Document of

The World Bank

FOR OFFICIAL USE ONLY

i_oiJ0 3!7 - /A/j>

Report No. 8756-IND

STAFF APPRAISAL REPORT

REPUBLIC OF INDONESIA

FOR AN URBAN DEVELOPMENT PROJECT

IN THE PROVINCES OF EAST JAVA AND BALI

FEBRUARY 25, 1991

Asia Country Department VInfrastructure Division

This document ha a restrided distibudon and may be used by recpients only In the perfonnrmn oftheir officiil duties. its contents may not otherwise be dWcosed wikhout Wodd Bank authorizaLto

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CURRENCY EQUIVALENTS(As of January, 1991)

Currency unit = Indonesian Rupiah (Rp)$1 = Rp 1,901Rp 1 million = $526

WEIGHTS AND MEASURES

Metric Units

FISCAL YEAR

Governn.ent of Indonesia: April 1 - March 31Provincial and Local G9vernments and Enterprises: April 1 - March 31

PRINCIPAL ABBREVIATIONS AND ACRONYMS USED

ADB - Asian Development BankAMDAL - GOI environmental assessment processANDAL - GOI detailed environmental impact assessment studyAPBD I/II - Annual provincial/local government development budgetAPBN - Annual central government development budgetBADAN - AgencyBANGDA - Directorate General for Regional Development, MHABAPPENAS - National Development Planning AgencyBAPPEDA I/II - Provincial/Local Development Planning AgencyBPAM - Transitional (pre-PDAM) water supply enterprise owned and

operated by DGCK, MPWBPKP - Central Audit BureauBPD - Regional Development BankBPN - National Land AgencyBupati - Kabupaten chief executive (district head)CPMO/FO - Central Program Management Office/Finance OfficeDATI I/II - Provincial/local level governmentDesa - Rural villageDGCK - Directorate General Cipta Karya (Human Settlements), MPWDGBM - Directorate General Bina Marga (Roads and Bridges), MPWDGWRD - Directorate General for Water Resource Development, MPWDinas I/II - Provincial/local government departmentsDIP/DIPDA - Centrallregional project budgetDLA - Domestic Lending Arrangements for local governments and

enterprisesDPRD I/II - Provincial/Local People's Representate CouncilsDPUK - Kabupaten/Kotamadya department of public worksDPUP - Provincial department of pvblic worksDUP/DUPDA - Central/regional preliminary project budgetGOI - Government of IndonesiaGRDP - Gross Regional Domestic ProductIKK - Kecamatan headquarters townsIMG - IUIDP Implementation Management Group, BAPPENAS

FOR OMCIAL USE ONLY

INPRES - Presidental Instruction, including a class of 001 grantsINS/89/014 - UNDP IUlDP Implementation Support ProjectIUIDP - Integrated Urban Infrastructure Development ProgramKabupaten - Local (Level II) district governmentKampung - Urban neighborhoodKANWIL - Provincial branch of central GOI departmentKecamatan - Kabupaten or kotamadya administrative sut-districtKeluruhan - Urban administrative unit comparable to a rural desaKEPRES - Presidential decisionKIP - Rampung Improvement ProgramKomisi Da-rah - Provincial Commission for Environmental ManagementKotamadyt - Local (Level II) city government (incorporated municipality)Kotip - Kota administratip, large kabupaten town designated as

kotamada for administrative purposes onlyLIDAP - Local Institutional Development Action ProgramLKMD - Rural desa or urban keluruhan development councillpd - Litres per capita per dayllsec - Litres per secondLurah - Kelurahan HeadHCK - Communal lavatory and toilet facilityMOC - Ministry of CommunicationsMIIP - Market Infrastructure Improvement ProgramMHA - Ministry of Home AffairsMENPAN - Ministry of State for Administrative ReformMOF - kinistry of FinanceMPW - Miniitry of Public WorksNGO - Non-governmental orgarnizationNUDS - National Urban Development StudyO&M - Operations and maintenancePADS - Pendapatan Asli Daerah (local taxes and charges)PeB - National land and buildings taxPDAM - Local government water enterprisePIA - Program Implementation AgreementPIL - Preliminary environmental assessmentPMO/FO - Local Program Management Office/Finance OfficePPIAILPIA - Provincial/Local Program Implementation AgreementPPMO/FO - Provincial Program Management Office/Finance OfficePJH - Local government medium-term (five-year) development planPP - Government regulationPUOD - Directorate General for Public Administration and Regional

Autonomy, MRARAKORBANG I/It - Provincial/local annual budget coordination meetingRepelita - Five-year Development PlanRIAP - Revenue Improvement Action ProgramRKL - Environmental Management and Monitoring PlanSDB - Subsidi Daerah Bawahan (provincial development grant)SDO - Routine central GOI grant, primarily for salariesSERWILDA I/II - Provincial/local government chief administrative officerSR - Surat Keputusan, decree of a senior officialSKB - SR Bersama, joint SK of two or more senior officialsTKPP - Urban Development Coordination TeamUNCHS - United Nations Center for Human SettlementsUNDP - United Nations Development ProgramUSL - Urban Sector Loan (2816-IND)Walikota - Kotamadya chief executive (mayor)

Thisdocument has a restricted distribution and may be used by recipients only in the performanceof theirofficial duties. Its contents may not otherwise be disclosed without World Bank authoriation.

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INDONESIA

EAST JAVA - BALI URBAN DEVELOPMENT PROJECT

Loan and Project Summary

Borrowers The Republic of Indonesia

Beneficiariess Forty-five local governments of East Java and Bali andtheir water enterprises, including the City of Surabayawater enterprise

Amounts $180.3 million equivalent

Terms Repayable in 20 years including five years of grace, atthe Bank's standard variable interest rate

Onlending terms: Part of the proceeds of the loan, the equivalent of up to$50 million, would partially reimburse the Government forloans through domestic lending arrangements (DLA) toqualifying local governments and their water enterprisesfor periods keyed to the economic life of investments (5-20 years) and at interest rates indexed to and graduallyapproaching market rates, resulting in rates ranging from9 percent to 11.5 percent per annum. Interest andcommitment charges would be paid during the grace period.The Central Government would bear the foreign exchangerisk.

ProJect ObJectivesand Description: The proposed project would improve the quality of urban

infrastructure investments and service delivery in EastJava and Bali. Operational objectives would be to:(a) support urban infrastructure investment (includingrehabilitation) and O&H in 45 local governments in EastJava and Bali, including a limited expansion of the waterdistribution system of the City of Surabaya (otherinvestments in Sursbaya, East Java's capital and largestcity, would be covered under a separate project); (b)improve urban infrastructure expenditure programming,financial planning and information management for theselocal governmentst (c) encourage local revenue generation,improve financial management and, more generally,strengthen local government human resources andinstitutions including capacities for more effectivecommunity participation and environmental management; and(d) support sector development. As GOI's and the Bank'sfirst opportunity to test and develop the full IntegratedUrban Infrastructure Development Program (IUIDP) approach,the project would also provide a programmatic model forevaluation and the choice of approaches for otherprovinces. In order to achieve these objectives, theproject would provide financing fors (a) infrastructure

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development and O&M (a conservatively estimated five-yearexpenditure program for water supply, drainage, solidwaste management, sanitation, urban roads, neighborhoodimprovement and market improvement and market infrastruc-ture improvement)t (b) project implementation support; and(c) institutional development.

Benefits and Risks: The most important expected benefits ar.4 risks of theproject are inherent in GOI's gradual movement towardregional autonomy. The chief benefits would flow frommore efficient use of resources allocated to the sectorthrough improved delivery of urban infrastructure andservices by increasingly capable and responsible localgovernments. Earlier Bank-supported projects have demon-strated that such improvements are feasible and highlybeneficial, especially for living environments of thepoor. The chief risk is that the pace of required insti-tutional development is difficult to predict and may con-strain achievement of project objectives. Project prepa-ration and implementation quality will be a focal point ofBank supervision as local governments learn new roles.These risks are considered relatively low in East Java andBali. The five-year expenditure programs are notsubstantially greater in real terms than those actuallydelivered during the last five years, further reducingrisks, and there will be few if any new or complex kindsof subprojects. Finally, the UNDPIUNCHS IUIDPImplementation Support Project and funds provided by aJapanese grant would provide substantial assistance to GOIand the Bank in carrying out effective project supervisionand in supporting essential institutional development.

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Estimated Cost: la Local Foreign Total-------- ($ million) ------

Urban Infrastructure 171.1 93.1 264.2

Program Management 7.5 5.9 13.4Institutional Development 2.9 4.0 6.9

Total Base Costs 181.5 103.0 284.5

Physical Contingencies 11.0 6.9 17.9Price Contingencies 44.5 13.6 58.1

Total Project Cost 237.0 123.5 360.5

Interest during construction 2.9 10.0 12.9

Total Financing Required 239.9 133.5 373.4

La Includes taxes and duties estimated at $24.9 million equivalent, land at$5.8 million equivalent, and current O&M at $68.7 million equivalent.

Financing Plan:Local Foreign Total------- …$ million) ------

Local governments 69.9 - 69.9Water enterprises 60.9 - 60.9Provincial governments 13.1 - 13.1Private contributions 6.9 - 6.9Central government 25.2 - 25.2

Japanese grant - 4.2 4.2

IBRD 61.0 119.3 180.S

Total Project Cost 237.0 123.5 360.5

Interest During Construction 2.9 10.0 12.9

Total Financing Required 239.9 133.5 373.4

INDONESIA

EAST JAVA - BALI URBAN DEVELOPMENT PROJECT

Table of Contents

Page No.

I. THE URBAN SECTOR . . . . . . . . . . . . . . . . . . . . . . . 1

A. Sector Overview . . . . . . . . . . . . . . . .. . . . . 1Demographic Trends .h.i.c.T.n.d.s . . ..................... 1Institutional Framework for Sector Development . . . . . . 1Sector Constraints and Priorities . . . . . . . . . . . . 3

B. Urban Development in East Java and Bali . . . . . . . . . 5Eas t Java . . . . . . . . . . . . . . . . . . . . . . 5Bali . . . . . . . . . . . . . . . . . . . . . . . . . .. 6

II. SECTOR STRATEGY AND BANK EXPERIENCE . . . . . . . . . . . . . 8

A. Government Strategy .... . . . . . .................. 8B. Bank Experience .... . . . . . . . .. . . . . .. . 10C. Bank Strategy . . . . . . . . . . . . . . . . . . . . . . 14

III. THE PROJECT . . . . . . . . . . . . . . . . . . . . . . . . . 17

A. Project Origin and Formulation . . . . . . . . . . . . . . 17B. Project Objectives and Rationale for Bank Involvement . . 18C. Project Description . . . . . . . . . . . . . . . . . 19D. Project Costs . . . . . . . . . . . . . . . . . . . . 20E. Financing Plan . . . . . . . . . . . . . . . . . 22

IV. PROJECT IMPLEMENTATION. ............... 24

A. Responsibilities .... . . . . . . . .......... ... . . 24B. Program Implementation Agreements . . . . . . . . . . 27C. Implementation Schedule . . . . . . . . . . . . . .. . . 27D. Procurement . . . . . . . . . . . . . . . . . . . .. . . 28E. Disbursement . . . . . . . . . . . . . . . . . . . . . 30F. Accounts and Audits . . . . . . . . . . . . . . . . . 32G. Project Reporting, Monitoring and Bank Supervision . . . . 32H. Land Acquisition and Reeettlement . . . 33I. Operations and Maintenance. .. . . . 33J. Environmental Impact Assessment and Management . . . . . . 34K. Local Participation .... 35

The report is based on the findings of an appraisal mission which visitedIndonesia during MarchlApril 1990. The mission consisted of H.B. Fisher(Leader), C. Godavitarne, L. Lovei, M. Nuch, S. O'Humay, U. Sadikin (IBRD) andJ. Aden, S. Dice, B. Binder, B. Lane and E. Wegelin (consultants). The peerreview team comprised of Messrs. J. Herbert, J. Hicks, J. Silverman, Y.Uchimura and D. Williams. Messrs. L. Jeurling, Chief (AS5IN) and R. Cheetham,Director (AS5DR) have endorsed the project.

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Page No.

V. FINANCIAL ASPECTS . . . . . . . . . . . . . . . . . . . . . 36

A. Local Governments . . . . . . . . . . . . . . . . . . . * . 36Current Financial Condition . . . . . . . . . . . . . . . 36Key Issues . . . . . . . . . . . . .. . . .. . . . . . . 37

B. Water Enterprises . . . . . . . . . . . . . . . . . . 39Financial Appraisal Process . ........ . . . . . . 39Performance and Current Conditions . . . . . . . . . . . . 40Financial Projections . . . . . . . . . . . . . . . . . . 40

C. Domestic Lending Arrangements . . . . . . . . . . . . . 41

VI. PROJECT JUSTIFICATION AND RISKS . . . . . . . . . . . . . 43

A. Economic Justification . . . . . . . . . . . . . . 43B. Cost R^ecovery ..... . .... ..... . . . . ... 44C. Poverty Impact . . . . . . . . . . . . . . . . . 45D. Environmental Impact . ..... .. . . . . . . . . .. . 45E. Local Participation . . . . . . . . . . . . . . 46F. Project Benefits and Risks . . . . . . . . . . . 46

VII. AGREEMENTS TO BE REACHED AND RECOMMENDATION . . . . . . . . . 47

ANNEXES

1. Detailed Project Cost Estimates . . . . . .. . . .. ... . 492. Financing Plan . . . . . . . . . . . . . . . . . . . . . . 543. Summary of Technical Assistance . . . . . . . . . . . . . .. 554. Implementation Arrangements . . . . . . . .. . . . . 66

A. Schedule . . . . . . . . . . . . . . . . . . . . . . . 66B. Responsibilities and Organization . . . . . . . . . . 67C. Program and Subproject Appraisal Process . . . . . . . 70D. Technical Criteria . . . . . . . . . . . . . . a. . . . . 73E. Economic Criteria . . . . . . . . . . . . . . . . . . . . 77F. Model Provincial Program Implementation Agreement . . 80G. Model Local Program Implementation Agreement . . . . . 86H. Summary of Domestic Lending Agreements (DLA) . . . . . 90

5. Batch I Contracts and Procurement Method . . . . . . . . . . . 1026. Disbursement Arrangements and Schedule . . . . . . . . . . 1067. Key Implementation and Performance Indicators and

reporting Systems . . . . . . . . . . . . . . . . . . . . 1158. Local Government Profiles . . . . . . . . . . . . . . . . . . 1169. Revenue Improvement Action Programs . . . . . . . . . . . . . 11910. Local Institutional Development Action Programs . . . . . . . 12311. Water Enterprise Financial Analysis . . . . . . . . . . . . . 12612. Local Government Financial Projections . . . . . . . . . . . . 138'.3. Operations and Maintenance . . . . . . . . . . . . . . . . . 13914. Sample Infrastructure Expenditure Programs . . . . . . . . . . 14415. Environmental Assessment and Management . . . . . . . . . . . 15116. Key Documents in the Project File . . . . . . . . . . . . . . 154

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MAPS j

IBRD No.: 22163 Project Pro4inces and Local GovernmentsIBRD No.s 22164 Kotamadya Paobolinggo (East Java): Water SupplyIBRD No.: 22165 Kabupaten Bqdung (Bali): Water SupplyIBRD No.: 22263 Kotamadya Probolinggo (East Java)s Roads and DrainageIBRD No.: 22264 Kabupaten Badung (Bali): Roads and Drainage

STAFF APPRAISAL REPORT

INDONESIA

EAST JAVA - BALI URBAN DEVELOPE4ENT PROJECT

I. THE URBAN SECTOR

A. Sector Overview

Demographic Trends

1.1 The urban sector in Indonesia is important for economic and socialdevelopment of the country., The urban population exceeds 45 million and hasgrown by about 4.7 percent per year during the past decade, more than doublethe overall national population growth rate. By the year 2000, about 75million or 36 percent of Indonesians will be city dwellers. Urban employmenthas also grown at about 4.7 percent per year, much more rapidly than thenational rate and offering hope for absorption of surplus rural labor.Indonesia's urban settlements include ten metropolitan and large cities ofmore than 500,000, forty secondary cities of over 100,000 (typicallyprovincial headquarters and incorporated municipalities), two hundred smalltowns (typically district headquarters) over 20,000 and about 3,200 serviceceaters (typically subdistrict headquarters) with populations of 3,000 to20,000. While changes in urban boundaries and census definitions makeintercity comparisons difficult, it appears that metropolitan cities over onemillion and secondary cities between 100,000 and 500,000 have grown mostrapidly since 1970. Service centers under 20,000 have grown most slowly.l/

Institutional Framework for Sector Development

1.2 National Administration. The National Development Planning Agency(BAPPENAS) is responsible for overall planning and the allocation ofresources, with focus on Five-Year Development Plans (Repelita) and AnnualNational Development Budgets (APBN). The Ministry of Home Affairs (MHA) isresponsible for oversight of the regional governments, primarily through itsDirectorate General for Public Administration and Regional Autonomy (PUOD) andDirectorate General for Regional Development (BANODA). The Ministry of PublicWorks (MPW) is responsible for oversight of most infrastructure. Within MPW,the Directorate General for Human Settlements (Cipta Karya or DGCK) isresponsible for oversight of city and regional planning, water supply, urbandrainage, sanitation and sewerage, solid waste management, kampungneighborhood improvement (KIP) and market infrastructure improvement (MIIP).Also within MPW, the Directorate General for Roads (Bina Marga or DGBM) isresponsible for oversight of urban roads and bridges and the DirectorateGeneral for Water Resource Development (DGWRD) is responsible for oversight of

1/ Cipta Karya, National Urban Development Strategy Final Report. September1985, page 3, and Biro Pusat Statistik, Intercensal Population Survey(SUPAS 85).

urban flood control and bulk water supply. The Ministry of Finance (MOP) isresponsible for central and local finance through its Directorate General forMonetary Affairs (DGM), though the Directorate General for Budget (DGA -Angaran) actually administer3 grant transfers; property tax administrationthrough its Directorats General for Taxation (DGP - Pajak); and analysis ofregional finance through its Agency for Financial Analysis (BAK - BadanAnalisa Keuangan). Other concerned central agencies include the NationalLand Agency, the Ministry of State for Administrative Reform, DJrectorateGeneral for Land Transport of the Ministry of Communications, the Ministry ofState for Environment and Population, the Ministry of State fot Housing, theMinistry of Education and Culture and the Ministry of Health. All keyagencies are represented in the Interagency Coordinating Team for UrbanDevelopment (Tim Koordinasi or TKPP) chaired by BAPPENAS.

1.3 Regional Administration. Indonesia has a highly centralized unitarygovernment in which all powers are held by the center that are notspecifically assigned to lower levels. Since 1974, however, the provincial(Level I) and local (Level II) governments have been given increasingresponsibilities and delegated authority. They are now responsible fordelivery of most urban services. In all there are 27 provinces and 301 localgovernments, including 54 kotamadyas (municipalities) and 247 kabupatens(districts). Legislative powers at both provincial and local levels are heldby People's Representative Councils (Dewan Perwakilan Rakyat Daerah or DPRD)consisting of mostly elected representatives.

1.4 The executive branches of provincial governments are headed bygovernors who serve as representatives of the President and the overallcentral government (GOI), and also as head of the semi-autonomous provincialadministrations. Bupatis (kabupaten beads) and walikotas (kotamadya mayors)have parallel roles in representing the governors and provincial governments,and in heading their own local governments. Regional Development PlanningAgencies (BAPPEDA I and II) report directly to their respective governors,district heads or mayors, and have planning and resource allocation respon-sibilities that are analogous to those of BAPPENAS in the central government.Among these responsibilities are preparation of Five-Year Regional DevelopmentPlans (Repelita Da- ah I and II) and Annual Regional Development Budgets (APBDI and II). They often play a particularly important role in coordinatingcentral, provincial and local government development programs. Regionalgovernment services are provided by separate departments (Dinas I and II)analogous to line ministries of the central government and routineadministration is provided by bureaus under the regional secretaries (SEKWILDAI and II). Most central line agencies are represented at the provincial levelby their KANWIL (Kantor Wilayah or regional offices). KANWIL of MPW arelocated in all provinces and their primary role in the urban sector is nowshifting from execution of infrastructure projects to provision of technicalguidance and assistance to the concerned provincial and local Dinas I and IIpublic works departments (DPUP and DPUK). Presidential Executive Order t 14(PP14) of 1987 significantly expanded urban infrastructure responsibilitiesassigned to DPUPs and DPUKs, and MPW has made two supporting announcements:(a) that approximately half of the Jakarta-based MPW staff would be relocatedto the provincial level or lower, and (b) that in the future most urbanproject managers would be appointed within the DPUPs and DPUKs (up to now,with the exception of KIP, most urban project managers have been appointedwithin the KANWIL). MPW's announced intention is for the KANWILs to provide

technical assistance and guidance, confining their respcnsibility for projectimplementation to activities which are purely national (e.g., national roads),in accordance with a functional classification system defined under PP14.

Sector Constraints and Priorities

1.5 The Bank's 1984 Tirban Services Sector Report (No. 4800-IND)estimated conservatively that total expenditures by central and localgoverNment on urban services investment, operation and maintenance (0OM)during Repelita IV (1984-89) should be about Rp 900 billion per year (1986prices) to overcome service backlogs at minimal levels and meet reasonablegrowth needs for the additional 2.2 million urban residents each year togetherwith and for the associated growth in economic activity. Actual expendituresincreased to an average of Rp 700 billion per year with the initiation of theBank's Urban Jector Loan (USL - Ln. 2816-IND). Current estimates indicatethat about 76 percent of the urban population does not have direct access to apiped water supply. Almost,two thirds of all urban households still r;!.y onwells, and about 11 percent are dependent on a system of water vendors. About65 percent o.. low-income groups share toilets and use of canals for sanitationpurposes remains common. In the larger cities, inadequate industrial watersupply and waste disposal is a serious problem. In terms of GOI's service andequity objectives, more low-cost, local or tertiary systems investment areneeded in existing underserved urban areas. Overall, there is a growing needfor public investm.ents in, and rehabilitation of, primary and secondarysystems to support local infrastructure needs adequately and to supportadequate operations and maintenance (O&M).

1.6 While average incomes in urban areas have risen substantially overthe past eight years, distribution of income remains unequal and in 1987, over20 percent of urban dwellers were -stimated 2/ still to be poor or nearpoor. The problems of income die 'bution are exacerbated by deficiencies inbasic services and degradation of _..vironmental conditions leading to poorhealth among the low-income population in particular.

1.7 Sector Finances. The finances of provincial and local governmentshave long been dominated by central government transfers and characterized byweak local resource mobilization, low per capita budgets and very limi'ed useof credit for capital investment. In 1983/84, explicit central governmenttransfers 3/ financed over three quarters of aggregate recurrentexpenditures and almost 80 percent of capital investments. By 1986187,central government budgetary constraints caused by falling oil revenues led toa severe curtailment of local investment programs which were reduced fromalmost half of local budgets in 1983/84 to less than one quarter in 1986/87.Thus a marked deterioration has taken place in the structure of local budgetsand the contribution of finance available to local governments for overallsector development. The high level of growth (18.5 percent per year) inlocally generated revenues failed to significantly close the gap. Borrowings,

2/ Central Bureau of Statistics as reviewed in the Bank's Poverty Report.

3/ Including SDO central routine expenditure grants and Inpres centraldevelopment grants, but not including APBN DIPs (central GOI budgetgrants-in-kind).

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at 1.2 percent of total local receipts, continue to be an insignificantfeature of the financing system for most local services.

1.8 The dominant role of grants in the system of financing localgovernment services is the result of very limited local taxing authority. Forexample, the potentially most promising local revenue source, the propertytax, has an effective rate of 0.1 percent set by the central government.Since the central government is reluctant to delegate substantial taxingauthority to local governments, grants are a way to resolve the conflictbetween local governments' taxing authority and expenditure responsibility.

1.9 Inter-government transfers are not the only contribution from thecentral government to the urban infrastructure sector. As it was mentioned inparagraph 1.4 above, the regional offices of central government agenciesexecute a large number of infrastructure projects financed from the nationalbudget (APBN DIP). While the classification of urban infrastructureresponsibilities is still an ongoing exercise, it is clear that several ofthese projects create infrastructure which, according to PP14, is classifiedas local responsibility. These central government grants-in-kindcontributions are justified on the basis of weak institutional capabilitiesand lack of financial resources at the local government level. In the past,however, these projects frequently led to operation and maintenanceresponsibilities which the local governments were not able to fulfill or,since the infrastructure created was of low priority for them, did not want tofulfill.

1.10 Sector coordination and local participation. Despite the essentialsimplicity of GOI's formal organizational structure and its steeplyhierarchical deci- -n systems, coordination of the urban sector has been poor,and local participation in the decision processes has been limited. Thesheer size and diversity of the country, the rapid pace of urbanization, thenumber of concerned agencies, the lack of effective management informationsystems and, perhaps most importantly, cultural constraints upon horizontalcommunication within and among agencies, have led to a fragmented andinefficient approach to urban development. As national attention to urbanproblems increases, so too is the real potential for further fragmentation andinefficiency. Improvements must begin at the local government and communitylevel, where effective coordination is much easier to sustain than in thelarge central government. Only recently, however, have local levels begun toparticipate directly and meaningfully in GOI's development planning andimplementation systems, via mechan'sms such as the IUIDP process.

1.11 Secondary city infrastructure issues. Major issues faced in thesector by cities with 20 to 500 thousand residents are similar to those facedin larger cities: (a) Ficreasing overall infrastructure deficits and O&Hbacklogs; (b) inadequate water resource and waste management; (c) lack ofcoordination in planning of transportation and land use; (d) weak financialmanagement as evidenced by deficient accounting practices and the lack ofadequate cost recovery, revenue generation, use of credit and consideration ofprivate sector options; (e) inequitable distribution of facilities, particula-rly to the poor; (f) need for strengthening management of water enterprisesand municipal improvement programs including drainage, solid waste disposal,and kampung microinfrastructure; (g) inefficient compression of the design andconstruction cycles into single fiscal years; (h) poor information systems,

and (i) awkward and rapidly changing relationships among local, provincial andcentral agencies with respect to assignment of responsibilities for projectand program preparation, appraisal, financing, implementation and O&M. Thereis also a lack of trained and experienced managerial and technical personnelat all levels. While the scales of these problems are smaller in secondarycities targeted in the proposed project than in large and metropolitan citiessuch as Jakarta and Surabaya, so too are the resources available for theirsolution.

B. Urban Development in East Java and Bali

1.12 A combined total of about 36 million people live in East Java andBali. Were they to comprise an independent country, the provinces would rank27th in the world and be larger than 159 other independent countries listed inthe World Bank Atlas. In terms of population, planning for the two-provinceregion is rather like planning for Spain, Poland or the combined states ofCalifornia, Oregon and Washington. Appreciation of the project region's sizeand dive iity is a crucial first step in planning for its development.4/

East Java

1.13 Background. East Java has for centuries included some ofIndonesia's richest and poorest areas. Surabaya in the north has been anational urban center since early in the colonial period and a long belt offarmland reaching from Ngawi in the west to Banyuwangi in the east has beenregarded as some of the best in Java. In contrast, the infertile northernplain from Bonjonegoro to Madura and the dry Pacitan-Blitar region in thesouth was until the 1970s characterized by abject poverty and agricultural"involution,' relying on their own meager resources with few external marketlinks. Dramatic improvements came in the late 196Os and 1970s with politicaland economic stabilization, the green revolution and overall growth of thenational economy. The provincial economy of East Java is dominated byagriculture and the trade and services sectors, each contributing about athird of Gross Regional Domestic Product (GRDP). The manufacturing sectorcomprises about 15 percent of GRDP. East Java in the 1980s had a relativelylower portion of its workforce in manufacturing (22 percent) than other Javaprovinces, but the highest percentage of value added (27 percent) in thenation's manufacturing sector. This probably reflects the relative capitalintensity of the sugar, cement, metal and other industries in the Surabayaconurbation.

1.14 East Java today is the most populous Indonesian province (about 33million), though its annual rate of population growth in the mid-1980s (about1.4 percent) was far below that of Java (about 1.8 percent) and of the nation

41 Data in this section are mainly from (a) NUDS Final Report, ProvincialReports. National Urban Development Strategy Project, DGCK/MPW andUNCHSIUNDP, September 1985; (b) East Java - Bali Urban DevelopmentProJect: ProJect Preparation Report. October 1989 and March, 1990. EastJava -Bali Urban Development Project Task Force, Coordination Team forUrban Development, Government of Indonesia, and Government of East Java;and (c) Repelita V (Fifth Development Plan), 1989-1994, East JavaProvince and Bali Province.

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as a whole (about 2.1 percent). A low fertility rate and significant out-migration are often cited as the explanation, with credit given to thenational family planning and transmigration programs. Out-migration hasexceeded in-migration by a factor of about three since the late 1970s, butover half of the in-migrants have settled in urban areas.

1.15 Settlements. The province's settlement structure is dominated bythe planning regior. of GERBANGKERTOSUSILA (a mnemonic for Gresik, Bankalan,Mojokerto, Surabaya, Sidoarjo and Lamongan), which includes an urbanpopulation of about 2.7 million or a third of the provincial urban populationof eight million. This is the most advanced of nine development regions usedas a basis for regional planning by the provincial government. Malang, to thesouth, is the second largest incorporated municipality after Surabaya and themajor center of economic growth outside GERBANGKERTOSUSILA. Strong linkagesextend from Surabaya to the south toward Malang as well as the secondarycities of Kediri, Madiun, Pasuruan and Probolinggo. Economic links to thenorth and west through Gree4k along the north coast tend to be weaker.Banyuwangi on the east coast is major port connecting Java with Bali. GOI'spolicies to stimulate growth in the eastern islands are expected, ifsuccessful, to induce significant increases in activity for this port.

1.16 Issues and Priorities. Urban growth in East Java is expected tocontinue at a far more rapid rate than the province as a whole, so that the1990 urban population of about eight million will increase to about 12 millionby 2000. GERBANGKERTOSUSILA will increase to account for more than a third ofthe total urban population and Malang about a tenth. Provincial developmentpolicy emphasizes reduction of congestion in Surabaya; structuring ofdevelopment patterns in GERBANGKERTOSUSILA and giving priority to growth inits subcenters; dispersal of key industrial and commercial activities toMalang and other centers when possible; development of the Banyuwangi port andrelated economic activities; and development of regional market and servicecenters throughout the province. Within the urban sector agenda, prioritywill be given to water supply where acceptable alternatives to piped suppliesare not available; alleviation of congestion and improvement of deterioratingroads and bridges; improved management of human and solid waste; strengthenedO&M systems; increased local revenues; and upgraded local governmentinstitutions. East Java's Fifth Five Year Plan makes explicit reference tothe Integrated Urban Infrastructure Development Program (IUIDP) as the primaryprogram for improvement of urban infrastructure.

Bali

1.17 Background. With a total population of only about 2.6 millionincluding an urban population of about 700 thousand, Bali is neverthelessprominent nationally and internationally as a center of tourism and culturalwealth. Its agricultural economy and society, which has for some years putinto intensive use virtually all cultivable land in the province, are ofparticular note. Bali's fertile southern plain has for centuries provided thebest agricultural land and, more recently, provided most tourist attractions.The central part of the island is mountainous, much of it uncultivable. Thenorthern areas include a relatively narrow plain between Gilimanuk and Kubu,centered on the colenial capital, Buleleng, that is suitable for intensivecultivation and urban development. In 1987, the trade and services sectors(including tourism) accounted for about 46 percent of GRDP and agriculture

accounted for about 43 percent. Manufacturing lagged far behind at about 5percent, though it is probably increasing rapidly at present (particularlygarments for export).

1.18 Population growth was lower, at about 1.7 percent per annum duringthe 1970s, than Java (2.0 percent) or the nation as a whole (2.3 percent)during the same period. Data for 1980-85 indicate a yet lower growth rate ofabout 1.4 percent per annum, reflecting low rates of natural increaseencouraged by a successful family planning program based upon the traditional"banjar" system of community management and organization, and substantial out-migration. More than half of the in-migrants since 1970 appear to havesettled in Bali's urban areas, particularly in Badung Kabupaten and itscenter, the administrative municipality (Kotip) of Denpasar.

1.19 Settlements. Bali has a fine-grain network of small settlementsspread over the island, most of which are located in the southern half. Thesystem is dominated by Denpasar, which accounts for almost half of theprovince's urban population and much of its substantial revenue from tourism.Badung's local revenues are higher than any other kabupaten and all but fourkotamadyas in Indonesia. The main transport linkages extend east and westalong the southern coast with a weaker linkage to the northern coast. Urbangrowth is likely to continue well above national and regional rates, whiletotal growth continue below those rates. The chronic shortage of agricult 1lland will continue to push farmers to other occupations and migration tocities and other provinces. Economic opportunities associated with thetourist industry will, at the same time, pull rural Balinese to the cities.

1.20 Issues and Priorities. The provincial government of Bali hasfocused its development strategy on accommodating, and benefitting from, thehealthy and rapidly growing tourist industry while strengthening the hierarchyof service centers throughout the island. Special attention would be giventot (a) ensuring the availability of acceptable water supply with priority tpcurrent and potential tourist centers and full cost recovery; (b) provision Wadequately maintained roads and bridges with attention to relieving congestionin Denpasar and the tourist centers of Sanur and Kuta; (c) improved managementof human and solid wastes, including possible installation of a small seweragescheme in Kuta; (d) increased local revenue collection and improved financialmanagement, with special focus on Badung Kabupaten; and (e) generallystrengthened urban institutional capacities. The initial impact of thisstrategy is expected in the southern part of the island, but adequateprovision and management of infrastructure in the northern and central partscan be expected to facilitate and accelerate the development there also.Bali's Repelita V also makes reference to the need for diversification ofBadung/Denpasar's economic base which will require improved infrastructureprovision and management. As East Java, the Repelita V for Bali refers toIUIDP as the framework for urban infrastructure improvement.

II. SECTOR STRATEGY AND BANK EXPERIENCE

A. Government Stratesy

2.1 Faced with large deficiencies in urban infrastructure services andfast growing urban populations, GOI's strategy emphasizes physicalinfrastructure provision targets. These targets, describing the capacity ofwater supply systems to be constructed, length of roads to be built,percentage of population to be supplied with safe water, sanitation services,etc., usually have a prominent place in the medium-term national developmentplans. For example, in connection with the UN Drinking Water and SanitationDecade, GOI set the target of providing safe water supply to 75 percent of theurban and 60 percent of the rural population by 1990 and asked for the help ofmulti- and bilateral donor agencies. The latest estimates indicate that36 percent of the rural and,46 percent of the urban population had access toclean water in 1988, compared to 26 percent and 38 percent, respectively, in1980.51 Even though targets were not achieved, this is still an impressiveperformance in view of the almost 40 percent increase in the urban populationin that period. The main constraint has not been the availability of fundsbut the capacity to prepare and implement projects. The government's response-1iat has been (a) to develop standardized, mass delivery programs planned

he Wecuted by the central government (but with operation and maintenanceresponsibility at the local level) in order to reduce service deficiencies inthe short-run, and (b) to build up implementation capacity through localgovernment institutional strengthening, reinforced through decentralization,as an important element of GOI's long-term strategy.

2.2 GOI has taken important strides toward reducing urban infrastructuredeficits and establishing a basis for improved sectoral management. The corej rategy emphasizes integrated and deconcentrated/decentralized management of07ban development. BAPPENAS has been designated to lead a high-level inter-agency team (Tim Koordinasi - TKPP) representing the concerned agencies andcharge with responsibility for overall sector policy development andcoordination.

2.3 IUIDP. The policy priorities for urban development in Indonesiawere articulated in the 1984 Urban Services Report (4800-IND) and the 1987Public Resource Management Report (7007-IND), in particular i.s chapters onO&M and local government finance. To address these priorities, the governmentissued a Statement of Policies for Urban Development in 1987 which representeda consolidated view of the principal constraints arising from, and theobjectives prescribed for, development in the sector. This Policy Statement,which is incorporated in the current national five-year plan (Repelita V),includes: (a) strengthening local governments to assume the leading role indeveloping, operating and maintaining local services on a sustainable basisover the long-term; (b) improving the planning and, programming of urbaninfrastructure investments; (c) revising grant flows mobilizing localrevenues and optimizing their use; (d) implementing a coordinated financing

5I See Indonesia Urban Services Sector Report, No. 4800-IND and IndonesiaPoverty Assessment and Strategy Report, No. 8034-IND.

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system for the development and administration of local services; and (e)strengthening the consultative process at various levels of government, withemphasis on upgrading participation of local municipalities and districts.The Policy Statement called for Integrated Urban Infrastructure DevelopmentProgramming (IUIDP) as an operational approach for achieving these objectivesin the context of typical local governments. The provincial five-year planfor East Java and Bali (Repelita V Propinsi) refer explicitly to IUIDP as theappropriate vehicle for overall improvement of the urban sector.

2.4 The Policy Statement, including IUIDP, was translated into an actionplan of institutional reforms and Improvements in local resource mobilization,sector planning and financing arrangements which were incorporated explicitlyinto the Urban Sector Loan (USL, Loan 2816-IND) and which, since then, hasprovided a strategic framework to guide the focus and process of urbandevelopment in Indonesia. In addition, with USL support, strategies wereformulated for the major urban service subsectors of water supply, drainageand flood protection, human and solid wastes, roads and KIP.

2.5 Poverty reduction and regional balance in development are prominentobjectives of the current national medium term development plan (Repelita V).Overall GOI strategy for regional development is still evolving, but specificinvestment programs targeted to poorer areas and increased general resourceavailability for regional governments through the INPRES grant transfer systemare the key building blocks. GOI strategy is to increase the use of theINPRES grant channel to finance urban expenditures for which local governmentsare responsible. This gives local governments more control over theirexpenditure program by reducing grants-in-kind by central agencies.

2.6 Also under Repelita V, GOI has targeted the expansion of borrowingby local water enterprises as a special priority. Recognizing the need foroperational guidelines to induce a higher level of credit financing, GOI hasadopted less conservative financial criteria for borrowing by localgovernments and their enterprises (debt service coverage ratio of not lessthan 1.5 for local government general fund operations and not less than 1.3for local enterprises such as water supply PDAMs). This would bring the legalborrowing capacity for local governments, particularly the large cities, morein line with their considerably unused paying capacity.

2.7 The government's strategy is to move interest rates towards marketrates over the medium- to long-term. Given the substantial grant element inthe financing system for local services in Indonesia, the question of interestrate must be viewed in the context of overall sector finances. Many localgovernments have little or no experience with loan financing, having preferredinstead to rely on central government transfers in spite of the very low(frequently twvo to four percent) or, in some cases zero, interest rate ondomestic loans for the vast majority of local governments. Only the nation'slargest cities have significant experience with interest rates in the range ofnine to twelve percent. There is a widespread concern in GOI that, unless theinterest rate applied is low, it will not be possible to induce localgovernments and their enterprises to adopt a more active borrowing posture,within prudent limits.

2.8 GOI has issued several regulations and policy clarifications to helpmake the sector policy statement operational: (a) PP14 of September 1987

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provides guidelines for classification of public works infrastructureresponsibilities for the central, provincial and local levels; (b) PP6 of June1988 clarifies relations between regional offices (KANWILs) of MPW andprovincial public works departments (dinas) under the authority of theprovincial governors; (c) the Minister of Home Affairs' Surat Edaran P3KT(IUIDP) of July 1988 explains IUIDP process and substance to all governors andtheir steffs; (d) a t4HA instruction (Kepmen) is now being finalized to raiseprovincial public works units by one level, from sub-dinas to dinas;(e) another MHA Kepmen is under preparation to require higher level agenciesto coordinate more directly with sub-districts (kecamatans). Perhaps mostsignificantly, MPW has announced its intention to relocate about half of itsHeadquarters staff to provincial and local governments (para. 1.4). GOI hasalso undertaken a nationwide program for IUIDP preparation and implementationwith donor-supported teams working in all provinces and large citiess theBank in eleven provinces including Jakarta, the Asian Development Bank in tenprovinces, the Australian International development Assistance Bureau in fourprovinces, Dutch aid in three provinces, Canadian International DevelopmentAgency in two provinces and Swiss aid in one province (some overlapping, butnot with the Bank). The US Agency for International Development and the UK'sOverseas Development Administration, among other bilateral donors, areaddressing key financial and institutional dimensions of the strategy on anationwide basis. The UNDP and UNCHS have provided umbrella support for aCentral IUIDP Management Assistance Team (INS/85/005). This umbrella supportwill be continued through mid-1994 under the IUIDP Implementation SupportProject (INS/88/014), which will also provide for improved coordination andmanagement of foreign assistance. Approximately 125 of the 301 localgovernments have adopted IUIDP plans and, despite some delays, all donors areproceeding with their respective IUIDP operations. Leadership is provided byTKPP and the BAPPENAS-based IUIDP Implementation Management Group (IMG).

