rated likely sustainable, as strong institutional and financial arrangements were built into the project to ensure continuous road maintenance and effective mitigation of socioeconomic impacts as traffic volumes rapidly increase on the project roads.

Overall Ratings Criteria Rating Relevance Relevant Effectiveness Effective Efficiency Efficient Sustainability Likely sustainable Overall Assessment Successful Development impact Satisfactory Borrower and executing agency Satisfactory Performance of Asian Development Bank Satisfactory Source: Asian Development Bank.

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IV. ISSUES, LESSONS, AND RECOMMENDATIONS A. Issues and Lessons 46. Implementation delays. The project was beset by substantial implementation delays, mainly caused by initial delays in recruitment of the consultants and procurement of the civil works contracts. Slow establishment of the PMU, a lengthy prequalification processes in procurement, and slow clarification response and bid approval processes were the main reason. Such delays can be avoided by providing continuous training to members of procurement committees, which for this project were mostly based in the DGH regional offices (Balai). Prequalification for civil works procurement should have applied to complex works only. Advance procurement for consultant recruitment and civil works procurement should have been agreed upon with the government before negotiation of the loan; this would have enabled consultants to begin working as soon as the loan became effective and would have allowed civil works to start as planned. 47. The quality of detailed engineering design. The project experienced substantial contract variations for the civil works, which contributed to the implementation delays, caused by poor quality of the detailed engineering design. During ADB’s PCR mission, it was found that project roads in North Kalimantan exhibited damage (para. 38). Such damage and delays could have been avoided or mitigated through more thorough geological surveys and better detailed engineering designs.

B. Recommendations 48. Future monitoring. PMUs could improve the national road construction and operational monitoring system in the project corridor, collecting baseline data, and updating the design and monitoring framework regularly through the project performance monitoring system to obtain optimum socioeconomic benefit of the constructed road. To minimize resettlement issues, the written approval and commitment from the local government on the social safeguard plans need to be considered for future projects. Otherwise, the EA/IA should be fully responsible to provide an adequate budget, to avoid delays during RP implementation. The safeguards monitoring and reporting as agreed in the loan covenants, clear contractual terms and conditions to the contractor and consultant, such as payment milestones and work progress validation process, is recommended to be included in the contract agreement. This needs to be agreed by ADB and the EA during project appraisal. Social impacts assessment on indigenous people must be carried out more thoroughly and mitigation measures should be clearly captured in the Indigenous People Plan and monitoring reports to have a better plan on IP inclusion in the project activities besides the land acquisition. 49. Further action or follow-up. One of the project objectives was to improve road safety, which was addressed by organizing capacity building workshops, carrying out road safety awareness campaigns, strengthening overloading and speed management, and providing safety equipment. These efforts should be continued after project completion by the DGH, MOT, National Traffic Police Corps, and the local governments. ADB should incorporate lessons learned from these efforts in preparing future projects in Indonesia. 50. Timing of the project performance evaluation report. It is recommended that ADB’s Independent Evaluation Department prepare the project performance evaluation report in 2021, by which time all project roads will have been fully operating for 3 years. By then, the road conditions, traffic development, road maintenance, benefits attained, and socioeconomic impacts can be adequately assessed.

16 Appendix 1

DESIGN AND MONITORING FRAMEWORK

Design Summary Performance Indicators and

Targets Project Achievements Impact Increased efficiency of road transport, supporting integrated and sustainable economic growth along project corridors

By 2020, per capita gross domestic product growth of project districts increased by 10% from the province’s average trend in 2010 Cross-border transport costs per ton decreased by 20% and volume of trade increased by 50% from 2010 to 2020 in Kalimantan

Likely to be Achieved (not due yet) The GDP (constant market price) of

the nine project districts increased by an average 57.9% in 2010–2018 in comparison with the average GDP increase of the four provinces in the same period (51%).1

Partially Achieved (not due yet) The unit vehicle operation cost

decreased by average 31%. But, the border gate in North Kalimantan yet not opened. The anticipated target of increasing cross-border traffic and reducing transport cost was not able to be assessed.

Outcome Improved capacity and safety of national and strategic roads

Volume-capacity ratio in both southern Java highway corridors reduced from 0.8 to less than 0.5 by the end of 2016 By the end of 2016, traffic volume of northern Kalimantan roads doubled from 2010 Average number of road accidents in project corridors decreased from 15 deaths per 10,000 vehicles in 2009 to less than 10 by the end of 2016

Achieved

Volume/capacity ratio in southern Java road corridors reduced from 0.8 to less than 0.5 (it was 0.09 in 2018).

Achieved The traffic volume of northern Kalimantan roads increased from average 535 vehicles per day in 2008 to 2,604 vehicles per day in 2019.

Likely to be Achieved The accident data were available by the province of the project sites (2.2 deaths in average per 10,000 vehicles by end of 2018).

Outputs 1. Development of

national and strategic roads

2. Road sector

development program implemented

Rehabilitation and widening of 476 kilometer of road in West and East Kalimantan, and East and Central Java provinces by 2015 Road safety engineering and audit completed, and measures implemented for all project links by 2015 All communities participate in road

Exceed the Target 18 sections of national highways and strategic roads with a total 486.1 km were constructed, rehabilitated or improved in North and West Kalimantan and in East and Central Java. Achieved 5 workshops were organized and road safety audits to the project roads were conducted in October 2015 to October 2016. Achieved

1 This indicator is not so clear. The baseline data for 2010 were not provided in the project appraisal documents.

Appendix 1 17

Design Summary Performance Indicators and

Targets Project Achievements safety awareness program by December 2015, with 80% participation of transport providers and school children Speed and overloading enforcement system successfully completed on all project roads Indonesia transport sector development strategy and policy study completed by end of 2015 Anti-HIV/AIDs and human trafficking program implemented in all provinces by 2015 Successful training of 250 road agency staff by December 2015

Road safety awareness campaign and trainings were conducted in December 2017 to July 2018 with participants from transport sectors, roadside community, and school children. About 350 participants were trained, including about 250 DGH staff. Partially Achieved A subprogram on enforcement capability road infrastructure protection was implemented in January 2016 to July 2018 by focusing on vehicle overload and speed management, black spots identification, and capacity building. The subprogram of Integrated Vehicle Overloading Control Strategy was cancelled by MOT. Achieved The study was implemented in September 2016 to March 2018 to support the midterm transport sector development plans in 2020-2024. Achieved Campaigns on HIV/AIDS and human trafficking were conducted in October 2015 to October 2016 for all civil works packages in the 4 project provinces. About 325 construction workers and more than 200 local community members were attended the campaign meetings. Achieved A series of seminars, technical discussion, workshops, and trainings were organized in 2017 and 2018 with total participants of 510 from Balai and DGH.

ADB = Asian Development Bank, DGH = Directorate General of Highways, GDP = gross domestic product. Source: Asian Development Bank.

18 Appendix 2

PROJECT ROADS DESCRIPTION

Road Sections

Length (km) Bridge Intersection Improved

(no.)

Culvert Improved

(no.)

Retaining Wall

(meter) Total New-

construct Re-

construct Widen/ Re-surf.

