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Document of The World Bank
FOR OFFICIAL USE ONLY
Report No: 31719
IMPLEMENTATION COMPLETION REPORT(SCL-41060)
ON A
LOAN
IN THE AMOUNT OF US$105.0 MILLION
TO THE
INDONESIA
FOR A
RAILWAY EFFICIENCY PROJECT
June 29, 2005
Transport Sector UnitEast Asia and Pacific Region
This document has a restricted distribution and may be used by
recipients only in the performance of their official duties. Its
contents may not otherwise be disclosed without World Bank
authorization.
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CURRENCY EQUIVALENTS
(Exchange Rate Effective As of December 31, 2004)
Currency Unit = Indonesian Rupiah (Rp) Rp 1 million = US$
107.65
US$ 1.00 = Rp 9,290
FISCAL YEARJanuary 1 to December 31
ABBREVIATIONS AND ACRONYMS
Bank The World BankBoD Board of DirectorsBPKP Financial and
Development Supervisory BoardCAS Country Assistance StrategyCWR
Continuous Welded RailDaop Director of OperationsDGLC Directorate
General of Land CommunicationsEIRR Economic Internal Rate of
ReturnENPV Economic Net Present ValueGOI Government of
IndonesiaIACC Inter Agency Coordination CommitteeICB International
Competitive BiddingICR Implementation Completion ReportIMO
Infrastructure Maintenance and OperationJABOTABEK Greater Jakarta
Metropolitan RegionKA Type of rail clip fastenerMoC Ministry of
CommunicationsMoF Ministry of FinanceMoSE Ministry of State
EnterprisesN.A. Not ApplicableOED Operations Evaluation
DepartmentPAP Project Affected PeoplePerjan Departmental
AgencyPERUMKA Railway State EnterprisePERSERO State Owned Limited
Liability Company (PT)PIU Project Implementation UnitPLN
Indonesia's State-Run Electricity CompanyPMU Project Management
UnitPSO Public Service ObligationPSP Private Sector ParticipationPT
KA Railway PerseroREP Railway Efficiency ProjectREPELITA Indonesia
National Five Year Development Plan
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RTAP Railway Technical Assistance ProjectRTF Restructuring Task
ForceSAR Staff Appraisal ReportTA Technical AssistanceTAC Track
Access ChargesUIC Union Internationale de Chemins de fer
Vice President: Jemal-ud-din Kassum, EAPVPCountry Director
Andrew Steer, EACIFSector Manager Jitendra N. Bajpai, EASTR
Task Team Leader/Task Manager: Edward Dotson, EASTR
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INDONESIARailway Efficiency Project
CONTENTS
Page No.1. Project Data 12. Principal Performance Ratings 13.
Assessment of Development Objective and Design, and of Quality at
Entry 14. Achievement of Objective and Outputs 55. Major Factors
Affecting Implementation and Outcome 96. Sustainability 137. Bank
and Borrower Performance 148. Lessons Learned 179. Partner Comments
1810. Additional Information 30Annex 1. Key Performance
Indicators/Log Frame Matrix 31Annex 2. Project Costs and Financing
32Annex 3. Economic Costs and Benefits 34Annex 4. Bank Inputs
39Annex 5. Ratings for Achievement of Objectives/Outputs of
Components 41Annex 6. Ratings of Bank and Borrower Performance
42Annex 7. List of Supporting Documents 43
Maps(s) IBRD 27873 and IBRD 27874
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Project ID: P004026 Project Name: Railway Efficiency ProjectTeam
Leader: Edward Dotson TL Unit: EASTRICR Type: Core ICR Report Date:
June 29, 2005
1. Project DataName: Railway Efficiency Project L/C/TF Number:
SCL-41060
Country/Department: INDONESIA Region: East Asia and Pacific
Region
Sector/subsector: Railways (100%)Theme: Other financial and
private sector development (P)
KEY DATES Original Revised/ActualPCD: 08/02/1994 Effective:
06/13/1997 06/13/1997
Appraisal: 06/28/1996 MTR: 04/01/2000 06/30/2001Approval:
11/21/1996 Closing: 09/30/2002 12/30/2004
Borrower/Implementing Agency: GOI/PTKAI/PERUMKAOther
Partners:
STAFF Current At AppraisalVice President: Jemal-ud-din Kassum
Javad Khalilzadeh-Shirazi (Acting)Country Director: Andrew D. Steer
Marianne HaugSector Manager: Jitendra N. Bajpai Anupam KhannaTeam
Leader at ICR: Edward Dotson Joris Van der VenICR Primary Author:
Baher El-Hifnawi
2. Principal Performance Ratings
(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory,
HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely,
HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest,
N=Negligible)
Outcome: U
Sustainability: UN
Institutional Development Impact: SU
Bank Performance: S
Borrower Performance: U
QAG (if available) ICRQuality at Entry: S
Project at Risk at Any Time: Yes
3. Assessment of Development Objective and Design, and of
Quality at Entry
3.1 Original Objective:
The general development objective of the project was to improve
the economic efficiency and service quality of the Borrower’s
railway sub-sector. The more specific objectives were: (a) to carry
out sub-sector policy reform by restructuring the Railway State
Enterprise (Perumka), reforming the
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relationship between it and the Government of Indonesia (GOI),
and creating the foundations for expanded private participation;
(b) to rationalize sub-sector capital investments; (c) to improve
sub-sector management and operations; and (d) to increase the
physical capacity of the Jakarta-Bandung corridor.
Assessment of Objectives
The development objectives reflected GOI’s increased focus on
the railway sector and its strong desire to increase sub-sector
efficiency. GOI’s commitment to the reforms started in the early
nineties and resulted in the conversion of the railways from a
dependent agency (Perjan) to a more autonomous and commercially
oriented public corporation (Perumka) in 1991 and the enactment of
a new law on railways in 1992. During Repelita VI (1994/95 –
1998/99), GOI established a set of policies and action plans that
included strengthening the railway management capacities and
systems, modernizing the railway operating regulations and
encouraging private sector participation (PSP). It established a
high level Inter Agency Coordination Committee (IACC) and a
Restructuring Task Force (RTF) to see the reforms through.
This project built on the Railway Technical Assistance
Project-RTAP (1987-1993) and two Private Sector Development Loans
(1989-90; 1990-91) and its objectives were supported by the 1995-7
CAS which called for supporting infrastructure investments to
eliminate bottlenecks, improving the regulatory framework for
private sector participation, increasing operational efficiency and
strengthening infrastructure sector management. Moreover, prior to
the completion of the RTAP, GOI had specifically requested for
continued Bank support of the plans to develop Indonesia’s
interurban railways.
The development and specific objectives were clear. In assessing
the links between the specific and development objectives, it is
clear that the accomplishment of the first three specific
objectives would improve efficiency and service quality. While the
linkages might not appear as obvious in the case of the fourth
specific objective, increasing the physical capacity on the most
heavily trafficked rail route in Indonesia would raise the service
quality by offering more frequent service. The Jakarta Bandung
corridor upgrading was considered a “no regrets” investment in as
much as parts of the corridor had already reached capacity with the
remaining sections quickly approaching full capacity, and the fact
that rail services on the corridor would remain competitive with
aviation and road services even after the opening of the proposed
toll road.
3.2 Revised Objective:
N.A.
3.3 Original Components:
The project had five main components as outlined below (Refer to
SAR for specifics):
1. Policy reform; Cost: US $4.3 million—This consisted of (a)
establishing a mechanism to compensate Perumka for its public
service obligations (PSO); (b) establishing a mechanism to
compensate Perumka for infrastructure maintenance and operation
(IMO); (c) establishing a system of track access charges (TAC); (d)
transforming Perumka into a limited liability company (Persero)
structured along line of business principles, which included the
separation of Jabotabek from Java Interurban Rail system, a tariff
rationalization and exit plan, corporate planning, and asset
revaluation; and (e) developing a framework and strategy for
expanded PSP.
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2. The Jakarta Bandung Corridor Improvements; Cost: US $121.3
million—This consisted of (a) a modern centralized traffic control
signal system on sections of the line; (b) double tracking 27.7 kms
of the line; (c) remodeling of station trackage for a number of
stations; (d) replacing 24 kms of the existing partly worn out rail
which would be relaid on lower tonnage, lower speed lines
elsewhere; and (e) technical assistance (TA) for project management
and training of Perumka staff.
3. Track upgrading and maintenance system; Cost: US $37.5
million—This consisted of (a) renewal of 100 km of main track; (b)
partial restoration of 160 equivalent km of track; and (c)
establishment of a modern track maintenance system on Java; and (d)
training and supporting studies. A criticial component of the
maintenance system was to establish a rail reclamation yard for the
preparation of continuous welded (CWR) new and relay rail.
4. Diesel electric locomotive unit exchange maintenance system
on Java Cost; US $15.0 million—This consisted of establishing an
“on-time preventative maintenance system with unit exchange” for
diesel electric locomotives to provide ready-for-use components
before similar components are removed from the locomotive for
overhaul. This process would shorten locomotive maintenance
downtime and increase its availability for service. The component
included a locomotive workshop and two running maintenance depots
and was to provide initial quantities of critical spare parts,
components, consulting services and training.