B. Bank Experience

2.9 Worldwide Experience in Water Supply.6/ The Bank has beeninvolved in this sector since the 19609. There has been relatively littleevolution in the Bank's approach. The scale of projects became larger andmany involved assiRtance to a number of smaller entities under one operation.Some operations re.ied on intermediaries to exercise control overimplementation and to provide assistance to be the beneficiary entities. Manyoperations aimed at the consolidation of water entities. While the majorityof projects provided substantial economic and health benefits, experience showthat (a) the achievement of institutional and cost recovery objectives hasbeen slow and difficult; (b) there are persistently high levels ofunaccounted-for-water; (c) there are delays iR project implementation due toinadequate project preparation, slow land acquisition, cumbersome procurementprocedures; (d) inadequate attention is paid to the disposal of wastewater indensely populated areas.

61 Based on OED 'Annual Review of Evaluation Results" in 1987, 1988, 1989(Report Nos. 7404, 8164, 8970) and several project audit reports.

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2.10 Worldwide Experience in the Urban Sector.71 Bank involvement inthe urban sector started in the early 1970s with low cost investment projectsin shelter, water supply, sanitation and urban transport aimed at alleviatingurban poverty. Sites-and-services and slum upgrading projects were intendedto demonstrate replicable approaches that could provide benefits to the poorwhile recovering costs and reducing the financial burden on the public sector.Many of these projects have been reasonably successful in meeting physicalobjectives, but they have not had an impact on the policies of national andlocal governments and on the issues of managing the urban economy. The policydialogue between the Bank and governments focussed on physical aspects andsome institutional issues but there was insufficient attention to the broaderpolicy framework such as intergovernmental fiscal relations. Moreimportantly, because many urban programs did not achieve sustainable policyreform and institutional development, the projects were generally notreplicable. In only a few cases, such as the Kampung Improvement Program inJakarta, have citywide impacts been achieved. Like water supply, urbanoperations also experienced substantial implementation delays due toinsufficient project preparation and very ambitious implementation timetables.

2.11 Experience in Indonesia. Generally, Bank experience confirms that(a) the combination of limited planning and implementation capacity at thecentral level and the difficulties inherent in providing essentially localservices by central government departments decreases the efficiency of massdelivery programs; (b) capacity building at the local level is a long-termprocess that mu- be accompanied by an increase in local responsibility andaccountability; and, (c) central-local financial relations need to develop inthe direction or more local government autonomy. As summarized in Table 1below, the Bank has financed six completed and eight ongoing urban and watersupply projects in Indonesia since 1974, touching more than fifty localgovernments and many of their water enterprises. Urban lending operations inIndonesia have progressed from demonstration projects in Jakarta through moreprogrammatic investments in selected other large cities, still limited ingeographic and subsectoral scope, to sector lending within an agreed policyand institutional framework. Water supply projects initially covered only afew cities, but later, like Bank projects in other countries, assisted a largenumber of urban settlements under one operation.

2.12 Multi-subsector urban development projects, Urban I-V (Loans 1040,1336, 1653, 1972 and 2408-IND), provided substantial assistance fordeconcentrated programs of low-cost micro-infrastructure (KIP), city-widedrainage and solid waste management in eleven major cities. They alsoassisted development of GOI's low-income housing program, -,ow supported underthe Housing Sector Loan (2725-IND), and several import"..it institutionalinitiatives, including local government finance, planning and programming,O&M, and land information. Separate sub-sectoral programs in water supply,sewerage and urban transport have been supported by seven loans to date. Thefirst two such loans (1049 and 1709-IND) helped in the development of watersector organization and financing policies. Under subsequent projects in East

71 Based on OED reports mentioned above, on draft PRE Report "Urban Policyand Economic Development. an Agenda for the 1990s", dated November 30,1990 and also on PRE Report "FY89 Sector Review Urban DevelopmentOperations", Report No. INU-OR3.

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Java (Loans 2275 and 2632-IND) water sector development was emphasized anddeconcentration of implementation capacity was introduced to increase theprogram scale and pace. Loan 2236-IND (Jakarta Sewerage and Sanitation) hassought to implement pilot human waste disposal projects and strengthen wastedisposal institutions in Jakarta. Two recent loans (2817 and 2932-IND) focuson urban transport sector development in Indonesia's five largest cities,emphasizing least-cost traffic and public transport solutions and localinstitutional development. The combined experience of these projects isreflected in the Urban Sector Loan (2816-IND) and also in the Second and ThirdJABOTABEK Urban Development Projects which focus, respectively, on waterresources and kampung improvement in the Jakarta metropolitan area.

Table 1. URBAN AND WATER SUPPLY PROJECTS IN INDONESIA

Loan Fiscal Year Project Name Original PPARJPCRNo. Effective Closed Loan Rep. No. Year

1040 1975 1931 Jakarta Urban Development 25.00 4620 19831049 1975 1982 Five Cities Water Supply 14.50 6256 19861336 1977 1984 Second Urban Development 52.50 6329 19861653 1979 1987 Third Urban Development 54.00 8583 19901709 1981 1987 Second Water Supply 36.00 8622 19901972 1982 1988 Fourth Urban Development 43.00 8583 19902236 1983 Jakarta Sewerage/Sanitation 22.402275 1983 East Java Water Supply 30.602408 1984 Fifth Urban Development 39.252632 1986 Second E. Java Water Supply 43.302725 1986 Housing Sector Loan 200.002816 1987 Urban Sector Loan 270.002817 1987 Reg. Cities Urban Transport 51.002932 1988 Jabotabek Urban Development 150.003219 1990 Second Jabotabek Urban Dev. 190.00*3246 1991 Third Jabotabek Urban Dev. 61.00*

1,282.55

* not yet effective as of December 31, 1990.

2.13 Completed Prolects. Of the six loans closed to date, four have beenevaluated by the Bank's Operation Evaluation Department. Urban III and IVwere combined in one project completion report. The issues and lessons fromthese reports are discussed below.

2.14 Water Supply. While about one million people received improvedwater supply due to the two projects, the project performance audit reports(No. 6256 and 8622) emphasized the following problemss (a) substantial delaysin project implementation were caused by inadequate preparation, especially bythe late preparation of detailed designs (after the loans became effective);(b) over-optimistic water d-nand and unaccounted-for-water projections andunderestimated production costs led to the inability of the water enterprisesto fulfill (too ambitious) financial covenants and difficulties in servicing

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debt; (c) inadequate attention was given to institutional development andmanagement of technical assistance. For the initial group (Batch I) oflocalities in the proposed project, detailed designs have been prepared inadvance, the availability of alternative water sources and the forecast levelsof water tariffs have been taken into account in water demand projections, andsimilar analyses will be completed for all other participating water systemsduring the project. Also, technical assistance will be managed on a regionalbasis, close to the sites where the project is implemented.

2.15 Urban Projects. According to the project performance audit reports(No. 4620 and 6329), the civil works included in the first two urban projectswere completed according to appraisal schedules. However, considerable delayswere experienced in the selection and appointment of consultants, thereforethe loan closing dates had to be extended by three years to complete thetechnical assistance components (for institutional development on the nationallevel and preparation of subsequent projects). Water supply components underthe kampung improvement programs experienced the same problem as the freestanding water supply projects, that is, the water demand projections wereover-optimistic and willingness to pay for the piped water was less thanexpected where alternative groundwater sources existed. The need for formalmaintenance arrangements was noted and it was proposed that the maintenanceissue should be addressed more carefully in future projects. The proposedproject includes both maintenance expendituras and institution capacitybuilding for O&M.

2.16 The combined Project Completion Report (PCR) for the most recentlycompleted urban projects (Urban III, 1653-lND; and Urban IV, 1972-IND)highlighted the following issues and priorities of urban development inIndonesia: (a) successful project implementation requires local participationand visible leadership by the chief executive (bupati or mayor) of the localgovernment; (b) operations and maintenance budgets and institutionalcapacities are inadequate and must be improved at all levels; (c) coordinatedplanning and programming of urban infrastructure is essential; (d) improvedlocal resource mobilization is necessary for sustaining urban developmentprograms; and (e) decentralization of urban development program implementationrequires strengthened municipal management, technical staff capacities andoperational systems. Some of the functional requirements and policy reformoptions to address these issues are now being explored under the ongoing UrbanV project (Loan 2408-IND) and the USL (Loan 2816-IND) on a national basis (seebelow). The need for coordinated infrastructure planning was the key to thedevelopment of the IUIDP concept, which will be implemented under the EastJava - Bali Urban Development Project.

2.17 Beneficiary households and communities are involved routinely in theidentification, participation and implementation of KIP neighborhoodimprovement programs that have been supported under Bank loans for more thanten years. Market neighborhood improvement (MIIP) programs have a similarparticipatory base. GOI's successful solid waste management and sanitationprograms also rely on participation of beneficiary households and communities,and have received increasing support under the Urban III, IV and V projects.On-site sanitatior schemes introduced under the Urban V project, for example,emphasize household financing and the use of NGOs for community management ofimplementation. Water supply investments supported by the Bank now requireassessment of cost recovery potential from the beneficiary households; road

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Investments must be based upon specific road-user needs; drainage investmentsemphasize needs expressed by communities subject to flooding. Mostimportantly, the overall infrastructure planning (IUIDP) process supported byGOI and the Bank is designed to upgrade the effective role of localparticipationt (a) to start planning and decision processes at a level lowenough in government so that beneficiaries can participate directly; (b) tostart early enough in the budget process so that adequate attention can beprovided to subproject design in meeting beneficiary needs; (c) to placeincreased emphasis on local responsibility for O&M, and (d) to take advantageof local human resource and institutional capacities through the entireproject cycle.

2.18 The Sector Loan. Performance of the USL in supporting priorityexpenditures and increasing disbursements in the sector has been satisfactory.Provision of counterpart financing through the USL enabled Indonesia to expandsector expenditures in keeping with (if not yet achieving) the recommendationsof the Bank's Urban Services Sector Report. Progress in institutionalizationof IUIDP has been good in most provinces and preliminary assessments indicatethat progress is being made in local resource mobilization. However,implementation of the financial policy agenda under the USL has lacked cleardirection and has not been coordinated effectively. A new draft law on localtaxes has been prepared for legislative action, for example, but littleprogress has taken place to clarify the incentive framework for local fiscaland financial management through measures to rationalize the system of grantsand to articulate the policies for financing of local infrastructure.

2.19 East Java and Bali. The Urban Sector Loan and eight Bank-financedurban projects to date have involved parts of East Java and Bali (four multi-subsector projects, three water supply projects and one urban transportproject). Experience with these projects has generally been good, thoughlimited to the provincial capital cities of Surabaya and Denpasar and sometwenty five water enterprises in other local governments. Most physicaltargets have been achieved, and in some cases surpassed; there has beencompliance with most loan covenants, despite some delays and problems withfinancial covenants in the case of water enterprises; project implementationand monitoring systems have steadily improved; outright mistakes (such as useof inappropriate designs for small water supply schemes for subdistrictheadquarters) have been corrected; a fruitful dialogue with concerned localand central government officials has been maintained and strengthened;collaboration with the provincial governments has been initiated, and therehas been significant progress in overall human resource and institutionaldevelopment.

C. Bank Strategy

2.20 The Bank seeks to assist in implementing broad urban sector policiescodified by GOI in its Urban Sector Policy Statement of 1987 and Five-YearDevelopment Plan for 1989-1994. The Bank strategy mirrors the governmentstrategy with emphasis on (a) improving service levels in a regionallybalanced fashion and particularly for the poor; (b) impro;ing urbanproductivity and the effectiveness of investments through betterinfrastructure planning and programming, especially at the city level andthrough enhanced local government capacity for fiscal management, revenue

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mobilization, project implementation and O&M; (c) improving the urbanenvironment by enhancing local government capacity to plan, implement andoperate infrastructure in an environmentally sound fashion and also byenhancing community participation. The strategy responds to the experience ofongoing Bank projects, in particular to problems encountered with regard toproject preparation and implementation capacity. It recognizes the limits tocentral government mass delivery of urban services and stresses the importanceof building capacity at local level to plan, implement and operate urbanservice.

2.21 Improving service levels and urban management capacity. Havingcontributed to the formulation of GOI's sector strategy through the 1984 UrbanServices Sector Report (4800-IND, 1984) and subsequent studies under the UrbanIV and Urban V projects, the Bank supports the integrated infrastructureprogramming and decentralization approach adopted by GOI as the optimal way toaddress urban sector issues in Indonesia and, in the long run, the solution tothe implementation capacity problem. Based on experience gained under the sixcompleted and eight ongoing urban projects, the Bank strategy recognizes thatimplementation of this approach depends on the institutional capacity ofindividual local governments and local water enterprises. In parts of thecountry where institutional constraints are less pronounced it is possible toestablish provincial intermediation capacities, programmatic Bank lending andhigh levels of cost recovery. In other less develeped parts of the countrysuch as East Indonesia, where local capacity is less developed, regularproject lending is more appropriate and cost recovery is more difficult. TheBank strategy recognizes that regionally balanced development is a legitimateconcern of GOI and development of urban areas in the Eastern part of thecountry is necessary to achieve that. The Second Water Supply, Urban III andUrban V projects demonstrated that well prepared, traditional project typeinterventions restricted to a few urban areas could help GOI improve deliveryof urban infrastructure services in areas with weak current managementcapacities.

2.22 The Bank agrees with GOI that increased access to infrastructureservices, especially for the poor, is an important objective. However, thereis no simple solution to the problem of institutional capacity constraints andattempts to mass deliver standardized systems are fraught with problems.Inflexibility in design leads to solutions ill adapted to local circumstances,low willingness to pay by the consumers and lack of funds and institutionalcapability for maintenance. This is a very high price to pay and may hinderthe achievement of another equally important objective, the maximumcontribution from urban infrastructure to the economic development of thecities. Therefore, while the Bank strategy supports targeted interventions toincrease access for the poor (e.g., subsidized water standpipe and kampungimprovement programs), it also emphasizes the importance of long-termprograms to enhance the capacity of local governments and communities toimplement and finance infrastructure projects and maintain the assets created.Provision of the proper financial and managerial incentives for the localgovernments for improved implementation and maintenance performance is anotherequally important aspect of the strategy.

2.23 Financing of urban development. Based on the Bank's experience thatlocal services are mast effectively provided when responsibility andaccountability lies with competent local governments, Bank strategy aims at

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increasing the importance of local government resources in financing urbaninfrastructure services. Therefore, the Bank supports measures that increaselocal revenues, especially the reform of the system of local government taxesand charges, and increase prudent borrowing by local governments. The systemof a multitude of local government taxes with very limited revenue base andyield should be overhauled. Also, local governments should be encouraged toestablish pricing policies ca an increasingly cost recoverable basis, therebyenabling available grants to be targeted to the neediest regions with lesspotential for local resource mobilization, thus supporting the Government'sregional equity objectives. If GOI's Repelita V strategy of increasing therelative importance of credit in the sector succeeds, it will help encouragemore efficient allocation of resources within the sector. However, aninterest rate which is well below market rates (currently 18 - 20 percentannually) maintains a degree of interest rate segmentation which could inhibitthe ability of the sector to mobilize loan funds from domestic savings in thelong-run. The Bank therefore supports a program geared to measured progresstowards market-related rates of lending to local governments and enterprises.

2.24 The Bank also recognizes that infrastructure deficiencies are largeand the financial capability of local governments is limited, so centralgovernment grants will continue to be an important source of financing forurban infrastructure. In order to avoid inefficiencies experienced in thepast, improvement of the grant system is desirable by making it lessfragmented and more equalizing, predictable and discretionary for therecipient local governments. The superior financial resources of the centralgovernment coupled with superior implementation capacity led to the importantrole played by the grants-in-kind support. Grants-in-kind for services underthe responsibility of local governments have, however, been eliminated underthe approved financing arrangements described in Chapter 3. The Bank supportsa strategy which gradually limits Central Government direct involvement onlyto services classified as national responsibilities e.g., national roads inurban areas.

2.25 Lending Strategy. The Bank's strategy is to (a) move towardprogrammatic lending operations for selected areas (e.g., East Java and Bali)with adequate institutional capacities, which could serve as models forprovinces and cities nationwide; and (b) carry out more traditional projectlending with a more focused approach on some subsectors where either theinstitutional capacities are too weak for programmatic lending (e.g., most ofeastern Indonesia) or subsectoral requirements are so large and complex thatthey are best dealt with individually (e.g., metro Jakarta).

2.26 Programmatic Lending. Through programmatic lending, as under theproposed project, the Bank would provide financing for time-slices of multi-subsector urban expenditure programs for local kotamadya (municipal) andkabupaten (district) governments. The subsectoral and geographic scopes ofsuch operations would be wider than in traditional urban project lending, andthe Bank would rely more on intermediary institutions. There would be moreattention to detail of specific subprojects and delivery mechanisms than ispossible in sector lending, however, and sector policy and nationwide actionplans could not be emphasized to the same extent. The programmatic approachwould facilitate the Bank's involvement in large numbers of typical localgovernments. It would also help to facilitate the many transitions requiredto carry out GOI's long term policies of deconcentration, co-administration

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and decentralization. The central government role would gradually becomemainly one of providing overall program guidance and technical assistance tothe lower level governments; provincial governments would gradually assumemore responsibility for assisting smaller local governments in projectidentification, preparation, appraisal of subproject proposal", and monitoringof their implementation; local governments would become increasinglyresponsible for project identification, preparation, implementation and O&M.The transition would be gradual, and there would be considerable differentia-tion among regions depending upon institutional capacities for change. TheBank's strategy would therefore require every effort to adapt loan processingand supervision to existing GOI planning and implementation systems andcapacities. Few if any new GOI policies would be required, and projects wouldrely as much as possible upon existing institutions (e.g., the provincial andlocal BAPPEDA planning agencies) and processes (e.g., the RAKORBANG budgetconsultstion process beginning at the community level). Radical improvementsin loca:. government capacities, in particular, would not be anticipated duringthe short or medium (five-year) term. Moreover, the expenditure programs tobe financed would not differ radically in size or overall composition fromcomparabln programs that have already been delivered (albeit with morereliance on experienced central government agencies).

III. THE PROJECT

A. Pro3ect Origin and Formulation

3.1 The proposed project has been under discussion since 1980, duringimplementation of the Urban III project (Loan 1653-IND) and preparation of theUrban IV project (Loan 1972-IND). At that time, it was envisioned that afuture Urban V project would focus on the province of East Java and includeits capital (Surabaya, a city included in the Urban III Project) along with alarge number of its secondary cities. As preparation of the proposed East Javaproject moved forward, however, it became clear that the central andprovincial governments could not agree on an appropriate division ofresponsibility and authority. The Governor decided that he did not want to beresponsible for a province-wide project unless the provincial and localgovernments could play a stronger implementation role than was at that timeacceptable to the central government. As a result, the Urban V project scopewas changed to focus on a straightforward continuation of the Urban IIIproject and infrastructure investment in its four large cities, includingSurabaya. The central and provincial governments agreed that Bank financingunder this project could be provided mainly through subsidiary 1.oans whichwould automatically give the lead decision roles to regional governments asthe ultimate borrowers. Preparation of a province-wide project was suspended,however, and did not begin again until 1987.

3.2 The proposal of a province-wide urban project for East Java extendedto include the neighboring Bali province, was revived in the immediate contextof GOI's 1987 Urban Policy Statement, in particular its call for improvedplanning of urban infrastructure and service delivery through the IUIDPprocess. GOI identified East Java and Bali as the most appropriate provincesfor testing and implementation of the full "IUIDP approach," as it would be

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called, given their urban infrastructure needs and relatively well developedprovincial and local government institutions. Similar, but in most cases morelimited, applications of the approach would then be attempted in otherprovinces and selected kotamadya municipalities with support of the Bank andother donors. The Bank was considered as the logical source of support for anEast Java - Bali project given its commitment to the Policy Statement throughthe Urban Sector Loan and its experience under past and on-going urban projectoperations in the two provinces. From the Bank's view, the IUIDP approach wasseen as a logical first step in program lending that could expand its role tocover whole provinces and all seven of the urban subsectors in singleoperations. While mostly successful, the Bank's earlier and ongoing projectoperations in East Java and Bali have only covered small numbers of localgovernments and individual subsectors or small clusters of subsectors.

3.3 Funding under the Urban Sector Loan (Loan 2816-IND) and UNDP's IUIDPAdvisory Support Project (INS/851005) was provided in 1987 to introduce theIUIDP approach in East Java and Bali and to prepare a project suitable forfinancing under a Bank loan. A nationwide IUIDP training program was initiatedat about the same time with support from the USL and the Government of theNetherlands, though its implementation in East Java and Bali was delayed untillate 1988. Introduction of the IUIDP approach proved to be more difficultthan originally hoped, though from the beginning there was steady progress andwidespread recognition that detailed preparation of a possible project shouldnot (indeed could not) be rushed. All parties learned a great deal and arestill learning. It is worth highlighting thats (a) central governmentparticipants have become significantly more aware of the need to understandurban infrastructure and service issues from the local government perspective;(b) those responsible for individual subsectors have learned that they cannotwork successfully in isolation from other subsectors; and (c) multisectoralplanners have been reminded that comprehensive plans are useless if they arenot carried through to detail at the subproject level.

B. Prolect Objectives and Rationale for Bank Involvement

3.4 Project Objectives. The fundamental objective of the proposed proj-ect would be to improve the quality of urban infrastructure investment andservice delivery in East Java and Bali. Operational objectives would be to:(a) support urban infrastructure investment (including .ehabilitation) in upto 45 local governments in East Java and Bali, including a limited expansionof the water distribution system in the City of Surabaya;8/ (b) improveurban infrastructure expenditure programming, financial planning andinformation management for these local governments; (c) encourage localrevenue generation, improve financial management and, more generally,strengthen local government human resources and institutions includingcapacities for more effective community participation and environmentalmanagement; and (d) assist sector development nationwide, includingpreparation of future projects.

3.5 Rationale. The proposed project deserves the Bank's fullest supportinsofar as it (a) supports the urban sector strategies of GOI and the Bank;

8/ Other investments in Surabaya City would be covered under the proposedSurabaya Urban Development Project (FY92 lending program).

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(b) provides financing for types of subprojects serving both economic andsocial needs that have been confirmed to be feasible and beneficial in a widevariety of SOI and Bank experiences in these two provinces with capablegovernments known well to the Bank; (c) provides for improved programming andimplementation of such subprojects in a manner that should lead to greater netbenefits in the future, primarily by involving local governments andbeneficiaries more directly and by increasing the transparency of urbanresource allocation decisions; (d) introduces the full IUIDP-based programlending approach to the urban sector in Indonesia and the prospect of Bankassistance for urban development on a "wholesale," multi-city and multi-subsectoral basis; and (e) offers GOI and the Bank their first opportunity totest and develop the full IUIDP approach that will be a model for evaluationand a reference for other provinces.

C. Proiect Description

3.6 Project Components. There would be three principal componentss

(a) Infrastructure Developent, Rehabilitation and 0&M. This componentrepresents about Rp. 647.0 billion ($340.2 million equivalent) or94 percent of total project costs, providing the core of five-yearurban infrastructure expenditure programs for the 45 participatinglocal governments, including a limited expansion of the waterdistribution system for the City of Surabaya. Financing would beprovided for urban infrastructure expenditure programs coveringseven subsectors in up to 36 of the 37 local governments in EastJava and all eight in Balis civil works and equipment for watersupply, urban roads, kampung improvement, market infrastructureimprovement, solid waste management, drainage and sanitation. O&Hexpenditures of Rp 183.0 billion ($96.3 million equivalent) would beincluded in the expenditure programs, but would not be financed bythe Loan. Contracted engineering costs have been included,amounting to Rp 24.9 billion ($13.1 million equivalent or 6 percentof total investment costs). The expenditure programs and supportingfinancing plans would cover the five-year period beginning with60I's PY91/92.

(b) Program Management. This component represents about Rp 25.5 billion($13.4 million equivalent) or four percent of total project costs.The project would be managed and implemented by existing structuralagencies at the central, provincial and local levels of government.In order to achieve the project's objectives, however, several ofthese agencies will require technical assistance, task-specifictraining and equipment. All expenditures under this component wouldbe essential for physical implementation of the project. They wouldsupport:

(i) further program and subproject prepsration; and

(ii) management of program implementation.

(c) Institutional Development. This component would include two sub-components.

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(i) Municipal management improvement. This sub-componentrepresents about Rp 6.5 billion, ($3.4 million equivalent) orabout one percent of total project cost. It would supportimplementation of on-going national management improvementprograms in East Java and Balis

a. revenue administration reform;

b. local government financial accounting and management andreform;

c. Environmental assessment (AMDAL) institutional development;and

d. IUIDP training

(ii) Sector Development. This sub-component represents about Rp 6.7billion ($3.5 million equivalent) or one percent of totalproject cost. It would support sector development activitiesthat are important from a national perspective:

a. co-financing of the UNDPIUNCHS-executed IUIDPImplementation Support Project (INS/89/014); and

b. preparation of future projects that cannot otherwise befinanced.

D. Project Costs

3.7 The total project cost, as summarized in Table 1 below and in Annex1, is estimated at Rp 685.4 billion ($360.5 million equivalent) includingcontingencies of Rp 144.5 billion ($76.0 million equivalent), taxes of Rp 47.4billion ($24.9 equivalent), and land acquisition of Rp 11.0 billion ($5.8million equivalent). Direct and indirect foreign exchange costs are estimatedat Rp 235.1 billion ($123.5 million) or about 34 percent of total projectcosts. Base costs are estimated as of January 1991. Physical contingenciesare estimated at 10 percent for civil works and equipment. Price contingen-cies are estimated at 6 percent per annum for domestic costs and for foreigncosts at 3.2 percent for 1991 and thereafter. Price contingencies total Rp110.4 billion ($58.1 million equivalent) or 19 percent of base costs plusphysical contingencies. In addition to the project cost, interest duringconstruction (IDC) on regional borrowing financed by the Bank's Loan would beabout Rp 19.0 billion ($10.0 million equivalent) and IDC on other loans wouldbe about Rp 5.5 billion ($2.9 million equivalent). Land acquisition costs areincluded in the base costs. Detailed cost estimates a:e provided in Annex 1.Table 1 below summarizes project costs by component and subcomponent. A morehighly aggregated summary is presented in the top rows of Table 2 as theexpenditure program to be financed under the proposed project.

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Table 1t PROJECT COST SUMMARY

RtP LIIoIn S mlilion ULocal Foreign Total Lncal Foreign Totnl Total Cost

A. Program Infrastructure Developmnt and DIM

1. Water Supply La 102.1 81.4 188.6 58.7 42.8 90.6 26.82. Drainage 81.6 128.6 45.1 18.6 2.1 28.7 6.68. Solid Waste Management 18.6 6.6 26.8 9.7 8.6 18.8 8.74. Sanitatlon/Seweraes 12.6 5.4 17.9 6.6 2.8 9.4 2.65. Urban Roads 118.6 60.9 169.6 62.3 26.8 89.1 24.76. K MPU"g Improveent 14.4 6.2 20.6 7.6 8.8 10.9 8.07 Market Infrastructure Improvement 1.6 0.6 2.1 0.6 0.8 1.1 0.8

Subtotal Program InfrastructureInvestment /b 209.2 164.8 484.0 1L7. 86.7 244.0 87.7

S. OAM Current level 96.2 84.4 180.6 60.6 18.1 68.7 19.19. ON, Increment on new Infrastructure 86.6 16.7 62.4 18.7 8.8 27.6 7.6

Subtotal OCM 181.7 51.1 182.8 cs. 2N.J 96.2 26.7

Subtotal Investment and OM 480.9 216.9 646.6 226.6 118.6 840.2 94.4

8. Program Management 14.8 11.2 25.5 7.6 5.9 18.4 8.7

C. Institutional Development

1. Municipal Management Improvement 4.0 2.5 b .6 2.1 1.8 8.4 0.92. Sector Development 1.4 6.2 6.6 0.8 2.7 8.6 1.0

Subtotal Institutionw Development 5.4 7.7 18. 1 2.9 4.0 6.9 1.9

Total Project Cost 450.6 284.8 685.4 287.0 128.5 860.5 100.0

Interest During Construction onBank Loan 0.0 19.0 19.0 0.0 10.0 10.0

Interest During Construction onother Loans 6.5 0.0 5.6 2.9 0.0 2.9

Total -Fnancina Raguired 466.1 258.8 709.9 289.9 188.6 878.4

/ Includes $18.1 million for Usbulan Springs distribution pipeworks In Kotamadys Surabays.Includes 818.1 million for contracted engineering design and supervision.

3.8 Costs were estimated mainly on the basis of local expenditureprograms which, in turn, were based upon standard unit costs and detail at thepreliminary engineering level for representative subprojects and O&M in afirst batch of 13 local governments (nine in East Java and four in Bali) andidentification-level detail for a second batch (15 in East Java and four inBali). These two batches cover about seventy-five percent of the urbanpopulation of East Java, excluding Surabaya, and all urban residents of Bali(see Annex 8). Estimates have also been checked against unit costs incurredin similar subprojects financed by the Bank under similar conditions inIndonesia. These indicators were also used to include an indicative amount inthe expenditure program for a third batch of 12 local governments in EastJava, including the City of Malang.

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E. Financing Plan

3.9 The total financing requirement is Rp 709.9 billion ($373.4 millionequivalent) including interest during construction of Rp 24.5 billion ($2.9million equivalent). The proposed Bank loan of $180.3 million would finance48.3 percent of this total, or about 69.1 percent of the project cost net ofidentifiable taxes, duties, current O&M and interest during construction. Theloan and a Japanese grant of $4.2 million equivalent would cover all foreignexchange costs estimated at $123.5 million equivalent and local costs of$61.0 million equivalent. Counterpart funding would be provided by thecentral government ($27.0 million equivalent), provincial governments($13.1 million equivalent), local governments ($72.5 million equivalent),water enterprises ($69.4 million equivalent) and private sector contributions($6.9 million equivalent). The Bank loan includes a Project PreparationFacility Advance of $1.5 million and retroactive financing estimated at$2 million covering consultancy services and early FY91/92 infrastructurecosts. Annex 2 provides details of the financing plan. A summary of the com-bined expenditure program and financing plan is provided in Table 2.Assurances were obtained at negotiations regarding timely provision ofcounterpart funds, which would also be specified in Program ImplementationAgreements to be executed by the central, provincial and local governments(para. 4.9).

3.10 Cofinancing. Cofinancing of Yen 607.5 million (Rp 7.6 billion or$4.2 million equivalent) has been provided by a grant of the Government ofJapan signed April 19, 1990, for consultancy services required during thefinal stages of project preparation and during the early years of projectimplementation.

3.11 Lending to Local Governments and Water Enterprises. Of thefinancing contributions by local governments and water enterprises,respectively, about Rp 23.5 and Rp 91.0 billion ($12.4 and $47.9 millionequivalent), would be borrowed from the central government.91 Central GOIwould bear the foreign exchange risk and the risk of interest rate variation.The loans would be made for varying periods keyed to the economic life of eachinvestment (up to 20 years) including up to five years of grace. Individualloans would be at fixed interest, but the interest rate would be progressivelymoved closer to market rates by applying an indexed rate system (described inpara. 5.19) over the life of the project. Interest and commitment chargeswould be payable during the grace period. Section C of Chapter V provides adescription of the agreed central government lending arrangements.

3.12 Regional Financing. About Rp 422.3 billion ($222.1 millionequivalent) or 59 percent of the total financing requirement is indicated asbeing financed from regional level resources. Included in these figures areinterest during construction of Rp 16.0 billion ($8.4 million) on waterenterprise borrowing and Rp 5.1 billion ($2.7 million ) on local government

91 This includes Rp 10 billion ($5.6 million equivalent) already beingborrowed in FY91192 by Kotamadya Malang's water enterprise from thecentral government that will not be financed under the proposed loan. Italso includes Rp 23.4 billion ($12.3 million equivalent) borrowing byPDAM Surabaya for the Umbulan Springs distribution pipelines.

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Table 2: PROJECT FINANCING PLAN SUMMARY

Rp $ Percent PercentBillion Million Project Loan

Regional Level Financing

Local GovernmentsBorrowing 23.5 12.4 3.3Local Revenues and Property Tax Share /a 88.2 46.4 12.4INPRES Development Grants 45.1 23.7 6.4SDO Routine Staff Salary Grant 4.6 2.4 0.6

Water EnterprisesBorrowing for Investment /b 91.0 47.9 12.8Internal Finance for InveiiEment /c 31.6 16.6 4.5Internal Finance for O&M 100.2 52.7 14.1

Provincial Government Direct Funding 24.8 13.1 3.5Private Sector Contributions 13.1 6.9 1.8

Subtotals Regional Level 422.3 222.1 59.5

Central Level Financing

Central Level Responsibilities Ld 143.3 75.4 20.2Regional Level Responsibilities 144.3 75.9 20.3

Subtotal: Central Level 287.6 151.3 40.5

TOTAL FINANCING le 709.9 373.4 100.0

Donor Funding

Bank Loan (69.12 Eligible Amount) If 342.8 180.3 48.3Japanese Grant 8.0 4.2 1.1

Subtotal 350.8 184.5 49.4 100.0

Distributed As

Subsidary LoansWater Enterprises 72.9 38.4 21.3Local Governments 21.2 11.1 6.2

Central Grants-in-kindCentral Responsibilities 112.4 59.1 30.4Regional Responsibilities 144.3 75.9 42.1

Regional Level Domestic Funding 307.8 161.9Central GOI Domestic Funding 51.3 27.0

TOTAL /e 709.9 373.4

la Including borrowing interest during construction of Rp 5.1 billion ($2.7million equivalent).

lb Including Rp 23.4 billion ($12.3 million equivalent) borrowing by PDAMSurabaya for Umbulan Springs distribution pipeworks.

/c Including Rp 16.0 billion ($8.4 million equivalent) for interest on borrowingduring construction.

/d Including Rp 3.4 billion ($1.8 million equivalent) interest luringconstruction (for domestic loan to PDAM Malang).

/e Icluding interest during construction of Rp 24.5 billion ($12.9 millionequivalent).

If For Bank loan calculation, eligible amount is total cost less taxes andduties, current O&M, land acquisition and interest during construction(Rp 213.5 billion or $112.3 million equivalent).

tE Includes $4.2 million equivalent of Japan Grant Funds to GOI.

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borrowing. These resources include water enterprise charges to consumers,second level regional government taxes, assigned revenues, service charges andother local revenues, contributions from the provincial government budgets,and private sector-sourced funding (principally relating to contributions ofland and repayments to the proposed local small credit schemes for thefinancing of on-site sanitation infrastructure). Finance from the normalcentral government routine SDO and INPRES general development grants is alsocounted because the uses of these formula-driven grants are substantiallyunder local control. Borrowings by water enterprises and regional governmentsare also included under this heading. The borrowing figures for the regionalgovernments include the sums needed for the initial capitalization of theproposed small scale credit schemes for on-site sanitation and possible loanfinance for other parts of the second level regional governments investmentprograms (notably in the solid waste and KIP subcomponents).

3.13 Central Government Non-Repayable Financing. These contributionsconstitute that part of the expenditure program to be funded from central GOIsources, excluding loans and formula-driven routine and the normal generaldevelopment grants to regional APBD budgets. Of the total central non-repayable financing of Rp 287.6 billion ($151.3 million equivalent), aboutRp 139.9 billion ($72.9 million equivalent) is for infrastructure andconsultancy which is classified as a central government responsibility. Thesecentral agency allocations are known popularly as APBN DIP (national project)funds and are distinguished in practical terms by having central governmentstaff as project managers (PIMPROs) responsible for signing contracts. Theamount of the central contribution which supports regional government respon-sibilities is some Rp 144.3 billion ($75.9 million equivalent). Thesecontributions will be channeled to local governments through a special ISPABP'mechanism under the authority of Presidential Instruction and will enter localgovernment budgets as special grants for the EJUDP project. The subprojectcomponents financed with SPABP transfer will be managed by staff of theregional governments themselves. Of the total central GOI non-repayablefinancing, the Bank loan would finance about 89 percent or Rp 256.7 billion($135.0 million equivalent).

IV. PROJECT IMPLEMENTATION

A. Responsibilities

4.1 Central Agencies. Operational policy coordination and guidance forthe project would be provided by The Urban Development Coordination Team(TKPP, composed of director-general level officials), with the assistance ofthe IUIDP Implementation Management Group (IMG, composed of directorate-chieflevel officials) and its UNCHS-executed IUIDP Implementation Support Project(INS/89/014). BAPPENAS chairs TKPP and IMG, and is responsible for dailymanagement of INSl891014. Key members of TKPP and IMG are MPW, MHA and MOF.Agencies such as a Ministry of Communications, National Land Agency andMinistry of State for Administrative Reform may join TKPP and/or IMG in thecourse of project implementation, though their direct participation is notcrucial.

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4.2 Overall responsibility for technical supervision and management ofthe proposed project in Central GOI would be assumed by DGCK, which would takethe lead role in management of components and subcomponents under its ownspecific responsibility (as would DGBM) 101 and in ensuring (through TKPPand IMG) that other agencies at all levels perform their own roles adequately.DGCK would be assisted in carrying out this responsibility by the IMG-basedINS189/014 Project and by the DGCK-based Central Project Management Office(CPMO) and Central Project Finance Office (CPFO). Established under earlierurban projects financed by the Bank and other donors, the CPMO would beresponsible for monitoring all program and subproject implementation and forarranging most technical assistance and training. The CPFO, similarly, wasestablisted under past projects and would be responsible for oversight of allproject accounting and auditing and for monitoring of Loan disbursement.

4.3 Provincial Agencies. Regional government implementationarrangements would be assigned according to standard policies and practices ateach level. Provincial Program Management Offices (PPMOs) have beenestablished in each provincial government under the Provincial TKPP (SteeringCommittee) and BAPPEDA I, and headed by a senior BAPPEDA I officer designatedas Program Coordinator. Provincial Program Finance Offices (PPFOs) have beenestablished in each of the two provinces and will be responsible forsupporting the Central Project Finance Office (CPFO), overseeing and assistinglocal Project Finance Offices (PFOs), and compiling financial statements forconsolidated provincial audits. Each PPMO and PPFO would include a smallcontract staff and seconded regular staff of concerned provincial agencies,among the most important being:

(a) BAPPEDA I staff with responsibility for the key task of programappraisal (including AMDAL environmental assessment) as well asoverall expenditure programming at the provincial level;

(b) Dinas PU (DPUP, Provincial Public Works Department) staff fortechnical subproject preparation support and implementationincluding O&M supervision (most APBD I project managers (PIMPROs)and most APBN subproject managers (PIMBAGPROs) would be DPUP staff);

(c) Dinas Pendapatan (Revenue Department) staff for revenue improvement;

(d) Biro Keuangan (Finance Bureau) staff for financial management;

(e) Biro ORTALA (Organization and Implementation Bureau) staff forinstitutional development; and

(f) Biro BANGDA (Regional Development Bureau) staff for coordination anduse of Provincial INPRES I grants.

4.4 Local Agencies. Arrangements at the local government level wouldparallel those at the provincial level. Policy coordination and guidance

10/ DGCK and DGBM would be responsible for direct implementation centralgovernment infrastructure in addition to being responsible for oversightand supervision of all infrastructure, including that implemented by theregional governments.

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would be provided by BAPPEDA II, reporting to the bupati for kabupatendistricts or walikota for kotamadya cities. Program Management Offices (PMOs)would be established in local governments under BAPPEDA 11 and headed by asenior BAPPEDA II officer. Program Finance Offices (PFOs) would also beestablished in each local government, usually in association with the FinanceDivision. Each PMO and PFO would include a local consultant shared withneighboring local governments and could include seconded regular staff of theconcerned local agencies (DISPENDA II, Bagian Keuangan II, etc). Most APBD IIproject managers (PIMPROS) would be local Dinas PU (DPUK) staff. A loancovenant was agreed at negotiation under which the PFO is to be established ineach participating local government, after an initial three-month periodbeginning with first project disbursement in that local government.

