Trust Fund For East Timor (TFET): East Timor …implementing agency for the Trust Fund for East Timor (TFET). ADB has now accepted the task of coordinating and managing TFET investments

Progress Report

Trust Fund For East Timor (TFET)

East Timor Rehabilitation and Development

ADB/UNTAET - Managed TFET ProjectsADB’s Technical Assistance Grant Projects

Donors’ Council MeetingLisbon, Portugal21 -23 June 2000

Asian Development Bank

Operational Highlights, 2000

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Foreword

In December 1999, the Asian Development Bank (ADB) was appointed as animplementing agency for the Trust Fund for East Timor (TFET). ADB has now acceptedthe task of coordinating and managing TFET investments for rehabilitation anddevelopment in the sectors of transport infrastructure, power, telecommunications,water and sanitation, and microfinance.

The Board of Directors of ADB has also approved the commitment anddisbursement of an initial amount of up to $5.0 million of technical assistance grantfinancing, primarily for capacity building in East Timor. It is expected that additionalTA grant financing will be made available for future years.

This report reviews the implementation progress of ADB-managed projectsunder the above two financing mechanisms. Specifically, it provides briefs on thedesign and implementation of the TFET-funded Emergency InfrastructureRehabilitation Project, and the design of the forthcoming Water Supply and Sanitationand Microfinance Development projects.

ADB appreciates the role assigned to it by the contributing donors of TFET.ADB will continue to closely coordinate with UNTAET, World Bank and the EastTimorese in ensuring early and effective implementation of TFET-funded projects.

I hope this report will be useful to the delegates of the Donors� Council Meetingin Lisbon on 21-23 June 2000.

Basudev DahalDirector

Office of Pacific Operations

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PROGRESS REPORT: East Timor Rehabilitation and Developmentiv

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Abbreviations

ADB Asian Development BankAusAID Australian Agency for International DevelopmentBPAM District Water Board (Indonesian)CAPET Capacity Building Project for East Timor (AusAID)CEP Community Empowerment and Local Governance ProjectCNRT Conselho Nacional da Resistencia Timorense

(National Council of Timorese Resistance)CTA Chief Technical AdviserDepkes Department of Health (Indonesian)DSRSG Deputy Special Representative of the Secretary GeneralECHO European Community Humanitarian OrganisationGDP gross domestic productGoP Government of PortugalGPA Governance and Public AdministrationICRC International Committee of the Red CrossIDA International Development AgencyIFA International Funding AgencyIHA Interim Health Authority � UNTAETIKK main sub-district town (Indonesian)Interfet International Force for East TimorJAM Joint Assessment MissionJICA Japan International Cooperation AgencyNCC National Consultative CouncilNGO Nongovernment organizationNRW Nonrevenue waterOCHA Office for Coordination of Humanitarian AffairsOW&S Office of Water and Sanitation � UNTAETPDAM Local Government Water Enterprise (Indonesian)PDD project design documentPMU program management unitRWS&S rural water supply and sanitationSAPET Staffing Assistance Program for East Timor (AusAID)SRSG Special Representative of the Secretary GeneralTA technical assistanceTFET Trust Fund for East TimorUN United NationsUNHCR United Nations High Commissioner for RefugeesUNICEF United Nations Children�s FundUNDP United Nations Development ProgrammeUNOPS United Nations Office of Project ServicesUNPKF United Nations Peacekeeping ForcesUNTAET United Nations Transitional Administration in East TimorUNV United Nations VolunteerWB World BankWFP World Food ProgrammeWS&S water supply and sanitation

NOTE: In this report �$� refers to US dollars unless otherwise stated.

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Contents

Pagen Operational Highlights, 2000 1

n ADB/UNTAET-Managed TFET Projects 5Emergency Infrastructure Rehabilitation Project 6

Road Subsector 8Port Subsector 13Power Subsector 17

Water Supply and Sanitation Rehabilitation Project 21Water Supply and Sanitation Subsector 23

Proposed Microfinance Development Project 26

n ADB�s Technical Assistance Grant Projects 27Community Empowerment Program 28Transport Sector Restoration 30

Road Subsector Strategy 31Maritime Subsector Strategy 35Power Subsector Strategy 38Aviation Subsector Strategy 40

Capacity Building for Governance andPublic Sector Management 44

Poverty Assessment and Statistics 46Rehabilitation of the Telecommunications Sector 48Microfinance 50

n Appendixes 53Appendix 1: Report on a Project Grant from the Trust Fund

for East Timor 53Appendix 2: MOU of the Water Supply and Sanitation

Rehabilitation Project 79Appendix 3: Proposed Microfinance Development Project

for East Timor 99

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PROGRESS REPORT: East Timor Rehabilitation and Developmentvi

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Operational Highlights,

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2000

Resources

� Authorized grants todate from Trust Fund for East Timor (TFET) for ADBimplemented projects is $29.8 million as of 30 June 2000.

� Nearly $5.0 million has been provided as ADB�s own technical assistancegrants for project preparation and advisory purposes for East Timorreconstruction activities.

Sector Activities Under TFET Grants

� Transport, Power and Communications: Todate, there has been one projectapproved by ADB on 13 April 2000, the Emergency InfrastructureRehabilitation Project for road, port, power rehabilitation, for $29.8 million.The Project is being implemented as of May 2000.

� Social Infrastructure: A water and sanitation project is currently underpreparation. A Memorandum of Understanding has been signed in June 2000.The appraisal of the proposed project has been completed. The estimatedproject cost is$4.5 million. It isexpected to beapproved by ADBin August 2000and will start im-plementation inSeptember 2000.

� M i c r o f i n a n c e :A microfinanceproject is cur-rently under pre-paration. The pro-ject preparatoryconsultants havebeen fielded in June 2000. The estimated project cost is $6.5 million. It isexpected to be approved by ADB in October 2000 and will be implementedstarting December 2000.

PROGRESS REPORT: East Timor Rehabilitation and Development2

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Technical Assistance Under ADB Grants

� TA 3400-ETM: Community Empowerment Program, for $0.99 million wasapproved on 9 February 2000. The TA supports the initial phase of the TFETfunded Community Empowerment Project. The TA has been underimplementation since March 2000 and will be completed in August 2000.

� TA 3401-ETM: Transport Sector Restoration, for $1.0 million was approvedon 10 February 2000. The TA was implemented as ADB�s first interventionin the transport sector for establishing the institutions and regulatoryframeworks in the road, port, and airport subsectors. ADB has completedthe port, airport, and power pricing studies.

� TA 3412-ETM: Capacity Building for Governance and Public SectorManagement, for $1.0 million was approved on 9 March 2000. The TA isto assist the East Timorese develop planning and management capabilities.ADB has fielded two international consultants to train local professionals inthe operations of Central Bank and Central Payment Office. A public sectormanagement specialist will be fielded in July 2000 to assist in the overallcoordination of public sector strengthening activities under this TA. Underthis TA, senior East Timorese officials are undergoing public sectormanagement training.

Project Performance Report($ million)

as of 15 June 2000

Grant Projects (TFET)

Infrastructure Water &Grant/TA Project Rehabilitation Sanitation Microfinance

Grant/TA No. 8181 TF � �

Executing Agency UNTAET UNTAET UNTAET

Effectivity Date 19/04/00 N/A N/A

Closing Date 31/05/02 9/01 12/03

Total Project Cost 29.8 4.5 6.5

Committed Amount 7.0 0.0 0.0

Grant/TA Project Progress (%) 10 0 0

a Yet to be approved.b Proposed Project Cost.

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TAs (ADB)

Community Public Sector Telecom-Empowerment Transport Management Poverty munication Microfinance

3400 3401 3412 3425 3428 3435

UNTAET UNTAET UNTAET UNTAET UNTAET UNTAET

07/03/00 21/03/00 09/03/00 08/04/00 17/04/00 10/05/00

31/07/00 30/11/00 31/03/00 30/06/00 01/08/00 10/09/00

0.998 1.0 1.0 0.052 0.150 0.150

0.948 1.0 1.0 0.052 0.150 0.150

80 50 10 70 50 10


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� TA 3425-ETM: Poverty Assessment and Statistics, for $52,900 was approvedon April 2000. The TA is to undertake a poverty assessment including thenature and extent of poverty. ADB has fielded a consultant in May 2000.Preliminary field work has been completed and a detailed report will befinalized by end July 2000. This will be followed up with a more extensivehousehold survey in 2001.

� TA 3428-ETM: Rehabilitation of the Telecommunication Sector, for$150,000 was approved on 17 April 2000. The TA is to identify viabletechnical and eco-nomical solutions inthe telecommunica-tions sector. ADBhas fielded a con-sultant from May2000 and a prelimi-nary assessment ofthe situation hasbeen completed; thefirst report will beavailable in June2000.

� TA 3435-ETM: Microfinance Development, for $150,000 was approved on10 May 2000. The TA is to assess and initiate community-basedopportunities for income generation. ADB has finalized consultant selectionand the study will commence in June 2000; the feasibility report is expectedin August 2000.

Proposed ADB�s Technical Assistance for 2000/2001

ADB has planned another 4 TAs in 2000 for about $1.5 million in the areasof environment, communications, capacity building and training, and poverty analysis.ADB is also preparing another $5.0 million for TAs to East Timor in 2001.

TFET Grant Projects and ADB�s Technical Assistance Grants by Sector(amount in $ million)

TFET ADB Total %

Transport and Communications 29.8 1.150 30.950 62.4

Social Infrastructure 10.0 10.000 20.1

Others 6.5 2.193 8.693 17.5

Total 46.3 3.343 49.643 100.00

ADB-UNTAET ManagedTFET Projects


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Emergency Infrastructure Rehabilitation Project Summary

East Timor�s transport and power infrastructure has beenseverely damaged due to conflict and is unable to facilitatehumanitarian relief efforts or security operations. Theroads have been damaged in many locations and can onlycarry very small loads. Humanitarian aid and militaryvehicles have been lost in river crossings and one persondied on a steep and weak embankment. Food aid is flownin at the cost of $1,000 per ton. Because of Dili Port�sextremely limited capacity, it has become a bottleneck tochannelling humanitarian aid to the population. Powersupply is needed to facilitate water supply and is essentialto health services, but most of the power stations areunoperational due to damage and because operating staffand fuel are lacking. Restoration of power supply willenable operation of borehole water pumps, provision ofemergency health care, and resumption of economicactivities.

East Timor

The Project will (i) undertake emergency road repair worksto facilitate efficient transport of humanitarian aid andhelp revive economic activity; (ii) expand the port facilitiesto reduce congestion, and (iii) reinstate power supply. TheProject will also support financial management of thepower sector, and implementation of transport sectorinstitutions. The closely related ADB technical assistance(TA) 3401: Transport Sector Restoration Project will helpestablish management of the transport subsectors andsupport, in tandem with the Project, implementation ofefficient management mechanisms and institutions.

The Project has been classified as environmental categoryB. An initial environmental examination was undertaken,and its summary is a core appendix.

The immediate benefits of the Project include facilitatingthe (i) provision of food supplies to famine stricken areas,(ii) provision of agricultural supplies to enable cultivation,(iii) resettlement of internally displaced persons andrefugees, and (iv) movement of the United NationsPeacekeeping Forces. The Project will employ peopleespecially in rural areas, where poverty is extreme andmost people do not have income-generating opportunities.

Project Rationale

Beneficiary

Project Description

ADB/UNTAET-Managed TFET Projects

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Emergency Infrastructure Rehabilitation Project Summary (continued)

The use of local labor will stimulate the economy and thushelp the reconstruction of the communities. The benefi-ciaries of the power component are primarily the urbanand semiurban population. The reinstatement of powersupply will make possible provision of essential servicessuch as water supply, hospitals, schools, commercialestablishments, and industries.

The United Nations Transitional Administration in EastTimor will be the recipient of the grant. The Project willbe executed and implemented by a project managementunit (PMU), comprising five East Timorese projectmanagement staff and five international counterpartsincluding a chief technical adviser. A project steeringcommittee involving broad stakeholder representation willmonitor implementation.

The total Project cost is estimated at $29.8 millionequivalent. The Project will be financed by a grant of$29.8 million from the Trust Fund for East Timor (TFET).These funds have been contributed by donors and do notinclude resources from the Asian Development Bank(ADB). The International Development Association of theWorld Bank Group is the Trustee of TFET.

Until 31 December 2002

31 May 2002

Civil works will be awarded on the basis of internationalshopping and international competitive bidding inaccordance with ADB�s Guidelines on Procurement.International contractors are encouraged to include joint-venture arrangements with local contractors and willutilize labor-intensive methodologies. Eligibility forprocurement and engagement of consultants will includeADB member countries, East Timor, and all donors andmembers of international organizations that havecontributed to the TFET. International consulting serviceswill be required for the PMU and construction supervision.The consultants will be selected in accordance with ADB�sGuidelines on the Use of Consultants and otherarrangements satisfactory to ADB for the engagement ofdomestic consultants.

Executing Agency

Cost Estimates andFinancing Plan

Period of Utilization

Estimated ProjectCompletion Date

Procurement ofGoods andServices


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Road Subsector

Introduction

Progress(January - June 2000)

Planned(July - December 2000)

Attachments

Road Rehabilitation was identified as a priority sector, due tothe potential risk of major damages of parts of the road networkand the potential for quick employment creation. ADB is thelead agency in this sector. The planned sector activities include:the road rehabilitation works under ADB administered Emer-gency Infrastructure Rehabilitation Project (EIRP). The estimatedtotal cost for the road component under the Project is $22.61million. A 10-person project management unit (PMU) willadminister the EIRP up to completion until 31 December 2002.

Emergency Road Rehabilitation Component under the EIRP TheProject began implementation from May 2000. To date, twenty(20) work instructions have been issued to address the mosturgent road blocks in a total value of $350,000 and were to becompleted on 24 May 2000. Six more works instruction weremobilized on 30 May for a total value of $150,000. These willbe completed on 5 June 2000. These together have generated3,000 person-days of local employment. Small-scale works arebeing awarded to address critical drainage and pothole problemson high volume road sections by local East Timorese contractors.In addition to the technical objective of these contracts, theyfacilitate assessment of local contractor capacity and trainingrequirements. Five 120-day road repair contracts have beenawarded on 31 May. These will rehabilitate and open the priorityroads identified by UNTAET.

During the 2nd half of 2000, the project will continue with itsactivities planned in the first half of 2000 and will continuewith the finalization of the remaining bids. In this regard, thefive large international competitive bid (ICB) contracts wereplanned for road rehabilitation, strengthening local contractingindustry, and establishing regional road maintenance regime.Due to the severe and dramatically deteriorated road conditions,these will be reduced to four. Tender for the four ICBs willcommence on 15 June.

The funds from the fifth contract will be shifted to support(i) emergency bridge rehabilitation work on the 18 recently failedbridges and (ii) a district labor-based emergency road mainte-nance program. The bridge rehabilitation program is proposedat $3.0 million and would be prepared by a bridge engineerunder the TA. The nationwide maintenance program proposedat $2.0 million will be disbursed through local field engineersor district infrastructure personnel, as appropriate, using quantityand quality controlling guidelines. Funds will be initiallydisbursed for a pilot project starting 15 June, and thereafter theprogram will be extended to cover works in each district.

1. Road Sector Plans2. Budget3. Implementation Schedule


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Road Subsector Plans

Unusually severe rains have been experienced during the first half of 2000.In addition, wheeled military traffic and heavy trucks have impacted adversely onthe road network. The former has caused road failures, particularly in the mountainouscentral region of the territory. The cost of the damage caused by the militarymovements on the roads has been estimated at $21 million. Current networkassessment is in Appendix 6.

Due to the dramatically deteriorated road conditions, EIRP road componentbudget will be consumed to tackle emergency road problems that currently interruptcommunications betweenmain population centers andsignificantly challenging hu-manitarian and aid programdelivery. New funding for thesector is required for an emer-gency bridge restoration pro-gram and road restoration toa viable condition. UNTAEThas requested ADB to field aProject Appraisal Mission toprepare project documenta-tion in accordance with ADBguidelines for preparation ofa road rehabilitation project. Feasibility work for the Mission would be carried outunder TA No. 3401-ETM: Transport Sector Restoration Project. In light of the fundingconstraints under TFET, this Mission is proposed for early 2001 and the followingchanges have been agreed under EIRP.

(i) Transfer of Funding to Road Component of EIRPAdditional funding will be moved to the road sector from the portcomponent by possible deletion of cargo handling equipment andrefurbishment planned for Dili Port ($1.0 million); this will be confirmedduring the Project review in August 2000;

(ii) Emergency Bridge ProgramIn place of the planned 5 ICB contracts, only 4 will be tendered on 15 June.Funding from the fifth ICB will be used to address emergency abutmentstrengthening requirements on failed 18 bridges ($3.0 million);

(iii) District Emergency Road RepairThe balance of funding from the fifth ICB will be used to set up districtlabor-based road repair contracts in each district commencing withErmera, Liquica, and Viqueque ($2.0 million).


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Road Subsector Budget($ million)

2000/1

Jul-Sep Oct-Dec Jan-Mar Apr-Jun

Capital 6.94 5.33 6.32 6.67

Construction 6.25 4.95 5.75 6.10TFET 3.60 3.00 3.50 4.50DFID Funded Road Rehabilitation 0.00 0.00 0.00 0.00Norway Funded Road Rehabilitation 0.00 0.00 0.50 0.00Japan led 1.40 0.70 0.75 0.60Assessed 1.25 1.25 0.00 0.00Unfunded 0.00 0.00 1.00 1.00

Buildings 0.37 0.37 0.37 0.37EquipmentConsultants 0.32 0.01 0.20 0.20

Road Engineer 0.02Road Planner/Institutional Specialist 0.30 0.01

Recurrent 1.73 1.84 2.23 2.46

Road Sector Management and Operations 0.11 0.16 0.50 0.61International (person-year) 0.5 0.5 2.0 2.5Salary Cost 0.10 0.10 0.40 0.50Local (person-year) 1.5 5.0 12.0 15.0Salary Cost 0.01 0.03 0.07 0.09Training 0.025 0.025 0.025

Maintenance 1.620 1.680 1.735 1.845Building Maintenance 0.040 0.020 0.020Equipment Maintenance 0.020 0.020Other Operation Expenses 0.210 0.230 0.060 0.060Regulatory Operations 0.125 0.125Bridge Maintenance 0.110 0.110 0.110 0.120Contract Mechanical Maintenance 0.800 0.800 0.900 1.000Regular Labour Based Maintenance 0.500 0.500 0.500 0.500

Total Annual Financing Requirement 8.67 7.17 8.55 9.13


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2000/1 2001/2 2002/3 Total TFET Japan Other Unfunded

24.86 30.86 15.70 71.42 37.54 33.88

23.05 27.50 15.40 65.95 32.90 33.0514.60 20.50 8.00 43.10 43.10 0.000.00 0.00 0.00 0.00 0.00 0.000.50 0.00 0.00 0.50 0.50 0.003.45 3.00 3.40 9.85 9.85 0.002.50 0.00 0.00 2.50 2.50 0.002.00 4.00 4.00 10.00 10.001.48 0.26 1.74 1.74 0.00

2.50 2.50 2.50 0.000.33 0.60 0.30 1.23 0.40 0.83

8.26 10.39 15.99 34.64 0.00 34.64

1.38 3.44 3.26 8.08 8.085.5 13.5 12.0 31.0

1.10 2.70 2.40 6.20 6.2034 90 110 234

0.20 0.54 0.66 1.40 1.400.075 0.20 0.20 0.48 0.486.88 6.95 12.73 26.56 0.00 26.56

0.080 0.080 0.130 0.290 0.2900.040 0.170 0.250 0.460 0.4600.560 0.250 0.400 1.210 1.2100.250 0.500 0.500 1.250 1.2500.450 0.450 0.450 1.350 1.3503.500 3.500 7.000 14.000 14.0002.000 2.000 4.000 8.000 8.000

33.12 41.25 31.69 106.06 37.54 68.52


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Implementation ScheduleJuly - December 2000

Subsector/Activity Jul Aug Sept Oct Nov Dec

Roads

� Emergency Road Repair Work Orders

� IS Emergency Road Repair/RehabilitationContracts

� ICB Tender

� ICB Road Rehabilitation

� Emergency Road Repair Work InstructionsFirst Round Backlog Road MaintenanceContracts

� International Competitive Bid (ICB) forRemaining Backlog Roads Maintenance

� Start of Works under ICB Contracts

� Bridge Repair Program

� District Road Maintenance Program

� Financial Management

By endJune


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Port Subsector

Dili, the major port in East Timor suffers from a high level ofcongestion and to facilitate effective delivery of cargoes, majorimprovements are needed. Under the EIRP, the port componentincludes; (i) wharf extension at Dili Port; (ii) restoration ofthe landing craft slipway at Dili Port; (iii) restoration of thecontainer yard at Dili Port; (iv) provision of beach matting inBeacu, Betano, and Suai; (v) port repairs; and (vi) equipment forlanding of goods.

