Bogor and Palembang Urban Development Project in Indonesia (Loan 1111-InO)

7/31/2019 Bogor and Palembang Urban Development Project in Indonesia (Loan 1111-InO)

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ASIAN DEVELOPMENT BANK PPA: INO 24233Operations Evaluation Department (Final)

PROJECT PERFORMANCE AUDIT REPORT

ON THE

BOGOR AND PALEMBANG URBAN DEVELOPMENT PROJECT(Loan 1111-INO)

IN

INDONESIA

July 2004


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CURRENCY EQUIVALENTSCurrency Unit rupiah (Rp)

At Appraisal At Project Completion At Operations Evaluation(August 1991) (August 2000) (November 2003)

Rp1.00 = $0.000509424 $0.000120555 $0.000117405$1.00 = Rp1,963 Rp8,295 Rp8,518

ABBREVIATIONSADB Asian Development BankBAPPEDA Regional Development Planning Agency

(either provincial [level I] or local [level II])BAPPENAS Badan Perencanan Pembangunan Nasional

(National Development Planning Agency)BME benefit monitoring and evaluationDGHS Directorate General of Human SettlementsDK Dinas Kebersihan (Cleansing Department)EIRR economic internal rate of returnEOCC economic opportunity cost of capitalFIRR financial internal rate of return

IUIDP Integrated Urban Infrastructure Development ProgramKfW Kreditanstalt fr WiederaufbauKIP Kampung Improvement ProgramLIDAP Local Institutional Development Action PlanMCK mandi-cuci-kakus (bathing-washing-toilet)MIIP Market Infrastructure Improvement ProgramMOHA Ministry of Home AffairsMPW Ministry of Public WorksO&M operation and maintenanceOEM Operations Evaluation MissionPADS Local Government Revenue

PCR

project completion reportPDAM Perusahaan Daerah Air Minum (local water enterprise)PIU project implementation unitPMU project monitoring unitRETA regional technical assistanceRIAP Revenue Improvement Action PlanTA technical assistanceSLF sanitary landfillSWM solid waste managementUDP urban development projectUFW unaccounted-for-waterVOC vehicle operating cost

WACC weighted average cost of capitalWTP water treatment plan

NOTES(i) Throughout project implementation, the fiscal year (FY) of the Government

ended on 31 March. Starting FY2000, the new FY ends on 31 December.(ii) In this report, $ refers to US dollars.


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WEIGHTS AND MEASURES

ha hectarekm kilometerlps liter per second

GLOSSARY

Dinas Service departments within provincial or district(kotaandkabupaten) administrations

Kabupaten Regency, district, administrative subdivision of aprovince, predominantly rural in character

Kampung Densely populated, unplanned urbanneighborhood

Kecamatan SubdistrictKota Municipality, district, administrative subdivision of

a province, predominantly urban

Director General, Operations Evaluation Department : Eisuke SuzukiDirector, Operations Evaluation Division 2 : David EdwardsEvaluation Team Leader : Anjum Ibrahim

Operations Evaluation Department, PE-644


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CONTENTS

Page

BASIC DATA iii

EXECUTIVE SUMMARY v

MAP ix

I. BACKGROUND 1

A. Introduction 1B. Formulation 1C. Purpose and Output 2D. Cost, Financing, and Implementation Arrangements 2E. Completion and Self-Evaluation 3F. Operations Evaluation 3

II. PLANNING AND IMPLEMENTATION PERFORMANCE 4

A. Formulation and Design 4B. Achievement of Outputs 4C. Cost and Scheduling 5D. Consultant Performance, Procurement, and Construction 6E. Organization and Management 7

III. ACHIEVEMENT OF PROJECT PURPOSE 7

A. Operational Performance 7

B. Performance of the Operating Entity 10C. Financial and Economic Reevaluation 12D. Sustainability 13

IV. ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS 14

A. Socioeconomic Impact 14B. Environmental Impact 15C. Impact on Institutions and Policy 16

A. Ibrahim, Evaluation Specialist (Team Leader), was responsible for the preparation of thisreport, and conducted document reviews, key informant interviews, and guided the fieldworkundertaken by the consultant Royston Brockman.


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V. OVERALL ASSESSMENT 17

A. Relevance 17B. Efficacy 17C. Efficiency 17D. Sustainability 17

E. Institutional Development and Other Impacts 17F. Overall Project Rating 18G. Assessment of ADB and Borrower Performance 18

VI. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS 18

A. Key Issues for the Future 18B. Lessons Identified 19C. Follow-Up Actions 19

APPENDIXES

1. Structure of Government 202. Financing Plan 213. Organizational Arrangement for Project Implementation 224. Status of Completion of Project Components 235. Breakdown of Project Cost 296. Implementation Schedule 317. Financial Performance of Local Governments 348. Financial Performance of PDAMs 399. Economic Analysis 4510. Financial Analysis 4911. Socioeconomic Indicators 5112. Beneficiary Survey: Project Socioeconomic and Environmental Impacts 52

SUPPLEMENTARY APPENDIXES (available upon request)

A. Revenues and Expenditures of Kota Bogor (current and constant prices)B. Revenues and Expenditures of Kabupaten Bogor (current and constant prices)C. Revenues and Expenditures of Kota Palembang (current and constant prices)


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BASIC DATALoan 1111-INO: Bogor and Palembang Urban Development Project

Project Preparation/Institution BuildingA No. TA Name Type Person-

Months

Amount

($000)Approval

Date

1588-INO Urban Transportation Planning andManagement1 ADTA 51 596 31 Oct 1991

As per ADBKey Project Data ($ million) Loan Documents ActualTotal Project Cost 234.7 178.9Foreign Exchange Cost 82.6 86.6Local Currency Cost 152.1 92.3ADB Loan Amount/Utilization 140.0 126.5ADB Loan Amount/Cancellation 13.5

Key Dates Expected Actual

Fact-Finding 12 Feb5 Mar 1991Appraisal 26 Jun13 Jul 1991Loan Negotiations 2627 Sep 1991Board Approval 31 Oct 1991Loan Agreement 22 May 1992Loan Effectiveness 20 Aug 1992 7 Jul 1992First Disbursement 22 Oct 1992Project Completion 1 Sep 1997 30 Sep 1999Loan Closing 30 Sep 1997 7 Apr 2000Months (effectiveness to completion) 60 87

Economic Internal Bogor Palembang

Rate of Return (%) Appraisal PCR PPAR Appraisal PCR PPARFlood Control and Drainage 24.2 37.8 29.7 32.3 34.3 12.9Kampung Improvement 41.6 63.5 41.2 66.4 53.4 12.1

New Urban Roads 14.8 14.1 21.5 18.1 Road Improvements 62.9 38.0 32.6 26.6

Financial Internal Kotamadya Bogor Kabupaten Bogor

Rate of Return2

(%) Appraisal PCR PPAR Appraisal PCR PPAR

Water Supply 8.5 11.6 6.0 10.8 18.5 8.7Solid Waste 15.6 8.1 7.2 7.8 Waste Water and Sanitation

On-siteKota and Kabupaten2 26.4 13.9

Off-siteKota and Kabupaten3 2.9

Kotamadya PalembangAppraisal PCR PPAR

Water Supply 8.9 5.2 1.9Solid Waste 5.4 7.7 Wastewater and Sanitation

On-sitePalembang2 24.4 8.6

Off-sitePalembang3 9.7

= not calculated, ADB = Asian Development Bank, ADTA = advisory technical assistance, PCR = projectcompletion report, PPAR = project performance audit report, TA = technical assistance.1 Attached to Loan 1111-INO.2

On-site septic tank desludging.3

Off-site sewerage system.


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Borrower Republic of Indonesia

Executing Agency Directorate General of Urban and Rural Development in the Ministry ofSettlements and Regional Development

4(formerly Directorate General of

Human Settlements in the Ministry of Public Works)

Mission DataType of Mission No. of Missions No. of Person-Days

Fact-Finding 1 Appraisal 1 70Project Administration 12 276

Review5

10 204Midterm Review 1 42Project Completion 1 30

Operations Evaluation

1 36

= not available.4 Since 23 August 2000, Cabinet reshuffle the Ministry of Settlements and Regional Infrastructure.5

Includes one special project implementation review for 4 person-days, undertaken in conjunction with Loan 1069-INO: Second IKK Water Supply Project.


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EXECUTIVE SUMMARY

In Indonesia, increasing rural-urban migration has placed considerable demands on thenational and local governments to provide adequate infrastructure and basic services to a growingnumber of the urban poor. Bogor and Palembang Urban Development Project aimed to provideand rehabilitate urban infrastructure and services in Kotamadya Bogor, Kabupaten Bogor, and

Kotamadya Palembang, thereby minimizing the impediments to increasing productivity andeconomic expansion.