5. Strengthening Perumka’s management; Cost: US $4.0
million—This component aimed at developing the institutional
capability of the railway in operations and planning focusing on
four areas: (a) bridge maintenance management system; (b) improved
signal and train operating regulations and related training
programs; (c) network simulation models used in capital investment
planning; and (d) capacity building to assess long term demand for
railway services.
Assessment of Design
The project’s objectives and components were clearly linked and
reflected the government’s priorities for the rail sector. The
design was built largely on the lessons learned from two railway
projects implemented in Indonesia and a study of railway lending by
the Operations Evaluation Department (OED) of the Bank. Two of
these lessons were that railway reforms cannot be carried out
piecemeal and should not only include institutional and operational
improvements and tariff revisions but should also include priority
investments in track and rolling stock. Given the reform objectives
of the project, its wide scope and large number of subcomponents,
the project was complex. This complexity was addressed in the
designation of the high level IACC, (which was already established
by Ministerial Decree to manage the sub-sectoral reforms) to
coordinate and guide implementation. The IACC would supervise a
Restructuring Task Force (RTF) to implement the reform component of
the project and a Project Management Unit (PMU) to handle the other
project components. Despite its complexity, the project was within
the implementation capacity of the RTF and PMU who were also to be
supported with adequate TA. The PMU was led by a competent manager
who had excelled in the RTAP and had been involved from the outset
in this project’s preparation.
Not withstanding the sound design of the project, there appeared
to be some overlap among a few of the project’s subcomponents. For
example one of the subcomponents of the Jakarta Bandung corridor
improvement was to “replace and modernize operating rules governing
train operations to benefit fully from the introduction of the new
signaling system”. A subcomponent under institutional development
“development and introduction of improved signal operating
regulations” seemed to address to some
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extent the same issue.
3.4 Revised Components:
1. Policy Reform: no change
2. Improvements to the Jakarta – Bandung CorridorIn December
1998 and owing to GOI’s desire to reduce its borrowing as a result
of the Asian financial crisis, the Bank and GOI agreed to
substitute the electronic signaling system that was to be installed
on the Jakarta-Bandung corridor with a mechanical system resulting
in the cancellation of US $20 million. Instead, an electronic
signaling system was subsequently implemented with Dutch
financing.
3. Track Upgrading and Maintenance System In September 2002, the
rail reclamation yard subcomponent was cancelled due to slow
progress (see Section 5.1.4).
4. Locomotive Exchange System: no change
5. Strengthen Perumka's ManagementFinancing for subcomponent (b)
was provided by other sources and dropped in 1999. Subcomponent (d)
was cancelled in June 2002 due to long delays in procurement (See
Sections 5.2.5 and 5.3.1).
3.5 Quality at Entry:
The quality at entry is rated satisfactory. The timing of the
project was right building on the momentum of the Railway Technical
Assistance Project (RTAP) and the Private Sector Development Loans
(as mentioned in Section 3.1). The project was in line with GOI’s
priorities and the Bank’s CAS. Its development and specific
objectives were well conceived and the components were well
designed and took into account past lessons. The Bank’s
requirements for identifying and assessing potential environmental
and social impacts were discussed with both Perumka and its
consultants and a resettlement plan was prepared by PTKA and later
revised based on the Bank’s comments. The project enjoyed the
explicit support and commitment of senior officials in the involved
ministries and agencies. The risks of such a reform were identified
by the Bank team, and it was hoped that with GOI’s strong
commitment and the additional visibility and transparency that the
Bank brings would diminish the chances of failure. Senior
government officials displayed their commitment to the reforms by
repeatedly emphasizing that the project was a reform project with
an investment component and not the other way around. The risk of
consuming the spare parts required for a sustainable locomotive
exchange maintenance system was mitigated by the fact that Perumka
had identified, and decided to adopt, such a maintenance system on
its own initiative.
Nevertheless, the extent of the resistance to the reforms was
not anticipated and its impacts had not been “socialized” among the
key stakeholders (see Section 5.2.1). With the benefit of hindsight
it would have been more realistic to have a longer tenure on the
loan for the reform component. Even if the financial crisis and the
political changes in Indonesia had not taken place, key reforms of
this nature that will always face resistance require institutional
and behavioral changes and are likely to extend beyond the tenure
of one or two administrations in the supervising ministries
requiring a longer time to implement.
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4. Achievement of Objective and Outputs
4.1 Outcome/achievement of objective:
The main objectives of improving economic efficiency and service
quality of railway sub-sector were not satisfactorily met, although
the physical improvements in the Jakarta-Bandung corridor, the
moderate success of the locomotive exchange maintenance system and
some capacity building have contributed to a small degree toward
achieving these objectives as described below.
(a) Sub-sector policy reform: UnsatisfactoryThe key components
of the reform were not undertaken (see Section 4.2.1).
Consequently, the objectives of the reform were not met.
(b) Rationalization of sub-sector capital investments:
Unsatisfactory.This objective was to be accomplished primarily by
refining and operationalizing network simulation models to be used
to evaluate capacity expansion proposals for different corridors in
the country. The models are not being used (see Section 4.2.5). A
PTKA staff member has recently completed graduate studies abroad on
their use and PTKA expects to start using them in the future.
(c) Improvement of sub-sector management and operations:
Unsatisfactory.A major objective was improving maintenance
operations by investing in a rail reclamation yard to prepare
continuous welded (CWR) new and relay rail and establish a
locomotive exchange maintenance system. While the locomotive
maintenance system was moderately successful, the rail reclamation
yard was never established. Some institutional capacity was built
in developing and employing bridge maintenance management systems.
Attempts to estimate long term demand and sub-sector needs and to
improve the investment and operation planning were not successful
(see Section 4.2.5).
(d) Increasing the physical capacity of the Jakarta-Bandung
Corridor: Moderately Unsatisfactory.Although the physical
improvements to this corridor increased capacity as envisioned, the
economic rate of return was negative due to a drop in demand
following the Asian crisis (see Sections 4.3.1). As such the
objective cannot be rated satisfactory despite the accomplishments.
Trains running during peak periods doubled (see Annex 1, number 5)
between 1995 and 2003 and the rate of accidents declined as
expected due to the reduction in the number of crossing points
after double-tracking (actual rates are not available). Even though
passenger journey times were not reduced as planned but in fact
they increased due to corrective works on the tracks to remedy the
damage created by land slides between Sukatani and Ciganea, the
delays would have been even longer had it not been for the
improvements.
4.2 Outputs by components:
1. Policy Reform—Rating: UnsatisfactoryOn the positive side,
Permuka was converted to a Persero albeit after an 18 month delay,
several studies were prepared on the necessary restructuring, the
Jabotabek suburban railway was separated from the Java interurban
rail system, and a Joint Decree of Bappenas, MoF and MoC and its
implementing regulations were issued to establish the legal basis
for the implementation of the PSO, IMO, and TAC. Nevertheless, the
newly established Persero was not reorganized along “line of
business” principles and the PSO, IMO, and TAC were never agreed to
and implemented. The company’s assets were not revalued, tariff
rationalization plans were not carried out and a framework for PSP
was never adopted.
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2. Jakarta-Bandung Corridor Improvements-- Rating:
SatisfactoryThe key subcomponents (except for the electronic
signaling system that was cancelled-see Section 3.4.2) were
completed. Despite significant procurement delays, smaller than
planned windows of work time available to contractors, a
seven-month loan disbursement suspension, and the several land
slips and slides that occurred between Sukatani and Ciganea, 28 kms
of double tracking were laid, 24 kms of the existing partly worn
out rail were replaced by new rail with the old rail relaid on
lower-tonnage lower-speed lines, 14 stations were remodeled, 8
bridges and 6 box culverts were constructed and the supporting TA
provided. The windows of time available to contractors to work on
the double tracking of the main corridor were shorter than planned
due to the collapse of a 100 year old tunnel on the alternative
route though Bogor. Deforestation in 2000 above the portal at the
Jakarta end resulted in a massive landslide that blocked the tunnel
entrance. Corrective works were aborted when heavy rains resulted
in the collapse of the tunnel and rendered the alternative track
that had been upgraded under the project unfit to carry the
container traffic to Bandung. This tunnel has not been
reopened.
Land Acquisition and Resettlement: The implementation of land
acquisition for double tracking construction started in 1997 and
was initially completed in 1999. Due to the required corrective
works, some additional land acquisition took place in 2001-2. There
were 398 households affected by the project: 58 land owners and 340
households who occupied Perumka/PTKA’s land. Implementation was
satisfactory (see Section 7.6).
3. Modern Track Maintenance System—Rating: Unsatisfactory.While
this component provided a 100 km of new UIC 54 rail including
concrete sleepers and fastenings for the main track, it failed to
provide a track maintenance system in Java due to the lengthy
delays in procuring the rail reclamation yard which was ultimately
cancelled. As the maintenance system was not established, some
supporting components such as the partial restoration of 160
equivalent km of track were not implemented.