1. Emergency Port Rehabilitation component under the EIRP:Contracts for items for wharf extension, restoration of landingcraft slipway and restoration of container yard at Dili Port havebeen tendered and works will be mobilized on 15 June 2000.The port program under funding from the Government of Japanincludes repair of the navigation aids and fenders at the DiliPort.

2. Sector Management: The institutional proposal prepared underthe TA1 assistance recommends the separation of the regulatoryand operational functions in the maritime sector. The proposedEast Timor Maritime Safety Authority would be responsible forregulating maritime affairs, including port state control. Respon-sibility for port operations would be vested in an East TimorPorts Authority (ETPA).2 This authority would be established asa legal entity separate from the government, and would reportto a board comprising predominantly East Timorese.

ETPA would operate as a landlord, with port operations such asstevedoring and towage performed by private sector companies.ETPA would let a short-term (3 years) contract for the provisionof management services to manage the daily operations of theport safely and effectively; and to train East Timorese nationalsto take over the management function at the end of the contractperiod.

3. Port Tariff: A Port Sector Pricing Study completed in March2000 recommended a tariff structure designed to move to a fullcost recovery strategy over a three-year period. The proposedtariff was approved by UNTAET Infrastructure Division, and hassubsequently been endorsed by the National Consultative Council(NCC). However, to what extent the UN should be exemptedfrom the tariff has yet to be resolved. Implementation of thetariff has been delayed pending resolution of this issue.

The works at wharf extension, restoration of landing craft slipwayand restoration of container yard at Dili Port will be in fullprogress from July 2000 onwards.

1. Budget2. Implementation Schedule

Introduction



Attachments

1 TA No. 3401-ETM: Transport Sector Restoration Project approved on 10 February 2000 for $1.0 million.2 Working title.


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Maritime Subector Budget($ million)

2000/1


Capital 0.92 0.97 1.11 0.45

Emergency Works 0.66 0.85 1.11 0.45Plant, Equipment and Furnishings 0.20 0.12Consultants 0.06

Pricing StudyPort Operations Specialist 0.03Port Management Specialist 0.03

Recurrent 0.55 0.76 0.57 0.55

Port Management 0.19 0.31 0.32 0.33International (person-year) 1.0 1.3 1.3 1.3Salary Cost 0.15 0.25 0.25 0.25Local (person-year) 6 10 12 13Salary Cost 0.04 0.06 0.07 0.08

Operations and Maintenance 0.36 0.45 0.25 0.22Infrastructure Maintenance 0.050 0.050 0.055 0.030Equipment Maintenance 0.050 0.050 0.010 0.010Training 0.020 0.050 0.050 0.120Other Operating Expenses 0.210 0.230 0.030 0.030Regulatory Operations (person-year) 0.250 0.500 0.500 0.500Regulatory Operations (cost) 0.050 0.100 0.100 0.100



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2000/1 2001/2 2002/3 Total TFET Japan Other Unfunded

4.72 2.43 1.80 8.95 2.12 6.31 0.52

4.34 2.23 1.80 8.37 2.06 6.31 23.0 0.000.32 0.20 0.52 0.520.06 0.06 0.06 0.00

0.000.03 0.03 0.03 0.000.03 0.03 0.03 0.00

2.27 2.18 1.68 6.13 0.00 6.13

1.15 1.30 0.90 3.35 3.354.8 5.0 3.0 12.8

0.90 1.00 0.60 2.50 2.5041 50 50 141

0.25 0.30 0.30 0.85 0.851.13 0.88 0.78 2.79 2.79

0.185 0.220 0.120 0.525 0.5250.120 0.040 0.040 0.200 0.2000.100 0.100 0.320 0.3200.500 0.120 0.120 0.740 0.7401.000 2.000 2.000 5.0000.200 0.400 0.400 1.000 1.000

6.99 4.61 3.48 15.08 2.12 6.65


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Ports

� Wharf Deck Completion and Slip Repair

� Container Yard Improvement

� Bridge Repair Technical Specification

� Bridge Repair / Rehab

� District Labor-Based Maintenance Program

� Maritime (Wharf Extension)

� Emergency Works

� Procurement of Equipment, etc.

� Engagement of Consultants

� Engagement of Port Management Consultants

� Operation and Maintenance

� Training

� Completion of Wharf Extension

� Completion of Container Yard Rehabilitation

� Completion of Technical Specification forBridge Rebuilding

By endJune


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Power Subsector

The power system was heavily damaged. At present of the 57stations, 15 will be rehabilitated under the Project. Theremaining are being rehabilitated by bilateral donors. Thepower sector restoration program under ADB administeredGrant No. 8181-ETM: (TF) Emergency Infrastructure RestorationProject (EIRP) includes (i) rehabilitation of 15 power stations;(ii) rehabilitation and reinstatement of distribution lines;(iii) restoration of communications between Dili and powerstations; and (iv) replacement of destroyed Comoro powerstation switchgear. The estimated total cost for the powerrehabilitation component under the Project is $2.77 million.

1. Emergency Power Rehabilitation Component under the EIRP:During this period, an estimate has been prepared for the costof power supply to the various consumer categories. The initialfindings have concluded that the weighted average powersupply costs per consumer category are:

(i) Non-residential 20 kV - 10.4 cents/kWh(ii) Non-residential LV - 12.3 cents/kWh

(iii) Residential - 14.7 cents/kWh(iv) Plus - fixed monthly charge for metering & billing

A tariff proposal will consider equity and social concernsrelevant to the conditions of East Timor and are likely to resultin delayed implementation of a cross-subsidized residentialtariff of about 7-9 cents/kWh to be implemented in one year�stime leaving a small consumption-based life-line with a lowertariff charge. Options for various tariff scales are beingconsidered and weighed against the resulting revenues andcost recovery ratios. The final recommendation for the powertariff will be ready during second week of June, 2000.

The program will be funded under the next funding allocationto the Project from the Trust Fund for East Timor (TFET)planned for July 2000. The terms of reference for the financialsector management are being prepared and consulting serviceswill be selected based on ADB�s Guidelines on the Use ofConsultants commencing 15 June 2000. Specification and contractpackaging for services required for integrated power stationrehabilitation will carried out from 15 June to 15 August 2000.These services will be negotiated in accordance with ADB�sGuidelines on the Use of Consultants with due considerationto economic efficiency. Funding for Comoro switchboard($0.15 million) and radio communications ($0.08 million) willbe moved to the road component under EIRP as bilateralrehabilitation funding has become available to cover these needs.

1. Budget2. Implementation Schedule

Introduction



Attachments


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Power Subsector Budget($ million)

2000/1


Capital 0.83 2.06 2.21 2.21

Emergency Works 0.83 0.48 0.48Power Sector Improvement Program 0.00 0.00Government of Japan Projects 0.73 1.33 1.33Portuguese Government Projects 0.50 0.50 0.00 0.00Consultants 0.33 0.00 0.40 0.40

Pricing Study 0.00 0.00Operations Specialist 0.03 0.00 0.00Management Specialist 0.30 0.00 0.00Sector Investment Plan 0.40 0.40

Recurrent 3.09 3.14 2.83 2.82

Power System Management 0.34 0.39 0.39 0.39International (person-year) 1.25 1.50 1.50 1.50Salary Cost 0.25 0.30 0.30 0.30Local (person-year) 15 15 15 15Salary Cost 0.09 0.09 0.09 0.09

Operations and Maintenance 2.75 2.75 2.44 2.43Fuel 0.97 0.97 0.97 0.97Lubricants 0.04 0.04 0.04 0.04Tools/Equipment Inventories 0.06 0.06 0.06 0.06Oil Tankers 0.01 0.01 0.01 0.01Tree Trimming 0.06 0.06 0.06 0.06Distribution Support 0.06 0.06 0.06 0.06Rural response crew 0.12 0.12 0.12 0.12Engine overhauls 0.12 0.12 0.12 0.12Power Generation Support Team 0.04 0.04 0.04 0.04Spare Parts 0.30 0.30 0.30 0.30Motor vehicles 0.60 0.60 0.30 0.30Office Equipment 0.03 0.03 0.02 0.01Communications 0.02 0.02 0.02 0.02Building refurbishment 0.30 0.30 0.30 0.30



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2001/2 2002/3 Total TFET Japan Other Unfunded

6.65 5.36 4.00 16.01 3.89 7.13 1.00 4.00

1.79 0.96 0.00 2.76 2.76 0.000.00 1.00 3.00 4.00 4.002.73 3.40 1.00 7.13 7.13 0.001.00 0.00 0.00 1.00 1.00 0.001.13 0.00 1.13 1.13 0.000.00 0.000.03 0.030.30 0.300.80 0.80

11.89 11.34 9.90 33.13 0.00 33.13

1.51 1.56 1.56 4.63 4.635.75 6.00 6.00 17.801.15 1.20 1.20 3.55

60 60 60 1800.36 0.36 0.36 1.08

10.38 9.78 8.34 28.50 28.503.90 3.90 3.900.18 0.18 0.180.24 0.24 0.240.06 0.06 0.060.24 0.24 0.240.24 0.24 0.240.48 0.48 0.480.48 0.48 0.480.18 0.18 0.181.20 1.20 1.201.80 1.20 0.360.09 0.09 0.090.09 0.09 0.09

1.200 1.200 0.600

18.54 16.70 13.90 49.14 3.88 7.13 1.00 37.13


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Power

� Station Rehabilitation Technical Specification

� Power Station Rehabilitation

� Estimated Financial Management forPower Subsector

� Tender for Consultant Services


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Water Supply and Sanitation Rehabilitation Project Summary

During September 1999, East Timor experienced acampaign of destruction and terror over which threequarters of the population fled their homes and most ofthe country�s infrastructure and private homes weredestroyed. The widespread destruction included looting,burning, and damage to town and village water supplyand sanitation (WS&S) facilities throughout the country.Typically in towns with public water supply systems,vehicles, pumps and motors were removed; watertreatment plants damaged; offices, stores and otherbuildings burned; pipelines, tools, and spare parts stolen;storage tanks ruptured; latrines and septic tanks damaged;and water sources impaired. And in the burning of houses,water connections, including meters, were completelydestroyed. None of the former water supply or sanitationinstitutions now exist. Therefore, it is essential to supportphysical repair and rehabilitation, develop new institutionsand systems for managing, operating, maintaining, andfurther developing urban and rural water supplies in EastTimor that are both appropriate and sustainable.

East Timor

The project comprises three components: (i) a WaterSupply and Sanitation Sector Management Program, whichincludes the establishment of a project management unit(PMU) under the United Nations Transitional Administrationin East Timor�s (UNTAET�s) Office of Water & Sanitation(OW&S) and the preparation of a detailed, budgeted,project implementation document for coordinatedimprovement of East Timor�s WS&S sector; (ii) a CapacityBuilding and Institutional Development Program, whichidentifies and implements priority capacity building andinstitutional development activities to support physicalconstruction already under way, or planned and tocomplement capacity building and institutional develop-ment activities by other donors; and (iii) the Water Supplyand Sanitation Implementation Program, which includes(a) an OW&S WS&S Quick Response Facility, (b) comple-mentary works for the Dili Water Supply Repair andRehabilitation, and (c) complementary works for theDistrict Water Supply Repair and Rehabilitation.

Project Rationale

Beneficiary

Project Description


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Water Supply and Sanitation Rehabilitation Project Summary (continued)

UNTAET will be the recipient of the Grant from the TrustFund for East Timor (TFET). The project will be executedand implemented by a small PMU. PMU will be fundedunder the Project. A project steering committee involvingbroad stakeholder representation will monitorimplementation.

The total cost of the Project is estimated at $4.50 millionequivalent. The Project will be financed on a grant basisby TFET.

30 June 2001

All procurement under the Project will be conducted inaccordance with ADB�s Guidelines for Procurement. Theproceeds of the Project will finance imports of goods andservices, local purchases, and civil works identified underthe Project. Under ADB�s Guidelines, these may beprocured off the shelf, or through international shopping,local competitive bidding, or international competitivebidding, as appropriate. Eligibility for procurement andengagement of consultants will include ADB membercountries, East Timor, and all other donors and membersof organizations that have contributed to TFET.International consultant services will be required for PMU.The consultants will be selected in accordance with ADB�sGuidelines on the Use of Consultants and otherarrangements satisfactory for ADB for the engagementof domestic consultants.

Executing Agency

Cost Estimate andFinancing Plan




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A significant amount of work has been done by bothbilateral donors and United Nations agencies during theemergency phase, including sector needs assessments andurgent rehabilitation works. However, at present thereare no water and sanitation policy frameworks in existencein East Timor. ADB has been invited to take the lead incoordinating and managing any activities of the Trust Fundfor East Timor (TFET) in the water supply and sanitation(WS&S) subsector.

As an initial step, ADB has undertaken a sector planningand project fact-finding mission in April 2000, to drawtogether information on the work that has already beendone, identify gaps and donor interests, and prepare aprioritized framework for future action. The missiondeveloped a draft WS&S sector development frameworkthat aims to provide the people of East Timor withadequate and affordable, WS&S services using appropriatetechnology and good system management. It proposedthat this would be done through (i) building local capacityand capability to effectively manage the WS&S sector;(ii) rehabilitating and developing WS&S facilities in urbanand rural communities; and (iii) promoting improvedhealth, hygiene, and community participatory practices.Another mission was fielded in June 2000 and amemorandum of understanding was signed on 8 June2000 with the United Nations Transitional Administrationin East Timor (UNTAET) for a small and modest TFET-funded Water Supply and Sanitation Rehabilitation Project.

Implementation of the Water Supply and SanitationRehabilitation Project is planned to commence1 September 2000. The project has three components:

(i) a WS&S Sector Management Program, whichincludes the establishment of a project managementunit (PMU) under UNTAET�s Office of Water &Sanitation (OW&S) and the preparation of a detailed,budgeted, project implementation document forcoordinated improvement of East Timor�s WS&SSector;

Water Supply and Sanitation Subsector

Introduction

Progress(January-June 2000)

Planned(July-December 2000)


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(ii) a Capacity Building and Institutional DevelopmentProgram, which identifies and implements prioritycapacity building and institutional developmentactivities to support physical construction alreadyunder way or planned, and to complement capacitybuilding and institutional development activities byother donors; and

(iii) a Water Supply and Sanitation ImplementationProgram, which includes (i) an OW&S WS&S QuickResponse Facility, (ii) complementary works for theDili Water Supply Repair and Rehabilitation and(iii) complementary works for the District WaterSupply Repair and Rehabilitation.

In consultation with UNTAET, an amount of $39.9 millionhas been proposed to the TFET as the overall three-yearbudget for the WS&S sector for the next three fiscal years.The amount comprises $14.0 million TFET funds and$25.9 million from other donors. For the first fiscal yearan amount of $4.5 million was proposed for TFET funding.

Budget

Water Supply and Sanitation Subsector (continued)


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Sector Framework

The mission fielded in April 2000 developed a draft Water Supply and SanitationSector development framework which aims at providing the people of East Timorwith adequate, affordable, water supply and sanitation services using appropriatetechnology and good system mangement. It proposed that this would be done through:

(i) building local capacity and capability to effectively manage the WS&Ssector;

(ii) rehabilitating and developing water supply and sanitation facilities inurban and rural communities; and

(iii) promoting improved health, hygiene and community participatorypractices.

The sector framework has four components/outputs, which are outlined belowin more detail:

(i) WS&S Sector Management Program, under which the ProjectManagement Unit (PMU) would be established and a detailed ProjectImplementation Document (PID) prepared.

(ii) Capacity Building and Institutional Development Program, which wouldestablish the human and institutional foundations necessary tocomplement the physical water supply and sanitation works.

(iii) WS&S Implementation Program, which would cover repair, rehabilita-tion and development of urban and rural water supplies and sanitationacross East Timor.

(iv) Environmental Health Promotion and Strengthening of Local NGOs, underwhich complementary health promotion, hygiene education andstrengthening of local NGOs would be carried out.

The sector framework is designed to: distribute its benefits in an equitablemanner across East Timorese urban and rural communities; be responsive tocommunities� needs; contribute to sustainable development and operation in theWS&S sector; reduce poverty; and minimize environmental impacts. It is expectedthe project will directly, or indirectly, benefit most of the country�s 800,000 population.

Budget

In consultation with UNTAET an amount of $39.9 million has been proposedto the TFET as the overall three year budget for the WS&S sector for the next threefiscal years.

The amount comprises $14.0 million TFET funds and $25.9 Million other donors.For the first fiscal year an amount of $4.5 million was proposed for TFET funding.


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East Timor�s economy in general has been badly hurt dueto the recent conflict and there is serious need to providevarious alternatives to improve the people�s economicconditions. It is proposed that microfinance activities willprovide income-earning opportunities to the localpopulation.

Microentrepreneurs in East Timor

The Project will (i) rehabilitate and expand the operationsof credit unions, (ii) develop local capacity to manageeffective microfinance institutions, (iii) establish amicrofinance bank, and (iv) develop a policy and legalframework to monitor microfinance development.

The United Nations Transitional Administration in EastTimor will be the executing agency and the recipient ofthe grant. The Project will be executed and implementedby a project management unit (PMU). A project steeringcommittee involving broader representation will supportand monitor implementation.

The proposed total project cost is estimated at $6.5 mil-lion equivalent. The proposed Project will be financed bya grant of $5.5 million. The Asian Development Bank(ADB) and other donors will provide about $1.0 millionas technical assistance grants.

Until 31 December 2002

30 June 2002

In accordance with ADB�s Guidelines on Procurement andGuidelines on the Use of Consultants.

Project Rationale

Beneficiary

Project Description

Executing Agency

Cost Estimateand Financing Plan




Proposed Microfinance Development Project Summary

ADB’s Technical AssistanceGrant Projects


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The required major reform in East Timor�s publicadministration must be based on a new system ofgovernance. Achievement of this new system of account-ability at the local level will require an intensive trainingand capacity-building program to reverse past practicesand ensure the participation and empowerment of allcitizens, especially females. The new system must alsosecure credibility by stressing maximum transparency andaccountability. In addition to ensuring appropriate valuesand processes, the redevelopment of effective localgovernment will also require a rapid transfer of practicalskills in budgeting, planning, and management.

Rural communities in East Timor

The technical assistance (TA) will lay the groundwork fora network of local councils that will progressively coverall 13 districts, 64 subdistricts, and 440 villages of EastTimor. In addition to training and deploying districtfacilitators to help establish the councils, the TA will alsoinitiate a comprehensive capacity building program toassist each village to develop the leadership, skills, andsystems needed to design and implement priorityrehabilitation and development projects.

United Nations Transitional Administration in East Timor

The total cost of the TA is estimated at $1,290,000 equiva-lent, comprising foreign exchange and local currency costs.UNTAET has requested ADB to contribute $990,000. TheWorld Bank will also contribute to the TA by providingother consultant inputs as needed and essential technicalknowledge derived from the Kecamatan DevelopmentProject initiated in East Timor in 1998. The distinctionbetween foreign and local costs has not been madebecause of the exceptional circumstances in East Timorwhere there exists neither sovereign government, officiallocal currency, nor local revenue sources. Similarly, in theabsence of a local government, no provision has beenmade for counterpart financing. Although local contribu-tions have not been specified, the United NationsTransitional Administration in East Timor will providecounterpart staff, support services, and office facilities.Support will also be provided by Conselho Nacional daResistencia Timorense and from local communities.

Project Rationale

Beneficiary

Project Scope

Executing Agency


Community Empowerment Program, TA 3400-ETM

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ADB�s Technical Assistance Grant Projects 29




ImplementationProgress Todate

Until 31 July 2000

31 July 2000

International consulting services required. The consultantshave been selected in accordance with ADB�s Guidelineson the Use of Consultants and other arrangementssatisfactory to ADB for the engagement of domesticconsultants.

� 5 international and 2 local consultants have beenfielded since March 2000.

� 105 local East Timorese have been recruited asfacilitators, trainers, and district monitors to assistin the TA implementation.

� 5 out of the 13 districts� council elections have beencompleted.

� 10 out of the 41 subdistrict councils have beenformed.

� 314 out of the 328 village development councils havebeen formed.

� 890 village development council members have beenelected at the subdistrict level.

Community Empowerment Program, TA 3400-ETM (continued)


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Under the reconstruction program, a lead-agency role isassigned to ADB for infrastructure sector restoration,including the transport, energy, telecommunications, andwater and sanitation sectors. This technical assistance (TA)will implement ADB�s initial intervention in the threetransport subsectors by (i) taking initial steps to establishthe institutions and regulatory frameworks for the road, port,and airport subsector management, and (ii) reviewing therespective long-term development requirements to enablethese subsectors to contribute to poverty reduction andeconomic growth.