(no.) total (km)

18 sections of national highways and strategic roads with total 486.069 km were constructed, rehabilitated or improved in North and West Kalimantan and East and Central Java, including:

486.069 63.029 282.903 140.137 25 616.4 4 596 10,866

in Central Java

Tambak Mulyo–Wawar 38.494 37.925 0.569 1 180.0 121

Giri Woyo–Duwet 23.762 4.800 18.442 0.520 2 29.0 46 1,840

Wawar–Congot 14.130 14.130

in East Java

Jolosutro–Sendangbiru 21.300 10.200 5.800 5.300 1 7.0 4 8

in West Kalimantan

Sosok–Tayan, Tanjung–Batas Kota Sanggau 79.200 57.850 21.350 3 67.8 103

Tebas–Singkawang, Sambas Bypass, Sabas–Tanjung Harapan, Tanjung Harapan–Galing

68.237 6.104 32.334 29.799 7 122.0 50

Galing–Simpang Tanjung, Simpang Tanjung–Aruk

46.482 40.800 5.682 5 90.0 59 8,139

in North Kalimantan

Tanjung Selor–Simpang 3 Tj. Palas, Simpang 3 Tj. Palas–Sekatak Buji (section 1)

35.184 14.002 21.182 33

Simpang Tj. Palas–Sekatak Buji (section 2) 65.130 27.625 37.505 1 25.0 21 887

Simpang 3 Apas–Simanggaris (section 1) 45.500 42.300 3.200 1 16.0 81

Simpang 3 Apas–Simanggaris (section 2), Simanggaris–Bts. Negara

48.650 4.000 43.750 0.900 4 79.6 74

Source: The Project Management Unit

Appendix 3 19

PROJECT COST AT APPRAISAL AND ACTUAL ($ million)

Appraisal Estimate Actual

item Amount % of Total Amount % of Total

A. Base Cost

1. Development of national and strategic roads

i. Land acquisition and resettlement 0.7 0.2 4.0 1.5 ii. Civil works 274.2 72.1 236.3 86.9 iii. Consultant services 15.2 4.0 10.3 3.8 2. Road sector development program i. Road safety strengthening subprogram 6.9 1.8 4.1 1.5 ii. Road sector subprogram 3.3 0.9 1.5 0.6 3. Taxes and duties 22.1 5.8 10.1 3.7

Subtotal (A) 322.4 84.7 266.3 97.9 B. Contingencies 48.5 12.7 C. Financial Charges during Implementation 9.6 2.5 5.6 2.1

Total (A+B+C) 380.5 100.0 271.9 100.0 Source: The project appraisal document; The ADB loan financial information system; The Project Management Unit.

20 Appendix 4

PROJECT COST BY FINANCIER

Table A4.1: Project Cost at Appraisal by Financier ($ million)

ADB IsDB Government Total Cost item Amount

% of Cost Category

Amount % of Cost Category

Amount % of Cost Category

A. Base Cost

1. Development of national and strategic roads

i. Land acquisition and resettlement 0.7 100.0 0.7 ii. Civil works 155.0 56.5 53.5 19.5 65.7 24.0 274.2 iii. Consultant services 12.2 80.3 3.0 15.2 2. Road sector development program

i. Road safety strengthening subprogram 6.9 100.0 6.9 ii. Road sector subprogram 3.3 100.0 3.3 3. Taxes and duties 22.1 100.0 22.1

Subtotal (A) 177.4 55.0 56.5 17.5 88.5 27.5 322.4 B. Contingencies 2.6 8.5 37.4 48.5 C. Financial Charges during Implementation 9.6 9.6

Total (A+B+C) 180.0 47.3 65.0 17.1 135.5 35.6 380.5 % of Total Cost 47.3% 17.1% 35.6%

ADB = Asian Development Bank, IsDB = Islamic Development Bank Source: The project appraisal document (RRP)

Appendix 4 21

Table A4.2: Project Cost at Completion by Financier ($ million)

ADB IsDB Government Total Cost item Amount

% of Cost Category

Amount % of Cost Category

Amount % of Cost Category

A. Base Cost

1. Development of national and strategic roads

i. Land acquisition and resettlement 4.00 100.0 4.0 ii. Civil works 145.5 61.6 35.0 14.8 55.77 23.6 236.3 iii. Consultant services 8.8 86.3 1.5 10.2 iv. Equipment 0.7 100.0 0.7 2. Road sector development program

i. Road safety strengthening subprogram 3.4 100.0 3.4 ii. Road sector subprogram 1.5 100.0 1.5 3. Taxes and duties 10.1 100.0 10.1

Subtotal (A) 160.0 60.1 36.5 13.7 69.9 26.2 266.3 B. Contingencies

C. Financial Charges during Implementation 5.6 100.0 5.6 Total (A+B+C) 160.0 58.8 36.5 13.4 75.5 27.8 271.9 % of Total Cost 58.8% 13.4% 27.8%

ADB = Asian Development Bank, IsDB = Islamic Development Bank Source: The ADB loan financial information system; IsDB; The Project Management Unit.

22 Appendix 5

DISBURSEMENT OF ADB LOAN AND GRANT PROCEEDS

Table 5.1: Annual and Cumulative Disbursement of ADB Loan Proceeds ($ million)

Annual Disbursement Cumulative Disbursement

Year Amount

($ million) % of Total Amount

($ million) % of Total 2013 5.99 3.7% 5.99 4% 2014 15.69 9.8% 21.69 14% 2015 26.51 16.6% 48.20 30% 2016 34.20 21.4% 82.40 52% 2017 49.15 30.7% 131.55 82% 2018 28.41 17.8% 159.96 100% Total 159.96 100.0%

ADB = Asian Development Bank. Source: Asian Development Bank.

Figure 5.1: Annual and Cumulative Disbursement of ADB Loan Proceeds ($ million)

ADB = Asian Development Bank. Source: The ADB loan financial information system

Appendix 6 23

CONTRACT AWARDS OF ADB LOAN PROCEEDS

Table 6.1: Annual and Cumulative Contract Awards of ADB Loan Proceeds ($ million)

Annual Contract Awards Cumulative Contract Awards

Year Amount

($ million) % of Total Amount

($ million) % of Total 2012 2013 57.68 36.1% 57.68 36.1% 2014 75.35 47.1% 133.02 83.2% 2015 21.71 13.6% 154.73 96.7% 2016 3.76 2.3% 158.49 99.1% 2017 0.00 0.0% 158.49 99.1% 2018 1.47 0.9% 159.96 100.0% Total 159.96 100.0%

ADB = Asian Development Bank. Source: Asian Development Bank.

Figure 6.1: Annual and Cumulative Contract Awards of ADB Loan Proceeds ($ million)

ADB = Asian Development Bank. Source: The ADB loan financial information system

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

180.00

2012 2013 2014 2015 2016 2017 2018

Annual Contract Award Cummulative Contract Award

24 Appendix 7

APPRAISAL AND ACTUAL IMPLEMENTATION SCHEDULES COMPARED

Source: The Project Management Unit; The Asian Development Bank project completion review mission.

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

at appraisal at actual

2011 2012

C. Equipment

2017 2018

A. Loan Procession

Recruitment

B. Civil Works

E. Sector Development Program

Procurement

Construction

Loan signing and effective

2013 2014 2015 2016

Loan procession to ADB approval

Item

Implementation

Recruitment

Implementation

Procurement

Delivery

D. Consulting Service (Core team, design and supervision)

Appendix 8 25

CHRONOLOGY OF MAIN EVENTS

Date Event 2010

10–14 May ADB project fact-finding mission 18–20 August ADB technical discussion mission 1–5 November IsDB project appraisal mission

2011 9–20 May ADB Loan negotiation 24 November ADB approval of the loan

2012 8–16 March ADB project inception mission 17 April Signing of the IsDB Istisna’a agreement and Istisna’s agency agreement 7 May Signing of the ADB loan agreement 3 July ADB loan effectiveness 1–5 October ADB project reconnaissance mission

2013 29 April Effectiveness of the IsDB loan 21 August Contract award for the civil works package CW-04 9 October Initial ADB loan disbursement 16 October Contract award for the design and supervision consults of CSP-3 14 November Contract award for the civil works package of CW-06 23 November Contract award for the design and supervision consults of CSP-2 24 November Contract award for the civil works package of CW-05 26 November Contract award for the civil works package of CW-07 15–20 December ADB project review mission

2014 12 February Contract award for the core team consultants (CSP-1) 11 April Contract award for the civil works packages of CW-010 and CW-11 25 June Contract award for the civil works package of CW-09 23 September – 26 November (intermittent)

ADB project midterm review mission

3 November Contract award for the civil works package of CW-08 2015

7 January Contract award for the civil works package of CW-03 12 January Contract award for the civil works package of CW-01 13 January Contract award for the civil works package of CW-02 14 April Contract award for the design and supervision consultants (CSP-11) 5 June Approval of first extension of the ADB loan closing date to 31 July 2018 6 October Contract award for the subprograms of Road Safety Support (CSP-4) and