The Project selected components from the Governments Integrated Urban InfrastructureDevelopment Program and was consistent with the Fourth 5-Year Plan (1985/861989/90). It alsosupported the Asian Development Banks (ADBs) operational strategy for Indonesia in 1989,which emphasized the need to upgrade facilities, including physical infrastructure, in line with theexpected growth of the urban population. While the Project was ADBs 10th intervention in theurban development sector, it was the first in the three project local government areas.

At approval, the total ADB funding was estimated at $140 million covering $74.3 millionof the foreign exchange requirement and local currency costs of $65.7 million. Actual ADB

disbursements amounted to $126.5 million covering foreign exchange cost of $82.4 million andlocal currency component of $44.1 million. This reflected an increase of 10.9% in ADBsfinancing of foreign exchange costs and a decline of 33% in local currency costs in comparisonto appraisal estimates. The rise in foreign exchange costs was attributed to an increase in thecosts of civil works and the extension of consulting services, while the decline in local currencycosts in dollar terms was due to the devaluation of the rupiah. Counterpart funding wasestimated at $80 million at appraisal, while actual funding amounted to $45.1 milliona declineof 44% attributable to the economic fallout of the Asian financial crisis. Inadequate counterpartfunding resulted in the cancellation of $1.9 million in July 1998 as part of ADBs portfoliorestructuring response to the Governments budget difficulties. A further cancellation of$11.6 million was made in April 2000.

The ADB loan approved on 31 October 1991 became effective on 7 July 1992, with anoriginal closing date scheduled for 30 September 1997, which was extended three times by atotal of about 2 years and 6 monthsup to 7 April 2000. The delays were due to start-upproblems related to (i) late recruitment of consultants attributed to procedural bottlenecks,(ii) difficulties in land acquisition because of the inadequate budgeting of resources by localgovernments to cover increased costs stemming from actual market values that were higherthan government valuations of land, and (iii) late provision of counterpart funding.

The beneficiary recall assessment used to evaluate the Project showed that the civilworks were strategic interventions, which minimized impediments to increasing productivity andeconomic expansion through the provision of improved infrastructurethe principal objective ofthe Project. The local water enterprises, Perusahaan Daerah Air Minum (PDAMs) were

responsible for carrying out operation and maintenance (O&M) of water supply systemsprovided under the Project. The improving performance of the participating PDAMs augurs wellfor sustainability of the water supply component; however, it is conditional on further regulartariff increases at or above the rate of inflation. The major impediment to this remains with thepolitical leadership, which is unwilling to allow the PDAMs to set economic tariff rates onperceived grounds that many consumers, particularly the poor, will be unable to afford them.Local governments (level II) were covenanted to undertake the O&M of drainage, solid wastemanagement (SWM), urban roads, Kampung Improvement Program (KIP) facilities, and


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sanitation. Revenues from solid waste collections and septic tank desludging fees were muchlower than the costs of providing the services and are heavily subsidized.

The institutional development plan was realized to the extent that organizationalchanges were introduced within PDAMs, particularly in giving more importance to meter readingand the billing and collection functions; management information systems were established; and

job descriptions were prepared and personnel appraisal systems introduced. Training wasundertaken as planned in regional and urban planning, city planning, environment sanitation,housing, building regulations, fiscal planning, budgeting, revenue collection, informationsystems, and public relations. Training was also provided for waste collection procedures,computerized billing systems, and management information systems operation. The attachedtechnical assistance (TA), for $596,000, focused on urban transportation planning andmanagement within two cities, Denpasar and Semarang. The Operations Evaluation Missionwas informed that the study was successful and the reports on Denpasar and Semarang formedthe basis of subsequent policy decisions.

The financial reestimation was undertaken for the water supply components in Bogorand Palembang only. It was not possible to reevaluate the SWM and sanitation components in

Kabupaten Bogor, Kotamadya Bogor, and Kotamadya Palembang since neither the base datanor supporting figures and assumptions used at appraisal and the reestimation for the projectcompletion report (PCR) was available. Furthermore, both the solid waste and septic tankdesludging activities within Palembang and Bogor are subsidized, where revenues areinsufficient to cover the O&M costs, let alone depreciation. The reestimation of the water supplycomponent shows that all subprojects yielded lower financial internal rates of return (FIRRs)than at appraisal and in the PCR. The FIRR for PDAM Kotamadya Bogor was 6.0%, higher thanthe weighted average cost of capital (WACC) of 2.9%, and for PDAM Kabupaten, it was 8.7%,also higher than the WACC. Improved operations, expanded production capacity, and improvedmanagement in recent years will enhance sustainability in the longer term. PDAM Palembanghad a lower FIRR of 1.9% because of the noncompletion of some components as a result ofdelayed Kreditanstalt fr Wiederaufbau financing, its high rate of unaccounted-for-water, and its

past poor financial performance.

The economic reestimation used increases in land values as the basis for measuringbenefits, but unlike the appraisal and PCR evaluations, only one-off increases were included andthese were converted into annual rental streams using rent-to-capital-value ratios. The results ofthe reevaluation of the drainage component indicated a higher actual economic internal rate ofreturn (EIRR) in Bogor at 29.7% compared with the 24.2% at appraisal because of the expandedarea of improvements. The EIRR is lower than that of the PCR on account of the different methodused to measure benefits. In Palembang, the actual EIRR for drainage was 12.9% compared to32.3% at appraisal and 34.3% in the PCR. The changing methodology and marginally highermaintenance costs assumed account for the difference. Both EIRRs are above the economicopportunity cost of capital. In Bogor, the actual EIRR for KIP was 41.2%, which was lower than

the 41.6% at appraisal and 63.5% in the PCR. In Palembang, the actual EIRR of 12.1% was lowerthan the EIRR of 66.4% at appraisal and 53.4% in the PCR. The reason was the increase in landvalues in Palembang was considerably lower than the increase in Bogor. For Bogor, the returnsare well above the economic opportunity cost of capital, while for Palembang, it is just above it.

A beneficiary survey undertaken by the evaluation team found that urban economicactivity increased as a result of the Project, although the Project was not the only reason. Inaddition, health conditions had improved and the drainage improvements were effective inmitigating flooding.


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Three key issues need addressing. First, the Project was complex, comprising sevencomponents within three local authority areas. It may have been more appropriate to focus onan integrated urban development approach to ensure comprehensive improvement of specificareas. Second, institutional action plans need to have more realistic targets in futureinterventions, particularly those relating to financial performance of the implementing agencies.Third, land acquisition difficulties associated with widely different market and government values

need to be addressed.

The key lessons learned are (i) providing expensive foreign funding for small items withlimited life spans, such as handcarts and container bins, is not the most effective use of money;(ii) solid waste dumpsites designed without proper environmental controls will have long-termnegative impacts on the surrounding areas; (iii) O&M of the pilot wastewater system in Bogorwould have been better placed under the PDAM, so that charges for water and sewerage couldhave been levied by the same agency; and (iv) there was no land acquisition plan, noenvironmental assessment plan, nor a plan to involve the community in the project preparationstage. The last lesson has been taken account of by ADB through its resettlement andenvironment policies, and greater emphasis on community participation in project preparationand implementation stages.

The OEM recommended two follow-up actions: (i) a TA for 2005 to undertake a drainagemaster plan for Palembang may be considered; and (ii) ADB needs to remain engaged with theGovernment to further corporatize the PDAMs in an effort to de-link tariffs from political controland to expand the PDAMs area of responsibility to include the sewerage component, as is thecase in Medan, upon acceptance of an improvement in the pricing of the service. This may beachieved by the end of 2004.

The Project is assessed as successful, because it met its main objective of providingnew and improved infrastructure facilities that minimized the impediments to increasingproductivity and economic expansion. The TA is assessed successful.

Eisuke SuzukiDirector GeneralOperations Evaluation Department


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I. BACKGROUND

A. Introduction

1. A key feature of urbanization in Indonesia is the inability of national and localgovernments to ensure adequate infrastructure and basic services are provided for an

increasing urban population. Steadily increasing rural-urban migration has exacerbated thefinancial constraints that have prevented Indonesian cities from providing such services. Thishas led to many cities witnessing a dramatic decline in the quality of infrastructure and thegrowth of unserviced slum and squatter areas where many urban poor lack adequate access tobasic services, including potable water and sanitation. In some areas, over 60% of urbandwellers are housed informally. Urban population is growing rapidly, roughly 5% per year, andthis poses a real challenge to improving living standards, especially those of the poor. Althoughprovision of services, such as water supply, sanitation, and solid waste disposal has improved,most urban residents still lack basic services. Serious environmental problems includeuncollected garbage, water and air pollution, and traffic congestion.

2. Since 1976, the Government has borrowed $1,413 million from the Asian Development

Bank (ADB) for 17 loans addressing problems associated with urban development. The Bogorand Palembang Urban Development Project (the Project) was the 10th loan and was requestedfor two towns that were not included under previous foreign-assisted programs: BogorKotamadya (municipality) and Kabupaten (regency)with a combined population of 854,201 in1990 that was forecast to grow at 3.6% between 1990 and 1995 and 3.0% from 1995 to 2000;and Kotamadya (Kota) Palembang, with a total population of 1.1 million in 1990 that wasforecast to grow at 2.8% from 1990 to 1995 and 4.9% from 1995 to 2000. The Government alsorequested a technical assistance (TA)1 for urban road planning and management.