East Timor

For each of the three subsectors, namely land, maritime,and air transport, the TA will (i) review the legal, regulatory,and policy frameworks; (ii) propose and establish immediatemanagement and administrative structures; (iii) outlinespecifications for an immediate and long-term restorationand procurement needs and development program.


The TA is estimated to cost $1.0 million. The entire cost ofthe TA will be financed by ADB on a grant basis from theADB-funded TA program. This includes internationalconsultant remuneration and per diems, international andlocal travel, communications, office equipment, supplies, andcontingencies. The TA will also finance all costs of EastTimorese counterparts in the absence of an administrationwith a local payroll for counterpart staff.

Until 30 November 2000

30 November 2000

International consulting services required. The consultantshave been selected in accordance with ADB�s Guidelines onthe Use of Consultants and other arrangements satisfactoryto ADB for the engagement of domestic consultants.

� A total of 8 consultants have been fielded from March2000.

� Road, power, port, and aviation subsector strategyreports have been completed.

Project Rationale

Beneficiary

Project Scope

Executing Agency

Cost Estimate andFinancing Plan


Estimed ProjectCompletion Date

Procurement of Goodsand Services


Transport Sector Restoration, TA 3401-ETM

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Road Subsector Strategy

A. Overview

The road subsector in East Timor consists of approximately 1,400 kilometers(km) of main road and some 6,600 km of secondary roads. About 50 percent of themain road network was originally paved and well developed to provide a high levelof serviceability for light vehicles. Geography of the country�s interior spine isgenerally precipitous and unstable, particularly toward the west of the country. Theroad bench is susceptible to landslips and washouts, while river crossings areconstantly subjected to scour on the steeper slopes, and river realignment on thebraided lower reaches.

Traditionally, network maintenance costs have been high while serviceabilityhas remained relatively low�particularly at vulnerable locations during the monsoonseasons. When the financial crisis affected Indonesia in the mid-1990s, maintenancefunding in East Timor was drastically reduced. This has resulted in cumulativeincreases in road damage over the pastfour or five years, resulting in numer-ous and frequent road closures. Cur-rently, many parts of the network arealso experiencing pavement failuresfrom the combination of unsuitablevehicles and poor road drainage inaddition to the original formationdamage. Finally, a large number ofbridges and culverts have failed due toeither excessive wheel loads or inad-equate preventative maintenance since1999. Eighteen bridges have been lostand of these 10 have temporary Baileybridge replacements. The remaining river crossings are impassable during periodsof high flow, cutting isolated rural communities from institutional services and reliefassistance, and hindering the movement of security forces in certain areas.

The remedial strategy has three components: (i) restoration of the road benchthrough an intensive program of backlog maintenance and emergency rehabilitation;(ii) urgent restoration of normal systematic routine, emergency, and periodicmaintenance; and (iii) implementation of a capital program of pavement rehabilitationand strengthening.


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The road restoration program is ongoing. It was started with bilateralfunding (Department for International Development and United NationsDevelopment Programme (UNDP)/Norway) as emergency opening projects. Inaddition, two bilateral donors, United States Agency for International Aid (USAID)and the Government of Japan have both initiated small projects to assure adequateroad drainage. However, inadequate training and supervision are compromisingthe benefits of these projects.

Pending the start of more substantive contracts, ADB administered Grant No.8181-ETM: Emergency Infrastructure Restoration Project (EIRP) financing fouremergency road repair projects, and Australian Agency for International Aid (AusAID)is considering provision of follow-up support to the UNDP/Norway project.

Under EIRP, five more substantive emergency rehabilitation contracts havebeen tendered and will be mobilized in the first week of June 2000. This programof five area maintenance contracts assigns the successful contractors to each areawith identified key priority routes that must the brought up to a reasonable state ofrepair, and thereafter preserved at all weather condition through maintenance action.Each area contract will be supervised by an East Timorese area maintenance engineer,assisted by an expatriate supervisor/trainer.

Other maintenance contracts on feeder roads will be implemented under EIRPusing local East Timorese contractors, as required. These works will be identifiedand supervised by East Timorese engineers engaged and assigned as district

engineers. In due course, this workneeds to be funded from theUnited Nations TransitionalAdministration in East Timor(UNTAET)/East Timor recurrentbudget, but for the duration of thefive area contracts, the work willbe funded through the ADB-administered EIRP.

Concurrent with the fivearea maintenance contracts, ADBis tendering five internationalcontracts to provide backlog androutine maintenance for a furthertwo years in four or five mainte-

nance areas. These contracts will specifically train and equip local East Timoresecontractors to enable them to provide an effective and economic road maintenanceservices and resources.

Additional road rehabilitation is planned under funding from the Governmentof Japan, which has indicated an intention to rehabilitate the Dili�Aileu�Ainaro, andLaga�Uato Carabau roads in due course.

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The ADB program is closely integrated with UNTAET�s program for thedevelopment of an East Timorese Road Authority. An institutional model has beenagreed with both UNTAET and representatives of the Council for National Resistanceof East Timor (CNRT). UNTAET will first recruit the required area engineers tosupervise the above EIRP rehabilitation contracts, and will thereafter recruit up to13 district engineers who will be responsible for the regular routine and emergencymaintenance of the road network, using UNTAET�s own recurrent budget. UNTAETis also facilitating the overall strategy by initiating specific repair contracts to addressmajor failure sites that would otherwise bog down the emergency rehabilitationoperation.

In addition to EIRP, ADB support to the road subsector includes two separateand currently funded programs:

(i) a road subsector study to identify priority links for road restoration andpavement rehabilitation, and

(ii) a bridge replacement program to recover assets that have suffered recentlosses. The cost of this program may be significant as it will involve therecovery of International Force for East Timor/United NationsPeacekeeping Forces (INTERFET/UNPKF) emergency Bailey bridging toUNTAET�s inventory, as well as the replacement of lost structures.

The study and program will be integrated to a project to be funded from TrustFund for East Timor for a road and bridge maintenance and rehabilitation projectinvolving physical civil works.

B. Capital Works

The following major initiatives are planned or proposed for the road subsector;(i) ADB-administered EIRP-funded works include:

(a) provision of $500,000 to finance immediate specific road repairs.Status: ongoing

(b) five area road maintenance contracts to provide emergency benchand drainage rehabilitation for up to four months.Status: tendered, mobilization 1 June 2000; and

(c) five emergency road repair contracts to provide road rehabilitationservices for two years, awarded under the international competitivebidding (ICB) guidelines. These contracts include local contractordevelopment and the implementation of unskilled routinemaintenance using village labor.Status: tender issue 1 June 2000


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(ii) Spot rehabilitation contracts in the value of $2.5 million funded fromthe UNTAET Assessed budget.Status: approval ongoing

(iii) Follow-up support to the UNDP/Norway road rehabilitation on Dili�Maubisse to an anticipated value of A$500,000 funded by AusAID.Status: funding under consideration

(iv) Future studies to determine priorities for pavement rehabilitation,pavement designs road upgrading projects under ADB TA No. 3401-ETM:Transport Sector Restoration Program.Status: ongoing

(v) Japanese and USAID funded micro-projects using village labor to improveroad drainage.Status: ongoing

(vi) A Japanese-funded rehabilitation project to improve the Dili�Ainaro andLaga�Uato Carabau roads.Status: feasibility study ongoing

(vii) Implementation of priority pavement rehabilitation.Status: planned for ADB-administered Trust Fund for East Timor(TFET) funding in 2001/02

A substantive program is underway to replace bridges lost due to past lack ofmaintenance, and to procure as necessary, and return to store, Bailey bridgingprovided by INTERFET and UNPKF.Status: planned for ADB-administered TFET funding in 2001/02.

C. Recurrent Expenditure

Required recurrent expenditures relate to:(i) Staff to administer the functions of a Road Authority of East Timor (RAET).

Staff cost will rise as RAET assumes increasing responsibility for themaintenance of the network;

(ii) Miscellaneous administrative costs relating to the operation of thefunctions of a RAET. Operating cost will rise as RAET takes increasingresponsibility for the maintenance of the network;

(iii) Regular routine and emergency maintenance of the network. This activitywill be implemented in stages as sections of the network are adoptedfor RAET maintenance; and

(iv) Routine bridge maintenance.

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Maritime Subsector Strategy

A. Overview

Shipping is vital to support ongoing relief operations and the future economicgrowth of East Timor. The principal port at Dili is heavily congested. It is in needof immediate rehabilitation and expansion to ensure efficient and sustainable cargomovements. Smaller provincial ports and landing sites located around the coastlinerequire basic maintenance in the medium to long term.

Dili Port is managed on a temporary basis by expatriate staff provided throughPortuguese donor assistance. Port management proposals include the contracting,during a transitional period, of day-to-day port management activities, anddevelopment of appropriate institutions to effectively manage the subsector.

B. Objective

The strategy is designed to contribute to the economic and social developmentof East Timor through the development of sustainable institutions and infrastructurefor the maritime subsector.

C. Funded Capital Works

Two major initiatives are planned for maritime subsector development;(i) Emergency improvements as part of the ADB-led Emergency

Infrastructure Improvement Project (EIRP). These relate to (i) expansionof the main wharf at Dili Port, to increase the number of vessel movementsand traffic flows; (ii) restoration of a container yard facility and adjoiningslipway to improve cargo handling and storage; (iii) provision of beachmatting at a landing point at Suai, to improve access on the southerncoastal area; and (iv) various small-scale infrastructure improvementsand equipment provision. The amount of $2.06 million has been includedin the ongoing TFET funded project for these works.Status: Bids have closed for items (i) and (ii). It is expected that contractsare expected to be let by 3 June. However, work on the (ii) will, at therequest of PKF, be deferred until mid-June.


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(ii) Japan-funded port infrastructure improvements amounting to$6.3 million, including; (i) improvement of navigational aid structuresto improve the efficiency and safety of vessel movements; (ii) the provisionof fenders to improve vessel docking; and (iii) improvements to a containeryard seawall at Dili Port.Status: Feasibility studies have been completed. Work is expected tocommence late 2000.

(iii) A number of minor, but important restoration works at the port havebeen identified. Many of these have been included in a contract fundedby UNTAET. However, several items that are critical to the safe, effective,and efficient operation of the port will be funded under EIRP. The totalcost of these items is expected to be approximately $0.5 million. Theseinclude (a) provision of pollution control equipment, (b) restoration oftelecommunications equipment, (c) restoration of workshops and storagebuildings, and (d) improvements to the fire-fighting system.Status: Port engineering services will be engaged in June for preparationof specification.

D. Recurrent Expenditure

Required recurrent expenditures relate to:(i) Contract management costs to successfully operate the port facility by

way of a private sector port management services contract;(ii) UNTAET personnel and incidental costs to sustain port institutions,

manage the port management services contract, and perform regulatoryfunctions;

(iii) Operation and maintenance costs for infrastructure, equipment, and otherappurtenances; and

(iv) Training.

Total operating costs are estimated at $2.2 million for FY2000/2001, to befunded from the UNTAET Trust Fund. (Potential revenue from port operations isestimated at around $1.3 million).

E. Institutional Development

Institutional proposals for the maritime subsector are still under development.In line with best international practices, the institutional proposal recommends theseparation of the regulatory and operational functions in the maritime subsector.The proposed East Timor Maritime Safety Authority would be responsible for

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regulating maritime affairs, including port state control. Responsibility for portoperations would be vested in an East Timor Ports Authority (ETPA).1 This authoritywould be established as a legal entity separate from the government, and wouldreport to a board comprising predominantly East Timorese.

ETPA would operate primarily as a landlord, with port operations such asstevedoring and towage performed by private sector companies, and it would let ashort-term (3-5 year) contract for the provision of management services. Under themanagement contract, the contractor would have two major responsibilities: tomanage the daily operations of the port safely and effectively; and to train EastTimorese nationals to take over the management function at the end of the contractperiod.Status: Discussion paper on the establishment of Authorities and some initial ideasfor a possible regulation have been prepared for consideration by UNTAET.

F. Port Management Services Contract

It is proposed to let a contract for the provision of management services at theport by competitive bidding to a private sector service provider. The contract willhave dual objectives:

(a) ensuring the safe and effective operation of the port in the short term;and

(b) transferring the skills required for full localization over a two-year period.

The contractor will provide senior management personnel, and will receive afixed fee plus a performance-related payment. A substantial part of this performancepayment will relate to the training of local staff to take over management positions.The operating costs of the port will borne by the UNTAET recurrent budget. Thecontract will not cover the provision of stevedoring and towage services, which willcontinue to be provided by independent private sector operators.Scope of services and draft contract documentation has been prepared. Intended tolodge advertisements on May 31 with 45-day tender period. The target is to havecontracts finalized by end July and contractors in place early in September 2000.

1 Working title.


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Power Subsector Strategy

A. Overview

The electrical system of East Timor includes 58 generating stations. Allelectricity generation has been produced by diesel engines operating on light dieselfuel. The installed capacity prior to the post-consultation destruction ranged from25 kilowatts (kW) to approximately 16,000 kW. The majority of the generation capacity,approximately 24 megawatts (MW), was located in the two power stations servingDili. Of the 58 power stations in East Timor, 2 are large 15 MW stations located inDili, 12 are 100-300 kW regional stations located in district centers, and 44 aresmall rural stations of about 50 kW capacity.

The distribution system consists of approximately 700 kilometers (km) of 20kilovolt (kV) lines, which function as transmission and sub-transmission, and about700 km of 230/400 volt distribution lines.

The peak demand prior to August 1999 was about 32 MW. The load factor formost generating stations was very low (about 10-20 percent). The system facilitieshave been correctly installed, but the maintenance of the stations and network hasbeen of a low standard.

The power system was heavily damaged during the post-consultationdestruction. Most generating station equipment and the powerhouse structures weredamaged and most of the auxiliary systems were removed.

The distribution network suffered considerable damage to the low-voltagesystem as a result of the burning of homes and buildings, which were adjacent tothe overhead lines. While sections of the network were damaged, the accumulatedlack of right-of-way and other maintenance has reduced its reliability significantly.

As a result of intensive efforts to restore electricity supply to Dili and thesurrounding villages over the last seven months, the system including power stationsand the 20 kV distribution system is largely back in operation.

The Comoro station located in Dili has been returned to a capacity of 7-8 MWoperation. While this station was not damaged, poor maintenance has severely reducedits reliability and proper operation. The combined capacity of the two power stationsin Dili is about 10 MW. Load growth has been impacted by the United Nations activitiesin Dili, and the load has reached 8.3 MW, which compares with the pre-consultationpeak load of 9.8 MW. The load is expected to double during the next fiscal year.

However, many of the regional centers remain without power or receivesignificantly reduced supply. The Oecussi Enclave of East Timor has had no centralgeneration since the popular consultation.

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A power entity structure has been developed by UNTAET and about 150 EastTimorese have been employed in the power subsector under the UNTAET budget.

B. Capital Works

Seventeen of the rural stations will be rehabilitated under bilateral funding($2.3 million) from the Government of Japan. Four of the same are currentlybeing rehabilitated under bilateral funding of $1.0 million from the Governmentof Portugal (Lore, Kelikai, Natabora, Lakubar). Comorro-Dili station requiresmaintenance, which is planned for funding ($2.9 million) under Government ofJapan program.

Support to establishment of the power entity, and managerial and operationaltraining will be provided under assistance from the Government of Portugal.

ADB assistance is preparing a recommendation for a power tariff, which willbe completed by 15 June 2000 for UNTAET�s consideration. This will account for thesocial conditions prevailing in East Timor and limited supply of electricity in therural sector.

ADB-administered Grant No. 8181-ETM: Emergency Infrastructure Rehabili-tation Project will establish financial management of the power subsector includingmetering, billing, accounts, and financial management systems and rehabilitateremaining power stations and distribution cables not addressed under bilateral supportprograms.

A long-term power subsector development program has been proposed forADB technical assistance and for mobilization in the first quarter of 2001.

The current power production capacity of Comoro and Caicoli power stationsis insufficient to service demand in Dili. A load-shedding program will need to beimplemented to manage demand unless additional equipment is installed in Dili.Procurement of additional 6 MW is proposed for which additional funding is required.

C. Recurrent Expenditure

Required recurrent expenditures relate to:(i) Staff to administer the functions of a Power Authority of East Timor.

These will decline once management responsibility as a result ofcapacity building programs has been transferred to local East Timoresemanagers;

(ii) Fuel and operating materials for power supply, and miscellaneousadministrative costs relating to the operation of the entity; and

(iii) Regular routine and emergency maintenance of the distribution networkand supply systems.


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Aviation Subsector Strategy

A. Overview

Commercial aviation forms an integral component of the national transportsystem, providing the majority of international passenger movements. Dili (Comoro)Airport is currently the only facility that has air traffic and other technical facilitiessufficient for scheduled passenger operations. Regional airports include Baucau andSuai (with paved runways), and Maliana, Oecussi, and Los Palos (unpaved runways).Of these provincial facilities, only Baucau is in regular use for nonscheduled (military)operations.

Aviation priorities relate to the ongoing maintenance of Dili Airport toappropriate internationally recognized standards, and maintenance of provincialfacilities to cater to noncommercial traffic. Necessary interventions to include:

(i) Emergency repairs to the runway and fencing at Dili AirportStatus: Specifications under development, works are proposed for fundingfrom UNTAET budget; and

(ii) Procurement of technical equipment for Dili Airport and equipment andcivil works provisions for provincial airports.Status: Specifications prepared. Source of funding needs to be identified.

Development of appropriate aviation subsector include outsourcing of theday-to-day Dili Airport management activities to the private sector. Outsourcing isnow considered crucial to allow an effective transition of airport management fromthe Royal Australian Air Force (current airport manager) to a private sectormanagement services contractor.

B. Objective

The strategy is designed to contribute to the economic and social developmentof East Timor through the development of sustainable institutions and infrastructurefor the aviation subsector.

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C. Funded Capital Works

Currently funded projects are limited to immediate emergency runway andfencing works that are ongoing and funded from the UNTAET assessed budget. Theseemergency works have resulted from criticism made by the Australian aviation safetyauthority, CASA.

D. Unfunded Capital Works

The major portion of proposed capital works requirements relate to;(i) Provision of essential navigational, lighting, communications,

meteorological, firefighting and air traffic control equipment for DiliAirport, with a requirement for installation prior to 1 October 2000.Status: Specifications prepared. Source of funding needs to be identified.

(ii) Provision of replacement navigational aids due to obsolescence ofcurrently installed equipment by end 2001.Status: Source of funding needs to be identified.

(iii) Allowance for additional equipment and civil work needs at the Dili,Baucau, and other provincial airport facilities to be carried out over thenext 3 years.

These are as yet unfunded; sources of financing these projects, some of whichare essential to airport operation, are at present under investigation. Possibility ofsuch funding may be made from TFET should a donor agency fail to be identified.

E. Recurrent Expenditure

Required recurrent expenditures relate to:(i) Contract management costs to successfully operate the Dili Airport facility

by way of a private sector airport management services contract;(ii) UNTAET personnel and incidental costs to sustain airport institutions,

manage the airport management services contract, and performregulatory functions; and

(iii) Operation and maintenance costs for infrastructure, equipment and otherappurtenances.


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F. Institutional Development

Institutional proposals for the aviation subsector are still under development.The aviation subsector institutional proposal recommends separation of the regulatoryand operational functions in the aviation subsector. The East Timor Civil AviationAuthority would be tasked with regulation and enforcement of civil aviation legislationwithin the State. It would also hold responsibility for ensuring compliance withinternational civil aviation regulations for foreign operators arriving at East Timoreseairports, and East Timorese registered aircraft operating overseas. Responsibility forairport operations will be vested in an East Timor Airports Authority (ETAA). Thisauthority would be established as a legal entity separate from the government, andwould comprise a board composed of East Timorese nationals in the majority. It isanticipated that ETAA would maintain ownership of the airport infrastructure andits associated equipment, delegating the daily operation of these assets to anindependent airport management company. The airport manager would, in turn, beheld responsible for providing or subcontracting all essential airport services suchas passenger, cargo, and aircraft handling. It is proposed that the contract for theprovision of management services would be short-term (five years) in nature. Thecontractor will have three major responsibilities: to manage the daily operations ofthe airport safely and effectively, to assure effective and continuous provision of airtraffic control services, and to train East Timorese nationals to take over themanagement function at the end of the contract period.

G. Airport Management Services Contract

It is proposed to let a contract for the provision of management services at theairport by competitive bidding to a private sector service provider. The contract willhave triple objectives:

(i) Ensuring safe and effective operation of the airport for the duration ofthe contract;

(ii) Provision of a safe, effective air traffic environment for the duration ofthe contract; and

(iii) The transfer of the necessary skills in order that all senior positions maybe filled by local staff within a three-year timeframe.

The contractor will provide the appropriate skilled technical and managementpersonnel, in return for which he will receive a fee consisting of fixed and performancerelated elements. A substantial part of this latter element will relate to the successfulachievement of the training and experience transfer program. The airport operatingcosts will be borne by the UNTAET recurrent budget, administered by the contractorvia the airport authority (see above).