4.5 Ongoing Program and Subproiect Appraisal. Appraisal criteria andprocedures have been agreed, rigor increasing with subproject cost andcomplexity. These are summarized in Annex 4 Parts C, D and B. Provincialappraisal capacity is already operational in the BAPPEDA of East Java and isexpected to become operational in Bali by the time of project effectiveness.The Bank has itself appraised all Batch I programs, including a sample oftypical subprojects and all large subprojects (agreed to be over Rp 4 billionor about $2.1 million equivalent) proposed for Batch I 'ocal governments.Annex 14 summarizes results of the Bank's appraisal of two local governmentprograms and their subprojects. The Bank would continue to appraise newprograms as they are prepared and all revisions to programs which change by20 percent or more, as well as samples of typical new subprojects and alllarge new subprojects during supervision missions, working closely with theestablished provincial appraisal capacities and project consultants to behired if necessary under the Japanese grant. (It is estimated that no morethan 5-10 large subprojects, including the Surabaya Regional Water SupplyProgram, would require Bank appraisal during the first two full years ofproject implementation and that there would be none thereafter.) Conventionaleconomic analysis would be required for all large projects. Simplifiedeconomic analysis would be required for subprojects costing between Rp 400million and Rp 4 billion. Economic viability of small subprojects costing lessthan Rp 400 million would be assumed if they are consistent with localpriorities and adhere to national standards. The MOF staff would confirmadequate financial analysis of all subsidiary loan applications. Central GOIcommitment to establishment and maintenance of adequate aprraisal capacitiesat all levels was confirmed at negotiations.

4.6 Prior to conclusion of Batch II and III preparation and appraisal,local government may utilize program resources for urgently required smallprojects not exceeding Rp 4 billion in aggregate per local government. Thisinterim facility may be utilized only once by each Tk. II local government andshould not include investments having an implementation period longer than twoyears. The provincial government will appraise and approve such proposedsubprojects in accordance with the agreed criteria and to enter into aprovincial PIA with the concerned local government with a maximum two yearvalidity, to be replaced subsequently with a comprehensive program, whencompleted.

4.7 Surabaya Regional Water Supply System Development. At the time ofnegotiations, agreement was reached to include the Surabaya water enterprise(PDAM Surabaya) as an eligible local government implementing agency for the

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Project, in order to facilitate GOI's intention to accelerate the developmentof the Surabaya Regional Water Supply System. The proposed scheme includesprivate financing for development of source works at Umbulan Springs and majorexpansions of the distribution networks for the cities of Surabaya and Gresik.GOI and the Bank agreed to appraise all proposed investments in Gresik as partof Batch II in the EJBUDP process. Reduction in other program estimatesfacilitated the provision of up to $11 million (January 1991 base costs) formajor distribution improvement in the City of Surabaya as a loan to PDAMSurabaya in the program, without revision of the EJBUDP loan total. However,water supply expenditures for the Gresik and Surabaya components of the largerregional system would be dependent upon successful appraisal of the regionalwater supply program, including the proposed BOT arrangement with the privatesector consortium for Umbulan Spztings, to be conducted by the Bank as part ofthe scheduled appraisal of the proposed Surabaya Urban Development Project.

4.8 Summary. The responsibilities for implementing components andsubcomponents of the proposed project are in general assigned to differentagencies and levels of government according to current GOI policies andpractices, which provide for increasing local participation. No newstructural entities would be required, though several would be strengthenedunder the project. A summary of agency responsibilities by project componentis provided in Annex 4B.

B. Program Implementation Agreements

4.9 Program Imn,lementation Agreements. While all authorities requiredfor successful Implementation of the proposed project are already held byexisting structural agencies and each level of government, ProgramImplementation Agreements (PIAs) have been drawn up to confirm essentialunderstandings and commitments based upon preparation documentation forBatch I including the medium-term expenditure programs, financing plans,revenue improvement action plans (RIAPs) and local institutional developmentaction plans (LIDAPs). The PIAs are central to the project design in thatlocal governments are committing themselves to comprehensive sectoralexpenditure programs (including O&M budgets), specific revenue targets bysource, and capacity-building measures for urban management. These investmentand sector plans can and will be amended to reflect changing conditions andachievement of early targets. However, the process of preparing and arrangingthe execution and updating of these programs in each local government is thecore of the IUIDP approach. This project will be the first urban program touse the PIA concept in Indonesia. GOI presented signed Batcb I and provincialPIAs at negotiations, indicating expected contributions bv each source forfinancing each project sub-component. Other Local PIAs for Batch II and IIIlocal governments would be signed as a condition of disbursement for theconcerned local government.

C. Implementation Schedule

4.10 Program implementation in the full sense will commence on April 1,1991, and would be completed over a five year period ending June 30, 1996.However, a small amount of program expenditure has been incurred in FY1990/91in anticipation of project approval, and this will be the subject ofretroactive financing as explained in paragraph 4.21. The proposeddisbursement period of six years is shorter than the disbursement profile for

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the urban sector in Indonesia, and is adopted despite the complexitiesinvolved in dealing with 44 local governments and their water enterprises, forthe following reasons. The urban sector profile has been developed on thebasis of free-standing urban and water supply projects that typically includelarge and relatively complex subprojects. In contrast, the proposed loan is aprogrammatic operation supporting an expenditure program that includes no newor complex kinds of subprojects and which is not appreciably larger in realterms than programs '.hat have already been implemented in the same provinces.Fund allocations under most channels are provided on an annual basis and pastrecords indicate full utilization despite some inefficiencies inherent in thismethod. Land acquisition requirements are minor and unlikely to cause delaysand there are no identified resettlement requirements. All implementingagencies would use consultant assistance for design of major subprojects;small projects are routinely handled in-house. An implementation schedule isattached as Annex 4A. Confirmation of these arrangements was obtained atnegotiations.

D. Procurement

4.11 Procurement arrangement are detailed in Table 3. The total value ofcivil works contracts, including those financed by borrowings, is estimated tobe $162 million. Contracts exceeding $3 million equivalent (about Rp 6billion) in value will be procured using international competitive bidding(ICB) procedures under the Bank's procurement guidelines. A 7.5 percentmargin of preference will be applied for eligible domestic contractors in bidcomparisons when ICB procedures are applied. Most civil works contracts arescattered in location, not suitable for packaging, and mostly will not exceed$500,000 equivalent (Rp 950 million). For civil works contracts costing lessthan $3 million local competitive bidding (LCB) procedures acceptable to theBank would be used for procurement. Civil works contracts valued less thanRp 20 million (about $11,000 equivalent) would be awarded through localshopping procedures following evaluation of at least three quotations.

4.12 The total value of materials and equipment supply will be about$39 million. The major materials and equipment supply contracts costing$200,000 and more for the cities of Surabaya and Denpasar will be procuredthrough ICB procedures following the Bank's procurement guidelines in bidcomparisons. A 15 percent margin of preference for domestic suppliers will beapplicable for ICB procurement. Contracts for the other 43 local governmentsand their water enterprises participating in the project will be numerous andnot suitable for packaging into larger packages and such equipment supplycontracts valued below $200,000 (Rp 380 million) will be procured usingestablished LCB procedures acceptable to the Bank. It is expected that localsuppliers will be competitive for most of the goods in this category.

4.13 Miscellaneous minor materials and equipment costing less than$50,000 equivalent (about Rp 100 million) per package and up to an aggregatevalue of $2.0 million equivalent will be procured through local orinternational shoping by obtaining at least three quotations.

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Table 3. PROCUREMENT ARRANGEMENTS($ Million)

Procurement Procedure TotalExpenditure Category ICB LCB Other Cost

Central Government loans to localgovernments and water enterprises La 20.1 40.1 - 60.2

(16.3) (33.2) (49.5)

Civil works /b Jc - 121.9 - 121.9(82.6) (82.6)

Goods lb |d 17.2 19.3 - 36.5(9.3) (9.6) (18.9)

O&H - - 96.3 96.3

Consultant Services and Training Le - - 33.5 33.5(29.3) (29.3)

In-house Implementation Overhauls - - 6.3 6.3

Land - - 5.8 5.8

Total 37.3 181.3 141.9 360.5(25.6) (125.4) (29.3) (180.3)

Figures in parentheses are amounts financed by the Bank.

/a Includes $5.3 million domestic loans to Kotamadya Malang which is notfinanced under the Bank loan. These loans would mainly finance civilworks and goods for water supply subprojects.

lb Other than such expenditure financed by loans to local governments andenterprises.

/c Includes $11.0 million expenditure financed from water enterpriseinternal funds and private contributions against which IBRD will notdisburse.

Id Includes $7.2 million expenditure financed from water enterprise internalfunds and private contributions, and $2.5 million in respect of vehiclepurchases against which IBRD will not disburse.

Le Includes: engineering design and supervision ($13.1 million); programimplementation management ($13.4 million); institutional development--municipal management improvement ($3.4 million) and sector development($3.5 million). A PPF of $1.5 million has been used to supportengineering design ($0.4 million) and program preparation ($1.1 million).

4.14 Procurement of Consultant services would be carried out inaccordance with World Banlr Guidelines for the Use of Consultants.

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4.15 Prior review of bid documents and award recommendations would berequired for all civil works contracts valued over $500,000 equivalent and allmaterials and equipment contracts valued over $200,000 equivalent includingthose financed by domestic loans under the Project. The prior reviewrequirements are expected to cover about 50 percent of total procurement, andis considered acceptable in a program type operation which includes a largenumber of similar contracts for small routinely executed works. Randomchecking of smaller contracts will be carried out in the field. Lists oftentative contracts indicating the method of procurement for Batch I localgovernments in each province are given in Annex 5.

E. Disbursement

4.16 Proceeds ox the loan, which would finance about 70 percent of theproject costs, would be disbursed as followss

(a) eligible expenditures financed through central government DomesticLending Arrangements: 90 percent of the eligible expenditures oflocal governments and their water enterprises which are financedthrough central government loans;1l/

(b) other eligible expenditures:

(i) 70 percent of expenditure on civil works;

(ii) 100 percent of foreign (CIP) costs of directly imported goods(as evidenced by bills of lading);

(iii) for locally-procured goods, 100 percent of local ex-factorycosts (net of taxes); or 65 percent of the costs of itemsprocured locally;

(iv) 100 percent of expenditures for consultancy services andtrain.ng;

(c) ineligible expenditure: No disbursements would be made in respectof expenditures on land acquisition, project overheads, andoperations and maintenance.

4.17 Special Account. Except in the case where contract payments aremade thro'gh IBRD Direct Payment procedures, the IBRD loan proceeds would bedisbursed through the medium of a Special Account for the EJBUDP loanestablished by MOF (D-G Budget) at Bank Indonesia. This Special Account wouldbe maintained in US Dollars, with an initial deposit from IBRD of $5.5million, representing anticipated average disbursements over a two monthperiod. Drawings from the Special Account would be directly meet contractpayments under 4.14 (b) above, and would reimburse GOI for contract paymentsmade in respect of onlending financed components under 4.14 (A) above. IBRDwould replenish the Special Account in respect of these drawings quarterly orwhen the balance in the Special Account becomes 50 percent of the initial

11, With the exception of a loan already agreed by GOI for PDAM KotamadyaMalang, which is being financed domestically.

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deposit, whichever occurs first, on the application of D-G Budget (TUA)supported by documentation as followst

(a) in the case of civil works contracts with a value of $500,000equivalent and over and goods supply contracts with a value of$200,000 equivalent and overt (i) Payment Orders (SPM) issued byoffices of the State Treasury (KPN) or by local projectadministering banks; (ii) Certificates of Performance (Berita Acara)issued by implementing agencies; and (iii) "No Objection" Letterfrom IBRD regarding the award of the contract;

(b) in the case of contracts with values below the foregoing limits,Statements of Expenditure (SOE) procedures will be used. Thedetailed supporting documentation in respect of SOEs would beretained by TUA and implementing agencies, and made available forreview by IBRD on request.

4.18 The disbursement arrangements are more fully described in Annex 6,which also provides the estimated disbursement schedule. Two importantfeatures are:

(a) payments to local contractors from the State Treasury would be madefrom KPKN offices in the provincial capitals of Surabaya andDenpasar, (so that contractors would not have to go to Jakarta toobtain payment);

(b) KPKN offices would check that the requisite domestically-fundedcounterpart payments have been authorized (through the issue ofSPM/SPMU from local or central government sources) before issuingSPM in respect of Special Account funding.

4.19 Direct Payment Arrangements. In appropriate circumstancescontractors requiring payment in foreign currency can be paid through IBRDDirect Payment procedures. Such payments would be made on the application ofimplementing agencies, and are subject to a minimum of $50,000 equivalent perapplication.

4.20 Project Preparation Facility. A project preparation facility (PPF)in the amount of $1.5 million was advanced to GOI to assist projectpreparation activities connected with East Java - Bali Urban DevelopmentProject. Upon loan signing the total amount of the PPF would be refinancedout of the loan.

4.21 Retroactive Financing. Retroactive financing in the amount of $2million (equivalent to about one percent of the Loan) would be provided forfinancing of expenditures for works, goods and services from Bank appraisal ofthe project (March 31, 1990) until loan signing. Completion of the Bankappraisal also coincided with the beginning of GOI's 1990/91 fiscal year. GOIhas advised that implementation of only a limited number of first yearsubprojects was undertaken.

4.22 In order to meet eligibility criteria for disbursement underretroactive financing, implementing agencies would be required to conform tothe guidelines for procurement and to maintain adequate records and accounts,

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particularly for civil works and equipment contracts that require prior reviewof bid documents and award decisions by 1BRD.

F. Accounts and Audits

4.23 As indicated in the financing plan, program expenditures will befinanced from a variety of regional and central sources, each of which followadministrative and financial procedures that are to some extent unique.Special arrangements are therefore required: (a) to prepare regularconsolidated statements of expenditure by financing source for the wholeprogram (program memorandum accounts) as a basis for program financialmonitoring and for financial audits; and (b) to collect documentation andprepare reimbursement applications.

4.24 At the local level, Program Finance Offices (PFOs) will be set upwhich will maintain complet¢ and accurate records of all project relatedexpenditures financed by all sources of funds for all project componentsincluding those of the water enterprises. At the provincial level, aFinancial Management Office (PPFO) will be established and will be responsiblefor preparing quarterly consolidated project accounts from the local PFOsserving each actively participating local government. These will be submittedannually for audit by the Audit Board (BPKP) of each province.

4.25 At the central level, the Central Program Finance Office (CPFO) willprepare project accounts of all components implemented directly by the centralagencies. CPFO will also be responsible for consolidating quarterly projectaccounts from the two PPFOs and submitting them annually for consolidatedaudit purposes by the BPKP Central Office. CPFO will also coordinatestatements-of-expenditure (SOE) audits with the Directorate General for theBudget, Bank Indonesia and the State Audit Boards's Central Office. A singleconsolidated annual audit report will be submitted to the Bank for review, toinclude: (a) audit results of consolidated annual project accounts includingSOEs covering all aspects of the project; and (b) the use of the SpecialAccount to be established at Bank Indonesia and the SOE disbursementprocedures. These audit reports will be submitted to the Bank for review nolater than nine months after the end of GOI's fiscal year. Assurances andconfirmation of accounting and auditing arrangements were obtained atnegotiations.

G. Project Reporting, Monitoring and Bank Supervision

4.26 The Provincial Progcam Management Offices (PPMOs) would beresponsible for preparation of quarterly progress reports covering all programcomponents implemented in their respective province, including revenueimprovement (under RIAPs), institutional development (under LIDAPs), municipalmanagement improvement and institutional development. These quarterly reportswould include summaries of progress at the local level prepared incollaboration with the local Program Management Offices (PMOs), and they wouldbe submitted to DGCK/CPMO not later than one month following completion of thequarter concerned. CPMO would consolidate provincial reports within a monthinto an overall progress report for submission to TKPP, IMG, BAPPENAS, MHA,MOF, MPW, and the Bank. These reports would form the basis for monitoring ofprogress. Upon completion of the EJBUDP, a Project Completion Report will the

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prepared by CPMO for submission to GOI and the Bank. Categories of keyimplementation and reporting indicators and responsibilities for theirreporting are summarized in Annex 7. Overall support to the reporting andmonitoring system would be provided by the UNDP/UNCHS-executed IUIDPImplementation Support Project (INS/89/014). Assurances and confirmation ofreporting and monitoring arrangements were obtained at negotiations.

4.27 Bank Supervision Plan. In view of the project's broad scope andprogrammatic nature, both relatively new for the Bank and Indonesia in thesector, it would be prudent to plan on an intensive level of supervision ofabout 25 staff weeks per year through the first two years of implementation.Supervision missions should be scheduled about three times annually withs(a) a "project launch mission" in May or June 1991 to review and assist infinalizing implementation arrangements and review of all new program startsand budget documents (DIPs) for the new GOI fiscal year; (b) a mid-yearsupervision mission during the September-October period in 1991 and subsequentyears to review actual starts (new programs, approved DIPs and accumulatedimplementation issues) and proposals for the upcoming budget year (includingappraisal of large projects); and (c) an end-of-year supervision mission inJanuary-February 1991 and subsequent years to review new starts and budgetproposals for the upcoming fiscal years. Revised programs with changes of20 percent or more and all subprojects of Rp 4 billion ($2.1 million) or morewould be appraised by the supervision missions when available. The mid-yearFY95 mission (about September 1994) would most likely be designated as a mid-term review of the proposed project that would, in addition to carrying outnormal supervision responsibilities, have the primary objective of workingwith GOI to formulate a project completion plan and to confirm sectoralstrategy and investment plans for the provinces during Repelita VI (to beginIn April 1994).

H. Land Acquisition and Resettlement

4.28 The emphasis on rehabilitation and upgrading of existing basicinfrastructure, particularly in the roads and drainage subsectors, hasminimized land acquisition and resettlement requirements. A review of Batch Iprograms identified no consequential land acquisition problems and no need atall for resettlement. Bank guidelines on acquisition and resettlement arebeing translated to Bahasa Indonesia and incorporated in the IUIDP preparationguidelines to be applied for Batches 71 and III and in the programimplementation manuals. Land acquisition and any possible resettlementrequirements will be monitored by Bank supervision missions and the projectmanagement staff.

I. Operations and Maintenance

4.29 The expenditure programs for EJBUDP local governments includecomponents for O&M budgets in every sub-sector, in accordance with IUIDPguidelines and the technical preparation guidelines. Expenditures are clearlydistinguished between current O&M (e.g., level of current expenditure for O&Mof existing facilities and services in the subsector) and incremental O&Mdefined as the agreed additional expenditures to (a) improve O&M of existingfacilities or services, and (b) initiate necessary O&M for new andrehabilitated infrastructure and services developed during the implementationperiod of the proposed project. These additional O&M expenditures, with the

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associated local capacities to execute improved O&M, represent one of the mostimportant program implementation targets. Assistance will be provided underthe Loan to (a) install in all Batch I local governments a simplified versionof the Performance-based Operations and Maintenance Management System (POMMS),developed for large cities under Urban V and USL, and (b) provide training andadvisory support to local and provincial staff in the programming, budgetingand management of O&M activities, including trainitig of local staff to prepareand manage annual O&M programs consistent with MHA Ministerial Decree No. 5 of1990 (promulgating POMMS and implementing local budgeting procedures that havebeen revised to encourage O&M), training DPUP staff to provide O&M technicaladvisory support to local governments, and strengthening the capacity of theexisting PMDUs (created with USL assistance) to advise and assist local waterenterprises to improve O&M performance in that subsector. O&M expenditureswould be monitored by CPMO and the PPMOs, supported by the DPUPs, for reviewby semi-annual Bank supervision missions and detailed physical assessment inthe mid-term review. Any local government expenditure program would besubject to re-appraisal and reduction if actual O&M expenditures are found tobe less than 90 percent of the amounts programmed. O&M aspects of theproposed project are more fully discussed in Annex 13. Assurances in theseregards were obtained at negotiations.

J. Environmental Impact Assessment and Management

4.30 The Bank is committed to assisting GOI develop economically-efficient approaches to urban and industrial pollution abatement. The ThirdJABOTABEK Project is addressing the problem of environmental degradation atthe community level and provides assistance for strengthening of localgovernments capacity to monitor pollution. A proposed Industrial Efficiencyand Pollution Control (IEPC) project, which would build on efforts tostrengthen institutional capability for pollution control at the local levelthrough that project, and to establish a Pollution Control Authority at thecentral level, also with Bank assistance, is under preliminary discussion with00I. The Second East Java Water Supply Project (Loan 2632-IND) supported themonitoring and abatement of water pollution for Surabaya. The proposedproject would broaden the Bank's support for improved environmental managementin East Java and Bali by financing environmental assessment studies (PILe andANDALs) and providing advisory assistance to the provincial commissions(Komisi Daerah) responsible for environmental assessment and monitoring aswell as formulation and implementation of mitigatory strategies at theprovincial level. Chairmen of the provincial BAPPEDA I in East Java and Baliserve concurrently as Chairmen of the respective provincial commissions and asSecretaries of the respective IUIDP Steering Committees.

4.31 A principal objective of the project is to ensure that preparationand appraisal of investment programs by intermediary organizations adequatelyincorporates environmental assessment and management plans. Incorporation ofenvironmental assessment and management plans into the IUIDP preparation andappraisal process includes: (a) joint environmental screening of investmentprograms by the national-level Environment Commission of Ministry of PublicWorks and the Environment Commission of each province; (b) preparation ofPILs/ANDALsJRKLs by appraisal; (c) review of PILs/ANDALs/RKLs by the RegionalEnvironment Commissions; and (d) appraisal of mitigation measures recommendedin the RKL into project by provincial appraisal teams. Although arrangementsfor environmental screening, preparation of environmental assessments and

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management plans, review and appraisal of Batch I investment programs areagreed with Gevernment and are being carried out by project preparationconsultants, follow-up measures to strengthen local environmental managementcapabilities and to improve coordination among Central Regional EnvironmentCommissions, the provincial appraisal teams and local governments arerequired. Proposed technical assistance to the Regional Commissions andBAPPEDAs of East Java and Bali wills (a) ensure timely completion of Batch Ienvironmental assessment; and (b) build institutional capabilities ofintermediary organizations to carry out environmental assessment of Batch IIand III investment programs, as well as other investments not financed underthis project. The technical assistance includes an inventory of existingenvironmental data, design of an environmental management database andmonitoring program, and training of provincial and local officials inenvironmental assessment and management.

4.32 Environmental assessment requirements under Government RegulationPP29/1986 and Annex A of the Bank's Environmental Assessment OperationalDirective 4.00, are being met. Screening of Batch I investment programsduring appraisal identified 32 subprojects with limited but possibly negativeimpact, for which preparation of PILs (preliminary/simplified environmentalstudies) is required, and seven subprojects with potentially significantadverse impact, for which preparation of ANDALs (detailed environmentalstudies) is required. Essential PILs, ANDALs and accompanying environmentalmanagement and monitoring plans (RKLs) of Batch I subprojects would bereviewed by the Regional Environment Commissions, as agreed at appraisal, andby Bank supervision missions. RKLs would be incorporated with subprojectdesigns, where appropriate, and checked by the provincial appraisal teamsprior to approval of concerned subprojects for implementation (see Annex 15for summary of this process). Assurances in these regards were obtained atnegotiations.

K. Local Participation

4.33 The IUIDP approach emphasizes strengthening of local participationin the project cycle. Beneficiary households and communities are involvedroutinely in the identification, participation and implementation of KIPneighborhood improvement programs that have been supported under Bank loansfor more than ten years. Market neighborhood improvement (MIIP) programs havea similar participatory base. GOI's successful solid waste management andsanitation programs also rely on participation of beneficiary households andcommunities, and have received increasing support under the Urban III, IV andV projects. On-site sanitation schemes introduced under the Urban V project,for example, emphasize household financing and the use of NGOs for communitymanagement of implementation. Water supply investments supported by the Banknow require assessment of cost recovery potential from the beneficiaryhouseholds; road investments must be based upon specific road-user needs;drainage investments emphasize needs expressed by communities subject toflooding. Most importantly, the overall IUIDP process supported by GOI andthe Bank is designed to upgrade the effective role of local participation:(a) to start planning and decision processes at a level low enough ingovernment so that beneficiaries can participate directly; (b) to start earlyenough in the budget process so that adequate attention can be provided tosubproject design in meeting beneficiary needs; (c) to place increasedemphasis on local responsibility for O&M, and (d) to take advantage of localhuman resource and institutional capacities through the entire project cycle.

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V. FINANCIAL ASPECTS

A. Local Governments

Current Financial Condition

5.1 Central Grant Dependency. Most Indonesian local governments,including most in East Java and Bali, are dependent on central grants for thebulk of their revenues. Central routine and development grants in recentyears represented nearly 70 percent of total kabupaten revenues for East Javaand nearly 75 percent for Bali kabupatens not counting Badung (Denpasar),which is a special case due to its unique concentration of local'.y taxabletourist establishments. Central grants tend to be somewhat less dominant inkotamadyas covered under the proposed project, but still very substantial atabout 60 percent of total revenues on average. Grant dependency is high bothfor development expenditure and for financing routine administration,operational and maintenance needs with the exception of Sidoarjo in East Javaand Badung in Bali. Although there is some evidence that central grantdependency is beginning to decline primarily in response to reductions in APBNdevelopment grants-in-kind, which fell sharply over the period due to centralbudgetary constraints, most local governments will continue to receivesubstantial grants funding from the central government.

5.2 Non-grant Revenues. Local governments' main non-grant revenuesources fall into three categories* local government taxes; local servicecharges; and assigned central government revenue, principally the PBB(property tax). In most of the Batch I kabupatens, PBB is the largest ofthese sources, though in four kabupatens total revenues from service chargescontribute the larger share. Service charges are the largest group ofrevenues in all of the kotamadyas, with PBB usually second. With the notableexception of Badung, local taxes are usually the least significant revenuesource for kabupatens, representing approximately 10 to 20 percent of totalnon-grant revenues.

5.3 Growth in non-grant revenue has been fairly good overall in recentyears. Analysis for East Java Batch I regions over the 1983/84 to 1987/88period indicates an overall average growth rate of about seven percentannually in constant terms in that period. The overall growth rate was ratherhigher in Bali at around 12 percent, attributable mainly to the hotel andrestaurant tax revenue of Kabupaten Badung. Within these overall averagefigures, growth rates for local governments' own revenues were generallyhigher, at around 10 percent annually in East Java and 14 percent annually inBali (again dominated by the hotels and restaurants tax in Badung). Growthrates for the property tax (which changed radically during the analysisperiods) were much lower on average at around four percent annually in eachprovince, primarily because of difficulties in introducing new procedures.Within these total figures there were substantial variations from localgovernment to local government, and improvements were much higher in Jakartaand other large cities targeted for assistance under the USL. Future non-grant revenue forecasts prepared under the RIAP process project a somewhathigher overall average real growth than in the recent past in Bali, and asimilar level to that of the past in East Java. Again, much of the Baligrowth is expected to come from Badung.

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5.4 Borrowing. Local governments, apart from their older enterprises,have not on the whole made great use of borrowing in the financing of capitalprojects. Host have borrowed only for market construction under the centralgovernment's heavily subsidized INPRES Pasar program, which has beendisbanded. Exceptions are Badung in Bali and Mojokerto in East Java, whichhave borrowed substantial sums in recent years. Only Badung, however,borrowed for urban infrastructure (under the Urban IV project, Loan 1972-IND).Until recently local governments were required to restrict the levels of theirborrowing by reference to the "debt service ratio" criterion broadly definedas the ratio of total loan charges payable in a year to total revenuesavailable for development in that year. However, the application of thatcriterion has been unclear and open to varying interpretations. The maximumpermitted ratio was prescribed at 15 percent, which, on the stricterinterpretations of how to define the ratio, was very conservative. Confusionabout the former criterion may have been a contributory factor in lo:algovernments past reluctance to borrow in any substantial way. GOI has nowdecided to replace it with one based on a more closely defined minimum *debtservice coverage ratio" (DSCR). This has been stipulated for any given yearas:

(projected non-grant and local revenues for the year in questionless projected routine account expenditure on staff, administrationand operational and everyday maintenance needs) + (total estimatedloan charge obligations arising in that year from currentlyoutstanding loans and future proposed borrowing).

The minimum value of the DSCR ratio has been set at 1.5 by GOI for borrowingby local governments. Estimates of maximum borrowing capacity for each of theBali Batch I local governments have been prepared by making forwardprojections of the elements in the above formula for the program period andfor a number of years followinE sufficient to establish a clear trendindicating that the minimum ratio will be safely achieved. The totalcapacities are small, however, and some local governments have indicated apreference to finance their investment directly. Most of the Batch I localgovernments have nevertheless made commitments to borrow at least smallamounts in consultation with central and provincial officials. Given the lowuse of borrowing in the past, the newness of the debt service coverage ratiocriterion, and the likelihood that regional governments will not be able toborrow in practice for development expenditure in a number of important non-urban sectors, the local governments proposals can generally be regarded assatisfactory. Assurances and confirmations were obtained at negotiations thatlocal governments eligible for borrowing under this project will maintainminimum debt service coverage ratios of 1.5.

Key Issues

5.5 Local Revenue Administration. Although annual growth in localrevenues has generally been steady, studies undertaken during preparation ofthe Revenue Improvement Action Programs (RIAPs) provide persuasive evidencethat current levels of major revenue sources are considerably below their realpotentials. Deficiencies are often found in local government administrationwhich lead to under assessment and under collection of tax revenues. Theproject seeks to address these deficiencies by continuing to support on-goingefforts which were initiated under previous Bank loans and to expand the scopeof the work as described below.

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5.6 RIAP/LIDAP Process. RIAPs and LIDAPs introduced during the projectpreparation phase, and to be refined during project implementation, seek toidentify practical steps needed to achieve improvements in the planning andadministration of local taxes and service charges. Such steps typicallyinclude collection of data on the revenue bases including proper identifica-tion of tax objects and tax subjects, analyses of revenue potentials, reviewof tariffs, and establishment of annual revenue targets representing aprogressive narrowing of the gap between performance and identifiedpotentials. As specified under the Program Implementation Agreements, localgovernments will commit themselves to implementing the RIAPs with technicalassistance and necessary equipment provided under the project. In thisconnection, GOI is providing (with domestic funds) further support to thereform effort of the local government revenue departments (DISPENDA). TheMAPATDA reform program 12/ initiated under Urban V project, was firstintroduced and tested in six cities, then expanded to 100 other cities, and isnow in the process of nationwide implementation. Summaries of typical RIAPsand LIDAPs are provided in Annexes 9 and 10.

5.7 Property Tax (PBB). Registration, valuation and assessment dutiesfor this central tax are performed by local offices of the Directorate Generalof Taxation of MOP. However, major parts of the collection work relating torural PBB and part of urban PBB are performed by, or under the supervision of,the- local governments. (The latter receive 64.8 percent of the grossproc 'is, irrespective of the collecting agency.) PBB administrationcurrently suffers from the same kinds of failures as local taxes:

(a) incomplete identification/registration of the tax base;

(b) often severe under-assessments due to incorrect classifications ofproperty, inaccurate data on property characteristics, andunrealistically low valuations in relation to market values;

(c) slow progress with updating tax cadastres, while existing cadastralrecords are often many years out of date;

(d) deficiencies in collection performance by both local government andPBB Inspectorates (arrears can be high and records poor); and

(e) absence of good systems for estimating real potential PBB yield, andthus for setting realistically ambitious targets for the personnelinvolved in administration.

The PBB Directorate has made a start at tackling these problems in theJABOTABEK region and in other large cities with assistance under the UrbanSector Loan. GOI has proposed to use its own resources to provide similar

121 The main highlights of MAPATDA include a reorganization of the localgovernment revenue department (DISPENDA) to reorient the focus ontaxpayer information, an important stage of this ta.x administrationprocess (e.g., assessment, billing, collection) in contrast to theexisting structure where the focus is on the tax type which does not puttaxpayer records in one field. The new system will centralize personalrecords for each identified taxpayer and provides a complete assessmentof taxpayer's liabilities from all kinds of taxes.

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assistance in East Java and Bali. Specifically, such a P8B improvementprogram would provide technical expertise and equipment necessary to achievesubstantial improvements in property registration, mapping, propertyassessment, tax billing, collection and enforcement, and performancemonitoring against targeted improvements, both fog the PBB Inspectorates andfor the relevant local government institutions.

5.8 Financial Management Practices. There are significant weaknesses inlocal and provincial governments' standardized practices for financial manage-ment in the areas of strategic planning and multi-year programming, annualbudgeting, bookkeeping and accounting and financial reporting. A FinancialManagement Improvement component would begin a process of extending to alllocal and provincial governments covered in the proposed project tlh.e new per-sonal-computer based systems of medium term financial planning andprogramming, annual budgeting, expenditure and revenues accounting, and finan-cial reporting and monitoring which were initiated on a pilot bases in threecities under the Urban V project. By the end of the project , it is expectedthat installation will be complete in all Batch I local governments and atleast partially complete in the others.

B. Water Enterprises

5.9 The provinces of East Java and Bali tnder this project have a com-bined total of 44 water enterprises (WEs), incL.uding 27 PDAMs and 17 BPAMs(transitional water enterprises). The PDAMs ire owned and operated by theirrespective local governments, while the BPAMs are operated on a temporaryarrangement under DGCK/MPW. There are eight enterprises including five PDAMsin Bali, and 36 enterprises including 22 PDAMs in East Java. All of theenterprises could benefit from the proposed project, subject to theirindividual programs being able to meet appraisal criteria.

Financial Appraisal Process

5.10 Of the 44 water enterprises, appraisal for 12 Batch I enterpriseshas been completed. A summary of the individual investment and financingplans is presented in Annex 11. Appraisal of the remaining enterprises isexpected to continue as preparation work proceeds for Batch II enterprises andas work will begin upon loan effectiveness for Batch III enterprises. Themethodology applied for the financial appraisal is embodied in the FinancialAnalysis and Projection model, widely known as the FINPRO model. FINPRO is aLotus 1-2-3 integrated financial model capable of producing the standardoutputs of financial projections for an enterprise. The financial appraisalrequires extensive use of this model by the appraisal team as well as thoseinvolved in the preparation and analysis of financial projections at theenterprise level.

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Performance and Current Conditions

5.11 All PDAMs and BPAMs are required to prepare annual financial reportswhich are audited by BPKP. A summary showing the highlights of operatingresults for the past four years is presented in Annex 11. Most of the waterenterprises have provided their most recent audit reports, which were producedby BPKP. These reports have been reviewed by the Bank and found to besatisfactory.

5.12 Wihile all of the PDAMs achieved annual operating surpluses, BPAMswere generally required to cover only their O&M expenses. Most recent reportsfor the BPAMs indicate an increasing trend toward profitability. Afterallowing for depreciation, all PDAMs achieved annual before-tax operatingsurpluses ranging from one to 35 percent in the period 1985/1987. Bulelengand Jember had operating surpluses in 1985, out incurred losses in the twosucceeding years before they returned to profitability in 1988. Banyuwangi,Jember and Badung are the oily water enterprises which have notable experiencewith long term borrowing. They have been paying interest on previous loansand still managed to remain profitable. Overall, PDAMs in Batch I haveremained profitable during the period and five of them have consistently madeincome tax remittances annually to the GOI. Most of the PDAMs achieved thenational tariff structure objectives of affordability to consumers whileproducing an adequate surplus to cover O&M costs including depreciationallowance and debt service. These objectives are defined in the NationalWater Rate Structure promulgated in 1984 under a joint ministerial decree(KEPHIN of MHA and MPW).

5.13 Water Enterprises Management. A review of selected East Java andBali WEs indicates that key managerial and skilled/technical personnel arelacking, particularly in the areas of financial accounting, billing andcollection, inventory control, O&M and construction management. The prospectsof making improvement through recruitment appear to be bleak, as better jobopportunities and employment incentives elsewhere make it difficult if notimpossible in most cases for WEs to attract fully qualified individuals.

5.14 Under the East Java Water Supply I and II projects, a ProvincialMonitoring and Development Unit (PMDU) was set up at the provincial level toprovide technical and managerial services to the PDAMs to help fill thesegaps. The PMDU has experts under the Bank loans and Dutch bilateral aid. Itsperformance in assisting WEs has so far been impressive. Under the proposedproject, technical assistance will be extended to strengthen the staffing ofthe existing PMDU in East Java and to complete the establishment and staffingof the similar PMDU in Bali. It is expected that properly staffed andorganized PMDUs for the principal purpose of providing technical andmanagerial services to BPAMs and PDAMs will be strengthened and maintained inEast Java and Bali.

Financia. Prodections

5.15 The financial projections for each of the 12 Batch I waterenterprises have been prepared based on the basis of several assumptions, ofwhich the key ones include: (a) existing and new water connections;(b) average consumption per connection; (c) assumed water tariff rates;(d) increasing sales of water resulting from new connections and reducedunaccounted-for-water (UFW); (e) declining UFW, (f) rates of inflation for

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local and foreign costs; and (g) a financing plan, investment levels andoperating parameters. The projection exercise involves income statements,sources and applications of funds, balance sheets, financing plans, andmonitoring indicators. A summary of the assumptions is provided in Annex 11along with a concise version of the financial projections and a summary ofproposed investments and financing plan for Batch I enterprises. While allPDAMs are expected to borrow, the BPAMs are expected to receive the proceedsof the loan as turnkey grants-in-kind up to the point at which they graduateto PDAM status able to finance expansion through borrowing.

5.16 It is expected that PDAMs will borrow about $47.9 mnillion under theproposed project, of which about $34.7 million would be financed under theBank loan. Major borrowing water enterprises will include PDAM Badung (Bali),and PDAM Surabaya (subject to separate appraisal).

5.17 Assurances were obtained at negotiations with regard to:

(a) all PDAMs will maintain an average debt-equity ratio of 70130 and aminimum debt service coverage ratio (DSCR) of 1.3 on average forevery three-year period;

(b) to meet the above revenue objective, each participating localgovernment enterprise will adjust its tariffs, starting with April1, 1992 and thereafter on January 1, 1994 and January 1, 1996, afterreviewing the adequacy of its tariffs and furnishing a copy of thistariff review to the Bank;

Cc) all water enterprises (including BPAMs) will maintain revenues whichcover at least O&M costs during the first three years of projectimplementation and both O&M costs and depreciation on revaluedassets after that;

(d) confirmation that PDAMs will not be required to pay out any portionof their revenues to their local government during the constructionperiod. All income is, therefore, to be retained by PDAMs for theirown financing needs; and

(e) preparation of an action plan and schedule by April 1, 1992 fortariff adjustments and for conversion of BPAMs in the ProjectProvinces to become PDAMs.

C. Domestic Lending Arrangements

5.18 Under the project Central Government is expected to lend a total ofapproximately Rp 105 billion ($55 million equivalent) 131 to localgovernments and their water enterprises under Domestic Lending Agreements(DLA) between Central Government and the borrower. These loans will beprefinanced from domestic funds with reimbursement to GOI from the proceeds ofthe Bank loan.

13/ Excluding a loan of Rp 10 billion ($5.3 million equivalent) to PDAMMalang which was agreed before appraisal.

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5.19 The following summarizes the agreed method of calculating thedomestic lending rates and related conditionst

(a) The 6-month average of the 3-month Sertifikat Bank Indonesia (SBI)rate at the time of appraisal would be used as proxy for "marketrate" in the calculation; hereafter called 'S5I Index".

(b) GOI would apply the agreed discount percentage to the SBI Index toproduce an onlending interest rate, but the magnitude of thediscount will be reduced over time to move the onlending rate towardmarket rates in progressive steps.

(c) The interest rate for any proposed loan to local government orregional enterprise would be fixed at time of appraisal and remainconstant for the life of the loan.

(d) For the EJBUDP on.ending the following schedules would be used forcalculation of onlending interest rates for each 'batch' of localgovernments and enterprisest

Group Appraisal Date Formula

Batch I Periods Prior to April 1, 1990 s 60S of SBI Index - 92(0.6 x 14.8Z SBI Index forMarch 1990)

Batch II Period: April 1, 1990 -about March 31, 1992 s 701 of SBI Index

Batch III Period: about April 1, 1992 -about March 31, 1994 s 751 of SBI Index

(e) The minimum of "floor' rate of interest for any lending to localgovernment or enterprise, regardless of index/formula reduction,shall be not less than the Bank rate plus 1.75 percent for BatchesII and III.