3. The Project was to prepare and undertake an integrated urban development project inBogor and Palembang to improve the living conditions of the growing number of urban poor andto support the economic growth of urban centers.

B. Formulation

4. The Government formulated a nationwide Integrated Urban Infrastructure DevelopmentProgram (IUIDP), first initiated under the Fourth 5-Year Plan, 2 as a means of providinginfrastructure facilities, promoting decentralization, increasing local resource mobilization, andenhancing management capabilities at the local level. The Project selected IUIDP componentsin three urban areas: Kota Bogor, Kabupaten Bogor, and Kota Palembang. The structure ofgovernment is in Appendix 1. The Fifth 5-Year Plan3 further refined the strategy to encourageborrowing by Perusahaan Daerah Air Minum (PDAMs)local water enterprisesand localgovernments. This involved establishing a debt-service coverage ratio of not less than 1.5 forlocal government general fund operations and not less than 1.3 for local enterprises, including

PDAMs, that aimed to bring the legal borrowing capacity of local governments more in line withtheir ability to service loans.4

1 TA 1588-INO: Urban Transportation Planning and Management, for $596,000, approved on 31 October 1991.2

REPELITA IV (1985/86 to 1989/90).3

REPELITA V (1990/91 to 1994/95).4

The Ministry of Finance has ruled that direct subloans to PDAMs are no longer possible and the required debt-service coverage ratio for regional governments has, therefore, increased.


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25. A study that assessed current problems and prepared a plan for future development ofurban areas was undertaken with government funding in September 1987. A feasibility study toformulate a project was completed under ADB funding in 1991. 5 Fact-finding was in FebruaryMarch 1991 and the Project was appraised in JuneJuly 1991.

C. Purpose and Output

6. The overall purpose of the Project was to promote the socioeconomic development ofthe Bogor and Palembang urban areas. Specifically, the Project aimed to improve the livingconditions in the urban areas of Kota Bogor, Kabupaten Bogor, and Kota Palembang, as well asminimize impediments to increasing productivity and economic growth through the provision andimprovement of urban infrastructure and services. The Project also aimed to strengthen theinstitutional capabilities of the agencies involved and, as a component of decentralizationcontained in IUIDP, local resource mobilization was to be enhanced through the implementationof covenanted institutional and financial action plans.

7. The main project components included (i) urban roads, (ii) water supply, (iii) drainage,(iv) solid waste management (SWM), (v) wastewater management and sanitation, and

(vi) Kampung Improvement Program (KIP)/Market Infrastructure Improvement Program (MIIP).In addition, administrative and consulting services were provided to assist in the implementationof the associated Revenue Improvement Action Plan (RIAP), Local Institutional DevelopmentAction Plan (LIDAP), project management and implementation, and staff training.

D. Cost, Financing, and Implementation Arrangements

8. The total project cost at appraisal was estimated at $234.7 million with a foreignexchange component of $82.6 million and a local currency component of $152.1 million. ADBwas to provide a total of $140 million covering $74.3 million of the foreign exchange requirementand local currency costs of $65.7 million. The Kreditanstalt fr Wiederaufbau (KfW) was toprovide a total of $14.7 million for specific project components. The Government was to provide

the remaining local currency requirements estimated at $80 million (Appendix 2).

9. An attached TA of $596,000 from the TA Special Funds was to strengthen thecapabilities of the Directorate of Urban Roads (BINKOT)6 for urban road planning andmanagement and to provide training and assistance to two local governmentsDenpasar andSemarang.

10. The variety and range of the project components necessitated complex implementationarrangements (Appendix 3). The Directorate General of Human Settlements (DGHS) of theMinistry of Public Works (MPW)7 was the lead executing agency, and the local governments ofBogor and Palembang and the PDAMs were the implementing agencies. DGHS providedoversight for project management and coordinated the input of other central government

agencies. The Directorate of Metropolitan Cities was responsible for urban roads and bridges,and the Directorate General for Water Resources Development was responsible for urban floodcontrol and bulk water supply. The Ministry of Home Affairs (MOHA), through its DirectorateGeneral for Public Administration and Regional Autonomy, was responsible for assisting local

5 Loan 768-INO: Second Bandung Urban Development Project, for $132.4 million, approved on 12 December 1985.6

At the time of the Operations Evaluation Mission (OEM), the functions of the Directorate of Urban Roads hadmerged with those of the Directorate of Metropolitan Cities.

7As part of the government reorganization, this was renamed the Directorate General of Urban and RuralDevelopment within the Ministry of Settlements and Regional Infrastructure.


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3governments and encouraging local institutional development comprising urban developmentmanagement, local revenue improvement, and urban development finance. All participatingagencies were represented in the Coordination Team for Urban Development, under theauspices of the National Development Planning Agency (BAPPENAS), which was responsiblefor the formulation of urban and regional policies and strategies.

11. Project management units and project implementation units in Bogor and Palembangwere established to manage the Project, provide technical support, and coordinateimplementation. These arrangements were similar to those established under previousprojectsall of which were assessed successful by the project completion reports (PCRs). Ofthe urban development projects evaluated, all were assessed successful with the exception ofone out of three projects that were covered under one project performance audit report. 8

E. Completion and Self-Evaluation

12. The PCR, circulated in February 2001, rated the Project successful.9 It confirmed thatthe physical achievements generally met or exceeded appraisal targets. It also confirmed thatthe Project delivered the intended benefits, especially to poor communities under a greatly

expanded KIP component (para. 22). The financial internal rates of return (FIRRs) weregenerally higher than appraisal targets and exceeded the weighted average cost of capital(WACC). The economic internal rates of return (EIRRs) were also higher than appraisal targets(except for urban roads) and exceeded the economic opportunity cost of capital (EOCC).

13. The PCR noted that the institutional capacity building targets were not met. It also notedthat project completion was extended three times. This was attributed to difficulties in landacquisition, late provision of counterpart funding, and delayed recruitment of consultants. TheProject was completed on 7 April 2000 instead of the expected completion on 30 September1997. The evaluation was well supported by evidence; however, the PCR did not assess theTA.

F. Operations Evaluation

14. The Operations Evaluation Mission (OEM) visited Indonesia from 25 November to12 December 2003 to evaluate the Projects performance. The OEM held discussions withrepresentatives of various government agencies, including those at local, provincial, and centrallevels responsible for the operation and maintenance (O&M) of the components and theimplementation of RIAP, LIDAP, project management and implementation, and staff training. Asurvey was carried out to determine the impact of the Project on the beneficiaries. The surveysample was representative of a cross-section of beneficiaries who had been the principal usersof the facilities before and after the improvements financed under the Project. For the newfacilities constructed under the Project, the recall/self-assessment methodology was used.Discussions were also held at the Directorate of Metropolitan Cities to assess the impact of the

urban transport TA.

8 The exception was ADB. 2000. Project Performance Audit Report on Three Integrated Urban InfrastructureDevelopment Projects: Secondary Cities Urban Development (Sector) Project, Botabek Urban DevelopmentProject, and Bandar Lampung Urban Development Project in Indonesia. Manila. The first was assessed partlysuccessful.

9 The PCR used the four-category assessment system.


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4II. PLANNING AND IMPLEMENTATION PERFORMANCE

A. Formulation and Design

15. The Project was in conformity with ADBs operational strategy for Indonesia, 1989, whichemphasized the need to upgrade facilities, including physical infrastructure, and review policy-

related matters, including urban planning, in line with existing needs and the expected growth ofthe urban population. ADB remains engaged in the urban sector of Indonesia and the countrystrategy and program (20032005) focuses on integrated urban development as a key targetarea for intervention. The Project was in conformity with the Governments long-term targets ascontained in the ongoing IUIDP and 5-year plans, which prioritized the project cities on the basisof population levels and growth.10 Urban development remains a priority of the Government asindicated by the ongoing IUIDP and the current 5-year plan.

16. The United Nations Development Programme and several bilateral agencies, includingthose of Australia, France, Germany, Japan, and Netherlands, supported the Governmentsefforts in urban development. During project processing, ADB conferred with external fundingagencies to coordinate the IUIDP.

17. The project design for individual civil works was appropriate with some minor exceptions.To illustrate, the location of the southern dumpsite in Kota Bogor, which is now not in use, wasinappropriate since it was near a major spring water intake and a residential area. Due toexchange rate variations as a consequence of the financial crisis, additional rupiah wereavailable from loan proceeds, which allowed for greater flexibility in expanding the number ofproject components during project implementation than would otherwise have been possible(para. 24). The overall design of the Project, consisting of seven components within three localauthorities was too ambitious and included components from three distinct sectors: urban roads,water supply, and urban development. Consequently, the impact of the Project was spreadthinly in the three project areas. It may have been more appropriate to focus on one componentin an effort to maximize its impact on the beneficiaries.