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H. Key Recommendations for the Airport Subsectorare as follows:

ADB, through the technical assistance No. 3401-ETM: Transport SectorRestoration ($1.0 million) prepared a proposal for an airport sector management.Key recommendations for the airport subsector are as follows:

(i) Subsector Management: The management proposal prepared under thetechnical assistance (TA) recommends to an East Timor Civil AviationAuthority and the operational functions to an East Timor AirportsAuthority (ETAA). ETAA would comprise a board composed of EastTimorese nationals. It would contract operations to an independent airportmanager under a management contract under which East Timorese wouldbe trained to assume responsibility for airport management. Proposalsfor such contract has been submitted for UNTAET consideration and itis expected to be tendered on 1 July 2000 and financed from UNTAETassessed budget.

(ii) Airport Infrastructure: ADB�s TA has identified requirements for Comoro-Dili. Firstly it needs safety improvements including strengthening of therunway pavement and a minimum package of navigation and safetyequipment. Secondly, it needs upgrading to the lowest level internationalairport. This requires refurbishment of the current outdated navigationaids and communication systems. Funding for these needs would besought from UNTAET.

(iii) Airport Tariff: UNTAET and the National Consultative Council haveendorsed the airport tariff prepared under ADB assistance. The finalapproval, however, awaits resolution of (i) legal liability of the airportowner, the State of East Timor, in the event of a claim; and (ii) to whatextent the tariff is applicable to flights operating under contract with UNor its agencies and to passengers thereon. In this respect, final approvalfor tariff application rests with UNTAET legal department.


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Capacity Building for Governance and Public Sector Management,TA 3412-ETM

Currently, at a national government level, East Timoreseinterests are represented by the National ConsultativeCouncil (NCC), which comprises prominent local peoplewho have been appointed to this body by the UnitedNations Transitional Administration in East Timor(UNTAET) in consultation with CNRT. NCC�s role is toadvise UNTAET, particularly on governance decisions thatinfluence the economic, social, and political environmentof East Timor. In effect, NCC represents current EastTimorese involvement in government, although in a verylimited fashion. Notwithstanding this, NCC is anappropriate starting point for helping the East Timoreseprepare themselves for the responsibilities of a democraticand responsible government. Although currently assistedby a secretariat, NCC is expected to gradually expand itsstructure to include sectoral committees, each focusedon a specific government function such as economic policy,public finance, foreign policy, defense, education, health,primary industry, trade and investment, justice, transport,and communications. Thus, NCC and each of its commit-tees will need to develop capacities to prepare policy,manage future regulation responsibilities, and administeressential public services.

Future East Timorese public officials

The capacity building interventions will be a mix of variousmethodologies, such as workshops in East Timor,attendance at seminars or training programs in othercountries, secondments to public sector agencies of othercountries, study tours, or visiting experts to offer policyadvice and on-the-job training.

Project Rationale

Beneficiary

Project Scope

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The TA is estimated to cost $1 million. The entire cost ofthe TA will be financed by ADB on a grant basis from theADB-funded TA program. This includes international anddomestic consultants, resource persons, trainee per diems,international and local travel, communications, suppliesand contingencies.

Until 31 March 2002

31 March 2002


� international consultants have been fielded to buildcapacity in the central bank and central paymentoffice.

� 200 potential applicants have been selected and willbe further short-listed to about 50 for public sectormanagement training.

� 6 senior East Timorese officials are undergoing publicsector management training.

Executing Agency






Capacity Building for Governance and Public Sector Management,TA 3412-ETM (continued)


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There is a pressing need to prepare an update on socialand economic conditions in East Timor, to assess currentproduction and dissemination of social and economic data,and to identify prioritized actions needed in order to permitthe production and dissemination of appropriatelycomprehensive, reliable, and timely data in a post-UNTAETEast Timor. This identification of prioritized actions wouldprovide the foundation for designing subsequent phasesof technical assistance (TA) for statistical developmentduring the period 2000�2003.

East Timor

The TA will prepare a report on economic and socialconditions that encompasses the key productive sectorsof agriculture, private sector activity, physical infrastruc-ture, health, and education. The assessment of currentstatistics will cover the real sector, the fiscal sector, thefinancial sector, the external sector, and socio-demographic data on population, health, education, andpoverty. Assessment of data requirements of a post-UNTAET administration, and of means of satisfying them,will require close consultation with UNTAET, the NationalCoordinating Council (NCC) that currently represents theEast Timorese population, and the ongoing ADB-financedTA on capacity building for governance and public sectormanagement. The latter supports a small ADB-NCC-UNTAET task force whose responsibility is to formulatea capacity building plan. This plan will identify needs inpublic sector management, including economic policy�and thus statistical�development. It is thereforeimportant that the two TAs are complementary.

Poverty Assessment and Statistics, TA 3425-ETM

Project Rationale

Beneficiary

Project Scope

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The TA is estimated to cost $52,900 equivalent. The entirecost of the TA will be financed by ADB on a grant basisfrom the ADB-funded TA program. This includes interna-tional and domestic consultants, international and localtravel, equipment, communications, supplies, andcontingencies.

Until 30 June 2002

30 June 2002

International consulting services required. Consultantshave been selected in accordance with ADB�s Guidelineson the Use of Consultants and other arrangementssatisfactory to ADB for the engagement of domesticconsultants.

� An international consultant has completed fieldsurveys and the final report will be available by endJuly 2000.

� 1,000 households and 50 businesses were surveyedin 6 districts.

Executing Agency






Poverty Assessment and Statistics, TA 3425-ETM (continued)


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Rehabilitation of the Telecommunications Sector, TA 3428-ETM

An overall strategy and plan for the rehabilitation andmaintenance of the telecommunications sector in EastTimor has not yet been established. In order to ensurethe cost-effective and efficient provision of publictelecommunications services, this Technical Assistance(TA) will study different viable options for establishing acomprehensive telecommunications infrastructure net-work that can be shared by, and will serve the needs of,all telecommunications customers. There is an urgentneed to establish a national telecommunications strategyin two phases. The two-phase approach has been chosenbecause the contents, timing, and structuring of thesecond phase will depend on the findings of the first phase.

Urban and rural communities � East Timor

The TA will assess existing equipment to identify require-ments by location, type and quantity. An assessment ofthe technical and financial viability of integrating theexisting and planned telecommunications infrastructureof the United Nations Transitional Administration in Easttimor (UNTAET) into a future national telecommunica-tions infrastructure will also be included. It will also makerecommendations on an appropriate regulatory regimeand private sector participation. A detailed investigationinto the demand for telecommunications services willresult in cost estimates of revenue, capital investmentrequired, funding options, and operation and maintenancecosts, as well as the requirements for management,technical, operational and maintenance staff. Included inthe scope will be a review and analysis of the work on thetelecommunications sector already undertaken by theJoint Assessment Mission, United Nations DevelopmentProgramme, and the Australian Agency for InternationalDevelopment Communications Assessment Mission(ACAM).

Project Rationale

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The TA is estimated to cost $150,000. The entire cost ofthe TA will be financed by ADB on a grant basis from theADB-funded TA program. This includes up to fiveinternational person-months of consulting services,international and local travel, communications, andcontingencies. The TA will also finance all costs of oneEast Timorese counterpart

Until 1 August 2000

1 August 2000


� An international consultant has completed fieldstudies and the report will be finalized in July 2000.

Executing Agency






Rehabilitation of the Telecommunications Sector, TA 3428-ETM (continued)


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Microfinance, TA 3435-ETM

There appear to be few prospects for establishment of aviable microfinance institution (MFI) either among theexisting banks or through nongovernment organizations(NGOs). However, selected indicators show impressivegrowth of credit unions in East Timor over the past tenyears. Subsequent to the post-consultation destruction,only four of the previous 27 credit unions have been ableto continue operating. Rehabilitation and expansion ofcredit union operations, building on local initiatives, isone of the best alternatives available for rapid establish-ment of viable MFIs in East Timor. Another promisingprospect in East Timor is the establishment of a specializedmicrofinance bank, patterned on successful models inother countries, such as Bolivia and the Philippines. Apreliminary assessment recently undertaken by aconsortium of private companies and internationalfunding agencies has concluded that East Timor offersexcellent opportunities for such an initiative.

Microentrepreneurs in East Timor

In addition to providing immediate support to activatethe microfinance sector, the scope of the technicalassistance (TA) will include support for preparation of adetailed assessment of longer term options for sustainabledevelopment of the microfinance sector in East Timor.This study will include a thorough assessment of thedemand and requirements for microfinance services,including the viability of establishing a microfinance bankin East Timor. The output of this part of the TA will bea project grant report. The project grant report will specifythe design and implementation requirements to establishthe microfinance banking system in East Timor, and wouldinclude specifications for a financing facility for creditunions and other microfinance intermediaries.

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The TA is estimated to cost $150,000 equivalent. Theentire cost of the TA will be financed by ADB on a grantbasis from the ADB-funded TA program. This includesinternational and domestic consultants, international andlocal travel, equipment, communications, supplies, andcontingencies.

Until June 2000

September 2000

International consulting services required. Consultantshave been selected in accordance with ADB�s Guidelineson the Use of Consultants and other arrangementssatisfactory to ADB for the engagement of domesticconsultants.

� 3 international consultants have been selected toprepare a feasibility report. The consultants will befielded from 25 June to 25 August 2000.

Executing Agency






Microfinance, TA 3435-ETM (continued)

Appendixes

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○ Appendix 1Page 1 of 26

REPORT

ON A

PROJECT GRANT

FROM THE TRUST FUND FOR EAST TIMOR

(TO BE ADMINISTERED BY THE ASIAN DEVELOPMENT BANK)

TO THE

UNITED NATIONS TRANSITIONAL ADMINISTRATION IN EAST TIMOR

(FOR THE BENEFIT OF EAST TIMOR)

FOR THE

EMERGENCY INFRASTRUCTURE REHABILITATION PROJECT

April 2000


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ABBREVIATIONS

ADB � Asian Development BankDTW � department of transport and worksGDP � gross domestic productIDA � International Development AssociationIMF � International Monetary FundInterfet � International Force for East TimorJAM � joint assessment missionNGO � nongovernment organizationPMU � project management unitTA � technical assistanceTFET � Trust Fund for East TimorUN � United NationsUNDP � United Nations Development ProgrammeUNHCR � United Nations High Commissioner for RefugeesUNPKF � United Nations Peacekeeping ForceUNTAET � United Nations Transitional Administration in East TimorWFP � World Food Programme

WEIGHTS AND MEASURES

km (kilometer) � 1,000 meterskW (kilowatt) � 1,000 wattsm (meter) � unit of lengthMW (megawatt) � 1,000,000 watts

NOTES

(i) The fiscal year of UNTAET is from 1 August to 31 July.(ii) In this report, �$� refers to US dollars.

Appendix 1Page 2 of 26

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CONTENTS

Page

I. THE PROPOSAL 56

II. INTRODUCTION 56

III. BACKGROUND 56A. Description of Damage 56B. Response to Crisis 57C. Transport Subsector Description 60D. External Assistance and Donor Coordination 68

IV. THE REHABILITATION ASSISTANCE 69A. Rationale 69B. Objectives 69C. Scope 69D. Cost Estimates 70E. Financing Plan 71F. The Executing Agency 71G. Implementation Arrangements 72H. Environmental and Social Measures 77

V. APPROVAL 78



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I. The Proposal

1. I submit for your information the following report on a project grant to theUnited Nations Transitional Administration in East Timor (UNTAET) for the benefitof East Timor from the Trust Fund for East Timor (TFET) for the EmergencyInfrastructure Rehabilitation Project.1 The Project Framework is in Appendix 1.

II. Introduction

2. UNTAET has requested the Asian Development Bank (ADB) to prepareemergency assistance to rehabilitate the damaged infrastructure for early restorationof normal socioeconomic activities. An ADB appraisal mission2 visited East Timorfrom 7 to 18 February 2000 and prepared the Emergency Infrastructure RehabilitationProject with the authorized UNTAET representatives. The agreements reached wereconfirmed in a memorandum of understanding. Funding for the Project will be drawnfrom TFET, which is established under the trusteeship of the InternationalDevelopment Association (IDA) of the World Bank Group. The TFET does not includeADB�s own resources. The Project has been prepared in accordance with Doc. R74-00:Joint Management Arrangements for the Trust Fund for East Timor, approved by theBoard on 23 March 2000, and also in accordance with ADB�s policies and proceduresfor rehabilitation assistance after disasters (Doc. R191-88, Rev. 1, Final), includingdisasters caused by civil strife. Doc. R191-88 specifically allows for shortenedprocessing procedures and flexibility in implementation arrangements for suchassistance. Negotiations of the Grant Agreement for the Project were completedwith UNTAET on 29 March in the field.

III. Background

A. Description of Damage

3. In the democratic consultation of 30 August 1999, the people of East Timorvoted overwhelmingly for independence. During the following month, East Timorexperienced a campaign of destruction and terror, during which three quarters ofthe population fled their homes and most of the country�s infrastructure and private

1 The Project first appeared in ADB Business Opportunities in January 2000.2 The mission comprised S. Jarvenpaa, Project Economist (Mission Leader); E. Ouano, Sr. Environmental Specialist;

M. Carr, Road Engineer/Consultant; M. Lewis, Energy Engineer/Consultant; E. To, United Nations DevelopmentProgramme Infrastructure Specialist; K. Lonngren, Energy Adviser, Ministry of Foreign Affairs, Finland; E. daSilva, Counterpart Team Leader; J. Alves, Counterpart Road Engineer; V. Guterrez, Counterpart Power Specialist;and F. Guterrez, Counterpart Port Specialist.


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homes were destroyed. In the western half of the territory and the highland areas,all property of value were removed, burned, or destroyed, including residential andpublic buildings, utilities, telecommunications facilities, inventories of essential food,and agriculture stocks. The eastern half experienced similar attacks with an estimated75 percent of residential buildings destroyed. East Timor remains only partiallyinhabited. Refugees are gradually returning from West Timor and the forest, withthe support of humanitarian relief coordinated by the Office for Coordination ofHumanitarian Affairs (OCHA). Consequent to the postconsultation destruction, alladministrative structures are dysfunctional. This includes public offices tasked tomanage the infrastructure sectors. All public documentation and premises have beendestroyed.

B. Response to Crisis

1. UNTAET Organization

4. Under a resolution of the Security Council of the United Nations (UN), theUNTAET was established with powers to (i) ensure stability; (ii) establish a transitionalgovernment; and (iii) establish the judiciary, laws, and policies. The UNTAET willadminister East Timor for 2-3 years, when general elections are planned. The UNTAETis headed by an administrator and comprises three sections: (i) humanitarianassistance, (ii) public administration and governance, and (iii) the United NationsPeacekeeping Force (UNPKF). Each section is headed by a deputy special representativeof the Secretary General (DSRSG). Management of infrastructure sectors is aresponsibility of the head of infrastructure, who is a UNTAET staff member underthe public administration and governance section, and is supported by a staff personresponsible for telecommunications, postal services, electricity, water and sanitation,transport and roads, port management, and civil aviation. UNTAET�s organizationchart is in Appendix 2. UNTAET�s recurrent budget is drawn from its trust fundusing UN disbursement guidelines. For the first quarter of 2000, transport has beenallocated a recurrent budget of $390,000 and electricity, $825,000. The allocationswill be reassessed for the next quarter. Under the UN disbursement guidelines, theallocations will be used for salaries of East Timorese employees and recurrentconsumables such as fuel. UNTAET�s financial administration will be strengthenedwith International Monetary Fund (IMF) technical assistance (TA). UNTAET�s financialyear runs from 1 August to 31 July. The National Consultative Council (NCC)comprising representatives of the UNTAET, East Timorese civil society, and Catholicchurch, coordinates UNTAET activities with East Timor civil society. Currently, UNTAETchairs sector committees to coordinate sector activities among donors, UN agencies,and nongovernment ogranizations (NGOs).



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5. The capital development budget, to be drawn from TFET, was assessed by aWorld Bank-coordinated and multiagency joint assessment mission (JAM) in October-November 1999. The JAM identified needs for TA and investment projects inconsultation with the National Council for East Timorese Resistance (CNRT), WorldBank, and UNTAET, United Nations Development Programme (UNDP), and theInternational Force for East Timor (Interfet). During the JAM, ADB reviewed transportsector restoration and development requirements in the short term (1�2 years) andmedium term (2�3 years).

2. Impact of Crisis on Poverty

6. In 1996, when East Timor was part of Indonesia, its gross domestic product(GDP) per capita income was $431. The Indonesian national average was $1,153.As a result of the 1997 Asian crisis, GDP in Indonesia including East Timor declinedas the devaluation of the Indonesian rupiah and high interest rates dampenedeconomic activities throughout Southeast Asia. Indonesia was the country hit hardestby the Asian crisis, and poverty increased. However, the decline in East Timor�s GDPwas more pronounced due to its dependence on Indonesian central government grants,which financed up to 85 percent of the current and capital expenditure. Between1997 and the 1999 referendum, the East Timorese GDP was estimated to havecontracted by 25 percent as a result of the Asian financial crisis. In 1996, 30 percentof the households were living in poverty�double the national average in Indonesia.The number of households living below the poverty line rose to an estimated 50�60 percent as the result of the Asian crisis.

7. On 4 September 1999, the results of the democratic referendum wereannounced to favor independence. The ensuing violence resulted in extensive damageto private and public buildings, their contents, and basic infrastructure. About75 percent of the infrastructure was destroyed and GDP declined to half or less ofits previous level. About 175,000 people were displaced out of East Timor and reducedto acute poverty in refugee camps. Another 200,000 people were displaced withinEast Timor. More than 50 percent of the total population were dislocated by theviolence. Although an estimated 118,000 people have returned to their villages, alarge portion of the population faces starvation as their crops, seeds, and other meansof livelihood were destroyed. The international community, specifically through theWorld Food Programme (WFP), has been distributing food and seeds. Even the smallEast Timorese middle and upper income groups were not spared from poverty asbanks and their records were burned. The banking sector in East Timor was exclusivelyserviced by Indonesian banks, and only three have plans to reopen and possiblysettle depositors� claims. Up to 80 percent of the East Timorese could be living belowthe poverty line and a large portion are facing starvation. However, the food stability


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would improve if agriculture recovers as expected this year. WFP estimates that bythe end of the year 2000, a considerable portion of the population will no longer beat risk of starvation, and WFP will then be able to scale down its intervention.

8. The savings rates of families who find employment in the reconstructionactivities, or those able to harvest crops in 2000, are expected to be very low for thenext five years. A considerable portion of these incomes will be used for rebuildingresidences, replacing their contents, and rebuilding livelihoods. The current livingconditions are extremely poor, aggravated by a very high level of unemployment.The population is surviving on day-to-day access to nourishment. Burned houses aretemporarily rebuilt using plastic sheets, tenting materials, and scraps. Whilereconstruction activities are expected to generate employment, the neglect of basicinfrastructure such as roads, bridges, ports, and power supply facilities has increasedthe cost of moving goods and services within the country. For example, travel fromDili to Ainaro now costs $4.30 compared to $0.70 a year ago. Food prices increasedby as much as 200 percent during the two months of the violence. These have sincedeclined due to intervention from the international community. While the risk ofstarvation is being overcome, infrastructure bottlenecks hamper the aid deliveryand economic recovery.

3. Restoration Programs

9. In response to the crisis, the United Nations Mission in East Timor (UNAMET)established emergency services and humanitarian assistance of the UN and bilateralagencies. The Office for Coordination of Humanitarian Affairs� short-term needsassessment, the Consolidated Appeal, identified immediate humanitarian needs forthe first three months from December 1999 to March 2000 in the amount of $199million. These do not include restoration of the infrastructure.

10. To plan for the urgent medium-term rehabilitation in a coordinated manner,ADB joined the JAM in October-November 1999. A concurrent IMF mission assessedthe macroeconomic parameters and prepared an initial macroeconomic framework.As a result, ADB and the World Bank have agreed to work together to assist the EastTimorese people and UNTAET in the reconstruction and socioeconomic developmentof the country. In particular, during the Tokyo donors� conference of 17 December1999, representatives of the two institutions and other donors have endorsed thecooperative use of grant resources from the TFET. ADB is to be the lead agency forrestoring the infrastructure sector including transport, energy, telecommunications,and water and sanitation. ADB�s Board of Directors has approved delegated approvalof project proposals by ADB�s Management, expanded eligibility under ADB�sprocurement guidelines, disbursement procedures in accordance with ADB�s



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disbursement guidelines, and the establishment of grant agreements of projectsfunded under TFET.3

11. Concurrently with JAM, the United Nations Development Programme (UNDP)commissioned a short-term needs assessment in the infrastructure sector covering,inter alia, roads, ports, and energy. UNDP does not, however, have the resources toaddress the identified emergency infrastructure rehabilitation requirements.Subsequently, UNDP has endorsed ADB�s lead-agency mandate in the infrastructuresector and in preparing the Project.