HIV/AODS and Anti-Trafficking (CSP-10) 14 September-12 November (intermittent)

ADB project review mission

19 November Contract award for the subprogram of Road Safety Awareness Campaign and Training (CSP-6)

2016 11 April Completion of civil works contract of CW-04 9 May Completion of consulting service of the design and supervision

consultants (CSP-3) 13 June Completion of civil works contract of CW-05 18 July–5 August ADB project review mission 12 August Completion of civil works contract of CW-03 31 August Original loan closing date specified in the loan agreement 8 September Contract award for the subprogram of Indonesia Transport Sector

Development Strategy and Policy Study (CSP-8)

26 Appendix 8

Date Event 5 October Completion of consulting service for Road Safety Support (CSP-4) and

HIV/AODS and Anti-Trafficking (CSP-10) 2017

20 March Completion of civil works contract of CW-09 9 April Completion of civil works contract of CW-10 13 April–15 May ADB/IsDB project review mission 27 September Completion of civil works contract of CW-07 15 November–12 December ADB/IsDB project review mission 6 December Contract award for the subprogram of Overloading and Speed

Enforcement (CSP-7) 11 December Contract award for the subprogram of Institutional Development for

Road Network Management (CSP-5) 19 December Completion of civil works contract of CW-05 21 December Completion of civil works contract of CW-02

2018 3 January Completion of civil works contract of CW-08 20 March Contract award for the road safety equipment 21 March Completion of consulting service for Overloading and Speed

Enforcement (CSP-7) 30 June Completion of civil works contract of CW-11 7 July Completion of consulting service for of Institutional Development for

Road Network Management (CSP-5) 31 July Completion of consulting service for of Road Safety Awareness

Campaign and Training (CSP-6) 31 July First extended loan closing date 1 August First ADB loan partial cancellation of $8.0 million 2 August Approval of second extension of the ADB loan closing date to 30

November 2018 31 August Completion of consulting service of the design supervision consultants

(CSP-2) 24 September Completion of civil works contract of CW-01 3 October–12 November ADB/ISDB project review mission 5 October Completion of contracts for road safety equipment 31 October Completion of consulting service of the design and supervision

consultants (CSP-11) 16 November Completion of consulting service of the core team consultants (CSP-1) 22 November Submission of EA’s PCR report to ADB 30 November Actual ADB loan closing date 12 December Final disbursement of the ADB loan

2019 11 January Second ADB loan partial cancellation of $12.0 million 29 May Financial closing of the ADB loan account 19 June ISDB loan closing date specified in the loan agreement 14–16 October ADB project completion review mission

ADB = Asian Development Bank, EA = executing agency, IsDB = Islamic Development Bank, CSP = Consulting Service Package, PCR = project completion report Source: The Project Management Unit; The ADB project completion mission

Appendix 9 27

ORGANIZATION FRAMEWORK FOR PROJECT IMPLEMENTATION

ADB = Asian Development Bank, EA = executing agency, IsDB = Islamic Development Bank Source: Directorate General of Highways

Ministry of Public Works and Housings

Directorate General of Highway (EA)

Project Management Unit

ADB

Equipment Suppliers Civil Works Contractors

Design and Supervision Consultants

Director

Balai Office Balai Office

Consultants for Sector Development Programs

Core Team Consultants

IsDB

Project Steering Committee

Related Government Agencies

Balai Office Balai Office

Related Government Agencies

Administration and Supporting staff

Daily Management and Implementation Officer

Planning and engineering staff

Environment, road Safety, and Social staff

28 Appendix 10

PROJECT CONTRACT PACKAGES

Source: Asian Development Bank’s financial system; IsDB; The Project Management Unit

Currency Original Actual ADB Loan IDB Loan Gov. Fund

CW-01 24-RCP01: Tambak Mulyo-Wawar KSO PP. PT Armadahada Graha ICB 12/01/2015 Rp 243,742 267,141 18.211 1.821 CW-02 24-RCP02: Giriwoyo to Duwet (section 1) PT Hutama Karya ICB 13/01/2015 Rp 142,000 192,331 12.937 1.294 CW-03 24-RCP03: Wawar-Congot PT Jaya Konstruksi ICB 07/01/2015 Rp 58,253 56,753 3.875 0.388 CW-04 28-RCP01: Jolosutro-Sendagbiru PT. Hutama Karya ICB 21/08/2013 Rp 93,350 121,502 5.934 2.543

CW-0530-RCP01: Sosok-Tayan, Tanjung-Sangau

PT. Waskita Karya – PT. Yala Patria Perkasa JO ICB 24/11/2013 Rp 465,648 462,034 21.278 9.119

CW-0630-RCP02: Singkawang-Tembas, Sambas By-pass, Tanjung Harapan-Galing PT. Waskita Karya – PT.Yala Patria Perkasa JO ICB 14/11/2013 Rp 292,603 622,788 29.875 12.803

CW-0730-RCP03: Galing-Tanjung, Tanjung-Aruk

PT. Waskita Karya – PT.Yala Patria Perkasa JO ICB 26/11/2013 Rp 238,975 349,157 16.737 7.173

CW-0834-RCP01: Tanjung Selor-Tanjung Palas, Tanjung Palas-Sekatak (PH1)

PT.Waskita Karya ICB 03/11/2014 Rp 189,970 322,176 15.214 6.520

CW-09 34-RCP-02: Tanjung Palas-Sekatak (PH2) PT. Brantas Abipraya – PT. Mahir Jaya Mahakam JO ICB 25/06/2014 Rp 165,332 244,233 11.685 5.008

CW-10 34-RCP03: Mensalong-Sebuku PT. Pembangunan Perumahan – PT. Perdasa JO ICB 11/04/2014 Rp 289,000 338,758 16.420 7.037

CW-1134-RCP04: Sebuku-Simanggaris, Simanggaris-border

Halla Corporation ICB 11/04/2014 Rp 359,653 597,755 28.350 12.150

Subtotal (A) 2,538,526 3,574,628 145.492 35.023 65.856

GEP-1 Road safety enforcement PT. Graha Qinthar Abadi Shopping 20/03/2018 Rp 10,589 0.733 Subtotal (B)

$ 1.730 1.730 Rp 26,365 26,365 $ 0.887 0.887

Rp 48,174 48,174 CSP-3 Design and Supervision (Java) PT. Perentjana Djaja QCBS/FTP 16/10/2013 Rp 8,416 8,416 0.649 CSP-4 Road Safety Support PT. Widya Graha Asana QCBS/FTP 06/10/2015 Rp 3,242 3,242 0.243

CSP-5Institutional Development for Road Network Management

PT. Hasfarm Dian Konsultan QCBS/FTP 11/12/2017 Rp 6,543 6,543 0.451

CSP-6 Road safety awareness campaign and training PT. Hasfarm Dian Konsultan QCBS/FTP 19/11/2015 Rp 4,216 4,216 0.291 $ 1.328 1.328

Rp 2,164 21,645 $ 0.246 0.246

Rp 8,840 8,840 CSP-9 Integrated vehicle overloading control strategy QCBS/FTP

CSP-10 HIV/AIDS and Anti-Trafficking program PT. Intersys Kelola Maju QCBS 06/10/2015 Rp 2,474 2,474 0.186 $ 0.726

Rp 11,349 2,474 1.454 Subtotal (C) 13.739 1.454

Total (A+B+C) 159.964 36.478 65.856

Actual Financing ($ million)

A. Civil Works

B. Goods

Package No.

