Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No: 17253

IMPLEMENTATION COMPLETION REPORT

INDONESIA

SULAWESI - IRLAN JAYA URBAN DEVELOPMENT PROJECT(Ln 3340-IND)

December 22, 1997

Urban Development Sector UnitIndonesia Country Management UnitEast Asia and Pacific Region

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorizatio'n.

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0 iiCURRENCY EQUIVALENTS

Currency Unit = Rupiah (Rp)(As of January, 1992)

Rp 1 million = US$542; US$1.00 =Rp 1,845(As of June 1997)

Rp 1 million =US$ 426; US$1.0=X Rp 2,350

FISCAL YEARApril 1 - March 31

UNITS OF MEASURESMetric Units-

ABBREVIATIONS AND ACRONYMS'APIP - Annual Project Implementation PlanAMDAL - GOI Environmental Assessment ProcessCPMO - Central Project Management OfficeDGCK - Directorate General, Cipta Karya, Ministry of Public WorksEA - Environmental AssessmentGOI - Government of IndonesiaIUIDP - Integrated Urban Infrastructure Development Program:KIP - Kampung Improvement ProgramLIDAP - Local Institutional Development Action ProgramMHA - Ministry of Home AffairsMIIP - Market Infrastructure Improvement ProgramO&M - Operations and MaintenancePDAM - Local Government Water EnterprisePFAMS - Project Finance Accounting Management SystemPIA - Program implementation AgreementPMDU - Provincial Management and Development Unit (for water enterprises)POMMS - Performance Oriented Maintenance Management SystemRIAP - Revenue Improvement Action ProgramSAR - Staff Appraisal ReportSIJUDP - Sulawesi Irian Jaya Urban Development ProjectSLAP - Subsidiary Loan Agreement with PrefinancingSK - Surat Keputusan, Decree of a Senior OfficialSUDP2 - Second Sulawesi Urban Development ProjectTKI - Provincial GovernmentsTKII - Local GovernmentsTA - Technical AssistanceTPA - Solid Waste Dump SiteWTP - Water Treatment Plant

Vice President Severino, Jean-MichelCountry Director de Tray, DennisSector Manager Varma, KeshavTask Manager Hoornweg, Daniel

iii FOR OFFICIAL USE ONLY

REPUBLIC OF INDONESIASULAWESI IRIAN JAYA URBAN DEVELOPMENT PROJECT (LN.3340-IND)

Implementation completion ReportTable of Contents

PREFACE ................................................................................... iEVALUATION SUMMARY ................................................................................... ii

PART I: PROJECT IMPLEMENTATION ASSESSMENTA. STATEMENT/EVALUATION OF OBJECTIVES ................................................................................ 1

B. ACHIEVEMENT OF OBJECTIVES ................................................................................... 3

C. MAJOR FACTORS AFFECTING THE PROJECT ................................................................................ 8

D. PROJECT SUSTAINABILITY ................................................................................... 9E. BANK PERFORMANCE ................................................................................... 9

F. BORROWER PERFORMANCE .................................................................................. 10

G. ASSESSMENT OF OUTCOME .............................................................. 10H. FUTURE OPERATION .................................................................................. I I

I. KEY LESSONS LEARNED .................................................................................. 1 1

PART II: STATISTICAL ANNEXESANNEX A: STATISTICAL TABLES .................................................................................. 1 3

TABLE 1: SUMMARY OF AsSESSMENT .. 14

TABLE 2: RELATED BANK LoANs .. 15

TABLE 3: PROJECT TIMETABLE .. 17

TABLE 4: CREDIT DISBURSEMENTS: CUMULATIVE ESTIMATED AND ACTUAL .. 17TABLE 5: KEY INDICATORS FOR PROJECT IMPLEMENTATION . .18TABLE 6: KEY INDICATORS FOR PROJECT IMPLEMENTATION (A TO C) . . 19

TABLE 7: STUDIES INCLUDED IN PROJECT ........................................................................... 22TABLE 8A: PROJECT COSTS (1&2) .................................................................................. 23TABLE 8B: PROJECT FINANCING (1&2) .................................................................................. 25TABLE 9: ECONOMIC COSTS - BENEFITS .................................................................................. 27

TABLE 10: STATUS OF LEGAL COVENANTS .................................................................................. 29TABLE 1 1: COMPLIANCE WITH OPERATIONAL MANUAL STATEMENTS ........................ 3 1TABLE 12: BANK RESOURCES: STAFF INPUTS .................................................................................. 31TABLE 13: BANK RESOURCES: MISSIONS .................................................................................. 33

ANNEX B: STATISTICAL TABLES .................................................................................. 34

TABLE 1: EXCHANGE RATES USED DURiNG IMPLEmENTATION ........................................................ 34APPENDIXES:

A. MISSION'S AIDE-MEMOIRE ............................................................................... 35B. BORROWER CONTRIBUTION TO THE ICR- SULAWESI IUIDP SUB-PROJECT ................................... 39

BORROWER CONTRIBUTION TO THE ICR-IRIAN JAYA WATER SUPPLY SUB-PROJECT ................ 50C. MAP(IBRD22798) ....................................................................... 53

'This document has a restricted distribution and 'may be used by recipients only in thejperformance of their o)fficial duties. Its con.tents may not otherwise be disclosed withoutWorld Bank aufthfiozation.

IMPLEMENTATION COMPLETION REPORT

INDONESIA

SULAWESI - IRIAN JAYA URBAN DEVELOPMENT PROJECT(Loan No. 3340-IND)

Preface

This is the Implementation Completion Report (ICR) for the Sulawesi - Irian Jaya UrbanDevelopment Project (Loan 3340-IND) in the Republic of Indonesia, for which US$100.0million was approved on June 6, 1991 and made effective on November 11, 1991.

The Loan was closed on June 30, 1997 after a six month extension from the original closing dateof December 31, 1996. Final disbursement took place on November 25, 1997, at which timethe total amount of US$95, 834,632.57 in the currency pool was fully disbursed'.

The ICR was prepared by Daniel Hoomweg (Task Manager), Heinrich Unger (ASTEN),Muhamad Nuch (EACIF), Dong Liu (EASUR), Ian Wetherill and Ephrem Asebe (consultants).It was reviewed by Messrs. Dennis de Tray, Country Director, and Keshav Varma, Urban SectorManager, Indonesia, East Asia and Pacific Region.

Preparation of this ICR began during the Bank's December 1996 ICR mission. It is based onmaterial in the project file and data gathered during the ICR Mission. A brief follow-up missionwas made to Irian Jaya and Sulawesi in July, 1997 and these findings are also incorporated. TheBorrower contributed to the preparation of the ICR by stating its views as reflected in themission's Aide-Memoire (Appendix A), and providing an extensive separate evaluation of theproject, the summary of which is shown in Appendix B.

The balance,in single currency loan of US$ 4,165,367.43 is being considered for emergency poverty relief effortsto alleviate the impacts of the financial crisis.

iiINDONESIA

IMPLEMENTATION COMPLETION REPORT

SULAWESI - IRLIN JAYA URBAN DEVELOPMENT PROJECT(Loan No. 3340-IND)

Evaluation Summary

Introduction

i. -In 1987, the Government of Indonesia issued its National Policy Statement for the urban sector andlaunched the Integrated Urban Infrastructure Development Program (IUIDP) concept. The PolicyStatement provided a strategic framework and operational approach to guide local governments. TheIUIDP approach, now adopted by over 75% of Indonesia's local governments, has become a platform fordonor support. To date, over 20 urban projects have been financed under the IUIDP approach, of which 12were financed by the ADB, and eight by the IBRD. Other donors have financed sub-components of someof these projects. The Sulawesi Irian Jaya Urban Development Project (SIJUDP), together with the EastJava-Bali Urban Development Project (Ln. 3304-IND), were the first two major projects in the IUIDP seriesfinanced by the World Bank. The project provides a useful opportunity to review two types ofinterventions. Efforts in Sulawesi were within an IUIDP framework, whereas Irian Jaya had only watersupply investments.

The Project and its Objectives

ii. Project Objectives. The objectives of the SIJUDP, as stated in the SAR were: (a) to provide urbaninfrastructure in selected cities in Sulawesi and Irian Jaya with emphasis on increased access of householdsto water supply and sanitation services; (b) to support improved infrastructure programming and financialplanning in the Sulawesi cities, especially, to support the development of local government capacity toprepare and execute annual O&M programs; and (c) to encourage local government and water enterprise(PDAM) revenue generation and improved financial management. The first objective was applicable toboth Sulawesi and Irian Jaya, whereas the second and third objectives were intended to be mainly forSulawesi and to a limited extent for Irian Jaya in improved PDAM management and cost recovery (see Mapfor cities).

iii. Project Components. The project objectives were to be achieved through the implementation ofthree principal components: (a) infrastructure development (water supply, drainage, solid waste, sanitation,roads, improvement of kampung, market infrastructure), and O&M for nine cities in Sulawesi ($118.2million, or 70% of the project cost); (b) water supply system rehabilitation and investments in eight cities inIrian Jaya ($28.0 million, or 16.6%); and (c) technical assistance for project implementation support,institutional capacity building and project preparation ($22.7 million, or 13.4%).

iv. Covenants. No major amendments to the Loan Agreement were made during projectimplementation. However, compliance with some loan covenants was only partial. For example,provisions for O&M in local governments (Tk II) in Sulawesi (section 3.01 of the loan agreement), tariffadjustments to fully cover water supply O&M, depreciation and operational interests (section 3.04), and theO&M expenditure level of each participating local government to reach at least the 90% agreed program(section 3.06), have not been fully complied with (see Table 10).

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v. Evaluation of Objectives. The SIJUDP objectives were important to the country and consistentwith its priorities and the Bank's sector strategy. The project was demanding for the implementingagencies. The concept and scope of IUIDP were not clear to all government agencies participating inproject implementation. In retrospect, the project's risk assumptions, with regard to institutionalobjectives and implementation arrangements, were optimistic: Targets for water connections,unaccounted-for-water reduction, and increased tariffs, although based on thorough feasibility studies, mayhave been higher than actually could be delivered with the available resources and institutional capacities ofthe local governments and their PDAMs.

Implementation Experience and Results.

vi. Achievement of Objectives. In spite of the start-up delay of more than one year, the projectsubstantially achieved its first objective of providing urban physical infrastructure. In Irian &ya, thephysical investments in water source supply, treatment, storage, transmission and distribution facilitieshave been completed. Most of the civil works financed under the project were handed over to the localwater enterprises (PDAMs) by the original closing date and are now in operation. The practical loanextension of six months allowed a few of the larger works and facilities to be completed andcommissioned. The initial Sulawesi IUIDP-based investments, which covered infrastructuredevelopment, rehabilitation, and O&M in nine cities, were generally completed. However, in all thesetowns, because of low construction quality, ineffective O&M, and continuing high unaccounted-for-water, the project did not fully achieve the expected development impact.

vii. The second objective-- building local government capacity to prepare and execute annual O&Mprograms, as well as to carry out infrastructure programming and financial planning-- was partiallyachieved. However, little progress was made in institutionalization of the IUIDP concepts and follow-upmechanisms. Further, the objective to increase local capacity to deliver urban services more efficientlyand sustainably (to improve municipal management) was only marginally achieved. The third objective --increasing revenue and improving financial management--was partly achieved. However, where localrevenue rose significantly, it is not conclusive that the Revenue Improvement Action Plan contributed to thechange.

viii. Project Cost. Total project cost, excluding interest during construction, was estimated to beUS$168.9 million which with interest of US$19.3 million, required financing for a total of US$188.2million, of which US$85.8 million was foreign. The Bank was to finance US$100.0 million and a JapaneseGrant of Yen 103.6 million was made available to off-set preparation costs (detailed design andenvironmental assessment). The balance was to be financed from local (US$18.1 million), provincial(US$10.4 million) and central (US$33.4 million) government, water enterprises (US$5.1 million) andprivate contributions (US$1.2 million). Estimated actual total cost of the project was US$163.95 millionand estimated actual loan financing loan was US$95.83 million. Exchange rates fluctuated from Rp 1,845to US$1 in 1990 to Rp 2,350 to US$1 in June 1997. Through project savings and currency changes,approximately US$24.23 million was made available to improve deficiencies and optimize the water supplyinvestments.

ix. Factors Affecting the Project. The project along with the EJBUDP, was part of the Government'sinnovative attempt to help change urban management and donor assistance modalities. However, due to thecomplexities of the sector and the fact that some government officials resisted decentralization efforts,urban management did not improve as extensively as hoped. The critical factors affecting the project

iv

included: (a) ineffective and late technical assistance; (b) inexperienced contractors and supervisionconsultants who were reluctant to work in isolated communities, particularly in Irian Jaya; (c) localgovernments not sufficiently involved in planning, design and implementation; (d) little incentive for localgovernments to focus on O&M, compared to capital investments; (e) organizational changes within theexecuting agencies created confusion about areas of responsibility; (f) poor inter-agency coordination; (g)protracted and imperfect procurement procedures; and (h) lack of sufficient capable local staff and littlecontinuity. The majority of the above factors affect most urban development projects in Indonesia, andshould, therefore, be addressed on a broader scale rather than on a project-by-project basis.

x. Bank Performance. Bank performance in identification was only marginally satisfactory. TheBank's urban strategy provided a framework for identifying the project, but as this was one of the firstregional IUIDP projects (with an Irian Jaya Water supply component), procedures, coverage and projectscope were changed several times during preparation: For example, Bank management felt that aseparate water supply project for Irian Jaya would be too small, so it was incorporated into the IUIDPproject. Bank preparation assistance was extensive and on the whole was satisfactory. However,supervision was marginally satisfactory because of resource constraints and the wide geographic area;thus, complete coverage during any one mission was not possible. However, the quality of supervisionwas high and was conducted with an appropriate mix of staff.

xi. Borrower Performance. Borrower performance in project preparation, which was detailed andextensive in most cases, was satisfactory. It required an understanding of a new project concept, IUIDP,and operationalization of support systems that were demanding. Project preparation was detailed andextensive in most cases. Implementation was marginally satisfactory. After a delayed start, projectimplementation showed significant progress, but the quality of civil works was often poor. In particular,construction quality and contract supervision in Irian Jaya was problematic, while in Sulawesi, theproblems were with landfill siting and operations, drainage and sanitation. Further, institutionalizationof the implementation support mechanism proved difficult: In most towns, institutional weaknessespersist and O&M funding and execution are inadequate.

xii. Project Outcome. The project outcome is marginally satisfactory. Although there are severalmitigating factors (Section H), the development result is modest, but is unlikely to be sustainable, mainlybecause of poor quality of civil works, inadequate local participation at the grass roots level, shortfalls inO&M resource allocation, inadequate tariff increases to date, and above all slow progress in institutionalcapacity building attained over the course of project implementation. Moreover, the re-estimatedeconomic rates of return for most water, road and drainage sub-projects are marginal. Although the projectoutcome is marginally satisfactory, it must be viewed as the first effort in a series of sustained interventionsto bring about long-term changes in government.