12. The ADB-funded TA 3401: Transport Sector Restoration Project4 will implementADB�s first intervention in the three transport subsectors by taking steps to establishthe institutions and regulatory frameworks in the road, port, and airport subsectors,and by reviewing the long-term development requirements to enable these subsectorsto contribute to poverty reduction and economic growth. The Project will be integratedwith this process. In the power subsector, Portugal will assist UNTAET in establishinga power utility and the Project will support development of financial management.ADB has undertaken port and airport subsector pricing studies that advise UNTAETon immediately implementable user charges. A similar study will be conducted inthe power subsector in March 2000.

C. Transport Subsector Description

13. The transport system in East Timor is multimodal, comprising about 8,000kilometers (km) of roads, 1,400 km being major arteries; one container port, threesmaller wharves, small jetties, and landings; and two international airports and eightgrass airstrips. The past demand for the transport system in East Timor has beenthat of a provincial economy. Internal traffic in East Timor depends on land transport.The domestic maritime transport is currently limited and has potential for growth.Infrastructure has been constructed under Indonesian central government budget.Only limited, if any, maintenance has been carried out. While there is no evidenceof physical damage to the transport infrastructure, the postreferendum violenceresulted in the removal and destruction of all transport-related property, includingequipment and vehicles. Infrastructure has also suffered from a long-term lack ofmaintenance.

3 R74-00: Joint Management Arrangements for the Trust Fund for East Timor, 23 March. This document laysout an arrangement for TFET and an expansion of eligibility under ADB�s procurement and engagement ofconsultant guidelines to include member countries, East Timor, and all donors and members of internationalorganizations that have provided contribution funds to TFET.

4 TA 3401-ETM: Transport Sector Restoration, for $1,000,000, approved on 10 February 2000.


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1. Roads

a. Description

14. East Timor is 265 km long and 92 km wide, with a central mountain spinecloser to the northern than to the southern coast. The highland is typically precipitous,but rarely exceeds 3,000 meters (m). The predominant geology in the highland areais lightly consolidated sedimentary materials overlying limestone. The island lieswholly within the equatorial region, and receives monsoon rainfall from Novemberto April, averaging 2,500 millimeters per year. The rest of the year is hot and dry.Vegetation is tropical savannah with medium to light tree cover. Coffee is grown andcattle are reared in parts of the central highlands. The southern coastal plain issuited to rice and wheat production, but is not developed.

15. The road network is supported by the main coastal east-west arteries alongthe northern and southern coast lines. These are connected by the north-southsecondary roads. The main road network totals 1,400 km and about 6,600 km ofrural roads, with about 50 percent of them sealed. All roads have suffered fromlong-term neglect of maintenance. The main centers of population, including thecapital, Dili, are on the north coast, and are connected by the county�s principalroads. The condition of the southern coastal road varies greatly: some sections arepaved and are in good condition, while others are little more than tracks. The routecrosses a number of large braided rivers by a combination of bridges and causeways.These causeways are vulnerable to the natural realignment of the waterways, andtwo major bridges, Punta Cassa and Zumala, are incomplete. Five national andprovincial north-south roads, all showing severe signs of neglect, provide vehicularaccess to the south coast. During the dry season, the riverbeds are exposed and areinappropriate for inland river travel. During the rainy season, rivers cut the roadsand interrupt the transport system. The road drainage needs immediate clearanceand restoration. In all towns, the road drainage needs to be cleared to avoid disruptiveflooding. The roads have narrow carriageways of about 3 m steep banks with poorstability, and poor pavement surfaces and drainage. An inventory of the road networkand bridges is in Appendix 3.

16. Present road usage is dominated by Interfet, the UN military, and by aidagencies� vehicles, in particular by those of the United Nations High Commissionerfor Refugees (UNHCR) and WFP. This will continue in the foreseeable future. Thisusage exposes the roads to relatively heavy loads, which has exacerbated widespreadpavement damage. In addition, tracked military vehicles have damaged road surfacesin some places. Much of the road network has deteriorated significantly due to lackof maintenance and an upsurge in traffic. During the rains that commenced inNovember 1999, some roads became impassable, and others dangerous and difficult



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to use. Humanitarian aid can also be delivered through coastal shipping and tobeaches, and by air. However, these modes are more expensive than land transportand the onward distribution relies on part of the road network.

17. The road network is fragile. It has been constructed for low traffic volumesand light axle loadings. It traverses steep and unstable mountain slopes, experiencesintense tropical rainfall, and crosses many wide rivers with ill-defined riverbeds.Under normal conditions, the network would require a moderately high level ofmaintenance. Under current conditions, the roads are rapidly deteriorating. TheInternational Force for East Timor (Interfet) was able to maintain the road access itrequires, but the expedient nature of such works means that the improvements arefrequently transitory and of little benefit to other users. Interfet has maintained keyparts of the road network to give access to civilian vehicles�particularly on sectionsof the northern east-west road. Since January 2000, Interfet has handed securityoperations to UNPKF. UNPKF will have a reduced capacity to maintain roads in future.

18. About half of the road network is paved. This represents an extremely valuablenational asset. Given the foreseeable economic circumstances for the country, anextensively paved national road network could be an irreplaceable national assetthat could be irreparably damaged if regular maintenance is not instituted as a matterof urgency. Road conditions are given in Appendix 4.

b. Medium- to Long-Term Sector Development

19. A 12-month emergency works program for keeping the roads open has beenoutlined in a UNDP-funded short-term study. The works were estimated to cost$15 million. The identified works include repair of road bank slips, slides, and potholes,and embankment strengthening. UNDP is funding labor-based drainage clearancewith $0.5 million from the Government of Norway. The Government of UnitedKingdom will fund $1.6 million of these needs through its Department for InternationalDevelopment. Both programs are highly labor-intensive and will end in April 2000.

20. ADB-funded TA for transport restoration (footnote 4) will prepare acomprehensive transport sector plan. This will focus on establishing an efficient andeffective multimodal transport system to support long-term development and growthin East Timor. The plan will outline and initiate establishment of efficient institutionsin the transport subsectors. In developing these, the proposals and implementationmechanisms will pay particular attention to private sector involvement and to theinfrastructure requirements of the poor. Specifically, the TA will (i) review the legal,regulatory, and policy frameworks; (ii) propose and establish immediate managementand administrative structures; and (iii) outline specifications for immediate andlong-term restoration needs and development. The TA includes development of


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management contracts for airports and ports to integrate efficient sector operations,and cost recovery development. It will also prepare a road sector management systemintegrating the strengthening and training activities under the Project with long-termsector development needs.

c. Subsector Management

21. UNTAET�s current sector management involves four people: the head ofinfrastructure, a roads engineer, a port manager, and an aviation official. A departmentof transport and works (DTW), with headquarters in Dili, is proposed to be establishedto manage the transport system covering all subsectors. The DTW would be set upduring the UNTAET tenure, for transport infrastructure management and toconcurrently facilitate long-term sector development and capacity building. TheDTW�s structure will incorporate the principles of private sector participation,development of a maintenance culture, human resources development, andcompetition. An objective is to gradually develop East Timorese capacity to manage,and improve the transport infrastructure assets to facilitate economic developmentand growth. DTW�s administrative structure will aim to institute a road assetmanagement and maintenance system that establishes local capacity to managetransport needs for economic development. DTW will have four major divisions:(i) a transport division to assume regulatory and policy responsibilities for the threemodal subsectors, (ii) a planning and design division, (iii) an operations division, and(iv) a finance division. Consultant support to UNTAET will be provided under theADB-funded TA for transport restoration, to initiate establishment of DTW. The projectmanagement unit will become the nucleus of the new administration. A total of 115staff members are required in the first year, including a maximum of 21 foreignstaff. The number of foreign staff will be reduced gradually to 10 in the third yearas technology transfer is incorporated in the incentives under the incumbents�contracts. All international positions will be coupled with East Timorese counterparts.An organization chart of the planned DTW is in Appendix 5.

2. Ports

a. Subsector Description

22. The maritime infrastructure includes Dili Port; Carabela Port in Laleia with amechanical roll-on roll-off facility; Com Port; smaller wharves in Oecusse and Liquica;and slip landing structures and sites in Dili, Batugade, Oecusse, and Suai. While theport structures have not been damaged by the postconsultation destruction, allequipment were destroyed. Few navigation aids exist, and these are now in operation.There are no established cargo handling systems or cargo handling equipment, savean inoperable crane on wheels. Shippers make their own arrangements with two



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Australian private sector cargo-handlers, who bring their own equipment. At all theports, all vessels need to be self-sufficient with lifting gear. Other than at Dili Portand cargo landings at Suai, the wharves are used only to a very limited extent; somenot at all. The use of port facilities outside of Dili is constrained by narrow roads andpoor road conditions.

23. Given the large cargo volumes and the physical constraints, Dili Port is underpressure and highly congested. Commercial vessels have experienced long turn-around times. This congestion hampers timely delivery of relief and security goodsto East Timor. It also increases the cost of humanitarian aid, and has led to acuteshortage of food and other relief material in the rural areas, where returning refugeesare left with minimal support.

i. Operations at Dili Port

24. The wharf at Dili Port is 180 m long and 20 m wide, has a draft of 7.2 m, andhas the capacity to handle 7,000 tons. Demand for port services and infrastructurehas dramatically increased since the consultation as a result of the humanitarianand security activities. The berths at Dili Port have a queue time ranging from 9 to12 days. Ships are turned around in 12-24 hours. There are no detailed data on thecargo volumes handled by the port. Commercial cargo accounts for 70 percent of thecurrent total volume, and includes humanitarian aid, business cargo, and usedvehicles. Military and peacekeeping cargo is dominated by food rations. Under aletter of assistance, Interfet will continue to handle UNPKF military cargo until theend of UNPKF�s mandate in East Timor. The current volumes exceed the port�s capacity,and over the next two months, the cargo volumes will further surge temporarily asInterfet exports its equipment and hands over the security control to UNPKF.

25. Two Australian cargo-handling companies operate at Dili Port. Additionally,Interfet and aid agencies carry out their own stevedoring. A temporary barge hasbeen attached to the western end of the berth to alleviate pressure on the berthspace. Interfet resides currently in the storage facilities within Dili Port, and isscheduled to vacate these facilities gradually by 30 June 2000. By 1 April 2000,Interfet and UNTAET will determine how to continue the leases for equipmentcurrently leased. JAM recommends that UNTAET continue leases for the 25-ton forklifttruck and the temporary barge. UNTAET could then sublease the forklift truck tocommercial operators on a cost recovery basis until cargo volumes have stabilized.The barge will provide additional space for cargo handling operations until the thirdberth is constructed.


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ii. Suai Beach Landing

26. Because the road network is in poor condition, relief goods are also beingunloaded from barges in Suai. Interfet�s unloading equipment was removed whenInterfet departed on 23 February. However, as humanitarian relief cargo will continueto be unloaded at Suai until the end of 2000, additional cargo-handling equipmentis needed in Suai under the Project. This equipment will be under the control ofUNPKF until the planned DTW can assume responsibility for it.

b. Demand for Port Services

27. While meaningful trade data are missing, Dili�s importance is clear. Mostinternational trade enters East Timor through Dili Port, and the infrastructure in Diliis far more extensive than at any of the other port sites. While beach landing sitesare currently used for the delivery of military supplies and reconstruction materials,the future demand for port facilities outside of Dili, Oecusse, and Com is inconsiderable doubt, and the port revenues are likely to be limited to Dili Port. Pasttrade data demonstrates that most exports are agricultural (coffee) and most importsare food and construction materials. The number of trading ships visiting Dili Portduring the preconsultation period ranged from 170 to 270 vessels per year. Thecurrent shortages of commodities, especially rice, suggest considerable volatility inthese volumes. No formal statistics have been kept on vessel movements throughDili Port since the consultation. Past cargo data and a reasonably comprehensive listof the current main movements at the Port are summarized in Appendix 6.

i. UNTAET Cargo

28. While the UNTAET has not estimated its future cargo volumes, logistics supportof UNTAET�s operations will dominate total cargo over the next 2�3 years. Althoughin the short run the replacement of Interfet with the UNPKF will cause a surge inexported and imported cargoes, this is unlikely to affect the volumes on a sustainedbasis. Force reductions are likely to occur in June 2000, with similar reductionstaking place every 4-6 months thereafter.

ii. Food and Medical Cargoes

29. The total shipments of food aid during March-June 2000 are estimated to riseto 50,000 tons, but thereafter will likely settle to 30,000-40,000 tons per annum.Medical aid cargoes currently fill 5-10 containers per week, and are likely to continuefor the next 2-3 years, and possibly longer.



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iii. Construction Materials

30. UNHCR anticipates shipping approximately 500 housing units every two weeksthrough Dili Port over the next three months, and an additional 1,000 units throughother ports and beaches, each unit with a mass of about 1.5 tons. The InternationalRed Cross will ship 5,500 housing units (excluding cement) over the next 12 months,while World Vision will import 10,000 packs of roof sheltering and timber in thesecond quarter of this year. Other NGOs have smaller housing programs that willalso generate import volumes. The United Nations Children�s Fund (UNICEF) hasbuilding and water programs that generate modest amounts of construction cargoes,including about 5 containers per month, plus 100-150 cubic meters of looseconstruction materials.

iv. Commercial Cargoes

31. While it is extremely difficult to estimate commercial imports, the large demandfor construction materials needs to be recognized. Apart from the large influx ofvehicles for the UNTAET, demand for imported motor vehicles, mostly second hand,has recently surged and is estimated at 100-200 vehicles per month, with thelikelihood of significant future growth.

c. Long-Term Subsector Development

32. ADB-funded TA (footnote 4) will (i) prepare port traffic forecasts; (ii) undertakelong-term port subsector planning, including development of a port and maritimemaster plan and preparation of related feasibility documentation; (iii) prepare anoperational management contract for port subsector operations; (iv) recommendmodalities for service provision contracts; (v) prepare applications for joininginternational subsector organizations; (vi) identify potential partnership arrangements;(vii) recommend efficient cargo handling services at the ports; (viii) review needsrelated to hydrographic charting, navigational aids, search and rescue, emergencyoil spill response, and other maritime safety operations; and (ix) developrecommendations for establishment of a maritime authority.

d. Port Management and Cost Recovery

33. Interfet manages the port sector. It will implement minor civil works to facilitateits operations. These include demolishing sheds on the western end of the wharf toprovide access to a newly developed private gravel-surfaced container yard. Interfet�stenure in the management of the subsector expired on 28 February. Between nowand June 2000, Interfet will gradually move out of the port facilities. The UNTAEThas appointed a Portuguese-funded harbormaster who will manage the port in the


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interim together with the UNTAET port manager until a management contract is inplace. ADB-funded TA (footnote 4) will prepare a management contract to facilitateEast Timorese management of the subsector and to establish a port authority. Thismanagement contract will be tendered in April 2000. The tendered managementcontract will be financed from UNTAET�s trust fund and port charges.

34. ADB is conducting a port pricing study that will prepare a detailed analysis ofthe marginal costs of the port sector and develop a port tariff for immediateimplementation. The recommendations of the study will be available in late March2000. In the interim, the port manager has developed a set of provisional tariffsbased on comparisons with other regional ports, and a provisional staffing structurefor the port. The implications of these for the level of cost recovery in the port willbe examined and administrative collection mechanisms will be developed in detailunder ADB�s intervention. The practicalities of implementation have also beendiscussed in some detail. The principles governing the recommendations are to(i) minimize the risk of facilitation payments and illegal transfer of funds, and (ii) avoidrevenue collection hindering vessel and cargo movements.

3. Energy

a. Subsector Description

35. East Timor has 57 electricity generating stations. All electricity generation hasbeen produced by diesel engines operating on light diesel fuel. The installed capacityin the stations ranged (prior to the postconsultation destruction) from 25 kilowatts(kW) to approximately 16,000 kW. Most of the total generation capacity, approximately24 megawatts (MW), is provided by the two power stations serving Dili. Thedistribution system consists of approximately 700 km of 20 kilovolt lines fortransmission, and about 700 km of 230/400 volt distribution lines. The peak demandprior to August 1999 was about 32 MW. The load factor for most generating stationswas very low (about 10-20 percent). The system facilities have been correctly installed,but the maintenance of the stations and network has been of a low standard.

36. The power system was heavily damaged during the post-consultationdestruction. Most generating station equipment and powerhouse structures weredamaged and most of the control panels, fuel systems, and wiring were destroyedby fire. Many auxiliary items, such as batteries and starter motors, were removed.Of the 57 stations, 21 have been returned to operation under bilateral assistancefrom the Government of United Kingdom. Smaller single-unit stations are now ableto produce a high percentage of their installed capacity, while other larger multipleunit stations are reduced to a single-unit operation. The Comoro station in Dili,serving most of the Dili area load, has been returned to a capacity of 7-8 MW operation.



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Although this station was not damaged, poor maintenance has severely reduced itsreliability and operation. Many regional centers remain without power or receivesignificantly reduced supply. Oecusse Enclave of East Timor has had no centralgeneration since the popular consultation.

37. The distribution network suffered considerable damage to the low-voltagesystem when homes and buildings adjacent to the overhead lines were burned. Lackof maintenance has reduced the network�s reliability significantly. Most serviceconnections have been burned and many are now hanging free from the distributionlines, presenting a danger to people and preventing the restoration effort. Many ofthe system transformers were drained of insulating fluid. These cannot be returnedto service until they are refilled.

b. Subsector Management

38. The power subsector suffers from acute shortage of trained personnel at alllevels and poses a severe difficulty to restoring the proper operation of the electricalsystem. In particular, there is a lack of experienced operators at all power stations,including linemen, diesel mechanics, and technicians. A shell for an operating utilitycompany has been formed in Dili, but does not have experienced managementpersonnel.

39. Under a contract with UNDP funded from TFET, Electricity of Portugal willdevelop the power subsector institution and provide the related managerial andtechnical training. Under the Project, support will be provided to develop financialmanagement, i.e., billing and collection systems, financial accounts and recording,audit, financial planning, budgeting, and bookkeeping of the power subsectorinstitution.

40. In light of ADB�s lead agency role in the subsector, support for preparing along-term development plan is proposed for funding from ADB�s TA program. Thiswould cover generation expansion, transmission and distribution augmentation, andrelated action over a 20-year time frame. Terms of reference for the study will besent for UNTAET endorsement.

D. External Assistance and Donor Coordination

41. The Project is fully coordinated with donors involved in the overall emergencyrestoration support for East Timor and in particular with the donors and partnerswho are assisting emergency programs in the three sectors under the Project. Theseinclude UNDP and the Department for International Development, which implementbilateral labor-based road repair work. The Japan International Cooperation Agency


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(JICA) is currently implementing a study on urgent rehabilitation in East Timor underan agreement with UNTAET dated 12 January 2000. The estimated cost of the studyis $2.5 million and includes a pilot project for road repair on the Dili-Aileu section.An inception report was prepared in late February and the final report will becompleted in August 2000. The objective of the study is to urgently preparerehabilitation plan for roads, bridges, ports, irrigation, and power in East Timor. TheProject is prepared so that it can be adjusted to accommodate works under additionalfunding from Japan or other donors, and complementary assistance from JICA wouldaddress irrigation and bridge rehabilitation.

42. Electricity of Portugal will implement $1.0 million of TFET funds in the powersubsector. This support will focus on developing a power entity, training staffresources, and rehabilitating 1-2 power stations. The Project will continue the worksthat have been initiated by programs of other donors and are yet to be completed.Appendix 7 lists ongoing projects.

IV. The Rehabilitation Assistance

A. Rationale

43. UNTAET is implementing a program of humanitarian assistance in East Timor.The primary objective of rehabilitating the transport and power infrastructure is toprovide the East Timorese with access to this humanitarian relief and to facilitatepeace and security.

B. Objectives

44. The Project will (i) undertake emergency road repair works to facilitate efficienttransport of humanitarian aid and security cargo, and to induce revival of economicactivity; (ii) expand the capacity of port facilities to reduce congestion as soon aspossible; and (iii) reinstate power supply. Despite the apparent emergency nature ofthe Project, in fact the Project also supports long-term sector development with civilworks, strengthening of the local contracting industry, instituting operation andmaintenance systems, and capacity building for sector management.

C. Scope

45. The scope of the Project includes the following components:(i) road rehabilitation, including (a) road repair, (b) equipment for road repair

works, (c) labor-based road and causeway restoration, and (d) rehabili-tation and reinstatement of bridges and depot facilities;



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(ii) port rehabilitation, including (a) wharf extension at Dili Port;(b) restoration of the landing craft slipway at Dili Port; (c) restoration ofthe container yard at Dili Port; (d) provision of beach matting at Beacu,Betano, and Suai; (e) port repairs; and (f) equipment for landing of goods;

(iii) power sector rehabilitation, including (a) rehabilitation of 15 powerstations, (b) rehabilitation and reinstatement of distribution lines,(c) restoration of communications between Dili and power stations,(d) replacement of destroyed Comoro power station switchgear, and(e) support to financial sector management; and

(iv) a project management unit.