B. Achievement of Outputs

18. Actual output compared with appraisal estimates is in Appendix Tables A4.1A4.3. Thedistribution of actual works in the three project areas is in Appendix4, Table A4.4.

19. In Kota Bogor and Kabupaten Bogor, new roads constructed totaled 11.3 kilometers(km) (82% of appraisal target) including, respectively, 4.9 km (81.7% of appraisal target) and6.4 km (82.1% of appraisal target). Road improvement and betterment works covered 12.8 km(640% of appraisal target) and 15.4 km (257% of appraisal target) in these localities,respectively. Three bridges (300% of appraisal target) were replaced, one in Kota Bogor andtwo in Kabupaten Bogor. In contrast in Palembang, new roads constructed totaled 30.6 km

(138.7% of appraisal target), while road improvement and betterment works covered 171 km(356% of appraisal target). Six bridges (86% of appraisal target) were constructed. The Projectfinanced the construction of the southern ring road, including part of the Ogan III bridge,improved 11 intersections (35% of appraisal target), and completed four footbridges as plannedat appraisal.

10Ten metropolitan cit ies of more than a million, and 40 secondary cities with a population between 100,000 and500,000 were initially targeted for urban development projects.


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520. While most appraisal targets under the water supply component in Kota Bogor were met,actual works implemented in Kabupaten Bogor failed to meet expectations due to the absorptionof land belonging to Kabupaten Bogor by Kota Bogor in 1995. Thus, appraisal targets for watersupply, water transmission mains, and distribution pipes were lower than those actuallyachieved in Kota Bogor and higher than those achieved in Kabupaten Bogor. Actualimplementation of the water supply component in Kota Palembang was generally below

expectation. Water intake capacity increased by 1,200 liters per second (lps) as targeted atappraisal. The planned construction of two water treatment plants (WTPs), and two waterintakes were financed by a loan from KfW (para. 28). In spite of finance available fromconnection fees, new house connections totaled 20,249 or only 30% of the appraisal target. TheOEM was informed that the reason behind this was inadequate distribution pipes and the poorfinancial performance of PDAM Palembang, which was unable to increase tariffs because ofpolitical concerns.

21. The drainage component rehabilitated 12 km (86% of appraisal target) and 30.9 km(94% of appraisal target) in Kota Bogor and Kabupaten Bogor, respectively, and provided oneregulator gate. No new drains were built as planned since the districts opted for rehabilitationinstead. Most physical targets under the wastewater and sanitation component in Kota Bogor

were achieved including 497 house connections for the pilot sewer system. The plannedwastewater and sanitation interventions in Kabupaten Bogor were canceled at theGovernments request and funds were subsequently reallocated to an expanded KIP. The SWMcomponent improved capacity in Kota Bogor and Kabupaten Bogor through the provision ofsmall-scale community facilities, bins, and trucks. Targets for handcarts (97.4% of appraisaltarget), arm roll and container bins (2,830% of appraisal target), and trucks and other SWMequipment (72% of appraisal target) were largely met. However, the life span of some smallitems like handcarts is limited, normally no more than 5 years. In Palembang, the drainagecomponent was expanded with 74 km of existing drains improved/rehabilitated and nineretention ponds built, which exceeded the target of 35.4 km and zero ponds. The communalsanitary and laundry facilities (MCKs) program in Palembang was reduced with only 65 MCKsbuilt (9% of appraisal target). The planned pilot sewerage system was not constructed and the

funds were used instead to procure 11 desludging trucks (367% of appraisal target), 12 trailers(none at appraisal), 4 pick-up trucks (none at appraisal), and the construction of a septic sludgetreatment plant. Targets for containers and waste bins (481% of appraisal targets), hand carts(164% of appraisal target), and trucks and other SWM equipment (196% of appraisal target)were exceeded.

22. In Kota Bogor, Kabupaten Bogor, and Palembang, all KIP targets were exceeded with72 sites covering 879.9 hectares (ha). The KIP sites served 296,448 persons and included theimprovement or construction of access roads, footpaths, drainage, public baths/toilets, watersupply, and solid waste transfer points. In addition, three markets were improved in Palembang.

23. The institutional support packages for the RIAP (paras. 4451) and LIDAP (para. 70)

were completed for all the local governments, albeit often after the commissioning of associatedphysical infrastructure subcomponents.

C. Cost and Scheduling

24. Total actual and appraisal costs are in Appendix5, Tables A5.1 and A5.2. The totalactual ADB contribution to the Project was $126.5 million reflecting a 10% decline fromappraisal estimates of $140 million. ADB financed an actual foreign exchange cost of$82.4 million and actual local currency cost of $44.1 million. This reflected an increase of 10.9%


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6in ADBs financing of foreign exchange costs and a decline of 33% in local currency costs incomparison to appraisal estimates. The rise in foreign exchange cost financing was partlyattributable to an increase in the costs of civil works and partly to the extension of consultingservices. The lower local currency cost financing in dollar terms resulted from depreciation ofthe rupiah. Since price increases lagged behind depreciation, funding for the original scope ofthe Project consumed fewer dollars than expected, leaving more funds for additional works and

enabling some components to be expanded, particularly KIP.

25. Counterpart funding was estimated at $80 million at appraisal, while actual fundingamounted to $45.1 milliona decline of 44% from appraisal targets attributable to the economicfallout of the 1997 Asian financial crisis. The consequent budgetary crisis led to difficulties forthe Government in raising additional amounts, which resulted in the cancellation of $1.9 millionof the loan in July 1998. This was part of ADBs portfolio restructuring response to theGovernments budget difficulties. A further cancellation of $11.6 million was made in April 2000.

26. KfW was expected to finance $14.7 million, however, actual funding at the time of theOEM was $18.5 million.

27. The implementation schedule for the three project locations is in Appendix6, Tables A6.1A6.3. The Project was completed on 7 April 2000, about 2 years and 6 monthsafter the appraisal target of 30 September 1997. The OEM confirmed that delays were due todifficulties associated with land acquisition for final dumpsites, new roads, and drainageimprovements, and attributed them to inadequate local budget allocations based on thegovernment valuation of land rather than its market value. The late provision of counterpartfunds and recruitment of consultants as a result of procedural bottlenecks in their appointmentalso delayed implementation. Charges of nepotism in the selection of consultants, investigatedand dismissed by ADB, further delayed project implementation.

28. Some coordination problems were witnessed during project implementation betweenKfW and ADB. These were attributed to different evaluation and procurement procedures of the

two agencies and programming difficulties with integrated components funded by them. Forinstance, ADB financed the purchase and laying of distribution pipes from two WTPs inPalembang in 1992 that were to be funded by KfW. But the WTPs funded by KfW were notcompleted until 2001.11 Furthermore, once the WTP came online, considerable water lossesoccurred because of the increased pressure and leakages in the system. Checks then had to bemade throughout the system to find the source of leakage.

D. Consultant Performance, Procurement, and Construction

29. Consultants were appointed by DGHS in accordance with ADBs Guidelines on the Useof Consultants to support four major project activities: (i) project management andimplementation; (ii) LIDAP preparation, inclusive of forward plans for capital works programs

and establishing departmental systems for effective maintenance of public works and SWM;(iii) RIAP preparation; and (iv) under TA 1588-INO urban transportation study for Denpasar andSemarang. The OEM confirms the PCR findings that the consultants undertaking the RIAP andLIDAP components had insufficient time, i.e., 6 months, to prepare the appropriate plans. In

11 The OEM was informed that prior to the approval of the two WTPs for funding, KfW needed to make sure thatPDAM Palembang could afford to repay the loan incurred, in view of its outstanding debts . This delayed approvaluntil November 1995. Detailed design was then completed but was not approved because of the 1997/98 financialcrisis. Further design, costing, and evaluation took place in view of the devaluation of the Indonesian currency andapproval by the Government and KfW was delayed for another 2 years.


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7addition, start-up delays in the recruitment of consultants were the result of lengthy governmentprocedures as well as delays by the implementing agencies.

30. Procurement of goods was under international competitive bidding and in compliancewith the Guidelines for Procurement under ADB loans. Six international competitive biddingcontracts were awarded under the Project. Some of the contracts awarded under local

competitive bidding procedures took more time.

31. Civil works were of good quality although appraisal schedules were not met because of(i) problems of land acquisition and clearance, (ii) late completion of detailed civil works designs,(iii) inclement weather, and (iv) the lengthy budget process.

E. Organization and Management

32. BAPPENAS, with the support of IUIDP Implementation Management Group, providedoverall policy coordination satisfactorily. This was attributed to the proximity of the project urbancenters to Jakarta, which, facilitated project management. BAPPEDAS provided adequateguidance and coordination to the local governments (level II) and adequately liased with the

political leadership of the project areas. The PDAMs, the Dinas Kebersihan (DK)cleansingdepartmentsand both levels of local government also provided adequate support. However,community participation during preparation and implementation of the Project was minimal,apart from the KIP component.