(f) The maximum interest rates of 10.5 percent and 11.5 percent willapply to onlending for Batch II and III respectively, and subprojectfeasibility studies shall be prepared utilizing these maximum valuesfor each Batch.

5.20 The repayment and grace periods for the DLA loans will be geared tothe economic lves of the investments (5-20 years) to be financed, with amaximum grace period of five years.

5.21 Standard procedures have been developed, with assistance under theUrban Sector Loan (2816-ID) and from other donors, for loan applications andapprovals, mechanisms for disbursement to the borrowers, and central debtmanagement arrangements. All loan proposals will be the subject of provincialgovernment appraisal and central government review from the viewpoint offinancial and economic viability of the proposed investments, and of thefinancial capacity of the borrowers based on the minimum debt service coverageratio criteria (paragraphs 5.3 and 5.17). Handbooks, application forms andeducational material will be provided to all local governments and water

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enterprises to assure full awareness of the availability of the lendingfacility and of its terms and conditions. Annex 4-H gives more detail of themechanics of the proposed DLA lending arrangement.

5.22 The domestic lending arrangements (DLA) mechanism is expected toplay a critical role in: (a) facilitating administration of subsidiary loansfor up to 44 local governments and 45 water enterprises under the project;(b) streamlining access to credit for local governments and their enterprises;(c) strengthening the financial and economic viability of investment projects;(d) enc iraging local governments and enterprises to establish service chargeson an increasingly cost-recoverable basis (thereby enabling more targeting ofgrant resources on the most needy regions); and (e) assisting localgovernments and water enterprises to establish credit histories that wouldgive them confidence in borrowing and to give commercial creditors a basis forlending to them on market terms in the future.

VI. PROJECT JUSTIFICATION AND RISKS

A. Economic Justification

6.1 Since the project covers seven sectors of urban infrastructureservices (water supply, drainage, human waste management, solid wastemanagement, road improvement, kampung improvement, marketplace infrastructureimprovement) and a large number of urban areas, it was necessary to develop astructured apprcoch to economic analysis. Subprojects are classified accordingto investment costs, i.e. small (less than Rp 400 million in constant 1989prices), medium (Rp 400 million to Rp 4 billion) and large (over Rp 4 bil-lion). A subproject is defined as a logical unit of investment in one of thesubsectors which must be implemented as one activity to obtain the plannedbenefits. Economic viability of small subprojects, provided that these adhereto agreed planning and design criteria, is presumed. Medium size subprojectsare subject to a simplified economic analysis, which, with the exception ofthe Batch I subprojects will not be reviewed by the Bank. Large subprojectshave to go through a more detailed analysis and the applied assumptions andmethodology is subject to a Bank review on a case by case basis.

6.2 Economic rate of return (ERR) or net present value (NPV)calculations are required for medium and large subprojects in the watersupply, road and drainage sectors. Quantification of economic benefits isbased on (a) consumers' willingness to pay for water supply (the methodologyis described in Annex 4E); (b) expected savings in vehi,.ie operation costs andtime savings for road improvements; and (c) either avoided flood damage orincrease in land values plus reduction in the expected level of roadmaintenance costs for drainage improvements. An ERR of 10 percent is used asthe cut-off rate.

6.3 Economic benefit of human and solid waste management and kampungimprovement subprojects is not quantified. Both the human and solid wastemanagement subprojects represent least cost solutions to the problem ofproviding a basic level of service that is adapted to local needs andtraditions. Economic viability of similar kampung improvement was demonstratedunder a series of Wirld Bank assisted projects in Indonesia, including Loans1972-IND in Bali and 2408-IND in East-Java.

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6.4 During preparation, all identified Batch I subprojects were analyzedaccording to these criteria. Several water supply subprojects proved to benon-economic and were substantially modified or eliminated from the project.IRRs or NPVs of identified road and drainage improvements were calculated ineach kabupaten and, within the constraints set by fund availability and localgovernment implementation capacity, the most attractive ones were proposed forimplementation. A large majority of the subprojects fell into the 10 to15 percent ERR range. Due to extremely high traffic densities, several roadimprovements had an estimated ERR of 25 percent or more.

6.5 As it is described in more detail in Annex 4C, arrangements weremade to ensure that the same criteria and appraisal process will be appliedfor Batch II and III subprojects. During supervision, Bank staff will monitorthe appraisal process closely in order to maintain project quality.

B. Cost Recovery

6.6 Cost recovery is a complex issue in Indonesia with significanttechnical, economic, social and policy implications. It is not a primaryfocus of the proposed project. Nevertheless, four of the seven subsectorscovered by the project offer potential for at least partial cost recoverythrough charges to service users. These potentials have been consideredcarefully in process of preparing revenue improvement action plans (RIAPs) andfinancing plans for the Batch I local governments and water enterprises.Evidence that they have been similarly considered will be among the criteriafor review and appraisal of RIAPs and financing plans for Batches II and II.Moreover, evidence that agreed tariff increases as set out in RIAPs andelsewhere would be reviewed during the appraisal of subprojects, as followss

(a) Water Supply. Based on preliminary assessment of a representativeselection of investment proposals, full cost recovery is expected inmost cases following improvements to existing supply anddistribution networks. It is recognized that cost recovery may notalways be practicable for new small-scale systems (IKK). Eventhough such systems may be well-justified in terms of economicbenefits, they are subject to thorough analysis of cost recoveryprospects in each case. Information must be provided for thispurpose on the true unit supply costs and comparisons must be madewith existing and proposed feasible tariff levels to allow for afully informed discussion of options and prospects. The feasibilityof achieving cost recovery in a water enterprise as a whole throughcross-subsidy between user groups and between existing and newsystems must also be examined, with due appreciation of thedifficulties and possible distortions often experienced in suchprograms. Another major issue is posed by the deterrent effect forpotential new customers of present high connection charges. Theseare typically in the region of Rp 150,000 for the official charges,substantially higher than the marginal cost of making a connectionto the street main. Supplementary unofficial levies may increasethe final cost to the consumer to a still higher level. Options forpromoting higher numbers of connections include: (a) charging onlythe actual marginal connection cost; (b) deferred payment ofconnection fee; (c) building connection costs into tariffs with onlya nominal connection fee; (d) laying service pipes to plotvoundaries at the same of initial construction of reticulation; and

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(e) introduction of by-laws requiring connection of propertieslocated within a given distance from a water main, or the levy of acharge in lieu of connection.

(b) Human Waste Disposal. Analysis indicates that septic tank emptyingservices can be capable of recovering costs in full through anappropriate level of service charge, though the net public benefitsof effective human waste disposal are such that it is not in generalreasonable to insist upon full private cost recovery. Localgovernments should in any case consider the option of contractingout this service to private operators. Soiad Waste Disposal.Analyses suggest that in relation to the household sector, onlypartial cost recovery may be feasible for this service at acceptabletariff levels. However, local governments should be provided withinformation on the true unit collection and disposal costs,including national or actual capital charges, as an aid to informeddecision making. Analysis of feasible tariff structures should beaimed at maximizing the degree of cost recovery, including theprospects of full recovery form larger industrial and commercialusers and regional markets, and a progressive tariff for domestichouseholds, perhaps based on the property value classification usedfor the PBB property tax. Market infrastructure Improvement. Thefeasibility of recouping the costs of this investment throughin_reases in market rental charges should be examined in all cases.

C. Poverty Impact

6.7 According to the Indonesia Poverty Assessment and Strategy Report(Report No. 8034-IND), 8.8 percent of the urban population in East Java and12.3 percent in Bali lived in poverty in 1987. Drainage, kampung improvement(KIP) and public water tap construction under the proposed project would beespecially beneficial for this population. Experience has shown that it ismainly the urban poor who are affected by frequent flooding, because they mustsettle in the most marginal, low-lying areas or along drains and river banksthat often overflow. Experience has also shown that the poor generally sufferin terms of overcrowding and lack of convenient access to water, sanitationand other key services. These services would be provided under the proposedproject as freestanding drainage subprojects and as part of the nation-wideKIP program for upgrading informal, unplanned and unserviced urban settle-ments, particularly with low-income residents. Public taps provided tnder KIPwould provide safe water that is readily accessible to poor familles lackinghouse connections and living in water-stressed areas. Easily accessible, low-cost drinking water can substantially improve the life of these people.However, the physical investment itself does not guarantee results. Institu-tional arrangements for the operation of the taps are an equally importantaspect of project implementation. Local community groups have participated inplanning of the water supply system and house connection/standpipe arrange-ments in East Java and Bali as part of the IUIDP formulation process.Continuation of this participation is a prerequisite to establish a viable,low-cost system of managing and maintaining the public taps.

D. Environmental Impact

6.8 Screening of Batch I investment programs indicated that two-thirdsof the 117 identified subprojects were expected to have little or no adverse

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impact. Environmental assessments of the remaining subprojects are underway,and environmental management plans will be approved and incorporated intodesign and implementation of these subprojects (para. 4.32). Benefits of theproposed technical assistance to the Regional Environment Commissions (KomisiDaerah) and BAPPEDAs of East Java and Bali includes (a) timely completion ofrequired environmental assessments; and (b) incorporation of environmentalassessment and management mechanisms into preparation and appraisal of futureinvestment programs by intermediary organizations, whether Bank-financed ornot.

E. Local Participation

6.9 The proposed project expands emphasis of past projects onstrengthening local participation in the project cycle. Beneficiaryhouseholds and communities continue to be involved in the identification,preparation and implementation of neighborhood and market improvement programs(KIP and MIIP). Similar local involvement continues for solid wastemanagement and sanitation programs, which also emphasize household financingand the use of NGOs. Water supply, drainage and road investment programsemphasize increas'ng participation of community groups in program andsubproject planning. Local government responsibility for O&E is alsostressed. More generally, the overall IUIDP process responsible forpreparation and implementation of the proposed project is designed to upgradelocal participatien: (a) to start planning and decision process at a levellow enough in government so that beneficiaries can participate directly; (b)to start early enough in the budget process so that adequate attention can beprovided to subproject design in meeting beneficiary needs; (c) to placeincreased emphasis on local responsibility for O&M, and (d) to take advantageof local human resou:ee and institutional capacities through the entireproject cycle.

F. Benefits and Risks

6.10 The most important expected benefits and risks of the project areinherent with GOI's gradual .ovement toward regional autonomy. The chiefbenefits would flow from more efficient use of resources allocated to thesector through better programming of urban infrastructure and services byincreasingly capable and responsible local governments. The chief risk isthat the pace of required institutional development--for decentralized systemsof management, finance, manpower development--is difficult to predict and maynot be adequate for full and timely achievement of all project objectives.The quality of subproject preparation and implementation may even decline inthe short run as local gorernments learn how to play their new roles, thoughthis risk would appear to be minimal in East Java and Bali given theirrelative sophistication. Moreover, total expenditure programs for the nextfive years will not be substantially greater in real terms than those actuallydelivered during the last five years, and there will be few if any new orcomplex kinds of subprojects. Finally, the UNDP/UNCHS-executed IUIDPImplementation Support Project and funds provided under the Japanese grantwould provide substantial assistance to GOI and the Bank in carrying outeffective project supervision.

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VII. AGRMENTS REACHED AND RECOMMENDATION

7.1 During negotiations, assurances and confirmations were obtained fromGOI on the following principal points:

(a) timely provision of counterpart funds and new channelingarrangements for some INPRES grants to local governments (para.3.9);

(b) each local government shall establish a Project Finance Office (PFO)and install the standard project financial accounting and monitoringsystem within three months of the initial disbursement of projectfunds for that local government (para. 4.4);

(c) establishment and maintenance of adequate appraisal capacities atall levels (para.,4.5);

(d) the Bank will review all new programs and sub-projects as they areprepared and changes of local government expenditure programs ofmore than 20 percent or revision of subprojects costing more than$2.1 (Rp 4 billion) million equivalent, as noted in the PIAs andsupervision plan (paras. 4.5 and 4.27);

(e) project implementation responsibilities of participating agencies(para. 4.10);

(f) establishment and maintenance of arrangements for: (i) theimplementation schedule and procurement arrangements; (ii) accountsand audits; (iii) reporting and monitoring; (iv) operations andmaintenance; and (v) environmental impact assessment and management(paras. 4.25, 4.26, 4.29 and 4.32);

(g) eligibility of local governments for borrowing (para. 5.4);

(h) PDAM debt equity, debt service coverage, tariff and incomeretention, and conversion of BPAMs to PDAMs (para 5.17); and

(i) GOI has defined revised domestic lending arrangements which includean indexed formula for gradually reducing the discount/subsidycomponent of interest rates charged to local governments andenterprises (para. 5.19).

7.2 The following will be conditions of disbursement for each localgovernments

(a) signature of a local PIA acceptable tc the Bank (para. 4.9 andAnnex 4) for disbursement of central government contributions; and

(b) signature of loan agreements acceptable to the Bank forreimbursement of DLA expenditures (para. 5.19);

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Recommendation

7.3 Subject to the above agreements and conditions, the proposed projectis suitable for a Bank Loan of $180.3 million to the Republic of Indonesia for20 years, including five years grace at the Bank's standard variable interestrate.

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n A- MU - -

Ltast Fergi Tloe Le1t Paolesn TOeI

A. pEmmrj &faMduetare 0.W -IOMW mAd D

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4. 8 taUui,Ssar . as 6.0 4.0 19.0 4.9 9.1 O.a8. Urb Needs 60.1 39.6 U9.9 49.1 90.9 68.1: Ka~imgIogrova'am9 9.4 4.9 14.8 4.9 2.6 7.8

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Oevbepam Its.

- 50 -

NONESA: EArJAVAANDQUUM W OEV5OPUENt PfrJ

ANNEX 1Page 2

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ANNEX 1Page4

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IIEOT f, " tlMKmMV ANNEX 2

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_ 55 _ ANNEX 3Page 1

INDONESIA

EAST JAVA - BALI URBAN DEVELOPMENT PROJECT

SUMMARY OF TECHNICAL ASSISTANCE

The following summarizes agreed technical requirements to support theexecution of the EJBUDP expenditure programs and related strengthening ofinstitutional capacities. The project includes three kinds of technicalassistances (a) engineering design and supervision; (b) programimplementation, including (i) program and subproject preparation and(ii) program management; an# (c) institutional development, including(i) municipal management improvement and (ii) sector development. Allproposed contract are summarized briefly below. Full terms of reference(TOR), shortliste and procurement schedules would be confirmed with GOI atnegotiation.

A. Engineering Design and Supervision

1. Engineering Design and Supervision Services

Executing Agency

Ministry of Public Works with respective provincial DPUPs.

Objectives

To supplement and accelerate the in-house engineering design process oflocal and provincial public works staff in both provinces. An identifiedpool of qualified local and (for water supply) foreignengineeringconsultants will be retained to provide sub-project engineering serviceson a task-order basis, to supplement DPU capabilities. It is anticipatedthat all water supply sub-projects and approximately one-half of othersub-projects will be designed by the pool of consultants. This procedureshould (a) improve design quality, (b) allow for improved supervision byDPUP staff using normal DIPDA overheads, and (c) accelerate design ofcomplex subprojects to allow an appropriate review cycle (unlike currentINPRES and DIPIDIPDA schedules which require full preparation within thefiscal year of implementation).

Duration of Services

April 1990 - March 1994.

ANNEX 3- 56 - Page 2

Costss (includes $0.4 million of PPF)Months $ Million

International consultants (water supply) 200 3.00National consultants 2,280 9.12

Total 12.12

2. Provincial Dinas PU Engineerina and Supervision Advisors

Executing Agency

Ministry of Public Works with respective provincial DPUPs

Objectives I

To assist each provincial DPUP to develop necessary procedures and staffskills for assistance to local governments in review of subprojectengineering aesign and appropriate supervision programs for all sub-projects in annual expenditure programs. These foreign advisors wouldassist during the early years of implementation to establish andlorstrengthen DPUP management and technical capacities, personnelrequirements and training needs to assure effective technical support byDPUP to local governments, as well as capacity to execute the provincialsubprojects and O&M responsibilities of the program.

Duration of Services

January 1991 - March 1995

Costs:months $ Million

International consultants 60 0.90National consultants 60 0.25Computer, equipment, etc. 0.10

Total 1.25

B. Program Management

3. Proiect Pteparation Facility

Executing Agency

Ministry of Public Works (DGCK)

Obiectives

Complete preparation of Batch I local government programs and EJBUDPdocumentation in detail sufficient for appraisal.

ANNEX 3Page 3

Duration of Services

August 1989 - April 1990 (already completed)

Costs (in addition to TA package 1 above, $1.1 Milliondesign services)

4. Batch II/III Program Preparation and Related Start-up Support

Executing Agency

Ministry of Public Works (DGCK) and provincial BAPPEDAs

Objectives

To complete revisions to Batch I programs agreed during appraisal and toextend preparation effort to Batch II local governments (13 in East Javaand the remaining 4 in Bali) to be ready for implementation during GOI FY1991/92 and a Batch III local governments (13 in East Java) forimplementation beginning in FY 1992/93 to complete coverage of all localgovernments in both provinces.

Duration of Services

April 1990 - April 1992

Costs:Months $ Million

International consultants 96 1.4National consultants 564 2.3Equipment, training, etc. 0.2

Total 3.9

5. ANDAL Preparation Assistance

Executing Aaency

Ministry of Public Works (DGCK and BALITBANG)

Obiectives

To provide necessary financing for detailed environmental assessments(ANDAL studies) of the impact of selected sub-projects identifi.-d duringpreliminary screening as having potentially significant environmentaleffects. National consultants would be employed to conduct ANDAL studiesfor all but the most complex subprojects.

Duration of Services

June 1990 - December 1991

ANNEX 3-58 - Page 4

Costs:Months S Million

International consultants 32 0.5National consultants 150 0.6

Total 1.1

6. Appraisal Support to Provincial BAPPEDA

Executing Agency

Ministry of Public Works (DGCK) and provincial BAPPEDAs

Objectives I

To continue provision of advisory support to both provincial appraisalteams based at the respective BAPPEDA I offices through completion of theproject focus would be on preparation and appraisal of Batch II and IIIlocal expenditure programs and related subproject investment proposals,and on new subprojects proposed during the annual budget process.Advisors would continue to refine appraisal criteria and processdocumentation, including coordination with the environmental assessmentprocess (AMDAL), as noted in TA package 5. Training of BAPPEDAcounterpart staff and dissemination of appraisal criteria and methods tolocal governments will also be key features of the effort.

Duration of Services

April 1990 - April 1992

Costs:Months $ Million

International consultants 32 0.5National consultants 125 0.5Computers, workshops, etc. ^ 0.2

Total 1.2

7. RIAP and LIDAP Implementation Support

Executing Agency

Ministry of Home Affairs (PUOD and BANGDA) with provinces.

Objectives

To support central and provincial teams in assisting, supporting andmonitoring local government implementation of Revenue Improvement ActionPlans (RIAPs) and Local Institutional Development Action Plans (LIDAPs)prepared for each local government under the IUIDP process. The central

ANNEX 3_ 59 _ Page S

team would focus on needed regulatory and administrative revisions tofacilitate local actions, while provincial teams work directly withactive local governments and prepare monitoring reports on progress andresults to date.

Duration of Services

January 1991 - December 1994

Costs:Months $ Million

International consultants (3 x 12 mo.) 36 0.5National consultant (3 x 48 mo.) 144 0.6

Total 1.1

8. Advisors to Provincial Management and Development Units (PMDUs for WaterSupply Enterprises)

Executing Agency

Ministry of Public Works with MHA(PUOD)

oblectives

To provide long-term advisory support for continued development andstrengthening of the PMDUs in each province to assist and guide localwater enterprises (PDAMs) to improve operations, maintenance andmanagement of water supply systems, with special emphasis on assistingthe conversion of interim enterprises (DGCK-owned BPAMs) to fullyoperational PDAM units of local government. PMDU advisors would alsoassist in monitoring O&M and investment subprojects of all waterenterprises supported under the project.

Duration of Services

January 1991 - December 1994

Costs:Months $ Million

International consultants 36 0.5National consultants 125 0.5

Total 1.0

ANNEX 3-60- Page 6

9. Support to Provincial and Locai Manaaement Offices (PMOs)

Executing Aaency

Ministry of Public Works (DGCK) and BAPPENAS with provincial BAPPEDAs

Objectives

To provide necessary local and foreign advisory support for the operationof provincial PPMOs to assist overall managerment and coordination of theIUIDP process for all local governments, including the preparation andupdating of multi-year expenditure programs, RIAP and LIDAP documents,and annual budgets for implementation, as well as EJBUDP operationalmanagement including progress reporting, physical and financialmonitoring, accounting and auditing arrangements, and relatedadministrative supervision arrangements.

Duration of Services

January 1991 - December 1993

Costs:Months $ Million

International consultants (2 x 36 %uo.) 72 1.0National consultants 192 0.8Computers, equipment, etc. 0.1

Total 1.9

10. Support to Central Program Management Office

Executing Agency

Ministry of Public Works (DGCK)

Objectives

To continue support for the DGCK operated CPMO established under previousBank and ADB assistance to serve as the central point for urban projectperformance monitoring and reporting. CPMO would continue to haveresponsibility for coordination of DGCK implementation support toregionally-based programs including the EJBUDP. Local consultantsfinanced by this TA would join others from parallel operations to performthe CPMO functions nationwide.

Duration of Services

January 1991 - March 1994

ANNEX 3- 61 - Page 7

Costs:Months $ Million

International consultants 12 0.2National consultants 80 0.3

Total 0.5

11. Program Accounting

Executing Agency

Ministry of Public Works (DGCK) with MHA (PUOD)

Obiectives

To design, install and train local government staff to operate acomputerized memorandum accounts system covering all expenditure programentries for each local government in the EJBUDP. Work has been initiatedfor system design and installation in Batch I local governments. Systemincludes creation of provincial and central program summary accounts forbudgeting and monitoring purposes, and the staffing of Central,Provincial and Local Program Finance Offices (CPFO, PPFOs and PFOs) tooversee financial reporting and auditing arrangements for the program.(Necessary computers to be purchased and installed also).

Duration of Services

April 1990 - March 1995

Costs$Months $ Million

National consultants 400 1.6

12. Operations and Maintenance (O&M) Management System Implementation

Executing Agency

Ministry of Home Affairs (PUOD)

Obiectives

To install a simplified version of the Performance-based Operations andMaintenance Management System (POMS), developed under previous Bankassistance, in all 13 Batch I local governments. Staff of targeted BatchI local governments and provincial DPUPs would be trained to apply themanagement, programming and budgeting techniques of the POMMS approach toeventually upgrade O&H activities in all local governments in bothprovinces, in accordance with IUIDP guidelines and expenditure programtargets. Emphasis will be on development of local capacity to prepare

ANNEX 3- 62 - Page 8

and execute annual O&M programs consistent with HRA KEPMIN 5 of 1990 andassociated guidelines.

Duration of Services

January 1991 - DecembeL 1992

CostssMonths $ Million

International consultants 24 0.4National consultant 250 1.0Computers, equipment, etc. - 0.2

Total 1.6

C. Institutional Development

13. Local Government Financial Accounting and Management Reform

Executing Agency

Ministry of Home Affairs (PUOD)

Obiectives

To establish in the Directorate for Regional Finance in Directorate-General PUOD a full-time regional government financial managementimprovement technical unit comprising designated MHA personnelsupported by specialist consultants. The unit's tasks would be toreview, improve and coordinate the design of existing regionalgovernment financial management improvement initiatives in thefields of computerized financial accounting, revenues administration(MAPATDA), operations and maintenance administration (POMM5), annualbudgeting systems and procedures, and medium-term financial planningand programming; to develop GOI proprietary software as necessary:to supervise and coordinate the introdcution and/or replication ofthe initiatives in selected regional governments; to monitorimplementation progress and identify, effect and promulgatenecessary improvements to systems and software. Other IBRD projectswould be expected to participate in continuance of funding for theunit, once established. Batch I local governments in EJBUDP wouldbe given first priority for the introdcution of the improved systemswhen developed to a satisfactory level.

Duration of Services

July 1991 - December 1993

-63 - ANNEX 3Page 9

CostssMonths $ Million

International consultants (short term inputs) 12 0.20National consultants (full time) 100 0.40Computers, equipment, etc. 0.20

Total 0.80

14. AMDAL Institutional Development

Executing Agency

Ministry of Public Works (DGCK and BALITBANG)

Obiectives

To support institutional development of the provincial environmentalcomissions (komisi daerah) and other key participants in theenvironmental assessment and management process. Initial focuswould be on a critical region of East Java: the inventory ofexisting environmental data, design of an environmental database andmonitoring system, and training of concerned officials inenvironmental management and assessment.

Duration of Services

January 1991 - December 1993

Costs:Months $ Million

International consultants 12 0.2National consultants 24 0.1

Total 0.3

15. IUIDP Training

Executing Agency

Ministry of Public Works (DGCK) with Provincial Training Agencies(DIKLAT) and Provincial Program Management Office

Oblective

To prepare and carry out a structured series of workshops for local,provincial and a limited number of central 001 staff responsible forimplementation of the EJIUDB. Emphasis would be on practit. lmethods for preparation, and management and monitoring of IlUIDPexpenditure programs, financing plans, revenue improvement program

ANNEX 3- 64 - Page 10

and institutional development programs. Particular attention wouldbe given to Batch II and III local governments and to transfer oftraining roles to cabable and interested permanent traininginstitutions promptly upon their identification. It is tentativelyagreed that facilities of the Provincial training Agency (DIKLATPropinsi) will provide physical facilities for the training.

Duration of Services

January 1991 - December 1993

CostsJMonths $ Million

International consultants , 13 0.2National consultants 130 0.5

Total 0.7

16. IUIDP Implementation Supgort Proiect

Executing Agency

United Nations Center for Housing and Settlement/UNDP (BAPPENAS)

Obiectives

To provide $2.0 million in parallel co-financing support for the$8.2 million UN¢HSIUNDP executed project which is already effectiveand would provide a broad range of support services in theimplementation of the EJBUDP and other IUIDP - based projects.

Duration of Services

April 1990 - March 1993

Costs$

Months $ Million

Cost-sharing contribution 2.0

17. Preparation of Future Projects

Duration of Services

Undecided

ANNEX 3- 65 - Page 11

Costs:Months $ Million

Consultant services - 1.5

GRAtiD TOTAL

Identified international 637 9.5Identified national 4,624 18.57Identified workshops, etc. 1.0Unidentified 4.6

Total 33.67

aS ^VA - SM 1! 6 UW N T

FY 90/91 FY 91/92 FY 92/93 F! 93/94 FY 94/95 FY 95/96Q4arters 4 2 a 4 1 2 84 1 2 a4 1 2 a 4

Batch 1: Program Fina-lization IncludingFirst Year Project.

Batch 11 a III: ProgramProepaation

Water Supply:Project PreparationEquipment ProcurementCivil Works Construct. - - t

Other Infrastructure: E- -Project Preparation _ _Equipment ProcureometCivil Works Construct.

Operations A Mainteance-Current

Operations & Maintenance

T ohical Assistae For _ _ _ 1 1 1 11- nti~tutonal -T i

eve"lopment - -L- Prga Proearation

(Batch II A III)- Prga and Project

Aprisal Advisors n~- RIAP & LIDAP lRple.

- Future Project Prop. -

ANMEX 4B- 67 - Page 1

INDONESIA

EAST JAVA - BALI URBAN DEVELOPNENT PROJECT

Summary of Key Atency Responsibilities By Project Component

Responsibilities for implementation of specific components andsubcomponents of the proposed project would be assigned to different agenciesand levels of government according to current GOI policies and practices.

(a) Under Component A of the proposed project (Infrastructure Develop-ment and O&M):

(1) DGCK and DGBM with support of the Central Program Managementand Finance Offices (CPMO and CPFO) would be responsible fortechnical supervision of all infrastructure and O&M, and theywould implement all such infrastructure and O&E under nationalresponsibility;

(2) Provincial BAPPEDAs with support of the Provincial ProgramManagement and Finance Offices (PPMOs and PPFOs) would beresponsible for program and subproject appraisal andmonitoring;

(3) Provincial DPUPs would implement all infrastructure and O&Munder provincial responsibility; and

(4) Local government BAPPEDAs supported by higher levels ofgovernment and by Program Management and Finsnce Offices (PMOsand PFOs) would be responsible for coordination of field-levelplanning and implementaiton;

(5) Local DPUKs and PDAMs would implement all infrastructure underlocal government responsibility.

(b) Under Component B of the proposed project (Program Management)s

(1) MPW, DGCK and DGBM with the concerned provincial agencies, asappropriate, would implement subcomponents concerned with:(i) further program and subproject preparation and (ii)management of program implementation; and

(2) NRA would implement subcomponents supporting (i) implementationof revenue and institutional development action programs; and(ii) O&M management system reform.

(c) Under Component C of the proposed project (Institutional Develop-ment):

ANNEX 4B68 - Page 2

(1) MHA would implement subcomponents concerned with revenueadministration and financial accounting and management programsand environmental institutional development;

(2) BAPPENAS would implement the UNDP/UNCHS IUIDP ImplementationSupport Project (INS/88/021); Development;

(3) DOCK would implement preparation of future projects under sub-component; and

(4) MHA and DGCK would implement training in IUIDP processes.

* * *

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ANNEX 4C7r) - Page 1

INDONESIA

EAST JAVA - BALI URBAN DEVELOPMENT PROJECT

Program and Subproject Preparation and Appraisal Process

The East Java-Bali Expenditure Programs: The expenditure programsfor East Java and Bali for the five year period (90/91 - 94/95) were preparedseparately, starting with expenditure programs prepared for individual Batch Ilocal governments. The two programs were combined and components for programimplementatio institutional development were added to develop, implement andsustain the overall provinc$al programs.

Provincial Programs: The two provincial programs cover 44 localgovernments (Kabupatens and Kotamadyas), with 36 in East Java and 8 in Bali.The East Java local governments were divided into three batchest Batch I (9kabupatens), Batch II (13 kabupatens/kotamadyas) and Batch II (13Pebupatens/kotamadyas. The Bali local governments were divided into twobatches containing 4 kabupatens each. The provincial expenditure programswere based on the study of 9 Batch I East Java kabupatens and 4 Bali Batch Ikabupatens. To develop the provincial expenditure programs, grossing up wasdone based on Batch I kabupatens for each province and other factors such aspopulation, per capita urban development grants and expenditures. In the caseof Bali, only 3 Kabupatens (excluding Badung) were used for the grossing upexercise, as the size of the Badung program would have distorted theprojection. Subprojects were prepared to preliminary engineering level,specifically for subprojects valued over Rp 400 million.

Subsector Coverages Seven infrastructure subsectors were included,namely, water supply, drainage, solid waste services, sanitation, urban roads,kampung improvement and market infrastructure improvement, in accordance withCipta Karya guidelines. The programs also include operations and maintenance(O&H) expenditures designated as (a) the existing level of O&M,(b) incremental O&M required to provide a reasonable level of O&M forexisting, rehabilitated and new infrastructure. Subproject selection anddesign criteria conform to national IUIDP guidelines and technical memorandadeveloped during project preparation. The subsector coverage includes allinfrastructure irrespective of responsibility by central, provincial or localgovernments. Responsibilities were formally assigned in 1988 by a GOIdirective, PP 14 (1988). Central and provincial subprojects were required toconform to the IUlDP guidelines.

LIDAPs and RIAPs. Costs for implementing institutional andfinancial improvements such as addition of new staff (financed under SDO) arealso included for each local government.

Local Government Expenditures Programs. For each of the Batch Ilocal governments, an expenditure program has been prepared covering all ofthe above items. In preparation of the program the following factors were

AMNEX 4C71 Page 2

taken into accounts (a) per capita urban expenditure, (b) infrastructuredeficiencies especially rehabilitation and priority infrastructure needs,(c) demand assessments and willingness to pay, and (d) special needs as inwaters stress areas. Overheads for management of the program has been allowedat 2 percent for all infrastructure (except for water supply), and 7 percentfor design and supervision part of which will be contracted out. For watersupply, overheads of 14 percent has been allowed in addition to 11 percent fordetailed design and supervision, all of which would be done through contract.Price escalation has been allowed as follows: local 7.0 percent for 1990/91,6.0 percent for 1991/92 and thereafter, Foreign 5.4 percent for 1990/91 and4.3 percent for 1991/92 and thereafter. Total program costs in current priceswith yearly funds requirements were developed. Foreign and local splits ofexpenditure items were estimated, as were taxes and duties. Financing planswere also developed using known funding channels for each subsector. Theborrowing capacity of each local government was established and estimates ofborrowing for water supply (for PDAMs), solid waste services and sanitationwere agreed with the local governments.

Appraisal/Approval at Local Government Level. The initialappraisallendorsement for Batch I local governments expenditure program wasdone by the mayors (Bupati or Walikota), based on proposals prepared by theprogram preparation consultants. The broad parameters used on this initialappraisallapproval were: (a) rehabilitation and new infrastructure needs,(b) correlation of proposed expenditure program to past years' programs,(c) anticipated grant/equity levels from central and provincial governments,(d) implementation capacity of local government, (e) own source revenuesavailable, (f) extent of borrowing desired, and (g) availability of O&M fundsas projected in the expenditures program. Preliminary reviews of subprojectsrelating to water supply, solid waste and sanitation were done to evaluatetheir financial and/or economic viability. Based on the above appraisalprocess, some local governments have resolved to provide levels of serviceless than those prescribed in national guidelines, reduce water supply andsolid waste expenditures and displayed caution in borrowing despite theirevident capacities.

Provincial Level Appraisal. Provincial appraisal teams wereestablished in both provinces by virtue of the Governor's instruction (SKGubernur). The participating agencies include the provincial BAPPENDA, KANWILPU, Dinas PU and IUIDP technical terms. In order to develop the appraisalcapacity, a number of steps were taken. Two appraisal advisors wereappointed, one a municipal engineer and the other a financial analyst. Theyhave been shared between East Java and Bali. To assist in the appraisalprocess, appraisal formats were developed in the form of checklists. Threeformats were developeds (a) checklist for appraisal of local governmentexpenditures programs, (b) checklist for appraisal of subprojects, and(c) checklist for appraisal of the provincial expenditures program. Thelatter would be used by the central government. The appraisal checklists arecomprehensive and provide all the necessary information for the appraisal teamto carry out its task, although these checklists continue to be revised (forsuch factors as environmental impact). The supporting data sheets have beencompleted by staff of the local governments and water enterprises. Prior tothe formal appraisal, a number of trial appraisals were carried out ofsubprojects already under implementation or previously prepared for the

ANNEX 4C- 72 - Page 3

provinces by central directorates. Satisfactory progress has been made indeveloping the appraisal capacity in the provinces, assisted by the appraisaladvisors.

World Bank Appraisal. It has been agreed that. the Bank wouldappraise all subprojects valued over Rp 4 billion ($2.1 million equivalent)prior to implementation. In addition to the subprojects appraised during Bankappraisal of East Java-Bali Urban Development project, it is expected thatthere would be between 5 and 10 subprojects above Rp 4 billion value in thesubsequent batches.

The provincial appraisal teams would conduct further appraisals oflarge subprojects when they are prepared to detailed engineering level,including program and subproject appraisals that are yet to be prepared.Technical, economic and financial appraisal criteria are described in thefollowing parts of this Annex.

Expenditure programs for Kabupaten Badung (Bali) and KotamadyaProbolinggo (East Java) are summarized in Annex 14.

ANNEX 4D- 73 - Page 1

GENERAL TECHNICAL STANDARDS AND CRITERIA FOR SUBPROJECT SELECTION,PLANNING AND DESIGN

(adapted to suit local conditions according to MPW guidelines)l/

1) Kabupaten|Kotamadya Selection Criteria for IUIDP

Population s greater than 5,000 for water supply andgreater than 20,000 for other infrastructure

Population growth rate : greater than 2 percent for population above20,000

Exception s Surabaya is included in the Large Cities IUIDP

2) Sector Selection Criteria

Water Supply s Real demand, water stress area

Drainage s Flooding, deferred maintenance, increasedrunoff, inadequate capacity

Solid Waste s National guidelines regarding coverage forhigh densities, environmental and healthconsiderations

Sanitation s National guidelines regarding coverage forhigh densities, environmental and healthconsiderations

Roads : Average daily traffic, congestion, trafficflow constraints, road condition, accidents,new land developments

KIP s National policy for basic services, localgovernment initiatives, poor environmentalconditions, community willingness to operateand maintain infrastructure

MIIP : Service deficiencies, local governmentinitiatives, environmental and health consid-erations

3) Subproject Design Criteria

11 All standards and criteria follow MPW guidelines which have been reviewedand found acceptable by ttte Bank. Details are provided in the ProjectFile.

ANNEX 4D-74 - Page 2

Water Supply

Planningt

- Priority for rehabilitation and optimum use of existing systems- Priority for reduction of water losses and leakages- Ability and willingness to pay for water supply- Adequate income for piped water supply (taken as Rp 100,000/month)- Per capita demand 120 lpd for urban households- Per capita demand 60 lpd for IKK and rural households- Per capita demand greater than 120 lpd taken for special areas

(e.g., tourism needs)- Planning period of 10 years- Optimum system selected on basis of minimum present value of total

costs over project life taking a discount rate of 10 percent- Environmental impact assessments, as appropriate.

Engineering Design:

- Water quality - Indonesia and WHO permissiblestandards

- Maximum pressure - 7.5 bar in the distribution system

- Minimum pressure - 1.0 bar in the distribution systemover a 24 hour period

- Peak day demands - 1.15 x average day demand

- Peak hour demands - 2.00 x peak day demand

Drainage

Planningt

City drainage planning focuses initially on primary and secondarydrainage, and local flooding. Major flood control works is theresponsibility of central or provincial suthorities. Urban drainagecoverage target is 60 percent in Repelita V, with 100 percent coverage byprimary and secondary systems. Optimization of existing drainage systems.Major drainage works to be undertaken on the basis drainage masterplans

Designt

Q - F x C x I x A, where Q - discharge, C-coefficient of rougthness,I - rainfall intensity and A - catchment area

Return period of design storm - 5 years

Minimum velocity of flow in channels - 0.5 meters/secondminimum

Hydraulic design - Manning's Formula

-75 - ANNEX 4DPage 3

Solid Waste Services

Plannings

Based on environmental and health considerations, real demand and will-ingness to pay. High priority for communities with densities over 200person/hectare.

Design standard:

Population density greater than 200 persons/ha, 100 percent service;population density between 100 person/ha and 200 person/ha, 75 percentservice; no service yet for density less than 50 person/ha; and 100percent service for commercial areas and markets.

Refuse generation: 3.15 liters/capita/day fo-: medium towns; 1.85liters/capita/day for small towns

Disposal by sanitary landfills environmental impact assessmentsrequired.

Design:

Modular system as per DG Cipta Karya guidelines

Sanitation

Planning:

Eighty percent coverage of urban population by 1995 (Repelita V).

- Sewer systems may be considered for densities in excess of 200person per hectare. Systems include conventional sewers, small boresewers or shallow sewers.

- All other areas to have on-site systems.

Criteria:

1. Areas with ground water table less than 1.5 meters

a. Population density greater than 150 persons/ha - 100 percentservice level, using type Al (MK-5 KK + septic tank andanaerobic filter) or type B1 (WC/JK + septic tank and anaerobicfilter)

b. Population density less than 150 person/ha - 80 percentservice, type Al or Bl facility.

2. Areas with ground water table between 1.5 m and 5 m

ANNEX 4D-76 - Page 4

a. Population density greater than 200 persons/ha - 100 percentservice level, type A (MK-5 KK + septic tank and anaerobicfilter) or type Bl (WC/JK + septic tank and anaerobic filter)

b. Population density 150 - 200 person/ha - 80 percent servicelevel type B (WC/JK + septic tank and soakaway trench)

c. Population density less than 150 person/ha - 60 percent servicelevel using type B facility

3. Areas with ground water table greater than 5 meters

a. Population density greater than 200 personiha - 100 percentservice level using type A and type B2 facility

b. Population density 150-200 person/ha - 80 percent service levelusing type B facility

C. Population density less than 150 person/ha - 60 percent servicelevel using type C facility (soak pit with leaching pit)

4. Water consumption for pour flush latrines taken as 5 lpd. Sludgegeneration in pour flush latrines is 30 led.

All according to DG Cipta Karya Guidelines

-77 - ANNEX 4E- 7

Page 1

E. ECONOMIC APPRAISAL CRITERIA AND METHODOLOGY

Water Supply

1. In principle, net present value (NPV) and economic rate of return(ERR) have to be estimated for each water supply subproject. In order to copewith the large number of (relatively small) subprojects and to take intoaccount the limited appraisal capability of provincial governments, Bank staffproposed the application of a simplified methodology.