D. Cost Estimates

46. The total cost of the Project is estimated at $29.8 million. The estimated costsof the components are summarized in Table 1. Detailed cost estimates are inAppendix 8.

Table 1: Cost Estimates and Financing Plan($ million)

15 May- 1 Aug- 1 Jan 2001- TotalDescription 31 Jul 31 Dec 15 Dec 2002 Cost

Base Costs

1. Emergency Port Rehabilitation 0.66 1.40 0.00 2.06

2. Emergency Road Rehabilitationa 2.50 3.24 14.81 20.55

3. Emergency Power Rehabilitation 0.96 1.28 0.53 2.77

4. Project Management Unit 0.32 0.64 2.10 3.05

Subtotal A 4.44 6.55 17.43 28.42

Contingenciesb

1. Physical Contingency 0.12 0.25 0.81 1.18

2. Price Contingency 0.02 0.03 0.11 0.16

Subtotal B 0.14 0.28 0.92 1.34

Total 4.58 6.83 18.35 29.76a Physical (15 percent) and price (2 percent) contingencies are included.b Contingencies exclude physical and price contingencies on the road rehabilitation.

Source: Staff estimates.


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E. Financing Plan

47. The total cost of the Project will be financed on a grant basis by TFET.Contributions to TFET do not include ADB resources. The Project financing needsto be sensitive to TFET�s cash receipts. This has been taken into account in thepackaging of contracts.

48. As reported to the Board on 23 March 2000, the provision of funds to TFETby donors has so far been rather slow. At the present time, there are insufficientfunds in TFET to finance the entire Project, although it is anticipated that substantialcontributions to TFET will be made over the next few months and that funds willbecome available for the Project in good time for implementation. The Trustee hasalso confirmed in writing that $7 million is available now. The negotiated GrantAgreement therefore refers to this initial amount of $7 million but also anticipatesthat the Trustee will confirm from time to time that further amounts may bewithdrawn as they become available. The Grant Agreement provides that, as andwhen the Trustee confirms such availability of further amounts, ADB and UNTAETwill enter into supplementary exchanges of letters to record the new amounts.Therefore, although the total project cost is $29.8 million, the initial amount of$7 million to be provided from TFET may not be exceeded without a subsequentwritten confirmation from the Trustee and a supplementary exchange of lettersbetween ADB and UNTAET.

F. The Executing Agency

49. The UNTAET will be the recipient of the Grant. It will establish a projectmanagement unit (PMU) that reports to the UNTAET head of infrastructure. ThePMU will program, administer, and coordinate daily project activities, and will assumethe role of an executing agency. PMU will be headed by an East Timorese projectmanager and comprise an East Timorese project accountant and three subsectorengineers. The selection of these will be subject to ADB�s approval. The projectmanager will be supported by internationally recruited consultants: a chief technicaladviser and a financial manager, and engineers for roads, ports, and electricity, totaling120 person-months. The chief technical adviser will support the project manager inadministering the Project and its contracts in accordance with ADB guidelines, andwill be accountable to ADB for the quality and timeliness of project implementation.Engineers will program and coordinate daily project activities, including design,supervision, procurement of goods and services, and management of civil workscontracts. Once established, DTW will absorb PMU. The international consultantswill train East Timorese counterparts in their areas of responsibility. The consultantservices will be selected in accordance with ADB�s Guidelines on the Use ofConsultants. However, the term �member countries� under these guidelines for



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purposes of this Project will include ADB member countries, East Timor, and alldonors and members of international organizations that have provided contributionfunds to TFET. PMU will be funded under the Project. An organization chart and theterms of reference of PMU are in Appendix 9. Under UNTAET�s organizationframework, PMU will become the nucleus of DTW and be absorbed within it. BothPMU and DTW will report to the head of infrastructure as its UNTAET ministerialequivalent.

G. Implementation Arrangements

1. Technical Approach

a. Emergency Road Repair

50. The works under the Project will incorporate labor-intensive employmentgenerating methodologies, where possible. The equipment under the Project will beheld at five depots and be hired to East Timorese subcontractors to build their capacityto do urgently needed road repairs. Least-cost methodologies have been adopted forthe technical solutions under the Project. These include maximum use of local labor,materials, and contractors, and simple technologies contributing to sustainability ofthese works.

51. Five short-term contracts for road repair will be tendered to engage local peoplein road works on an urgent basis. Concurrently, five longer-term internationalcontractors will be selected, one to be based in each regional center: Baucau, Dili,Maliana, Oecusse, and Same. Each contractor will (i) reinstate priority lengths ofunstable, collapsed, subsided, or eroded road; (ii) restore functional drainage to priorityroad lengths; (iii) repair local areas of heavily damaged road pavement; (iv) provideappropriate river crossings where essential to the humanitarian effort; (v) refurbishregional DTW depots, as required; (vi) develop local road repair capacity by mentoringthe selected local subcontractors; and (vii) involve communities in the unskilled roadrepair activities.

52. The Project is designed to ensure maximum coordination with ongoing roadworks and to facilitate a coordinated approach to any further works funded byresources additional to the TFET. This is possible as each of the five contracts willbe responsible for restoring roads in a region, with works focused on prioritizedroads. The contractor will switch to other priority road sections, when additionalsupport is mobilized.


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b. Emergency Port Restoration

53. Dili Port suffers from a high level of congestion. To facilitate the delivery ofthe humanitarian aid and security cargo, Dili Port requires, on an urgent basis,additional wharf and cargo handling capacity, and improved management.

54. Construction of a 48.7 m by 12.1 m extension has been incomplete since 1997with only the concrete deck and ancillary work needed. The structure comprisessteel piles with reinforced steel, and longitudinal and transverse reinforced concretebeams. Completing the extension will avoid a loss of the earlier investment. Alanding site at Dili Port serves barge-landing of goods, and is particularly useful forlanding military and humanitarian aid. The concrete landing ramp has deterioratedto a very poor state, with uneven surface, deep cavitation, and cracking, and is oflimited use. Restoration of the slipway will allow additional landing capacity at alltides at the port. The container storage area at the port is a soft area 225 m longand 40 m wide. Hardening of the area will improve container management byproviding additional maneuvering space, and will alleviate space constraints at thePort. The selected engineering solutions represent least-cost actions using localmaterials to the extent possible and local contractors under supervision of a mentoringcontractor.

c. Emergency Power Rehabilitation

55. Thirty-six generating stations in the rural areas need immediate rehabilitation,ranging from repair of burn damage to total reconstruction. A detailed specificationof requirements and design work at each station will be carried out as a componentof the Project. Least-cost methodologies will be adopted. The specifications will includeportable generating sets to enable rehabilitation. After restoring the originalgenerating units, the portable sets will be moved to other sites and the processrepeated.

56. At present there is no communication between the power utility headquartersin Dili and the rest of the system. The Project will install a system of radios andrepeater stations to allow for communication from the Dili utility to the outlyingstations and vehicles.

57. The power subsector also lacks basic tools and equipment for rehabilitation ofthe distribution system and restoration of the services. No instruments are availableto measure voltage or current in the circuits. While most of the network overheadconductors are sound, some spans need replacement. Service connections have alsobeen damaged. Many of these need replacement as customers are reconnected tothe system. The Project will include providing multimeters and other basic equipment,



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and overhead and service conductors; rehabilitating distribution circuits; andproviding related training.

58. The Project will support development of financial management capabilities inthe future power entity, to ensure that the people involved understand the need forcost recovery. Currently, power supply is mismanaged because it is supplied free toonly a very few consumers.

2. Steering Committee

59. UNTAET will establish, with the support of the TA 3401 (footnote 4), a steeringcommittee for the Project to involve broader stakeholder representation in projectimplementation. The steering committee will be convened prior to the approval ofthe Project to inform the stakeholders of the project activities. The steering committeewill then meet monthly to discuss and resolve emerging issues in projectimplementation, procurement, and community employment, and to review andcomment on the project reports for submission to ADB.

3. Procurement of Goods and Services

60. All procurement under the Project will be conducted in accordance with ADB�sGuidelines for Procurement used for loan financed projects (footnote 3). The proceedsof the Project will finance imports of goods and services, local purchases, and civilworks identified under the Project. Under ADB�s Guidelines for Procurement, thesemay be procured through direct purchase, or through international shopping, localcompetitive bidding, or international competitive bidding, as appropriate. Fiveshort-term civil works contracts will be tendered using international shoppingprocedures to ensure expedited restoration of infrastructure. These will engage locallabor. Thereafter, five long-term civil works contracts will be tendered usinginternational competitive bidding procedures.

4. Implementation Schedule

61. The project implementation period is 24 months, commencing in May 2000.Every quarter, PMU will prepare a detailed implementation schedule for projectactivities. Project implementation consultants will be selected as soon as the Projectis approved and the grant effective. Small labor-intensive works contracts, prepa-ration of designs, prequalification of contractors, and tendering of internationalcompetitive bidding contracts will commence upon project approval and granteffectiveness. Port rehabilitation, road works, and rehabilitation of power stationswill start from June 2000. The Project activities will be completed by December2001. A technical review of the Project will be conducted jointly by ADB and UNTAET


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one year after project approval. The Project implementation schedule is shown inAppendix 10.

5. Rights-of-Way

62. Most works under the Project are within existing rights-of-way. The UNTAETwill, if needed, acquire or obtain rights to any land required on a timely basis inaccordance with ADB�s Policy on Resettlement and Compensation and providecompensation (including for crops), as required, in accordance with ADB�s relevantguidelines. Detailed designs will minimize land acquisition.

6. Disbursement Procedures

63. As agreed with IDA, disbursements for eligible expenditures will be madepursuant to ADB�s Disbursement Guidelines set out in ADB�s Loan DisbursementHandbook, 1996 and may be made as direct payment or reimbursement, or throughan imprest account. The imprest account will be replenished in accordance withADB�s Guidelines on Imprest Fund and Statement of Expenditures Procedures. Thechief technical adviser will be responsible for transactions, replenishments, and useof the imprest account. Payments under these agreements will be made by IDAbased on ADB�s request.

a. Direct Payment

64. Under the direct purchase procedure, PMU will request ADB for a direct paymentto be made to the supplier of goods and services. ADB will authorize the request andsend it to IDA, which will pay the supplier directly. Payment will be requested usingADB�s standard withdrawal application. PMU will indicate in the withdrawalapplication the date on which payment becomes due to the supplier. A separateapplication should be filled out for each currency in which the payment is requested.The application should be submitted with supporting documents such as contracts,invoices, receipts, and vouchers. This procedure will be used for payment of(i) consultants� fees, (ii) equipment, and (iii) civil works contracts awarded on thebasis of international competitive bidding. Copies of signed contracts will be forwardedto ADB as early as possible to facilitate timely payments.

b. Reimbursement Procedures

65. The reimbursement procedure will be used when eligible expenditures arepaid from UNTAET�s budget and reimbursement claimed through ADB from TFET.Withdrawal applications with supporting documents and summary sheets ofexpenditures will be prepared by PMU, and payments will be made to UNTAET by



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IDA based on ADB�s authorization. The reimbursement procedure will be used forpayment of (i) small purchases, and (ii) short-term civil works contracts.

c. Imprest Fund

66. Under the imprest account fund procedure, ADB will request IDA to advancefunds to PMU to meet subproject expenditures to prefinance payments to contractorsand suppliers. The imprest account will be used for short-term civil works, small-scale design and supervision services, remuneration of East Timorese project staff,and small purchases under all cost categories eligible for financing. ADB�s statementof expenditure procedure will be used for reimbursement of expenditures and forthe liquidation of the imprest account for payments with value equal to or below$50,000 each. The currency of the imprest account will be the United States dollarand the maximum initial advance will be $500,000. The chief technical advisersupported by PMU will be responsible for administrative and accounting tasks underthe Project and will establish adequate internal control, accounting, and auditingprocedures to ensure efficient use of the imprest account and its operation. Theimprest account will be established in Darwin, Australia.

7. Reporting

67. UNTAET with the support of PMU will furnish ADB with quarterly progressreports concerning all aspects, including finances, procurement of services,equipment, and all civil works in the Project. PMU will prepare quarterly expenditurebudgets a month prior to the commencement of the following quarter. The UNTAET,with the support of PMU, will also provide quarterly reports on the use of the recurrentUNTAET road, port, and power budget, including activities and expenditures; andreport progress in implementing policy initiatives, transport policy and regulations,and organizational changes. PMU will also prepare a final project completion reporton all aspects of the Project in accordance with ADB�s relevant guidelines.

8. Accounts

68. PMU will establish the necessary accounts in Dili, if possible, and in Darwin,Australia, if required. These bank accounts will be under the control of the chieftechnical adviser. PMU will establish and maintain separate accounts for allexpenditures under the Project, including its individual contracts and other projectcomponents. PMU will furnish ADB with accounts and related financial statementsreflecting the accounts for each project-related contract. These financial statementswill be audited using generally accepted accounting principles by auditors acceptableto ADB. The audited financial statements together with the auditor�s report will beforwarded to ADB within six months of the end of each related fiscal year. The PMU


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consultants will keep detailed records on the costing and expenditures of the projectcomponents and will assist with reporting.

9. Technical Midterm Review

69. In addition to a schedule of regular reviews to monitor the progress of theProject, a technical review of the Project will be carried out one year after mobilization.The focus of the review is to determine the need for any deviations from the projectdesign or implementation. The review will also assess adequacy of funds, costoverruns, need for reallocations, and other factors, if any, including assumptions andrisks, that might constrain the satisfactory implementation of the Project andachievement of development objectives.

H. Environmental and Social Measures

1. Environmental Impact of the Project

70. The Project has been classified as environmental category B. Accordingly, aninitial environmental examination is in Appendix 11. The potential environmentalimpacts of the Project are related to construction activities, and are limited, temporary,and reversible. The medium- and long-term impact of the Project is positive, especiallyin promoting economic and social development of East Timor and facilitating itsreconstruction and development. A detailed environmental impact assessment isnot needed.

71. Under UNTAET�s transitional administration, Indonesian environmental lawsremain valid. The capacity to review and evaluate environmental impacts ofinfrastructure projects and to monitor implementation of the mitigating measuresneeds to be developed within the UNTAET. There is also a need to review theapplicability of the prevailing environmental management laws, regulations, andstandards to the East Timorese social, legal, and institutional context. In the lightof ADB�s lead agency role in infrastructure restoration, ADB will assist in developmentof institutional and human resource capacity to address environmental and naturalresources management in infrastructure projects. The Project will be used to trainPMU counterparts to become familiar with environmental mitigation activities duringconstruction.

2. Social Assessment

72. The Project will restore the transport and power sector assets and supply. Thisis expected to have a significant positive social impact. An initial social assessmentis in Appendix 12. The Project will not involve any relocation or resettlement. The



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beneficiary consultations confirm widespread support for the Project. The Projectwill improve the quality of life. All people will benefit from the more reliable flowof goods, fuel, health care services, food, and access to reviving markets. The Projectwill generate significant employment among the people, most of whom are returningrefugees who have lost their property and livelihoods. Civil works under the Projectare designed to maximize the use of labor.

73. In the next 10 months, the road and port rehabilitation will facilitate themovement of food and agricultural supply to poverty-stricken and starvation-threatened areas. And since power is used in a number of labor-intensive industriesand services, particularly in Dili and other urban centers, its restoration will facilitatebasic services such as water and hospital facilities returning to normal.

V. Approval

74. The President, acting under the authority delegated by the Board, has approvedthe provision and administration by ADB of a grant to the United Nations TransitionalAdministration in East Timor, in an amount not exceeding $29,800,000 and subjectto the procedures described in paragraph 48, to be financed by the Trust Fund forEast Timor on a grant basis, for the Emergency Infrastructure Rehabilitation Project,and hereby reports such action to the Board.

TADAO CHINOPresident

13 April 2000


MEMORANDUM OF UNDERSTANDING

FOR A PROPOSED PROJECT GRANT FROM THE TRUST FUND FOR EAST TIMOR

TO THE UNITED NATIONS TRANSITIONAL ADMINISTRATION IN EAST TIMOR

FOR THE

EAST TIMOR WATER SUPPLY AND SANITATION REHABILITATION PROJECT

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ASIAN DEVELOPMENT BANKOFFICE OF PACIFIC OPERATIONS

Pacific Operations Division

Memorandum of UnderstandingETM: Water Supply and Sanitation Rehabilitation Project

ADB Fact Finding Mission5�8 June 2000

___________________________________________________________________________

I. Introduction

1. The United Nations Transitional Administration in East Timor (UNTAET), inconsultation with the National Consultative Council of East Timor (NCC) and theEast Timorese civil society, have requested the Asian Development Bank (ADB) toprepare urgent assistance to rehabilitate and restore damaged and inadequate watersupply and sanitation infrastructure throughout East Timor, and concurrently toestablish the human and institutional capacity needed to manage, operate, andmaintain the facilities. The ADB Fact-Finding Mission1 was tasked to prepare aninitial emergency rehabilitation project in accordance with the relevant ADBprocessing guidelines to continue the repair and rehabilitation of the water supplyand sanitation (WS&S) sector in East Timor.

2. The Mission held discussions with UNTAET�s Office of Water and Sanitation(OW&S), AusAID, JICA, Portuguese WS&S project representatives, the World Bank,and East Timorese counterparts. A list of persons met is attached in Appendix 1.Based on these discussions, ADB will prepare a project report for consideration ofthe Trust Fund for East Timor (TFET). The understandings in this Memorandum ofUnderstanding are, however, subject to approval of higher UNTAET and ADB authorities.

II. Background

A. UNTAET and NCC Organization

3. UNTAET�s infrastructure activities are managed and coordinated by the Headof Infrastructure, a position that sits under the public administration and governancepillar. The various offices under the Head of Infrastructure comprise groupsresponsible for telecommunications, postal services, electricity, water and sanitation,transport and roads, port management, and civil aviation.

1 The Mission comprised Walter Poick, Financial Analyst (Mission Leader) and Ian Binch, ADB Staff Consultant.

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○ Appendix 2Page 3 of 19

4. NCC has established nine sectoral committees to assist and advise UNTAET,some of which are reported to be active and others not. Those covering infrastructure,health, environment, and natural resources are most relevant to the WS&S sector.It is apparent that in designing any program of rehabilitation and reconstruction forEast Timor, NCC and its relevant committees must be consulted and the views andexperience of its constituent members taken into account.

B. UNTAET�s Office of Water and Sanitation (OW&S)

5. OW&S has recently been established as part of UNTAET�s infrastructure group.It is currently staffed by nine expatriate and 56 local personnel. They are based inDili, focusing on rehabilitation and operation of the town water supply system. Afurther 110 local staff are employed by District Administrators in districts outsideDili working as water supply field staff, pump and water treatment plant operators,and other operation and maintenance duties. OW&S plans to establish a presencein the main district towns as soon as supervisory staff become available.

C. UNTAET�s OW&S Policies and Plans

6. Being in its early and formative stages, UNTAET, through OW&S, is stilldeveloping policies and plans for the WS&S sector. OW&S has already givenconsideration to the type of national organizational structure that might be appropriatefor developing and managing WS&S in East Timor and has prepared a draft strategicplan with the mission:

�To ensure the communities of East Timor have access to such water andsanitation services as are considered essential for public health, protection of the

environment and for promotion of economic growth.�

7. The plan identified seven key result areas (KRAs) and their objectives:(i) Policy and Planning: To plan, develop policy, and organize for the

achievement of the Mission Statement. To measure and report toGovernment on progress towards achievement of the Mission Statement.

(ii) Water Resources: To assess, control the use of, and protect the waterresources of East Timor.

(iii) Public Water Supply: To provide adequate, safe and sustainable watersupplies for the communities of Dili and major urban centers in Districts,with the long-term aim of full cost recovery from users of the watersupply services.

(iv) Community Water Supply: To facilitate at a national level the promotionof adequate, safe and sustainable water supplies for village communitiesthrough community owned and managed water supply systems.


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(v) Sewage and Wastewater: To facilitate at a national level the safe disposalof sewage and wastewater in urban areas.

(vi) Urban Drainage: To facilitate at a national Level the collection and safedisposal of nuisance surface waters from major urban areas.

(vii) Solid Waste: To facilitate at a national level the collection and safe disposalof solid and hazardous waste from major urban areas.

D. Water and Sanitation Sector Description

8. Prior to the crisis, the public water supply network was extensive, coveringthe 13 district towns and 49 of the 63 subdistrict towns, a total of 62 systems.However, the quality of system construction was generally poor, and coverage wasvariable but low, commonly being only about 25 to 40 percent in the urban centers.Private shallow wells were used extensively in Dili and other towns, especially thosenear the sea or on river plains.