4. Locomotive Exchange Maintenance System—Rating: Moderately
SatisfactoryThis component was implemented with few delays and was
rated highly satisfactory at the time of loan closing (loan closing
for this component was September 2003--see Section 5.4). The
envisioned maintenance system was successfully developed. It
created pools of critical components to be supplied to the workshop
and depots to replace worn out and damaged components. Facilities
were established in Bandung and Yogyakarta and were operational by
mid 2002. However, in April 2005, PTKA informed the ICR mission
that some of the machines had broken down and that the repair
process was delayed due to inadequate training of staff. The high
voltage connection that was required for Yogyakarta had not been
made and work had to be planned in stages to utilize the limited
power supply available. A small percentage of spare parts (3%) was
consumed due to budgetary constraints which was in turn partly a
result of PTKA’s not receiving fair compensation for the PSO and
IMO. (The success of the maintenance system required that the spare
parts not be used for consumption but only to replace a damaged
part until it was repaired.) Despite these shortcomings, the
maintenance system had resulted in some efficiency. A particularly
good case is the reduction in the washing time of a locomotive gear
box from 3 days to 3 hours (see Section 9.1.3.e). Nevertheless, due
to the limitations mentioned above, the component was rated
moderately satisfactory.
5. Strengthen Perumka's Management—Rating: Moderately
UnsatisfactoryOf the three remaining subcomponents (subcomponent
(b) was dropped—see Section 3.4e) that were to be implemented,
component (d), the development of the railway’s capability for
assessing the long term demand for railway services was cancelled
due to long delays in procurement; component (a), the bridge
maintenance program was developed and is being utilized; and
component (c), an updated version of the
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network simulation planning model was procured and the necessary
training provided. The ICR mission was informed, however, that the
network simulation model was no longer being used. PTKA attributed
this to the large data requirements and the high cost of securing
the data but was hopeful on using the model in the near future (see
Section 4.1.b)
4.3 Net Present Value/Economic rate of return:
The Economic Net Present Value (ENPV) and Economic Internal Rate
of Return (EIRR) were estimated in the SAR for three of the
project’s components: the Jakarta-Bandung Corridor, the track
maintenance system and the locomotive exchange maintenance system.
The table below shows the original as well as the re-estimated,
ENPVs for the three components.
Economic Net Present Value in SAR and ICR
Project ComponentENPV
(1996 RP billion)[SAR Estimate]
ENPV (1996 RP billion)[ICR Estimate]
Jakarta – Bandung Corridor 81 (77)Track Maintenance System 228
ZeroLocomotive Exchange Maintenance System
39 21
1. The Jakarta Bandung Corridor
In the original estimation, this component had an ENPV of 81
billion Rupiah in 1996 prices and an EIRR of 15%. When re-estimated
for the ICR, the economic returns were negative with an ENPV of
minus 77 billion Rupiah (in 1996 prices). The main economic benefit
of this corridor upgradation is the time and vehicle operating cost
savings. There are also additional benefits due to the reduction in
accident rates and pollution. All benefits are a direct function of
the number of car users who switch to rail as a result of the
project. In the original estimation, rail passenger traffic was
projected to grow at 8% per annum and the full capacity of the
railway corridor was projected to be reached by 2003. Consequently
from 2004 on any incremental traffic could only be accommodated by
road. However, and largely influenced by the 1997 Asian crisis, the
maximum capacity has not been reached yet and is projected to be
reached by 2008 and PTKA has revised annual passenger growth
projections down from 8% to about 5%. As a result, the projected
number of executive and business class passengers in 2020 dropped
from 11.1 million to 7.2 million. The 8% growth rate projected by
the Bank was plausible given that the annual growth rate between
1987 and 1995 was 9.4%. Another contributing factor to the drop in
the economic benefits is the sharp decline in container traffic
from 435 thousand tons in year 2002 to about 171 thousand tons in
2003 (largely due to a 130% tariff increase). At present, there is
plenty of capacity for container movements on the rail corridor and
achieving the benefits of the projected increase in container
traffic through 2020 would not have required the upgradation. See
Annex 3 for details.
2. The Track Maintenance System
The focus in the estimation of the economic benefits was the
establishment of the maintenance system, an objective that did not
materialize (see Section 4.2.3). Under these component, the project
also
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supplied rail parts. The Bank’s assessment was that these parts
would be the minimum necessary and would be carried out with or
without the project. Consequently, there is no difference between
the “without the project” case, typically known as the base case
and the project case and the ENPV is zero for both components.
Potential savings from procurement under ICB or an increase in cost
incurred in preparing, tendering, and evaluating bids could have
resulted in marginal positive or negative impacts.
3. The Locomotive Unit Exchange Maintenance System
The objective of the new system was to increase maintenance
efficiency and to reduce the down time of locomotives consequently
increasing their availability and productivity. The SAR estimated
that a) on time maintenance rather than maintenance at time of
component failure, b) the use of readily available exchange
components and c) the reduction in the frequency of locomotive
maintenance would result in savings equivalent to adding 10, 14 and
4 locomotives respectively. These benefits were assumed to be
generated gradually over a 6 year period after which they would
remain constant. The ENPV and EIRR for the maintenance system were
estimated in the SAR at 39 billion 1996 Rupiahs and 26.3%
respectively.
The ENPV and the EIRR estimated for the ICR were 21 billion 1996
Rupiah and 18.5% respectively. The difference is due to an increase
in cost of about 11.9 billion 1996 Rupiah (see Section 5.4) and a
reduction in benefits. The savings generated from on time
maintenance and the reduction in scheduled maintenance were smaller
than those projected in the SAR. The gross benefits expressed as
additional locomotives dropped from 28 in the SAR to 24 in the ICR.
See Annex 3 for details.
4.4 Financial rate of return:
1. Financial Performance of PTKA
Most of the key reforms that would have positively impacted the
financial performance of PTKA were not undertaken. Consequently,
any changes in the company’s financial performance cannot be
attributed to the project. Also, the financial indicators listed in
Annex 1 should be interpreted with caution. The low return on net
assets of 0.15% compared to a target of about 5% would have been
even lower if assets were revalued as necessary. The debt coverage
ratios appear reasonable but are not predicated on the proper bases
as the values on financial statements do not reflect actual costs
incurred.
2. The Jakarta Bandung Corridor
The financial returns for this component as estimated in the SAR
are marginally negative at a discount rate of 12% (FNPV of minus 10
billion 1996 Rupiah) and an FIRR of 11.7%. However, these variables
serve as descriptive statistics and not decision criteria as it was
clear that the project's investments in the corridor were not going
to be financed by the private sector. From financial and fiscal
perspectives, the important question is with respect to the
financial sustainability of the investments in the corridor
(availability of resources for maintenance and operation) but this
is necessarily linked to the overall financial performance and
reforms of PTKA (see Section 4.4.1). This issue is further
discussed in Section 6.1 on sustainability.
To obtain a general sense of how the financial returns have
changed after implementation, a re-estimation using price and
passenger growth projections provided by PTKA was carried out. It
shows a sharp decline in the financial returns to the investment.
The sharp drop is due to two main reasons: lower traffic volumes
and tariffs. The present value of the incremental revenues as
projected in the SAR
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was 375 billion 2001 Rupiahs compared to 190 billion 2001
Rupiahs as re-estimated in the ICR. The downward revision of the
projected demand and the slow growth over the past few years is
discussed in Section 4.3.1 above. With respect to projected tariff
rates, real prices were held constant throughout the analysis
period in the estimation in the SAR. However, real tariffs declined
under PTKA’s projections. Adjustment of the nominal tariffs
projected by PTKA through 2021 for business and executive classes
lags well behind an assumed average annual inflation rate of 6%. By
2021, the projected tariff for the executive service will be less
than 60% of its real value in 2002. Further contributing to the
negative financial returns, although to a smaller degree, is the
fact that container traffic dropped significantly in 2003 and has
not recovered (see Section 4.3.1).
It is important to keep in mind that the financial analysis
conducted for this project does not address the commercial
viability of the entire corridor, but rather the financial return
on a particular investment to upgrade the corridor.
4.5 Institutional development impact:
Despite the project’s failure to meet its development
objectives, its institutional development impact is substantial.
Knowledge and skills were acquired throughout the design and
implementation phases of the different project components. The TA
helped build capacity in the use of bridge maintenance programs and
network simulation models for planning (even if these models are
not being used at present). More importantly, the failed reforms
have increased the awareness of PTKA’s board and staff, the IACC
and senior government officials of the main issues involved in
restructuring, as well as the different alternatives and
approaches. These are critical prerequisites for any successful
reform and cannot be accomplished in a short time. Whether the Bank
is involved in other railway projects in Indonesia that support the
ongoing reform efforts to their fruition or PTKA carries out the
reforms without the Bank’s assistance, the project has “planted the
seed” for the reforms. The long delays in the procurement starting
from preparing terms of reference, to establishing a decision
process have spurred the PMU and PIUs to streamline and simplify
procurement processes. One recommendation made by a PTKA director
during the ICR mission was for MoC and the Bank to agree on a
standard form of contract during preparation to shorten the lengthy
procurement process and avoid unnecessary delays.
5. Major Factors Affecting Implementation and Outcome
5.1 Factors outside the control of government or implementing
agency:
Four factors outside of the Government’s control contributed to
the project’s shortcomings.