Summary of Findings, Future Operations, and Key Lessons Learned

xiii. Findings. The achievement of physical objectives, while important, cannot be sustained unlessthese are supported by corresponding progress in institutional capacity and changed attitudes that areoriented towards service delivery. In some cases, properly maintaining existing facilities would havebeen better than constructing new ones. Further, the time frame for institutionalizing the variousdecentralization mechanisms was overly optimistic. Finally, effective Bank supervision was constrainedby the very wide geographic areas in which the project was located.

v

xiv. Future Operations. The Bank approved a follow-on project, the Second Sulawesi UrbanDevelopment Project, SUDP2 (Ln. 4105-IND), which became effective in April 1997. SUDP2 coversthe nine original, plus 32 additional towns in all four Sulawesi provinces. In the original ninecommunities, the emphasis is on properly operating and maintaining what was already funded, ratherthan new investments. Further, the continuing release of Bank funds has been conditioned on properfinancial provisions for O&M, among other criteria. Efforts to obtain better compliance have beenincorporated into the annual project implementation plan (APIP) for each local government to bereviewed by the Bank. Implementation support is also focused on "hands-on" assistance with lessemphasis on reporting, and performance indicators have been developed to try to monitor progress inmunicipal management. Central and provincial agencies are expected to take an active and sustainedrole in project supervision.

xv. Key Lessons Learned. The most important lessons of the project are:

(a) Quality at entry. In a programmatic approach such as applied in the Sulawesi IUIDPcomponent, it is essential to pay particular attention to the selection of sub-projects, the criteria appliedfor that selection, and the procedures for the economic and financial analyses of the projects. Also moreattention should be given to the impact of urban services and ways to measure it.

(b) Operation of completed projects. Much more emphasis should be placed on: proper O&Mof already funded investments; timely hand-over of sub-projects on completion; community involvementin service delivery; and improved contracting procedures (on the awarding, executing, and supervising ofcontracts, and offering post-construction service).

(c) Change in perspective. The project highlights the need for local governments to move awayfrom a "project focus" towards more of an overall urban management approach. This requires a changein the current incentive regime. While additional funds may be necessary to improve the performance ofexisting services, in some cases, changes in perspective may be the most important factor in enhancingsustainability. To this end, inter- and intra-agency coordination must be improved. The PDAMs need tobe more involved in project design and implementation to ensure their full understanding of the systems.

(d) Environmental management. Increased effort in watershed protection are important; inthis area project-supported efforts were showing success in some towns. However, overall, thepreparation of the environmental assessments had little impact on improving environmental managementduring implementation. Waste disposal sites need to be better operated (with clear operating plans) andbetter located. Modest, yet urgent, efforts are essential for basic sanitation improvements which mustinclude community education and local participation.

(e) Municipal management. A sharper focus is needed on municipal management. Thisshould include enhanced professionalization, better land use and service delivery planning, less emphasison projects, a more streamlined annual budgeting process (particularly with operating budgets), betterinclusion of, and response to, the general community, and a primary emphasis on 'service delivery'.

(f) PDAM management. The role of local governments and PDAM management must beclarified. Currently, local governments own the PDAM and exercise control over tariff policies often

viwithout being aware of the implications of limiting tariff increases. In addition local governmentsshould not expect financial contributions from PDAMs regardless of their financial capability.

(g) Geographic constraints. The relative isolation of the project sites, particularly in Irian Jaya,illustrates the difficulties associated with governnent decentralization initiatives, building institutionalcapacity and construction quality improvements. This cannot be avoided but needs to be accounted forin future efforts.

(h) The IUIDP approach. The project outcome demonstrates that a debate on fUIDP versusnon-IUIDP type projects is somewhat academic since in both parts of the project, the deficiencies ofmunicipal management were apparent. What is needed is not a discussion of IUIDP versus non-IUIDP,but rather a broad strategic consensus on how to best help local governments through a blend ofinvestments, technical assistance, changes to incentives, and other types of assistance.

(i) Capacity building. Institutional capacity is not so much a function of staff skills andtraining, but rather the environment in which they work (e.g., incentive structures) and linkages betweenvarious government agencies, government levels and the community.

REPUBLIC OF lIDONESIA

SULAWESI - IRIAN JAYA URBAN DEVELOPMENT PROJECT(Loan No. 3340-IND)

PART I: PROJECT IMPLEMENTATION ASSESSMENT

A. Statement/Evaluation of Objectives

1. Background. In 1987, the Government of Indonesia issued its National Policy Statement for theurban sector, and launched the Integrated Urban Infrastructure Development Program (IUIDP). The PolicyStatement provided a strategic framework and operational approach to guide urban governments. TheIUIDP approach, which includes urban roads, water supply, drainage, solid waste, human waste, kampungimprovement, and market infrastructure, has now been adopted by over 75% of Indonesia's localgovernments, and has become a platform for donor support. To date, over 20 urban projects have beenfinanced under the RJIDP approach, of which 12 were financed by the ADB and eight by the IBRD (table2). Other donors have fmanced sub-components of some of these projects. The Sulawesi Irian Jaya UrbanDevelopment Project (SIJUDP), together with the East Java-Bali Urban Development Project (Ln. 3304-IND) were the first two major projects in the series of IUIDPs financed by the World Bank. The projectprovides a useful review of two types of interventions, since efforts in Sulawesi were within an IUIDPframework, whereas Irian Jaya only had water supply investments.

2. Project Objectives. The objectives of the SIJUDP, as stated in the SAR were: (a) to provide urbaninfrastructure in selected cities in Sulawesi and Irian Jaya with emphasis on increased access of householdsto water supply and sanitation services; (b) to support improved infrastructure programming and financialplanning in these cities, especially, to support the development of local government capacity to prepare andexecute annual O&M programns; and (c) to encourage local government and water enterprise (PDAM)revenue generation and improved financial management.

3. Project Components. The project objectives were to be achieved through the implementation ofthe following three principal components: (a) infrastructure development (water supply, drainage, solidwaste management, sanitation, roads, improvement of kampung, market infrastructure, and O&M) for ninecities in Sulawesi ($118.2 million, or 70% of the project cost); (b) water supply system rehabilitation andinvestments in eight cities in Irian Jaya ($28.0 million, or 16.6%); and (c) technical assistance for (i) projectimplementation support, (ii) institutional capacity building and (iii) project preparation ($22.7 million, or13.4%), see map for cities.

4. No major amendments to the Loan Agreement were made during project implementation2.However, compliance with some loan covenants was only partial. For example, provisions for operationsand maintenance in level II district local governments (Tk II) in Sulawesi (section 3.01 of the loanagreement), review of tariff adjustments to fully cover water supply operation and maintenance,depreciation and operational interests (section 3.04), and review of the operation and maintenance programof each participating local government to ensure at least the 90% agreed upon expenditure level (section3.06), have not been fully complied with. See Table 10.

5. Evaluation of Objectives. The objectives of SIJUDP were important to the country, and remain so.They were supported by the GOI and World Bank urban development strategies which mirrored each other.The objectives reflected the urban priorities at the time, and were designed in line with the government's

2On April 17, 1996, the Bank, at the request of the GOI Ministry of Finance, agreed to amend the procurement anddisbursements schedules of the Loan Agreement to allow the use of statements of expenditure againstconsultants' services valued below the Bank procurement prior review threshold.

2

Urban Policy Statement. In particular, the Policy Statement was directed towards: (a) improving servicelevels in a regionally balanced fashion, particularly for the poor; (b) improving urban productivity and theeffectiveness of investments through better infrastructure planning and programming, especially at the citylevel, and through enhanced local government capacity for fiscal management, revenue mobilization,project implementation, and O&M; (c) improving the urban environment by enhancing local governmentcapacity to plan, implement and operate infrastructure in an environmentally sound fashion and also byenhancing community participation.

6. Being an amalgamation of two separate projects - an urban water supply component for IrianJaya, and IUIDP for the four Sulawesi provinces - the SIJUDP was demanding for the implementingagencies. Initially, the government's original desire was to include all urban centers in Sulawesi, but theoriginal project scope was reduced to nine cities and towns only. Yet, the project remained quite largeand covered an extended geographic area. Project implementation was to take place in a decentralizedenvironment. This involved coordination activities in nine local governments, 16 water enterprises(PDAMs), five provinces and the involvement of more than ten central government agencies.Furthermore, the success of the project required implementation of action plans (Revenue ImprovementAction Plan -RIAP-, Local Institution Development Action Plan - LIDAP-, Performance OrientedMaintenance Management System - POMMS-), and mobilization and supervision of several groups ofconsultants.

7. The concept and scope of IUIDP were not always clear to all government agencies participating inthe project. For example, some saw the IUIDP approach as being applicable to small cities while others tobig ones. Some also saw IUIDP as useful in the programming or planning phase, whereas others thoughtIUIDP to be useful only in the implementation phase. IUIDP is also now perceived by some as a way togain access to additional govermment grants, as opposed to generating development funds from internalresources. Generally, there appears to be no consensus about the effectiveness of the IUIDP approachrelative to the sub-sector approach for implementing urban development projects. It is clear though thatneither approach is sufficient, and that a blend of assistance programs, including non-project activities, areneeded.

8. In retrospect, the design of the project was ambitious. Some assumptions, particularly in thewater and drainage subsectors were overly optimistic in terms of expected improvements in institutionalperformance. These improvements were expected to materialize under the IUID process, based on theextensive training and technical assistance to be provided during implementation. For example, targetsfor water connections, reduction of unaccounted-for-water, and increase in tariffs, were much higher thanactually could be delivered with the available resources and institutional capacities of the local governmentsand their PDAMs. Also, initial assumptions of project risks with regard to institutional objectives andimplementation arrangements were optimistic.

B. Achievement of Project Objectives

9. Overall Assessment In spite of start-up delays of more than one year and construction qualityproblems, the project has substantially achieved its first objective of providing urban physicalinfrastructure. Execution of infrastructure works proceeded well in most sectors and locations, andpeople benefited from improved roads, reduced flooding, and additional water supply and houseconnections. It also partially achieved its other institutional objectives. Some progress was made ininstitutional capacity building and local government revenues showed some increases.

3

Objective 1: Irian Java10. The Irian Jaya sub-project consisted mainly of water system rehabilitation and development ineight cities (Jaypura, Sorong, Biak, Fak-Fak, Manokwari, Nabire, Serui, and Wamena). The physicalinvestments in water supply, treatment, storage, transmission and distribution facilities were completed.Most of the works financed under the project were handed over to the local water enterprises (PDAMs)by the original closing date and are now in operation. The loan extension allowed for the completion ofa few of the larger works and facilities, namely the Jayapura 500 mm diameter transmission line, theSorong water treatment plant, the Biak transmission and distribution system, and for the testing andcommissioning, or handing-over of the completed works to the PDAM. This short delay in projectcompletion was in part due to technical problems associated with the installation of equipment anderection of structures, and other deficiencies which required remedial work and start-up assistance priorto hand-over. The Bank welcomed the six month extension as a prudent measure to reduce the risk ofcontracts being "pushed" too quickly, and to ensure adequate commissioning time.

11. The investments in Irian Jaya project towns increased system production capacity and sales,improved reliability and water quality, and increased service coverage. For example, the total servedpopulation exceeded its target by 17% over the SAR 1996 estimate of 295,010 people. Annual waterproduction increased from about 8.1 million m3 to 13.4 million m3, although slightly lower than thetargeted 14.6 million m3 for 1996. Water sale targets were lower than the appraisal value mainly due tohigh unaccounted-for-water (UFW), which averaged about 40 % compared to the appraisal figure of 20%of total production3 . As regards storage, the use of additional and first time storage reservoirs in mostproject towns assures that peak demand flow will be catered for, and emergency storage will be availablewhen water production problems occur.

Objective 1: Sulawesi- SIUIDP4.12. The Sulawesi project component was based on the IUIDP concept and thus had a wider scopethan the Irian Jaya component. The Sulawesi investments covered infrastructure development,rehabilitation, and O&M in nine cities (Ujung Pandang, Pare-Pare, Watampone, Palopo, Palu, Kendari,Manado, Gorontalo, and Bitung) and several subsectors as described below.

13. Water Supply in Sulawesi. All major works and facilities proposed in the original project scopehave been substantially achieved. Water works and facilities were commissioned in four project cities(Watampone, Manado, Bitung and Palopo) and were in operation by the PDAMs, by the original closingdate.

3 GOI sector guidance in water supply sector for Replita V assumed that if money is spent on UFW, then areduction to 20% was possible over a period of 5 to 6 years. This assumption has been disproved numeroustimes since the appraisal of the project. In addition, the nature of UFW in Indonesia has become more clearlyunderstood -both physical and non-physical losses; and the lack of strong interest in the PDAM/DGCK/MHAin resolving this issue has become apparent.

The Sulawesi IUIDP component cost including O&M was estimated at US$118.2 million, or 70% of the total.The relative share of IUIDP components for civil works and equipment were: (i) urban roads, 27%, (ii)drainage, 12.2%, (iii) water supply, 10.9%, (iv) kampung improvement, 3.4%, (v) solid waste management,3.3%, (vi) human waste, 1.4%, and (vii) market infrastructure improvement, 0.3 % of the total cost. Theannual and incremental O&M expenditures were estimated at 11.5% of the project cost. On completion, thetotal estimated actual cost of the Sulawesi IUIDP component was US$ 104.46 million.

414. Urban Roads. Over the project life, the Bank loan financed a large number of small and some 40medium-size urban road sub-projects (valued between Rp 400 million and Rp 2 billion), and one largesub-project (valued Rp 7.4 billion), in the nine project cities. The work generally consisted of upgrading,including road widening, sidedrains, and sidewalk works. The overall quality of works was marginallysatisfactory and drains and sidewalks, in particular, were of low quality.

15. Drainage. The physical targets of the drainage investment program were mostly achieved. Theinvestments financed under the project were mainly construction and/or rehabilitation of secondary andtertiary urban storm drains. Some primary drains were also constructed. In Bitung a series of gabion"sabo" dams were built to trap volcanic sand flushed from steep slopes during very heavy rains.However, there still are some serious deficiencies with regard to the effectiveness and functioning of theoverall drainage systems. As a result of these shortcomings, sand and silt have accumulated, vegetationhas grown, and garbage is clogging existing and new drains in most project towns, placing the futureeffectiveness of drains in question. Because of these substantive deficiencies, the longer term benefitsand the sustainability of many of the drainage investments are assessed as unlikely.

16. Kampung Improvement Program (KIP). Basic neighborhood or slum upgrading (kampung)improvements were provided under this sub-component. However, the Central Government and alsosome of the local governments often treated KIP as a physical infrastructure program only (excludingsocial and economic interventions) and implemented those basic improvements (water supply,footpath/access tracks, sanitation facilities etc.) without effective community consultation orinvolvement, despite repeated appeals by Bank supervision missions. As a result, the sanitation facilitiesinstalled are not always used, and local drainage and solid waste management continue to lack sufficientO&M.

17. Solid Waste. This component helped improved overall waste collection. However, theenvironmental impact from TPAs (solid waste disposal sites) has been exacerbated in some communities.For example, in Manado, the significant increase in local refuse collection has had an adverse impact onthe TPA. In several of the project cities, TPAs were poorly sited. Most waste was dumped down steepslopes, making compacting and covering difficult. The five-year experience of the SIJUDP indicates thatprogress in this area is likely to be slow, while the positive lessons learned from, e.g. Watampone, couldbe readily transferable. Landfill sites at Manado, Bitung, Palu, Kendari and Ujung Pandang were notcompleted on time. Action plans, however, have been prepared to remedy the inadequate waste disposalsites in these five towns. They will be implemented under the Second Sulawesi UDP (Ln. 41 05-IND).Positive experience in Polopo and Watampone suggests that with an improved understanding by theWalikota/Bupati and his technical staff, TPA problems can be effectively addressed.