2. Economic benefits of water supply projects are equal to theconsumers' willingness to pay for water plus external health benefits, i.e.prevention of infections caused to others (outside of someone's ownhousehold). The external health benefits, since are intangible, formallydon't enter the economic analysis. If substantiated, however, can be used tojustify projects with a negative NPV or an ERR below the cut-off rate of 10percent (this procedure can be applied in very special cases only, as anexception). In large cities with well functioning water supply systems thereare usually enough information to obtain a reasonably good estimate of theconsumers' demand function. The water demand function, in turn, can be usedto estimate willingness to pay.

3. Lack of data and expertise and the proliferation of intermittentwater supply systems generally made the application of this *traditional"method impossible in East Java and Bali. The proposed simplified methodologydivides piped water consumption into two partss the first part replaces theprevious source (e.g. wells, rivers, vendors) of water use, while the secondpart is a net increase in water consumption. Benefit of the first part isequal to the cost savings (actual payments plus own labor) of consumers who nomore need to use other sources of water supply (this is the so-calledalternative cost valuation method). Benefit of the second part, i.e., ofincremental water use, is still has to be estimated using the concept ofwillingness to pay and that way depends on how accurately the demand functionwas estimated. However, the share of total benefits due to incremental wateruse is usually small and the information collected in order to estimate thebenefit of the first part can be used to estimate one point on the demandcurve. The full demand function is estimated by providing the coordinates ofa fictitious low price - high quantity point on the demand curve and assuminga linear relationship between price and water demand (the method is not verysensitive to the assumption regarding the shape of the water demand curve andto small perturbations in the coordinates of the low price - high quantitypoint).

4. Two simple, user friendly programs were developed along these linesto assist the project preparation teams and the provincial appraisal teamswith economic analysis. The programs compare subproject costs and benefitsand calculate NPV and ERR estimates (the programs use a discount rate of 10percent for NPV calculations). A more detailed description of the programs(one for small projects and one for larger ones) with the mathematicalformulas can be found in the project files.

- 78 - ANNEX iEPage 2

5. A further simplification in the proposed methodology is given by thepossibility of estimating a lower bound for the ERR. There are two ways toarrive at such an estimate. One is the so-called cross-city comparisonmethod. If (i) the average incremental cost (AIC) of a subproject in city Ais less then or equal to the AIC of a subproject in city B (or, alternatively,the water tariff of a functioning system in city B); (ii) the waterdemand/consumption surveys indicate that the sources and quantity of non-piped(alternative) water use of those households who don't have access to pipedwater are similar in the two towns; (iii) household incomes are also similarand iv) the planned average water consumption per household in city A is aboutthe same as the planned (or existing) water consumption in city B, then theERR of subproject A is at least as high as subproject B (or at least 10percent if system B already exists).

6. The other method relies on the financial internal rate of return(FIRR) to obtain a lower bound estimate for the ERR. In case of a proposedexpansion/rehabilitation of an already existing system, if (i) there is noreal water price increase forecasted; (ii) changes in water consumption arefully explained by projected changes in the (real) income and composition ofconnected customers, then the FIRR can be used as a proxy for the lower boundof ERR.

Drainage

7. The overwhelming majority of drainage subprojects are very small,i.e. cost less than Rp 400 million (about $0.2 million). Case by caseeconomic analysis (i.e. calculation of ERR and NPV) is required only for thelarger ones which typically cost Rp 600 - 1500 million. The benefits of thesedrainage subprojects are estimated either i) on the basis of avoided flooddamages or '.i) land value increases and road maintenance cost reductions.Since estimation of the cost of flood damages requires very detailed surveysand the analysis of several type of costs, preparation teams usually preferthe second, less time consuming approach. The advantage of this approach isobvious: land value increase, if land markets function properly, is anindicator which can reflect the present value of the future benefit streamaccruing to the owners of the land in the project area. The projectedincreases in land values are based on comparison of land values in the projectarea to land values in similar, but less frequently flooded neighborhoods.Information on land values for the first batch subprojects was collectedduring interviews with kelurahan (sub-district) staff handling landtransactions and with informal real estate brokers. Reductions in roadmaintenance costs were estimated on the basis of local experience. The sameprocedures will be followed for second and third batch projects.

Urban Roads

8. The Urban Road Directorate of the Ministry of Public Works issued an"Urban Road Planning and Programming Manual' to guide the preparation of allIUIDP projects. Preparation of the manual was partly financed from thetechnical assistance components of the Regional Cities Urban Transport Project(Loan No. 2817-IND) and the Urban Sector Loan (Loan No. 2816-IND). Economic

- 79- ANNEX 4EPage 3

analysis of all road subprojects are based on the application of this manual.Using information obtained from site specific traffic and road conditionsurveys, the manual is easy to use for estimating the benefits of urban roadrehabilitation, betterment, widening and new urban road projects. Two kindsof benefits are estimated: vehicle operation cost savings and time benefits,which, if compared to the costs, make it possible to calculate ERR or NPV ofthe subprojects. Further simplification is allowed for subprojects with acost below Rp 2 billion (about $1.1 million). For each class of road and typeof road improvement, the manual also calculates the minimum traffic levelwhich makes the improvement economically viable (detailed description of themethodology and assumptions used in the manual is available in the projectfiles). A proposed road improvement is considered acceptable if the averagedaily traffic on the road is higher than the cut-off level determined thatway.

Other Subsectors

9. A high portion of the benefits of human and solid waste managementand market infrastructure improvement subprojects are intangible and accrue tothe local community as a whole and not only to the direct recipients of theseservices. Therefore, there is no requirement to carry out a formal comparisonof costs and benefits, however, for subprcjects with a cost of more than Rp400 million, it should be demonstrated that the proposal is the least costsolution which achieves the desired environmental impact. Kampung improvementsubprojects deliver a standard package of infrastructure services which wasproven to be economically viable in several Bank financed projects before.Since the economic analysis of that kind of investments is very costly and theconcentration of expenditures is low, the economic viability of proposedkampung improvements, as long as they follow the agreed standards, ispresumed.

-80 - ANNEX 4FPage 1

F. PROVINCIAL PROGRAMME IMPLEMENTATION AGREEMENT

1. Preamble

1.1 THIS AGREEMENT, dated this ----- day of ----------------, 1990, is in-tended to confirm and clarify implementation arrangements for the urbandevelopment programme prepared by the government of .......

Province and its second level governments (Dati II) within the frameworkof Repetlita V and the Integrated Urban Infrastructure DevelopmentProgram (IUIDP/P3KT). This Agreement covers all Dati II urbaninfrastructure programmes (for East Java with the exception of the cityor Surabaya programme to be confirmed separately due to its size andcomplexity). The signatories hereto acknowledge that urban developmentprogramme implementation requires the participation and cooperation ofseveral agencies and approval of this Agreement has been completed withthe inter-agency coordination teams at both levels prior to executingthis Agreement (PTA Tk. I). The undersigned hereby confirm their mutualunderstandings and pledge their cooperative efforts for this purpose, asfollows:

I:. Le2al and Procedural Framework for Prograse Implementation

2.1 All relevant aspects of this Agreement are defined and empowered withreference to the following existing laws and regulations, which thisAgreement is intended to support and further the realization of theirintent:

- Law Number 5 of 1974, determining local government functions.- Ministry of Home Affairs Regulations Number 5 and 6 of 1975,

regarding the financial systems and management of local government.- Minister of Home Affairs Decree 570-360 of 1981 regarding the

development of local government finance and monitoring of localborrowing.

- Government Regulation Number 14 of 1987, regarding the respectivefunctions of infrastructure development.

- Government Regulation Number 6 of 1988, regarding the coordinationof development programme among different GOI levels of government.

- Minister of Home Affairs Instruction Number 18 of 1989 regarding theimplementation of PP. 6/1986.

III. The Provincial Urban Development Proaraume

3.1 The government of .............. Province and its Dati II Localgovernments (for East Java excluding Surabaya) with the assistance andguidance of appropriate central government agencies have undertaken toinitiate a province-wide urban development programme within the frameworkof the P3KT process with the objectives of:

- Improvement of urban facilities and services to benefit the citizensand economic efficiency of all urban settlements throughout theProvince, specifically covering water supply, sanitation/sewerage,

ANNEX 4F- 81 - Page 2

urban roads, drainage and urban flood protection, solid wastemanagement, market area infrastructure (excluding the market orterminal buildings), and kampung area infrastructure in low-incomeneighborhoodst

_ Strengthening local capacities to operate and maintain suchfacilities and dependably deliver such services;

- Increase local abilities to plan, programue and manage systems ofthese urban facilities and services to accommodate rapidlyincreasing urban population and economie activities; and,Support local initiatives to mobilize an increasing proportion ofnecessary progravme resources from local revenues (PAD and PBB).

3.2 The detailed programme agreed to be implemented in ............. Provinceis as descrlbed in part I of attached Project Preparation Report

(Attachment I), which forms an integral part of this Agreement.

3.3 More specifically, a summary of the agreed Provincial expenditureprogramme is in Table 1 below and a summary of the agreed provincialfinancing plan is in Table 2.

- 82 - ANNEX 4FPage 3

Table 1. Summary Provincial Programme expenditure (1990/91 - 1994/95) inbillion of Raupiah (current prices)

Water SupplyDrainageSanitationHuman Waste ManagementUrban RoadsKIPMIIIPOverheadsEngineering ServiceConsulting Service

Total

Table 2. Summary Provincial Financing Plan in billion of Up. (1990191 -1994195)

Private Sources

PADS/PBS - general revenue Dati 11User charges Dati 11Internal resources PDAMIMPRES Dati ISINPRES Peningkatan Jalan Dati IISDOSDB (from Dati I to Dati SS)

Loans from central government

APBD IINPRES Peningkatan Jalan Dati I

APBN-DIPAPBN-DIP Daerah

Total

- 83 - ANNEX 4FPage 4

3.4 Of the total prograsme financing an amount of .... s....... will be metout of the proceeds of the proposed IBRD Loan for East Java - Bali UrbanDevelopment Programme.

IV. Programme Imglementation

4.1 Programme implementation will be carried out in accordance with theprovisions in part II of the attached Project Preparation Report(Attachment I) and pertinent Government regulations and procedures andIBRD guidelines.

4.2 More specifically, programme implementation is expected to take five (5)years from FY 1990191 onwards and includes all further detailedpreparation work required for each Dati U1 local government, as detailedin part It of attachment X.

4.3 The provincial government undertakes to appraise all multi - year Dati 1Iexpenditure programmes (Program Jangka Menengah or PJM) and theirconstituent subprojects submitted to it by each Dati 1S local governmentin accordance with agreed criteria and, upon appraisal and approval ofthe same, will enter into a Programm Tmplementation Agreement(PUA Tk. U) with each Dati II local government within the overillframework of this present Agreement.

4.4 Prior to the conclusion of a PIA Tk. II and while PJM preparation is inprogress, a Dati II local government may utilize programme resources forurgently required small projects not exceeding p. 3 billion inaggregate.This Laterim facility may be utilized only once by each Tk. %Ilocal government and should not include investments having animplementation period longer than two years.The provincial governmentundertakes to appraise and approve such projects in accordance with theagreed criteria and to enter into a provisional PIA TK. I with theconcerned Dati IT local government with a maximum two year validity, tobe subsumed subsequently in the PSA Tk. U1 referred to in para 4.3 above,which will become effective not later than 2 years after theeffectiveness of this Agreement*.

4.5 Both parties to this Agreement undertake to carry out necessary actionson their part with respect to Dati II Revenue Improvement Action Plans(RUAP) and Local Institutional Development Action Plans (LIDAP) asincluded in the concerned PTA Tk. IlI, including timely consideration oftariff adjustment proposals, organizational adjustments and staffingproposals as well as monitoring of any other required actions to achieverevenue enhancement targets or any performance yardsticks included inRIAP or LIAP.

* Notes This emergency interim facility is intended to be made availableonly for the so-called Batch II and Batch III Dati II local governments, whichat the time of effectiveness of this Agreement do not yet have a fullycompleted, appraised and approved PJH.

-84 - ANEX 4FPage 5

4.6 Prior to effectiveness of this Agreement the two parties will haveestablished the functional implementation units at central and provinciallevels respectively as provided for in part II of attacbment I atstaffing level adequate for their operation.

V. Guidelines and Procedures to be applied in implementation.

5.1 It is understood that, in the absence of further specific reference, theimplementation of this Agreement is governed by the following guidelinesand proceduress

- lUIDP Prograrmme preparation guidelines

- IUVIDP Subsectoral technical memorandums

- IUIDP appraisal guidelines

- IUSDP implementation guidelines and handbook.

- Government procurement guidelines (Xeppres 29 of 1984 Inpres 1 of1988 and teppres 6 of 1988 and implementing regulations/procedures)

- IBRD guidelines on procurement

- IBRD guidelines on the recruitment of consultants

- Fund channelling procedures as exist for each source of central andprovincial funds

- AMDAL preparation guidelines and procedures

- Annual Guidelines on preparation of APBD and APBN

(Notes Specific SKs, Surat Edaran, etc., will be referred to in the finalIndonesian language version.)

VI. Resolution of DisDutes

6.1 Dispute arising from this Agreement or its understanding by any partywill be resolved through consultation within the framework of TimKoordinasi Pembangunan Perkotaan (TKPP).

- 85 - AMNEX 4FPage 6

VIZ. Effectiveness

7.1 Subject co the provisions in clause 4.6 above, this Agreement will becomeeffective upon signing of the Loan Agreemeat between IBRD and theRepublic of Indonesia for the East Java-Bali Urban Development project.

for the provincial for the centralgovernment of Government RI.

......... ................ -.**

(Director-GeneralCipta Rarya, DPU)

(Governor)

Director-GeneralDina Marga, DPV)

Director-GeneralBangda, DDN)

Dlrector-GeneralPUOD, DDN

AN-8 4G- 86 - Page I

C. LOCAL PROGRAHME IMPLEMENTASSON AGREMENT

S. Preamble

1.1 TEIS AGREVENT, dated this ------ day of -------------- is to confirmand clarify implementation arrangement for the urban developmentprograms prepared by the local government of .......... within theframework of Repelita V and the Tntegrated Urban InfrastructureDevelopment Program (ItUDP). The undersigned hereby agree as followss

II. Legal and Procedural Framework for Programme Implementation

2.1 All relevant aspects of this agreemeat are defined and empowered withreference to the following existing laws and regulations, which thisAgreement is intended to support and further the realisation of theirIntent%

- DNCBJ3No. ........... dated ................. regarding theintegrated urban infrastructure development program preparation.

- IGUB/No . .......... dated ................. regarding theIntegrated urban infrastructure development program iUplementation.

- S_ I/PIASo. ........... dated .......... between central governmentan4 the provincial government of .......... regarding the integratedurban infrastructure development program implementation.

1II. The local IUIDP Program

3.1 Expenditure Pro*ram

To implement the UIDP Program prepared by the government ofwith assistance of the provincial governmnt of ........ covering theperiod 1990/91 - 1994/95 as described in the Multi-Year IUtD Program(Program Jangka Menengah or PJM) and as summarized in Attachment I'Expenditure ProgramO.

3.2 Financins Plan

The program referred to in Article 3.1 will in principle be funded inaccordance to the financing plan as provided in the Multi-Year IVtDProgram, specifying proposed contributions by level of government andsource of finnce and as summarized in Attachment IT "Financing Plan'.Of the total an amount of .......... will met our of the proceeds of theproposed IBRD Loan for the East JavalBali Urban Development Project.

IV. Program Implementation

4.1 Fundins Arrangements

- 87 - ANNEX 4GPage 2

To provide the contributions as referred to in Article 3.2, the localgovernment of ..................... will undertake the necessary revenueimprovement measurements as described in the revenue improvement actionplan (RTAP), of which the main targets to be achieved are summar'zed inAttachment III RIAP Targets*.

The provincial government will undertake the necessary arrangements forthe allocation of central government funds as proposed In the financingplan referred to in Article 3.2 through and in accordance with theRakorbang process.

The local government of ............ with assistance of the provincialgovernment will undertake the necessary arrangements for loan financingas proposed in the financing plan referred to in irticle 3.2.

4.2 Funding Administration

The funding of the program referred to in Article 3.1 and 3.2, will beadministered in accordance with the prevailing G0T regulation.

Funding of the program will furthermore be accounted for by the IUIDPPinance Units to be established within sagian Keuangan of ......... andBiro Isuangan ............. and in accordance to the program financialaccounting and monitoring system (PFAMS) issued by .

4.3 Implementation Schedule

The program referred to in Article 3 1 will in principle be implementedin accordarce to the implemeuitation schedule provided in the Multi-YearMUID Program and summarized in Attachment IV lmplementation Schedule'.

The local government of ....... and the provincial government willaccordingly undertake the necessary project preparation in accordancewith the guidelines ............ and project appraisal in accordance withguidelines

4.4 Implementation Arrangements

In accordanco with prevailing regulations, the program referred to inArticle 3.1, will be implemented by those agencies at local provincialand central government level which by virtue of those regulations areresponsible for implementation.

The implementation arrangements are farthermore regulated by SK Gubernurand SR Bupati/lalikotamadya ..

By SK ¢ubernur No. ........... the program management tasks are entrustedto a Provincial IUIDP Management Unit (PIMU) to be established in BappedaTR. I and the financial management tasks to a Provincial IUIDP FinanceUnit (PIMU) to be established in Biro Keuangtn Tk. I.

ANNEX 4G- - Page 3

By SR Bupati/Walikotamadya ........ ........ the program management taskare entrusted to an IUZDP M4anagement Unit (I=U) to be established inBappeda Tk. II and the financial management tasks to an IUIDP FinanceUnit (PIFU) to be established in Bagian Xeuangan Tk. 11.

The tendering and contracting procedures are regulated by ...........

The procurement of material and equipment are regulated by ..........

4.5 Audit

Annual auditing will be executed by BPKP in accordance with .........

4.6 Institutional

In accordance with the program referred to in Article 1, the localgovernment of .............. with assistance from the provincialgovernment will undertake institutional strengthening measurements asdescribed int he institutional development action plan (LIDAP), of whichthe main targets are sumlArized in Attachment V 'LIDAP. Targets".

4.7 Proaram Adiustment

As required the program referred to in Article 3.1 may be adjusted inaccordance with the guideline; whenever this adjustment results in achange of 20 percent or more in the magnitude and composition of overallexpenditure program referred to in Article 3.1 or in the composition ofthe financtng plan referred to in Article 3.2, this adjusted program willbe subject to approval by the Bupati/Walikota and the Governor.

In such case, the local government of .............. with assistance fromthe provincial government will undertake the preparation of a new PJM.

VI. Related Guidelines and Procedures

6.1 It is understood that, in the absence of further specific reference,the implementation of this Agreement is governed by the followingguidelines and procedures:

- IUIDP Project Preparation Guidelines- IUIDP Project Appraisal Guidelines- ZUIDP Implementation Guidelines- Procurement Guidelines- AMDAL Preparation Guidelines

VII Resolution of Disputes

7.1 Disputes arising from this Agreement or its understanding by anyparty will be resolved through consultations within the framework of theProvincial Komisi Pembangunan Kota/Steering Committee.

- 89 - ANMEX 40Page 4

VIII Effectiveness

7.1 Subject to effectiveness of the 535/IPA referred to in art 2.1 above andthe provisions in Article 4.4 above, this Agreemaent takes cffect uponsigning by both parties.

Signed on behalf of Signed on behalf ofPemda. ..... . Peont"

Dates ................ Dates

The Bupati/Walikotamadya The Governor

- 90 - ANNEX 4HPage 1

EAST JAVA AND BALI URBAN DEVELOPMENT PROJECT

LENDING ARRANGEMENT TO REGIONAL GOVERNMENTSAND REGIONAL ENTERPM.ISES

1. The Basic Concept

(a) Loans would be p:ovided to second level regional governments andregional enterprises in East Java and Bali provinces through theexisting Rekening Pembangunan Daerah (RPD) in Bank Indonesia. Thebasic legal rules followed would be those applying to loans madefrom domestically-sourced GOI funds (Pinjaman Dalam Negari - PDN).The detailed loan application and approval procedures, method ofdisbursement to borrowers, and central debt managementarrangements, would essentially follow those already developed byGOI for the full Regional Development Account (scheme).

(b) With the exception of contracts financed through direct payments tocontractors by IBRD, payments relating to loan-financed ?tlb-projects would be pre-financed from domestically-sourced funds.

(c) IBRD would reimburse the RPD Account retrospectively in respect ofthese project payments through the medium of a Special Accountestablished in Bank Indonesia (held in US dollars) for EJBUDPlending.

Cd) Different loan disbursement procedures would apply in the case ofsuch loan monies as are to be directly paid by IBRD to overseascontractors. The system used in such cases would be that specifiedin Ministerial Decree No. 48 of 1987. In other respects,procedures would be the same as those for the loans made throughthe RPD Account.

2. Application Procedure

(a) Second level regional governments and regional enterprises preparetheir borrowing proposals which are then appraised at provincialand central government level with respect to technical, economicand financial viability of the related projects and the borrowers'capacities to repay the loans.

(b) For borrowing by second level regional governments, proposals areapproved by the regional council (DPRD).

(c) Following successful evaluation of the proposals by the centralgovernment, loans are agreed in principle by the Ministry of HomeAffairs on behalf of the concerned ministries (Ministry of Finance,Ministry of Public Works, Bappenas and Ministry of Home Affairsitself).

ANNEX 4H- 91 - Page 2

(d) Formal loan agreements in a standard format are prepared by theMinistry of Finance (DDI) and signed by the Head of the regionalgovernment/General Director of the regional enterprise as relevant.

3. Loan Disbursement to Regional Level

(a) The Borrower applies to the Ministry of Finance (DDI) fordisbursement of loan funds, supporting the application with planneddisbursement schedule (RPDP) where necessary, and copies ofrelevant contract/requisition documents.

(b) The Director General Moneter orders payment of funds from the RDAin Bank Indonesia to a Project Account opened with an appropriatebank at a local level.

(c) In the course of sub-project implementation, thecontractor/supplier applies to the project manager (PINPRO) forpayments, in accordance with the payment schedule set in thecontract.

(d) The project manager and Treasurer (Setwilda)/Enterprise DirectorGeneral as relevant orders payment from the project account to thecontractor/supplier.

te) The project manager reports the drawing down of the Project Accountthrough the Borrower to the Ministry of Finance (DDI) withsupporting payment vouchers, and requests the next payment of loanfunds in accordance with the RPDP. The Director General Moneterorders the next payment of funds from the RDA to the ProjectAccount. The process continues in this way up to projectcompletion.

4. Book-keeping Arrangements

(a) Ministry of Finance (DDI) records all loan transactions accordingto borrower and loan agreement using the bookkeeping/accountingsystems devised for the RDA scheme.

(b) Ministry of Finance (DDI) recovers loan repayments from theborrower in accordance with the provisions of the loan agreementfollowing the procedure developed for the RDA schemes.

(c) The borrowing regional government or regional enterprise maintainsloan records concerning loan funds advanced, repayment liabilitiesand repayments made in accordance with relevant GOI regulatious.

5. Reimbursement and Replenishment Arrangements

(a) The project manager (PIMPRO) sends copies of payment vouchers tothe Directorate General Anggaran (TUA) of t1le Ministry of Finance,

-92- ANNEX 4HPege 3

in addition to sending original payment evidences to DDI asdescribed in 3e above.

(b) DDI requests TUA to order reimbursement from the Special Accountfor the EJBUDP lending in Bank Indonesia accompanied with therelevant evidences of payments made by the project.

(c) After a reconciliation with copies of payment vouchers receivedfrom the project as described under 5a above, TUA orders thereimbursement transfer (in Rupiah) from the Special Account.

(d) TU'. submits a request to IBRD (RSI) to replenish the SpecialAccount with the US dollar equivalent of the project payments made,acccxmpanied by the supporting payment evidences.

(e) IBRD arranges the replenishment of the Special Account (thetransaction being booked by the Bank of Indonesia as a credit/debittransfer through the BUN).

6. Direct Payment Contract

(a) In the event of a contract being awarded to an overseascontractor/supplier on terms stipulating direct payment by IBRD,the established procedure under Joint Ministerial Decree No. 48 of1987 is followed.

(b) IBRD (RSI) informs the Central Project Finance Office for EJBUDP(CPFO) of the direct payments which have been made.

(c) CPFO in turn informs DDI of the direct payments notified by IBRD sothat the loan records can be properly maintained.

7. Terms of Lending

(a) Loan repayment periods, including grace periods, will be setaccording to the economic life of each investment and anticipatedconstruction/commissioning schedules (minimum loan period 5 years,maximum 20 years; minimum grace period 1 year, maximum 5 years).

(b) The following summarizes the agreed method of calculating thedomestic lending rates and related conditions:

(i) The 6-month average of the 3-month Sertifikat Bank Indonesia(SBI) rate at the time of appraisal would be used as proxy forlmarket rate' in the calculation; hereafter called 3SBI Index".

(ii) GOI would apply the agreed discount percentage to the SBI Indexto produce an on-lending interest rate, but the magnitude ofthe discount will be reduced over time to move the on-lendingrate toward market rates in progressive steps.

-93 -ANNEX 48Page 4

(iii) The interest rate for any proposed loan to local government orregional enterprise would be fixed at time of appraisal andremain constant for the life of the loan (rounded to thenearest .25 percent).

(iv) For the EJBUDP onlending the following schedules would be usedfor calculation of onlending interest rates for each *batch oflocal governments and enterprisess

Group Appraisal Dat" Formula

Batch I Period: Prior to April 1, 1990 : 602 of SBI Index - 92(.6 x 14.8Z SBI Indexfor March 1990)

Batch II Periods April 1, 1990 -about March 31, 1992 s 702 of SBI Index

Batch III Periods about April 1, 1992 -about March 31, 1994 : 752 of SBI Index

(v) The minimum of 'floor" rate of interest for any lending tolocal government or enterprise, regardless of indexlformulareduction, shall be not less than the Bank rate plus 1.752 forBatches II and III.

(vi) The maximum interest rates of 10.5Z and 11.52 will apply toonlending for Batch II and III respectively, and sub-projectfeasibility studies shall be prepared utilizing these maximumvalues for each Batch.

(c) A commitment fee of 0.75 percent of the undisbursed amounts fromthe schedule of loan drawdown will be charged. However, GOI maywish to reduce this fee to parallel reduced Bank commitment fees,as applicable.

8. Promulgation of the EJBUDP Loans Facility

(a) The scheme will be promulgated as a special lending facility forthe EJBUDP project by means of a Circular Letter from the DirectorGeneral Moneter (MOF) to all regional governments and relevantregional enterprises in the provinces of East Java and Bali.

(b) Further detailed instructions and guidance on the loans schemeconditions and procedures will be provided to the relevant regionalgovernments and enterprises, together with the requisite forms andsample documentation, drawing on the materials already developedfor the full RDA scheme.

- 94 - ANNEX 4HPage 5

REGIONAL GOVERNMENTS' LOAN APPLICATION PROCEDURES

1. The technical department of the regional government (Dinas PU DatiII) prepares their borrowing proposals including feasibilityassessments according to standards set by the central government,and submits them to the Head of the Regional Government (KDH DatiIT), through the planning board (Bappeda) and the secretariat(Setwilda) of the regional government. The borrowing proposals arereviewed by the planning board of the regional government (BappedaDati II) on their consistency with the medium-term program (PJM)andlor regional development plan and priorities, and by the finarceoffice of the regional government secretariat (Setwilda Dati II) onthe regional governments' capacities to repay the loans.

2. The Head of the Regional Government (RDH Dati II) requests theapproval from the regional parliament (DPRD).

3. The Head of the Regional Government (KDH Dati II) asks the governorof the provincial government to forward the loan application withhis recommendation to the ministries concerned at centralgovernment level. A copy of the request is forwarded directly tothe provincial department of public works, for technical appraisal(1').

4. The Governor, Head of the Provincial Government (GUBIKDH Dati I),forwards the loan application with his recommendation to theministries concerned at central government level, i.e. the Ministryof Home Affairs (MHA), the Ministry of National DevelopmentPlanning (Bappenas), the Ministry of Finance (MOF), and theMinistry of Public Works (MPW). The provincial department ofpublic works will forward the results of the technicalrecommendations directly to the Ministry of Public Works (4').

5. Following successful evaluation of the proposals by the concernedministries at central government level, loans are agreed inprinciple by the Ministry of Finance and communicated to theregional government through the Ministry of Home Affairs.

6. The Governor, Head of the Provincial Government (GUB/RDH Dati I)informs the Head of the Regional Government (KDH Dati II) that theloan has bee agreed in principle.

7. Formal loan agreements in a standard format are prepared by theMinistry of Finance (DDI) and signed by the Head of the RegionalGovernment (RDH Dati II).

A.". EX 4H- 95 - Page 6

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ANNEX 4H- 96 - Page 7

REGIONAL GOVERNMENTS' LOAN DISBURSEMENT PROCEDURES

1. Formal contracts in a standard format are prepared by the projectmanager (PINPRO) and signed by the contractorlsupplier.

2. The project manager (PINPRO) prepares and submits the loandisbursement documentation for the Ministry of Finance (DDI) to theHead of the Regional Government (KDH Dati II).

3. The Head of the Regional Government (KDH Dati II) applies fordisbursement of loan funds, supporting the application with copiesof relevant contractirequisition documents, and a planneddisbursement schedule (RPDP) if applicable.

4. The Direktur-Jendral Monetar (MOF) orders payment trom DDI to aproject account opened with an appropriate tank at local level.

5. Funds are channelled from DDI to the project account, and theMinistry of Finance (DDI) is informed about the disbursement (5')and the Secretariat of the regional government is informed aboutthe transfer made (5').

6. In the course of sub-project implemeutation, thecontractor/supplier applies to the project manager (PINPRO) forpayments in accordance with the payment schedule set in thecontract.

7. The project manager (PINPRO) prepares and submits paymentapplication to the Treasurer (Setwilda).

8. The Treasurer (SETWILDA) orders payment from the project account tothe contractor/supplier.

9. Payment is channelled from the project account to thecontractor's/supplier's account, and the project manager (PINPRO)and the Treasurer (Setwilda) are informed about payment done (9').

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-98 - ANN.X 4.Page 9

REGIONAL ENTERPRISES' LOAN APPLICATIONS PROCEDURES

1. The regional enterprise (BUMD) prepares their borrowing proposalsincluding feasibility assessments according to standards set by thecentral government, and submits them to the Head of the RegionalGovernment (KDH Dati II)IChairman of the enterprise's SupervisoryBoard, through the planning board (Bappeda) of the regionalgovernment. The borrowing proposals are reviewed by the planningboard of the regional government (Bappeda Dati II) on theirconsistency with the medium-term program (PJM) and/or regionaldevelopment plan and priorities.

2. The Head of the Regional Government (KDH Dati II) asks the governorof the provincial government to forward the loan application withhis recommendation to the ministries concerned at centralgovernment level. A copy of the request is forwarded directly tothe provincial department of public works, for technical appraisal(1' ) .

3. The Governor, Head of the Provincial Government (GUB/KDH Dati I),forwards the loan application with his recommendation to theministries concerned at the central government level, i.e. theMinistry of Home Affairs (MRA), the Ministry of NationalDevelopment Planning (Bappenas), the Ministry of Finance (MOP), andthe Ministry of Public Works (MPW). The provincial department ofpublic works will forward the results of the technicalrecommendations directly to the Ministry of Public works (3').

4. Following successful evaluation of the proposals by the concernedministries at central government level, loans are agreed inprinciple by the Ministry of Finance and communicated to theregional government through the Ministry of Home Affairs.

5. The Governor, Head of the Provincial Government (GUB/KDH Dati I)informs the Head of the Regional Government (KDH Dati II) that theloan has been agreed in principle.

6. Formal loan agreements in a standard format are prepared by theMinistry of Finance (DDI) and signed by the General Director of theregional enterprise (BUMD).

99 ANN1EX 4cage 10

REGIONAL ENTERPRISES' LOAN APPLICATIONS PROCEDURES

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- 100 - ANNEX 4HPage 11

REGIONAL ENTERPRISES' LOAN DISBURSEMENT PROCEDURES

1. Formal contracts in a standard format are prepared by the projectmanager (PINPRO) and signed by the contractor/supplier.

2. The project manager (PINPRO) prepares and submits the loandisbursement documentation for the Ministry of Finance (DDI) to theGeneral Director of the regional enterprise (BUMD).

3. The General Director of the regional enterprise (BULD) and the Headof the regional government (KDH Dati II) applies for disbursementof loan funds, supporting the application with copies of relevantcontract/requisition documents, and a planned disbursement schedule(RPDP) if applicable.

4. The Direktur-Jendral Moneter (MOF) orders payment from the DDI to aproject account opened with an appropriate bank at local level.

5. Funds are channeled from the DDI to the project account, and theMinistry of Finance (DDI) is informed about the disbursement (5')and the regional enterprise (BUMD) is informed about the transfermade (5').

6. In the course of sub-project implementation, thecontractor/supplier applies to the project manager (PINPRO) forpayments, in accordance with the payment schedule set in thecontract.

7. The project manager (PINPRO) and General Director of the regionalenterprise (BUMD) orders payment from the project account to thecontrac,or/supplier.

8. Payment is channelled from the project account to thecontractor's/supplier's account, and the project manager (Pinpro)and the General Director of the regional enterprise (BUMD) areinformed about payment done (8').

- 101 - Page 12

REGIONAL ENTERPRISESLOAN DISBISEMENT PROCEDURES

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ANNEX 5- 102 - Page 1

EAST JAVA - BATCH I LOCAL GOVERNMENTS

TENTATIVE LIST OF CONTRACTS AND PROCUREMENT METHOD

Average valueper contract (RD M) Number of contracts

Contract Details ICB LCB Other ICB LCB Other

Equipment (Rp 5,062 million)Trucks, pickup trucks,dumptrucks, rollers,tankers workshopequipment, etc.1 contract per cate-gory per annum 461 165 1S 2 24 16

Handcarts1 contract per Tk.II - 16 11 - 9 14per annum

Laboratory/office - - 4 - - 10

Materials (Rp 9,193 million)Small diameter pipework,etc. - 342 - - 12 -

Large pipework, etc.Grouped into at leasttwelve contracts - 379 - - 12 _

Service Connections2 contracts per Tk.II(pipework, meters procuredseparately) - 96 - - 25 -

Leak detectionibulkmeters - 57 15 - 3 2

Mechanical & ElectricalSupply/Install (Rp 1,849 million)Pumping Plant7 contracts, (7 locations) - 89 - - 7

Chlorinators /treatmentplant11 contracts, (11locations) - 43 - 11

Lamongan - all works atleast 2 contracts - 377 - 2 - -

Subtotal Contracts 4 103 42

- 103 -ANNEX 5Page 2

EAST JAVA - BATCH I LOCAL GOVERNMENTS

TENTATIVE LIST OF CONTRACTS AND PROCUREMENT METHOD(continued)

Average valueper contract (Rp.M) Number of contracts

Contract ICB LCB Other ICB LCB Other

B/fwd 4 103 42

Civil WorksRoads (Rp 22,048 million)Artery:1 contract for 2 roadsper annum - 240 - - 20 -

Collectors1 contract for 3 roadsper annum - 245 - - 50 -LocaltSmall packaged, mostsmall - 80 15 - 10 103Feasibility studys1 contract per road - 30 - - 5 -

Sanitation (Rp 4,120 million)Multiple facilities - 112 - - 10 _Kuta pilot sewerage - 500 - - 6 -

Drainage (Rp 5,402 million)Dred8ing & cleaning(some packaging) - 170 15 - 8 12Upgrading channels(some packaging) - 250 15 - 13 41

Solid Waste Manaaement(Rp-717 million) - 100 15. - 2 34

Kampung Improvement(Rp 2,062 million) - 130 15 - 5 94

Market Infrastructure(Rp 868 million)Rogojampi - 344 - - 1 -

Others - 156 15 - 1 25

Water Supply(Rp 10,397 million)

4 Water towers - 403 - - 4 -3 Wells - 155 - - 3 -

Other works - 333 - - 25 -

Total Contracts: East Java (Batch 1) 4 266 351

SurbayaLarge diameter pipe andpumping plant 4,500 5 - -

ANNEX 5- 104 - Page 3

BALI - BATCH I LOCAL GOVERNMENTS

TENTATIVE LIST OF CONTRACTS AND PROCUREMENT METHOD

Average valueper contract (Rp M) Number of contracts

Contract Details ICB LCB Other ICB LCB Other

Equipment (Rp 1.4 billion) LaTrucks - 50 - - 5 -Pickups - 25 15 - 1 2Dump Trucks - 55 - - 5 -Rollers - 50 - - 3 _Asphalt Sprayers - 20 - - 1 -

Road Maintenance Sets - 50 - - 1 -

Sludge Trucks - 30 - - 2 -Rubbish Bins - 50 5 - 5 5Hand Carts - - 3 - - 13Other - 30 15 - 5 5

Materials

PDAM Denpasar (Rp 7.6 billion)Large diameter pipes 3,490 - - 1 - -

Large diameter pipes 1,029 - - 2 - -

Small diameter pipes - 321 - - 5 -Service connections - 150 - - 2 -Flow meters etc - 30 15 - 2 2

Other PDAMs (Rp 2.0 billion)Large diameter pipes - 212 - - 2 -Small diameter pipes - 180 - - 6 -

Service connections - 60 - - 12 -Plow meters, etc - 25 4 - 2 2

Mechanical and ElectricalEngineering Works

PDAM Denpasar (Rp 3.5 billion)Treatment works 2,053 - - 1 - -

Other - 470 - - 3 -

Other PDAMs (Rp 0.4 billion) - 60 - - 7 -

Subtotal Contracts 4 69 29

la Only vehicles procured under ICB will be eligible for IBRD financing.

ANNEX 5- 105 - Page 4

BALI - BATCH I LOCAL GOVERNMENTS

TENTATIVE LIST OF CONTRACTS AND PROCUREMENT METHOD

Average valueper contract (RP M) Number of contracts

Contracts Details ICB LCB Other ICB LCB Other

B/fwd 4 69 29

Civil Works

Urban Roads (Rp 10.2 billion) - lSO - - 14 -Named Roads - 150 - - 10 -

Named Roads - 150 - - 28 -Local Roads - 150 15 - 6 100

Sanitation (Rp 0.7 billion)Substructures - 100 8 - 1 6Substructures - 100 15 - 2 10New facilities - 100 15 - 1 5

Drainage (Rp 5.7 billion)Dredging/cleaning - 20 - - 5 -Dredging/cleaning - 20 15 - 1 4Upgrading/new works - 130 - - 6 -

Upgrading/new works - 100 - - 20 -Upgrading/new works - 150 15 - 1S 30

Solid Waste Disposal(Rp 01. billion)

Construction: Transfer Station - 50 - - 1 -Access roads - 35 5 - 1 4

Kampung Improvement(Rp 2.8 billion)

General Works - 55 1S - 15 15General Works - 40 - - 8 -General Works - 50 15 - 20 30

Market InfrastructureRp 0.2 billion)

General Works - - 15 - - 12General Works

Water Supply (Rp 5.8 billion)Denpasar - 150 - - 25 -

Other - 100 15 - 20 10

Total Contractes Bali 4 268 255

-106 - ANNEX-6Page 1

EAST-JAVA-BALI URBAN DEVELOPMENT PROJECT

Disbursement Arrangements for the IBRD Loan

Funding Channels for the EJBUDP

The IBRD Loan proceeds would be channeled to the EJBUD Project through thefollowing four methods:

1. IBRD-financed portions of Public Works Department DIPs, to be paidfrom the EJBUDP Special Account ("DIP Rupiah Rekening 1husus",usually abbreviated to *DIP Rp R1K). These could consist of bothamounts to be paid in Rupiah and amounts to be paid in foreigncurrencies, but DIP documents do not distinguish between these twocategories (the division may not indeed be clear at the time of DIPpreparation);

2. IBRD-financed grant transfers for direct use by local governments('SPABP Grants-) also to be paid from the EJBUDP Special Account;

3. IBRD-reimbursement of Central Government Loans to local governmentsand local government enterprises, through the EJBUDP SpecialAccount;

4. Direct Payments in foreign currency by IBRD contractors (wheredeemed appropriate). These could relate both to Public WorksDepartment DIP budgetary allocations ("DIP Pembayaran Langsung',usually abbreviated to 'DIP PLO) and to on-lending allocations.