1. The Asian financial crisis
The crisis affected the project in several interrelated
ways:
(a) The crisis shifted the attention of senior and key
government officials to social safety nets and poverty alleviation
policies. As Perumka/PTKA was functioning and did not seem in need
of immediate attention, the reforms became less of a priority and
the strong commitment that was enjoyed at the outset of the project
weakened.
(b) The fiscal impacts of the crisis faced by GOI were massive.
Debt service, fuel subsidies and restructuring of PLN placed huge
burdens on the budget. The railways would continue to operate even
if the PSO and IMO payments were not made in full while other
payments were much harder to defer.
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Consequently, MoF did not acknowledge, or make, the estimated
payments.
(c) The sharp depreciation of the Rupiah created uncertainty, at
least in the short run, with respect to the political acceptability
as well as the financial viability of a tariff rationalization
plan, particularly not knowing the impact of large tariff increases
on ridership.
2. Change in political environment and succession of leaders
During the project, there were 4 presidential changes and many
changes in the senior leadership and board of Perumka/PTKA, MoC,
the IACC and RTF. During one 6 month period in 2001, there was
effectively no IACC to guide implementation. (Some of the changes
were within the control of the government as discussed in Section
5.2 below.) At the very least these changes disrupted continuity as
sometimes the majority of the new appointees were not fully aware
of the project and had to be briefed in depth. In one case, the
resignation of the entire board of PTKA was in response to a train
accident that had resulted in the loss of lives. Consequently, the
resolution of safety issues took precedence by the new board over
anything else.
3. Land slides/slips in the Jakarta Bandung Corridor
The extension of the project’s closing date was due primarily to
geological conditions that caused numerous landslides and landslips
in the Jakarta Bandung Corridor, specifically in the area between
Sukatani and Ciganea (Km 100 to Km 104). A major landslide in the
mid 1970s revealed the area’s vulnerability. This section of the
corridor requires continuous monitoring and maintenance as there
are significant geological differences within this relatively small
area. It was essential to fix these problems so that the rail line
could continue to operate. Consequently the closing date was
extended twice for this purpose for a total of 15 months to allow
for the completion of the corrective works.
4. Failure of the first round of tendering for the railway
reclamation subcomponent
Upon the Bank’s recommendation, bidding for the railway
reclamation subcomponent, the core of the track maintenance
management program, was split into three packages: the railway
reclamation facility, rail welding machines, and supervision and
training. This was proposed to increase participation and
competition for the different packages. However, no bids were
submitted for the first package and those received for the other
two were non-responsive. The three packages ultimately had to be
combined into a single responsibility contract. While the package
could still have been executed had it not been for the lengthy
procurement delays (see Sections 5.2.5 and 5.3.1), the time lost in
the first round of tendering contributed to the cancellation of
this subcomponent.
5.2 Factors generally subject to government control:
1. Resistance to reforms
Resistance to the reforms within some ministries and agencies
contributed to a large extent to the suspension of loan
disbursements and later downgrading of project implementation and
achievement of development objectives to unsatisfactory status (see
Section 7.7).
(a) MoF was supportive from the beginning but never delegated
high level officials to attend meetings which delayed decisions and
made the resolution of differences more difficult. While MoF agreed
in principle to the reforms and the budgetary mechanisms proposed
by PTKA
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(PSO/IMO/TAC), MoF did not make available the appropriate amount
of funds as estimated by PTKA according to the Joint Decree and its
implementing regulations but paid only a “balancing” amount that
was a small fraction of what had been estimated. The resistance was
in large part due to scarce public funds (discussed in Section
5.1.b) and possibly due to the fact that PTKA’s financial
statements showed profits, although these were primarily a result
of low depreciation values. Had these values been revised upwards
as per the project’s plans, it would have been clear that PTKA did
not have the resources to replace its rolling stock, let alone
finance expansion and upgrading.
(b) At times MoC showed less than full commitment. Law 13 of
1992 on the railways required 12 Ministerial Decrees for its
complete implementation, many of which were necessary for the
satisfactory progress of the project. Nine years later, as of June
2001, only five had been issued with an additional one pending.
(c) The envisioned reforms were to leave DGLC/MOC primarily with
regulatory responsibilities with PTKA carrying out maintenance and
upgradation works and paying compensation for the use of the
tracks. As this represented a change from the existing paradigm
where DGLC also carried out upgradation works, there was some
resistance to the reforms within DGLC.
(d) The resistance within PTKA was stronger than anticipated.
Perumka was organized along regional/geographical lines where
Directors of Operations (Daops) were responsible for all business
and technical aspects of running the railway within their
respective regions. As the reorganization of PTKA along
line-of-business principles would reduce the responsibilities of
many of the Daops, they resisted the reforms.
2. Intermodal Imbalance
The financial viability of the rail sector and its ability to
compete on an equal footing with the road sector required that road
users pay a charge for using the roads along the same principles of
PTKA’s paying a track access charge for using rail. Indeed, GOI’s
1996 “Statement of Goals and Policies” for the sub-sector envisaged
track access charges being introduced in concert with road user
charges. The lack of implementation of road user charges made the
financial viability of PTKA more difficult. To compensate, tariffs
needed to be raised, but charging the tariff rates necessary for
commercial viability would have shifted ridership to the subsidized
road sector.
3. Change in the shareholder responsibility of PTKA
At preparation, MoC was the policymaker, regulator, shareholder
representative for Perumka and owner of the infrastructure. The
establishment of the Ministry of State Enterprises (MoSE) in 1998
meant that Perumka would fall under its purview and not that of
MoC. Frequent changes of shareholding responsibility for PTKA
delayed the reform process. It was not clear which responsibilities
would remain with MoC and which would move to MoSE. This issue was
ultimately resolved by a Presidential Decree to keep Perumka under
MoC. However, shortly after its conversion in July 1999, PTKA was
shifted from MoC to MoSE in December of the same year then back to
MoC in July 2000 and once again back to MoSE in November 2001.
MoSE’s main focus was to deal with state enterprises that were
imposing large burdens on the budget and so PTKA was not a
priority. Even with full commitment, these changes greatly
inhibited the reform process as the new supervising ministry had to
be briefed each time on the project’s reforms before sanctioning
them.
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4. Flaws in the decision making processes affected project
progress and resulted in lengthy delays
(a) The instruction by DGLC to use KA clip rail fasteners
instead of the specified Pandrol clips without consulting the Bank,
despite the fact that KA clips had not been tested in accordance
with accepted international standards and did not provide any cost
savings. The Bank indicated that it would entertain the idea of
testing the KA clips on side tracks but the contractor proceeded to
order large numbers of the clip and installed some of them on the
main line. These were later replaced by Pandrol clips.
(b) Delays in approving concrete sleepers on curves to replace
steel sleepers that had manufacturing problems and that had not
been inspected at point of of manufacture and later rejected on
delivery for quality reasons.
(c) The decision to build an Austrian-financed bridge on the
Jakarta-Bandung Corridor without an overall analysis of the
benefits of such bridge.
(d) In a conscious effort to reduce its borrowing, GOI decided
to cancel the electronic signaling component, which was
subsequently financed by the Netherlands without consulting the
Bank. This complicated implementation and resulted in the Bank’s
shifting construction priorities on the Jakarta Bandung corridor to
coordinate signal commissioning with station remodeling.
Coordination was in general satisfactory but there were safety
concerns during implementation.
5. Complex GOI procurement rules
These generally slowed implementation (also see Section 5.3.1
below). Civil works were delayed due to excessive micromanagement,
with decisions taken by the project group needing to be confirmed
by PTKA and then ratified by DGLC. There was a procurement
committee for the project that included different institutions
which sometimes had different opinions. Ambiguities in the
interpretation of different government regulations (Kepres 6/99,
Kepres 16/94 and MoC implementing regulation KM 48/95) also
contributed to confusion and delays.
5.3 Factors generally subject to implementing agency
control:
1. Delays in implementation(Delays resulting from the complexity
of the procurement rules are discussed above in Section
5.2.5)Considerable, often unwarranted, delays in preparing terms of
reference and evaluating bids played a large role in the
cancellation of the key subcomponent of the track maintenance
management component (the rail reclamation yard-see Section 5.1.4)
and the institutional development subcomponent on long term demand
estimation. In at least one instance, the validity of the proposals
expired before they could be evaluated. Other examples include
contract signature that was delayed for two months despite
completion of evaluation (the UIC 54 rail, turn-outs and steel
sleepers) and a delay of about one month in the start of the
evaluation of submitted bids for supervision of the Jakarta-Bandung
corridor.
2. Implementation problems due to inadequate monitoring For
example, a Bank mission found a construction site for double
tracking works at Sukatani to be in poor condition for lack of
temporary drainage and no clearly set out survey pegs raising
safety concerns. The equipment at the site was also insufficient to
carry out the contract within the specified time.