33. The management arrangements under the Project had been successful in previousdonor agency interventions in the urban sector, including ADB and the World Bank. The OEMfound them appropriate.

III. ACHIEVEMENT OF PROJECT PURPOSE

A. Operational Performance

34. Urban provincial roads, new and upgraded, are generally well constructed in all threeproject towns. There is little sign of deterioration with evidence of routine maintenance havingbeen undertaken. In Kota Bogor and Kabupaten Bogor, the project roads have providedstrategic links within the city network, including the upgrading/construction of an inner ring road,junction improvements, and additional access to the toll road from Jakarta. With the exception ofa few locations where a number of stretches were not completed, including some along theinner ring road,12 traffic flow improved considerablyan assessment based on the recallmethod. Asphalt and concrete have been used for the road surfaces, and appropriate covereddrains, kerbs, street lighting, and landscaping have been provided in Kabupaten and KotaBogor. In Palembang, the new and improved roads and junction improvements have helped

improve traffic flow in a congested city. Most roads are well used, with the exception of thesingle carriageway, southern stretch of the outer ring road, which has been built well in advanceof demand and passes through an area of largely agricultural and swampy land. Additionally, inPalembang four bridges were built, each with single carriageway roads. They are well designedwith crash barriers on the approach roads and adequate road markings.

12The Kota Bogor inner ring road is single carriageway on either side of a dual carriageway bridge over the slip roadto the Jakarta tollway. Insufficient counterpart funding meant that only one carriageway was built.


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835. Urban local roads built under the Project, though well constructed, have fared relativelyworse in terms of routine maintenance expenditures than those of the provinces. A fewstretches of roads in Palembang, including Jalan Sukala and Jalan Gandus/Jalan Hisbullah,require major rehabilitation because of overuse as a consequence of traffic diversion duringreconstruction of an alternate route, lack of adequate maintenance, and poor groundconditions.13

36. The three principal water supply facilities constructed in Kota Bogorthe intake, WTP,and reservoirare functioning well and are regularly maintained. To illustrate, the WTP has amajor clean up and overhaul every 3 months. At the time of the OEM, the WTP was providingclean water at the rate of more than 500 lps above target. The upgraded and expanded springwater source in Kota Bogor has increased and provides a reliable and constant supply to thecity (142 lps). Likewise, the expanded and improved spring water intakes of PDAM KabupatenBogor have increased supply in volume and reliability. The installed distribution pipes and houseconnections/meters have enabled the billing of additional water sales, leading to increasedrevenues in both areas. In Palembang, two new WTPs and intakes were built under theProject.14 House connections and the procurement of new and replacement meters haveenabled PDAM Palembang to move away from flat rate charging to direct customer billing

based on consumption. All facilities are operating at near full capacity and are adequatelymaintained.

37. In Kota Bogor and Kabupaten Bogor, water is flowing freely in both the newlyconstructed and improved drains and although some contain sediments, garbage, andvegetation, evidence is that they are being maintained. In Palembang, despite theimprovements, there was some evidence of flooding in low-lying areas; however, it wasattributed to a recent rainfall.15 Despite this, water was flowing in most channels and there werefew signs of floating garbage. The drainage retention ponds worked well, and helped toovercome the problem of high river levels. However, conditions have changed since projectcompletion, with more development and higher water levels, and there is now a need for a newand comprehensive drainage master plan for Palembang.

38. In Kota Bogor, the pilot wastewater plant is no longer functioning and has beentemporarily closed because of inadequate funds for covering operating costs. The oxidationponds hold stagnant water, and the associated laboratory is empty and in disrepair. However,the local government has covered the pond with mosquito nets to ensure that the stagnantwater does not breed mosquitoes. The final solid waste disposal site in Kota Bogor is no longerbeing used. After initial problems with a landslip, which more than halved its capacity, pressurefrom the local community led to its permanent closure last year. The old city dumpsite is beingused once again. Many of the vehicles procured under the Project are no longer in use. Theirlife span of 7 to 10 years appears to be less than anticipated at appraisal, particularly for thedump trucks. Irregular maintenance appears to have been the main cause. The OEM alsoverified the completion and use of the two final disposal sites in Kabupaten Bogor, which are

open dumps where garbage is simply dumped and leveled. No environmental controls havebeen incorporated and scavenger families live within the site boundaries.

13 Rehabilitation is under way for Jalan Hisbullah.14

These were constructed using KfW loan funds.15

A heavy rainfall and high river level were experienced in Palembang on the day before the OEM site visit. Theamount of rainfall was equivalent to a 20-year flood. Normal rainfall allows the water to be drained within 5 to6 hours.


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939. In Palembang, local arrangements for collection of SWM are working well and thetransfer stations and containers located on effective concrete stands (4 square meters in area)are well used. The community-based collection system using handcarts to carry waste fromresidences to transfer stations and containers functions and generates income for the carriers,which often is enhanced through informal recycling activities. Overuse of the transfer stationsmay prove to be a problem in the future unless more frequent trips16 are made by the public

dump trucks to collect waste from the handcarts. Additionally, in Palembang, one of the two finaldisposal sites provided is now closed. Although operational from 1997 to 2001, the poorcondition of the access road has prevented dump trucks from reaching the site. The road, builtunder the Project, now requires extensive rehabilitation of about 2 km of its total 3.6 km length.Poor soil conditions and minimal maintenance have been blamed for its deterioration. Plans torepair the road and reopen the site in 2004 have been made. The other final disposal site in thenorth is now the prime dumping area, and is similar to the ones operating in Kabupaten Bogoropen dumps where garbage is simply dumped and leveled using the equipment provided underthe Project with no environmental controls. However, the bulldozers, also provided under theProject, are no longer used on account of broken tracks for which more appropriate, widerreplacements are proving difficult to obtain. The metal solid waste container bins have notlasted in any of the three project towns , where leachate has eroded the steel,17 and most

are no longer used. Handcarts, too, have had a limited life of 3 to 4 years in both cities.

40. KIP in Bogor involved the construction of access roads, footpaths, drainage, and MCKs.Only a small water supply component was included, since most people were either using deepwells or were connected to the main supply. The civil works were found to be in good condition,there was evidence that maintenance was carried out and in some places further improvementshad been made by the communities. Extensive upgrading of most houses took place since theinfrastructure was improveda direct result of the Project. KIP project sites in Kabupaten Bogorare now part of Kota Bogor, with the latters expansion, which accounts for the dramatic rise inthe value of the land.

41. In Palembang, KIP projects focused on very poor neighborhoods where houses had

been built in permanently water logged and swampy areas. Adequately constructed, concretefootpaths, access roads, and terraces18 were the major investment, although drainage,communal toilets, and water supply facilities were built in some sites. Sanitation involved theconstruction of new MCK facilities19 and a septic sludge treatment works located near thenorthern final solid waste dumpsite. The treatment works is operating despite its damagedpumps, which have not been repaired on account of insufficient budgetary releases from thelocal government. Evidence shows that the MCKs are used and maintained by the communities.Although there was evidence of new investments in some sites, the generally poor groundconditions and lack of a comprehensive approach to upgrading, including appropriate drainageimprovements, combined with the very low-income levels, contributed to the lack of furthercommunity-induced improvements in KIP sites in Palembang.

42. The workshop facilities of the maintenance depot of DKs funded under the Project arewell built and functioning, but there are many non-operating vehicles on account of thedifficulties of the local government in sourcing funds for their rehabilitation.

16Only two trips per day are made by dump trucks, and in one station, a container was placed to accommodate theadditional garbage being regularly transported. The manual transfer of garbage from handcarts to the containerwas less effective than a direct transfer to the dump truck would have been.

17In Palembang, the city is replacing the steel containers with wooden ones, which has solved the leachate problem.

18Elevated footpaths in swampy areas.

19 Communal toilet blocks built directly on a septic tank.


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1043. The facilities under the Project are, by and large, well constructed and the OEMconfirmed that the roads and the drainage components are effective in meeting the projectobjective to minimize impediments to increasing productivity and economic growth. However,the 199798 financial crisis led to a significant decline in growth which, correspondingly,affected measures of productivity. In addition, the financial crisis also accounted for a rise in the

overall incidence of poverty in Indonesiafrom 17.6% to a high of 23.4% in 1999demonstrating the vulnerability of the poor to inflationary shocks. With rising population, partlydue to migrants being attracted to the project sites because of improved facilities and partly dueto the natural population growth rate, to assess the impact of only the project facilities onimproved living conditions, a project objective, proved difficult. Thus, the beneficiaries of projectsites surveyed (paras. 6066) were split down the middle in terms of the impact of KIP.However, there was agreement that SWM was not adequate but had improved considerablysince before the Project.