Description/Nature of Works Contractor//Supplier/ConsultantProcurement

MethodContract

DateContract Amount (Rp million)

C. Consulting Service

CSP-1 Core Team Renardet,S,A Consulting Engineers QCBS/FTP 3.677

CSP-2 Design and Supervision (Kalimantan) CECI Engineering Consultants, Inc. QCBS/FTP 21/11/2013 4.484

12/02/2014

0.891

CSP-7 Overloading and speed enforcement Renardet S.A QCBS/FTP 06/12/2017 2.868

CSP-8Indonesia Transport Sector Development Strategy and Policy Study

PT. Anugerah Krida Pradana QCBS/FTP 08/09/2016

CSP-11 Design and Supervision (Central Java) Botek Bosporus Technical Consultant Corp QCBS/FTP 14/04/2015

Appendix 11 29

STATUS OF COMPLIANCE WITH LOAN COVENANTS

No. Covenant Reference

in Loan Agreement

Status of Compliance

Particular Covenants 1 (a) The Borrower through the Project Executing

Agency shall cause the Project to be carried out with due diligence and efficiency and in conformity with sound applicable technical, financial, business, and development practices.

(b) In the carrying out of the Project and operation of the Project facilities, the Borrower shall perform, or cause to be performed, all obligations set forth in Schedule 5 to this Loan Agreement.

LA. Article IV. Sec. 4.01

Complied with. The project was implemented with due diligence and efficiency and in conformity with sound applicable technical, financial, business, and development

2 The Borrower shall make available, promptly as needed, the funds, facilities, services, land and other resources, as required, in addition to the proceeds of the Loan, for the carrying out of the Project and for the operation and maintenance of the Project facilities.

LA. Article IV. Sec. 4.02

Complied with. The counterpart funds, facilities, services, land and other resources, as required, was provided to the project, including total counterpart fund of $75.5 million equivalent. The project roads are now maintained by the DGH’s Balai offices with regular budget allocations.

3 (a) Whenever applicable, in the carrying out of the Project, the Borrower through the Project Executing Agency shall cause competent and qualified consultants and contractors, acceptable to ADB and the Borrower, to be employed to an extent and upon terms and conditions satisfactory to the Borrower and ADB.

(b) The Borrower through the Project Executing Agency shall cause the Project to be carried out in accordance with plans, design standards, specifications, work schedules and construction methods acceptable to ADB. The Borrower shall furnish, or cause to be furnished, to ADB, promptly after their preparation, such plans, design standards, specifications and work schedules, and any material modifications subsequently made therein, in such detail as ADB shall reasonably request.

LA. Article IV. Sec. 4.03

Complied with. (a) Approved by ADB and the

government, 10 consultant teams were recruited for the project management, design and supervisions, and the sector development programs. And, contractors for 11 civil works packages were procured.

(b) The project was implemented in accordance with plans, design standards, specifications, work schedules and construction methods acceptable to ADB.

4 The Borrower shall ensure that the activities of its departments and agencies with respect to the carrying out of the Project and operation of the Project facilities are conducted and coordinated in accordance with sound administrative policies and procedures.

LA. Article IV. Sec. 4.04

Complied with. The road constructions and maintenance were conducted and coordinated in accordance with sound administrative policies and procedures.

5 (a) The Borrower shall (i) maintain, or cause to be maintained, separate accounts for the Project; (ii) have such accounts and related financial statements audited annually, in accordance with appropriate auditing standards consistently applied, by independent auditors whose qualifications, experience and terms of reference are acceptable to ADB; (iii) furnish to ADB, as soon as available but in any event not later than 6 months after the end of each related fiscal year, certified copies of such audited accounts and financial statements and the report of the auditors relating thereto (including the auditors' opinion on

LA. Article IV. Sec. 4.05

Partially complied with. A separate financial account was established and maintained by the PMU, which was audited annually, and the audited financial statements were submitted to ADB timely. However, the project audited financial statements did not include IsDB funding, despite the fact that IsDB funds were included in the project cost estimates and financing plan and were mentioned in the loan

30 Appendix 11

No. Covenant Reference

in Loan Agreement

Status of Compliance

the use of the Loan proceeds and compliance with the financial covenants of this Loan Agreement), all in the English language; and (iv) furnish to ADB such other information concerning such accounts and financial statements and the audit thereof as ADB shall from time to time reasonably request.

(b) The Borrower shall enable ADB, upon ADB's request, to discuss the Borrower's financial statements for the Project and its financial affairs related to the Project from time to time with the auditors appointed by the Borrower pursuant to Section 4.05(a) hereinabove, and shall authorize and require any representative of such auditors to participate in any such discussions requested by ADB, provided that any such discussion shall be conducted only in the presence of an authorized officer of the Borrower unless the Borrower shall otherwise agree.

agreement as part of Project definition.

6 The Borrower through the Project Executing Agency shall enable ADB's representatives to inspect the Project, the Goods and Works, and any relevant records and documents.

LA. Article IV. Sec. 4.06

Complied with. The EA and the PMU enabled ADB’s missions to inspect the project, the goods and works, and documents.

7 The Borrower through the Project Executing Agency shall ensure that any facilities relevant to the Project are operated, maintained and repaired in accordance with sound applicable technical, financial, business, development, operational and maintenance practices.

LA. Article IV. Sec. 4.07

Complied with. After completion, the project roads are maintained and repaired by the DGH’s Balai offices in accordance with sound applicable technical, financial, business, development, operational and maintenance practices.

Implementation Arrangement 8 The Borrower, the Project Executing Agency and the

Implementing Agencies shall ensure that the Project is implemented in accordance with the detailed arrangements set forth in the PAM. Any subsequent change to the PAM shall become effective only after approval of such change by the Borrower and ADB. In the event of any discrepancy between the PAM and this Loan Agreement, the provisions of this Loan Agreement shall prevail.

LA. Sch. 5 Para. 1

Partially complied with. The project was implemented in accordance with the detailed arrangements set forth in the PAM, except for the project performance monitoring system.

Environment 9 The Borrower shall, and shall cause the Project

Executing Agency, to ensure, in accordance with the undertakings in the PAM, that: (a) all the Project facilities shall be constructed,

maintained, and monitored in strict conformity with: (i) all applicable environmental laws and regulations, policies, procedures and guidelines of the Borrower, (ii) SPS; and (iii) the environmental mitigation and monitoring measures detailed in the EMP. In case of any discrepancy between the Borrower’s laws and regulations, and the SPS, the SPS shall prevail;

(b) it adequately supervises and monitors the construction works carried out by contractors to ensure timely compliance with the environmental

LA. Sch. 5 Para. 2

Partially complied with. During implementation, the DGH took overall responsibility of executing and supervising EMP implementation. In order to ensure that environmental measures were accepted and implemented by the contractors, the DGH integrated the provisions of the IEE-EMP into the civil works contracts. However, the project implementation encountered the following shortfalls: (a) The construction of several road

work packages proceeded without

Appendix 11 31

No. Covenant Reference

in Loan Agreement

Status of Compliance

mitigation and monitoring measures set forth in the EMP, to minimize any adverse environmental impacts arising from the construction and operation of the Project;

(c) (i) all bidding documents and civil works contracts contain provisions that require contractors to comply with the mitigation measures set forth in the EMP and allocate a budget for all such environmental mitigation measures; and (ii) Works contracts are awarded upon confirmation that necessary environmental approval for the Project has been obtained and if required, a copy of such approval shall be submitted to ADB upon issuance; and

(d) semiannual environmental monitoring reports are submitted to ADB in a timely manner.

the mandatory environmental assessment and Environmental Permit in place (as required by Indonesian laws and regulations).

(b) The operation of several asphalt mixing plants and quarries are without the mandatory environmental assessment and permit (as required by Indonesian laws and regulations). Further, hydrocarbon waste management generated by most of the asphalt mixing plants did not comply with the Indonesian regulation on hazardous waste management.

(c) Partial mitigation and monitoring measures as set forth in the EMP were conducted and reported by the overall project.

(d) All bidding documents and civil works contracts had provisions that required the contractors to comply with the EMP, but these provisions were not enforceable.

(e) Regular environmental monitoring reports were prepared and submitted to ADB, which were disclosed on the ADB website. However, some reports were submitted with significant delays and on yearly basis (not semi-annual as required) due to lack of environmental monitoring data. Therefore, the environmental monitoring report of the report was only disclosed on ADB’s website on annual basis.