18. Human Waste Management (Sanitation). Community bathrooms (MCK), family toilets andseptic tanks, sludge pump-out and removal trucks, and sludge treatment facilities financed under thiscomponent were less successful operationally than some of the other components. Some were nothanded over to the concerned local government department for a long time. As in KIP, much work needsto be done to promote community participation through preparatory consultation. From a public healthand environmental point of view, a concerted program of public education on the risks of inadequatesanitation and human waste disposal is necessary. Overall, the investments in these facilities had verylimited impact or benefit, and their sustainability appears unlikely, because neither the communities northe local government are using the facilities to their capacities.

19. Market Infrastructure Improvement Program (MIIP). The MIIP was an important componentdue to the economic significance of the local markets in the project towns. In some towns substantiveimprovements to water supply, sanitation, drainage and solid waste management were achieved under

5MIIP, thereby improving public health and environmental conditions in and around the markets.However, most local governments paid little attention to this component. In the follow-on SecondSulawesi Urban Development Project, MIIP is a key project component, with significantly higher localgovernment involvement.

Objective 2: Instituional Capacity Building.20. Infrastructure programming and financial planning in the project and development of localgovernment capacity to prepare and execute annual O&M programs objectives were partially achieved.For example, central government staff noticed increased capacity in the nine previous SIJUDP townsduring preparation of the Second Sulawesi UDP. However, little progress was made in institutionalizingthe IUIDP concept in day to day local government operations: (a) Multi Year Investment Program(PJM), (b) Revenue Improvement Action Plan (RIAP), (c) Local Institutional Action Plan (LIDAP), and(d) Project Finance Accounting Management System (PFAMS). The IUIDP is still largely perceived inproject terms, as opposed to ongoing service delivery.

21. The RIAP, was instituted as a means of improving revenue generation and management. Itappears that it was accepted by some local governments only as a condition for additional grants, andwithout significant commitment. For this initiative to succeed, changes will be required: in the currentrequirements for recurrent expenditure and revenue budgeting, and in the proper applications of theincentive schemes. As regards LIDAP, the same type of comments apply. The nine Sulawesi cities havebeen able to use PFAMS (and training) successfully. The financial reports improved significantlythroughout the project, but the system still needs to be simplified and improved.

22. The TA for POMMS implementation was mobilized late, and focused on technical systems.Formal instruction from Ministry of Home Affairs (MHA) was not forthcoming. The exceptions wereUjung Pandang, which had received previous TA for POMMS implementation, and Bitung where theaccounting changes were made without reference to MHA. Late TA mobilization also reduced the timethat POMMS could benefit from inputs from GOI and missions. O&M is not being properly funded inany of the local governments. As a consequence POMMS had not been used as designed. It was lateragreed that this must be addressed through the Second Sulawesi UDP, and release of Bank funds underthe Loan would be made conditional on proper financial provisions for O&M. Further, managementactions would be incorporated in the Annual Project Implementation Plan for local governments andPDAMS (APIP) to be reviewed by the Bank each year.

Objective 3: Revenue Generation.23. The objective of increasing revenue generation by local governments and PDAMs, and improvingfinancial management was partially achieved. However, the full implementation of a cost-based water tariffwould require a considerable increase in 'A' factors5, reduction in operational and administration cost, andorganizational changes. The RIAP deals with the 8 to 10 major local taxes and charges, and identifies therealistic potential from these revenues, and presents a time bound action plan to progress towards revenuemaximization. The resulting annual revenue targets were to be incorporated in the annual budgets of localgovernments. This did not happen due to the local governments' lack of commitment and awareness ofwhat had been agreed to in the Project Implementation Agreements. However, the RIAP targets wereconservative, and overall revenue growth has exceeded appraisal projections. In financial managementterms recurrent expenditures have exceeded appraisal projections, but where significant increases in localrevenue have occurred, it is not certain whether RIAP had a role in it.

5 'A" factor - This is the basic domestic water tariff; weighting is currently applied to this to reflect both differinglevels of consumption, and by type of customer.

6

24. Economic Rate of Return. In retrospect, EIRR estimates at appraisal were relatively high.Recalculated EIRRs for the PDAMs, even under optimistic assumptions were estimated to be marginal.The EIRR re-evaluation of the 67 sub-projects in urban roads and drainage implemented between1992/93 and 1995/96 and with a construction value above Rp 400 million, however, did not establish aclear linkage between the completed sub-projects and estimated benefits (Annex A: Table 9). However,there is clear evidence on the ground that many of the investments are yielding benefits to the localpopulation.

25. Private Sector Participation. Only a few promising activities, such as parking tariff collection,private sponsorship (with maintenance responsibilities) of waste containers in Manado, and marketdevelopment in Palopo and Watampone have been undertaken. Other possible examples for the projecttowns would be in areas such as PDAM operation by a local contractor in Wamena, TPA bulldozeroperations in Palu, and heavy equipment leasing in all communities. While in principle the role of theprivate sector is accepted, due to the size and relative isolation of the communities, what is expected areincremental advances, usually at the Bupati's/Walikota's encouragement.

26. Environmental Impact Important successes were the watershed management efforts to protectthe quality of present and future water supplies in Irian Jaya. Following a Governor's decree,committees were set up by all local governments, and some are active with implementation efforts, suchas delineation of the catchment area, fencing, signing, policing, monitoring, and coordinatingdevelopment activities. The Governor's effort to institutionalize a participatory approach was a positivestep. The growing recognition for local government budgetary allocations and the need for majorchanges in perspective emphasized in the 1996 watershed protection workshop were also encouraging.However, overall, the preparation of the environmental assessments (EA) had little impact on improvingenvironmental management during implementation, because the EA studies were done in Jakarta, and thecompleted reports were not adequately disseminated to the field or followed-up during implementation.

27. Project Implementation. Disbursement closely followed SAR estimates, except for the initiallag. All civil works contracts were LCBs and few of them required prior Bank review. Contracts wereawarded according to Keppres (GOI procurement guidelines) and the awards were made to the lowestevaluated bidders. However, the tender procedures need improvement, as in some cases the differencebetween the lowest and highest bid prices was less than one percent. Because of the delay in mobilizingthe TA consultants, there were initial problems in CPMO meeting the reporting requirements in terms ofpromptness and necessary information. But later, the position improved significantly with goodcooperation between CPMO and the various Bank supervision missions. Regular financial performancereporting on PDAMs was available from the Provincial Management and Development Unit for waterenterprises (PMDU) in Irian Jaya after year three, and on a more limited basis for some PDAMs inSulawesi. The lack of financial and economic skills within PMDU to carry out any form of analysis ofPDAM management and of their operations was a constraint. In the case of specific products of variousTA in the project, submission of the reports to the Bank for review and comment was not alwaysconsidered satisfactory. A more structured approach to this kind of reporting would be required in futureprojects.

28. Project Cost. Total project cost, excluding interest during construction, was estimated to beUS$168.9 million which with interest of US$19.3 million, required financing for a total of US$188.2million, of which US$85.8 million was foreign. The Bank was to finance US$100.0 million and a JapaneseGrant of Yen 103.6 million was made available to off-set preparation costs (detailed design andenvironmental assessment). The balance was to be financed from local (US$18.1 million), provincial(US$10.4 million) and central (US$33.4 million) government, water enterprises (US$5.1 million) and

7

private contributions (US$1.2 million). Estimated actual total cost of the project was US$163.95 millionand estimated actual loan financing loan was US$95.83 million. Exchange rates fluctuated from Rp 1,845to US$1 in 1990 to Rp 2,350 to US$1 in June 1997. Through project savings and currency changes,approximately US$24.23 million was made available to improve deficiencies and optimize water supplyinvestments. Some US$1.52 million was utilized form the project preparation funds for detailed design andenvironmental assessment.

C. Major Factors Affecting the Project

29. Factors not generally subject to government control. Although there was no consensus withGOI, consultants and TA were generally viewed to be ineffective in setting up and implementingPOMMS, RIAP and LIDAP. Although consultant performance is generally subject to governmentcontrol (the contract managers) the consultants in this area were often non-professional and of limitedbenefit.

30. Factors generally subject to Government control. One of the main factors in this category is thepoor quality of construction works, e.g., water pipe bedding and welding in Jayapura maintenance,access at the Manado WTP, concrete quality and retaining walls throughout, market drainage and roadworks in Kendari, poorly assembled pipeworks and equipment in many WTPs. Several factorscontributed to this: (a) late mobilization of the PMU Advisory consultants in Irian Jaya and of the DED& SPN consultants in Sulawesi leaving supervision to poorly equipped local government staff only, (b)"advisory" role only for the PMU consultants in Irian Jaya with niether authority nor responsibility forconstruction quality, (c) weak, small or inexperienced contractors working on many small, separatecontracts, (d) an apparent lack of appreciation of the benefits and importance of good qualityconstruction at all levels of government, the contractors and most consultants, (e) inadequate orinexperienced supervision staff from either local governments or the consultants, (f) protracted andimperfect procurement procedures, (g) lack of sufficient O&M funding and execution, and (h) persistentinstitutional weaknesses. In particular, most local governments felt that they could not afford the O&Mlevels set out in the SAR, (agreed to by the local governments in the Project Implementation Agreementsand covenanted in the Loan Agreement and insisted upon by Bank supervision missions), whileprovincial governments did not agree with local government statements on affordability.

31. "Handing over" of investments for operation and maintenance involves a complicatedbureaucratic process, often times going from central government to provincial government, localgovernment, and occasionally down to the community. This resulted in little ownership and ormaintenance. Some KIP investments had still not been handed over to the respective communities morethan three years after completion. Similarly, IPLT (sludge treatment) facilities constructed by CiptaKarya Pusat were left idle by local governments for years. There were at least six of these in IBRDproject towns, some funded in parallel with the project. These seemingly needless delays no doubtseriously reduce the effectiveness of the investments and highlight an urgent need for greateraccountability and cooperation.

32. A third factor is that local governments did not understand Ministry of Finance requirements andthe Subsidiary Loan Agreement with Pre-financing (SLAP). Coordination with Pusat could have beenmuch better. TKI coordination was considered much more evolved in South Sulawesi Province whichhad set up a PPMO and PPMU modeled on the East Java provincial implementation units, establishedunder Ln. 3304-IND (East Java-Bali UDP) on their own initiative.

8

33. A fourth factor is the change in executing agencies / recipients of infrastructure. At the time ofappraisal, the project included 9 Tk II governments in Sulawesi; in four cases the project towns wereKota Administrative (embryo Kotamadya), i.e., Palu (Kabupaten Donggala), Kendari (KabupatenKendari), Watampone (Bone), and Palopo (Kabupaten Luwu). In Irian Jaya, Jayapura, the provincialcapital, was located in Kabupaten Jayapura. During the project Palu, Kendari and Jayapura were allconverted into Kotamadya (city) which are separate TK II governments. This raised a number oforganizational and institutional questions regarding the project's ownership and establishment of newwater enterprises, tariff approval mechanisms, and various responsibilities and commitments related tothe Program Implementation Agreements (PIA) and PIA targets for revenue improvements.

34. At appraisal, the Bank had requested the conversion of all water companies owned/managed bythe Central Government (BPAM), to PDAM, and had specifically covenanted the time table for theconversions in Irian Jaya. The basis for conversion was that the BPAM had reached a reasonable level ofmanagement and operating efficiency and should have been recovering operating costs and depreciationthrough effective tariff policies. Although the conversions were made, the basic requirements forconversion had not been met. The management capability was not in place, and financial capability hadnot been established. In addition to having negative impacts on the quality of infrastructure, there werealso major impacts on the effectiveness of the various TA and institutional development elements of theproject. In particular, control of revisions of tariffs was passed from central government to localgovernments who also were not prepared to handle the additional powers and responsibilities.

35. This project, like many urban development interventions, was affected by systemic governanceissues. The Government agencies responsible for the project implementation were not able to effectsignificant changes in these areas. These issues, such as, the representational nature of the locallegislative assembly (DPRD), Bupati/Walikota accountability, staff compensation, and performancemeasures of professional staff and political appointees, need to be further refined to ensure long-termsustainability in this sector.

36. A number of factors generally subject to the control of the implementing agency were procurementdelays, and delays in local contracting because of lack of experience with Bank procedures. Further, largeinfrastructure works faced problems when broken into smaller contracts. Local contractors were notfinancially strong and contract supervision was insufficient. Institutional development and management oftechnical assistance did not receive adequate attention by all levels of government. Land acquisitionproblems by Tk II, and inadequate O&M and financial management by PDAMs continued to have negativeeffects on the operation of project financed facilities.

D. Project Sustainability

37. The benefits generated in relation to the project's major objectives and the achievementsexpected in the operational plan (Section H) are unlikely to be sustainable. Sustainability is consideredunlikely only when the project is viewed in isolation, i.e., no follow-on activities, however, since thefollow-on efforts are outside this project's scope, an evaluation of the project, on its own must be made.To reverse the underlying factors affecting project sustainability, (a) a well directed follow-on project,(b) an enhanced emphasis on overall urban management, and (c) a feedback mechanism on the qualityof urban services delivery, will have to be instituted. In this regard, in Sulawesi, the follow-on project(Second Sulawesi UDP- Ln 4105-IND) is likely to enhance the first project's sustainability. In both IrianJaya and Sulawesi a further shift, away from a "project focus" and towards "service provision and urbanmanagement", is required. This means moving away from the current policy environment which

9

encourages development expenditure instead of recurrent expenditure. Finally, institutional mechanismsfor community 'feedback' on the quality of service delivery could help local governments to adjustservices accordingly. The recent proposal by the Director General of Cipta Karya (supported by theGovernor of Irian Jaya) to establish PDAM "consumer advisory boards" is a step in the right direction.The establishment and active involvement of these advisory boards in Irian Jaya should enhance thesustainability of the project. Similarly, the watershed protection efforts through multi-stakeholder effortsare very encouraging.

E. Bank Performance

38. Identification/Preparation. For SIJIUDP, the gestation period from identification to appraisal waslonger than average for the first generation IUIDPs. This reflected the difficulties that this project had incoordinating several sectors and levels of government, and the fact that the project covered two lessdeveloped areas of Indonesia. Initially, the IUIDP concept was not clear to the implementing agencies.The Bank provided extensive guidance on this and on the establishment of an institutional framework tosolve preparation problems the project experienced. Bank assistance concentrated only on those citieswhere preparation had reached an advanced stage. On the other hand, Bank management felt that aseparate water supply project for Irian Jaya would be too small, so it was incorporated into the IUIDPproject. However, at Bank's insistence, the overall scope of the project was reduced to use availableresources more effectively. Other key aspects of Bank assistance focused on strengthening O&Mactivities for infrastructure and services covered by SIJUDP expenditure programs in each localgovernment. Implementation plans were detailed for each component. Overall, project preparationassistance was satisfactory while identification was marginally satisfactory.

39. Appraisal. Project appraisal was marginally satisfactory. At the time of pre-appraisal, peerreviewers expressed their concern about the extensive geographic area included in the project and thelarge number of sub-projects. This was a valid concern given the geography of Sulawesi where citieslike Manado and Ujung Pandang are more than 1,000 kilometers apart, which made frequent supervisionof all project towns difficult. But despite these recommendations, the project was appraised as prepared,and included nine local governments in Sulawesi, and the eight PDAMs in remote Irian Jaya Province.Otherwise, assessments of the project's primary risk, i.e., difficulties in achieving the institutionaldevelopment objective, were on target. As one of the first two major Bank financed IUIDPs, the projectcontained pilot elements; some of the risks had not been fully understood, or quantified at the time of theappraisal, particularly, the physical investments/TA mix, and inter-government relationships, a key factor injudging the success or failure of the project.