B. Performance of the Operating Entity

44. RIAP covenanted under Schedule 6.II required the local governments to increase

collection of land and building tax and Local Government Revenue (PADS), including localtaxes (business, entertainment, and advertising taxes) by 5% in real terms for Kota Bogor andKabupaten Bogor and 7% per annum for Palembang. Revenue increases from local fees andcharges (market fee, terminal fee, cleaning fee, and parking fee) of 17% per annum in nominalterms in Bogor and 13% per annum in Palembang were also targeted. Increasing tax collectionefficiency, preventing excessive operating cost rises, and formulating development expenditureprograms affordable for the level II governments were also covenanted. In addition, SWMcharges and desludging fees were to be reviewed annually.

45. In the case of PDAMs, RIAPs involved the regular review and raising of tariffs to meetoperating costs, debt service, depreciation, and provision for future investments. A return of10% to 12% on assets was required. In addition, targets were to reduce accounts receivable to

an average of 2 months and unaccounted-for-water (UFW) to 29% by 31 December 1995 inBogor and a year later in Palembang. Details of the actual financial performance of localgovernments are contained in Appendix 7 and that of the participating PDAMs in Appendix 8.

46. Two of the three local governments exceeded the appraisal targets by achieving anominal annual growth rate of local revenues in excess of inflation and population increases.Kota Bogor was the exception.20 There was mixed success of specific tax and revenue targets.Overall, revenue growth from FY19921993 to FY19992000 was slow, but revenues haveincreased significantly since FY2000. The financial projections made for the local governmentsat appraisal were conservative.

47. Total local government revenues 21 of Kota Bogor have grown in real terms at 8% perannum from FY19921993 to FY2003. With a high annual population growth (17% from 1992 to1998) on account of the enlargement of the administrative area of Kota Bogor, real growth rateof PADS was 0.2% only. In nominal terms, the growth was 15.5% (Table A7.1). From FY1992 toFY2003, property taxes increased at 23% per annum in real terms, and local taxes at 10%. Both

20 The three participating local governments were the source of total revenues and total expenditures in current andconstant prices. This results in minor discrepancies in the average rate of inflation as implied by the differencebetween the growth rate in total income in current and constant prices between the three towns.

21Comprise local government income (local taxes, retribution, enterprise share profit and other locally raised income,normally referred to as PADS) plus share taxes, including property tax, and nontax revenue.


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11have exceeded the 5% per annum appraisal target. Local fees and charges, however, showednegative real growth over the same period.

48. Local government income (PADS)22 of Kabupaten Bogor grew at 13.9% per annum fromFY1992/93 to FY2003 in real terms, higher than the negative population growth over theFY1992199823 period as a result of reduction in its area because of the changing boundaries

of Kota Bogor (para. 40). PADS exceeded the target set at appraisal, with a real growth rate of14% over the same period. From FY1992 to FY2003, property taxes have also increased by14% per annum in real terms, exceeding the 5% per annum real growth target. Local fees andcharges increased at 11% per annum in real terms over the same period.

49. In Kota Palembang, local revenues grew in real terms at almost 9% per annum fromFY19921993 to FY2003, much higher than that of the population (2% per annum). Localgovernment income (PADS) exceeded the target set at appraisal, with a real growth rate ofabout 6% per annum. From FY1992 to FY2003, property taxes increased at 10% per annum inreal terms. Local fees and charges increased at 4% per annum in real terms.

50. PDAM Kota Bogor has realized only moderate profits since 1991, but in real terms, theyhave not reached the high of 1996. In 2002, profits declined in real terms from those in 2001,but a modest improvement is expected in 2003. A return on net fixed assets of about 5.6% isexpected in 2003. From 1997 to 2003, the average return on net fixed assets was just over 6%,below that expected at appraisal. Tariffs increased in 1996 and 2000, with average increases ofabout 46% and 31%, respectively. The next tariff increase is proposed for 2004 with rates toincrease by an average of 70%. Collection rates of monthly dues were said to be about 90% inrecent years, and accounts receivable averaged just over 6 months at the end of September2003. Many of the arrears are because of nonpayment by government agencies for waterconsumed. UFW declined from 34% of production in 1991 to 29% at the end of 1995 (thussatisfying the conditions of the Loan Agreement), but increased to 32% in 1999. Since then, ithas remained at about 32%, although figures for the first 9 months of 2003 show a fall to 29%.Accomplishment of the action plan agreed at appraisal was generally satisfactory.

51. PDAM Kabupaten Bogor achieved moderate profits since the losses incurred in 1991and 1992. A return on net fixed assets of about 9% is expected in 2003. From 1991 to 2003, theaverage return on net fixed assets was almost 8%, although the 10% target was exceeded from1994 to 1997. Tariffs increased in 1995, 1999, and 2000, with average increases of about 11%,25%, and 28%, respectively. The next tariff increase is scheduled for 2005 with rates toincrease by about 30%. Similar increases are planned for 2008 and every 3 years thereafter.Collection rates of monthly dues are said to have been about 85% to 90% in recent years.Accounts receivable averaged about 8 months at the end of 2002. Much of this, however, is duefrom government agencies. UFW declined from 34% of water production in 1991 to 26% at theend of 1995 (thus satisfying the conditions of the Loan Agreement), but increased to 42% in1999. Since then, UFW has remained between 41% and 43%. A water loss reduction program

has been implemented since 2001 and a target of 20% has been set for 2006. Accomplishmentof the action plan agreed at appraisal was partial.

22This comprises local taxes, retribution, enterprise share profit, and other locally raised income, normally referred toas PADS.

23Population figures beyond 1998 were not available, although the OEM was informed that if taken to 2003, totalpopulation may have increased marginally over its1992 level.


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1252. After a period of substantial losses from 1991 to 2000, PDAM Palembang realized profitsin 2001 and 2002. Preliminary figures show that a larger profit is estimated for 2003, and areturn on net fixed assets of about 5% is expected. Throughout the period, the average returnon net fixed assets has been negative. For 2001 and 2002, returns of 2.9% and 1.4%respectively were realized. Tariffs were increased in 1995 and 2000 and a further increasebefore 2005 is unlikely. Collection rates of monthly dues were 74% in 2002, although accounts

receivable averaged some 19 months at the end of the year. UFW increased from a level of38% of water production in 1991 to 42% in 1996, but fell to 39% in 1999. Since then, there hasbeen a significant increase and in 2002 some 74% of water produced was unaccounted for.Clearly, the target set at appraisal has been missed by a long margin. A water loss programonly started in 2003 and UFW is estimated to have fallen to 69%. Accomplishment of the agreedaction plan at appraisal was mixed.

C. Financial and Economic Reevaluation

53. The FIRRs were reestimated for the water supply component only. EIRRs werereassessed for the KIP and drainage components. No reestimation was possible for the urbanroads, sanitation, and SWM components since supporting data and detailed assumptions used

at appraisal and in the PCR for the computations had not been retained by ADB. Furthermore,logistical difficulties precluded undertaking traffic surveys and vehicle counts needed torecompute the EIRRs for the new urban roads and road improvement components. ActualFIRRs and EIRRs were compared with the PCR and appraisal estimates. The computationswere based on the achieved targets of the Project and their actual costs, representing changesin project design and outputs. Appendixes 9 and 10 provide details of the economic andfinancial analysis, respectively.

54. The economic analysis used increases in market land values as the basis for measuringbenefits, but unlike the appraisal and PCR estimations, only one-off increases were includedand these were converted into annual rental streams using a rent-to-capital-value ratio withinthe towns. The results of the reestimation of the drainage component indicated higher actual

EIRR in Bogor at 29.7% compared with the 24.2% at appraisal because of the expanded area ofimprovements. The EIRR is lower than that of the PCR on account of the different method usedto measure benefits. In Palembang, the actual EIRR for drainage was 12.9% compared with theEIRR of 32.3% at appraisal and 34.3% in the PCR. The changing methodology and marginallyhigher maintenance costs assumed account for the difference. Both EIRRs are above theEOCC. In Bogor, the actual EIRR for KIP was 41.2%, which was lower than the 41.6% atappraisal and 63.5% in the PCR. In Palembang, the actual EIRR of 12.1% was lower than theEIRR of 66.4% at appraisal and 53.4% in the PCR. The reason was that the increase in landvalues in Palembang was considerably lower than the increase in Bogor. For Bogor, the returnsare well above the EOCC, while for Palembang it is just above.

55. The financial analysis followed the methodology adopted at appraisal and for the PCR,

although changes were made to make it more rigorous and match the data that was availablelocally. The reestimation shows that all subprojects yielded lower FIRRs than at appraisal and inthe PCR. The FIRR for PDAM Kota Bogor was 6.0%, higher than the WACC of 2.9%; and forPDAM Kabupaten, it was 8.7% also higher than the WACC of 2.9%. Improved operations,expanded production capacity, and improved management in recent years will enhancesustainability in the longer term. PDAM Palembang had a lower FIRR of 1.9% because of thenoncompletion of some components as a result of delayed KfW financing, its high rate of UFW,and its past poor financial performance.