10 Prior to commencement of site Works, the Borrower shall, and shall cause the Project Executing Agency to: (a) establish or adapt an environmental grievance redress mechanism, acceptable to ADB and the Borrower, to receive and facilitate resolution of Affected Peoples' concerns, complaints, and grievances about the Project's environmental performance; (b) make public the existence of this grievance redress mechanism through public awareness campaigns; (c) review and address environmental grievances of stakeholders in relation to the Project, any of the service providers, or any person responsible for carrying out any aspect of the Project; and (d) proactively and constructively respond to such grievances.

LA. Sch. 5 Para. 3

Complied with. Environmental grievance redress mechanism was established prior commencement of site works, which was acceptable to ADB and the government.

11 The Borrower shall, and shall cause the Project Executing Agency to update, in a form and manner satisfactory to ADB: (a) the EMP, if any unanticipated environmental risks and impacts arise; and (b) the IEE, if there are any changes to Project design that would cause significant environmental risks or

LA. Sch. 5 Para. 4

Complied with. During implementation, no significant changes occurred in the project design that might have caused significant environmental risks.

32 Appendix 11

No. Covenant Reference

in Loan Agreement

Status of Compliance

impacts not within the scope of the IEE and submit such updated IEE to ADB for clearance.

Social Safeguards 12 The Borrower shall, and shall cause the Project

Executing Agency to ensure that any involuntary resettlement and/or activities impacting ethnic minorities be carried out in accordance with the agreed LARPs, SPS, and the Borrower’s relevant laws. In case of differences between Borrower’s laws and regulations and the SPS, the SPS shall prevail. In case of such involuntary resettlement, the Borrower shall ensure (a) the Project Executing Agency shall be responsible for internal monitoring of resettlement activities, including engagement of an external monitoring agency 1 month before commencement of the resettlement activities. The internal and external monitoring reports shall be submitted to ADB every quarter and uploaded on DGH's website within 2 weeks of their submission; and such monitoring and reporting activities shall be carried out until resettlement has been completed; and (b) the timely provision of counterpart funds for resettlement in order to satisfy the requirements and objectives of resettlement.

LA. Sch. 5 Para. 5

Complied with. The involuntary resettlement and activities impacting ethnic minorities was carried out in accordance with the agreed LARPs, SPS, and the government’s relevant laws. The PMU with assistance from the CTC carried out internal monitoring of the resettlement activities. External monitoring agency was recruited carry out external monitoring. The monitoring reports were submitted to ADB and disclosed on the ADB’s project website.

Labor and Gender 13 The Borrower shall, and shall cause the Project

Executing Agency to ensure that all Works contracts under the Project incorporate provisions and budgets to the effect that contractors: (a) comply with the Borrower’s applicable labor laws and related international treaty obligations and do not employ child labor; (b) provide equal wages to male and female workers for work of equal value; (c) recruit local labor for construction work; (d) encourage the recruitment of women for the construction work; and (e) Works contracts (i) include appropriate clauses requiring contractors to allow their workers to attend planned campaigns on HIV/AIDS and human trafficking prevention during construction and to maintain adequate sanitation and working conditions, and (ii) include clauses for termination by the Borrower in case of any breach of the stated provisions by the contractors.

LA. Sch. 5 Para. 6

Complied with. The EA and the PMU ensured that all works contracts under the project incorporated provisions and budgets to the effect that contractors to comply with government’s applicable labor laws and related international treaty obligations.

14 The Borrower shall, and shall cause the Project Executing Agency to ensure that: (a) the HIV/AIDS and human anti-trafficking program agreed with ADB (the program) is implemented in a timely manner in the construction camps, towns, and rural areas of the Project Area, and monitored for the operation and effectiveness of the program; and (b) training is provided to strengthen the institutional capacity of the Borrower’s agencies involved in planning and implementation of the program.

LA. Sch. 5 Para. 7

Complied with. The EA and the PMU carried out the HIV/AIDS and human anti-trafficking program agreed with ADB.

Application of Safeguards Requirements to Co-financed Components 15 The Borrower shall, and shall cause the Project

Executing Agency to ensure that ADB’s SPS LA. Sch. 5

Complied with.

Appendix 11 33

No. Covenant Reference

in Loan Agreement

Status of Compliance

requirements are applied and implemented for all Project components regardless of financing source.

Para. 8 The ADB’s SPS requirements were applied to all project components, including that financed by the IsDB.

Counterpart Support, Counterpart Funds, and Funds Flow 16 The Borrower shall ensure that: (a) all counterpart

financing necessary for the Project, including cash advances, are provided as and when due to enable the Project Executing Agency and the Implementing Agencies to discharge their responsibilities under the Project effectively, and to cover any shortfall of funds to ensure timely completion of the Project activities in the scheduled implementation period; (b) DGH, through the MPW makes timely submission of annual budgetary appropriation requests to MOF; and (c) MOF ensures prompt disbursement of counterpart funds in accordance with the disbursement and liquidation procedures and funds flow mechanism as agreed with the ADB.

LA. Sch. 5 Para. 9

Complied with. The government provided timely the counterpart fund of total $75.5 million equivalent required for the project implementation.

Governance and Anticorruption 17 During Project implementation, the Borrower shall

apply, and cause the Project Executing Agency and each of these Implementing Agencies to comply with ADB’s Anticorruption Policy (1998, as amended to date), the Policy relating to Enhancing ADB’s Role in Combating Money Laundering and the Financing of Terrorism (2003) and the provisions in the ACAP. The Borrower: (a) acknowledges ADB’s right to investigate, directly or through its agents, any alleged corrupt, fraudulent, collusive or coercive practices relating to the Project; and (b) agrees to cooperate fully with and to cause DGH and each of the IAs to cooperate fully with any investigation of any violation or potential violation of these undertakings and to extend all necessary assistance, including providing access to all relevant books and records, as may be necessary for the satisfactory completion of any such investigation.

LA. Sch. 5 Para. 10

Complied with. During implementation, ADB’s Anticorruption Policy and the measures set forth in the project appraisal documents were implemented by the government.

18 To support these efforts, the Borrower shall and shall cause the Project Executing Agency to, ensure that: (a) provisions are included in the bidding documents for the Project, and in all contracts financed by ADB in connection with the Project, specifying the right of ADB to audit and examine the records and accounts of DGH and all contractors, suppliers, consultants and other service providers as they relate to the Project; (b) periodic inspections of the contractors’ activities related to fund withdrawals and settlements under the Project are carried out; and (c) the Project auditors have the right to conduct random or spot audits for contract implementation activities under the Project. The cost of this auditing shall be covered by the Project.

LA. Sch. 5 Para. 11

Complied with. During implementation, provisions are included in the bidding documents for the Project, and in all contracts financed by ADB in connection with the Project regarding the audit.

19 Within 3 months of the Effective Date, the Borrower shall and shall cause the Project Executing Agency to create or adapt a Project website to disclose information about various matters on the Project. The website will include information on project procurement including business opportunities, the list

LA. Sch. 5 Para. 12

Complied with. A project website was established by the EA to disclose information about various matters on the project. (http://www.pmu-rrdp.com).

34 Appendix 11

No. Covenant Reference

in Loan Agreement

Status of Compliance

of participating bidders, name of each winning bidder, basic details on bidding procedures adopted, the value of each contract awarded, and the list and value of goods/services procured and the intended and actual utilization of loan proceeds under each contract being awarded. The website shall also include general Project information, Project progress, and contact details for the DGH counterpart staff in Bahasa Indonesia and English languages, and shall link to ADB's Integrity Unit (http://www.adb.org/Integrity/complaint.asp) for reporting to ADB any grievances or allegations of corrupt practices arising out of the Project and/or Project activities. The Borrower shall cause the Project Executing Agency to ensure that all Project staff are fully aware of ADB’s procedures, including, but not limited to, procedures for implementation, procurement, use of consultants, disbursements, reporting, monitoring, and prevention of fraud and corruption.

During implementation, e-procurement for the bidding was used and all related information was published in the website. However, the MPW’s website is not linked to the ADB’s Integrity Unit website, and it doesn’t include general project information, project progress, and contact details for the DGH’s counterpart staff in Bahasa Indonesia and English languages.