5.4 Costs and financing:
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Several subcomponents were canceled and the loan agreement was
amended 4 times and the closing date was extended for a total of 27
months to December 30, 2004. The first amendment, effective August
1998, cancelled US $20 million and changed the loan reallocations
among the different categories while increasing the share financed
by the Bank for some categories. The second amendment extended the
closing date by one year to September 30, 2003 and cancelled an
additional amount of US $27.325 million as of September 24, 2002
while also changing some loan reallocations. The third and fourth
amendments extended the closing dates by 12 and 3 months
respectively to allow for completion of the corrective works on the
double tracking between Ciganea and Sukatani on the Jakarta-Bandung
Corridor component only. Land slips and slides that had occurred in
that section necessitated the corrective works (see Section 5.1.3).
The amendments also included some reallocation in the loan
categories to allow for the financing of the corrective works in
that section. Other than the civil works for the Ciganea Sukatani
section and associated TA, the closing date for all other project
components was September 30, 2003.
The cost of the project at appraisal was estimated at US $207.3
million of which the Bank, the Government of Australia and
GOI/Perumka were to finance US $107.4 million (US $105 million from
the REP loan, and US $2.4 million from Loans 3385 IND and 3913
IND), US $56 million and US $43.9 million respectively. (See Annex
2 for details.) There are however descrepencies in the sources of
finance as presented in the SAR. While Table 4.2 shows the
contribution of GOI/Perumka and the Government of Australia at US
$43.9 million and US $56.0 million respectively; Table 4.3 shows
them at US $37.8 million and US $62.2 million respectively. The
total actual project cost is estimated at US $130.9 million
financed as follows: US $57.6 million by the Bank, US $55.2 million
by the Government of Australia, US $13.0 million by the Government
of the Netherlands and US $5.2 million by GOI/Perumka.
Expenditures on the policy reform and institutional development
components as a percentage of the estimates at appraisal were the
lowest at 4% and 21.5% respectively due to the lack of progress on
the reform and the cancellation of subcomponents (see the first
table of Annex 2). IBRD financing of the Jakarta Bandung civil
works was US $15.5 million compared to an allocated amount of US
$22.8 million in the December 99 Amendment, resulting in about US
$8 million in savings. The small percentage of actual expenditures
on the track maintenance component was mainly due to the
cancellation of the rail reclamation yard and related works; while
the overexpenditure on the locomotive exchange unit maintenance
system was due to the procurment of additional components that were
required.
6. Sustainability
6.1 Rationale for sustainability rating:
As the single rating given to the whole project (unlikely) does
not cover specific project components, their sustainability is
discussed below:
(a) The sustainability of the physical improvements (stations
remodeling and double tracking) on the Jakarta Bandung Corridor is
rated as likely. Even though the project’s investment has proved
not to be financially or economically viable (see Sections 4.3 and
4.4), this corridor remains the most heavily trafficked one in
Indonesia and is the most commercially viable line that PTKA
operates. It should also be noted that the analysis covered the
project’s investments in the corridor not its overall commercial
viability. The viability of the corridor is enhanced by the fact
that plans to build a toll road were delayed
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as a result of the Asian financial crisis (one lane only was
completed in April 2005 ahead of the Asia-Africa meeting that took
place in Bandung). At present, trip time by rail is usually around
2.5-3.0 hours compared to about 4-5 hours by car on the untolled
road. Nevertheless, the budgetary mechanisms that would have
assured the allocation of sufficient funds for the maintenance of
the tracks have never been agreed to by MoF, and PTKA continues to
receive a small fraction of what has been estimated following the
Joint Decree on the budgetary mechanisms and its implementing
regulations. Consequently, the likely maintenance of the route will
depend on the availability of funds and competing priorities.
(b) The sustainability of the locomotive exchange maintenance
system is rated as likely. While the system has to some extent
faltered since its successful completion, only 3% of the parts have
been consumed despite budgetary constraints; and machines that have
broken down are being repaired. This, together with the fact that
Perumka had planned to develop this maintenance system on its own
initiative, would indicate that the system ranks high on the
company's priority list.
(c) The institutional subcomponent on network simulation
modeling proved to be unsustainable. (see Section 4.2.5).
(d) Other project components were largely unsuccessful.
6.2 Transition arrangement to regular operations:
PMU and PIU members are PTKA staff and so the transition from
the project to regular operations has taken place with no
disruption. Members of the RTF within PTKA continue to work on the
restructuring despite the closing of the loan. There is a system in
place for collecting the performance indicators on the available
capacity and utilization during peak hour on the Jakarta Bandung
Corridor and on locomotive availability (see Annex 1).
7. Bank and Borrower Performance
Bank7.1 Lending:
The bank’s performance for this stage was satisfactory. The
assessment of objectives and design in Sections 3.1 and 3.3
respectively and Section 3.5 on the "quality at entry" explain that
the project was well conceived and designed, and how the
implementation arrangements were set up to deal with the complexity
of this project. The project was prepared with the active
participation of the Borrower and complied with all relevant
safeguard policies. Key risks were identified; and the preparation
team members, complemented by consultants, covered the different
areas of expertise required for the project (see Annex 4).
The economic analysis of the physical improvements proved their
viability. There was however some arbitrariness in the appraisal of
the Jakarta Bandung corridor improvements. Because a section on the
corridor was common to more than one route in Java, the total cost
of the corridor improvements was reduced by a fraction and only the
benefits specific to the corridor were included. A better approach
would have been to account for the benefits to all passenger
networks and freight trains (even those outside the corridor) and
the total costs of improvement. Given that increasing safety on the
Jakarta Bandung corridor was one of the objectives of the corridor
component, the performance indicators could
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have included one or two indicators on accidents. Finally, the
slight descrepancy in the sources of the project's financing as
presented in the SAR (see Section 5.4) could have been easily
avoided.
7.2 Supervision:
The Bank’s performance during supervision was satisfactory. The
project had three task managers but continuity was maintained by
the second task manager who remained as a Bank consultant and was
heavily involved through loan closing. The Bank’s Transport Sector
Coordinator, based in Jakarta, supervised the reform aspects of the
project and played a major role in its design and preparation. He
was very familiar with Indonesian economic and political
circumstances and had also worked on the earlier RTAP. The
Project’s second task manager, who supervised physical
improvements, was also based in Indonesia and a key member of the
project team from the beginning. Consequently, both were very
accessible, provided key inputs and tight follow up. In addition,
both were well respected by PTKA who updates the Bank on the
performance of the physical improvements despite loan closing and
informally seeks their advice on other matters. Missions included a
balanced mix of the necessary expertise (see Annex 4). During
Fiscal Year 2004, twelve site visits were carried out by the Bank.
These were not formal missions but this approach was appropriate
given that as of September 2003 only one component was to be held
open to complete the corrective works resulting from the
landslides.
The Bank team provided constructive advice to the problems that
plagued the project and organized thematic supervision missions to
deal with safeguard and fiduciary issues. Despite tight follow up
and supervision, there were a few instances where the Bank was not
kept abreast of all project-related develpments but nevertheless
showed considerable flexibility. One example was in rearranging
implementation priorities on the Jakarta Bandung corridor to
coordinate with the implementation of the Dutch financed signaling
system. Another one was granting an approval on an exceptional
basis to allow for the use of the untested KA railway clips on some
secondary rail lines even though the Bank was never consulted on
their procurement. The Bank also showed understanding in extending
the loan closing date 15 months to carry out the corrective works
on the Jakarta Bandung corridor that had resulted from the land
slides and slips.
The Bank was firm on the key issues and correctly suspended loan
disbursements less than 18 months after effectiveness due to
failure to abide by important loan covenants regarding the reform.
This demonstrated the Bank’s seriousness about supporting the
reform process and trying to secure the utmost support from GOI.
The Bank displayed flexibility again in lifting the suspension
despite the fact that not all the covenants that had resulted in
the suspension had been met. Nonetheless, the key covenant
regarding the conversion of Perumka to a Persero status had taken
place following a Presidential Decree.
There were a few shortcomings with respect to the supervision of
the locomotive exchange maintenance system. While the system was
installed and rated highly satisfactory, training had not been
fully completed and the installation of the high voltage connection
to the Yogyakarta workshop had not been made (see Section 4.2.4).
The weakness in the Bank's supervision in this regard is reflected
in not pursuing the matter to closure and secondly in the highly
satisfactory rating despite these pending issues.
The Bank could have also given some consideration to
restructuring the reform component in light of the major changes in
the political, financial and economic landscape in Indonesia.
Realizing the change in the government’s priorities and the
reluctance of the private sector to be involved at that time,
particularly in long term investments, could have warranted a
formal reduction in the scope of, or a longer implementation
schedule for, the reforms.
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7.3 Overall Bank performance:
The Bank’s overall performance was satisfactory.
Borrower7.4 Preparation:
The Borrower’s performance during preparation was satisfactory.
GOI’s commitment to the reforms at the beginning was strong and
evident in the attendance of project meetings by 3 high level
(Echelon 1) staff (two Secretaries General from MoC and DGLC and
one Deputy Chairman from Bappenas) to reinforce their commitment.