9. In the popular consultation of 30 August 1999, the people of East Timor votedoverwhelmingly for independence. During the following month, East Timorexperienced a campaign of destruction and terror over which three quarters of thepopulation fled their homes and most of the country�s infrastructure and privatehomes were destroyed. The widespread destruction included looting, burning anddamage to town and village water supplies and sanitation facilities throughout thecountry. Typically in towns with public water supply systems, vehicles, pumps andmotors were removed, water treatment plants damaged, offices, stores and otherbuildings burned, pipelines, tools and spare parts stolen, storage tanks ruptured,latrines and septic tanks damaged, and water sources impaired. And in the burningof houses, water connections, including meters, were completely destroyed.

10. Elsewhere in peri-urban and rural villages throughout the countryside,damage to water supplies was not extensive, but there are reports of wells beingpoisoned, handpumps stolen, pipes removed, and spring intakes damaged. Apartfrom the physical damage to infrastructure, most WS&S records and documen-tation were destroyed, so there is now only scant information available aboutpast operations, the status of institutions, or the systems themselves. Additionally,most former water supply managers have left East Timor.

11. None of the former water supply or sanitation institutions now exist. Thechallenge for UNTAET will be to develop new institutions and systems for managing,operating, maintaining and further developing urban and rural water supplies inEast Timor that are both appropriate and sustainable. And which, unlike before, donot burden future administrations with the need for recurrent cost subsidies fromwhat, inevitably, will be very tight central budgets.


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E. WS&S SECTOR LONG-TERM DEVELOPMENT

12. An ADB mission was fielded in April 2000 to develop a draft sector developmentframework for East Timor�s water sector. This framework aims at providing the peopleof East Timor with adequate and affordable water supply and sanitation servicesusing appropriate technology and good system management. It proposed that thiswould be done through:

(i) building local capacity and capability to effectively manage the WS&Ssector;

(ii) rehabilitating and developing water supply and sanitation facilities inurban and rural communities; and

(iii) promoting improved health, hygiene, and community participatorypractices.

13. The sector framework contains four components/outputs:(i) WS&S Sector Management Program, under which the Project Management

Unit (PMU) would be established and a detailed project implementationdocument (PID) prepared.

(ii) Capacity Building and Institutional Development Program, which wouldestablish the human and institutional foundations necessary tocomplement the physical water supply and sanitation works.

(iii) WS&S Implementation Program, which covers repair and rehabilitationof urban and rural water supplies and sanitation across East Timor.

(iv) Environmental Health Promotion and Strengthening of Local NGOs, underwhich complementary health promotion, hygiene education, andstrengthening of local NGOs would be carried out.

F. External Assistance and Donor Coordination

1. Emergency Phase

14. Post-crisis rehabilitation of both urban and rural water supplies is ongoing,with key inputs from ICRC, UN agencies, NGOs, JICA, AusAID and UNTAET throughits district administration offices and OW&S. This work has been, and remains, focusedprincipally on emergency repairs to key water supply infrastructure and maintainingsystems in a fairly basic operating condition.

15. International NGOs ICRC, CARE, OXFAM & ACF, and local NGOs Bia Hula,Forte, Hamoris Timor Oan (HTO) and SBSR, are the main NGOs involved in theWS&S sector. Supported by their internal resources and bilateral and multilateraldonors, they have been at the cutting edge of the emergency restoration phase,working on both urban and rural water supplies and to a lesser extent, sanitation.


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The international NGOs have been, and are still, working very closely with UNTAETdistrict administrations on operation and maintenance of urban water supply systems.However, as the emergency phase comes to a conclusion, many have expressed thedesire to hand over the urban systems to UNTAET�s OW&S to allow them toconcentrate more on rural development which they consider to be their area ofcomparative advantage.

16. At the commencement of the humanitarian assistance phase, it was UNTAET�sDistrict Administrators, with assistance from NGOs and their donors, that commencedWS&S emergency rehabilitation. They have engaged around 110 local staff (formeremployees of water entities) to undertake repairs, operation and maintenance in anumber of district towns outside Dili. Now that the OW&S is becoming betterestablished, and the country is moving from the humanitarian to the developmentphase, it is expected that OW&S, under the District Administration, will systematicallytake over the WS&S operations in district towns from NGOs. In the meantime, theyare concentrating on repairs, operation and maintenance of the Dili water supply,again with assistance from ICRC, and others. OW&S will form the basis for a newwater supply and sanitation authority in East Timor, and is now planning for thattransformation.

17. UNICEF has been involved in the emergency phase, supplying electric pumpsand handpumps to peri-urban and rural areas in cooperation with NGOs. Activitiesbased on their emergency funds from the European Community HumanitarianOrganization (ECHO) will extend through until about November 2000. Thereafter,UNICEF has developed plans to encourage local �entrepreneurs�, to promote hygieneeducation at the village level to encourage development and proper use of improvedwater supply and sanitation facilities. They propose that the former system ofDepartment of Health �sanitarians� be used as catalysts in this process. Funding forthis activity is being sought.

2. Rehabilitation and Reconstruction

18. Japan is currently completing, at a cost of about $2.0 million, Asset Mappingand Water Supply Master Planning in 15 district towns, including Dili. It has alsoallocated about $930,000 for a number of quick impact projects (e.g. repairs toManatuto transmission pipeline, leakage control in Dili, and rehabilitation of watersupply systems in 10 schools). Additionally, the water-testing laboratory establishedduring the Master Planning exercise has been donated to UNTAET OW&S. Further,the Government of Japan has proposed an allocation of some $10.0 million forrehabilitation of the Dili water supply system. Japanese consultants will implementthis work through the United Nations Development Programme and the United NationsOffice of Project Services (UNDP/UNOPS). Dili water supply rehabilitation is planned


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for implementation over a two-year period commencing about June 2000. Japan isalso reportedly considering funding rehabilitation of all 14 study town water supplies(in addition to Dili) in three consecutive packages of 4-5 towns, with the first packagecommencing in early-2001.

19. The Government of Portugal has committed $1.5 million in year 2000 for repairand rehabilitation of the Baucau and Aileu town systems, and to �provide technicalback-up support for the organization and management of the proposed water authorityof a East Timor, as it affects areas in which Portugal is involved.� The budget alsocovers preparation of a Sanitation & Drainage Master Plan and a Solid WasteManagement Plan, principally for Dili. Implementation of this work has commencedthrough the auspices of the UNDP/UNOPS.

20. AusAID is also involved in the WS&S sector. During the emergency periodthey supported local and international NGOs (e.g. Bia Hula, OXFAM, CARE, etc.) andprovided a facility through the Northern Territory Department of Power & Water bywhich equipment and materials were able quickly to be procured and technicalassistance provided. AusAID is currently providing further technical assistance toOW&S through staffing assistance and plans to continue supporting OW&S and NGOswith technical assistance, training and equipment. It has also expressed interest inparticipating in WS&S institutional development, capacity building, environmentalhealth programs, and district WS&S implementation using the communityparticipation approach and to this end has allocated A$5.5 million for FY2000/2001for the WS&S sector. Specific activities will be developed by a design team missionto be fielded in July or August 2000.

3. Donor Coordination

21. As restoration of the WS&S sector is essentially starting anew, it is imperativethere be established, as soon as possible, a clear and recognized system forcoordinating activities throughout East Timor. Consequently, one of the principalobjectives of this project is to facilitate establishment of an agreed program of workfor repair, rehabilitation and management of WS&S in East Timor. Such a programwill then provide UNTAET and its development partners, including all donors andpotential donors, with guidelines and a structure within which to coordinate theirinvestments in the sector. OW&S is the obvious focus for policy setting, planning,coordination, management, monitoring, and evaluation of all WS&S activities, andis already preparing itself for this task. This project will support OW&S in itsmanagement and coordination roles.


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III. THE PROPOSED PROJECT

A. Rationale

22. UNTAET is executing a program of humanitarian assistance in East Timor, partof which involves rehabilitation of water supply and sanitation facilities damagedduring the September 1999 crisis. The challenge, however, is not just a matter ofrestoring the facilities to their pre-crisis status. All former WS&S institutions arenow defunct; offices, stores, equipment, workshops and records were removed, burnedor otherwise destroyed; and most managerial and administrative personnel havedeparted East Timor. Added to this is the fact that the standard of most pre-crisiswater supply and sanitation facilities throughout the country, both urban and rural,was well below commonly accepted levels. So, UNTAET is faced not just with makingsome perfunctory repairs. It must: establish completely new institutionalarrangements for WS&S; develop from a low base the human capacity to manage,operate and maintain the systems; rehabilitate and reconstruct WS&S facilities toacceptable standards and levels of service; and at the same time prepare for transitionto East Timorese self-government.

B. Objectives

23. The Project�s goal is to provide the people of East Timor with adequate,affordable and sustainable water supply and sanitation services using appropriatetechnology and good management systems. It will do this through: (i) building localcapacity and capability to effectively manage the WS&S sector; (ii) rehabilitating andreconstructing water supply and sanitation facilities in urban and rural communities;and (iii) promoting improved environmental health, hygiene, and communityparticipatory practices.

C. Scope

24. The project has four components.

25. Component 1 - WS&S Sector Management Program

The purpose of this component is quickly to establish an integrated WS&Ssector management program for East Timor. Preparatory arrangements, includingtentative recruitment and logistical planning will be undertaken by OW&S to enablework to commence in East Timor on or about 1 September 2000, immediately uponavailability of TFET funding. Component 1 comprises two parts. The first is to establisha small PMU under OW&S which will assist OW&S in program implementation. Thesecond part is to prepare a detailed work program to guide PMU activities over the


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following year and beyond. The work plan will be prepared over a three-month periodbetween September and December 2000. Key activities will include: infrastructurerepair and rehabilitation, preparation of integrated plans for human resourcesdevelopment, institutional development, tariff proposals, asset management policiesand procedures, WS&S standards, MIS/FIS, legal and regulatory framework,community and gender development, environmental health and hygiene promotion,water resources protection, and the transition from UNTAET to East Timorese self-rule.The outcome would be a detailed, budgeted, PID for coordinated improvement ofEast Timor�s WS&S sector. These documents will guide OW&S and PMU in projectimplementation as well as overall coordination and management of the WS&S sectorin East Timor.

26. Component 2 � Capacity Building and Institutional Development Program

The Project will, in coordination with OW&S and relevant bilateral donors,identify and implement priority capacity building and institutional developmentactivities. These activities will be specifically designed to support physical WS&Sconstruction already completed, under way, or planned, and to complement capacitybuilding and institutional development activities by donors. Details and prioritieswill be identified in the PID. Capacity building and institutional development activitiesare to include: support for the WS&S Quick Response Facility (described in Component3); rehabilitation of workshops, stores, generator sheds and other infrastructureessential to water sector operations; and procurement of supplies, equipment,communications and other facilities fundamental to water sector operations. Specialattention will be given to the capacity building and institutional development needsof Dili, Baucau, Aileu and other priority towns.

27. Component 3 � Water Supply and Sanitation Implementation Program

Component 3.1 - OW&S WS&S Quick Response Facility

The WS&S Quick Response Facility will be utilized to support OW&S in undertakingurgent, substantial repairs to, and rehabilitation of, water supplies across all13 districts of East Timor. The use to which the facility will be put will be determinedby need, so it is designed to be sufficiently flexible to respond promptly to urgentneeds as they emerge. This is vital in the post-crisis environment of East Timor,where the people�s needs go beyond all developmental norms. In this unique setting,the Project has an obligation to ensure that its approach to its work is designed notto further exacerbate the social and human problems already faced by the EastTimorese people. The ability to respond rapidly to the people�s urgent water supplyneeds is seen to be a positive expression of recognition, by the Project, of their diresituation. Likely activities which the facility will undertake include: procurement of


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pipes, fittings, and other water supply componentry; local contracts to undertakesubstantial repairs and rehabilitation; and related procurement transport,earthmoving, and excavation services. The key purpose of the facility is to provideOW&S with the capacity to quickly respond to the East Timorese people�s most urgentwater supply repair and rehabilitation needs. Allowance has been made for the facilityto operate for 10 months from 1 September 2000.

Component 3.2 � Dili Water Supply Repair and Rehabilitation

28. The Japanese government has proposed to allocate $10 million for the DiliWater Supply & Sanitation Rehabilitation Design and Construction Project.Implementation of the water supply element will be by UNDP/UNOPS through aJapanese consulting firm. This work is expected to commence around mid-2000 andextend over a two-year period. Works proposed cover: improvement of the main rawwater source; strengthening of the raw water transmission pipeline; expansion ofthe water treatment plant at Bemos, and minor work on the treated water transmissionmain. TFET Project funding has been allocated for complementary works which willinclude: network rehabilitation and zoning near the transmission main from the BemosWTP; replacement of unserviceable asbestos-cement mains in central Dili wherehigh leakage occurs, associated/connecting pipework; and urban and peri-urbanlow-income works such as repairs and rehabilitation of public taps and other wateringpoints. Actual works will be determined by OW&S in conjunction with the Japanesefunded project managers to maximize the synergy of the respective works. The aimof this component is to build on the upstream works by Japan, by improving waterservice to customers and expanding the number of customers served as an essentialprelude to system sustainability.

Additionally, there are other areas of Dili�s water supply system, outside theinfluence of the Japanese funded works, that could benefit greatly from TFET funding.For example, in a number of instances rehabilitation of deep bores and associatedpumps and distribution systems would directly benefit some thousands of people.Such areas would be identified and, depending on OW&S priorities, considered forTFET funding under Component 3.2.

Allowance has been made for such complementary and supplementaryrehabilitation works to be carried out over a 9-month period from 1 October 2000.

Component 3.3 � District Water Supply Repair and Rehabilitation

29. The District Water Supply and Sanitation Program is designed to address theneeds of smaller urban and rural communities throughout the 13 districts of EastTimor. While the major district towns can be implemented individually, if necessary,it is proposed that smaller town and village systems be managed as programs andimplemented geographically as districts, or groups of districts. This approach will


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provide flexibility within the emerging governance and community capacity strategiescurrently being developed under the Community Empowerment & Local GovernanceProject (CEP) and should make the logistics of implementation much easier. Theopportunity also then exists for interested donors comprehensively to undertake townand community WS&S development within one or more districts, further enhancinglogistics and improving donor coordination. Within each district, it is expected thata coordinated approach to addressing sustainable water supply and sanitationequitably between towns and villages will be developed utilizing processes ofenvironmental health, gender awareness, and community participation and planning.Interested donors may package district WS&S programs to suit their circumstances,and implement them through managing agents working in partnership with localand international NGOs and community groups.

In support of this program, the Project has allowed funding to address someof the needs of a number of those districts with the most urgent needs, and whichare not receiving bilateral assistance. Exact priorities will need to be identified byUNTAET when donor intentions are firmer, but current indications from the ConselhoNacional da Resistencia Timorense (CNRT) suggest that the border districts of CovaLima, Bobonaro and Oecusse, where destruction was greatest, are of high priorityfor TFET or donor support. Liquica District too has been identified as an area ofmuch need where repair and rehabilitation works could yield quick and effectiveresults. As an example, in Liquica township, the primary river intake and transmissionpipeline is extensively damaged and is now unserviceable. A potential alternativeto repairing the transmission main would be to rehabilitate existing (butnon-operational) bores as a new raw water source. Many other examples from alldistricts could be cited, and they will need to be detailed and prioritized for fundingunder Component 3.3. Typically works to be undertaken under Component 3.3 willinclude: procurement and installation of pipes, fittings, pumps, motors, generators andsupply of construction materials; contracts for design services for small and mediumscale water supply engineering works; hire of construction equipment and transport;contracts for rehabilitation of water bores; rehabilitation of raw water intakes; andsupport services such as water quality testing and groundwater pumping tests

Allowance has been made for these complementary works to be carried outover a 9-month period from 1 October 2000.

B. Implementation Arrangements

1. Cost Estimates

30. The total cost of the Project is estimated at $4.5 million equivalent, and includesall costs for the period September 2000, until the end of the 2000�2001 fiscal year(30 June 2001). Table 1 gives a summary of the cost estimates for the Project, whichare outlined in more detail in Appendix 2.


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2. Financing Plan

31 The total cost of the Project will be financed on a grant basis by the TFET.Contributions to the TFET do not include ADB resources.

32. The Joint Assessment Mission (JAM) assessed that WS&S restoration overthe three-year period 2000�2003 would cost $22.2 million. These estimates havebeen reassessed under the Fact Finding Mission and are now expected to cost$39.9 million.

3. Executing Agency

33. UNTAET will be the recipient of the Grant from TFET. It will establish a smallPMU within OW&S that reports to the UNTAET Head of Infrastructure, through the headof OWS. PMU will program, administer, and coordinate daily project activities and willassume the role of an executing agency. All activities will be done in close cooperationwith OW&S, multi- and bilateral donors, NGOs, community groups and otherstakeholders. In particular, works and activities funded under TFET will be fullyintegrated with donor-funded activities and projects. PMU will be funded under theProject. An organization chart of PMU is in Appendix 3. Under the organization frame-work of UNTAET, the PMU will be an integral part of OW&S and be absorbed within it.

Table 1: Summary of Project Costs($ millions)

Component Total Cost

A. BASE COSTS

1. WS&S Sector Management Program 0.633

2. Capacity Building and Institutional Development Program 0.556

3. Water Supply and Sanitation Implementation Program

3.1 OW&S WS&S Quick Response Facility 1.282

3.2 Dili Water Supply Repair and Rehabilitation Program 0.855

3.3 District WS&S Repair and Rehabilitation Program 0.520

Subtotal A 3.846

B. CONTINGENCIES

5. Physical Contingency 0.577

6. Price Contingency 0.077

Subtotal B 0.654

Total Project Cost 4.500


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34. For its own part, PMU will design, contract, implement, monitor and manageWS&S activities funded from TFET. The challenge for PMU will be to coordinate thisdiversity of donors, funding, stakeholders and activities, under the umbrella of themanagement framework, to achieve the best WS&S results for the people of EastTimor. In executing the Project, PMU will focus on the main elements of the sectorframework, which are:

n to support a quick response facility within OW&S, capable of responding tourgent and ad hoc WS&S repair and rehabilitation needs to demonstrate to theEast Timorese people that their WS&S problems are being heard and attended to;

n to enhance the prospects of WS&S sustainability through the maximum useof community participation and through the use of appropriate technology;

n to minimize recurrent cost financing and cross-subsidization in the WS&Ssector by enhancing sustainability and thereby leave a legacy of prudentWS&S financial management for future East Timorese governments;

n to undertake an appropriate capacity building and institutional developmentprogram for the WS&S sector so that both personnel and other resourcesare available properly to design, develop, manage, operate, and maintainwater supplies and sanitation in the future;

n to cooperate with other UNTAET sectoral community development, capacitybuilding, and institutional strengthening initiatives to optimize coordinationof assistance efforts in these areas;

n to integrate strong community development, environmental healthpromotion, and health and WS&S education elements into the program;

n to enhance donor and project coordination by providing a strategic planningprogram for rehabilitation, reconstruction, and management of the WS&Ssector; and

n to strengthen the capacity and influence of OW&S to manage and coordinatethe broad range of activities and stakeholders involved in the sector.

4. Steering Committee

35. UNTAET will establish a project steering committee involving broaderstakeholder representation in project implementation. The steering committee willbe convened prior to project implementation to inform the stakeholders of projectactivities. The steering committee will then meet monthly to discuss and resolveemerging project implementation, procurement, and community issues, and to reviewand comment on the project reports for submission to ADB.

5. Procurement of Goods and Services

36. All procurement under the Project will be conducted in accordance with ADB�sGuidelines for Procurement. The proceeds of the Project will finance imports of goods


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and services, local purchases, and civil works identified under the Project. UnderADB�s Guidelines for Procurement , these may be procured off the shelf, or throughinternational shopping, local competitive bidding, or international competitivebidding, as appropriate. PMU and OW&S will coordinate with the donor communityto ensure, as far as possible: that materials and equipment are compatible and ofappropriate technology and quality; that spare parts are readily available at a fairprice; and that common standards and levels of service are used in all WS&S projectsin East Timor.

37. Consultant services will be selected in accordance with ADB�s Guidelines onthe Use of Consultants. However, the term �member countries� under these guidelinesfor purposes of this Project will include ADB member countries, East Timor, and alldonors and members of international organizations that have provided contributionfunds to TFET.2 PMU will be headed by an East Timorese project manager (WS&Sengineer) and comprise an East Timorese project accountant and one communitydevelopment specialist. Then selection will be subject to ADB�s approval. Twointernationally recruited consultants will support the project manager: a chieftechnical adviser (CTA) and a community development specialist. Total internationalconsultant person-months is 37.5, comprising 20 person-months for PMU and 17.5for preparation of the PID. The CTA will support the project manager in administeringthe Project and its contracts in accordance with ADB guidelines, and will beaccountable to ADB for the quality and timeliness of project implementation. TheCTA and community development specialist, in coordination with OW&S staff, willprogram and coordinate daily project activities, including design, supervision,procurement of goods and services, and management of civil works contracts. Theinternational consultants will train East Timorese counterparts in their area ofresponsibility.