40. Supervision. Mainly because of limited resources and the broad geographic and technical scope,Bank staff supervision was marginally satisfactory. However, field visits were made generally with theappropriate mix of staff. Supervision reports were sector and site specific and gave detailed observationsand recommendations on specific actions to be taken by the appropriate agencies. Because of budgetconstraints, complete coverage of project sites of the wide geographic area during any one mission wasnot possible; therefore limited supervisions were carried out. In accordance with the Loan Agreement,"a comprehensive review assessing the progress of the project" was to be held by June 1994 as part ofthe mid-term review. However, due to the slow start-up, the project mid-term review was not done asscheduled. Instead, the June/July 1994 mission undertook an in-depth review of the implementationprogress and loan fund use, and the subsequent mission of November/December 1994 concluded thatreview. The review stated that project implementation was suffering from lack of adequate supervisionby central government agencies probably due to the remote and dispersed location of project towns. The

10

final supervision mission of the project found the quality of civil works poor, and the overallsustainability of the project questionable. There was a slight disconnect in general supervision ratings(mostly satisfactory) and the final ICR mission (less positive). This was due to a more limited focusduring regular supervision missions, e.g., facilities construction, and a broad overview, (looking at thesum of the whole versus the sum of the parts) during the ICR mission.

F. Borrower Performance

41. Preparation. Borrower performance in project preparation was satisfactory. Project preparationrequired the mastery of a new project concept, IUIDP, and operationalization of support systems whichwere demanding for the agencies involved. Project preparation efforts were detailed and extensive.

42. Implementation. Implementation was marginally satisfactory. After a delayed start, projectimplementation showed significant progress but the quality of civil works and services made littleimprovement. In particular, in Irian Jaya construction quality and contract supervision continued to beproblematic, while in Sulawesi, the problems were with landfill siting and operations, drainage andsanitation. Institutionalization of the implementation support mechanisms proved to be difficult. Inmost towns, institutional weaknesses persisted and O&M funding and execution were inadequate. Therewas a clear need to better manage all technical assistance and to insure better supervision of consultants.

G. Assessment of Outcome

43. Overall, the project outcome is assessed as marginally satisfactory. Although there are severalmitigating factors (Section H), the development result is modest and sustainability appears unlikely mainlybecause of poor quality of civil works, inadequate local participation at a grass roots level, shortfalls inO&M, inadequate tariff increases to date, and above all the slow progress in institutional capacitybuilding attained during the course of project implementation. Moreover, the re-estimated economic rateof returns for most water, road and drainage sub-projects are marginal.

H. Future Operation

44. As noted earlier, the financial commitment for O&M has not been strong by the Tk II. The Bankhas approved a follow-on project, the Second Sulawesi Urban Development Project, SUDP2 (Ln 4105-IND), which became effective in April 1997 and is reviewing the prospects of a follow-on project inIrian Jaya. SUDP2 covers the nine original, plus 32 additional towns in all Sulawesi provinces. Thedesign of the SUDP2 has made use of the key lessons learned from the implementation experience ofSIJUDP. For the nine original SIJUDP communities, emphasis will be on properly operating what wasalready funded, rather than exclusively focusing on new investments. Further, release of Bank funds hasbeen made conditional on proper financial provisions for O&M. Efforts to obtain better compliance havebeen incorporated into annual APIP for each local government to be reviewed by the Bank. Morecomprehensive municipal management performance indicators and requirements for much more activeproject supervision by central and provincial agencies have also been included. These actions underSUDP2 could significantly enhance the sustainability of the investments of SIJUDP sub-projects.Implementation and supervision of SUDP2 has a key focus on "municipal management" trying to ensurethat project investments are well incorporated into an increasingly efficient local government.

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45. The appropriate time for OED to evaluate the impact of SIJUDP will be after the closing of theThird Jabotabek Urban Development Project (loan 3246-IND), the last of the first generation IUIDPloans appraised until 1993 (Annex A: Table 2) in Indonesia. The performance indicators to be used forevaluating should be similar to those used in SUDP2, the follow-on project.

I. Key Lessons Learned

46. Key Lessons Learned. The most important lessons of the project are:

(a) Quality at entry. In a programmatic approach such as applied in the Sulawesi IUIDPcomponent, it is essential to pay particular attention to the selection of sub-projects, the criteria appliedfor that selection, and the procedures for the economic and financial analyses of the projects. Also moreattention should be given to the impact of urban services and ways to measure it.

(b) Operation of completed projects. Much more emphasis should be placed on: proper O&Mof already funded investments; timely hand-over of sub-projects on completion; community involvementin service delivery; and improved contracting procedures (on the awarding, executing, and supervising ofcontracts, and offering post-construction service).

(c) Change in perspective. The project highlights the need for local governments to move awayfrom a "project focus" towards more of an overall urban management approach. This requires a changein the current incentive regime. While additional funds may be necessary to improve the performance ofexisting services, in some cases, changes in perspective may be the most important factor in enhancingsustainability. To this end, inter- and intra-agency coordination must be improved. The PDAMs need tobe more involved in project design and implementation to ensure their full understanding of the systems.

(d) Environmental management. Increased effort in watershed protection are important; inthis area project-supported efforts were showing success in some towns. However, overall, thepreparation of the environmental assessments had little impact on improving environmental managementduring implementation. Waste disposal sites need to be better operated (with clear operating plans) andbetter located. Modest, yet urgent, efforts are essential for basic sanitation improvements which mustinclude community education and local participation.

(e) Municipal management. A sharper focus is needed on municipal management. Thisshould include enhanced professionalization, better land use and service delivery planning, less emphasison projects, a more streamlined annual budgeting process (particularly with operating budgets), betterinclusion of, and response to, the general community, and a primary emphasis on 'service delivery'.

(f) PDAM management. The role of local governments and PDAM management must beclarified. Currently, local governments own the PDAM and exercise control over tariff policies oftenwithout being aware of the implications of limiting tariff increases. In addition local governmentsshould not expect financial contributions from PDAMs regardless of their financial capability.

(g) Geographic constraints. The relative isolation of the project sites, particularly in Irian Jaya,illustrates the difficulties associated with government decentralization initiatives, building institutionalcapacity and construction quality improvements. This cannot be avoided but needs to be accounted forin future efforts.

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(h) The IUIDP approach. The project outcome demonstrates that a debate on IUIDP versusnon-IUIDP type projects is somewhat academic since in both parts of the project, the deficiencies ofmunicipal management were apparent. What is needed is not a discussion of IIUIDP versus non-IUIDP,but rather a broad strategic consensus on how to best help local governments through a blend ofinvestments, technical assistance, changes to incentives, and other types of assistance.

(i) Capacity building. Institutional capacity is not so much a function of staff skills andtraining, but rather the environment in which they work (e.g., incentive structures) and linkages betweenvarious government agencies, government levels and the community.

13

ICR-Annex AIMPLEMENTATION COMPLETION REPORT

INDONESIASULAWESI - IRIAN JAVA URBAN DEVELOPMENT PROJECT

PART II: STATISTICAL ANNEXESANNEX A. STATISTICAL TABLES

(Loan 3340-IND)Table 1: Summary of Assessment

A. Achievement ofobjectives ubstantial artial Negljgigble No

Macroeconomic policies - 5 5 XSector policies 5 X 5 0Financial objectives 5 X a oInstitutional development 0 X 0 CPhysical objectives X 5 5 5Poverty reduction 5 5 X 5Gender concerns 5 5 5 XOther social objectives 5 O X O

Environmental objectives 5 X 5 5Public sector management 0 X c oPrivate sector development 5 O X 5Economic benefits O X 5 5

B. Project Sustainahility Lik UnlikIy Uncertain5 X O

C. Bank Performance Higjljy MarginallySaisfactorv Satisfatg satisfactory Deficient

Identification o O X oPreparation assistance 5 X C 5Appraisal g D X 5Supervision O O X O

D. Borrower Performanc Highly MarginallyStisfactory Safisfacnry s fcry Deficient

Preparation O X Implementation C 5 XCovenant compliance 0 a X 0Operation 0 X 5

E. Assessment of Outcome Highly MarginallySadSttry Satisfactory Dericient

o 5 X o

14

ICR-Annex ATable 2: Related Urban and Water Supply Bank Loans

Loan/credit title Purpose Year of Statusapproval

Preceding onerationsA*Loan 1972-IND Fourth Urban To Implement a nationwide KIP; a site and 1981 ClosedDevelopment IBRD Loan $43 service program; and strengthening of themillion; Cost $85.93 million. management capabilities of the Bank

Tabungan Negara(BTN)and thePERUMNAS.

Loan 2408-IND Fifth Urban To Improve basic urban services and 1984 ClosedDevelopment strengthen municipal administration in the

project cities (Surabaya, Semarang,Surakarata, and Ujung Pandang) and augmentthe capacity for local resource mobilization

oan 2725-Housing Sector To expand access to housing finance for low 1986 ClosedProject and middle income households; to reduce

overall subsidies to the lowest income groups;to reduce the reliance of the housing financesystem on government funds and introducenew instruments for resource mobilization; tostimulate the production of more low costhousing by both public and privatedevelopers; to generate employment at lowforeign exchange and to Strengthen BNT and

l _______________ PERUMNAS.Loan 2816-IND Urban Sector To carry out GOI's FY87/88 and FY88/89 1987 ClosedProject urban infrastructure expenditure program; to

strengthen sector institutions and procedures;to improve local resource mobilization; and toincrease the responsibilities of localgovernments for urban infrastructure

l______________________ planning, financing and implementation.Loan 2817-IND Regional To implement a program for relieving traffic 1987 ClosedCities Urban Transport congestion and promote transport efficiency;

to strengthen city government capabilities inthe planning, implementation, andmaintenance of traffic and transport facilities;and to establish a process of coordinating theinvestment activities of central, provincial andcity government agencies in urban transport

L _____________________ prograrns.

15

Loan 2932-IND Jabotabek To provide technical assistance for 1988 ClosedUrban Development institutional development and training in

urban management and include physicalworks( mainly civil works and someequipment) for an extensive program of roadimprovement and construction

Loan 3219-IND Second To develop and implement a coordinated 1990 ClosedJabotabek Urban Development program of physical investments, technicalProject assistance and policies of urban water supply,

wastewater disposal, drainage and water_________________________ resources/equity management. l

Loan 3246-lND Third To introduce a more effective and sustainable 1991 ActiveJabotabek Urban Development approach to provision of basic services in

Jabotabek through extensive communityparticipation in recognized low-income urbancommunities; to strengthen environmentalprotection and pollution control in the Jakartaregion; and to improve maintenance ofexisting infrastructure networks and provide afirmer basis to plan future developmentpriorities.

Loan 3304-IND East Java-Bali To improve the quality of urban infrastructure 1991 closedUrban Development Project and services in the two provinces, through

support for urban infrastructure investments;institutional development l

Fllowing projectsILoan 3726-IND Surabaya To improve urban service levels and 1994 ActiveUrban Development affordability, particularly for the poor;

productivity and the effectiveness ofinvestments through better infrastructureplanning and management, revenuemobilization, project implementation andO&M; enviromnental quality by enhancinglocal government capacity to plan, implementand operate infrastructure in anenvironmentally sound fashion and also byenhancing community participation l

Loan 3749-IND Semarang- To improve the provision of urban 1994 ActiveSurakarta Urban Development infrastructure services and the efficiency of

the urban investments; to promote stronger,more autonomous, and financially moreindependent municipal government; and tocontribute towards poverty alleviation, mainlythrough better access to essential services andan improved urban environment (Part ofIUIDP framework) . X

16

oan 3854-IND Kalimantan To improve the provision of urban 1995 ActiveUrban Development Project infrastructure services and the efficiency of

the urban investments; promote stronger,more autonomous, and financially moreindependent municipal governments; tocontribute towards poverty reduction, mainlythrough better access to essential services;and improve the environment.

n 4105-lND, Second to improve the provision of urban services 1997 ActiveSulawesi through appropriate economic investments in

Urban Development Project physical infastructure; to strengthenoperations and maintenance activities forurban services, and support improvedplanning, programming, budgeting, financialmanagement and local revenue generation bylocal governments; and to improve urbanenvironment management and reduce localenvironmental impacts.

oan 4017 IND Second East To improve urban infrastructure service 1996 Activeava Urban Development delivery, and to develop the necessaryProject financial and institutional capacity in local

govermments to sustain urban services.Loan 4155-IND Bali Urban Improve urban infrastructure services in Bali 1997 ActiveImprovement Project in a sustainable manner to meet: (i) basic

needs in all important urban centers and (ii)the needs for growing urbanization in southBali as a result of tourism and other economicactivities

preceeding projects are only those within the ten year limit.

17ICR-Annex A

Table 3: Project Timetable

Steps in project cycle Date planned Date actual/atest estimate

Identification (IEPS) 12/83 - 04/87 12//8304/18/88 04/18/8805/88 - 5/89 2/88 - 3/90

ppraisal 06/89 10/90Negotiations . 12/89 04/10-12/91oard presentation 03/90 06/06/91

Signing 08/91 08/08/91Effectiveness 11/91 11/04/91

idterm Review 06/94 10/94oject completion 06/30/96 12/31/96

oan closing (Loan 3304-IND)) 12/31/96 06/30/97

Table 4: Loan Disbursements: Cumulative Estimated and Actual(US$ million)

Bank FY FY92 FY93 FY94 FY95 FY96 FY97 FY98

Appraisal estimate 19.1 46.7 67.9 84.3 96.3 100 100Actual 4.5 17.63 40.52 63.26 81.50 95.8 95.8Actual as % of estimate 23.6 37.7 60.0 75.0 84.6 95.8 95.8Date of final disbursement November 25, 1997

18

ICR-Annex A

Table 5: Key Implementation Indicators and Reporting Systems

Indicators PlannedReporting frequency and Actual

responsibility Performance1. Conformity of annual budget Annual Satisfactoryallocation with approved expenditure (1) PFOprograms and financing plans (2) CPFO

2. Conformity of actual expenditures Annual Satisfactorywith budget allocations (1) PFO

_(2) CPFO

3. Physical progress per local and Quarterly Satisfactoryenterprise government (1) PMO/PUM

(2) CPMU

4. RKL/RPL Implementation Annual Unsatisfactory(1) PMO /PMU(2) CPMO

5. Water enterprise financial targets Annual Unsatisfactory(1) PMO /PMU

l _________________________ (2) CPM O6. Local government revenue Annual Unsatisfactory regarding targets, butimprovement targets and achievements (1) PLO /PMU satisfactory regarding actual resultsl __________________________ (2) CPM O7. Loan disbursement targets Quarterly Satisfactory

CPFO8. Consulting services implementation Quarterly Partially satisfactoryschedules, particularly assignment starts CPFO9. Procurement schedule Quarterly Unsatisfactory

(1) PMO/PUM(2) CPMU

/a PMO refers to the Project monitoring Office at the local government level in Sulawesi. PMU refers to theProject Management Unit in Irian Jaya.