Audit 20 The Borrower shall coordinate with the auditor to

ensure that all representation letters are submitted to ADB and any outstanding issues attended to within 1 month of receipt of such letters by the Project Executing Agency, unless otherwise agreed with ADB.

LA. Sch. 5 Para. 13

Complied with. Financial audit reports with representation letters were submitted to ADB as requested.

Road Safety 21 The Borrower shall and shall cause the Project

Executing Agency and the relevant Implementing Agencies to ensure that road safety measures are implemented during and after Project implementation and related information is posted on the Project website in a timely manner.

LA. Sch. 5 Para. 14

Complied with. During implementation, road safety measures were designed and implemented. The road safety subprograms under the sector development component were implemented.

Maintenance of Project Facilities 22 The Borrower shall and shall cause the Project

Executing Agency and the relevant Implementing Agencies to maintain the Project facilities through proper technical supervision and adequate fund allocation. The Borrower shall ensure that annually adequate budget is made available for maintenance during and after the Project and that the completed Project roads are maintained to a standard consistent with the standard adopted for the Borrower’s national road network.

LA. Sch. 5 Para. 15

Partially complied with. After completion, the project roads are now maintained by the DGH’s Balai offices with required capacity and regular budget allocation to ensure the project roads in good condition and standard for the national road network. However, it was found that some of the road damages were not timely repaired.

23 The Borrower shall and shall ensure that the Project Executing Agency and the relevant Implementing Agencies develop a program agreed with ADB, to control the overloading of vehicles along the Borrower’s national roads under the Project by the time civil Works have been completed, including maintaining a database on the incidence of vehicle overloading for a minimum of 3 years following Project completion, and such information is posted on the Project website in a timely manner.

LA. Sch. 5 Para. 16

Partially Complied with. Under the project, the subprogram of “Overloading and Speed Enforcement” (renamed as Enforcement Capability Road Infrastructure Protection Program) was implemented to resolve the premature deterioration and consequent economic losses of road infrastructure, and improve road safety and reduce road accident

Appendix 11 35

No. Covenant Reference

in Loan Agreement

Status of Compliance

casualties from excessive loads and speeding through vehicle speed enforcement and management. But, the subprogram of “Integrated Vehicle Overloading Control Strategy” under the road sector development program was cancelled during implementation.

36 Appendix 12

ECONOMIC REEVALUATION A. Introduction 1. The Asian Development Bank (ADB) project completion review (PCR) mission conducted an economic reevaluation of the project using similar methodology as that at appraisal and with updated data. In the “without-project” case, it was assumed that original states of the project roads were retained. In the “with-project” case, the roads were reconstructed or rehabilitated to facility fast growing traffic in the project areas, so that vehicles could drive at higher speeds and with lower operating costs and reduced travel time. A traffic analysis compared the actual traffic counts on the project roads with those projected at appraisal. The traffic forecast was adjusted according to the actual traffic status of the project roads and future socioeconomic development in the project areas. Economic benefits were recalculated by comparing the “with-project” and “without-project” cases. Consequently, economic internal rate of returns (EIRR) for the project roads were recalculated and reassessed. B. The Project Areas and Project Roads

2. Roads are the dominant mode of transport in Indonesia, meeting 83% of passenger and 70% of freight transport demand. Although Indonesia had a vast network of roads with 37,500 km of national roads, 41,100 km of provincial roads, and 249,000 km of district roads, the density of the national road network was relatively low at about 0.4 km per 1,000 square kilometers (km2), and was significantly lower in less-developed areas. Road transport demand in the country had been growing significantly faster than the gross domestic product (GDP) for nearly a decade, and congestion on the arterial road network became a widespread problem, especially in Java. The project was to improve strategic and national road corridors in North & West Kalimantan and in Central & East Java to support economic growth in these two less developed and poorer areas of the country. The rehabilitation and capacity expansion of the road corridors would strengthen national and regional connectivity, and improve access to markets, job opportunities, and social services. 3. Upon project completion, 18 sections of the national highways and strategic roads with total 486.1 km were constructed, rehabilitated or improved in North and West Kalimantan and in East and Central Java, including new constructions (63.1 km), re-construction (282.0 km), or widening and re-surfacing (140.1 km). The improved project roads were with carriage width of 6.0–7.0 meters plus 2.0–2.5 meters shoulders and asphalt concrete pavement. It was accessed by the core team consultants for the project implementation that the road roughness index (IRI) was improved from 10–12 before the project to 3 after the project.1 Meanwhile, substantial culverts and retaining wall were added or improved, and traffic safety facilities were provided. The implementation and operation of the project has substantially improved the connectivity and transport conditions, as well as effectively facilitated the fast growing socioeconomic development in the project areas.

C. Traffic Analysis

4. At appraisal, traffic analysis was conducted for the proposed project roads. The traffic analysis considered the normal traffic on the existing roads network, diverted traffic from parallel roads in the project areas, and the generated traffic due to improvement of the road condition.

1 At appraisal, the PPTA consultants estimated that the IRI of the project roads was 8–15 for the existing roads, which

would be improved to 4 after the project.

Appendix 12 37

Accordingly, a traffic forecast was made based on the economic development in the areas, at 6% per annual based on reasonable assumption of transport elasticity demand w.r.t. the GDP of 1.1, which was considered as most likely in the developing economies. However, the details of the traffic counts for the project roads and its analysis were not provided in the project appraisal documents.2 5. For the economic reevaluation, a set of the traffic counts for the project roads were provided by the project executing agency (EA)–the Directorate General of Highway (DGH) of the Ministry of Public Works (MPW). The traffic counts were collected by the DGH in 2018, which were by 11 vehicle types. However, the 2018 traffic counts were only for the road sections in Central and East Java and in West Kalimantan. The traffic counts for the road sections in North Kalimantan were old (in 2017 and also not so reliable). For updating the traffic counts, a quick traffic survey was designed and carried out during the ADB PCR mission. A national team was recruited to carry out the traffic survey, which was conducted in 14–23 October 2019 (including data processing and report preparation). 16–24 hours traffic counts by 11 vehicle types were collected at 4 locations along the project roads in North Kalimantan. The traffic survey results were converted into annual average daily traffic (AADT) by applying a set of indicators. Meanwhile, average vehicle speeds and average loads of passenger vehicles were also collected. The latest traffic counts show that the traffic levels of motorized vehicles were very high on the project roads, about average 8,305 vehicles on the Java roads and 7,296 vehicles on the Kalimantan roads in 2019. Among the motorized traffic, the motorcycles took major portion, about 53% on the Java roads and 71% on the Kalimantan roads. Following table is the traffic counts, which combined the EA’s 2018 traffic counts and the results of the quick traffic survey.

Table A12.1. Traffic Survey Results (in number of vehicles, AADT)

AADT = annual average daily traffic Source: The EA’s PCR report (2018); The traffic survey during the ADB’s PCR mission (2019) 6. In comparing with the traffic at appraisal, the traffic levels on the project roads had

2 The existing traffic counts by vehicles types and the project roads were provided neither in the project appraisal

documents nor in the PPTA reports. Also, the proposed project road sections during PPTA were not the same as that at actual.