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13D. Sustainability

56. The sustainability of the project components was to be ensured by adequate O&Mexpenditures (Schedule 6, para. 10). PDAMs were responsible for carrying out O&M of watersupply and sewer systems provided under the Project. The OEM noted that the water supplyfacilities were well maintained; however, Palembang suffers from many illegal connections and

a distribution system with considerable leakage, which requires major work for greatereffectiveness. Furthermore, decentralization and autonomy have caused the burden of fundingfor PDAMs to shift to the local government and this has further eroded their financial capabilityto undertake major new capital investments. However, the recently improving performance ofthe participating PDAMs augurs well for sustainability of the water supply component. But this isconditional on further regular tariff increases at or above the rate of inflation. In addition, thesewer system built in Kota Bogor does not fall under the local PDAMs, where DK is the mainagency responsible for its maintenance. The major impediment to adequate O&M remains withthe political leadership, which is unwilling to allow the PDAMs to set economic tariff rates onperceived grounds that many consumers, particularly the poor, will be unable to afford them.24An independent regulatory framework empowered to establish tariff rates maybe appropriate todeal with political resistance to tariff increases.25

57. Local governments (level II) were covenanted to undertake the O&M of drainage, SWM,urban roads, KIP facilities, and sanitation. While the provincial roads are being routinelymaintained adequately, there are problems within the local government over the maintenance ofmunicipal roads because of funding shortages. This is particularly pronounced in Palembang,where a number of roads are in poor condition because of minimal maintenance.

58. Revenues from solid waste collections and desludging fees were much lower than theO&M costs of the services. In Kota Bogor, solid waste revenues were about 41% of the costs,excluding depreciation, from 1997 to 2003, but the proportion of recovery has fallen from 47% to25%. For desludging, the service is less subsidized, although revenue averages 60% of the costof operations and administration over the 2001 to 2003 period. Cost recovery, however, fell from

62% to 54%. The OEM was informed that charges have not been increased since 2000. InPalembang, solid waste and desludging charges were last increased in 1998. Combinedrevenues for both services recover about 16% of the costs, excluding depreciation, from 2000 to2003. With no increases in charges, the proportion of recovery has deteriorated from 27% to12%. No data was available from Kabupaten Bogor, but it is clear from the two localgovernments where data was available that the services are heavily subsidized.

59. The KIP is being continued in Kota Bogor and Palembang, and this has included theaddition of new works within or in neighboring sites to those of the Project. At the national level,policy changes have been initiated within KIP to support the devolution process. Localgovernments are now required to put up matching counterpart funding to that provided by thenational Government. Greater community involvement and self-help construction is being

encouraged. Income generation and livelihood programs are being more closely integrated withKIP to enhance sustainability.

24An affordability analysis was undertaken during appraisal but this was not updated in the PCR. Due to logisticaldifficulties, the OEM did not have sufficient household income data to reassess the affordability of charges.

25ADB provided two TA grants to establish an independent regulatory framework for water supply. These were TA2501-INO: Water Tariff Structures and Financial Policies of Water Enterprises, for $600,000, approved on22 December 1995; and TA 3761-INO: Regulatory Framework for Private and Public Water Supply andWastewater Enterprises, for $790,000, approved on 6 November 2001.


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14IV. ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS

A. Socioeconomic Impact

60. Impacting the Project during implementation was the reversal of a robust growth in theurban economy in 1997 as a result of the Asian financial crisis. Against this backdrop, urban

poverty rose from 19.8% in 1996 to about 25% in 1999. The urban population also witnessed asteady rise during and beyond implementation: from 20% of total population in 1980 to 31% in1990 to 42% in 2002.

61. Appendix 11 provides select socioeconomic indicators as gathered by the nationalsocioeconomic survey. Secondary data confirms an annual increase in the number ofhouseholds in Kota Palembang and Kabupaten Bogor (4.5% each) and Kota Bogor (19.1%),between 1993 and project completion in 1999. Similarly, the number of households with accessto piped water in Kota Palembang, Kabupaten Bogor, and Kota Bogor increased from 4.1%,19.7%, and 4.1% per annum, respectively, between 1993 and 1999. The number of householdswith sewerage or septic tanks improved from 189,000, 357,000, and 35,000 in 1996 to 238,000,561,000, and 62,000, respectively, in 1999.

62. An independent survey undertaken by domestic consultants to assess (i) socioeconomicand environmental impacts of key project components, and (ii) beneficiary perceptions onproject achievements supported the observations of the national socioeconomic survey. Thesurvey comprised 98 respondents in Kota Bogor, 105 respondents in Kabupaten Bogor, and102 respondents in Palembang.26 Key project results at the goal and purpose level as gatheredfrom the beneficiary survey are summarized in Appendix 12.

63. Field interviews confirm that the Project generally met its objectives althoughachievement varied across project components and project locations. On the downside, somenegative impacts were reported including increased vehicular traffic leading to an increase inaccidents and uncontrolled new housing developments.

64. Health conditions improved as a consequence of the Project. In Kota Bogor, 86% ofrespondents stated that overall health conditions improved and two thirds of respondentsreported a decline in the incidence of waterborne diseases. In Kabupaten Bogor, 50% of therespondents noted a decline in the incidence of waterborne diseases. In Kota Palembang, halfof the respondents said that overall health conditions had improved and a majority noted nosignificant illnesses in their community after provision of water supply services.27

65. The drainage component in all three project locations was able to mitigate the effects offlooding problems but did not totally eliminate them. However, 87% of the respondents inPalembang ascribed these to increases in the level of the Musi river as the cause of flooding. InKota Bogor where rain falls almost daily, drainage works were successful in preventing

inundation of urban roads. In Kabupaten Bogor, 31% of respondents reported continued

26Two domestic consultants (one each for the Bogor and Palembang components) conducted field interviews from14 November to 14 December 2003. The survey covered a total of 305 persons including 93 respondents for thewater supply component, 55 respondents for the urban roads component, 34 respondents for the urban drainagecomponent, 38 respondents for the SWM component, 36 respondents for the sanitation component, and49 respondents for the KIP component.

27In Palembang, the number of people infected by waterborne and other environmental diseases declined from 412cases per 1,000 persons in 1992 (before project) to 13 cases per 1,000 persons in 1997 (after project).


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15flooding in their community (as compared with 38% before the Project) albeit with decreasedfrequency.

66. In Kota Bogor, 50% of respondents noted that garbage is now regularly picked up.Nonetheless, 20% of respondents complain of problems in disposing solid wastes. InKabupaten Bogor, 50% of the respondents expressed satisfaction with the solid waste disposal

compared with 30% before the Project. In Palembang, 66% of respondents noted that solidwaste disposal significantly improved and that garbage is regularly picked up by the DK. Thiscompares with 61% of respondents reporting limited collection of garbage before the Projectdue to lack of vehicles/trucks.

67. Between 75% and 80% of respondents in Kota Bogor and Kabupaten Bogor said thatthe urban roads stimulated economic activity and improved income and employment. In KotaBogor, 65% of respondents claimed the roads helped open up new land for settlement whileanother 35% said it helped increase trading activities. In Kabupaten Bogor, 48% of respondentssaid the urban roads helped increase trading activities due to the project roads and 43% saidthe roads helped open up new land for settlement while 5% cited ease of access or travel afterthe Project as a contributing factor to the increased economic activity in the project

communities. The majority of respondents from the Bogor components also said that KIPstimulated economic activity and contributed to improved living conditions in the communities. InKota Palembang, the majority of respondents said employment and income had not risen as aconsequence of the Project. Nonetheless, a similar majority pointed out there was an increasein the availability of public transport to and from the community.

68. A significant and mirror indicator of project success has been the estimated change inland values in the three project locations (before and after the Project) 28 (Appendix 12).

B. Environmental Impact

69. Based on the recall method, the OEM assessed that positive environmental impacts

have been realized, particularly as a result of improved water supply and sanitation, enhanceddrainage, and better solid waste collection. However, increased water supplies without asignificant improvement in wastewater treatment is a cause for concern. The lack ofenvironmental controls for the final solid waste disposal sites is having a negative impact on thesurrounding areas. In Kota Bogor and Kota Palembang, road improvements have increasedvehicular traffic, assessed through the recall method, which have led to traffic problems anddelays. In addition, some respondents stated their concern over increasing air29 and noisepollution, crime, and accidents in the road-influenced areas. In Kota Bogor and KabupatenBogor, respondents cited the need for more traffic signs.

C. Impact on Institutions and Policy

70. LIDAP envisaged organization improvements, systems development, and training in thelocal governments of Bogor and Palembang30 and in the PDAMs. The results of a questionnaire

28Factors external to the Project also contributed to the improvement in land values. Land values increasedsignificantly in Kota Bogor due to its status as a weekend city for the wealthy of Jakarta.

29 In 2003, areas of the central business district of Kota Palembang confirmed that air pollution is a problem,including a constant haze indicative of a high level of airborne particles.