19

Table 6: Key Performance Indicators for Project Operationa) Irian Jaya Water Enterprises- PDAM

Jayapura Biak Fak-Fak Manokwari Nabire Serui Strong WamnenaPopulation ('000)* Actual* 314 78 34 40 42 n/a 99 41

SAR(96/ 162 52 19 44 25 15 103 997)

Population Served (%)* Actual* 57 49 42 26 28 n/a 60 38SAR 85 76 71 75 76 75 69 75

Production Capacity (I/s)* Installed 416 264 35 65 30 n/a 124 20Produced 246 90.2 28 35 18.5 n/a 114 18

Connections Actual 14777 1845 2131 1724 1320 1546 6958 824SAR 16612 3288 1402 3263 2155 1126 9148

Unaccounted for Water ( %)'* Actual 42 45 33 66 40 40 39 0.00SAR 20 20 20 20 20 20 20 20

Average Tariff- Rp/M3 Actual 514 914 452 487 892 358 976 0.00SAR 860 1060 467 450 717 583 601 577

Average Cost Rp/M3 Actual 438 913 508 425 667 287 1121 0.00SAR 372 410 391 369 463 434 408 438

Operating Revenue -Rp Million Actual 2446.312 494.886 328.347 371.278 216.407 194.358 1753.670 0.00SAR 4510.850 1060.51 192.170 192.170 415.540 432.900 206.160 1530.460

Operating & Maint. - Rp Million Actual 1201.623 309.971 227.706 113.753 119.642 73.502 1436.536 0.00SAR 1720.640 396.080 157.370 314.690 256.830 139.580 993.150 88.33

Administration/Gen. - Rp Million Actual 479.446 147.63 98.142 115.817 36.320 46.150 227.336 0.00SAR 372.600 22.410 16.470 17.350 17.840 - 15.330 36.360 13.040

Income before Deprecations Rp Actual 672.223 37.655 2.502 118.041 60.445 74.706 89.798 0.00Million

SAR 2417.610 642.030 18.320 83.500 158.230 51.250 510.450 36.07Net Income - Rp Million Actual (685.889 (284.04 (6.044.**) (117.249.**) (90.491) (44.925) (197.571 (0.00)

0)SAR 121.560 215.59 (63.000)' (179.110) (81.560) (37.060) 504.460) (19.46)

Notes: Actual - * Population and population served are Data from July 1997 ICR mission the rest of the data is as of December 1995SAR - Data from Financial Year 1995/96 column(.**) Without depreciation

20Table 6: Key peribrmnance Indicator for project Operation

Sulawesi Water Enterprises

PDAM MANADO PDAM BIUNGSAR SAR PROJECTED P Impat SAR SAR PROJECTE P1991 1996 1996 SAR 41 to 96 Act v SAR9146 1991 1 19996 SAR 4 to # ACt v SMA ti

Service Area Population 262 280 365 16 102 69 76 88 7 19Population Served % 56.00% 68.70% 60.20% 59.70% 74.40% 43.39%Population Served No 147 192 220 46 73 41 56 36 15 (3)Connections 000's 21.020 26.800 27.549 5.780 6.529 6.800 8.850 8.363 2.050 1.563Water Production M3 Mill 14.748 16.188 13.903 1.440 (0.845) 2.618 3.767 6.634 1.169 3.016Unaccounted for Water M3 Mill 6.123 4.979 5.631 (1.144) (0.492) 0.751 1.095 2.257 0.343 1.506Unaccounted for Water % 42% 31% 41% 29% 29% 40% 0%Water Saies M3 MiII 8.625 11.209 8.272 2.584 (0.352) 1.667 2.693 3.377 0.826 1.610Average Tailif RpslM3 355 550 1,209 195 664 350 620 1,160 270 S10Average Ops Expenditur Rps/M3 263 304 782 41 519 211 224 669 13 376Total Operating Revenu Rps Mill 3,394 7,044 10,949 3,650.00 7,555.00 754 1,934 3,963 1,180 3,229.00Total Operating Expens Rps Miii 2,256 3,413 6,473 1,157.00 4,217.00 395 602 1,988 207 1,593.00Depreciation Rps Mill 525 2175 99S 1,650 470 296 543 72S 247.00 432Net Incomel(Loss) Rps Mill 163.00 489.00 2,443.00 326.00 Z280 (56.00) 476.00 898.00 832.00 954Employeesi 1,000 Conns No 12.1 17Sulirja Investment- Total RpslIM3Debt Coverage Ratio

NOTE 1996 DATA FROM FINPRO PROJECTIONS FOR SECOND SULAWESi UDP NOTE 1996 DATA FROM FINPRO PROJECTIONS FOR SECOND SULAvWB UDP

IPDAM GORONTALO PDAM DONGGALA

SAR(1) SAR ESTIMATED Projet Impact SAR SAR ESTIMATED Prjct i1991 1996 1996 SAR.91to96 ActvSAR91I96 1991 1996 1996 SAR41to96 ActvSAR MM

ServiceArea Population 121 133 140 13 19 145 178 190 33 45Population Served % 42.80% 63.50% 45.00% 18.80% 51.70% 15.79%Population Served No 52 . 85 63 33 11 27 92 30 65 3Connections 000s 7.040 10.370 10.000 3.330 2.960 3.920 13.320 6.000 9.400 2.080Water Production M3 Mill 2.776 3.576 3.218 0.800 0.442 1.706 4.454 2040 2.747 0.334Unaccounted forWater M3 Mil 0.833 0.725 1.018 (0.108) 0.185 0.683 1.069 0.830 0.386 0.147Unaccounted forWater % 30% 20% 32% -10% 40% 24% 41% -16%Water Sales M3 Mill 1.943 2.851 2.200 0.908 0.257 1.024 3.385 1.210 2.362 0.187Average Tariff RpdIM3 330 650 320 (330) 363 525 1,109 162 746Average Ops Expenditur RpdJM3 240 372 132 (240) 206 216 339 10 133Total Operating Revenu Rps Mill 748.00 2,212.00 1,464 (748) 495 2,453 1,854 1,958 1,359Total Operating Expens Rps Mili 466.67 1,064.00 597 (467) 211 730 410 519 199Depreciation Rps Mill 289 683 394 (289) 91 519 520 428 429Net Inconel(Loss) Rps Mill 0.64 205.00 204 (1) 149 642 490 493 341Employees 1,000 Conns No 9Suliria Investment- Total RpsdM3Debt Coverage Ratio

Note - SAR data is for 9 months; where relevant this as been grossed up

PDAM BONE PDAM LUWUSAR(I) SAR ESTIMATED Projec Impact SAR(1) SAR ESTIMATED P-Ject _meo1991 1996 1996 SARI dto96 AotvSAR9196 1991 1996 1996 SAR-91to96 PAct vAR S9I

Service Area Population 61 64 91 3 30 60 78 86 18 26Population Served % 43.10% 55.30% 39.05% 5S9.10% 84.60% 65.12%Population Served No 26 35 35 9 9 36 66 56 30 20Connections 000's 3.980 6.350 7.050 2.370 3.070 4.740 9.160 8.265 4.420 3.525Water Production M3 Mil 1.975 2.620 2.366 0.645 0.381 1.824 3.468 5.600 1.644 3.776Unaccounted for Water M3 Mill 0.700 0.750 0.606 0.050 (0.094) 0.365 0.696 3.099 0.331 2.734Unaccounted for Water % 35% 29% 26% -7% 20% 20% 55% 0%Water Sales M3 Mill 1.275 1.870 1.750 0.595 0.475 1.459 2.772 2.501 1.313 1.042Average Tariff RpsIM3 335 510 808 175 473 183 440 257 (163)Average Ops Expenditur Rpd/M3 169 241 576 72 407 126 186 60 (126)Total Operating Revenu Rps Mill 445 1,052 1,410 607 S65 343 1,658 1,315 (343)Totai Operating Expens Rps Mill 216 451 1,008 235 792 184 515 331 (184)Depreciaton Rps Mill 82 270 96 188 14 57 345 288 (57)Net Incomed(Loss) FRps Mill 1 200 880 199 879 127 449 322 (127)Employees/ 1,000 Conns No 17Suliria Investnent- Total RpdfM3Debt Coverage Ratio

Note - SAR data ia for 9 months; where relevant this aa been grossed up

21Table 6: Key Performance Indicators for Project Operatlon

b) Local Government Financial Performance

KODYA MANADO KODYA BITUNG KODYA UJG PANDANG KAB BONE KAB LUWU KODYA PAREPARE

1995196 1995196 1995/96 1995196 1995196 1995196 1995196 1995196 1995196 1995196 1995196 1995196

ALL FIGURES Rp MUI Actual SAR Actual SAR Actual SAR Actual SAR Actual SAR Actual SAR

Balance Brought Forward - 31 503 1,232 -

Local Revenues 8,734 7,529 1,606 821 18,434 14,289 3,806 3,365 3,854 2,885 2,407 2,321

Taxes 4,044 2,240 734 214 7,800 5,627 503 432 443 429 496 467

Charges 4,013 5,283 738 599 8,591 6,017 3,028 2,162 2,889 1,957 1,571 1,724

Local Enterprises - ) ) 92 - 9 - 30) 7 )

PDAM 150) 68 ) 9 570) 2,645 37) 771 28) - - ) 130

Departmental Income 8) 7 8 ) - ) - 2 - 46) 499 80)

Otherlncome 518) 58 ) 1,382) - 227) - 417 - 253)

Assigned Revenues 2,875 ) 1,481 1,615 ) 738 8,773 ) 4,245 3,722 ) 1,788 5,601 ) 1,619 1,974 ) 565

PBB 2,174 ) 1,371 ) - 5,815 ) 4,245 3,119 ) - 2,643 ) 1,619 1,649 ) -

OtherAssigned Taxes 439 ) 1,481 109 ) 1,887 ) 196 ) - 139 ) - 166 ) 565

OtherAssigned Revenues 262 ) 134 ) - 1,070 ) 407 ) 2,819 ) - 159 )

Grants & Subsidies 23,868 7,706 10,871 3,448 51,355 36,557 40,539 30,780 43,492 30,413 10,943 6,695

Recurrent Grants 18,914 5,446 7,090 1,507 34,972 29,633 29,900 22,260 28,919 22,844 7,360 4,559

Inpres Tk II & Jalan 4,535 ) 2,260 3,508 ) 1,941 8,423 ) 3,539 8,607 ) 6,688 13,071 ) 5,859 3,004 ) 2,136

Other Grants 419 ) 272 ) - 1,200 ) 4,043 2,032 ) 1,128 - ) 1,175 -

SPABP - 6,760 3,385 - 704 536 -

Loans Raised 2,500 2,800 250 - 4,558 8,950 430 - 847 -

TOTAL FUNDS AVAILABLE 38,359 19,516 14,373 - 83,623 64,040 49,728 35,934 57,111 34,917 15,425 9,581

Recurrent Expenditure 28,513 11,909 9,810 2,319 54,854 43,296 34,620 26,229 34,361 26,875 10,420 6,403

13 - . .-

Development Expenditure 9,744 12,188 4,535 3,203 27,515 - 13,182 9,706 19,203 9,004 4,582 4,512

otal Expenditure 38,257 24,097 14,345 5,522 82,369 - 47,802 35,934 53,864 35,880 15,003 10,915

DC R 10 10 N/A 45 8 W NA 31 . 3 51 4

22ICR-Annex A

Table 7: Studies Included in Project

Purpose as definedStudy/technical assistance at appraisa/redefined Status Impact of study

1. IRJA Water Resources Study Watershed completed Substantial- would be aPart I: Availability of resource management and major input into any follow-Part II: Further investigation of protection on investment changes.availability, fnance, private sectorinvolvement, institutionalstrengthening, and investmentsrequirements in nine PDAMs.

2. Unaccounted-for-Water Study Efficiency Completed Showed that the problem ismore institutional thanphysical.

3. Ujung Pandang Drainage Study Preparation of Master completed Substantial, priorityPlan & priority investments to beinvestments implemented under SUDP2

4. Watershed Management Study for protection of completed Substantial, if protectionJayapura, Sorong, and Timika catchment area, land committees maintained.

erosion5. Master Plan for Human Waste & Improved sanitation & completed Excellent Study, limitedWastewater Disposal for Manado protection of water impact to date due to City's

quality unwillingness to acceptsanitation as a priority.

6. Biak Water Source Investigation Review of catchment completed Substantial -helped toarea, physical define actions of watershedcharacteristics, of the management committeegroundwater resource

7. Strategies for fast growing Urban Develop growth Completed Provided very usefulAreas in Sulawesi and Irian Jaya. strategies, Identify background document for

investment priorities identification of secondSulawesi UDP2 (Loan4105-IND)

23

TABLE 8A1: PROJECT COST ESTIMATE(US $ Million) ,_^l

Appralsal Exchange Rate 1845 Rp = US S1 Actual 2320 Rp = US $1Item Original Project Cost Estimate Latest Project Cost Esdimate

Local Foreign Total Local Foreign Total

A Infrastructure Sulawesi1 Water Supply 10.14 8.18 18.32 7.30 5.90 13.202 Drainage 12.95 7.59 20.54 15.65 9.17 24.823 Urban Roads 30.08 15.45 45.53 32.11 16.49 48.604 Solid Waste 3.58 2.06 5.64 3.84 2.21 6.055 Human Waste 1.46 0.87 2.33 1.01 0.60 1.606 Kampung Improvement 3.79 2.01 5.80 3.80 2.01 5.817 Market Infrastrusture 0.33 0.16 0.49 0.46 0.23 0.69

Sub Total Infrastrucuture 62.33 36.31 98.64 64.17 36.60 100.778 Current O&M la 6.29 2.87 9.16 2.53 1.16 3.699 Incremental O&M / a 6.50 3.79 10.30 - - -

Sub Total O&M 12.79 6.67 19.46 2.53 1.16 3.69

Sub Total Investment & O&M 75.12 42.98 118.10 66.70 37.76 104.46

B Water Supply Irian Jaya 11.11 16.91 28.02 10.40 15.84 26.24

C Technical AssistanceI Implementation Support 9.97 5.53 15.50 5.34 1.79 7.132 Institutional Capacity Building 2.33 1.90 4.23 2.09 0.59 2.683 Project Preparation 1.63 1.36 2.98 3.92 0.17 4.09

Sub Total Technical Assistance 13.93 8.78 22.71 11.35 2.55 13.90

Total Project Cost 100.16 68.67 168.83 88.46 56.15 144.61

Interest During Construction 2.22 17.13 19.35 2.22 17.13 19.35

Total Financing Requirement 102.38 85.80 188.18 90.68 73.27 163.95

J a Non-water supply onlyBase costs are in October 1990 pricesNote: Operation & Maintenance can not be clealry identified between existing and incremental.

sartab2$ ICR-TAB8.XLS 12/20/97

24

TABLE 8A2: PROJECT COST ESTIMATE(Rps Billion)

Item Original Project Cost Estimate Latest Project Cost Estimate |Local Foreign Total Local Foreign Total |-11

A Infrastructure Sulawesi1 Water Supply 18.70 15.10 33.80 16.94 13.68 30.622 Drainage 23.90 14.00 37.90 36.31 21.27 57.583 Urban Roads 55.50 28.50 84.00 74.49 38.25 112.744 Solid Waste 6.60 3.80 10.40 8.91 5.13 14.045 Human Waste 2.70 1.60 4.30 2.34 1.39 3.726 Kampung Improvement 7.00 3.70 10.70 8.82 4.66 13.497 Market Infrastrusture 0.60 0.30 0.90 1.07 0.53 1.60

Sub Total Infrastrucuture 115.00 67.00 182.00 148.88 84.91 233.798 Current O&M /a 11.60 5.30 16.90 5.87 2.68 8.55 See Note9 Incremental O&M / a 12.00 7.00 19.00 - -

Sub Total O&M 23.60 12.30 35.90 5.87 2.68 8.55

Sub Total Investment & O& 138.60 79.30 217.90 154.75 87.59 242.34

B Water Supply Irian Jaya 20.50 31.20 51.70 23.05 35.07 58.12

C Technical AssistanceI Implementation Support 18.40 10.20 28.60 12.39 4.15 16.53 0.002 Institutional Capacity Buildi 4.30 3.50 7.80 4.85 1.37 . 6.22 -

3 Project Preparation 3.00 2.50 5.50 9.10 0.40 9.50 -

Sub Total Technical Assista 25.70 16.20 41.90 26.34 5.92 32.25 0.00

Total Project Cost 184.80 126.70 311.50 204.13 128.59 332.72 0.00

Interest During Construction 4.10 31.60 35.70 4.10 31.60 35.70 See Note

Total Financing Requirement 188.90 158.30 347.20 208.23 160.19 368.42

/ a Non-water supply onlyBase costs are in October 1990 pricesNote: Operation & Maintenance can not be clealry identified between existing and incremental.