Road sectionMotor Cycle

Car/van /pick-up

Medium Bus

Large Bus

Light Truck

Medium Truck

Heavey Truck

Total

CW-01: Tambak Mulyo-Wawar 3,838 2,182 25 72 2,345 83 10 8,555 CW-02: Giriwoyo-Duwet (Pracimantoro) 5,444 1,835 22 24 887 39 1 8,252 Giriwoyo-Duwet (Giriwoyo) 4,807 748 138 522 24 6,239 CW-03: Wawar-Congot 3,838 2,182 25 72 2,345 83 10 8,555 CW-04: Jolosutro-Sendagbiru 3,274 202 2 30 282 3,790 CW-05: Ruas Sosok-Tayan 2,802 1,654 10 59 2,138 85 17 6,765 Ruas Sosok - Sanggau 4,661 1,827 50 44 2,138 64 18 8,802 CW-06: Singkawang-Tembas, Sambas By-pass, Tanjung Harapan-Galing

15,144 1,757 69 1,934 23 12 18,939

CW-07: Galing-Tanjung, Tanjung-Aruk 8,272 733 29 1 1,111 5 1 10,152 CW-08: Tanjung Selor-Tanjung Palas, Tanjung Palas-Sekatak (PH1)

2,419 436 5 1,060 4 1 3,925

CW-09: Tanjung Palas-Sekatak (PH2) 817 178 6 505 12 1,518 CW-10: Mensalong-Sebuku 3,152 194 1 883 4,230 CW-11: Sebuku-Simanggaris, Simanggaris-border

483 49 205 5 742

38 Appendix 12

substantial increase in the last decade.3 Due to absence of the traffic data at appraisal, detailed traffic analysis was not able to carry out. For the economic reevaluation, the traffic by 11 vehicle types were consolidated into 7 vehicles types, including motorcycles, car/van/jeep, medium bus, large bus, light truck, medium truck, and large truck. Future traffic increase rates at appraisal was adopted with slight adjustment, assuming that the traffic level would increase by 6% in 2019–2020, and then slowing down a little by 5% in 2021–2025, 4% in 2026–2030, and 3% onward. Accordingly, a traffic forecast by vehicle types for the project roads in Java and Kalimantan was made for the time periods of 2019–2038. D. Project Costs

7. The project costs comprised investment capital cost and road maintenance cost. The actual annual investment costs for the project were used in the economic reevaluation. Comparing with the cost estimation at appraisal, the actual cost for the civil works was about 13% lower (in terms of US$), which was mainly due to lower contract price and depreciation of the local currency. Meanwhile, the project implementation period extended from original 4 years (2012–2015) to 6 years (2013–2018). In the economic reevaluation, the project costs for the equipment, sector development programs, tax, and financial charge were excluded to be consistence with the benefits captured. Table 3 is the annual investment costs of the project by Java and Kalimantan regions, which included the costs for land acquisition and resettlement, civil works, and related consulting services only.

Table A12.2. Annual Investment Costs by Regions (Rp million)

Java Kalimantan Total 2013 4,989 22,976 27,965 2014 41,664 175,944 217,609 2015 144,155 654,545 798,700 2016 210,968 709,036 920,005 2017 150,692 1,004,468 1,155,160 2018 60,277 236,345 296,622 Total 612,744 2,803,316 3,416,060

Source: the Project Management Unit 8. The actual road maintenance costs in the project areas were applied in the analysis. The incremental routine maintenance costs per kilometer would be Rp105.6 million for the project roads in Java and Rp63.5 million for the project roads in Kalimantan, which were mainly used for damage repair, drainage cleaning, and minor slop protection. Such routine maintenance costs would increase by 3% per year in consideration of the traffic growth and the road condition deterioration. Considering the road condition and traffic levels, the periodic maintenance for the project roads was assumed to be occurred in every 6 years, mainly for pavement overlay, at the cost of average Rp5,500 million per kilometer. 9. The financial costs were converted into economic costs using the average conversion factor of 0.95 for the capital costs and 0.90 for the maintenance costs, which were adopted from the project appraisal documents.

3 In the EA’s project completion report there was rough traffic analysis which concluded that the traffic level on some

project roads had substantial increase in the last decade, about 5.8% per year for the roads in Java and 27.6% per year for the roads in Kalimantan. However, the traffic data were not so completed and the analysis was not so reliable.

Appendix 12 39

E. Economic Benefits 10. As estimated at appraisal, the main sources of the economic benefits for the project were the reductions in vehicle operating cost (VOC) and passenger travel time costs due to better road condition and less travel time required. The latest unit VOCs for the project roads was used in the analysis. By comparing the unit VOCs for “with-project” and “without-project” cases, the savings of the VOC per km were about average 31% for all vehicle types.

Table A12.3: Unit Vehicle Operation Cost

(Rp per vehicle-km)

Motor Cycle

Car/van /jeep

Medium bus

Large bus

Light Truck

Medium Truck

Heavy Truck

With project (now-IRI 3)

Java 350 1,890 2,100 3,500 2,660 4,410 8,820 Kalimantan 385 2,079 2,310 3,850 2,926 4,851 9,702 Without project (IRI 10-12)

Java 441 2,695 2,688 4,788 3,381 5,628 11,256 Kalimantan 485 2,965 2,957 5,267 3,719 6,191 12,382 Saving

Java 91 805 588 1,288 721 1,218 2,436 Kalimantan 100 886 647 1,417 793 1,340 2,680 Source: The EA’s project completion report

11. During the quick traffic survey, average speeds of passenger vehicles by types were collected, which were average 40 km–60 km per hour for the “with-project” case compared with 25–30 km per hour for the “without-project” case (before the project). Passengers’ travel time cost savings were recalculated by different types of passenger vehicles. The unit passenger time cost was derived from the gross domestic product (GDP) per capita in the project areas. Other factors taken into account in the calculation of the passenger travel time cost savings included average vehicle loads, percentage of work-related trips, time costs by different road users, and potential increases in time cost in the future. It was assumed that the induced traffic was 20% of the total traffic as that at appraisal. Half of the benefits were considered for the induced traffic. Due to not available of the traffic accident data for the project roads, the intended benefits on accident cost savings were not able to capture in the analysis. F. Economic Internal Rate of Return and Sensitivity Analysis 12. Based on the updated data, assumptions and parameters above, economic internal rate of returns (EIRR) of the project were recalculated for a time period of 26 years (2013–2038), including 6 years for project implementation and 20 years for operation. 10% of the capital cost was considered as the residual value of the project road as that at appraisal, which was added to the last year of the analysis. The EIRR was recalculated at 15.5% for the whole project, respectively 17.2% for the roads in Java and 15.1% for the roads in Kalimantan.4 In comparing the EIRRs at appraisal (13% for the whole project), the higher EIRRs at completion were mainly due to much higher actual traffic level than that projected at appraisal. The recalculated EIRRs are above the ADB recommended discount rate of 12% at appraisal. The project is therefore considered to be continuously economically viable. The details of the economic reevaluations are in Table A12.5–A12.7.

4 The higher EIRR for the roads in Java was mainly due to lower unit capital cost and higher traffic volume.

40 Appendix 12

13. The EIRR were subjected to sensitivity analysis to test different scenarios of maintenance costs and benefits. The sensitivity analysis results indicated that the project continued to be economically viable for all tested scenarios. If a 20% maintenance cost increase would be combined with a 20% benefit reduction, the EIRR would be still 10.6% for the whole project. The sensitivity analysis confirmed that the project has robust economic viability. The sensitivity analysis also showed that the EIRR was more sensitive to changes in economic benefits. For this reason, the transport authorities in both national and regional levels need to keep the project roads in good condition to facilitate the fast-growing traffic. The local governments should pay attention to the socioeconomic development of the project area, foster local transport services, and increase incomes for the road users. The results of the sensitivity analysis are in the following table.