The Borrower worked closely with the Bank and preparation
consultants to define the project. Several of the studies required
for the project had already been completed by MoC/DGLC prior to the
start of the project. GOI’s commitment to move fast on the reforms
was demonstrated in its request that the management consultancy
assistance for the development and implementation of the reforms be
initiated with financing from the ongoing RTAP. The PMU and PIUs
were staffed with adequate numbers of full time staff at loan
effectiveness. The preparation of a Resettlement Action Plan
according to Bank’s policy took place in a timely manner. With the
benefit of hindsight, PTKA believed that better geological surveys
of the Sukatani-Ciganea section of the Jakarta-Bandung corridor
could have helped in identifying vulnerable areas and carrying out
the necessary corrective works earlier.
7.5 Government implementation performance:
The Government’s performance during implementation was
unsatisfactory. Physical improvements were delayed due to complex
procurement and sometimes flawed decision making processes and
deadlines for key actions on reforms were rarely met (see Section
5.2). These resulted in the suspension of the loan for 7 months
(see Section 7.2) and for unsatisfactory project ratings on
implementation and achievement of development objectives for most
of its life.
7.6 Implementing Agency:
The implementing agency’s performance during preparation was
satisfactory. The IACC adequately guided implementation with the
RTF and the PMU reporting to it. The RTF was in charge of the
reform component and the PMU of all the other components, and each
generally carried out its responsibilities satisfactorily. The
resistance and delays that resulted were largely due to the
government and not the RTF and PMU. The RTF, for example, continued
to prepare PSO/IMO/TAC proposals, as mandated, despite their not
been accepted by MoF. With a few exceptions, the PMU’s performance
on financial management was satisfactory. Progress reports were
furnished to the Bank in a timely manner, progressively improved in
identifying issues and proposing solutions, although alerting the
Bank to potential delays was not always satisfactory. Of the few
issues that were brought to the PMU’s attention were the
discrepancy between expenditures reported to DGLC and the Bank, and
the need to better correlate payments with supporting documents for
easier management and audit. The PMU was also not always proactive
in providing updates on performance indicators.
Despite significant delays, the quality of completed work on the
Jakarta Bandung corridor was good. This not withstanding, there
were a few incidents where the performance of the PMU could have
improved (see Section 5.3).
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The implementation of land acquisition and resettlement on this
project is considered satisfactory. No significant problems arose
during implementation. Both land owners and those who occupied
Perumka’s land got fair compensation. When PAPs were interviewed
people, they expressed their satisfaction with the compensation
rate and timeliness of receiving compensation.
7.7 Overall Borrower performance:
Despite a satisfactory performance in preparation, the
Borrower’s overall performance was unsatisfactory. Development
objectives were not achieved. The sectoral reforms fell very short,
and the important track maintenance management system is not in
operation. Project implementation and financial performance were
often rated unsatisfactory. Lack of progress on the reforms led to
the suspension of the loan for a seven month period between
December 1998 and July 1999. Eighteen months after lifting the
suspension, implementation was downgraded to unsatisfactory where
it remained for the rest of the project (with the exception of one
conditionally satisfactory rating).
8. Lessons Learned
1. Cultivate commitment in upcoming managerial cadresAside from
resistance to reforms from some quarters which should be expected,
the problem of commitment to reform was exacerbated by changes in
the senior management who was advocating the reforms. The Borrowers
need to build strong commitment at all managerial levels to enhance
the reform’s sustainability over time.
2. Identify opposition from the outset and gauge resistance to
proposed reformsThe project had many strong supporters and enjoyed
solid commitment that carried over from the Railway Technical
Assistance Project. However, some resistance arose from the outset
from DGLC and even the Daops in Perumka/PTKA, and the commitment of
MoF was not as strongly demonstrated as that of Bappenas and the
railways. More efforts are necessary during preparation to identify
the opposition, assess their potential influence on the project,
institute mitigation measures and carry out a “socialization” of
the reforms.
3. The Bank’s presence keeps momentum for reforms alive Despite
the failure of the reforms, the studies undertaken have increased
the awareness of PTKA’s board and staff, the IACC and senior
government officials of the main issues involved in restructuring,
as well as the different alternatives and approaches, and critical
prerequisites for any successful reform. The Bank’s engagement and
support of the reform process helped keep it alive (PTKA is still
looking into restructuring options and experimenting with pilot
projects). However, without the Bank’s support, the reforms, even
though they may ultimately succeed, they will be harder to achieve
and most likely take more time.
4. Policy reform takes timeReform processes are inherently
complex to implement, require high degree of stakeholder
consultation, analysis of impacts on the various affected groups
and consensus building. They often require institutional as well as
behavioral changes. For this reason, the Bank may want to consider
(or realistically expect) longer tenures for loans dealing with
challenging policy reform issues.
5. Simplified and harmonized procurement procedures are
necessary
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Procurement was delayed for many reasons as discussed in
Sections 5.2 and 5.3. While harmonization of DGLC’s and the Bank’s
requirements as suggested in Section 4.5 early on would save time,
the Bank needs to set realistic schedules. Given that this was the
PMU’s first experience with ICB, delays were probable. It would be
useful for the Bank to assess procurement capacity and risks of
delays.
9. Partner Comments
(a) Borrower/implementing agency:
9.1 Project Implementation
9.1.1 Organization and Staffing
Overall responsibility for coordinating and guiding the
implementation of REP vested in the IACC (Inter Agency Coordinating
Committee) established by a Minister of Communication’s Decree.
This committee consists of a Steering Committee (chaired by the
Secretary General of MOC, with members from representatives of
related Government Officials), and an Inter Agency Working Group
(chaired by the Secretary of Land Transport Directorate General,
with members from the Deputies of the above mentioned
officials).
For the Non Physical component’s implementation, a Restructuring
Task Force (RTF) was established, chaired by the BoD of Perumka/PT.
KA, with Perumka/PT.KA staffs as the members.
The physical component execution is the responsibility of the
Project Management Unit (PMU), which consists of three Project
Implementation Units (PIUs), namely :
a. PIU for Jakarta – Bandung Corridor improvements and track
maintenance systems, including related training.
b. PIU for Locomotive Unit Exchange Maintenance System,
including related trainingc. PIU for the Institutional
Development
9.1.2 The Non Physical Components Implementations
a. Transforming Perumka into PT.Kereta Api (Persero)
Based on the “Goals and Policies”, in the covenant stated that
Perumka will be transformed into PT Kereta Api (Persero) on January
1, 1998. In deciding the transformation, there were some argues in
the company, causing the delay in the process, so that the
transformation happened in June 1, 1999, resulting an
Unsatisfactory rating from the Bank, and an administrative sanction
was implemented (suspension of disbursements: from December 1998 up
to June 1999). The Organization structure will be arranged on
regional and line of business. The PT KA Board of Directors decided
that Java organized on line of business principle (Divisions), and
Sumatera on regional basis. In Java 7 divisions shall be
established (Jabotabek Railway, Rolling Stock, Training, Property,
Passenger, Freight, and IMO Debates on the choice between
establishing an IMO Division or an IMC Division, solved by the help
of an International Consultant (Canarail). IMO = Infrastructure
Maintenance and Operation, IMC = Infrastructure Maintenance and
Construction Divisions), and a Train Restaurant sister company.
Sumatera is divided into 3 Regional Divisions (North, West and
South Sumatera
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Regional Divisions). Java organization structure is being
implemented gradually with the 4 first Divisions already
established. The 3 latter Divisions is currently under intensive
preparation and planned to be declared in mid September 2005 and in
full operation by January 2006.
b. Separation of Jabotabek
One of the policy reform plan (as stated in the SAR) is the
financial and managerial separation of the Jabotabek and Java
Inter-city systems. From the agreement reached it was stated that
the GOI implement the financial separation of the Jabotabek and
Java Inter-urban rail systems by February 28, 1997. The separation
of the Jabotabek and Java interurban rail systems is actually
implemented in 1999, except for basic infrastructures which is
still jointly used with Java Interurban transport. Ideally the
Jabotabek Railway should operate on its own infrastructure, with
some joint/integrated stations.
c. Tariff Rationalization and Exit Plan
As stated in the Goals & Policies, the Management entity
will in general be empowered to set the tariffs and rates for
railway services at levels that will enable it to cover the
associated financial costs of provisions, including track charges –
if and when levied – and to earn a reasonable return on assets
employed. To reach this condition, the BoD of PT.KA hired an
Australian Consultant to study on the tariff calculation and
setting, including the exit plan for loosing services. PT KA BoD
has prepared the basic concept for tariff specifically for the
economy class passenger and now in the process of approval from MOC
and the Parliament.
d. Assets Revaluation
The Bank criticized the financial report of PT KA (not picturing
the real numbers) due to the fact that PT KA assets are calculated
on much lower price basis. This down pricing was happened when
Perumka transformed into PT KA, to avoid high taxation. At present
a simulation is being undertaken to foresee the impact if the
re-evaluation is done.
e. Implementation of PSO, IMO, TAC
The Reform covers administrative and financial relationship to
reposition both the Government (as Regulator and Owner) and the
company (as Operator). For the financial relationship, a Joint
Decree of three Ministers (and an implementation decree of three
Director Generals) were published to regulate, calculate and
implement the PSO (Public Service Obligations), IMO (Infrastructure
Maintenance and Operation Cost), and TAC (Traffic Access Charges)
budget arrangement. The implementation, however, is not coincide
with the agreed process, and not meet the principle stated in the
Goals and Policies.The World Bank commented that the PSO, IMO, TAC
budget mechanisms are still not being implemented in accordance
with the adopted procedures and that the Parliament has recently
expressed concern of this matter (Aide Memoire of June 23, 2003).