The domestically-sourced counterpart funding by government agencies ofdevelopment expenditure within the Project would be channelled through:

5. domestically-financed portions of Public Works Department DIPs)'DIP Rp APBN', sometimes also referred to as "DIP Murni");

6. local government and local government enterprise contributionsfrom:

(a) local governments' own revenues and revenues assigned to localgovernments from higher levels ('PADS/PBB');

(b) Inpres Dati II grant from central to local governments;

(c) Inpres Jalan grant from central to local governments;

(d) province government grant to local governments (OSBD');

(e) internal funds of local government enterprises.

(There would also be funding for Project expenditure from:

- 107 - ANNEX 6

- provincial government budgets directly;

- local government and local enterprise revenues for O&Mexpendituress

- local enterprise internal funds used to wholly finance certaininvestment expenditures; and

- private sector contributions,

but the IBRD loan will not be disbursed against such expenditures).

Payments Made in Rupiah

DIP Channel Financing - Central Government Sub-project Components

In the case of components of sub-projects for which central governmentagencies have sole implementation responsibility, procedures would largelyfollow those established for previous IBRD-financed urban projects. The DIPdocument would specify the IBRD-financed share of the sub-project component asRp RK funding together with the domestically-financed counterpart share as RpAPBN funding in accordance with the specified IBRD disbursement percentages.For example, for a DIP relating to one or more civil works contracts, 70percent of each civil works contract sum would be specified as funded from RpRK funds and the balance of the contract amounts, together with all ineligibleexpenditure (for overheads, etc.) would be specified as financed from Rp APBNfunds.

Payments to local contractors would be made through the State Treasury officesin the relevant capital (KPKN) - the contractors would not have to go toJakarta to be paid.

-SPABP Special Grant" Channel Financing

Sub-project components to be financed by IBRD loan proceeds passed as grantsto local level through the SPABP channel will normally also have a counterpartfinancing amount from the local governments' own revenue sources (PADS, normalInpres grants, etc.).

Local governments will prepare each year a draft EJBUDP budget submissionsrepresenting their implementation plans for sub-projects to be financed fromSPABP special grant in the forthcoming budget year of their approi,ed medium-term programs (PJMs). These draft EJBUDP budgets would be submitted throughthe Provinces (with review by the provincial Technical Team) to centralgovernment. After central review by Bappenas, Ministry of Finance andMinistry of Home Affairs, D-G Budget of the Ministry of Finance would issue anauthority (SKO) to KPKN in the provincial capitals to disburse up to specifiedsums, to be drawn on the EJBUDP Special Account, for each relevant localgovernment in respect of contract payments properly authorized under localgovernment DIPDA budgetary procedures.

ANNEX 6- 108 - Page 3

Local governments would then prepare draft development budget authorizations(DUPDA) for the relevant sub-projects, specifying, as Rp RK, the amount offunding to be provided by IBRD through the EJBUDP Special Account, inaccordance with the specified disbursement percentages on eligibleexpenditure. The DUPDA would also show the counterpart funding amount(s) andsources(s) to be provided from the local government's own normal revenuesources. The local governments would also make appropriate provisions intheir draft development budgets (APBD Pembangunan) for these expenditures andtheir funding sources. Following APBD approval by the local RepresentativeCouncils (DPRD) and ratification by provincial governors, DUPDAs would beindividually approved by Governors with the advice of the provincial TechnicalTeams, and thence by local government mayorslregents, thereby becoming DIPDAsauthorizing the implementation of the relevant sub-projects. These proceduresare standard in local governments.

Each implementation contract would be written specifying one funding source asbeing from KPKN, representing the IBRD funding share, and one (or possiblymore, although one only is highly desirable) supplementary local fundingsource.

Exampless

1. A civil works contract could specify funding of 70 percent fromKPKN as the IBRD share, plus 30 percent from Bank Rakyat Indonesiare. Inpres Dati II as the local counterpart sharet

2. An equipment supply contract awarded to a domestic contractor couldspecify funding of 100 percent of the ex-factory prices from KPKNas the IBRD share, plus the balance of the contract sum,representing local transport overheads and taxes, from Kas DaerahDati II (PADS/PBB) as the local counterpart source.

For each stage payment the contractor would be paid through the issue of two(or, in exceptional cases, more) payment orders: one (or more) drawn on theappropriate treasurer for local counterpart funding source, and one issued bythe KPKN in the relevant provincial capital. Before certifying the latterpayment order, KPKN would verify that the counterpart payment order(s) hadbeen drawn for the ccrrect amount in accordance with the specified IBRDfinancing proportion. DG Budget of the Ministry of Finance would issue aCircular Letter to KPKN in Surabaya and Denpasar instructing them to undertakethis duty of verifying that the counterpart funding contribution has beenmade. Again, local contractors would not have to go to Jakarta to be paid.

Central Government Domestic Lending Arrangements

It is agreed that these loans would be made using the Domestic LendingArrangements (DLA) of the Ministry of Finance Directorate of Investment Funds(MOP-DPI) (See Annex 4-H for description of processing). DDI would advance aninitial tranche of money for sub-project Payments and be 90 percent reimbursedfrom the Special Account on the basis of the requisite payment evidences and

- 109 - ANNEX 6Page 4

supporting documentation (see "reimbursement from, and replenishment of, theSpecial Account' on page 6).

Budgetary authorization for the Special Account drawdowne would be providedthrough the Rencana Anggaran Tahunan (RAT) procedure. DJB would orderadvances of monies from RDA to a designated Sub-project Account in a localbank, on which payment orders would be drawn in favor of contractorsisuppliersby the sub-project implementing agency (Pimpro/Bendaharawan Proyek). Thelatter would then submit copies of the payment orders and other supportingdocumentation to DJB (DDI) for further advances and for DLA reimbursement fromthe Special Account.

(Notet DJB (DDI) are unwilling to agree to loans for projects which wouldfinance procurement made under bulk purchase contracts covering a number ofborrowers in which those borrowers are not directly-contracting principals.DDI also has reservations about an arrangement under wnich each borrowingregional government or regional enterprise concludes a separate procurementcontract with a single nominated supplier selected on their behalf under opencompetition).

Further details of the envisaged possible on-lending arrangement is providedin Annex 4H.

Maintenance of PFAMS Records

Implementing agencies (Pimpros) would be responsible for notifying PFOs in therelevant loca.l governments of all payments made - through the provision ofcopies of certified payment orders (SPM) - so that the payments can berecorded in the Project Memorandum Accounts (PFAMS). These copy paymentorders must be provided individually at the time the transactions take place.

Payments Made in Foreign Currencies

Where deemed appropriate, certain technical assistance, training and ICBprocurement contracts would be paid in foreign currency. In certaincircumstances the payments would be made directly by IBRD; in other cases theywould be made from the EJBUDP Special Account.

Whe-e the foreign currency payments relate to Department of Public Works DIPbudgetary allocations, the DIPs would be drawn up in an analogous way to theprocedures described above under 'payments made in Rupiah*. In some cases itcould happen that a single DIP document specified funding from all modes,namely:

DIP Rp RK (denominated in Rupiah, but including the estimated Rupiahequivalent of possible foreign currency payments made from the EJBUDP SpecialAccount);

DIP Devisa Pembayaran Langsung (denominated in US Dollars, irrespective of theactual currency of payment);

ANNEX 6- 110 - Page S

these together representing the IBRD funding share in accordance with thespecified IBRD disbursement percentages, plus

DIP RP APBN,

representing the central government domestic counterpart share.

Where the foreign currency payments relate to sub-project components financedunder the envisaged central government on-lending scheme described above, theRAT budgetary authorization documents would be drawn up in a manner analogousto that just described for DIP documents. The RATs would be drafted byproject Implementing agencies of the borrowers (Pemda Tk II or BUMD) andsubmitted in the first instance to DDI.

Direct Payment Arrangements

Established standard procedures would be followed whereby IBRD makes thepayments to the contractor on the application of the relevant EJBUDPimplementing agencies through Bank Indonesia. In the case of direct paymentsrelating to contracts financed under on-lending agreements, implementingagencies would submit the payment applications to Direktorat Dana Investasi(DDI) in the Ministry of Finance, who would pass them on to Bank Indonesia.

IBRD (RSI) would periodically notify CPFO of all direct payments thus made.CPFO would in turn be responsible for notifying PFOs in each local governmentof the relevant direct payments made in relation to their local government'sPJM, so that the payments can be recorded in the Project Memorandum Accounts(PFAMS). In the case of direct payments relating to contracts financed underon-lending agreements, CPFO would also notify DDI in order that the paymentscan be recorded in the borrowers' loan accounts.

(Notes Concerning Direct Payment contracts in relation to on-lendingagreements, see the Note under 'Central Government on-lending^ above).

Payments from the Special Account

Payments for elegible expenditures would, on application by the relevantEJBUDP implementing agencies, be ordered by DG Budget (TUA) directly from theEJBUDP Special Account. For such payments relating to contracts financedunder on-lending agreements, implementing agencies would submit the paymentapplications to DDI, who would in turn forward them to TUA. The processnormally involves the issue by TUA of two payment orders ($PM): the first SPMspecifies the payment amount in the relevant currency, together with theestimated Rupiah equivalent; a later, supplementary SPM is issued to adjustthe Rupiah equivalent to the actual figure notified by Bank Indonesia at thetime of payment. (This latter SPM shows the Rupiah adjustment only, and can,of course, be for a positive or negative amount). In the case of suchpayments relating to DIP authorizations, the official copies of these two SPM

- 111 - ANNEX 6Page 6

intended for the Ministry of Public Works would be sent by TUA to theCPFO/1, which would be responsible for (a) sending photocopies to the PFO inthe relevant local government so that the transaction can be recorded in thePFAMS, and (b) sending on the official copies to the relevant DG in theMinistry of Public Works. In the case of such payments relating to RATauthorizations in respect of the envisaged on-lending arrangement, theofficial copies of the two SPMs would be sent by TUA to DG for MonetaryAffairs (DDI) who would record the payment in the appropriate borrower'saccount and also send photocopies of the SPMs to the PFO in the relevant localgovernment.

Reimbursement from and Replenishment of, the Special Account

EPIN, through the local branch of Bank Indonesia would directly draw on theEJBUDP Special Account in respect of payments made under the DIP (Rp RK)channel.

Reimbursements from the Special Account to the RDA in respect of payments madeunder the envisaged central government on-lending arrangement would be orderedby DG Budget (TUA) on application of DDI supported by the followingdocumentation:

(i) the payment orders (SPM)-) drawn by implementing agencies(namely, Pemda Tingkat II and PDAM) on the local sub-projecton-lending bank accounts;

5ii) certificates of Performance (Berita Acara) issued byimplementing agencies;

(iii) copy of IBRD 'No Objection Letters in the case of civil workscontracts with a value of US$ 500,000 equivalent and over, andgoods supply contracts with a value of US$ 200,000 and over.

On the application of D-G Budget (TWA), IBRD would replenish the SpecialAccount quarterly or when the balance in the Special Account becomes 50percent of the initial deposit, whichever occurs sooner in respect of thesedrawings. In the case of civil works contracts with a value of US$ 500,000equivalent and over and goods supply contracts with a value of US$ 200,000equivalent and over, and all contracts for consultancy services and training,the replenishment applications would be supported by the followingdocumentations

(i) the payment orders (SPM or SPMU) issued by KPKN offices, ordrawn on local sub-project on-lending bank accounts, or issued

1l Authority for TUA to do this, and for the role of the CPFO in thisrespect, will have to be provided by the Ministry of Public Works,either through an SI of the Secretary-General, or through a joint SK ofDir-Jen Cipta Karya, Bina Marga and Pengairan.

-112- ANNEX 6Page 7

by TUA in respect of foreign currency payments from the SpecialAccount;

(ii) certificates of Performance (Derita Acara) issued byimplementing agencies;

(iii) copy of IBRD 'No Objection Letter".

In the case of civil works and goods supply contracts/orders with values belowthese limits, the replenishment applications would be supported by Statementsof Expenditure (SOE). The detailed supporting documentation in respect ofSOEs would be retained by TUA and implementing agencies, and made availablefor review by IBRD on request.

-113 -P age 8

-113 -

EAST JAV-AlUl URBMN DEVELOPMENT PROJECT

(US ililons)

Urban s*ctor prof-ile torOiabur eeent Cuuletive Indonesle

Semester ending In sefmeter Cumultive amount percentage cumulativo percentage

June 80, 1991 8.6 8.6 1.9 0.0

Decmber 81, 1991 6.9 12.4 8.0 0.0

Jun. 80, 9M 19.6 81.9 18.6 2.0

December 81, 1992 19.2 61.5 29.0 7.0

Jun. 80, 1998 19,9 71.4 89.6 14.0

December 81, 1998 20.0 91.4 50.7 26.0

Jun. 80, 1994 20.8 111.7 62.0 87.0

December 81, 1094 20.0 182.6 78.6 46.0

June 80, 1995 19.7 162.2 84.4 52.0

December al, 1995 16.7 170.9 94. 568.0

June 80, 1996 9.4 160.8 100.0 64.0

December 81, 199 - - - 70.0

June 80, 1997 - - - 76.0

December 81, 1997 - - - 01.0

June 80, 19 - - - 865.0

December 81, 1996 - - - 00.0

June 80, 1999 - - - 96.0

Decoeber 81, 1998 - - - 100.0

* The disbursement schedule 1s shorter then the standard Dank proftle becwuse the propoWed Loanis a programmatic operation supporting an expenditar. program that includes no new or complexsubprojeet and which la not significantly larger In real term than program aIreadyloplemented successfully In the same province (me Chapter IV, Section C).

A6m

- 114 - Page 9

INDONESIA

gASt JAVA - A_LI IJR_N OELOPMET PROJECT

Calculatlon of Sank Disbursement PorcnteMl

Total Pror Disburegento *jn0Np In b m Pore nt Rp bnl a

A. Program Intfrstructure Development A OAMExpendtlure finnned by RDA loans

Melons minl water supply prograumL 10.0 5.8 0 0.0 0 0QOther water enterprise loans 81.0 42.6 g0 72.9 88.8Loans to local goveronmnt 28.6 12.4 s0 21.2 11.1

Other Expenditures

Land acquisition 11.0 5.8 0 0.0 0.0Civil works 210.9 120.9 7O 146.0 77.9IC8 equipment & msterrls 17.6 9.8 0 17.6 9.8Taxes & duties on I0C oquipment A mterial 6.2 2.7 6a 0.0 0.0LCD equlpment A material 28.1 14.8 6e 18.2 9.6Current Om exponditure 180.6 68.7 0 0.0 0.0Incremntal DAM expenditure 52.4 27.6 0 0.0 0.0

Contracted design A supervision 25.0 18.1 100 26.0 1S.1In-bouse deeign and supervision 11.9 6.8 0 0.0 0.0

Civil works and oquipment noteligible for I8RD loan disbursement

Wator enterprise Internally fundedInvestmnts 21.6 11.4 0 0.0 0.0

Expenditure financed by privatecontributions 18.1 6.9 0 0.0 0.0

Non-ICe-purchased vehiclee 4.8 2.5 0 0.0 0.0

S. Program Management and InstitutionalDevelopment

Amount financied by Sank Loan 80.6 16.1 100 80.6 16.1Amount financed by Japanese grant 8.0 4.2 0 0.0 0.0

Total Project Cost /b 666.5 860.5

less taxes and duties 47.4 24.9less current 0W 180.6 68.7les land cquieltlon 11.0 5.8

Net amount eligible for I8RD 496.4 261.1 69.1 842.6 1800.3L

b Malang loan comited prior to appraisal of projectl not included In I8RD loan.E b xeluding lnterest during construction.

cIncludes 84.8 million plae d in the unallocated category.

- 115 -!ULINDONESIA

EAST JAVA - AL URMAN SEVELOPUENT PROJECt

Kew !oms.mntat10n and Performance Indicotors and R.oorClnc Sxstms

Rweortingifrquency *and Reporting

Sndlcators r epon1btility to3

1. Prmg _ mplementatlon Agrement*tnlization sid *lgning hehdule cartrly

PPIO 1) CPMO1iCPMO (21) TiKPP/IMOCPVO ~~~~~nd IDNO

2. Expenditure program and subprojctappraisal schedule by provincall torms quarterly

(1) PPMO () CPMO(2) CPUO (2) TKPP/!ma

*nd 13508. Conformity of annual budget allocation

with approved expenditure program andfinancing plans annual

(1 PFO (2) PFO(2) PPFO (2 CPfO() CPfO (8) 4npo'G

and I=5

4. Conformity of *acul expenditures withbudget i loations annual

(1) PFO (2) PPfo(2) PPFO (2) CPfO8) CPF (8) TKPP/ZIM

end I=N

S. PIL/AAL preparation scedule uarterly(1) PUO (2 PPMO(2) PPW O CP(O08) CPO () TKPP/flm

and 13R

B. RAP/LIDAP targe and tlim table gureXrly(1) PMO (1) PPMO(2) PPIIO t2) CPM^O(3) CPMO (8) TKFp/ZlU

Loan disbursement target. quarerlyCPFO TKPP/ZIU

and I8RO

S. Consulting er"vie implementation schedules,particularly tassgnment strt quarterly

CPMO TKPP/IU0and IN

S. Physlcal Prore per local governmnt qrterly PPO

10. Procuremnt schdules quarterly(1) PPMO 1) CPMO(2) CPIIO 2) 1KP/IUQ

and 195

- 11j - __ __

E"T JAVA - MU EN DEVIELOPENT MROJECT

Loeal o2ernment Promle"

Eust JtAv Loal Governmnt

Administrative Total Population Urban Populotion Urbn PopultlonLocal Status Population tUWS Proj NUDS Projection@overnmant 1910 1990 190 1990

(R_leit ProJ) (Total) (> 600 inh ) (

1. Mojokorto Kotamadya 96,766 79,600 107,164 107,1842. Paouruan Kotmadyn 167,627 129,484 160,806 160,808S. Probollanggo Kotamadys 162,820 119,616 I 144,289 I 144,2694 Kediri Kotamadys 28,718 222,009 244,728 244,728 1S. Sumoep Kabupoatn 061,420 67,826 67,26 S 18,0436. Lamongan Kabupaten 1,820,006 186,462 186,482 132,0627. Bnyuwangi Kabupaten 1,8699,07 564,881 564,861 684,861S. Sldoarjo Kabupaten ,A1,142,8 274,665 274,86 2568,8599. Jaber Kabupaten 2,066,879 402,067 402,019 402,019

Sub Tote 1 7,576,420 2,015,676 2,141,556 2,114,938

BATCH II10. Situbondo Kabupeten 676,168 156,686 156o,10 16,61011. Lumajang Knbupte,n 946,968 127,264 127,2688I 127,26812. MaIang I Kabupaton 2,866,004 227,00 227,60o 227,80018. Pasuruan Kabupaton 1,162,146 190,618 190,612 162,64914 Tulungagung Kabupaten 940,666 205,249 205,249 190,617|15 Ponorogo Kabupaten 688,758 78,697 | 78,6997 7 7,897Io Jombang Kabupaten 1,049,816 155,584 I 15S,584 150,S9 17. Madiun Kotoadys 206,840 168,426 240,066 240,65616. Bonjonegoro Kabupaten 1,202,190 127,688 127,682 121,82 119. Tuban KabupOten 1,029,760 92,096 92,098 92,098 |20. Oreslk Kabupaten 682,611 159,688 159,886 148,986121. Bangkalan Kabupaten 759,447 52,918 108,747 95,664 I122. Blitr KoIa dys £80,142 120,147 185,916 1 185,91828. Sa=ng Kabupaten 709,947 50,995 | 54,806 s 50,00924. Pamsoan Kabupaten 689,a86 55,179 56,179 j C0,277ISub Tota I I

| Sub Tot l | l$~~~~1,513,878 1,990,425 2,109,2883204,7

BATCH III125. Oondowoso l Kabupaten 677,266 51,200 1 51,200 5 51,20026. Probollnggo Kabupaten 675,796 77,462 I 77,462 1 68,49827. Mojokerto Kabupaten 918,025 61,111 1 61,110 I 56,612 1I26. KWdiri Ka ISupaten I 1,89,16 06,499 I9 9 9 81,898

129. Blitar l Kabupaten 1,069,626 66,560 I 66,560 66,560.0: Trongpl.k KCabupaten 662,411 |88,29 86,290 86,296

81 Pecit tn | K*tpen o W506,864 16,622 16,622 186,22I2. tonjuk l Kabupaten 1 97,5886 116,761 116,761 110,658 188. Madlun I Kabupaten I 686,560 42,561 42,561 42,561 1a4. Magtan Kabupaten I 699,064 61,665 61,685 59,4618ss. Ngawi Kabupaten 961,821 30,714 10,714 10,71418. Ialang Kotmadys 662,868 662,866 662,868 662,86e

Sub Tabs I 9nenaaea.a I ana.Il Sub Totl I 1 9,661,89 1 1,88,061 | 1,848,166 I 1,809,1665

7Totua I 80,970,157 5,854,168 5,596,s65 5,465,572I 87. Surabtys Kotamdya 2,867,840 2,867,840 2,867,640 2,867,940Otber Urban 17,549 17,549 17,549 17,549 1New Urban 30,000 30,000 80,000 80,000

ITotI II 88,865,546 7,769,652 6,014,244 7,680,961

-117 -N

DV87 JAVA - MUs uIM 2 Monaiiocl Oovernint Prof Il.t East avaL EiLch ?

Urban Popul;- Loc;tion _ _ _t _ _ _ _et UrentNo. LQ-aL tion Projection in Important Development CIty Probls

Governeent 11989-19P) e. Java =conom Prioritlec Function to be(IUIDP) Sector. Solved

1. PrebolIngeo 2 S p.m North Comet 7,6,T .1.4,2 O,D,A,F,O I, 21

2. K edri 2,Se p. Inl and 4 (CIrrettee, A(l),i,t,Q.E S, I Traffic Managementsugar)

S. MoJokerto 2,211 p.* Inland 8. t, 2 A,D,F,G,E S, SS, III DOrainae ste

4. Paeuruen 2 S p,o North ConOt 4 (Mom.) C,D.,OB.F.E I

S. Benjuuangl 1.75 p.m E"t Comet 8. I, 6 A.D.F.B.0,E IV

- tcncmr 0,B6 p.a bat Comet 4 (Filh conning) A,D,C,i

- Rogoja*#I I t p.n Ebat Coaet S, 6 F Rehebilltetlonof locol mrket.

- GOnteng I S p.a Eist Coaet D,C,A,e

6. Suop 1.61 p.o eat Coast e. 4 (melt) A.C.D.9,F Iof Madura

7. Lamongan 1.55 p.m North Eset 6 A,0,9.0 I Flooding

8. Jesber 1.75 p.m Mountani)ue 6 A,.D,,C,C S, SS, III814carjo 2,511 P. (In"ad

9. l4doerJo 2,8 p. Inland 0,4.8 A,V,C,8 I, SI

Econoic Sectore - Clt Function D v.lopment Poritles

1. Traneportation I, Adminietrative Canter A Water Supply syste2. CeomunIcation II. Comerelal Centre S. Solid aste Management8. Trade 1Ut. Educational C. brain*g 4. lIdustry IV, Regional Development 0D urban fede5. Public Alinistration Centre E. KIP6. Agriculture P. mile?

w.Ii as ate

118 - Page 8

EM JAV~A-NU LMUM REO=VLPU PROJ!

Be I Loc I Oovarnefl

Adminletration Total Population Total Urban Urban Population Urban Popuiltln fatlatedLocaL Status Populstion t40S Proj NUDS Projection IUIDP iunctional

Covornment 1990 1990 1990 19 Urban Population(ResIat Proj) (Total) ( O I0 Projection

1 2 8 4 b' 6 7

BATCH I

1. IADO KAUPATEN 890 200 480,040 872,828 872.28 278.2742. OUJLO KAIMArN W80963 148,808 184.778 149.902 6u.868. JMAq KA5WPAT7N 207,888 838008 82,088 82.08 81.2794. KUN.O1 iASPATiN 138.89 48,850 290840 29,040 29,08

SUB TOTAL 1,484,888 692,714 8",998 t84,124 406,968

BATCH 11

S. TAOANMN KARPATB4 880 200 72 542 81 202 89 796 80oe406. IAWAR N AWJPATEN 828,042 181.980 90,648 90,496 88.7977. BDJ4U (AUUPATBN 174.172 as,710 82,081 48760 to.0740. KARANOASS4 KALJPATEN 847?976 07,676 76607? 78,07 42,284

SUB TOTAL 1,18,890 ' 8se0.51 278,208 258,667 127,788

T 0 T A L 8,eeo,24s 1,048,280 062,280 089.91 884,721

Notes

(4) Bseod on propoaed urban area

(8) Coabinatlon figures between11 regilatred urban population by tLUS

and the other propoad urban area

(7) Derived from functional urban areaIn 1980 and In 1994Criterion functional urban area

- Reldential Density > 80 P/h.- Urban Facillties > 8 kinds- Ariculture Employment > 2SX.

EAS JAVA -BALI MOMA DE4VELOME ROEC

Bali I atch I Loc4 Ioverniments

Urban Popula- I Location most II I Most UrgenNo. I Local tion Projectioni In Important ID.velopmentl City I Problem

Government 1999-1i968 ali l Economic G Priorities Function to beI (IUIDP) Sectors Solved

----------- -------- ---- --- -------- … --.---

1 i3ndung 1.98 South Coast 7,6,8,1,4,2 A,S,C,D,C I, II, III, IV Traffic, Solid

2. Sul-lon 1.68 North Coast 0,8,4,7,2 C1 AO I, II, III, N Dranage

8. Jesbrana 1 80 South Const 6,2 1 A,B,E I, TV

4 I Klungkung 1 88 South West 6,4 8,D,E I, IV

Economic Sectors : City Functions Oevclopment Priorities

1 Transportatlon I. Administrative Center A. Water Supply System2. Comunication II. COmmercifl Centre S. Solid Wast8. Trade III. Educational C. Drainage4 Indusery IV. Regional Development 0. Urban Roads5. Public Adnalnstration Centre E. KIP6 Agrioculture F. VIIP7. Tourism 0. Human Waste

-119 - AMEX9-119-~~~~~~~*

INDONSIA

g Jva - U ~ -EVELOMSIT MOJECT

RtAp Su_mmry tost Java.

NR Action Purpose

Assessment of Potential

1. Carry out Identification and description Availablity of a good (data) bao *_.-of tax objecte/subjecta with *illd *un- sent of coverage ratio, collection natio,

vey, by D spenda alon but a*luo by tax/foe management, and financial planning.oer acies. Adequatu rsch mnsthat the eulte are: (1) quantified;(2) accurate; (5) acceseible (computerprints, reports); (4) up-to-date; (5)

2. Application of Mapatda, also for ll 2 proved r*gietration of tax/rate peyer.,suitable few and charg". which will automatically tmprove coverage and

collection ratios. Better performance by thelocal reven gseerating executive agenieswlth the help ot the b4tter data.

S. Collaboration with other agencls In the Improved" uallty of database for revenuesform of exchange of Information. potential. Available of a key to mesure per-

4. Have good records (sufficiently accu- Constant reasooesmnu t of potential and seriousrate, detalled and up-to-date). D0emnd evaluation of prtormance.adequate documentation from tax/ratepayers where relovant.

5. Analyse ..- roved dat tn order to Correction of underestimatione of potetlil,as*ess shortcomng in perfone_ and caused by mainly relying on pst per nestrengthe affectivity of menitoring and In stting targes, and lack of reserch.supervison.

3. Easily applicable legl base (tax law, Assessmet of potetial as quick and accuratePords, #t, ete). as posible.

Increa" of Potential

7. Reviow tariffs tn Perda every 8-5 yers. Development of potetial follows econmicIncraso In line with Inflation, deelopment.incrase tn paymet ap"acty, etc.

Optiml tariff levls for *ee/harge.S. For ftss and charg, consider the type

of services-comrelal: hould In principle rcosts of an effilcent service, utshesd he affordable for payers In acaegory, and should net hinder devlop-sent of th econmie setor Ifconsilderod deirble.

- socal should b ffordabl forthetnx/re pay*er of the categories.

g. Improve qullty ot ""Ice for which Relatively high tariff levls are bettercharSgd *.. Solid Waste Disposal, accepted by the public.cleaning of market.

10. Review structure of tariffs. Simplify Easier application, lse mliundewstandingwhore posiblo In order to maximize betwee offi cials and tax/rat payore,revenue. Increased IwillInnes of the public to pay.

- 12') - ANNE 9rose 2

11. AppIl Perds more strictly. Apply Stricter application of rules enables bettercaution In the " of discounts, mnttoring and control and lmproveo clartfy of

the revenue generating proce.

Ifl. Realization of Potential

12. Strengthen planalag and monitoring func- letter ""paratton of functions, so that theytions of Ped. U1 (fagt n Keuangan), can be better peformed by the agenle aIrea-garticularly for potential assesment. dy ssigned to them.rlintlsh planning function of Olspenda.

Is. mWpoveo coverage ratio (automatic If Improved tax mentality, more revenue.good sesUemnnt of potential. goodregentration and good monitoring of per-formance are all carriod out).

14. mprove collection retio: Improved tax mntelity, more revenue.- monitoring (effective control of proper

application of the rules);- enforemnt: fterop action In case of

uejustifled o-pay"ent, lafge fines ofnon-payment after adequate earning.

16. Derease rrearo, by writinS off arrsre r proved tarx metllty, more revenue.of evr e.g. 5 years old; start juridi-cal Procings aaint seriously d11h-quent tax/rate payers (met likely bybaliliff action).

16. Ensure an adequate lgega basis to enable Improvd tax mentality, more revenue.effective enforcements

- fines high enough (at l1est 2-S tilmthe sum owed)

- fast and copiet Juridical procesingof delinquent tax/rate payers.

17. Improve admnistration. In particular, All obligation of a tax/rate payer can beexpend Mapetda me thot all obilgations d qulckly. PlnaScisi audit Is fasillta-of a tax/rt payer are covered, ted.

15. Improve available equlpment (computers, Improved and up-to-date databas. Leoler mon-motrbikes). itorlig.

19. Increase intives, *.g. for Implement- Setter motivation and performnc of all offti-Inm aaptd nd ldentifIcation of tax clsis conernend.

20. Smprove srvice level where payingmentality Is suffering frm Imbalancebetween service provided and paymentdfemnded (cleaning markets, POAM etc.)

21. Know the cost of revenue generation for Efficlent us of limited reeoures.aI Important taexs and fees/charge.

22. Concentrate avallable resource Inaximizisng revenue collection from major

taxes and fe/charges, and from thosewlth good growth potential (it theyyi-ld more then they costi). Minimizresoures spent on unimportnt taxme andfe/chars and on theo with lowgrowth potential. Sut consider bothsides:

- net revenue generated.- effect, on society (busines growth,

employmnt).

- 121.. ANNEX

INDONESIA

EAST JAVA - URAN DEVELORMENT PROJECT

RIAP Summarys Sadune Kabuouten, Bell

Action Targt Concoened Agencies Timetable

Coverae Cnete O date baen (on computer for Boglon 190/91*1l the major taxes and tees). Kouangapn/Bappedn,This data base consists of a11 the Oispenda SS, OPUK,tax objoct and subjects. Survoys S. Perekononlan,are mde continuously to update OLLAJR, local autho-records. rities.

Tariff Ane m- Tarift *soesement (PP I Entertain- Otopenda t, OPUK, W9/90 on-Tait Amt Tax, PU) are considering in- KOH, OPRO Bagien going

creaed, based on research Perekenosian, Olnas(survey*) and proper recording ot Keshatan

Costs of eolllectin major taxee and go/go on-oess have to be estimated. govin

Tariffe are set to maximiz revenue U9/9S on-oonsidering the following criteria: going- atfordability by the tax/rate

paer;- tariff In lIne with quality of

the service supplied;- need not to hinder or slow

down desirable economic dev.-lopment.

Tariffs take account of the dove- Rpel te Vlopsent In conomic parameters likeInflation, growth ot tax base (pop-ulation, weath, etc.).Adjustment of the Perda should bedone on a regular basis.

Collection The collection system tor Individ- Diependa U and to Rpl Ita Vuai taxes and tes dopwndo on: Sg glan Kuansgn, r-- the percntag, share of It In wilkab

the total rvenue and the op-portunities for monitoring thecolleted *tountu.

- the lpertance of the tax/teas compard to cost ot ol0 lc-tion.

Elemnta of collection system: tre-qvnqc, place ot collection, typeOt recipt, specitfietion In admin-Istration, ine ntive tor perform-one.

Creation ot an up-to-date and com-plete registration ot arra"r, aN eaglan Koeangan, 1909/90a realistic plan to deal with bad Dispenda Udebtor. and chasing up their debt.

- 122 - <

Administration Adminietrativ forms and procedures O t pend. 1, MA 89/9 an-Monitoring nd wl II be deigned to feoelitate of- goingControl fective control. Mapatda has ben

Introduced.There 1 effoetive control of per- Olopends 1, Bagion 89/90 on-formance by mans ot: ovangan Going- knowledg of real potenttel of

taxes and fees, not only byOlependa managores but oleo bysEgian Kounngan and IGDH;

- a *yst of surve" *nd otherfilld work for keping recordsactual;

- structure cooperation betweseagencios ylelds lmproved data-base and more opportunity tofind faulty or outdated bycross-checking.

Legl Bosos Local Regulatione aro regularly up- Dispnd U, Bsaton 09/90 o-det.. (reco_ ondod to at laost Ortala, 1KO, Sire PIng

every 5 yers). Spocial attention orlas DOMegivon each time to adequate

tarit levlo and simple tariffstucre. Supporting doaumentshould be prpaer In time to blb epeey approvel.Tariffs are made known publicly formonitoring by tw public.

Ftbnetol Plan- Low revenue taxes and fee are Ot_pende U, IOL 11, Repl Its Vning and Tax opersted with a intimm of resour- Dlopends , OepsgriManagemnta".

Initiatives are taken, postible to-gether with other da II, to pr-epoe the abolishment of ones thatprovide negative Incoe._Targets are set realisticallye tn sg n, 0/90 on-based on adequate re_earch. They Dipd 2 otnare verified and onto by othoagencie. A mediumer nancietlplanning should be mae and adjus-te eah year.

- 123 -

EAS JAVA - A U0 VOP

UDIAP Iu&Mr 5 Ega Java

Action Purpo

Explainf/Ois.inato SUKDP to aIl agencies Establish effective MOP managmnt and coor-and staff _ember oncerned. Give tioely dinbtlon.bref Ings about IUZOP functions to staffconcerned.

pr ovo Organizationt make cloer distribu- Avoid overlap (work Is don twice) or the con-tion of taoks betwen (Sub-) Sections and trary (nobody dos anyting).between agncieos. E.g. OPUD/Kebersiban,Dispenda/S. Eeuangan.

Informaton/Plannin:

- freqent poriodical checking of tho cond- Settwer planning, appraisal, mnitorinet velua-tion of uran infrastructure, tie of dev lopmentW prooe_.

- ue for database on urban infratructure. BSeter plannino, pprasal, l onItoring/evalu-ties of delopnnt process.

- better standards for reporting quantified, Setter plan"ing, appraisal, enitoring/evaluo-curate, coplete. ties of delop nt procs.

- more dotailod 61- and 10- year development Setter planning, appraisal, meaitoring/evelua-plane for VUIOP sector having priority tion of devlop proess for thse sectors.during Repelita V (Urban Master Plans notspelfic enough) More ffective control of land uso

- more active planning and control of lond Moe r nuoe from building Pormit Fee.use by lnstitutionollaing effective eco-pe-rat on between Sapped (theory) and OPUD(practices).

Operation and Maintonane:s

- mere bett e maintennce, nicluding intro- Avoids capital lose becauso of preventableduction of planned maintenance, based on the dmage to Infr atructuro.lnfratructure condition databseo andimproved Inspection.

- expenditur s required to mantain thecondition of existing infrastructure andthat which will b btulit during Repe Ita V.

- arrangements with higher jovoenmnt levelefor the maintenance of lnrostructure ownedby the local government but t;th rgionalfunction.

Strnthen Human Rosources

- mre tft In Sections with only a Head. Inese_ productivlty and ceetinuity of work.- all (Sub-) Sections Important for tUtop Increase productivity an continuity of work.should have a Head.

- strenothn departments an soctions of btter qulity of work end management.import nc for tUtop with perennel havingthe right background and levl of education,prticularlys planoloy, civil eginering,project appraisal, ldoon, elronicdata proessing and stre.assign peronnel specifically to mintenance Setter skills of personnel; beter maintan-of each type of infrastrucure. ane; es"er personnol planning.

- 124 - ANNEX 10Page 2

Strengthen Monitoring of Prfeorence:

n er.ngthen rol- of gnclo nlreody In Snerao e officieneyeharge. motnitoring.oOmplter-*dSd edminiatretion of project.ore ctve evluation of perforncmme ofDlspenda uepectively OPUD.

oevlop Manpowet

lanree pertlolpation of management end Improve clviI ser vice performance.staff In training courree, esp. Imanngamsnt and project appraisal I2) CoMpu-terised dats proceslng, analysis and ate-rago; (3) Plsnology; (4) Official g.nersl'couren (for middle_-lovel management); (5)On-the-job training In operation and(planned) mintenencs.

Increeas Reocurcar

computer ayo"" with prlnter end operational Revenue geerati on.bwudge for key IUlOP egeclees sapped.,OPUD, 0. Keberslkon, Olsponde, S.Penbongunen, S. Koeuangen._man of transport for more active wnd fre-

quent monitoring of physical preoroe of de-w lopm464 projec$t. Motrbikes are suffl-cleat for Kodye.

-125 ANNEXIO

rose 8_

EAST JAVA - SA? MM OVJ0MEN PROECT

LISDAP Sumerys hI?

Problem Clarifleatlen Neces"sry Actlon.

Di_ssination There t not ye good coordinatlon ao4ng Dieminato VDDPOf IDP the various partioe. Tooks of the materlo/informatlon to all

toehnical teams are not clear enough. ZUXDP teo members and agencies.Make work pro4raues and Improveproedures.

Progrm Evalua- Clarlfication to needed for appralial Strengthen the provincial andtion and criteria and guidelines. locl government's t ehnlealAppraisal teams.

Structural There are still vacant positions rsult- Improvement of skillod andPositions Ing from lack of adequately trained reruitment to nncessary.

candidates.

Personnel/Staff There Is a lack of well Iquallfld staff Inease staff for 8a=a,for progrm VWnd project preparatlon, OPWU, Dispanda and tSowi Ida formonitorlag and evaluation, management planniag, enginering, monlto-and Aecountaney ring end mnagement.

Training Strengthening of staff's capability io Prpare and lmplement srainingnecessa-y for all aeneles to fulfill programee and project propara-thelr NtUP functions. Itn, monitoring nd evalution

for Sappeda, t ehnical plnanngand manageme"nt for DPUD, accoun-tancy *nd' financial managementfor S ispanda and Sekwi rda

Equipment There is not adequate equipment to Make *avaiable new and addition-d ticointly prepare progaerse, monitor a equipment such as computersproject. and implement proposed revenue and motorbikes, ftiing cabinet.,increasing action. etc.

Oparation and Poor Plnanng and implementation of ope- mprove planning and managementMaitenanne ration and maintenance is among others for 08M funcetions; incerse

caused by a lac k of funde and staf. staff and budgets for DAM.

- 126 -

3*2 JAV.3L 1l*N4^98E A0=

Ram. Ia.