6. Implementation Schedule

38. The project implementation period is 10 months, commencing in September2000 and finishing in June 2001, depending upon availability of TFET funds. Everyquarter, PMU will prepare a detailed implementation schedule for project activities.Selection of project implementation contractors will commence in accordance withactivity priorities in the implementation schedule, upon Project approval, and whenthe funds become effective. The first priority is concurrently to establish PMU andthe consultant team to prepare the PID (Component 1). Significant advancepreparation by OW&S is planned to ensure these teams are fielded by September

2 Doc. R74-00: Joint Management Arrangements for the Trust Fund for East Timor, approved on 23 March 2000.This document lays out an arrangement for TFET and an expansion of eligibility under ADB�s procurementand consulting services guidelines to include member countries, East Timor, and all donors and members ofinternational organizations that have provided contribution funds to TFET.


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2000. The consultant team will prepare a detailed PID with an updatedimplementation schedule, establish real and realistic priorities, and refine costestimates. The PID will cover year 2000/2001 in detail, and present indicative plansfor the following two years. By then the intentions of donors should be clearer, enablingoptimum integration of all activities under the sector management frameworkumbrella. A technical review of the Project will be conducted jointly by ADB andUNTAET one year after project mobilization. The initial project implementationschedule is shown in Appendix 4.

7. Rights-of-Way

39. UNTAET has advised that most of the works under the Project are within existingrights-of-way. UNTAET will, if needed, acquire or obtain rights to any land requiredon a timely basis in accordance with ADB�s Policy on Resettlement and Compensationand provide compensation (including for crops), as required, in accordance with ADB�srelevant guidelines. Detailed designs will minimize land acquisition. It is expectedthat the Project will not require any resettlement.

8. Disbursement Procedures

40. As agreed with the Trustee for TFET, disbursements for eligible expenditureswill be made pursuant to ADB�s Disbursement Guidelines set out in ADB�s LoanDisbursement Handbook, dated June 1996 and may be made as direct payment orreimbursement, or through an imprest account. The imprest account will bereplenished in accordance with the Handbook and other detailed procedures agreedwith ADB. The CTA will be responsible for transactions, replenishments, and use ofthe imprest account. Payments under these agreements will be made by the Trustee,based on ADB�s request.

a. Direct Payment

41. Under the direct payment procedure, PMU will request ADB for a direct paymentto be made to the supplier of goods and services. ADB will authorize the request andsend it on to the Trustee for payment to be made by the Trustee to the supplierdirectly. Payment will be requested using ADB�s standard withdrawal application.PMU will indicate in the withdrawal application the date on which payment becomesdue to the supplier. A separate application should be filled out for each currency inwhich the payment is requested. The application should be submitted with supportingdocuments such as contracts, invoices, receipts, and vouchers. This procedure willbe used for payment of (i) consultant�s fees, and (ii) equipment and civil workscontracts awarded on the basis of international competitive bidding. Copies of signedcontracts will be forwarded to ADB as early as possible to facilitate timely payments.


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b. Reimbursement Procedures

42. The reimbursement procedure will be used when eligible expenditures arepaid from UNTAET�s budget and reimbursement claimed through ADB from TFET.Withdrawal applications with supporting documents and summary sheets ofexpenditures will be prepared by PMU, and payments will be made to UNTAETby the Trustee based on ADB�s authorization. The reimbursement procedure will beused for payment of (i) small purchases, and (ii) short-term civil works contracts.

c. Imprest Fund

43. Under the imprest account fund procedure, ADB will request the Trustee toadvance funds to PMU to meet subproject expenditures to prefinance payments tocontractors and suppliers. The imprest account will be used for short-term civil works,small-scale design and supervision services, remuneration of East Timorese staff,and small purchases under all cost categories eligible for financing. ADB�s statementof expenditure (SOE) procedure will be used for reimbursement of expenditures andfor the liquidation of the imprest account for payments with value equal to or below$50,000 each. The currency of the imprest account will be the US dollar and themaximum initial advance will be $200,000. The CTA supported by PMU will beresponsible for administrative and accounting tasks under the Project and willestablish adequate internal control, accounting, and audit procedures to ensureefficient use of the imprest account and its operation. The imprest account will beestablished in Darwin, Australia.

9. Reporting

44. UNTAET, with the support of PMU, will furnish ADB with quarterly progressreports concerning all aspects, including finances, procurement of services,equipment, and all civil works in the Project, including bilateral activities. PMU willprepare quarterly expenditure budgets a month prior to the commencement of thefollowing quarter. UNTAET, with the support of PMU, will also provide quarterlyreports on the use of the recurrent UNTAET water and sanitation budget, includingactivities and expenditures; and report progress in implementing policy initiatives,water supply and sanitation regulations, and organizational changes. PMU will alsoprepare a final project completion report on all aspects of the Project in accordancewith ADB�s relevant guidelines.

10. Accounts

45. PMU will establish the necessary accounts in Dili, if possible, and in Darwin,Australia if required. These bank accounts will be under the control of the CTA. PMU


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will establish and maintain separate accounts for all eligible expenditures under theProject, including its individual contracts and other project components. PMU willfurnish ADB with accounts and related financial statements prepared in accordancewith international or other appropriate accounting standards. Auditors acceptable toADB will then audit these financial statements. The audited financial statementstogether with the auditor�s report will be forwarded to ADB within six monthsof the end of each fiscal year. The PMU consultants will keep detailed recordson the costing and expenditures of the project components and will assist withreporting.

11. Project Performance Management and Evaluation

46. To ensure the Project is managed efficiently and the intended benefits aremaximized, a system for project performance management and evaluation will bedeveloped by PMU, in accordance with ADB guidelines. Project performancemanagement and evaluation will be conducted by PMU in association with OW&S,with input from managing agents of donor-funded projects operating under theumbrella of the WS&S strategic management framework, NGOs, communityorganizations, and other related stakeholders. Project achievements will be periodicallymonitored against performance indicators by the project steering committee.Benchmark information will be collected at the outset of the Project and a specialperformance report will be prepared for the mid-term review. Similarly, a detailedevaluation will be conducted at Project�s end.

12. Technical Mid-term Review

47. In addition to a schedule of regular reviews to monitor project progress, atechnical review of the Project will be carried out six months after mobilization. Thefocus of the review is to determine the need for any deviations from the projectdesign or implementation. The review will also assess adequacy of funds, costoverruns, need for reallocations, and other factors, if any, including assumptions andrisks, that might constrain the satisfactory implementation of the Project andachievement of development objectives.

E. Environmental and Social Measures

1. Environmental Aspects

48. The Project has been classified as environmental category B. An initialenvironmental assessment was conducted in accordance with ADB�s EnvironmentalGuidelines for Selected Infrastructure Projects and its Environmental AssessmentRequirements as part of the mission and is attached in Appendix 5. The Project will


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only involve minor construction, and as such, transient environmental disturbancesnormally experienced during construction will be insignificant. Potential adverseenvironmental impacts during the operation of project facilities were identified andtheir significance assessed. The Project will preempt or minimize potential adverseenvironmental impacts and will enhance the environment through (i) improved waterresource management; and (ii) increased promotion of environmental conservationthrough community participation and education activities. The medium- and long-term impact of the Project is positive, especially in promoting economic and socialdevelopment of East Timor and facilitating its reconstruction and development. Adetailed environmental impact assessment is not required.

49. Due to the destruction, the environmental conditions in urban areas of EastTimor are quite poor. This situation is now endangering populations through pervasivewaterborne diseases and lack of sanitation. Previously, activities were undertakenwith little regard for environmental procedures, so reconstruction will require carefulredesign. The Project will seek to remedy this situation and ensure adequate environmentalprocedures and monitoring mechanisms are established in East Timor. During works andconstruction, care will have to be taken to minimize disruption to the environment.

50. In addition to regular inspections of works to ensure that all possible mitigationmeasures are taken, environmental monitoring will be under the guidance of PMU.They will (i) measure the effectiveness of environmental improvements, (ii) identifyproblems that may arise during the works, and, if necessary (iii) provide ecologicalaudit information for future works of this nature. The proposed monitoring is designedto quantify the benefits gained and new impacts sustained from repairing andrehabilitating town and community water supply systems.

51. Under UNTAET�s transitional administration, Indonesian environmental lawsremain valid, although their implementation capacity will need to be furtherdeveloped. UNTAET is presently reviewing environmental laws, regulations, andstandards, and these may be applied to the Project in the future, although it is expectedthat this will not result in any adverse outcomes.

2. Social Issues

52. The Project will rehabilitate impaired water supply services. An initial socialassessment has been prepared in accordance with ADB�s Guidelines for SocialDimensions of Infrastructure Projects and is attached in Appendix 6. The Project isexpected to have a significant positive social impact. The Project will not involve anyrelocation or resettlement. The beneficiary consultations confirmed widespreadsupport for the Project. The Project will improve the quality of life, by providing themeans for improved sanitation, and reducing labor times for water fetching. Project


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construction activities will generate significant employment opportunities, anddelivered services will free labor for more productive uses.

F. Further Processing of the Project

53. It has been tentatively agreed that further processing should be in accordancewith the following schedule:

Finalization of Project Report at ADB 30 June 2000Management Review of the Project 12 July 2000Grant Agreement Negotiations 15 July 2000Final Approval by Management 1 August 2000Signing of the Grant Agreement 5 August 2000Inception Mission 1 September 2000

Signed on 8 June 2000In Dili, East Timor

Bob Churcher Mari AlkatieriHead of Infrastructure National Consultative Council

UNTAET

________________________Walter Poick

Financial AnalystAsian Development Bank

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PROPOSED MICROFINANCE DEVELOPMENT PROJECT

FOR

EAST TIMOR

June 2000



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PROPOSED MICROFINANCE DEVELOPMENT PROJECTFOR EAST TIMOR

I. Rationale

1. The need to increase economic opportunities in East Timor is both urgent andchallenging given the extent of poverty among the populace, the extensive damageto its economic infrastructures and the dismantling of the support systems. Amongthe major concerns is the dire lack of formal or semiformal financial services inalmost all districts outside Dili, with even the main economic center having onlyvery limited banking services at present. A vast majority of the population is poorwith hardly any access to financial services, a serious constraint for them to engagein self-employment or income-generating activities. The normalizing conditions nowdemand more focus on development assistance rather than humanitarian aid. Animmediate concern is the growing urban social unrest often seen in potentially violentconfrontations between job seekers and recruiters in major districts. In the meantime,opportunities for nascent micro and small entrepreneurs are increasing daily. Althoughartificial and temporary, substantial opportunities are being generated by theexpatriate community, with a further boost from the peaking of aid flows andreconstruction activities that could last for up to three years. In any case, financialservices will always be needed in nurturing the country�s long-term economicdevelopment.

2. Developing a microfinance strategy for East Timor is vital for the overall povertyreduction. To be workable, such strategy must consider the needs of the market, thelessons learned and best practices evolved on microfinance in the recent years, andthe likely replication of proven microfinance institution (MFI) models in the country.A vital lesson learned over the past decade is that creating a responsive microfinancesystem and viable MFIs is far more essential than just providing liquidity formicrocredit schemes. Many such schemes implemented in many of the AsianDevelopment Bank�s (ADB�s) developing member countries (DMCs) used inappropriateor ill-prepared conduits that failed, invariably denying target groups from accessingmore stable, reasonably priced, and responsive financial services over the long term.Also, pure credit delivery schemes ignore the provision of other financial services,such as deposit facilities, that are equally needed but often unavailable for targetgroups. Savings mobilization is particularly important since it is only through effectivefinancial intermediation in the marketplace, and not dependence on grant or externalfunds, that will ensure the sustainability of MFIs over the long term.


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3. The other vital lessons learned on microfinance in the recent years are:(i) low-income groups need financial services as much as any other sector;

(ii) providing banking services to target groups is not only possible but alsoprofitable, and can be made competitive with informal lenders;

(iii) permanence, reliability, and convenience in accessing fund sources arevalued by target groups much more than cost of credit; and

(iv) low-income groups do save and their potentials are largely untapped.

4. These insights allowed several successful MFI models to evolve over the pasttwo decades as viable options to the freewheeling grant-dependent credit dispensingentities extensively used by governments and donors in the past to counter the highlending rate of moneylenders. Among the proven models are: (i) Grameen Bank;(b) savings and credit societies or unions; (c) specialized government financialinstitutions (GFIs), such as the Bank Rakyat Indonesia (BRI) Unit Desa model; and(d) specialized microfinance banks.

II. Objective

5. The objective of the Microfinance Project (MFP) is to help reduce poverty inEast Timor by developing viable and sustainable MFIs that are responsive to thefinancial services needs of low-income groups in their pursuit of economic activities.The specific objectives are to:

(i) develop the policy and strategy framework that will be conducive to andsupportive of the development of microfinance institutions;

(ii) develop appropriate local capacity to set up proven models of effectiveMFIs;

(iii) rehabilitate and expand the operations of credit unions (CUs) that usedto exist in the country prior to the conflict;

(iv) set up a microfinance bank, based on proven and applicable models,managed and operated entirely by East Timorese.



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III. Project Scope

The Project will:

a. Rehabilitate and Expand Credit Unions

6. Credit unions were introduced in East Timor in 1990 by three cooperativeadvocating institutions, namely, Credit Union Coordination of Indonesia, ConradAdenauer Stiftung of Germany, and EDTADEP Foundation, a local NGO that used toengage in microcredit. Selected indicators show impressive growth of the creditunions over the last 10 years prior to the conflict. In 1990, there were 10 creditunions CUs with a total of 808 members, generating Rp20 million in deposits anda loan portfolio of rupiah (Rp)17 million. By 1999, prior to the conflict, there were27 CUs that operated in all districts and collectively had almost 6,000 members,mobilizing Rp1.7 billion in deposits and having outstanding loans of Rp1.5 billion(see below).

7. Among the benefits of rehabilitating and expanding the CUs in East Timor are:(i) CUs are self-sustaining, usually creating the desired values among the

clientele, e.g., being savers first before borrowers, inculcating amongmembers principles of self-reliance and mutual help, and normallyachieving geometric growth once they are accepted by communities;

(ii) While the CUs are dormant for now, there is a substantial potential baseof 6,000 members;

Table 1: Growth Indicators for 1990-1999

Indicator 1990 1999

Number of credit unions 10 27

Total members 808 5,917

a. Female 217 2,289

b. Male 591 3,628

Savings/deposit mobilized (Rp million) 20.4 1,697

Outstanding loans (Rp million) 17.8 1,500

Total assets (Rp million) 22.4 2,250

Retained surplus (Rp million) 1.3 135

CUs on deposit insurance 0 15

CUs on inter-lending 0 20


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(iii) CUs follow set values, and organizational and procedural standards thathad been taught and applied in East Timor CUs. It should take minimaleffort to reorient or retrain core members, and former officers ormanagement staff;

(iv) CUs have long been proven as effective financial institutions. They providefinancial services (savings and credit) and are often allowed to do sooutside the banking system given their self-regulating and members-only nature of operations;

8. The major drawback of CUs is their slow buildup to provide immediate liquidityfor credit needs of members. CUs are formed and designed as self-help, mutualassistance entities depending mainly on members� savings, a process that normallytakes 2�4 years to take off. Thus, some liquidity will be needed by CUs to augmentloan funds as they gradually build up savings and equity from members. Nurturingthem also requires constant social intervention and the political will to avoid quickfix but distorting microcredit programs that tend to destroy the resolve of communitiesto support a slow growing but sustainable MFI such as a credit union.

9. Support for the rehabilitation of CUs will be done in two phases, as follows:(i) Phase I � This will entail the design of a broad strategy, policy formulation

and training program for local capacity building to rehabilitate and expandCU operations. Technical assistance (TA) will be provided by ADB for thefielding of international experts for this phase;

(ii) Phase II � This will be the implementation phase, i.e., putting in placethe policy framework, conduct of training for capacity building, andassisting start-up operations of CUs and an apex federation to providetechnical and financial support to CUs on a service fee basis followingbest practices of cooperative networks. A central fund will be createdand will be managed by the federation to augment the internally mobilizedfunds of the CUs in the initial years. The central fund will provide loansto accredited CUs on a �matching fund� basis such that loans to a CU willnot exceed the aggregate equity and deposits of its members at any onetime. Likewise, the interest rate of loans to CUs from the central fundwill be set at a level that will not discourage the mobilization of savingsand equity from members. The Trust Fund for East Timor (TFET) will bethe main source of funding for this phase, while ADB and some bilateralagencies will be tapped for the needed TA support for the CU networkin the initial years.



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b. Setup a Microfinance Bank

10. The size and needs of the East Timorese financial market leave very littleprospects for commercial banking, at least in the medium term. Prior to the conflict,East Timor already had one of the lowest per capita gross regional domestic product(GRDP) among Indonesian provinces at $360 and this is likely to have droppedsubstantially since then. Thus, any financial institution intending to operate in thecountry will have to contend with a clientele largely dominated by micro-savers andborrowers for some time to come. Fortunately, proven technologies for operatinghighly specialized microfinance banks catering to this type of market have beenevolved. Successful microfinance banks ensure their viability and competitivenesswith effective financial intermediation and responsible loan management for a marketniche that most commercial banks perceive as high risk, high cost, and most likelyto yield low returns. East Timor can emulate successful models, such as those thatevolved in Asia and South America.

11. A microfinance bank will have more flexibility than the CUs as this can dealdirectly with the public. The microfinance bank can be developed together with therehabilitation of CUs with a view of creating synergy rather than divisive competitionin a relatively small market. Support for the setting up of a microfinance bank willalso be done in two phases, as follows:

(i) Phase I � This will involve the conduct of a feasibility study, design ofthe broad strategy, and a local capacity building program to help set upa microfinance bank. TA will be provided by ADB to field internationalexperts for this phase;

(ii) Phase II � This will be the implementation phase, including the conductof training for capacity building and assisting the start-up operations ofthe bank. Funds will be provided for the minimum equity to set up abank, and a loan to ensure enough funds in the initial years when thebank is just starting to mobilize savings from its clientele. The interestrate and size of loan to the bank should not provide a disincentive to itsmobilization of savings. Medium-term plans of the bank should includedivesting this to clients of good standing (the Government being theowner), following successful models elsewhere. Funds will also be providedon a grant basis to cover social preparation of its clientele, such as thereplication of the Grameen Bank Approach (i.e., formation of savings andcredit groups among women who will be the main clients of the bank).The TFET will be the main source of funding for this phase, while ADBand bilateral agencies will be tapped for the needed TA support for thesocial intervention activities in the initial years.


Appendixes

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IV. Budget Estimates

12. Table 2 below shows the yearly breakdown of funding needs as well as sourcesfollowing the phases of implementing the projects described above:

V. Financing Plan

13. The total cost of the proposed project will be financed on a grant basis by theTFET and may include ADB�s technical assistance.

VI. The Executing Agency

14. The UNTAET will be the recipient of the grant. It will establish a projectmanagement unit (PMU) that reports to the United Nations Transitional Administrationin East Timor. The PMU will program, administer, and coordinate all project activities.

VII. Implementation Arrangements

15. Implementation arrangements will be studied in detail and finalized duringthe project preparations.

Table 2: Budget Estimate and Funding Sources($�000)

Phases

FY00/01 FY01/02 FY02/03 Total

Subprojects

Rehabilitation and expansion of CUs 1,030 1,100 50 2,180

Setting up a microfinance institution 2,880 1,200 200 4,280

Funding sources

TFET 3,500 2,000 0 5,500

ADB & other donors 410 300 250 960

Total 3,910 2,300 250 6,460



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VIII. Issues and Concerns

16. There are several serious constraints in promoting micro and small enterprisesin East Timor, among which are:

(i) The perceived low level of entrepreneurial and technical skills;(ii) Poor infrastructure and lack of transport in the rural areas;

(iii) Lack of access or tenure to business sites in urban centers due to thecomplex land issue and lack of zoning rules;

(iv) Reported lack of money in circulation, especially outside Dili;(v) Possible distortions and potential failures of quick-disbursing credit

schemes (or grants for economic activities) that could evolve due topolitical pressures; and

(vi) Managing the difficult shift (and changing of values among the clientele)from humanitarian aid to development assistance.

IX. Conclusion

17. The proposed project will be prepared by the end of August 2000 and it isexpected to be implemented from December 2000.


Documents

Trust Fund For East Timor (TFET): East Timor …implementing agency for the Trust Fund for East Timor (TFET). ADB has now accepted the task of coordinating and managing TFET investments