Since the implementation from year 2000 until 2004, in accordance
to audit results from BPKP, there still exists a cumulative
difference of 1.3 trillion Rupiah. The principle stated in the
Goals & Policies determine that the TAC will be implemented in
line with the implementation of the RUC (Road User Charges). The
RUC is not implemented
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yet, but the TAC is already implemented.
f. Regulations for Implementing Law 13/92
To support the Railway law No. 13/92 some regulations have been
issued, i.e.:a. Government Regulations (GR) No. 69/98, concerning
Infrastructure and Rolling Stock, issued
on August 20, 1998b. GR No. 81/98 concerning Railway Traffic and
Transport, issued on November 30, 1998
g. Business Chance Identification
Perumka physical utilization of assets is good but the financial
return on assets is poor. From the analysis made it is concluded
that Perumka has relatively high in terms of physical measures of
asset utilization, but mainly due to depressed passenger fares, the
revenue earnings of its physical assets are inadequate and
significantly lower than the railways in Thailand, Austria and
Belgium.
h. Regulation Formulation for Private Sector Participation
(PSP)The RTF (PSP Working Group) has prepared a draft for the
Ministerial Decree on the Regulation for the PSP and has been
submitted to MOC. The Working Group has prepared also a computer
based data and site plan on land use for join project with Private
Sectors, whether BOT, BOO or other form of join business to invite
PSP for utilising space of lands belongs to Perumka/PT.KA. While in
the field of the core business itself few companies have expressed
their interest but did not follow up due to commercial
considerations.
i. Implementation of Infrastructure Investment Plan
Beside the double track construction in the Jakarta – Bandung
corridor, GOI is also constructing double track at some locations,
i.e. :- Cikampek – Cirebon line, funded by JBIC loan- Kroya –
Yogyakarta line, funded by JBIC loan- Manggarai – Cikarang line (a
double double track) funded by JBIC loan- Yogyakarta – Solo funded
through own budget (APBN)- The next double track construction is in
Cirebon – Kroya line which would be funded by
China.
9.1.3 The Physical Components Implementations
a. Double Tracking Construction
The construction of double tracking was done in the sections of
Cikampek-Purwakarta 19 km, Ciganea-Sukatani 7 km, and
Plered-Cisomang 6 km.Due to the slowness burreaucracy of the tender
process, the completion of the double tracking civil works planned
to be finished on April 2003 exceeded the original loan closing
date (September 2002), and the loan was extended (one year, up to
September 30, 2003). The construction works of the double tracking
was slow progressing, and the completions were delayed i.e.:
Cikampek – Purwakarta end of July 2003, Ciganea – Sukatani end of
August 2003, Plered – Cisomang end of July 2003, comparing with the
plan that all the double
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tracking work should be finished in June 2003.
The double tracking on the Ciganea-Sukatani section is delayed
due to the soil stabilization problem in the area. A significant
landslide occurred in km 110, so that the completion was delayed
and consequently the Loan was extended again for another one year,
especially for completing the section and landslide countermeasure
works. All works related with the landslide countermeasures was
completed in December 2004 and the line has been in full operation
since February 2005.
b. Modernization of the Signalling System
The signalling modernization was cancelled from the loan which
resulted in reducing the loan from USD 105 million to USD 85
million. The system then modernized, supported by Dutch loan. The
modernization of signalling system (electric) was cancelled from
the Bank Loan, the existing system (electro mechanical) retained.
GOI accepted Dutch Loan for the signalling modernization. and is
currently operating.
c. Stations Remodelling
The remodelling of stations were implemented in 14 stations,
i.e.: Cikampek, Cibungur, Sadang, Purwakarta, Ciganea, Sukatani,
Plered, Cisomang, Cikadongdong, Rendeh, Maswati, Sasaksaat, Cilame
and Padalarang.
d. Modernization of Track Maintenance System
At the implementation stage the tender process for the
establishment of the Rail Reclamation Yard was very slow. The first
tender failed, due to : (i) . reluctance of the management involved
(traumatic fail experience in a similar project in 1980s, (ii)
monetary crisis in the country.The 3 packages tendered (procurement
of track materials and machineries, construction of Rail
Reclamation Yard, training for operating personnels) then
simplified into one single turn key package, helped by a Belgium
consultant, and re-tendered. To the program, the work will be
completed in mid 2004, far exceeding the loan closing date,
resulting in an agreement to cancel the Rail Reclamation Yard,
except the purchase of 100 km track new rails, including the
sleepers and fastenings.
The implemented activities are:· Procurement of new rails, PC
sleepers with and without guard rails (for straight and curve
sections)· Technical assistance for Bid Document preparation to
convert the 3 bid documents into
one single package and for bid evaluation (for the Rail
Reclamation yard),
As the consequence of the cancellation of the Rail Reclamation
Yard construction, the modernization of the track maintenance
system is not functioned, but the partial restoration (track
rehabilitation program) to change R42 rails on wooden/steel
sleepers to R54 rails on concrete sleepers is implemented as
follows :
· In FY 2004 - 17.15 km have been installed between Cimekar –
Cicalengka and Ciawi – Rajapolah.
· In this FY 2005 - 28.460 km will be installed between Bandung
- Lebakjero and 11.105
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km between Purwakarta - Padalarang· In FY 2006 , 29.095 km
between Lebakjero – Tasikmalaya and 14.190 km between
Purwakarta – Padalarang has been programmed
The replaced R42 rails shall be selected for use in lower
tonnage lines.
Training of Maintenance PersonnelThe training of maintenance
personnel is directly related to the establishment of the Rail
Reclamation Yard (RRY). Because the RRY was cancelled, consequently
the training was also cancelled.
Consultants ServicesThe consultant service related to this
package was only for the design of the RRY and the change of tender
documents, from three packages into one single package (Belgium
Consultant).
e. Modernization of Locomotive Maintenance System
Activities implemented to achieve the modernization plan were:·
Procurement of machinery such as Long Lead Machinery, Medium Lead
Machinery and
Short Lead Machinery· Construction and Installation civil works
for Underfloor wheel lathe construction· Procurement of Unit
Exchange Components and Spareparts· Consulting Services and
Training T.A. for the Implementation of Locomotive Maintenance
· A multi media modules for training
The implementation has begun from June 2002 and up to date 70 %
of the parts have been used up consisting of 97 % used for
production of Unit Exchange Components and 3 % consumed for spare
parts., due to the shortage of available maintenance spare parts
This is caused by the fact that the utilization of components used
are much faster than the production due to shortage of available
spareparts.
As an ilustration, the yearly requirement of spareparts for 149
GE locomotives is estimated at 91 billion rupiah while the
available budget in 2005 is only 79 billion rupiah where 35 billion
is allocated for the Unit Exchange Program to maintain buffer stock
of components.
The shortage of electricity supply for the Yogyakarta workshop
has been resolved by optimizing the available capacity and
arranging working time so that not all machines work at the same
time. Some machines had broken down and repairs already undertaken
by local resources. Up to date, 3 machines are still under process
of repair and scheduled to be completed by end of July 2005. The
utilization of machines needed some time for adaptation and change
of mindset of the operators but is gradually being accepted.
Another illustration is the use of the gear case washer machine to
clean TM gear box which now takes only 3 hours for 1 locomotive set
compared to previously 3 days for 1 locomotive set.
With the numerous items (~ 6.000 items ) being circulated a
computerized Management Information System is currently being
developed to replace the current system.
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f. Institutional Developments
To implement the development concept for Institutional
Strengthening, some consultants’ services and procurement of
equipment were implemented:- Network Simulation Model (NSM) for
line capacity planning- Development of a Bridge Maintenance
Management System (BMMS)
The Long term study for the Jakarta-Bandung corridor development
was cancelled on two reasons: the implementation will exceed the
existing available allocated time, and the result will not be
implemented in a quite long period. The NSM and the BMMS were
already implemented and could support the reformed management to
work in more sophisticated and accurate way, especially in
operating the railway and maintaining its facilities.
While the NSM software is running and in good condition, the
main constraint now is the effort to collect and input all actual
data (conditions). Since the implementation of the software, some
changes have occurred to the original team due to dynamics of
internal staff rotation where one of the key personnel have
undertaken a masters program abroad and shall graduate on September
2005. PT KA BoD has planned for him to undertake this task.
g. Alternative Route
The works for improvement of the alternative route was already
implemented and completed, but heavy landslides occurred on the
hill above the Lampegan tunnel between Cianjur and Sukabumi,
causing the collapse of the tunnel, and the route was impossible to
be operated. Repair works for the tunnel is planned in this FY
2005.