() ( . (8) 6) (7) (6) (9) (10)

}u as OT 0 1 19 NA 19.9 0. 19.9 0. 1 8 0196 67s I.0 M' A 1.0 0.0' 2. 0.0' 1.0 In

2. idt1 6 26.7 16.0 96.7 0.0 1s.7 0.0 16.7 8.0 18.2 a11966 81.4 1l.6t 19 64. 46.8 0.0 46.8 14.1 82 116 2"6.7 12. 4 77:.6 70.9 6.4 0.0 6.4 2.4 4.0 21167 29.8 212.6 62.7 78,. 9.4 0.0 a .4 2.8 6.9 61

S. L8...S. 4 tj.8 97.8 1.0 16.6 1. 0.0 10.6 0.0 11.6 18

SOU tS. 111.9 (11.9) 188.8 *4. 0.0 11.0 0.0 X48.0 -1811668 16.8 16.0 S0.8 82.4. 12.2 0.0 (0.2 0.0 11M9 -61967/0 164.1 18 6. a (25.2) A (.2 0.0 (o.. 0.0o (. .11

4. PSaleiJ<4 19"4 111. 1 100. 1 1.4 NA 12.4 0.0 11.4 0.0 11.4 1011966 230.9 6:62 41.7 27. 1. 0 1 0. 14.9 2 11196 178 1262 6. I4 1 2. 0.0 I16.2 16.2 9616 W07.6 119.6 6S7 8 4. $6.1 0 .0 1 8.1 0.0 83.1 2

6. J-ardi. 1964 60.9 409.6 891.1 91.4 299.7 0.0 19.7 600.4 110.63 67196 681.4 660. O01.. 146.1 186. 0.0 18.$ 46.6 107.9 16NI19 119.8 691 449.8 0.4 296.9 0.0 6 .6 1.1

196 1366.2 2. 816.8 129.2 20.1 0.0 6.1 06. 1: .9 SIN

ioe4 tCO. fO. 0.8 N1 a00 o8 . .

a Ui ~~~~~9a 4: 0 'o V M J 1 1P 'IF g43

9~~~~~~~~~~~~~~ 8. e 2,04.9 91 a n.o s. 4502S 00. 0 2N. 0 S40 .0v

1966 46. 1611.0 80.9 96.9 10..0 4 80 14 .0 47.9 114.1 IS196 476.1 12 1".7 69.9 106.6 41.0 162.o 81.4 111.4 s1

7. J.rb 1964 242.6 7.8 10.8 14.1 139. 0.0 10.0 06.6 114.4 87S

Xts06~~~Ig an. 3@. 2. 3. 0. 0. 0 0.-00i.0n196 886.8 140.6 196.8 11.2 81.8 18.6 (8.8) 0.0 (8.8) -18

1966 440.8 210.8 2680.1 186.: 7 91.4 1,94.9 (10.8 0.:0 (100.6 -181" 71S.8 290.9 441.9 1.$ 16. 2.6 61.6. 0.0 61. as

S. SUnaw 196 3301906 M 111. 108. 6. NlA 6.1 10.0 4.11 0.10 6.U61966 100.1 99.8 0.6 NA 0.6 0.0 0.8 0.0 0.0 111967 1128 112.0 0.8 NA 0.0 0.0 0.8 0.0 0.6 fl

9. btduo 1966 2,014.0 1,871.0 646.0 417.0 216.0 0.0 216.0 84.0 16.0 u1s196t 2,897.0 1,46.0 981.0 08.0 410.0 0.0 410.0 189.0 14.0 17S

1967 1,944.0 ~~~,666.0 1,0. 1,119.0 187.0 0.0 187. S"6. 190 a1146n , 77t.0 0 ..0186.0 122.0 869.0 0.0 86S.0 1.0 246.04 la2

10. 60Ieloe 1968 410. 149.8 161.8 112.4 89. 0.0 89.1 8.8 86. 10s1966 418. 811. 100.7 126.9 (26.2) 0.0 (16.1) 14.1 (87.6 61967 6M.1 61.1 161.0 164. 1.8 0. (86) 24 (8.9 -,11166 646.4 440.4 206.0 1784 . 0.0 326 a. 86.1 a

11. JP..w 19646 78.9 76. (.) 00 .0 .0 .0 0.0 0.0 Os(VC ) 1658 97.1 96:,0 01.1 0.0' 0.0 0.0 0.0 0.0 0.0 01

1667 119.9 140.7 (10.1 00 .0 .0 .0 .0 0.0 0116/6 166.9 161.1 4.7 0.0 0.10 0.0' 0.0 0.0 0.0 ox196/9 0.2 M0. 7 1.8 0.0 0.0 0 .0 0.0 0.0 0 .0 08

12. MIugk.a* 96/66 46.0 27. 18.6 0.0 0.0 0.0 0.0 0.0 0.0 01(F1) 196/0 66. 0.0 6800 0.0 0.0 0.0 0.:0 0.:0 0

1907/0 186.9 16 12. 0.0 0.0 0.0 0.0 0.0 0.0196/9 0.0 194.0 18.0 60.0 (48.0) 0 .0 (46,.0) 0 ,0 (48,0) -116

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ANNEX 11-128 - Page 3

8ELECTEO FINANCIAL DATA

1. MOJOKERTO 1969 10 191 192 1998 1s" 1995 lose

Population - 000 97.97 100.08 102.21 104.58 106.99 109.69 112.86 114.6Pop. served - ooo 14.99 16.24 16.8 16.8 17.81 17.96 17.?9 17.96X Pop. *erved 16.83 16.23 15.01 14.61 16.23 16.4X 10.03 16.?1Water connections - 000 2.85 2.67 2.76 2.77 8.16 8.20 8.26 8.20Employses/1000 connection 17 16 16 16 14 18 18 18Water consupt. (MS/mt/"on) 19.0 19.2 16.9 21.6 22.6 22.6 22.6 22.6Volume produced (thousand .8) 646.4 678.7 904.2 1008.6 1199.1 1209.7 1191.9 1191.9Volum Sold (thousand M8) 566.1 898.7 628.6 717.0 669.5 669.5 689.6 $89.6X Unaccounted for water 623 48X 461 403 86x 803 843 84XAverage tariff (Rp/M8) 184 287 284 286 857 864 6s6o seTotal operating revenue 90.60 168.05 161.77 191.68 882.11 889.42 617.66 618.96Total operating expene s 1.59 94.09 110.89 182.46 284.88 2s.86 274.01 266.csDepreciation 85.64 83.80 40.59 42.82 79.69 114.94 182.06 188.82tncom after deprciatlon -86.78 20.66 10.79 0.66 17.64 -s8.66 110.79 6s.66

Interest charges 0 0 0 80 60 6o 92.7 92.7tnternal cash generoation 0.86 40.49 41.61 48.8 64.02 116.1 244.81 228.883rants 0 0 160 150 60 182.66 0 0Loans 0 66.01 290 $00 800 140 0 0Debt aervice 0 0 0 80 50 60 92.7 92.7Debt service ratio NA NA 0.00 1.44 1.66 1.94 2.64 2.47

-- -- -- - -- - - -- -- - -- - - -- -- -- -_- -- -- - -- - - - - - - - - - - -------

Inveseents 0.00 41.00 590.60 415.00 224.10 0.00 0.00 0.00Operating fix d assets 1112.14 1189.69 1249.49 1811.90 2569.84 8266.61 848.9.6 a811,683 Debt to debt + equity 0.0M 6.1X 27.93 49.7x 61.03 49.6X 40.6X 47.6x# Day accounte receivable 178 11 108 6s 78 72 so 66

2. KEDSRI

Population - 000 272.69 276.19 287.19 266.08 804.66 814.08 822.68 881.04Pop. served - 000 12.82 18.12 18.42 18.72 14.02 14.82 14.62 14.62X Pop. served 4.73 4.73 4.?% 4.6x 4.6X 4.6S 4.5X 4.4XWater eonnectlons - 000 2.64 2.80 2.0s 2.7 2.78 2.64 2.90 2.90Etployec/J1000 connection 21 24 24 28 28 22 22 22Wte*r consu.pt.(08/mt/con) 86.5 86.1 85.7 s6.8 85.0 84.e 84.8 84.8Volume produced (thousand e8) 16s6.1 160S.s 1622.6 1568.6 1607.7 1590.8 1599.7 1699.7Volume Sold (thousand .8) 1118.1 1126.8 1189.4 1152.6 1105.7 1178.8 1192.0 1192.0X UnaccountOd for water 423 42X 42X 87 8 sox s8x 84x 843Average tariff (Rp/Sd) 827 428 416 420 S81 629 644 644Total operating revenue 868.7 461.05 461.46 490.29 627.86 682.91 776.92 778.62Total operating xpenses 276.865 801.61 811.9 828.67 88. 19 864.99 862.99 898.96Dpreclatlon 67.69 72.74 77.08 76.48 78.61 61.18 91.89 66.61Income after depreclatlon 19.62 106.6 92.42 68.19 214.66 196.79 804.64 268.86

Interest charges 0 0 0 40 1oo 160 206.10 206.10Internal cash ganeration n.66 96.86 96.90 s7.48 117.17 121.80 820.47 824.76Granta 0 0 200 200 16O 0 0 0Loanm 0 167.42 460 61o 750 460 0 0Debt service 0 0 0 40 1oo 160 206.1 206.1Debt service ratio NA NA ERR 2.44 1.17 0.76 1.69 1.66

Intaement 0.00 144.40 450.00 650.00 800.00 680.00 0.00 0.00Operating fixed astbe 667.06 927.74 974.18 1062.66 2127.67 2986.96 8069.66 s228.0eX Debt to debt + equity 0.0% 16.4X 80.63 66.4 656.93 66.OX 2.6x 49.13

Days accounts receivabl 289 151 106 90 68 0s 79 79

ANNEX 11-128 - Page 3

SELECTED FINANCIAL DATA

1. *OJOKERTO 1689 1990 81 1992 1998 1S94 1996 19o

Population - 000 97.97 100.08 102.21 104.58 100.9" 109.99 112.86 114.5Pop. served - 000 14.99 16.24 16.8 15.8 17.81 17.96 17.16 17.90X Pop. served 15.81 15.2X 16.01 14.61 16.21 10.41 16.01 19.71Water connections - 000 2.85 2.57 2.75 2.77 8.16 8.26 8.26 8.26Eiploymn/1000 connection 17 1s 15 16 14 18 18 18Water consumpt.(.8/mt/con) 19.6 19.2 16.9 21.6 22.6 22.0 22.6 22.9Volume produced (thousand ma) 946.4 676.7 904.2 100l .8 1168.1 1209.7 1191.9 1191.9Volume Sold (thousnd m8) 560.1 598.7 628.6 717.0 689.6 68.6 5 89.5 669.6X Unaccounted for water 62X 481 46% 401 8so 86x 841 84XAverage tariff (Rp/m8) 184 287 284 286 867 854 560 S51Total operating revenue 60.50 168.05 161.77 161.68 882.11 J88.42 517.66 518.95Total operating expense 81.59 94.09 110.89 182.40 284.88 208.86 274.01 260.50Depreciation 86.64 88.80 40.69 42.62 79.69 114.94 182.06 180.62Income after depreciation -86.78 20.66 10.79 6.55 17.84 -89.68 110.79 66.5S

Interest charges 0 0 0 80 50 60 92.7 92.7Internal cash gennrtlon 0.8, 40.49 41.61 48.8 94.02 116.1 244.81 226.68Orants 0 0 150 150 5O 162.80 0 0Loans 0 S9.01 290 800 800 140 0 0Debt oervlc 0 0 0 80 S0 s0 92.7 92.7Debt service ratio NA NA 0.00 1.44 1.08 1.94 2.84 2.47

Invesmento 0.00 41.00 690.60 415.00 224.10 0.00 0.00 C.00Operating fixod .s...t 1112.14 1199.99 1249.49 1811.96 2609.64 8260.61 8489.e8 8611.981 Debt to debt + equity 0.0 S.11 27.91 49.71 51.01 49.61 49.61 47.01* Days accounts receivable 178 111 108 88 T7 72 s8 8

2. KEDIRt

population - 000 272.69 278.19 287.19 298.08 804.80 814.08 822.68 881.04Pop. served - 000 12.62 18.12 18.42 18.72 14.02 14.82 14.02 14.62X Pop. served 4.71 4.71 4.71 4.61 4.0X 4.61 4.51 4.41Water connections - 000 2.64 2.60 2.60 2.72 2.76 2.94 2.90 2.90Employee /1000 connection 25 24 24 28 28 22 22 22Water con.u.pt.(M8/mt/con) 86.5 86.1 85.7 85.8 85.0 84.6 84.8 84.8Volume produced (thousand .$) 16S.1 1008.9 1622.5 1508.0 1607.7 1590.8 1596.7 1598.7Volume Sold (tho_and m8) 1118.1 1128.8 1189.4 1152.6 1105.7 1176.6 1192.0 1192.0# Unaccounted for water 42X 42X 42X 871 801 8611 841 4XAverage tarlff (Rp/m8) 827 428 418 420 681 529 644 644Total operating revenuo 865.76 461.06 401.46 490.29 627.86 682.91 776.02 776.62Total operating expenes 276.85 801.51 811.96 828.67 J89.19 854.99 862.69 $89.96Oepreciation 67.69 72.74 77.08 78.48 78.51 61.18 91.89 66.51Income after depreciation 19.52 100.6 92.42 60.19 214.66 196.79 804.54 268.85

Interest charges 0 0 0 40 100 160 206.10 206.10Internal eash generation 72.6e 9.86 96.90 97.48 117.17 121.80 820.47 824.76Grants 0 0 200 200 16O 0 0 0Loan 0 167.42 450 010 760 460 0 0DObt service 0 0 0 40 100 to0 206.1 206.1Debt service ratio NA NA ERR 2.44 1.17 0.76 1.69 1.58

Invesment 0.00 144.40 460.00 650.00 600.00 600.00 0.00 0.00Operating fixed 8sete 067.05 9k7.74 974.18 1082.68 2127.67 2688.9s 8000.58 8228.00% Debt to debt + quity 0.0 16.41 8$.0X 55.41 55.9X 56.01 52.61 49.91

Days accounts recelvable 289 161 105 00 88 88 79 79

At1NEX 11- 130 - Page 5

5. SIDOO.10

Population - 000 J25.64 884.79 848.6 858.08 862.55 872.81 82.8 892.06Pop. "rved - 000 81.82 122.IS 122.75 122.7 106.05 197.68 190.76 205.56X Pop. served 90. 86.7TX 8.7X 84.60 54.15 68.15 62.25 62.45Water connctlon - 000 6.81 16.62 10.02 16.62 27.22 27.58 27.64 26.68Employeye/1000 connection 19 1S 1s 18 10 10 10 10Water consuapt. (u8/mt/con) 86.4 29.2 29.2 29.2 27.2 27.2 27.2 27.1Volme produced (thousand d$) 877.9 7428.6 7428.6 7428.6 11215.6 11826.6 11445.7 11855.0Volum Sold (thousand ma) 2907.6 5622.6 5622.6 522.6 6 .8 6975.0 9070.2 9an.7X Unaccounted for water s0o 27X 27X 27X 265 265 26 265Average tariff (Rp/uS) 807 862 862 486 468 462 745 746Total operating revenu 1868. 268.65 2688.2e 8211.70 5186.89 4924.65 7288.60 7591.87Total operating expe nses70.86 1440.80 1516.52 1620.67 8744.05 807S 81 485.82 4177.66Oeprelation 201.70 895.87 501.71 68.29 766.12 1188.16 1272.66 1257.t8Income fter depreciation 281.47 646.60 426.08 966.66 626.22 -162.12 1609.62 1660.11

Interest charge 0.00 0.00 0.00 100.00 210.00 840.00 466.80 466.80lnternal coh generation 247.01 550.48 640.07 011.77 e40.55 957.48 2619.21 2745.40

rant. 0.00 6841.75 200.00 250.00 0.00 0.00 0.00 0.00Loans 222.90 468.68 1180.00 1250.00 1s86.00 1410.00 0.00 0.00Debt service 0 0 0 100 210 840 466.8 465.8Debt service ratio MA NA NA 0.12 4.06 2.62 6.06 6.90

Invesments 222.90 206.40 1500.00 1700.00 1500.00 1270.00 0.00 0.00Operating fixed ssets 8275.22 10066.20 10671.61 11100.19 24760.64 80620.56 82151.50 88611.78X Debt to debt + equity 0.01 6.65 5.ex 86.45 54.65 52.85 54.15 51.75# Days account rceivable 116 75 76 so 6o 60 6o so

6. SANYUWANGI

Population - 000 162.4 164.41 166.79 i690.1 171.66 178.05 176.85 170.69Pop. served - 000 51.05 51.05 51.06 51.05 51.06 61.06 61.06 61.06S Pop. served 81.45 81.15 80.65 80.25 20.65 86.15 84.65 84.1XWater connection - 000 6.48 6.48 6.48 6.48 6.48 9.60 9.80 9.60Euploy e/1000 connection 12 12 12 12 12 11 11 11Water _onstmpt. (n8/mt/co) 27.4 27.4 27.4 27.4 27.4 26.6 26.6 26.6Volume produced (thouesnd *s) 846o.4 8466.4 8466.4 8486.4 8486.4 018.1 8S01.1 8918.1Volume Sold (tbousand al) 2701.0 2701.0 2701.0 2701.0 2701.0 8180.5 8180.5 8180.5X Unaceounted for water 255 25o 25 255 25X 265 2SX 25xAverage tariff (Rp/eS) 1sJ 1i8 1ts 226 220 7 208 298Total operting revenue 672.06 572.66 572.68 670.47 e64.66 776.76 068.46 988.48Total operating expense 842.06 862."6 876.97 408.44 422.67 568.98 579.61 606.18Depoeciation 109.s 99.71 1o0.66 lo.n 116.8 210.75 260.16 294.16Inco after deprction 121.2' 100.00 88.06 166.81 115.49 27.08 128.51 64.19

Interest charge 8$6.52 88.90 61.04 71.04 121.04 161.04 212.64 212.64Internal coah genration 155.45 142.85 108.71 267.08 281.05 287.76 408.67 $76.86Grants 487.02 0.00 8000.00 2200.00 1810.00 1800.00 0.00 0.00Lons 0.00 16.92 460.00 510.00 520.00 540.00 0.00 0.00Debt service 86.62 88.9 81.04 71.04 121.04 161.04 212.84 212.64Debt service ratio 8.2 2.0 6.24 8.76 1.92 1.48 1.90 1.70

In vesmnmt 0.00 0.00 8600.00 2000.00 2200.00 1210.00 0.00 0.00Operating fixed assets 2602.28 2677.89 2611.26 2060.02 8109.06 5784.67 0021.61 6822.69S Debt to debt equity 19.21 17.55 20.1X 40.75 58.65 61.05 50.6% 49.4X

boys acconft receivable 106 60 75 7 60 6o so s0

ANNEX 11- 131 - Page 6

7. JEMBER

Population - 000 245.48 246.57 251.61 2f6.46 201.41 20O.S7 271.82 277.11Pop. served - 000 58.o0 56s.08 5.08 68.08 02.99 92.99 62.99 64.90X Pop. served 21.63 21.65 21.1X 20.73 81.7T 81.23 80.63 80.73Water connections - 000 9.20 10.20 10.60 10.60 10.95 12.80 12.o0 12.80Employ*es/1000 connection 10 10 10 tO 10 10 tO 10water consuapt (.8/mt/con) 20.4 20.4 20.4 20.8 19.8 19.6 19.6 19.6Volume producd (thousand a8) 8878.1 4016.0 8ss8.6 8a66.8 40965.8 m870.6 as9.9 8s9.sVolume Sold (thousand m 2602.1 2569.7 2689.7 2666.8 2926.6 226S.5 2625.5 2926.5X Unaccounted for water s55 55% aso 45X 40X se8 s8x s88Averag tariff (Rp/os) 824 822 a?2 416 89 897 610o 0tOTotal operating revenue 926.72 962.54 588.66 1141.16 1186.02 1101.42 1764.60 1764.56Total operating expenses 498.14 581.06 549.88 596.44 741.16 770.58 860.42 666.61Oepreciation 468.66 467.61 400.61 871.40 181.95 119.66 180.05 180.65Itcom after depreciation -21.21 -96.82 -116.256 171.8864 264.90985 271.2185 604.0865 72.195

Interet charge 286.15 220.97 224.40 264.40 2U4.40 8S4.40 801.80 891.80Internal cash generation 445.47 445.26 426.70 605.82 866.99 U46.52 616.86 566.42Grants 0.00 0.00 700.00 700.00 1100.00 1160.00 0.00 0.00Loans 0.00 16.76 410.00 450.00 550.00 460.00 0.00 0.00Debt service 285.15 229.9? 224.4 264.4 264.4 854.4 891.6 891.6Debt service ratio 1.9 1.9 1.9 2.8 1.8 1.0 1.6 1.5

Inv*Gments 0.00 0.00 1600.00 1600.00 1600.00 570.00 0.00 0.00Operating fixed *asse 4059.90 4996.09 604.56 7876.84 7744.11 6785.86 9172.14 9980.75X Debt to debt + euity 74.03 74.43 761.901 7.6x 2.611 69.9 64.83 69.031# Days accounts recevable 107 68 60 so 60 60 60 so

0. SUMENP

Population - 000 62.89 68.49 64.40 65.80 66.21 07.12 6e.02 69.08Pop. served - 000 18.67 18.67 18.07 18.67 18.07 22.26 22.26 22.713 Pop. served 21.913 21.53 21.231 20.91 20.613 88.23 82.63 82.6XWater connections - 000 8.80 8.80 8.80 8.80 8.80 4.46 4.46 4.69Empl@yee/1M0 connection 19 19 19 19 19 17 17 17Water consumpt. (mS/mt/con) 26.6 25.6 26.3 25.6 25.6 87.5 87.5 87.8Volum produced (thousand m8) 1626.0 1026.0 1626.0 I4.0 1651.0 2747.0 2707.0 2728.6Volum Sold (thousand M8) 1020.7 1020.7 1020.7 1020.7 1020.7 2004.6 2005.8 2052.1X Unaccounted for water 50 503 503 553 t2X 873 863 8S3Average tariff (Rp/n8) 206 240 270 820 4S0 450 460 450Total operating revenue 212.81 244.97 276.69 826.62 459.82 602.07 902.89 928.45Total operating expense 108.70 199.06 216.05 240.01 266.99 454.08 471.98 520.61Depreciation 89.62 52.08 55.98 59.10 62.20 126.56 196.70 208.46Income after deprecletion 6." 2.98 2.96 28.91 108.28 820.86 286.67 199.45

Interet charges 0.00 0.00 0.00 60.00 140.00 210.00 261.70 281.70Internal cash gene-ation 48.01 58.28 56.94 60.01 170.43 447.44 480.46 402.94Gran"" 0.00 0.00 600.00 560.00 680.00 600.00 0.00 0.00Lons 0.00 60.18 t20.00 010.00 610.00 790.00 0.00 0.00Debt service 0 0 0 60 140 210 291.7 261.7Debt service ratio NA MA NA 1.4 1.2 2.1 1.5 1.4

Invesamnt 0.00 0.00 750.00 600.00 700.00 650.00 0.00 0.00Operating fixed assets 1646.19 1666.60 17865.2 1684.12 1976.8 5688.67 6126.85 6e41.62X Debt to debt eq uity 0.03X 8.7 14.9% 51.23 65.73 61.63 59.03 66.9X

ODys Onyccounts receivable 109 84 64 84 76 67 67 65

AN!XEX 11- 132 - Page 7

9. BAOUNG

Population - 000 8s9.16 8".11 878.18 88o.0s8 87. 72 896.20 402.08 410.60Pop. served - 000 186.41 148.18 156.68 162.26 177.99 18S.87 188.47 168.47X Pop. served 86.O0 40.71 42.01 42.71 46.91 47.01 40.61 46.91Water connectlons - 000 19.88 19.67 20.68 21.70 28.98 25.11 26.60 26.60Employees/1000 connection 19 19 18 17 16 16 14 14Water con*umpt.(m8/mt/con) 44.4 46.8 49.1 14.6 81.6 64.1 66.0 66.0Volume produced (thousand a8) 18402.4 14960.9 15882.8 18486.0 22660.2 24868 24884.7 24684.7Volume Sold (thousand es) 10809.5 1128.8 12178.7 14226.9 17708.8 10927.7 19907.6 19907.6% Unaccounted for water 8o0 8ox 8ox 8ox 29X 26 2 251 21aAverage tariff (Rp/aS) 861 875 80o 861 406 516 686 677Totel operating revenue 8711.60 4429.07 4778.66 6832.98 8669.80 10807.68 10990.44 18006.78Total operating *xpenses 2202.88 2494.61 2677.21 2669.66 8612.47 4656.14 4866.76 5268.81oepreciation 1200.87 1266.89 1466.88 1844.68 1206.67 1689.16 2161.65 2269.78Income after depreciation 809.8 666.67 689.61 1118.65 8459.96 891S.68 8972.08 6252.69

Interest charge 0.00 0.00 1268.46 1649.46 1969.46 2449.46 2682.16 2682.16Internal cash generotion 1246.70 1881.61 2096.84 2408.07 2646.67 8165.68 6966.89 6148.86Grant. 0.00 0.00 4650.00 4100.00 2260.00 0 0.00 0.00Loans 4.66 664.24 2680.00 4060.00 6240.00 42M0.00 0.00 0.00Debt service 0 0 1299.48 1549.4 1989.46 2449.48 2682.16 2682.18Debt service ratio NA NA 1.6 1.6 1.8 1.8 2.1 2.2

- -- - - - - - - - - - - - - - - - - - - - - - - - - - - ---- - -- -- ----- - -----

Invesments 0.00 268.90 7600.00 11110.00 6800.00 6110.00 0.00 0.00Operating fixed asset. 19986.61 21882.17 22966.69 26176.02 48761.78 60182.48 68189.11 66296.06X Debt te debt + equity 62.81 60.6% 60.61 71.8 72.81 71.2X 67.81 62.05# ODys account. receivable 78 71 71 0o so 0o 6o 6o

10. DULELENO

PopulOtion - 000 127.26 129.27 182.61 186.00 187.61 140.89 148.26 145.75Pop. served - 000 62.86 68.2 64.06 64.94 68.60 75.06 76.42 80.11X Pop. sorved 41.1X 41.2X 40.8X 40.7X 49.6x 68.61 64.71 66.01W.ter connections - 000 6.19 6.24 8.86 6.47 10.06 10.74 11.12 11.82Employee/1000 cornnection 16 14 14 14 12 18 18 12Wter consumpt. (m/mb/con) 86.6 86.7 86.6 85.6 $8.6 88.6 8.6 88.6Volume produced (thousand e8) 4627.6 4967.0 4926.6 4967.1 6470.7 6678.4 5656.1 660o.8Volum Sold (thousand e8) 6497.1 8626.6 8668.2 8612.0 4079.8 4866.8 4609.1 4597.1S Unaccounted for water s8o s86 881 881 841 8s0 2ex 261Average terift (Rp/m&) 176 228 285 240 890 w88 8s8 669Total operating revenue 647.07 607.61 8a9.58 s666e. 1690.98 1694.60 1749.68 2616.76Total operatlng *xp me 409.12 968.72 565.81 616.4 724.68 e62.92 86.46 992.01Depreclasion 220.40 282.79 241.90 287.16 262.90 284.40 260.61 274.09Income after depreclation -41.65 16.1 10 t.7 18.88 618.647 607.0162 698.6608 1849.049

Interest charges 0.00 0.00 0.00 70.00 170 'W 210.00 272.70 272.70Internel cash genration 176.65 284.76 282.82 215.09 a44.6e 628.72 954.67 1087.17Grants 0.00 0.00 200.00 180.oo 0.00 0.00 0.00 0.00Loans 1424.66 1740.46 620.00 1060.00 460.00 700.00 0.00 0.00Debt service 0 0 0 70 170 210 272.7 272.7Debt service ratio NA NA NA 8.1 2.0 2.5 8.5 8.6

Invesments 1424.96 1740.45 760.00 600.00 600.00 860 !J 0.00 0.00Operating fixed as et. 8165.66 6056.14 5819.44 5697.61 6422.57 9680.06 10470.42 10968.94X Debt to debt * equity 0.05 8.1X 28.11 40.01 50691 71.91 09.11 61.OX

Day accounte receivable 90 90 90 76 76 6o 60 60

ANNEX 11- 133 - Page 8

11. KLUNWKUNG

Population - 000 182.24 183.36 186.49 187.14 10U.82 140.61 142.22 148.90Pop. served - 000 80.41 80.41 80.41 80.41 81.8O 81.94 82.86 82.18

% Pop. served 28.01 22.7X 22.43 22.21 22.53 22.73 22.8X 22.63

Water connections - 000 4.47 4.47 4.41 4.47 4.60 4.09 4.77 4.77

Employe/1000 connection 12 12 12 12 12 11 11 11Woter consumpt.(m8/mt/con) 20.0 20.0 20.0 20.8 21.0 28.8 24.6 24.0

Volume produced (thousnd e8) 1609.6 1689.6 1600.6 1720.4 1728.4 1745.0 1704.9 1704.9

Volume Sold (thousand w8) 1072.4 1072.4 1072.4 1117.1 1205.2 1812.0 1411.9 1411.9X Unaccounted for water sex sox 58% U43 48X 881 253 26S

Average tariff (Rp/m8) 208 268 206 261 490 50e 618 676Total operating revenue 201.66 847.16 847.15 857.38 077.85 670.42 788.47 068.04

Total operating expense 246.77 266.42 299.62 819.22 800.44 400.2 425.20 462.00Depreciation 71.20 75.79 79.68 81.66 91.09 109.76 116.09 122.06Incom after depreciation -86.49 -16.06 -82 -48.4 225.22 160.46 191.5 871.00

Interet charges 0.00 0.00 0.00 20.00 60.00 70.00 00.20 00.20Internal cash generation 84.62 60.76 47.67 86.50 244.75 221.28 240.07 876.98

Orants 0.00 0.00 450.00 000.00 470.00 400.00 242.00 0.00Loans 0.00 0.00 270.00 270.00 290.00 140.00 0.00 0.00Debt service 0.00 0.00 0.00 20.00 50.00 70.00 00.20 00.20Debt service ratio ERR 1.9 4.9 8.2 2.6 4.8

Inve_ nta 0.00 22.60 050.00 000.00 100.00 460.00 0.00 0.00Operating fixed assets 1821.10 1428.49 1510.01 1592.22 2286.10 2408.15 2641.00 2860.96X Debt to debt o equity O.OX O.OX 0.03 0.03 0.03 O.OX O.3 0.03- Days accounts receivble 75 75 76 75 75 so so 6o

12. JEMBRANA

Populatlon - 000 77.48 70.82 79.21 60.09 60.00 02.05 02.76 84.12Pop. nerved - 000 86.10 86.18 86.18 86.10 U 0.10 00.10 06.10 00.10

X Pop. served 45.41 44.93 44.41 4.901 44.6l 44.03 48.61 42.90Water connect1on - 000 6.28 5.28 5.28 6.28 6.89 6.89 5.89 5.89

Employees/1000 connection 18 18 18 18 18 18 18 18Water coneumpt.(m8/st/con) 15.4 18.4 16.4 15.4 17.6 20.4 28.0 28.0Volume produced (theosnd a8) 1609.2 1609.4 1009.4 1609.4 1726.5 1000.0 1986.7 198U.7Volume Sold (thoueand *8) 909.4 969.5 9069.5 969. 1161.2 1820.6 1406.? 1400.7

X Un#acounted for water 61 661 6o6 on1 sox 403 8ox 8o0Averag tariff (Rp/m8) 254 259 426 460 460 480 450 460total operating revnu 281.56 207.44 412.04 436.26 610.04 684.00 69.92 e69.92Total operating expense 244.66 267.40 261.07 299.02 871.64 406.41 449.2 469.09Depreciation 114.80 116.75 127.16 182.56 184.78 170.66 170.40 167.40

Income after depreciation -7t.8? -00.77 8.6076 4.669 11.7" 10.87 42.286 18.425

Interest charge 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Internal cenh geration 87.10 20.18 6.00 52.06 26.87 42.28 216.51 206.15Grants 0.00 0.00 870.00 1000.00 0.00 0.00 0.00 0.00L._ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Debt service 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Dbt servicer tlo NA NA NA NA NA NA MA NA

Inves_ents 0.00 0.00 870.00 100.00 0.00 0.00 0.00 0.00Operating fIxod assets 20s.01 2197.90 2840.70 2457.60 896.04 4178.79 4004.50 4608.011 Debt to debt + oqulty O.OX 0.03 O.OX 0.03 0.03 0.03 0.03 0.03bay account receivable 190 1S 18O 97 76 60 60 so

ANNEX 11

-134 - Page 9

INDONESIA

EAST JAVA/BALI URBAN DEVELOPMENT PROJECT

Water Enterprise Financial Projections

Key Assumptions Used

Operating Income

1. It is assumed that all water enterprises will maintain theiraccounting records on a consistent basis and report accrual principles atleast annually.

2. These assumptions refer to the financial projections consisting of(a) income statement, (b) sources and applications of funds, (c) balancesheet, and (d)financing plans for each water enterprise in the first batch ofthe project. They have been applied in a standard format to afford a crossreference of comparative financial analyses among PDAMs.

3. Water Production. The output of water in N4 from the existingsystems combined with the new capacity to be added under the project.

4. Service Area Population. The population served is determined bymultiplying an estimated number of persons served per each house connectionand standpipe respectively by the total connections in the system. It isassumed that 6.5 persons per house connection and 100 persons per standpipeare served.

5. Number of Connections. The project is expected to increase thetotal number of house connections as well as standpipes in the 12 waterenterprises during the construction period 1990/1994.

6. Water Consumption. This is an indicator which measures averageconsumption per month in N4 for every connected customer. Typically Balicustomers consume more water per connection than customers in East Java.Average consumption in Dempasar is expected to increase from current level ofabout 65 MP/connection to 65MP by 1995 at most connections are expected to befor tourist hotels and related establishments. For Buleleng the consumptionis expected to remain in the range of 33-35 H'/connection, which is in linewith consumption rates in East Java in general.

7. Volume (MP) Sold. This is the volume of water billed, which islower than or equal to the maximum volume of water available for sale in agiven year.

8. Unaccounted for Water (UFW). The UFW varies widely among the waterenterprises, ranging currently from as high as 76? of production (Lamongan)and as low as 252 (Banyuwangi). The forecasts assume that the UFW will bereduced over time for each water enterprise, and for most of them, levels ofabout 25-30? should be achieved.

ANNEX 11- 135 - Page 10

9. Tariffs. All water enterprises are expected to adopt the NWRS, andeffective 1990, the following rates for each PDAM based on the first tariffblock of residential customers will be applied.

The Value of "A' Factor (RP/Lf*(Current Prices)

1989 1990 1993 1996

1. Mojokerto 80 135 221 3512. Kediri 125 157 2A, 2983. Lamongan 150 200 389 4504. Probolinggo 90 169 286 4255. Sidoardjo 160 201 234 3796. Banyuwangi 75 90 106 1377. Jember 150 316 482 5818. Sumenep 120 115 171 2259. Badung 120 120 164 17210. Buleleng 125 129 158 20811. Jembrana 156 156 166 18112. KlungKung 125 129 244 322

* A rate increase has been assumed every three years to maintain financialsoundness of the enterprises. This is in line with the local governmentspractice for authorizing periodic tariff increases.

10. Water Revenues. The main source of revenue will be water sales asdetermined by meter readings as well as assessments, including sales throughstandpipes. No specific charge is assumed for meter rental or maintenancecharges, administration charges or penalties for late payments which areadopted by some of the existing enterprises.

11. The connection fees vary, but are generally within the following rangesRp. 65,000 for residential, government and social customers, and Rp. 120,000for commercial and industrial customers. This will be collected through thebilling system in equal monthly installments over five years without interest.

Operating Expenses

12. Personnel. Personnel expenses are based on detailed analysis of thenumber of employees required to operate each PDAM. The number of employeesrequired to serve one thousand connections is expected to range from 10 to 17for the 12 WEs in the first batch. Over all it is expected to average 13.

13. Chemicals. Cost of chemicals consist mainly of expenditures oncalcium hypochlorite for chlorinating water. They are base don the volume ofwater produced, (and are assumed to follow the inflation rates given below?)

ANNEX 11- 136 - Page 11

14. Power. This represents expenditures on purchased electric power orestimated cost of generated power with standby units. Power expense estimatesare based on the volume of water produced and are assumed to follow theinflation rates.

15. Repairs and Maintenance. These are expressed as a percentage ofcapital costs or on a lump sum basis for each kind of asset to be maintained.These are shown under the account 'Materials" in the Itncome Statement.

16. Transportation Costs. These represent the costs of operating andmaintaining transportation equipment including fuel, servicing, annualregistratior and insurance. Various rates are assumed for each kind oftransportation and are assumed to follow the inflation rates?

17. Administration and General. These represent office running expensessuch as the cost of office supplies, and other general administration costsand are based on the number of total personnel. Annual cost estimates areassumed to follow the inflation rates.

18. Bad Debts. These are the portion of billed water sales which areassumed to the noncollectible. They are estimated to be 8 percent of watersalc-. Given relatively small size of most of the PDAMs, it should bepossib- to control the bad debts within the assumed rate.

19. Depreciation Expenses. Depreciation expense is calculated using astraight line method based on the economic lives of the assets as booked inthe balance sheet. The rates used vary broadly between civil works andequipment: 30-50 years (2-3.3 percent per annum) of economic life for civilworks and 10-30 years (3.3-10 percent per annum) for equipment.

20. Interest Charges. Interest on the loan during construction will beaccrued and become payable to MOF-DDI.

21. Income Tax. The financial projections are prepared using tariffrevenues to recover operating costs including depreciation and interest onloans. Income from operations after these deductions is subject to GItaxation. Income tax due to GI is computed on the basis of the followingmarginal tax rate structure:

Net Income Tax Rate

First Rp 10 Million 15ZNext Rp 40 Million 252In Excess Rp 50 Million 35Z

22. Local Government Share of Income. PDAMs routinely contribute 55percent of their after tax income to local governments. The projectionsassume that no such contributions would be made during the constructionperiod.

ANNEX 11- 137 - Page 12

23. Inflation Rates. The assumed rates of inflation for local costs are7.0 percent for 1990 and 5 percent thereafter. The estimated foreigninflation is 7.2 percent for 1990 and 4.4 percent thereafter. Theseassumptions agreed with Bank preparation mission during 1989 and have beenused as a consistent basis for analysis since that time.

Funds Flow and Balance Sheet

24. Fixed Assets. The value of fixed assets is based on the capitalcosts expected to be incurred during the construction period and the existingfacilities. They include capital expenditures on the equipment, civil works,engineering and supervision service, land, etc. The values of fixed assets ofexisting water works were furnished by each water enterprise. Fixed assetsare revalued using the local inflation rates to determine current values.

25. Work in Progress. This includes all ongoing construction projectswhose assets have not been transferred to the assets have not been transferredto the assets in operation category.

26. Accounts Receivable. These are projected at about two months oftotal water sales. Accounts receivable in existing water enterprises rangefrom 4 to 5 months.

27. Inventories. These are computee on the basis of 6 monthsrequirement for chemical materials and sl *plies for maintenance.

28. Accounts Payable. This was projected to be equal to 2 monthsoperating expenses (excluding personnel cost and bad debts).

29. Loan Funding. This account represents the foreign component of theproject funding which is assumed to be channelled to a WE through the DLAs byMOF. The terms and conditions of DLA loans are explained in para.5.liof themain report.

30. Equity. The equity account represents the local Governmentcounterpart funds in the project costs, Operating Subsidies, if any,revaluation surplus arising from revaluation of assets, and accumulated incomeor loss from operations.

- 138 -ANNEX 12

INDONESIA

EAST JAVA-BALI URBAN DEVELOPMENT PROJECT

Local Government Financial Proiections:Sumuarv of Past Performance and Future TargetsAnnual Average Growth Rates at Constant Prices

East Java Batch I Local Governments

Performance 1983/84 to 1987188 Targets 1989190 to 1994195Local Property Total Local Property TotalRevenues Tax Revenues TaxZ p.a. 2 p.a. 2 g.a. Z p.a. Z j .a. Z *.a.