ICR-TAB8.XLS sartab2rps 12120/97

sartab3APP

25

Table 8B1: Project Financing Plan Summary - AppraisalRp Billion

fReqional Sources OnLent lw APBN Japanes Tota IBRD G O J GOIPrivate Local Provincial IBRD Domestic lBRD Domestic IBRD Domestic Grant

Infrastructure1 Water Supply - 13.00 - 26.70 3.00 31.40 11.40 85.50 58.10 . 27,40 0.002 Drainage - 3.00 2,35 0.30 2.90 1.55 21.00 6.80 37.90 24.20 13.70 -3 Solid Waste - 0.20 - 6.65 0.80 0.10 1.94 0.64 10.33 8.69 1.64 0.004 Human Waste 1.00 0.24 - 1.45 0.20 0.30 0.10 0.80 0.25 4.34 2.55 1.795 Urban Roads 1.20 2.20 6.20 10.90 1.30 22.00 8.30 24.20 7.80 84.10 57.10 . 27.00 (0.00)6 Kampung Improvement - 2.95 0.10 - 3.70 1.20 2.05 0.70 10.70 5.75 4.95 (0.00)7 Market Infrastrusture - 0.74 - 0.14 0.88 0.14 0.74 -

Sub Total Infrastrucuture 2.20 22.33 8.65 46.00 5.30 29.00 11.15 81.53 27.59 233.75 156.53 , 77.22 0.008 Current O&M /a - 9,70 5.10 2.70 1.54 19.04 - 19.04 -9 Incremental O&M / b - 8,40 5.00 2.20 1.34 16.94 16.94

Sub Total O&M - 18.10 10.10 - - 4.90 - 2.88 35.98 35.98

Sub Total Investment & O&M 2.20 40.43 18.75 46.00 5.30 29.00 16.05 81.53 30.47 - 269.73 156.53 113.20 0.00

Technical Assistance 2.35 0.50 4.20 0.30 1.60 0.60 21.90 8.60 1.80 41.85 27.70 1.80 12.35 (0.00)

Total Project Cost / c 2.20 42.78 19.25 50.20 5.60 30.60 16.65 103.43 39.07 180 311.58 184.23 1.80 125.55 000

Interest During Construction 12.65 22.98 35.63 63583

Total Financing /c 2.20 55.43 19.25 50.20 5.60 30.60 16.65 103.43 6205 1.80 347.21 184.23 1.80 161.18 00.~~ _ _ - = _ = _ a - _- - -_ _

/ a Local induses Rp 9.5 million user charges/ b Non-water supply only/ c Total may not add up due to rounding

tb8AP ICR-TABSXLS 121201e7

sartab3APP

26

Table 8B2: Project Financing Plan Summary - Latest ProjectionR Billion

Regional Sources On Lent In res APBN Japanes Total IBRD G O J GOIPrivate Local Provincial IBRD _Domestic IBRD I Domestic IBRD Domestic Grant

Infrastructure1 Water Supply 10.65 28.19 0.80 40.00 9.10 88.74 68.19 - 20.55 (0.00)

2 Drainage 4.02 3.47 1.89 28.60 4.80 10.35 4.46 57.58 40.83 - 16.75 0.00

3 Solid Waste 1.63 0.09 4.79 0.74 4.58 2.22 14.04 5.53 8.51 (0.00)

4 Human Waste 1.06 1.40 0.59 0.39 0.03 0.24 3.72 2.03 - 1.70 (0.00)

5 Urban Roads 4.37 2.28 14.21 27.67 39.89 12.61 11.71 112.74 54.49 58.25

6 Kampung Improvement 0.92 0.53 0.82 5.45 1.39 3.30 1.08 13.49 9.57 3.92 (0.00)

7 Market Infrastrusture 0.32 0.04 0.16 0.82 0.28 1.60 0.98 0.62 0.00

Sub Total Infrastrucuture 22.97 6.41 51.46 0.80 63.86 51.31 66.29 28.82 291.91 181.61 110.30 -

8 Current O&M /a 5.12 0.01 3.21 0.22 8.55 - 8.55

9 Incremental O&M / bSub Total O&M 5.12 0.01 - - - 3.21 - 0.22 8.55 - 8.55

Sub Total Investment & O&M 28.09 6.41 51.46 0.80 63.86 54.52 66.29 29.04 300.47 181.61 118.85 (0.00)

Technical Assiatance \d 29.00 1.45 1.80 32.25 29.00 1.80 1.45 (0.00)

Total Project Cost 28.09 6.41 51.46 0.80 63.86 54.52 95.30 30.49 1.80 332.72 210.62 1.80 120.30 (0.00)

Interest During Construction 12.65 22.98 35.63 35.63

Total Financing /c 40.74 641 51.46 = 0.80 63.86 54.52 9530 53.47 1.80 368.35 210.62 1.80 155.93 (0.00

/ a Local induses Rp 9.5 million user charges/ b Non-water supply only/ c Total may not add up due to rounding/d Estimated GOI contribution @ 5%

sartab3APP ICR-TAB8.XLS 12120/97

27ICR-Annex A

Table 9A: Economic and Financial Evaluation

Water Supply

At the project appraisal stage, both economic and financial analyses were carried out for the water supplyinvestments. The economic analyses were based on cost and benefit comparison between piped water and other

sources of water. They utilized a model (ECOWAT) developed by the World Bank for Indonesia. The fnancialanalyses were based on the expected revenues generated from the new connections and the investment costs. They

also used a fnancial model (FINPRO) developed by the World Bank for Indonesia. The estimated economic andfnancial returns (EIRR and FIRR) are summarized below:

Table 1: Estimated Economic and Financial Returns at Project Appraisal

City (Local Government) EIRR FIRRWatampone (Bone) 12.8% 6%Palopo (Luwu) 10.4% 6.0%

Manado 14.0% 16.6%Gorontalo 9.7% 12.1%Donggala (Palu) 14.6% 10.5%Jayapura _ 16.8% 6.2%Biak 16.2% -3.7%Sorong __ _ _ 22-0% l 5.4%Fak Fak X 13.4% _ -6.9%Nabire j 16.6% j -0.3%Serui ___ _ -5.8%Manokwari 10.3% -3_.6%

Source: SAR and Consultant's Economic Evaluation Reports.

According to the consultant's Economic Evaluation Report on Sulawesi investments, the EIRRs for Palopoand Gorontalo water supply investments were 6% and 3%, respectively, assuming that people would continue toboil piped water for drinking; if it was assumed that people would no longer boil piped water for drinking, the

EIRRs would increase to 10% and 10%, respectively.

Note that the EIRRs for Palopo and Gorontalo water supply investments in Table 1 above are, as in theSAR, 10.4% and 9.7%, not 6% and 3% as shown in the consultant's Report. It is not clear whether the high EIRRs

are due to the assumption that people would not boil piped water anymore, or due to any modifications that mighthad been made after the consultant's Report.

To prepare the Implementation Completion Report (ICR), the Borrower and the implementationconsultants made efforts to estimate the financial and economic rates of returns for the completed water supplyinvestments. The Bank provided the Borrower and the consultants with detailed comments on their draft economic

and financial evaluation section in the ICR. The fnal reports still contained errors that rendered the resultsunusable. Some major problems are: a. high coverage (a fixed 60% from 1996 to 2020); b. long evaluation period(25 years); and c. PDAMs continue to receive connection fees every year over the 25-year period while no

corresponding connection costs are included and not enough water can be provided from the investments. Evenwith these optimistic assumptions, many FIRRs and EIRRs were only marginal or negative.

While reasonable estimates of the FIRRs and EIRRs are not available for the completed water supplyinvestments, an assessment can nevertheless be made based on a comparison of connections, tariffs, revenues,unaccounted-for-water, and operating costs between appraisal forecasts (which formed the basis of economic and

28financial analyses at appraisal) and completion actual. Such a comparison shows that almost all the PDAMs fellshort on these critical performance indicators; some PDAMs were significantly below the targets. On the basis ofsome sensitivity analyses conducted during appraisal and sample analyses carried out by the Bank at completion, itis reasonable to conclude that the economic and fnancial returns at project completion are significantly below theappraisal estimates as shown in Table 1 above; the EIRRs would be just barely above zero and the FIRRs allnegative.

Urban Roads and Drainage

Due to the large number of small sub-projects, the SAR specified that medium (between Rp 400 millionand Rp 2 billion) and large sub-projects (above Rp. 2 billion) in urban roads, drainage and water supply sectorswould require economic analyses. Economic viability of small sub-projects was presumed, provided that theyfollow the agreed planning and design criteria. Medium sub-projects were subject to a simplified economicanalysis, while large sub-projects had to go through a more detailed analysis.

Another feature of the project is that the project followed a programmatic approach to ensure flexibility insub-project selection. Under this approach, subprojects to be implemented after the first year were not evaluatedduring appraisal; they were supposed to be evaluated during the project implementation period, when these sub-projects were proposed by local governments.

The SAR did not present any estimates of EIRRs for the first year medium and large sub-projects in urbanroads and drainage. The consultant's Economic Evaluation Report contained some brief analyses for the first yearlarge and medium urban roads and drainage sub-projects. The urban road analyses followed the Ministry of PublicWorks "Urban Road Planning and Programming Manual", as recommended by the Bank. Vehicle operation costsavings and user time savings were used as benefits. The drainage analyses used land value increases and roadmaintenance cost savings as benefits.

The consultant's ICR Report shows that some 67 sub-projects in urban roads and drainage were above Rp400 million and implemented between 1992/93 and 1995/96; and there was only one urban road project that wasabove Rp 2 billion, implemented in 1994/95. These medium and large sub-projects totaled about Rp 50 billion incosts, representing about 40% of the total costs in urban roads and drainage sectors under the project. These sub-projects were not subject to any economic evaluation before they were implemented; and there were no traffic andland value data available. The major reasons for not carrying out any required economic analyses were limitedresources on the part of both the Bank (the bank needs to provide guidance on appropriate methodologies) and theBorrower (the Borrower and its implementation consultants need to carry out the analyses) versus the large numberof sub-projects and project towns, and lack of expertise in the implementation agencies.

At the Bank's request, the Borrower and the ICR consultants also attempted to estimate the economicreturns on the completed large and medium urban roads and drainage projects. However, the consultant'sevaluation did not establish a clear linkage between the completed sub-projects and the estimated benefits. Theresults are thus not presented here.

While reasonable estimates of the EIRRs are not available for the completed large and medium urban roadsand drainage sub-projects, an assessment can be made based on traffic flows (increased access and reduced vehicleoperating costs) and land values and enhanced quality of life from drainage improvements. Supervisionconcentrated on least cost analysis and technical merits for road and drainage work.

Other Sectors

Benefits of human and solid waste management and KIP sub-projects were not required to be quantified.No cost-benefit analyses were therefore carried out for them at project appraisal, and cost-benefit analyses are notrequired at project completion, either. Technical evaluation ensure of that these sub-projects represent least costsolutions specific to the local needs and conditions.

29

ICR-Annex ATable 10: Status of Legal Covenants

Original RevisedCovenant Present Fulfillment Fulfillment

Agreement Section type status Date Date Description of Covenant CommentsLoan 2.02 (b) I C Open & Maintain Special Account in Dollars

in BI and operate for LA schedule 63.01 (a) 10 C Carry out project with due diligence with

appropriate administrative, environmental &financial practices & provide necessary fundsand other required resources

3.01 (b) (i) 10 PC Carry out project in accordance with agreed Not fully complied with in relation to PIAPIA's satisfactory to Bank provisions for operations and maintenance

in the project Tk II in Sulawesi, except inKotamadya Ujung Pandang

3.01 (b) 10 C Carry out project in accordance with schedule__ _ _ _ _ (ii) S__ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

3.03 (a) 3,10 C Sign PLA's with participating LocalGovernments on terms agreed with the Bank

l________ m_______ incorporating interest rate of 10.5%.3.04 2 PC Convert BPAM's to PDAM's, prepare action Not been fully complied with in terms of

plan therefor, and adjust tariffs per 4.02 & implementation of tariff increases to fully4.03 (Note: All conversions have been cover operation and maintenance,completed) depreciation and interest. Required tariff

increases have been both delayed andreduced by the Tk II and Tk Igovernments, and the result is that waterenterprise tariff adjustments have taken

l________ ______________________________________ place at three yearly intervals.3.05 9,10 June 1993 October Conduct comprehensive Mid-term Review of Midterm-review conducted in October

1994 program & revise program including 1994.environmental management plans.

3.06 2,5 NC 6/1 annually Review previous year O&M expenditures & Not been complied with either by theensure levels reach 90% of agreed progran at borrower or the participating local

l ________ ________ ________ _______ __________________ m inim um . governm ents.

30

3.07 5,10 PC 7/1/92 Establish Water Enterprise Support Unit in Partially complied with; there are stillIrian Jaya. deficiencies in the non-technical aspects -

finance and economics.4.01 (a) 1,9 C Arrange for Annual audits of all Project

Accounts & provide unified Project auditreport to Bank not later than 9 months afterFY closes.

4.02 (a) C No PDAM debt converge ratio shall be lessthan 1.3 except that of Jayapura PDAMwhich shall be less than 1.5.