Table A12.4: Sensitivity of the EIRR for the Whole Project (Rp million)

Tests Whole Project

Case O&M Cost Benefits EIRR (%) ENPV@12%

Base Case

15.5% 1,616,142

Changes (+/-) +10%

15.0% 1,377,438 +20%

14.5% 1,138,735

+10% 17.1% 2,465,867

+20% 18.6% 3,315,593

-10% 13.7% 766,416

-20% 11.8% -83,309

+10% -10% 13.2% 527,713

+20% -20% 10.6% 1,181,326

Switch point +68%

12.0%

-19% 12.0%

EIRR = economic internal rate of return, ENPV = economic net present value, O&M = operation and maintenance Source: Asian Development Bank project completion review mission

Appendix 12 41

Table A12.5. Economic Reevaluation – Whole Project (Rp million)

Costs Benefits Net Benefit

Net Present Value year Capital O&M Total VOC Time Cost Total

2013 26,567 26,567 -26,567 -52,438

2014 206,771 206,771 -206,771 -364,402

2015 758,930 758,930 -758,930 -1,194,190

2016 874,247 874,247 -874,247 -1,228,254

2017 1,097,575 1,097,575 -1,097,575 -1,376,798

2018 281,860 281,860 -281,860 -315,684

2019 31,495 31,495 405,696 254,933 660,629 629,134 629,134

2020 32,440 32,440 430,038 283,741 713,778 681,338 608,338

2021 33,413 33,413 451,540 312,824 764,363 730,950 582,709

2022 34,415 34,415 474,117 344,888 819,005 784,589 558,455

2023 35,448 35,448 497,822 380,239 878,062 842,614 535,496

2024 2,106,705 31,495 2,138,200 522,713 419,214 941,927 -1,196,272 -678,797

2025 32,440 32,440 548,849 462,183 1,011,033 978,593 495,786

2026 33,413 33,413 570,803 495,091 1,065,894 1,032,481 467,042

2027 34,415 34,415 593,635 530,341 1,123,977 1,089,561 440,055

2028 35,448 35,448 617,381 568,102 1,185,482 1,150,034 414,714

2029 36,511 36,511 642,076 608,551 1,250,626 1,214,115 390,913

2030 2,106,705 31,495 2,138,200 667,759 651,879 1,319,638 -818,562 -235,317

2031 32,440 32,440 687,792 691,579 1,379,370 1,346,931 345,724

2032 33,413 33,413 708,425 733,696 1,442,121 1,408,708 322,840

2033 34,415 34,415 729,678 778,378 1,508,056 1,473,641 301,536

2034 35,448 35,448 751,568 825,781 1,577,350 1,541,902 281,700

2035 36,511 36,511 774,116 876,071 1,650,187 1,613,675 263,225

2036 2,106,705 31,495 2,138,200 797,339 929,424 1,726,763 -411,437 -59,923

2037 32,440 32,440 821,259 986,026 1,807,285 1,774,845 230,800

2038 -324,595 33,413 -291,182 845,897 1,046,075 1,891,972 2,183,154 253,479

Economic Net Present Value (ENPV):

1,616,142

Economic Internal Rate of Return (EIRR): 15.5%

Discount Rate: 12% O&M = operation and maintenance, VOC = vehicle operation cost Source: The Asian Development Bank project completion review mission

42 Appendix 12

Table A12.6. Economic Reevaluation – Java Region

(Rp million) Costs Benefits Net

Benefit

Net Present Value year Capital O&M Total VOC Time Cost Total

2013 4,740 4,740 -4,740 -9,355

2014 39,624 39,624 -39,624 -69,831

2015 137,112 137,112 -137,112 -215,748

2016 200,662 200,662 -200,662 -281,916

2017 143,330 143,330 -143,330 -179,793

2018 57,332 57,332 -57,332 -64,212

2019 9,286 9,286 110,575 45,816 156,391 147,105 147,105

2020 9,564 9,564 117,209 50,993 168,203 158,639 141,642

2021 9,851 9,851 123,070 56,220 179,290 169,439 135,076

2022 10,147 10,147 129,223 61,983 191,206 181,060 128,875

2023 10,451 10,451 135,685 68,336 204,020 193,570 123,017

2024 604,615 9,286 613,900 142,469 75,340 217,809 -396,091 -224,753

2025 9,564 9,564 149,592 83,063 232,655 223,091 113,025

2026 9,851 9,851 155,576 88,977 244,553 234,702 106,167

2027 10,147 10,147 161,799 95,312 257,111 246,964 99,745

2028 10,451 10,451 168,271 102,098 270,369 259,918 93,729

2029 10,764 10,764 175,002 109,367 284,369 273,605 88,093

2030 604,615 9,286 613,900 182,002 117,154 299,156 -314,744 -90,481

2031 9,564 9,564 187,462 124,289 311,751 302,187 77,564

2032 9,851 9,851 193,086 131,858 324,944 315,093 72,211

2033 10,147 10,147 198,878 139,888 338,767 328,620 67,242

2034 10,451 10,451 204,845 148,408 353,252 342,801 62,629

2035 10,764 10,764 210,990 157,446 368,436 357,671 58,344

2036 604,615 9,286 613,900 217,320 167,034 384,354 -229,546 -33,432

2037 9,564 9,564 223,839 177,206 401,046 391,482 50,908

2038 -58,280 9,851 -48,429 230,555 187,998 418,553 466,982 54,220

Economic Net Present Value (ENPV):

450,069

Economic Internal Rate of Return (EIRR): 17.2%

Discount Rate: 12% O&M = operation and maintenance, VOC = vehicle operation cost Source: The Asian Development Bank project completion review mission

Appendix 12 43

Table A12.7. Economic Reevaluation – Kalimantan Region (Rp million)

Costs Benefits Net Benefit

Net Present Value year Capital O&M Total VOC Time Cost Total

2013 21,827 21,827 -21,827 -43,083

2014 167,147 167,147 -167,147 -294,570

2015 621,818 621,818 -621,818 -978,443

2016 673,585 673,585 -673,585 -946,338

2017 954,245 954,245 -954,245 -1,197,005

2018 224,528 224,528 -224,528 -251,472

2019 22,210 22,210 295,121 209,117 504,238 482,028 482,028

2020 22,876 22,876 312,828 232,747 545,575 522,700 466,696

2021 23,562 23,562 328,470 256,604 585,073 561,511 447,633

2022 24,269 24,269 344,893 282,906 627,799 603,530 429,581

2023 24,997 24,997 362,138 311,904 674,041 649,044 412,479

2024 1,502,090 22,210 1,524,299 380,245 343,874 724,118 -800,181 -454,044

2025 22,876 22,876 399,257 379,121 778,378 755,502 382,761

2026 23,562 23,562 415,227 406,114 821,341 797,779 360,875

2027 24,269 24,269 431,836 435,030 866,866 842,597 340,311

2028 24,997 24,997 449,110 466,004 915,113 890,116 320,985

2029 25,747 25,747 467,074 499,183 966,257 940,510 302,819

2030 1,502,090 22,210 1,524,299 485,757 534,725 1,020,482 -503,818 -144,835

2031 22,876 22,876 500,330 567,290 1,067,619 1,044,744 268,160

2032 23,562 23,562 515,340 601,838 1,117,177 1,093,615 250,628

2033 24,269 24,269 530,800 638,490 1,169,289 1,145,020 234,294

2034 24,997 24,997 546,724 677,374 1,224,097 1,199,100 219,071

2035 25,747 25,747 563,125 718,626 1,281,751 1,256,004 204,881

2036 1,502,090 22,210 1,524,299 580,019 762,390 1,342,409 -181,890 -26,491

2037 22,876 22,876 597,420 808,819 1,406,239 1,383,364 179,892

2038 -266,315 23,562 -242,753 615,342 858,077 1,473,419 1,716,172 199,259

Economic Net Present Value (ENPV):

1,166,073

Economic Internal Rate of Return (EIRR): 15.1%

Discount Rate: 12% O&M = operation and maintenance, VOC = vehicle operating cost Source: The Asian Development Bank project completion review mission

44 Appendix 13

CONTRIBUTION TO ADB RESULTS FRAMEWORK

No. Level 2 Result

Framework Indicator Target

Revised Target

Aggregate Output Methods/Comments

Transport 1 Use of roads built or

upgraded (average daily vehicle-kilometers in the first full year of operation

(no comparable traffic data provided in the appraisal documents)

Total 3.79 million vehicle-kilometers in the first full operation year (2019)

According the traffic counts provided by the project management unit and the quick traffic survey, the number of motorized vehicles on the project roads was average AADT 8,305 vehicles per day for the roads in Java and 7,296 vehicles for the roads in Kalimantan, among which the motorcycles took about 53% and 71% respectively.

2 Roads built or upgraded - Expressways and national highways (kilometers)

476 kilometers 486.1 km of national and strategic roads

Upon completion, 18 sections of the national and strategic roads with total 486.1 km were constructed, rehabilitated or improved in North and West Kalimantan and in East and Central Java, including new constructions (63.1 km), re-construction (282.0 km), or widening and re-surfacing (140.1 km).