Kabuoatens

Banyuwangi 2.7 -1.3 0.2 3.1 3.9 3.5Jember 2.5 8.0 5.8 11.7 1.5 7.7Lamongan 8.5 3.2 6.3 5.3 16.9 9.4Sumenep 1.5 14.1 7.3 4.6 17.2 14.2Sidoarjo 17.0 -2.1 9.8 3.3 7.4 5.2Sub-total 8.0 3.4 5.6 6.2 8.5 7.3

Kotamadyas

Kediri 18.6 0.8 10.6 11.7 1.5 7.7Wojokerto 4.2 14.4 5S9 3.7 10.4 5.5Pasuruan 22.0 10.7 20.4 2.8 7.8 3.5Probolinggo 29.8 15.0 26.9 4.9 21.3 7.8

Sub-total 17.5 5.9 14.4 8.2 4.5 7.0

Total Batch I 10.4 3.6 7.2 6.9 7.6 7.2

Bali Batch I Local Governments

Performance 1983/84 to 1988189 Tarnets 1989190 to 1994/95Local Local Other Property Total Local Local Other Property TotalTaxes Charges Fees Tax Taxes Charges Fees TaxZo.a. Z 0.a. Zp.a. 2 p.a. 2L.a. gz.a. 2 v.a. &,.a. 2. a. PD.a.

Badung 15.1 -3.6 171.3 1.9 13.0 12.0 23.9 14.4 17.4 14.2Wulileng 32.5 8.0 6.6 4.4 7.9 18.6 17.3 0.2 17.4 16.8Jembrana 3.4 9.5 18.8 -6.6 0.7 6.2 6.1 5.4 5.2 5.5Klungkung 31.6 17.8 38.7 1.4 14.1 19.7 7.6 9.9 15.6 11.0

TotalBatch I 15.4 0.7 73.7 4.8 .12.0 12.2 20.4 11.9 16.3 14.1

ANNEX 13- 139 Page 1

INDONESIA

EAST JAVA-BALI URBAN DEVELOPMENT PROJECT

Operations and Maintenance of Urban Infrastructure and Services

1. Key facets of the agreed approach to strengthening operations andmaintenance (O&M) activities for infrastructure and services covered by theEJBUDP expenditure programs in each local government include: (a) Estiwetesof required O&M expenditures (by subsector); (b) Analysis of currentcapabilities for O&M; (c) Installation of PO!MS in Batch I local governmentst(d) PMDU strengthening for water enterprise O&M improvement; (e) Developmentof provincial public works capacity to assist O&M; (f) Development of annualO&M programs (with appropriote links to LIDAP and RIAP documents (g) Revisionof Local O&M budgets and financing (MHA-KEPMIN No. ./1990); and(h) Recommended monitoring and supervision indicators.

Estimates of Required O&M Expenditures (by sub-sector)

2. Project preparation efforts for O&M elements in each subsector beganwith the development of technical memoranda describing unit costs for O&Mactivities for existing and new infrastructure. Preliminary inventories ofexisting infrastructure, the functional classification of these systems toassign O&M responsibilities among central, provincial and local governmentunits, and estimation of current conditions and deferred maintenance needswere all undertaken in the initial preparation stages. Four subsectors (ofthe seven covered by IUIDP guidelines) emerged as the focal points of O&Mefforts: water supply, roads, drainage and solid waste. Within thesanitation subsector, the pumping of septic tanks and disposal of sludge (bypublic or private operators) is the principal O&M issue. On-site sanitationis the preferred approach in almost all localities (except for BadungKabupaten in Bali, where detailed studies for sewerage systems including O&Mrequirements are now underway). For KIP/MIIP subsectors O&M is generallypresumed to be a "community" responsibility, though care must be taken toensure that provision is made for operating water taps, public toilets (MCK)and other KIP/MIIP facilities, and to confirm that local governments willassist in establishing "merchants' associations' or provide other specificarrangements for MIIP O&M.

Analysis of Current Capabilities for O&M

3. The estimated requirements for O&M (from paragraph 1 above) werethen compared to current O&M practices and capacities in four basic respects:(a) manpower available with the responsible agency (as part of LIDAPdiscussions); (b) budget le,vels provided for O&M activities during past five-year period; (c) equipment and facilities available versus needs; and (d)preliminary identification of the potential for contracting O&M activities ineach subsector.

4. For the Batch I local governments this analysis may be summarized asfollows:

ANNEX 13- 140 - Page 2

(a) for subsectors other than water supply, the local governments weregenerally providing between 20S and 402 of the estimated O&0requirements, and had substantially impaired capabilities due toshortage of trained manpower, adequate equipment and spare parts,etc.;

(b) water supply enterprises were highly variable in their O&Mperformance, but generally provided 502 to 80S of needed O&M fortheir systems, with inability to raise tariffs levels and shortageof trained manpower cited as the key obstacles; and

(c) most local governments had not seriously explored the option ofcontracting for O&M, as GOl regulations prohibit contracting fromthe "routine" component of GOI budgets (as opposed to the"development' component from which contracts are normally financed).However, a few local governments were contracting road maintenanceand some were wiliing to consider solid waste collection on a"franchise' basis covering designated urban communities (typicallyupper income areas), following the success experienced by the Cityof Surabaya with this approach. Drainage channel cleaning wasanother area of O&M discussed for potential contracting, with amixed response by Batch I local governments.

S. The analysis resulted in the definition of current levels of 0&Kexpenditure for each Batch I local government ('current O0M1 in theexpenditure program), and two types of proposed additions or Oincremental:001 expendituress (a) a graduated increase of O&M budget to reach estimatedrequirements for current infrastructure systems and (b) O&M expenses necessaryfor newly constructed and rehabilitated facilities. Responsibility forbudgeting the required O& expenditure was assigned based on the functionalclassification of facilities (particularly for roads and drainage) betweencentral, provincial and local governments. However, both central (especiallyDGBM) and provincial agencies frequently arrange for lower levz. units toexecute O& budgets, and execution responsibilities for budget allocations inthese cases must be agreed annually.

Installation of PONMS in Batch I Local Governments

6. The Performance-Oriented Maintenance Management System (PONMS) wasoriginally developed with Bank assistance for the Urban V project cities; USLassistance was used to refine and extend POMMS to additional cities (eight arenow covered) and develop improved local government budgeting proceduresassociated with PONMS implementation. Denpasar, Bali, is the only EJBUDPlocal government included among the initial POMNS cities, although Surabaya(an Urban V city) may also serve as an instructive example for the smallerEast Java local governments.

Further progress in fully developing the POMMS approach as an O&0programming and management technique for all non-water supply infrastructurehas recently taken two major steps forward:

(a) The USL and Urban V project supported a 'simplified" version ofPONMS for application in medium-to-small urban areas, simplifying

ANNEX 13-141- Page 3

inventory procedures and applying uniform performance standards,rather than the case-by-case methods used in the large cities.

(b) The Minister of Home Affairs in January, 1990, issued a Decree(KEPMIN No. 5/1990) instructing the full implementation of POMS inthe eight pilot cities and the preparation of budget documents inrevised formats which explicitly identify O&M expenditures for thefirst time in Indonesia. The KEPMIN also commends the POMMSapproach for consideration by other local governments and providesguidelines for its implementation and associated budgetingprocedures.

7. The proposed project would install the simplified version of POMHSin all 13 Batch I local governments (extending the Denpasar system to includeall areas of Kabupaten Badung), and utilize these local government systems astraining opportunities for officials of Batch II and III local governments andprovincial officials.

4. PMDU Strengthening for Water Enterprise 0&M Improvement

Within the water supply subsector, not covered by POMKS, the focalpoint of GOI-Bank efforts to improve water enterprise O&H has been theProvincial Monitoring and Development Unit (PMDU) established with assistanceunder the Second East Java Water Supply Project, USL and Dutch bilateral aidin East Java and was only recently initiated on a part-time basis in Bali.The PMDUs are established within the provincial public works departments(DPUPs) with responsibility to monitor the full range of water supply serviceprovision by all local enterprises, with particular attention to those intransition from the status of BPAM. The PMDU will assist each enterprise inevaluating staffing, training and other strengthening requirements (e.g.,budgeting procedures, chemical and supplies management, etc.) to improveoperational effectiveness and efficiency. The PMDU is also charged withassisting PDAM units with calculation and justification of appropriate usertariffs to assure adequate financing of system operations and orderlyexpansion, and to assist in making appropriate arrangements for operation ofpublic water taps in low-income areas (e.g., under the KIP program) which hasbeen typically troublesome for many enterprises. PMDU also serves tocoordinate local staff participation in training programs for operational andmanagement personnel of the water enterprises. The proposed project includesconsultant assistance to strengthen the capacity of both PMDU units to performthese central activities during the EJBUDP implementation periods with specialattention to assisting the conversion of the final group of BPAM units to PDAMstatus.

Development of Provincial Public Works Capacity to Assist O&M Programs

8. The DPUPs in both provinces have relatively complete staffs and inbranch offices (cabang dinas) in each local government. The increasing roleof local governments in implementing infrastructure programs, and theannounced intention of the Ministry of Public Works to second substantialnumbers of their current staff for provincial service, creates an opportunityto revise and strengthen the role of the DPUP in assisting local governmentOWM program development. The heads of both DPUP units have agreed to assign

- 142 - age 13Page 4

members of the branch-office staff to receive training in POMNS and PMDU O&Mprocedures, to create the capacity to support local governments in preparingand executing O&H activities. As DGBM has already established a provincialroads maintenance advisory unit in both provinces (functionally analogous tothe PMDU for water supply), the primary need in both provlnces is tostrengthen the O&M management assistance capacity for the PLP sub-sectors(i.e., drainage, solid waste management and sanitation). DGCK has agreed toassist both provinces in the creation of this capacity. Specification offuture O&M requirements is also integral component of all sub-project designsprepared under the IUIDP guidelines; thus, the DPUP Advisory Team (describedin ANNEX 3) will have the additional responsibility to advise the DPUPsregarding the development of appropriate O&M enterprise with the assistance ofthe training provided by the PONMS installation team.

Development of Annual O&M Programs for Each Local Government

9. The preceding activities are necessary preparatcry steps to providelocal governments with the background and resources to develop annual O&Mprograms covering all infrastructure subsectors, within the constraints ofcurrent manpower and budget resources. The provincial DPUPs and PMDUs wouldassist the local governments to prepare annual O&M programs, and to monitorand support their execution. The POMMS consultants would review and assistDPUP to establish the format and procedures for preparation and monitoring ofthe annual programs. One of the most significant aspects of this initiativewould be the opportunity to discuss the manpower and financial planning forO&M ii each subsector with every active local government in the program.

10. Shortages of trained manpower will create opportunities to discusscontract O&M schemes with the local governments. The recent revision ofINPRES Dati II (block grant) regulations to allow up to 25 percent of thesetransfers to be used for maintenance and rehabilitation contracts should alsoprovide flexibility in constructing the annual programs. The linkages withLIDAP and RIAP plans to increase local manpower and revenue will also bespecifically discussed in this annual review to assure consistency and improvelocal government management of the O&M agenda.

Revision of Local Government O&M Budget Procedures

11. Within the context of the above-noted MHA XEPMIN No. 511990 (seepara. No. 3) the framework has been proposed for a revised format andclassification of local government annual budgets. The instruction requiresthe eight pilot local governments (and encourages other) to prepare "parallel'budgets in addition to 'basic" (traditional)local budget. This new parallelbudget has three major categoriess (a) administrative overhead (salaries,administration, etc.); (b) O&M of public facilities and service systems; and(c) development projects (including design and supervision overheads).

12. This structure represents a major step in making O&H budgetingtransparent and monitorable, as opposed to the current general 'routine"category (combining la' and lb" above) in which line items contain a mixtureof funds and functions. MHA/PUOD staff indicate that it is the intention ofGOI to convert the entire local government budget system to this new formatafter a period of parallel operation. The EJBUDP assistance for municipal

ANNEX 13-143 - Page S

financial managcment would assist in this parallel budgeting and accounting inat least the Batch I local governments and provide appropriate formats andinstructions for use by other local governments with the guidance ofprovincial SEKWILDA.

O&M Monitoring Indicators

13. Monitoring indicators would include the followings

(a) preparation of annual maintenance program and budget per MHA KepminNo. 5/1990;

(b) actual O&M expenditures per subsector versus target in expenditureprogram;

(c) installation of POIMMS (in Batch I only) - Portion of O&Mexpenditures based on POMMS;

(d) level of deferred maintenance and rehabilitation contractsExpenditures vs Level of Routine O&M Expenditures;

(e) portion of routine O&M performed under contracts (by subsector); and

(f) increase in O&M expenditures (total) compared to increase in TK IIPADS.

- 144 - ANNEX 14Page 1

INDONESIA

EAST JAVA - BALI URBAN DEVELOPMENT PROJECT

Sanmle Infrastructure Exvenditure Programs 1/

1. Programmes for urban infrastructure development emphasizeImproviment of service levels, through rehabilitation of existing sysetems andimprovement of operation and maintenance, with new works receiving lesspriority.

A. Expenditure Proarame for Kabuiaten Baduna (Bali)

2. Water SupplY. (a) DonDasar and Kuta. The five-year expenditureprograme includes:

- 2 intake pumps at Tukad Ayung rated at 165 l/sec at 65 m head;- treatment works at Tukad Ayung incorporating flocculation,

sedimentation and filtration at a capacity of 300 llsec;- rehabilitation of 1 borehole in north Denpasar wellfield;- one borehole in the south Denpasar wellfield including

chlorination;- 1500 m3 reservoir at Jimbaran;- 2 booster pump stations;- distribution pipework;- leakage 5atection and control; and- approximately 3,800 new connections.

Part of these works (the treatment works). part of the distribution works, andone of the booster pump stations must be =aplemented early to meet theestimated 1991/92 demands. The projected water demands are based on resultsof household surveys and th-e projected growth in hotel demand requiring asource capacity of 1,129 1/sec by 1995.

3. The increase in demand would be met by duplicating the existingtreatment works at the Tukad Ayung (Tukad Ayung It) by increasing the supplyfrom the river from 300 liters/sec to 600 liters/sec. Rehabilitation is alsoproposed for the north Denpasar wellfield so that the total supply from thewellfield is increased to 404 liters/sec. An additional borehole in Panjerdesa in the South Denpasar wellfield has already been drilled and this willraise the production capacity of this wellfield to about 142 liters/sec. Thusthe total production capacity in 1995 will be about 1,146 liters/sec. whichwould be sufficient to meet the estimated peak day demands to just beyond1995. Additional source works will be required to meet peak day demandsbeyond 1995. The 1995 population served at house connections is estimated tobe 44 percent and at standpipes about 3 percent. Non-domestic demand of smallusers is estimated to remain at about 20 percent of domestic demand.

1/ Abstracts from *mini appraisal reports prepared during the appraisalmission.

- 145 - ANNEX 14Page 2

Non-domestic demand of large consumers, including hotels, is projected toincrease from 92 liters/sec to about 270 liters/sec by 1995 and assumes thatall hotels will be supplied by 1995. Losses are projected to reduce to 25percent of demand in 1995. This will be achieved through a leakage detectionand repair programme.

(b) Mentwi. Abiansemal, Petana and Sanseh

4. The five year expenditure program for these four towns includes:

- 1 spring capture chamber;- 6 boreholes and pumping equipment;- 3 chlorination facilities (Abiansemal and Sangeh combined)- transmission and distribution pipework;- 4 ground reservoirs;- 1 forwarding pump station; and- approximately 3600 new connections.

The financial projections for the water enterprises indicate that these workscould be financed by the water enterprises' own funds. The projected waterdemands are based on results of household surveys.

5. Drainage. The proposed prograume mainly consists of rehabilitationworks and lining of the existing secondary and tertiary drainage systems.Priority would be given to town areas frequently subject to flooding, oftencaused by insufficient hydraulic capacities of some channel sections orculverts. The prograsue for Denpasar is based on the existing drainagemasterplan whereas for Kuta and Mengwi plans would be prepared. Works of anypermanent nature on drainage systems would only be undertaken after a drainagemasterplan has been prepared. For Kabupaten Badung the programme comprises

- dredging and cleaning of 3,100 m of channels;- lining and repairing of 32,400 a open and closed channels;- 6,320 m extension of existing channels; and- purchase of 9 dumptrucks, 3 pickup trucks and 13 handcarts.

6. Urban Roads. The highest priority in the road programme is given tothe rehabilitation and the betterment works. Other priorities are roadwidening and sidewalks often in combination with road drainage. Trafficmanagement analyses have been done for all new works. New works consist of aringroad in Denpasar, a bypass road in Kuta, parking facilities andstreetlighting. The programme for Badung comprises:

- improvement (betterment, rehabilitation, and widening) of170,000 m2 artery roads;

- improvement (betterment, rehabilitation and widening) of 83,000m2 of collector roads;

- 35000 m2 of new artery roads, 10,000 m2 parking facilities,32,000 m2 side walks and 24,000 m streetlighting;

- improvement of road surface of 369,000 m2 local roads and450,000 m2 overlay; and

- equipment for maintenance of roads consists of 1 dumptruck, 2rollers and various other equipment.

- U6 - ~~~~ANNEX 14- 146 - Page 3

7. Solid Waste Management. The proposed works are based on populationdensities following national guidelines and household surveys to assesseffective (real) demand. They include public facilities and domestic wastecollection and consist of the provision of waste collection trucks and theconstruction and modification of new and existing transfer depots in the townsof Denpasar, Kuta and Mengwi. Also included are civil works for a finaldisposal site such as an access road, fencing, leachate treatment works andsub-soil drainage to serve the town of Denpasar including the Sanur touristarea and the town of Kuta. To increase efficiency of the door-to-doorcollection system in areas accessible for trucks it is proposed to purchase 40liter garbage bins. In areas not accessible for trucks, solid waste would becollected in handcarts. All market areas and business centres will be servedby containers and armroll trucks. The programme comprises the following forthe three towns in the kabupaten Badung:

- 10 container trucks and 13 dumptrucks;- 95 containers;- 1 bulldozers- 1 mini excavator;- 185 handcarts;- -workshops and transfer stations;

40 and 120 liter garbage bins; and- a final disposal site.

8. Human Waste DisDosal. The programme consists of upgrading of on-site sanitatior- systems. In addition to single on-site facilities, new multi-family facilities are proposed in those areas with high ground water tables.These facilities will reduce the number of soak pits, especially in thoseareas where shallow wells are used for drinking water. This program consistsof providing one septic tank for five households. The programme also includesa public promotion campaign. Part of the multi-family facilities will beconstructed under the KIP programme. 'he human waste programme for the townsof Denpasar, Kuta and Mengwi in the kabupaten Badung comprises:

- 17,500 single family on-site substructures;- 1,400 combined septic tanks for five families;- 3,400 latrines/leachate pit facilities;- 1 desludging truck complete with tank and pumping installation;

and- one final sludge disposal site of 4.3 hectares.

9. Kamoung ImDrovement Progarm (KIP). The programw proposals includemicro drainage, access roads and footpaths in 594 hectt.es in the five yearplanning period in the three towns.

10. Market Improvement Prosram (MIIP). The programme covers threemarkets in Denpasar only, with a total area of 20 hectares and provides fordrainage, access roads and handcarts for garbage collection.

-147- ANNEX 14Page 4

SPENDITURE PRGAM FOR KAOUPAtO POli(Rp SIl 11n)

Baee Cost PY90/91 PY91/02 fP92/08 P793/94 FY94/9S TotalJan 800 Coat Coats Co Coot Coats CostsPrise

WATER SUPPLY ENTERPRISEInvestment 19.92 2.89 4.48 7.3 4*.65 o.n 19.0Overhead a Engineering cos 8.90 0.65 0.74 0.58 0.81 1.71 8.94

Sub-totl 28.7 8.4 5.17 7.8 4. 2.42 28.7

06M 11.8? 2.01 2.05 2.14 2.08 8.01 11.67

Sub-total base cost 8.74 6.U5 .22 10.02 7.62 8.48 8.7

Physical Contingenles 0.00 0.35 0.51 0.78 0.48 0.24 2.88Price Contingencies 0.00 0.42 0.094 1.$$ 1.34 1.66 6.72

Sub-totai Vater Supply and CiM 85.74 6.82 6.67 12.66 9.04 7.88 44.62

LOCAL VERN ENT RASTRUCTURE

Dratnage 4.08 0.81 0.61 0.0 0.0 0.04 4.50Solid Waste lanagment 2.17 0.74 0.18 0.57 0.68 0.42 2.89Sanltation 5.29 0.86 1.90 1.64 0.6 0.90 5.82Urban Roads 16.47 8.76 2.72 2.82 1.86 8.57 16.7Kamung Impotvement 2.08 0.47 0.58 0.sa 0.60 0.14 2.29Marke" Infrastrucure Iprovnt 0.07 0.04 0.02 0.02 0.00 0.00 0.06overhead Englering costs 8.48 0.94 0.76 0.76 0.66 0.78 8.79

Sub-totl 82.04 0.14 6.07 7.84 5.48 6.76 8.64

088 7.82 1.64 1.80 1.54 1.,t 1.70 7.80

Sub-total be" cost 40.16 10.0 S 8.47 .8. 7.04 .46 48.88

Physical Contingenle 0.00 0.02 0.60 0.02 0.48 0.60 2.92Price Contingencies 0.00 0.80 1.11 1.67 1.75 2.68 7.90

Sub-total Local Govt Intf ra 0A8 40.1I 12.10 10.18 11.17 9.27 11.09 64.41

Total Expenditure Pr"rm (RV bh) 78.90 10.42 10.88 28.83 19.11 19.02 99.23Total Expenditure Proram (8 .) 42.28 10.26 10.80 18.28 10.68 10.40 85.20

11. Cost Estimates. The five year (1990191 - 1994/95) expenditureprogramue is estimated at Rp 44.8 billion in current prices. The expenditureprograms broken down by foreign and local coats including project overheads,engineering costs, physical and price contingencies.

B. Ezvenditure Programme for Kotamadya Probolinggo (East Java)

12. Water SuSly. The expenditure programme comprises the followingworksz

ANNEX 14- 148 - Page S

- leakage detection and control;- Extension of the distribution system;- 1,330 new connections; and- replacement of existing pumps.

?he leakage programme would include repair or replacement of productionmeters, an improved assessment of losses, purchase of leak detectionequipment, surveys and repairs as necessary.

13. The distribution system will be extended to the western areas of thetown, in which there are new housing developments and industry. An extensionto a housing estate in the south of the town is also proposed subject to thedeveloper funding tertiary distribution network.

14. The existing pumps at the spring source will be 12 years old by1994, and are estimated to be nearing the end of their useful life. One isbroken down and one is said to be operating below the rated output. They arealso incorrectly rated for head and consequently operate inefficiently. Theywould be replaced by units with a lower head rating. The previously proposedconstruction of the new water tower has been deferred until after 1995. Thecapacity of the system is 150 l/sec and thus the pumps will be able to meetthe peak hour demand. Further increases In demand after 1995 will necessitatethe addition of balancing storage in the town.

15. The proposals developed on the basis of the results of the realdemand survey, have been reduced to give a financing plan affordable to thePDhM with acceptable tariff increases. It concentrates on areas givenpriority by the local government and with a high percentage of real demandsurvey respondents interested in a supply.

16. Drainage. The proposed programme mainly consists of rehabilitationworks and lining of the existing secondary and tertiary drainage systems.Special attention is given to town areas frequently subject to flooding, oftencaused by insufficient hydraulic capacities of some channel sections orculverts. The programme for Rotamadya Probolinggo is based on the existingdrainage masterplan. The programme comprises oft

- dredging and cleaning of 19,220 m2 of channels;- lining and repairing of 5,727 m2 open and closed channels; and- purchase of 2 dumptrucks, 1 pickup truck and 2 handcarts.

17. Urban Roads. The highest priority in the programme isrehabilitation and betterment works. Other priorities are road widening,while new works consist of streetlighting and sidewalks often in combinationwith road drainage. The programme for Probolinggo comprises:

- improvement (betterment, rehabilitation, and widening) of136,855 m2 artery roads;

- improvement (betterment, rehabilitation and widening) of123,565 m2 of collector roads;

- 6,000 m2 sidewalks and 10,750 ml streetlighting;- improvement of road surface of 27,500 m2 local roads; and

- 149- ' ANNEX 14Page 6

equipment for maintenance of roads consisting of 1 dumptruck, 2rollers and 1 HRS maintenance set.

18. Solid Waste Management. The proposed service levels are based onpopulation densities following national guidelines. They include publicfacilities, domestic waste collection, provision of waste collection trucksand the construction of ew transfer depots. Also included are civil worksfor a final disposal site such as an access road, fencing, leachate treatmentworks and sub-soil drainage. To increase efficiency of the door to doorcollection system in areas accesible for trucks it is proposed to purchase 40liter garbage bins. In areas not accessible for trucks solid waste would becollected in handcarts. All market areas and business centres will be servedby containers and armroll trucks. The prograime comprises the following:

- 2 transfer depots and 54 transfer stations (TPSs);- 200 m2 workshop and tools;- 300 m access road of disposal site;_ 65 refuse bins;_ 19 handcarts;- 6 dump trucks and 1 unit armroll truck; and- 1 bulldozer.

19. fuman Waste Disposal ManaRement. The programme comprises ofupgrading of on-site sanitation systems. In addition to single on sitefacilities, new multi-family facilities are.proposed in those areas with highground water tables. These facilities will reduce the number of soak pitsespecially in those areas where shallow wells are used for drinking water.The programme consists of providing one septic tank for five households. Theprograms also includes a public promotion campaign (for 7,370 households).

20. Part of the multi-family facilities and MCK will be constructedunder the RIP programme. The human waste programse for Probolinggo comprisess

- 58 combined septic tanks for five families each;- 525 latrines/leachate pit facilities;- one final sludge disposal site of 2,500 m2 provided with 3;

centrifugal pumps and 910 metre length of pipelines;- rehabilitation of 2 existing MCXs; and- single family on-site substructure.

21. amWung Imrovement Programme (KIP). The programme includesimprovement of micro drainage, access roads and footpaths in 25 hectares newRIP areas and rehabilitation of facilities in 75.5 hectares existing RIP areasduring the five year planning period.

22. Market Improvement Programme tMIIP). The programme covers twomarkets in Kotamadya Probolinggo with a total area of 8 hectares and providesfor cleaning of existing drains (260 m3), 17 handcarts for garbage collection,5 temporary disposal sites (TPSs) and 2 public standpipes.

23. Cost Estimates. The five year (1990191 - 1994/95) expenditureprogramme is estimated at Rp 14.74 billion in current prices. The

-150 - ANNEX 14Page 7

expenditures broken down by foreign and local costs, project overheads,engineering costs, physical and price contingencies.

EXPENDITURE PRPGRAM FOR KOTAMAOYA PROSU0NOGO(RD bilion)

ea". costJan '90 FY9O/Ol FY91/92 FY92/98 FY93/94 FY94/95 TOt IPrices Costs Coot CoSt Costa Coat Costa

WATER SUPPLY ENTERPRISEInvestment 11.59 0.02 0.50 0.44 0.81 0.00 1.27Overhed and Engineering costa 0.16 0.06 0.04 0.08 0.02 0.00 0.17

Sub-total 11.75 0.10 0.64 0.47 0.88 0.00 1.44

0Du 1.13 0.19 0.21 0.21 0.26 0.20 1.17

Sub-total base cost 12.93 0.29 0.76 0.66 0.61 0.29 2.61

Physical Conttngnctoe 0.00 0.01 0.06 0.05 0.08 0.00 0.14Price Contngeneles 0.00 0.02 0.10 0.18 0.15 0.08 0.48

Sub-total Water Supply 12.93 0.82 0.90 0.66 0.79 0.86 8.28

LOCAL GOVERNMT INFRASTRUCTUDrtinage 0.41 0.09 0.06 0.06 0.07 0.18 0.48Solid Wa te Manae ment 0.88 0.12 0.07 0.19 0.04 0.00 0.42Sanitation 0.14 0.01 0.02 0.05 0.08 0.04 0.15Urban Radst 4.86 8.09 0.88 0.83 0.48 0.51 5.84Kaapung Iprovement 0.86 0.09 0.08 0.06 0.06 0.07 0.88Market Intrastructure Improvement 0.01 0.01 0.00 0.00 0.00 0.00 0.01

Sub-total 6.15 8.41 1.11 0.78 0.65 0.77 8.70

Overhoad and Engineering Costs 0.76 0.42 0.18 0.09 0.09 0.10 0.83

Sub-total 6.91 8.88 1.24 0.86 0.74 0.7 7.68

CAM 1.82 0.38 0.81 0.40 0.42 0.48 1.98-;- --- ---

Sub-total base cost 7.97 4.16 1.69 1.26 1.186 1.80 9.46

Physical Contingencis 0.00 0.81 0.10 0.06 0.06 0.07 0.60Price Contingencies 0.00 0.29 0.19 0.22 0.26 0.86 1.84

Sub total Local Govt Infra. A 0*M 7.97 4.76 1.68 1.68 1.50 1.78 11.40

Total Expenditure Program (Rp bn) 20.90 6.06 2.76 2.89 2.29 2.09 14.68Total Expendture Program (1 a) 11.64 2.83 1.56 1.88 1.26 1.16 6.15

9~~~~~~~~~~~~~~~~~~~~

ANNEX 15-151 -Pg

INDONESIA

East-Java Bali Urban Development Project

Environmental Assessment and Management

1. The Indonesian Environmental Assessment Regulation (GovernmentRegulation t29/1986), known locally as AMDAL identifies which types ofactivities require preparation of environmental assessments (EAs); makesproject approvals contingent on approval of an environmental management planand environmental monitoring plan that incorporate findings of the EA; directsMinisters and provincial governors to establish an Environmental ReviewCommission in their respective ministry or province; establishes a time limitwithin which the Minister or Governor must act upon environmental assessmentssubmitted for Commission review; and requires public notification andparticipation in review of environmental assessments.

2. Under the Environmental Assessment Regulation, if a projectinvolves potentially adverse environmental impacts, the sponsor or proponentfor each project must prepares i) a preliminary environmental assessment(ANDAL/Analisis Dampak Lingkungan); ii) an environmental management plan(RKL/Rencana Pengelolaan Lingkungan) and iii) an impact monitoring plan(tRPL/Rencana Pemantauan Lingkungan). In the case of public works projects,the proponent is normally a government or parastatal public works agency, suchas DG Cipta Rarya, a provincial or district public works agency, or a watersupply agency (PDAM or BPAM).

3. National-level review of EAs for public works projects is theresponsibility of the Environmental Review Commission (Romisi Pusat) ofMinistry of Public Works (MPW), whose chairman is Head of the Research andDevelopment Agency (BALITBANG) of MPW. The Commission holds regular weeklymeetings, has recently developed sectoral guidelines for preparation andreview of EAs of public works projects with the assistance of ADB, and hasadopted PY90191 work plans. A Technical Team and three DG-level WorkingGroups provide technical support to the Commission. As of April 1990, theCommission had processed EAs for other projects identified as involvingserious environmental issues (e.g. Bali Estuary Water Supply Project).

4. Local-level environmental management, including review of EAs inall sectors, is the responsibility of the provincial Governor. TheGovernments of the Provinces of East Java and Bali have establishedEnvironmental Review Commissions (Komisi ANDAL), which has began review oflocal projects in 1989. East Java has also taken a leadership role inadopting provincial water quality standards and actively undertaking waterpollution abatement under the GOI-CIDA PROKASI program for industrial wasteand the Bank's Second East Java Water Supply Project which included apollution control component. However, neither Regional Commission hasestablished adequate working arrangements; the Commissions do not meetregularly; criteria for determining whether projects are to be reviewed at the

-152 - ANNEX 15Page 2

provincial level or the national level are unclear in many sectors; andtechnical support is not being provided to the commissions, either at theprovincial level or by the national-level Environmental Review Commissions ofthe line ministries or KLH. As of April 1990, the Regional Commission of EastJava had reviewed approximately 70 projects, mainly in the industrial sectorand the Regional Commission of Bali had reviewed approximately 15 projects,mainly involving excavation of sand or gravel. Coordination between theCentral Commission of MPW and the Regional Commissions is weak. Althoughwater quality and related issues in coastal areas (e.g. protecting mangroveareas, access to sea by traditional groups, etc.) have been identified aspriority environmental issues in both provinces, the Regional Commissions haveno environmental database to support environmental assessment and managementin coastal areas, and provincial and local staff have not received training inenvironmental assessment and management.

S. The Government's AMDAL requirements under Government Regulation#2911986 are generally adequate, and generally consistent with the Bank'senvironmental assessment requirements./I Capabilities of project proponentsand Commissions to meet AMDAL preparation and review requirements are limited,however, and increased demand for environmental assessment and review underEast Java-Bali and other IUIDP projects is likely to exceed limited AMDALcapabilities. The project includes agreed measures to meet Government andBank environmental assessment requirements, and technical assistance to ensurethat the agreed measures are carried out in a timely manner and buildenvironmental assessment and management capabilities at the provincial level.

6. The following arrangements to ensure that sub-projects receivingsupport under the project meet Government and Bank environmental assessmentrequirements have been agreed during project preparations a) environmentalscreening of sub-projects by the Regional Commissions and Central Commissionof MPW; b) preparation of initial and detailed EAs (PILs and ANDALs) by localproject proponents or their consultants; c) review of EAs by the RegionalCommission; and d) assurance of incorporation of environmental managementplans (RKLs) into project design by the provincial appraisal team.

7. Given that these agreed environmental assessment procedures are newand require substantially improved coordination among central (CentralEnvironmental Commission), provincial (Regional Environment Commission,provincial appraisal team) and local (Level II Government) levels, technicalassistance will be essential to ensure that the procedures are implemented ina timely manner, and to strengthen the Regional Commissions. The objectivesof the proposed technical assistance are to: a) assist implementation of thearrangements for local-level environmental assessment of sub-projects outlinedin para. 6, to ensure timely implementation; and b) assist the RegionalCommission and Bappeda in each province tot i) inventory existing data andgovernment-and donor-assisted initiatives to address critical coastal waterquality issues; ii) design a provincial coastal zone water resource management

11 Environmental Assessment Operational Directive 4.00, Annex A.

ANNEX 15- 153 - Page 3

database, to be maintained by the Regional CommissionJ Bappeda/Regional Officeof Population and Environment (BXLH), for use by planners, preparers andreviewers of environmental assessments, and those responsible forenvironmental monitoring; and iii) provide environmental assessment andcoastal zone management training to provincial and local staff. Draft termsof reference of the technical assistance to strengthen environmentalassessment and management capabilities in each province have been prepared,and the assistance is expected to begin with Japan Grant Funds even prior toeffectiveness of the Project.

ANNEX 16- 154- Page 1

INDONESIA

EAST JAVA - BALI URBAN DEVELOPMENT PROJECT

Key Documents in the Proiect File

Consolidated Preparation Reports

1. East Java - Bali Urban Development Projects Project Preparation Report,East Java (Draft). November and March, 1990. Task Force EJBUDP,Coordination Team for Urban Development (TKPP) Government of Indonesia,and Government of East,Java Province.

2. East Java - Bali Urban Development Project: Project Preparation Report,Bali (Draft). March, 1990. Task Force EJBIDP, Coordination Team for UrbanDevelopment (TKPP) Government of Indonesia, and Government of BaliProvince.

East Java: Official Batch I Local Government Preparation Documents(separate volumes in Indonesian for each local government and signed by itsrespective Bupati or Mayor: Banyuwangi, Sidoarjo, Sumenep, Lamongan, Jember,Probolinggo, Kederi, Mojokerto and Pasuruan)

3. Volume Is Rencana Investasi (Investment Program). various dates 1989.East Java Province and Directorate General Cipta Karya, MPW.

4. Volume II: Keuangan (Finance). various dates, 1989. East Java Provinceand Directorate General Cipta Karya, MPW.

5. Volume IlIs Rencana Kerja Peningkatan Pendapatan Daerah dan Rencana KerjaPengembangan Kelembagaan (Revenue Improvement Action Plan andInstitutional Development Action Plan). various dates, 1989. East JavaProvince and Directorate General Cipta Karya, MPW.

6. Volume IV: Ringkasan (Summary). various dates, 1989. East Java Provinceand Directorate General Cipta Karya, MPW.

East Java: Batch I Local Government Working Papers(separate volumes for each local government)

7. Dokumen Teknis (Technical Documents). various dates, 1988-89. East JavaProvince and Directorate General Cipta Karya, MPW. (all but Pasuruan andSumenep).

8. Dokumen Keuangan (Financial Documents. variours dates, 1988-89. East JavaProvince and Directorate General Cipta Karya, MPW. (all but Pasuruan).

ANNEX 16-155 Page 2

Bali: Official Batch I Local Government Preparation Documents(separate volumes in Indonesian for each local government and signed by itsrespective Bupati or Mayors Badung, Buleleng, Jembrana and Klungkung)

9, Pokok-pokok Rancangan Program P3KT (IUIDP Planning Principles). February,1990. Bali Province and Directorate General Cipta Karya, MPW.

10. Rencana Pembiayaan RIPK (Indicative Urban Infrastructure Financing Plan).January, 1990. Bali Province and Directorate General Cipta Karya, MPW.

11. Analisa Ekonomi dan Keuangan RIPK (Indicative Urban InfrastructureEconomic and Fianancial Analysis). January, 1990. Bali Province andDirectorate General Cipta Karya, MPW.

12. Strategi Pengembangan Kota & Ringkasan Program RIPK (Urban DevelopmentStrategy and Indicative Urban Infrastructure Development ProgramSummary). various dates, 1989-90. Bali Province and Directorate GeneralCipta Karya, MPW.

Bali Working Papers

13. Tambahan Is RIPK Sector, Non-Water Supply (Supplement Is SectoralIndicative Urban Infrastructure Program, Non-Water Supply). variousdates, 1989-90. Bali Province and Directorate General Cipta Karya, MPW.

14. Tambahan IIt RIPK Sector Water Supply (Supplement II: Sectoral IndicativeUrban Infrastructure Program, Water Supply). various dates, 1989-90. BaliProvince and Directorate General Cipta Karya, MPW.

15. Tambahan IIIs RIPK Sector Non-Water Supply for IKK and Kawasan Wisata.various dates, 1989-90 (Supplement III: Sectoral Indicative UrbanInfrastructure Program for Sub-district Headquarters and TouristAttractions). various dates, 1989-90. Bali Province and DirectorateGeneral Cipta Xarya, MPW.

16. Rencana Kegiatan Pengembangan Kelembagaan dan Peningkatan PendapatanDaerah (Institutional Development and Revenue Improvement Action Plans).January 1990. Bali Province and Directorate General Cipta Karya, MPW.

17. Penyajian Informasi Lingkungan TPA Jimbaran (Jimbaran Solid WasteDisposal Site Environmental Assessment Information). 1990. Bali Provinceand Direcorate General Cipta Karya. (Badung Kabupaten only).

18. Addendum II Urban Infrastructure Investment Program, Water Supply Sector(in English). 1990. Bali Province and Directorate General Cipta Karya,MPW.

ANNEX 16- 156 - Page 3

Technical Memoranda

19. Technical Memorandum, Water Supply. November, 1989. Directorate GeneralCipta Karya, MPW.

20. Technical Memorandum, City-wide Drainage. November, 1989. DirectorateGeneral Cipta Karya, MPW.

21. Technical Memorandum, Cost Estimating. December, 1988. DirectorateGeneral Cipta Karya, MPW.

22. Technical Memorandum, Solid Waste Disposal. November, 1989. DirectorateGeneral Cipta Karya, NW.

23. Technical Memorandum, Human Waste Disposal. November, 1989. DirectorateGeneral Cipta Karya, MPW.

24. Technical Memorandum, Urban Roads. November, 1989. Directorate GeneralCipta Karya, MPW.

25. Real Demand Assessment Guidelines. June, 1988. Directorate General CiptaKarya, MPN.

26. East Java IUIDP Appraisal Process. February, 1989. Directorate GeneralCipta Karya, MPW.

27. Institutional Development Strategy for IUIDP Program Implementation.November, 1987. Directorate General Cipta Karya, MPW.

28. Appraisal Manual. October, 1989. Directorate General Cipta Karya, MPW.

29. ECOWAT 2. July, 1989. World Bank Preparation Mission.

Key Aides-Memoire

30. East Java - Bali Urban Development Project, Preappraisal Aide-Memoire.December 10, 1989. World Bank Mission.

31. East Java - Bali Urban Developmpent Project. Appraisal Aide-Memoire.April 10, 1990. World Bank Mission.

Other

32. National Urban Development Study Final Report, Volumes 1-5. September1985. Directorate General Cipta Karya, MPW, and United Nations Centrefor Human Settlements, UNDP.

33. Unabridged List of Project Documents. May, 1990. World Bank AppraisalMission.

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