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9.2 Project Cost and Disbursement
9.2.1 Project Cost Data
Executing AgencyProject NamaLoan NumberLoan Effective DateLoan
Closing Date
Loan Amount :·
OriginalOn GOI’s AccountOn Perumka/PT.KA Account
·
Revised 1 (December 2, 1999)·
Revised 2 (September 27, 2002)
Loan Category (after revision – January 30, 2003)(1) Civil Works
(Jkt - Bdg Corridor)(2) Civil Works (Loco Unit Exchange)(3) Jkt-Bad
Corridor Signal(4) Equipment and Materials
(a) for part B and C of the project(b) for part D of the
Project
(5) Consultant Services(a) for part A, D , E1 and E2 of the
project(b) for part B and C of the Project
Unallocated
Ministry of CommunicationRailway Efficiency Project (REP)IBRD
No. 4106 – IND13 June 199730 September 2003 for Category (2),
(4)(b) and (5)(a)30 December 2004 for Category (1) and (5)(b)
US $ 105,000,000US $ 85,200,000US $ 19,800,000( SLA ) Out of the
US $ 105 millions, US $ 19,8 million is lended through by GOI/MOF
to Perumka/PT.KA, named as Subsidiary Loan Agreement (SLA), where
Perumka/PT.KA acts as the Executing Agency. This sum is not changed
until the closing of the Loan.US $ 85,000,000US $ 57,625,000
US $ 15,200,000US $ 200,000US $ 0
US $ 17,360,000US $ 18,670,000 ( SLA )
US $ 850,000 ( SLA ) US $ 4,300,000 US$ 1,095,000
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-
9.2.2 Project Disbursement
PART Currency ACTUAL CONTRACT
VALUE
IBRD FINANCING
TOTAL DISBURSEMENT
GOI LOAN (Excl.VAT)GOILOAN%
Part A USDIDR
00
78,232958,792,208
71,120871,629,2800
071,120864,705,35999.54
Part B USDIDR
046,408,774,309
9,655,629163,103,302,
921
8,777,845148,275,729,928
46,364,456,6758,676,089
148,159,823,49399.55Part C USD
IDR00
5,212,58567,115,125,0
00
4,738,71461,013,750,0000
04,269,2273,208,502,29099.98
Part D USDEURIDR
9,485
518,297,600
19,933,612288,714
10,100,278,183
18,121,466262,467
9,182,071,0758,622
515,357,72118,119,127262,467
9,131,694,37899.96Part E USD
IDR00
773,5181,932,602,33
4
703,1981,756,911,2130
0669,9781,638,088,85694.83
TOTAL USDEURIDR
9,485
46,927,071,909
35,653,576288,714
243,210,100,646
32,412,342262,467
221,100,091,4968,622
46,879,814,39632,274,148
262,467220,796,309,37699.70
1 US$ = Rp. 9.0001 Eur = Rp. 9.000
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-
FINANCIAL POSITION BASED ON LOAN RECIPIENT
-
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
60,000,000
US
$
BUDGET 37,875,000 19,800,000 57,675,000
CONTRACTED (fixed exchange rate) 37,518,537 19,722,949
57,241,486
Disbursed (based on fixed exchange) 37,361,764 19,707,863
57,069,628
Replenished (actual exchange rate) 37,842,784 19,781,731
57,624,515
BALANCE 32,216 18,269 50,485
GOI -MOC SLA - PT KA TOTAL
t
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-
FINANCIAL POSITION BASED ON PROJECT PART
-
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
60,000,000
70,000,000
US
$
CONTRACTED loan protion - fixed rate 167,968 25,252,926
11,518,020 19,404,163 898,411 57,241,486
DISBURSED (fixed exchange rate 9.000) 167,287 25,138,291
11,515,833 19,396,227 851,988 57,069,628
REPLENISHED - actual exchange rate 169,801 25,087,262 12,037,600
19,466,304 863,548 57,624,515
Part A (Policy Reform)
Part B (Jak - Bd corridor)
Part C (Track maint syst)
Part D (Loco maint syst)
Part E (Institutional
Dev.)TOTAL
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-
FINANCIAL POSITIONBASED ON DISBURSEMENT CATEGORY
-
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
18,000,000
20,000,000U
S$
Budget 15,200,000 200,000 17,360,000 18,670,000 850,000
4,300,000
contracted -fixed rate - 9.000 15,315,378 201,733 17,361,686
18,672,358 848,858 4,841,473
disbursed - fixed rate - 9.000 15,313,512 201,733 17,319,286
18,672,358 833,772 4,728,966
Replenished - actual rate 15,248,502 218,784 17,856,828
18,734,905 828,042 4,737,454
(1) Civil works for Jak. BD Corridor
(2) Civil works for loc. Unit Exch.-SLA
(4)(a) Equip.and material for part B & C
(4)(b) Equip. and Material for part D -
SLA
(5)(a) Cons. services for parts A ,D and E(1) -
SLA
(5)(b) Cons. services for part B, C, E(2) &
E(4)
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9.3 Lessons Learned
9.3.1 Responsibility as Bank Borrower
The loan is soft and for a long period, but the implementation
is very tight, due to Bank policy implementing its process
approach. Plenty covenants must be obeyed and fulfilled by GOI and
PT KA, and in some cases not fully under control of the policy
maker, such as the PSO, IMO, TAC budget arrangement, so that up to
the closing of the loan, the agreed mechanism (rules) is not fully
implemented. In some cases, the borrower feel as if haunted by the
lender.
On the other side, due to the deep involvement (penetration) of
the Bank, some difference of opinions (friction) between the Bank
and the Borrower were happened. To mention as an example: the
KA-Clips case. GOI and PT.KA declared that the KA-Clips rail
fastening is technically legalized to be installed on the PT.KA
tracks. The Bank, however, will not legalize (and will not bare the
cost of) the installation if the clips is not Internationally
certified, but will support the installation in sidings only.
9.3.2 Internal Borrower’s Problem
a. Functional ProblemAlthough the executing organization for
implementing the REP is good, but in some extent, parts of the
organization were not functioning well as regulated in the MOC
(establishment) Decree. This was happened due to the fact that not
all related officials master fully the stipulations and covenants
stated in the Goals & Policies, SAR, Loan Agreement and Project
Agreement which were agreed by GOI and the World Bank, and become
the basis for executing the project.
b. Physical ComponentLaw 13/92 stipulated that the
infrastructure is owned by the Government. Based on this principle,
the infrastructure development and construction must be processed
through the owner (proposed by the Project Manager, discussed in PT
KA Board of Directors, proposed to DGLC, discussed to MOC and to
Bappenas). This is time consuming. Based on the experience, DGLC
implemented some shortcut steps and succeeded in making the process
faster than before.
c. Non Physical ComponentThe consistency in the Government
decision is low. As an example : the PSO, IMO, TAC budget
arrangement was agreed by three Ministers and three Director
Generals, but the implementation is not following the agreed rules
fully, due to the change in the related Government officials. The
TAC as stated in the Goals & Policies will be applied in line
with the Road User Charges. The RUC is not applied yet, but the TAC
is applied.
9.4 Sustainability of Railway Development
The sustainability will depend on:· legal basis of the
government policy to develop the railway. The existing document is
the Goals &
Policies, which has weakness in the format as a legal document
and need to be renewed and published as a stronger document
· strong commitment on the related officials in the Government
and the company. The commitments to implement the Government Policy
must be possessed by all related officials, materialized by strong
support in the implementations
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-
· consistency in the implementation· availability of funds
needed
These factors should be developed for the sustainability of the
railway transport sub-sector development
9.5 Conclusions
a. The REP Benefit for the Railway Transport Sub-sector
Development
As a Policy Reform Project, REP is successful in introducing the
change in the railway management. To be mentioned among others are
:- the mind set change, where most of related officials are now
aware that the railway company
must be handled as a service business, and that the business
must be done not as usual.- repositioning of both the Government
(as owner and regulator) and the railway company as
operator, with clear relationships, administratively and
financially.- although still not fully well applied, the PSO, IMO,
TAC budget arrangement is now familiar
and become a model for public sector services.
b. The Follow Up
The REP is actually not fully completed yet, both in the Non
Physical Component and in the Physical Component. Up to the closing
of the related funding from the Loan, the Non Physical (Policy
Reform) is just reaching the decision and preparation for
implementing the planned Organization Structure, which planned to
be in full operational on year 2006.
Based on past experience, the consistency of implementation
needs to be guided and monitored by the policy makers, and escorted
by experience professionals.
On the Physical part, some cancelled packages need to be thought
the possibility of execution to complete the development plan.
(b) Cofinanciers:
(c) Other partners (NGOs/private sector):
10. Additional Information
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Annex 1. Key Performance Indicators/Log Frame Matrix
Actual N o Objectives Indicator Unit
Base Year 1995
[SAR]
Year 2002
target [SAR]
2003 2004 2005
1 Policy Reform a. Action Plan Implementation % completed on
schedule n.a.
2
Capital Investment Rationalization
a. Annual revision of infrastructure investment plan
submitted on t ime n.a.
b. Financial evaluation of Perumka investment projects grater
than
Rp billion n.a.
3 a. Loco availability at Bandung and Semarang % available 80 85
81.3 91 91
Operational Performance b. Loco availability at other
Java depots % available 82.3 85 83