30This related to the local IUIDP team, the city regional development planning agency (BAPPEDA), the local publicworks agency (DPU), the revenue agency (Dipenda), the city cleaning department, and the market agency (DinasPasar dan Informasi Harga).


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16sent out to PDAMs by the OEM indicated that training was carried out effectively during theproject period and has continued; organizational changes were introduced, particularly in givingmore importance to meter reading and the billing and collection functions; managementinformation systems were established; and job descriptions were prepared and personnelappraisal systems introduced. Training was undertaken as planned in regional and urbanplanning, city planning, environmental sanitation, housing sector, building regulations, fiscal

planning, budgeting, revenue collection, information system, and public relations. However,frequent transfers of trained staff between government departments continues to be a majordeterrent to realizing the full impact of training provided under the Project in the long run. Whilethere is evidence that the PDAMs have improved their performance, there appears to be nodirect linkage with the Project. Training was also provided for waste collection procedures,computerized billing systems, and management information systems operation. The OEM notedthat the project consultants foresaw that PDAM Palembang would be unable to cover O&Mcosts and might not be in the position to adequately service all of its debts. Hence, PDAMPalembang will remain financially weak. Additional assistance was required to complement theefforts made in RIAP and LIDAP under the Project.

71. The TA for urban transportation planning and management focused on two cities,

Denpasar and Semarang. The study was successful and the reports on Denpasar andSemarang have formed the basis of subsequent policy decisions. This was confirmed by theDirectorate of Urban and Rural DevelopmentWest.31 The output of the TA focused on threeareas. First, to minimize the cost of transportation systems through road upgrading, roadwidening or construction, intermodal coordination, and changing demand behavior. Second, anurban road improvement and transportation systems manual was produced that focused onrequirements, maintenance cost estimates, user cost savings estimates, and economic andfinancial evaluation. Third, planning processes and modeling structures were devised based oncity size. Four manuals were prepared covering training workshops and institutionalarrangements for the structure and staffing of transport planning units in local government. Thefinal report recommended deregulation, delicensing, strengthening databases, and prioritizinginvestment based on city size. Databases have been strengthened and investment is being

prioritized according to city size. The TA was relevant and reflected the need for Indonesiancities to undertake urban transportation planning and management. However, the TA was notrelated to the rest of the Project, to which it was attached, either in terms of outputs or of citiesand it is not clear why this particular TA was attached to this particular loan. However, the TAmet its objectives to the extent that the study is being used in the two cities. The consultantinputs were adequate and the outputs were satisfactory. The TA is assessed successful.

V. OVERALL ASSESSMENT

A. Relevance

72. The Project was relevant as it aimed to improve three urban centers, identified as priorityareas in a nationally integrated urban development plan, through construction of new, andrehabilitation of existing, infrastructure facilities. In addition, the Project aimed to improve thecapacity of local governments and of PDAMs, including their revenue-generating capacities.The rise in revenue and the institutional changes are evident, though it is difficult to ascribethem entirely to the Project.

31The Directorate of Urban and Rural DevelopmentWest, within the Ministry of Settlements and RegionalInfrastructure, covers the provinces of Sumatra, but excludes the major urban centers of Medan and Palembang.


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17B. Efficacy

73. The objective of the Project to improve the living conditions in the urban areas of thethree project sites was achieved to the extent that the majority of the beneficiaries are satisfiedwith the design of the facilities as shown by the socioeconomic survey. The project objective of

minimizing impediments to increasing productivity and economic expansion was difficult toassess as it is not easy to isolate the impact of the project components from that of otherdevelopments in the national and regional economies. However, the survey based on the recallmethod did reveal that a majority of the respondents were satisfied that the Project hadcontributed to an increase in urban activity. The OEM also noted that the civil works are of goodquality and are generally well maintained. The assessment is efficacious.

C. Efficiency

74. The lead executing, implementing, and oversight agencies, as well as the consultants,were generally efficient in the delivery of services. The reestimated EIRRs for drainage and KIPare higher than the EOCC. FIRRs exceeded the WACC in two of the three water supply

subprojects. Action plans that led to institutional improvements and revenue enhancementswere implemented. The Project is rated partly efficient, mainly because of the performance ofPDAM Palembang (para. 52).

D. Sustainability

75. The civil works are well maintained; however, the financial position of the PDAMs andlocal governments, even though greatly improved, is likely to cause impediments to meeting thesteadily rising funding required to maintain project facilities in the future. Until there is adequateO&M, sustainability will be less likely. However, within all the participating departments and localgovernments, there is a growing awareness of and concern about the need to improvemaintenance. The Project is assessed as sustainable, provided that this awareness translates

into greater revenues and adequate O&M allocations.

E. Institutional Development and Other Impacts

76. Reorganization reflecting political priorities was effected during implementation.However, the OEM could not confirm that this was a consequence of the Project. Thesocioeconomic impacts were assessed as positive with improved urban roads, better SWM,improved drainage, and water supply. However, there is a need to improve the performance ofthe PDAMs and even though revenues have increased in Palembang, they are insufficient toadequately service debt and build up capital for future development. The socioeconomic surveyindicated that there were positive environmental impacts as a result of improved water supplyand sanitation, drainage, and solid waste collection. However, the vehicular traffic increase

raised concerns over air and noise pollution (para. 69). The Projects institutional developmentand other impacts are assessed as moderate.

77. The KIP component was greatly expanded with a corresponding impact on povertyreduction. However, in terms of the overall outputs, KIP was a small component and while itseffects on the project sites are visible, within the overall context of poverty in Indonesia itsimpact was limited.


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18F. Overall Project Rating

78. The Project and the TA are rated successful.

G. Assessment of ADB and Borrower Performance

79. ADBs performance was satisfactory with a total of 12 missions, including appraisal, onemidterm review, and one special project implementation review. ADB worked closely with theGovernment and responded to resolve implementation issues, including the requests for thethree extensions of the loan closing date. However, the absorptive capacity of the localgovernments had been overestimated at appraisal, which accounted for the moderate successof the LIDAP component. The Indonesia Resident Mission assisted in disbursement and liaisonwith the Government. However, neither the appraisal report nor the PCR mission retained dataon the assumptions for the calculation of the FIRRs and EIRRs thereby making any comparisonwith the OEM calculations difficult.

80. The Directorate of Metropolitan Cities, as the Executing Agency, dealt withimplementation issues appropriately and its performance was satisfactory. Requested changes

in the design, including community-based SWM components in Kabupaten Bogor, werepromptly agreed by ADB. In spite of delays, attributed partly to the late recruitment ofconsultants as a consequence of cumbersome procedures, the Borrowers performance wasassessed as satisfactory.

VI. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS

A. Key Issues for the Future

81. The Project was complex and covered seven components within three local authorityareas. Some components are not specifically related (water and urban roads) and it may have

been better to focus more on the integrated urban development components than undertakethree sub projectswater supply, urban roads, and urban development (para. 17). FutureADB interventions should be less complex and support more interrelated components to ensurethe comprehensive improvement of specific areas.

82. Optimistic projections were made at appraisal on the financial performance of thePDAMs. The Project also attempted to change the corporate culture of the participating PDAMsand local governments, particularly over setting tariffs, billing consumers, and collectingrevenue. More realistic targets should be set in future interventions and the time allocated forinstitutional strengthening components should be sufficient to meet the requirements.

83. The targets for new road construction in Kota Bogor and Kabupaten Bogor were not met

because of land acquisition difficulties related to price discrepancies between the governmentassessment and the market value of land and the failure of local governments to earmarkadequate funds for this purpose.

B. Lessons Identified

84. Providing expensive foreign funding for small items with limited life spans, such ashandcarts and container bins, is not the most effective use of funds. Such items may be part ofthe Project financed from local sources (para. 21).


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1985. Solid waste dumpsites designed without proper environmental controls will have long-term negative impacts on the surrounding areas. Appropriate environmental safeguards need tobe put in place as a component of future interventions. A more participatory approach towardthe location of final disposal sites, involving communities and other stakeholders, would haveprevented the problems seen in Kota Bogor, where local residents forced closure. Such

approaches need to be included in the future.

86. The O&M of the pilot wastewater system in Bogor would have been better placed underthe PDAM, so that charges for water and sewerage could have been levied by the sameagency.

87. There was no land acquisition plan, environmental assessment plan, or plan to involvethe community in the project preparation stage. These lessons have been taken account of byADB through resettlement and environment policies, and greater emphasis on communityparticipation in project preparation and implementation. In addition, a draft Act on LandAcquisition and Involuntary Resettlement for Indonesia was prepared under a regional TA.32

C. Follow-Up Actions

88. A TA to undertake a drainage master plan for Palembang for 2005 maybe considered.

89. There is a need for ADB to remain engaged with the Government to further corporatizethe PDAMs in an effort to delink tariffs from political control and to expand the PDAMs area ofresponsibility to include sewerage, as is the case in Medan, upon acceptance of an increase inpricing of the service to ensure cost recovery. As a first step

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