4.02 (b) C No PDAM debt shall be more than 70% oftotal capitalization

4.02 (c) (i) C Each BPAM & PDAM shall produce gross Best estimate ( based on informationrevenue not less than the operating expenses received but some PDAM not yet covered)

4.02 (c) (ii) NC Each BPAM and PDAM shall produce grossrevenue not less than the sum of operatingexpenses & deprecation

4.03 Cp (a) Review & adjust BPAM & PDAM tariffsto meet 4.02 A-C and (b) send copy of review

l _______ _______ ________ ______ ________ _________ report to Bank. ___________rpor_t_Bnk4.04 C No Local Government debt coverage ratio

shall be less than 1.5 (excluding routineexpenditures)

C = Covenant complied with Covenant type:CD = Complied with after delay I = Account/AuditsCP = Complied with partially 2 = Financial performance/revenue generation from beneficiariesNC = Not complied with 3 = flow and utilization of project funds

4 = Counterpart funding5 = Management aspects of project or executing agency6 = Enviromnental covenants7 = Involuntary resettlement8 = Indigenous people9 = Monitoring, review, and reporting10 = Project implementation not covered by categories 1-911 = Sectoral or cross-sectoral budgetary or other resource allocation12 - Sectoral or cross-sectoral policy/regulatory/institutional action13 = other

31

ICR-Annex A

Table 11: Compliance with Operation Manual Statements

Statement number and title Description and comment on lack of compliance

None No significant lack of compliance withapplicable Bank manual statements observed

Table 12: Bank Resources: Staff Inputs

Stages of Staff weeks Amountproject cycle Actual US$('000)

Through Appraisal 98.6 318.6

Appraisal-effectiveness 25.3 60.3

Supervision 147.5 318.1

Completion 9.9 22.8

TOTAL/planned/ 281.3 719.8

ICR-Annex A

Table 13: Bank Resources: Missions

Performance ratingtages of project cycle Month/ No. of SW in Specialized staff skills Implementation Develop. Types of problems

Year persons\ field: represented Status ImpactI

Through AppraisalApr. '87 4 n/a FA, WSE, 0, CFeb.'88 6 n/a FA, IS, ME, 0, IS, EcJun.'88 n/a FA, ME, 0, IS, Ec, CMar.'89 n/a FA, IS, Ec, CJul. '90 n/a Ec, E, SE, UP, MENov. 90 n/a Ec, ME, SE, E. (2),

_ _ _ _ _ _ _ __ _UPAppraisal to Board Nov. 6 16 Ec, ME, SE, E(2), UP

'90Supervision (type) _

full Nov.'91 5 8 ME, E, UP, FA, 0 2 1 TA progress slowfull July '92 5 8 ME, E, FA, E, 0 2 1 Sl slow progress with TA mobilization. TOR under preparation.limited Nov. 4 n/a?

'92full July '93 2 18 ME, FA 2 1 Watershed management in Irian Jaya working with mixed results;

IUIDP component in Sulawesi proceeding more slowly.Part One: Mid-term June/Jul. 6 23 ME, 0(2), FA, E, EE S S Part one of the Mid-term Review: Concem over the pace ofReview '94 implementation and quality and sustainability of the physical works;

entire project suffers from lack of adequate supervision andmonitoring, tariff review of Irian Jay water enterprises need attention;

_land fill sites location development at city of BitungPart Two: Mid-term /Dec. 6 23 ME, 0, FA, E, EE S S Attributed implementation problem as lack of adequate supervisionReview '94 and remote dispersal location of project sitesfull Apr. '95 5 24 E, FA, ME, O No 590 in fileimited July '95 3 6 ME, FA, 0 Civil works deficiencies requiring repair in Irian Jaya; PDAMs

mproblems: training in tariff analysis; ownership of PDAM of Jayapura

33

Performance ratingtages of project cycle Month/ No. of SW in Specialized staff skills Implementation Develop. Types of problems

Year personsN field: represented Status Impact

and increase in tariff.limited Nov. 2 6 FA, 0 Need put Wamena system into operation; Irian Jaya PMDU -need for

'95 a qualified financial staff.full May '96 3 10 FA, ME, O S S Ilimited July '96 1 2 FA Re-allocation of loan funds for maintenance of drainage sub-projectslimited July '96 1 0.8 0 Follow up timely completion (December 31, 1996) of Manado

PDAM, Bitung, etc. constructions with attention to SLAParrangements with DP3 of MOF

limited Sept. 1 2 WSE Identified watershed issues in the project area.'96

full/ICR Dec. '96 5 24 ME, 0, FA, E, EE S NR Extensive Review of the status of the projectlimited Apr. '97 1 _ 0 Follow up on the December ICR- Sustainability of project:

construction of steel tank works proceeding satisfactorily; butmaintenance of new facilities need attention.

limited/ICR July '97 3 6 EE, FA, WSE Sustainability of project.

E = Environmental Specialist; Ec = Economist; EE= Environmental Engineer; FA = Financial Specialist; IS = Institutional Specialist; ME = Municipal Engineer; 0 =Operation Officer/Procurement Specialist; SE = Sanitation Engineer; UP = Urban Planner; WSE = Water Supply Engineer

/~~~ ~~~ ~~~ ~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

-35-

Appendix AMission's Aide Memoire

The World Bank 1818 H Street N.W. (202) 477-1234INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Washington, D.C. 20433 Cable Address: INTBAFRADINTERNATIONAL DEVELOPMENT ASSOCLATION U.S.A. Cable Address: INDEVAS

January 13, 1997

Prof. Dr. Herman HaerumanDeputy Chairman for Regional AffairsBAPPENASJI. Taman Suropati 2Bali, Indonesia 80361

Dear Prof. Herman:

Sulawesi Irian Jaya UDP (Ln 3340) - Completion Mission

A World Bank team led by Dan Hoornweg carried out the completion mission forthe above project. Attached is the final aide memoire as endorsed by the Bank.

Although this project has been consistently rated as satisfactory, the mission hadserious concerns with the overall" sustainability" of the investments. This is mainly dueto numerous instances of poor construction quality, very inadequate efforts in operationsand maintenance, a lack of a " municipal management" focus, and continued institutionalweaknesses which are at the root of these problems.

The project has been extended by six months (now due to close 30 June, 1997) tocomplete some still ongoing contracts, address some immediate deficiencies, and ensureadequate commissioning of larger civil works, e.g. Jayapura water pipeline and Manadowater treatment Plant. Hopefully, some of the institutional weaknesses and O&Mdeficiencies can also be addressed during this time to the extent possible within the verylimited time frame.

We have tried to ensure that the lessons learned from SIJUDP are directly appliedto the second Sulawesi UDP. Your comments at negotiations, stressing the need fortechnical assistance based on " hands on" assistance and management help at the localgovernment level, are extremely relevant. This, and a change away from a " projectmentality" towards overall urban management, seem to be the most relevant lessonscoming out of this completion mission.

We are still awaiting documentation from DG Cipta Karya (GOI's owncompletion reports for the two separate components) before we can complete our

-36-

Implementation Completion Report. We anticipate receiving this by 15 March, 1997. Wewould then have the Bank's Completion Report prepared shortly after loan closing.

We are pleased to see significant progress with the watershed protection programsin Irian Jaya. I would particularly like to thank the Governor Drs. Jacob Pattipi for hispersonal interest in the one workshop held during the mission. His agreement to passanother SK strengthen the watershed protection committees through more clearly definedbudgets and meeting schedules should be very helpful.

An important issue arose during the supervision mission. Kotamadya Manado haswithdrawn funds from the Special Account in excess of the agreed in the July 1996 noobjection letter. We require that these funds be reimbursed immediately.

We plan to send a small supervision team to Irian Jaya in March to reviewprogress with completion action plans in Jayapura, Sorong, Biak and Sorong, and afurther mission, perhaps in conjunction with the Second Sulawesi UDP start-up activities,towards project completion.

With best wishes,

Sincerely yours,

(signed)

Anupam KhannaChief, Infrastructure Operations

Country Department IIIEast Asia & Pacific Region

cc: Dr. Ir. Manuwoto, Chairman TKPPDr. Ir. Bambang Panudju, Executive Secretary, TKPPDr. Ir. Sujana Royat, Kepala, Biro P4R, BAPPENASIr. Rachmadi B. Sumadhijo, Director General, Cipta Karya (MPW)Ir. Asrap Hadiroso, Director, Easter Region Development, DGCKIr. Djoko Kirmanto, Director, Bina Program, DGCKPPMO/PPMU/PMOs/PMUs/CPMO and Advisory Consultants

-37-

EXECUTIVE SUMMARY

* This project is an amalgamation of two projects.* Bank ICR mission, accompanied by some Pusat (DGCK) staff, visited Irian Jaya and

four Sulawesi provinces (13 out of 17 project towns) and met with provincial andlocal government officials to review completed works and obtain their views.

* Physical implementation of project was completed within the original closing datewith only minor exceptions, and largely within the original scope.

* Testing, commissioning and "handling over" are still outstanding on several sub-projects.

* Technical assistance was also completed on time except on one still ongoing study.* Limited extension of the loan closing date has been requested by GOI, and a 6-month

extension to permit completion of the unfinished contracts has been granted.* Extension would also allow time (and possibly funds) to remedy some serious

deficiencies, such as Jayapura transmission pipelines, Sorong WTP, action plans forwaste disposal sites in Sulawesi.

* Disbursements are at about 90 %, and the project is expected to be completelydisbursed.

* Borrower's draft ICR has been received for Irian Jaya Water Supply component, butnot yet for the Sulawesi IUIDP component.

* Borrower's views at the local (Tk II) and Provincial level were articulate, perceptiveand generally very positive, such as provision of additional funding, greatercleanliness of most towns, better planning and programming capabilities.

* Preliminary Borrower views from the Pusat level were also largely positive, althoughconcerns with "sustainability" were raised.

* Mission's views of the implementation performance are not as positive at all,especially because of doubts about the sustainability of the investments.

* Main concerns of mission are the poor quality of the significant portions of thephysical investments, lack of O&M funding and execution, and persistent institutionalweaknesses.

* Lessons from this project's implementation performance have been largelyincorporated into the design of the Second Sulawesi UDP (and may also be applicableto other proposed water and sanitation investments in Eastern Indonesia)

* In terms of the original project objectives:* the provision of the urban infrastructure has been achieved, albeit with serious

quality problems* better planning and programming has been achieved, but institutional

weaknesses persist and O&M funding and execution were woefullyinadequate.

* Local government revenue generation and cost recovery have improved substantially,but sound financial management, in particular, is less evident watershed managementin Irian Jaya is startling to work in some local governments.

-38-

* The project highlights the need for local Governments to move away from a "projectmentality towards overall urban management.

* The Special Account needs to be replenished due to serious over drawing in respect ofKotamadya Manado.

-39-

Appendix BBORROWER'S CONTRIBUTION TO THE ICR

SULAWESI IUIDP SUB-PROJECT

THE IMPLEMENTATION PROJECT REPORT OF INDONESIA

Preface

This report reviews the implementation experience of the Sulawesi and Irian Jaya UrbanDevelopment project (SIJUDP) in Indonesia. This project involved a loan for US$100million, which was agreed on August 8, 1991 and became effective in November 1991.

Initially Loan closing was extended from December 31, 1996 to June 30, 1997, due toadministrative needs and technical concerns.

The funding of the project was also aided by Japan, which provided funding in theamount of Y103.6 million, or about US $740.000, to fund the technical assistant duringproject preparation.

The material used to prepare this report is SAR, Loan Agreement, P3KT Study, CPMOreport, Aides Memoirs, and data from regional governments.

The implementation report of the SIJUDP project consists of two parts, namely:

Part I: Project Goals, Results Achieved, Problems Faced, and so on.Part II: Physical Development; Implementation, Problems, and Efforts to Remedy.

-40-

EXECUTIVE SUMMARY

INTRODUCTION

Urban population growth in Sulawesi and Irian Jaya Provinces for the future 5-10 years isassumed to create a gap between Service need and Service capability. Such a gap isgetting far if it is not anticipated earlier, particularly the condition of those urbaninfrastructures will be declining seriously.

The SIJUDP Project was intended to overcome those gaps, but due to fund constraintsfaced by GOI, the development was implemented gradually over the five budgetary Yearsand IBRD Loan was required as a supporting fund.

CHAPTER 1

PROJECT OBJECTIVES

General objectives of SIJUDP (according to SAR) are:a) To provide urban infrastructures properly.b) To improve capability of local government to prepare its development program

and financial plan.c) To improve financial management of Local Government.

The project was directed for some fast growing cities in Sulawesi Province, such asUjung Pandang, Pare-Pare, bone, Palopo, Kendari, Palu, Manado, Gorontalo and Bitung,while development sectors being prioritized were KIP, Solid Waste, Sanitation, Market,Urban Roads, Water Supply and Drainage. For some cities in Irian Jaya Province theproject was focused on water supply only in Jayapura, Sorong, Serui, Nabire, Fak Fak,Wamena, Monokawari and Biak.

The project objective was to realize National Development strategy and IBRD strategythat emphasizes improvement of services, improvement of local government financingcapability and reservation of living environment. Success or failure to achieve theobjective depend on various factors that need to be fulfilled by the Government, i.e.:

1. Provision fund for development.2. Provision fund for operation and maintenance.3. Institutional management and development.4. Community participation.

44

CHAPT'ER 2

Implementation of SIJUDP projects was the first experience for all cities, except forUjung Pandang, however the overall result was satisfactorily achieved. The projects werein good settlement and reach objectives, e.g. to improve services to community and toimprove local revenue generation. However, its sustainability will depend on availabilityof fund for maintenance and community's attitude to have "sense of belonging" of thedevelopment result.

Failure and difficulties that have been faced are very valuable to be examined that suchfailures wan't be repeated and efforts done to handle the difficulties can be reviewed forthe implementation of the similar projects in the future.

a. Constrains in the project administration are:- Delay of disbursement procedure, mainly the SLAP mechanism, etc.

b. Problems in field implementation:- Difficulty in finding the right Final Disposal Sites (Solid Waste Component)- Silting up of the drains

c. Problems concerning the project institution are:- Lack of skilled staffs- Lack of good coordination among the agencies involved in the project

Summary of planned project expenditure and its actual expenditure up into March 1997 ispresented in Table RI

-42-Table RI.: Summary of DIP Fund Allocation and Realization of Project Cost Payment SIJUDP

No. GOI IBRD EQ USD 000(RP MILL) (RP MILL)

1. SAR ALLOCATION- Physical Project 95,900.00 156,600.00 84,820.00-Technical Assistance 10,200.00 27,931.20 15,180.00_____________________ 106,100.00 184,531.20 100,000.00

2 DIP ALLOCATION- Physical Project 130,469.75 185,348.85 84,020.33- Technical Assistance 10,200.00 37,051.00 16,771.39

140,669.75 222,399.85 100,791.723 CONTRACTED

- Physical Project 118,336.94 183,039.99 83,012.25- Technical Assistance 37.051.71 16,,771,3

118,336.94 215,987.05 98.783.644 PAYMENT MADE

- Physical Project 117,785.49 173,827.43 82,982.92- Technical Assistance 32,639.64 14,802.56

117,785.49 206,467.07 97.785.48

DISBURSEMENT- Physical Project - 167,090.92 78,833.30- Technical Assistance 23,651.32 14,802.56TOTAL 190,742.24 93,635.86

-43-

Overall picture of financial position of SIJUDP - Project for each city as follows:Table R2: Summary of DIP Fund Allocation and Project cost Realization as per cities in Sulawesi and Irian Jaya

No. City Fund SAR Allocation DIP Fund Contracted Payment DisbursementSource Rp Mill) Allocation (Rp Mill) Made (Rp Mill) (USD 000)

(RP Mill)

1 Ujung Pandang IBRD 37,000.00 43,742.73 43,302.85 43,302.85 16,831.38

GOI 26,700.00 29,312.44 27,187.68 27.175.68

63,700.00 73,055.17 70,490.53 70,478.53 16,831.38

2 Pare-Pare IBRD 3,700.00 3,964.36 3,942.32 3,942,32 1,887,70

GOI 2,100.00 10,198.48 8,954.28 8.954.28

5,800.00 14,162.84 12,896.60 12,896.60 1,887.70

3 Bone IBRD 8,000.00 9,323.37 9,242.00 9,242.00 4.145.92

GOI 5,700.00 9,619.18 7,457.03 7,457.03

13,700.00 18,942.55 16,699.03 16,699.03 4,145.92

4 Palopo IBRD 7,100.00 8,218.81 8,042.51 8,004.04 3,656.96

GOI 5,700.00 10,505.50 9,036.77 8,608.62

12,800.00 18,724.31 17,079.28 16,612.66 3,656.96

5 Palu IBRD 16,000.00 14,291.25 14,095.03 14,077.84 5,149.71

GOI 8,600.00 6,830.72 6,286.75 6,255.951

24,600.00 21,121.97 20,381.78 20,333.79 5,149.71

6 Kendari IBRD 4,200.00 5,314.87 4,940.67 4,940.67 2,322.49

GOI 3,600.00 19,091.37 17,562.79 17,562.70

7,800.00 24,406.24 22,503.46 22,503.37 2.322.49

7 Manado IBRD 24,100.00 30,244.51 29,518.59 29,513.12 10,540.67

GOI 18,500.00 24,547.24 21,184.59 21,178.09

42,600.00 54,791.75 50,703.18 50,691.21 10,540.67

8 Gorontalo IBRD 12,300.00 12,194.08 12,022.17 12,020.78 5,214.67

GOI 8,100.00 8,469.59 8,337.91 8,237.00

20,400.00 20,663.67 20,360.08 20,257.78 5,214.67

9 Shtung IBRD 5,800.00 9,489.53 9,368.36 9,368.37 2,718.79

GOI 3,700.00 2,555.23 2,505.38 2,505.38 2,718.79

9,500.00 12,044.76 11,873.74 11,873.75

Total for Sulawesi IBRD 118,200.00 136,783.51 134,474.50 134,412.00 52,468.29

II GOI 82,700.00 121,129.75 108,513.181 107,934.73 0.00

-44-

......A.octio A.. aio. .. l) ae(R UE)0*

1 . Jayapura IBRD 14,700.00 20,302.42 20,302.42 20,302.42 10,737.740OI 5,700.00 3,761.31 3,761.31 3,761.31 ______

20,400.00 24,063.73 24,063.73 24,063.73 10,737.74

2. Sarong FBRD 7,000.00 12,057.69 12,057.69 12,057.69 6,549.62GOI 2,200.00 2,326.53 2,326.53 2,326.53

9,200.00 14,384.22 14,384.22 14,384.22 6,549.62

3. Fak-Fak IBRD 1,200.00 1,471.77 1,471.77 1,471.77 853.29GOI 400.00 353.27 353.27} 353.27

1,600.00 1,825.04 1,825.04 1,825.04 853.29

4. Nabire IBRD 2,400.00 2,408.52 2,408.52 2,408.52 1,384.92GOI 800.00 578.50 578.50 578.50

3,200.00 2,987.02 2,987.02 2,987.02 1,384.92

5. Manokwari IBRD 4,600.00 5,306.33 5,306.33 5,306.33 2,908.10. ~~~~GOT 1,500.00 1,126.11 1,126.11 1,126.11

6,100.00 6,432.44 6,432.44 6,432.44 2,908.10

6. Biak IBRD 4,000.00 4,416.03 4,416.03 4,416.03 2,459.12

GOI 1 ,400.00 1 ,033.17 1,033.17 1,033.17 _______

5,400.00 5,449.20 5,449.20 5,449.20 2,459.12

7. Serui IBRD 2,000.00 1,003.01 1,003.01 1,003.01 576.67GOT 600.00 231.87 231.87 231.87

2,600.00 1,234.88 1,234.88 1,234.88 576.67

8. Wamena IBRD 2,500.00 1,599.57 1,599.57 1,599.57 895.55GOT 600.00 413.00 413.00 413.00

_______________________ 3,100.00 2,012.57 2,012.57 2,012.57 895.55

Total for Irian Jaya IBRD 38,400.00 48,565.34 48,565.34 48,565.34 26,365.01GOT 13,200.00 9,823.76 9,823.76 9,823.76 _______

Total Sulawesi + Irian Jaya IBRD 156,600.00 185,348.85 183.039.84 182.977.34 78,833.30GOT 95,900.00 130,953.51 118,336.94 117,758.49 ______

TA IBRD 27,931.20 37,051.0C0 37,051.00 33,009.71 14,802.56GOT 10,200.00.

______________________ _______ 38,131.20 37,051.00 37,051.00 33,009.71 14,802.56

TOTAL TIBRD 184,531.20 222,399.85 |220,090.84 215,987.05 93,635.86GOI 106,100.00 130,953.51 118,336.94 117,758.49S______

(Data Source: CPMO)

Up to March 31, 1997, physical progress for was 100% and 98% for Sulawesi and irian Jayarespctively.Overall disbursement was US$93,6 million ot of US$100 milion. Most of the indisbursed fundcame for the SLAP category, since there was some fund had not been accounted for byPemda/PDAM (in Sulawesi) and in process of replenishment by Ministry of Finance to the Bank.

-45-

THE KEY OF PROJECT SUCCESS

Success of project is mainly supported by a high responsibility and hard working performed bylocal government officials to realise a renewal in their region. The responsibility was encouragedparticularly with a strong willingness to be awarded with Adipura, a symbol of city cleanliness.

BANK PERFORMANCE

Performance demonstrated by Bank in project identification, project approach, appraisal reportand project implementation supervision was very good and produced documents were veryimportant for project references.

LOCAL GOVERNMENT/BORROWER PERFORMANCE

Generally performance demonstrated by Local Government as borrower from the phase ofpreparation of project organisation of SIJUDP, to the implementation of project and operation offinished project was good and smooth.Some items need to be highlighted are:- The quality of staff assigned in the SIJUDP projects- Provision of bigger amount of fund for maintenance

PROJECT RESULTS

The SIJUDP project was considered satisfactorily complete and that project objectives were fullyachieved, however, some matters need to be examined more careful, i.e.:- To improve maintenance intensity to urban infrasructure- To improve operation of Final Disposal and Human Waste Treatment Facility.

All programs, planned to be financed with the loan and GOI counterpart fund, included in theProject Memorandum had been implemented, and some additional programs financed with"Loan Savings" were also implemented, therefore the physical achievement.

The additional programs were aimed to optimizing the built system and technical assistance i.e.drainage programs in Ujung Pandang, drainage and urban roads programs in Manado, watersupply systm in Irian Jaya, technical assistance for Sulawesi II UDP preparation, technicalassistance for water supply in Irian Jaya and technical assistance for the prearation of SIJ-UDPProject Implementation Completion Report.

With the commisioning of new project components in each town, physical benefits with thepotential to enhance financial and economic benefits become abvious, key advantages were:(i). Increased system capacities enable PDAM's to proced with the installation of consumerservice connections resulting in increased income.(ii). Improved rehability of supply supported by the dissemination of project information washad an effect on consumer confidence.

46-(iii). Provision of increased water storage capacity in all towns has improved systemrealiability and water qualit.(iv). Increased system capacity have allowed the PDAM's to increase consumer coverage toinclude housing estates and liglot industry.

PROJECT OPERATION

The built urban facilities was handed over to the apointed units to be operated and maintenancedin accordance wit Mayor or Bupati's decree. The facilities were expected to give more benefitsto the community and live longer.To achieve these goals, Pemda is encourage to:- implement the PDAMs- implement RIAP and LIDAP

OPERATION OF URBAN FACILITIES

The newly completed urban facilities ex SIJUDP project have been in operation and under thesupervision of the respective unit, i.e. Public Works Agency, Cleaning Agency, Market Agencyetc.From the commercial point of view, its Retribution collected still unable to cover its routineexpenditures, due to the fact that the existence of the units are not profit - making - body.Maintenance of urban facilities seemed to be unhandled properly, due to a limited fund.

LESSON LEARNED

1 . Project DelayThe original plan of SIJUDP implementation took place in November 1991, but it wasdelayed until June 1992 due to some reasons.- Preparation to start up the project i.e. : establishment of project organisation,administrative software, project supporting fund etc., have not been settled properly.- Assignment of Consultants was made few months after loan effectiveness

2. Project OrganizationFunction of PMU, MPO and PFO were handicapped by their structural function in theLocal Government.

3. Project DesignSome project design created by the Consultant were not suitable with the field condition.

4. Final Disposal Site (FDS)It was difficult to search location for FDS which meets the rquisite:- not too close with housing complex- not too close with water sources- access road to FDS is not too steep

-47-5. Retribution Tariff

Tariff for retribution can not be revised too frequent (2-3 years) to avoid socialgrievances.

6. Medium Development Program (MDP-PJM)MDP have to be revised every year to accommodate the rising development demand inthe region.

7. Procurement preparation, planning and logistics become a very improtant administrativecomponent during the early stages of the project. An even higher priority would havebeen advantageous.

8. Lead time for procurement and construction contracts formalities require specialconsideration in outlying provinces.

9. The stardard of local contractors in most project towns was not good compared tocontractors in Java, but still acceptable and require more diligence on the part ofimplementation outhorities supervisory staff. Non-compliance with technicalspecifications was common, and a firm punitive approach needs to be applied from thebeginning of each contracts. Contractors management must assume a higher degree ofon-site responsibility.

FINANCIAL PERFORMANCE OF LOCAL GOVERNMENTS

Financial performance for mine cities in Slawesi for the last five years is considered good forsome reasons.

- Average Growth rate of Local Revenue and Property Tax was higher than SAR Projection, asexample. For Bitung below:

-48-

............. .-..................... R p m illion

c X aii1/9 92/3 939 94/9KS5Y 9s9 ,Grow*b-

LocalRevenueSAR 594 69763 786 819 9%RIAP 786 874 969 1635 2015 29%ACTUAL 702 823 1215 1507 1606 24%

Property TaxSAR 356 427: 573 615 738 20%RIAP 399 441 512 632 686 15%ACTUAL 399 441 622 1375 1372 43%Please refer to table II-2 page 121

CHAPTER 3

This chapter assessed a broad picture of nine cities regarding the situation of Urban Facilitiesbefore and after the SIJUDP Project.

Bitung is taken for example:

SOLID WASTEKodya Bitung

- _ore ; i e-- -(1990)- (196

District 1 4Population 35.000 104.600Production 90 m3 270 m3Transferred 36 m3 150 m3

% ~~~~~~~40% 56%Truck 1 unit 1 unitDump Truck 1 unit liunitCart 10 18 unitTemporary Disposal Site (1 m3) 1 4 unitTransfer Depo 1 unitContainer 16 unitTrailer 8 unitLoader __ _ _ lunit

-49-CHAPTER 4

This chapter assessed the difference of development program between PIA, Projectmemorandum against DIP.

Bitung is taken for example:

No. Sei~~t~w FUND ALOC E.... -..,,,-'' ' -' :":''' .... W T ..... .. , ., ... . ....... .. ...... -...' -. ' ' .' .. '',',.:."'' '"','.''' '.""" "': ': ~~~. ..... ..... .. .. .....:

1 Water Supply 1.984,0 1.318,76 1.318,762 Drainage 1.882,0 7.968,76 9.987,533 Solid Waste 243,0 487,83 222,04 Sanitation 154,0 87,99 87,995 Urban Road 2.065,0 2.230.27 1.917,736 KIP 758,0 965.78 492,757 MIIP V

8 O&M 1.878,0 577,56 18,0TOTAL 8.964,0 13.636,95 12.044,76

Please refer to table IV-8 page 153-170

CHAPTER 5

Chapter 5 of this report deals with the economical analysis for urban roads and drainagecomponents. The "Economical Internal Rate of Return" of EIRR for packages amounting to ormore than Rp 400 million was applid for urban roads and drainage components and for watersupply componen the Financial Internal Rate of Return" of FIRR was applied.According to the calculation, the average EIRR for Urban Roads and Drainage was below 1%,but for Water Supply component of four PDAMs in Sulawesi FIRR was 9,31%.Average FIRR for Water Supply component in Irian Jaya was 11,78%.

CHAPTER 6

Chapter 6 discribes the suggestion and recommendation for the implementation of SIJUDPspecially in Sulawesi.

(as submitted)

-50-

PROJECT IMPLEMENTATION COMPLETION REPORTIRIAN JAYA WATER SUPPLY SUB PROJECT

LOAN 3340-IND

SUMMARYIntroduction

The Irian Jaya Water Supply Sub-project was unusual in that it extended over a period of thirteenyears from conception to completion. There was a two year break between the completion ofdetailed design and the implementation loan becoming effective.

Although this report essentially covers the Irian Jaya Sub-project, mention is made of theSulawesi Urban Development Project to illustrate the complexities of the loan arrangements andparticipants during the early stages.

The Project covered eight Kabupaten capital cities and towns throughout the province of IrianJaya, with a total appraisal estimated service coverage of 295,000 people. At the end of 1995when the last reliable figures were available, 66% of this target has been achieved. However, it ispossible that the appraisal targets will be met at completion of the project or soon after. duringthe 1996/97 fiscal year. This prediction is based on the fact that the majority of customer serviceconnections are scheduled for installation during 1996.

Project Design

Project objectives were not over ambitious and addressed the immediate and future augmentationneeds for all town supplies.

Generally, the design preparations were adequate in ensuring that project implementationproceeded without any serious difficulties. The usual problems associated with projects of thistype in remote areas were to be expected. Apart from the need to provide additional drawings anddetails to supplement small contracts, the project design was good.

Problems associated with the installation of equipment and erection of structures, were not somuch the result of design inadequacies as unfamiliarity with these particular items.

Project Appraisal

With regard to project, focus on the ultimate objectives remained unchanged, butorganizationally, the project became a sub-project of the Sulawesi Irian Jaya UrbanDevelopment Project. In some respects, especially from the management point of view, thisdivision was an advantage as the project was not too large. it involved into a specialized watersupply project.

Project Implementation

-51-

A sound working relationship developed between World Bank and GOI implantation agencies inboth areas of the support and supervision. The timing and number of supervision missions wassatisfactory and specialist support inputs were valuable and appreciated.

Implementing agencies complaints with regard to procurements delays may have been to someextent the result of inexperience in the World Bank procedures.The standard of construction improved as the project advanced due to progressive upgrading ofthe standard and intensity of site supervision, and the efforts of the specialists advice andtraining.

Project Results

With the commissioning of the new project components in each town, physical benefits with thepotential to enhance financial and economic benefits became obvious. Key advantages were:

(i) increased system capacities enabled PDAM's to proceed with the installation of theconsumer service connections resulting in increased income.

(ii) improved reliability of supply supported by the dissemination of project information hashad an effect on consumer confidence.

(iii) provision of increased water storage capacity in all towns has improved system reliabilityand water quality.

(iv) increased systems capacity have allowed the PDAMs to increase consumer coverage toinclude housing estates and light industry.

Key Lessons Learned - -

Were generally the results of the isolated nature of the project-

(i) procurement preparations, planning and logistics became a very important administrativecomponent during the early stages of the project. An even higher priority would have beenadvantageous.

(ii) lead times for procurement and construction contracts formalities require specialconsideration in outlying Provinces.

(iii) the standard of local contractors in most project towns was not good comparedcontractors in Java but still acceptable and required more diligence on the part ofimplementation authorities supervisory staff. Non-compliance with technical specialization wascommon, and a firm punitive approach needs to be applied from the beginning of each contract.Contractors management most assume a higher degree of on-site responsibility

-52-(iv) the use of decentralized type of project management with on-site PMU and PIU unitsproved to be successful. Minimal central control allowed the decision making process to be fasterand move effective.

(as submitted)

-53-

Appendix C: Map IBRD No.

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