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ASIAN DEVELOPMENT BANK

Operations Evaluation Department

PPA: INO 24233


(Final)

PROJECT PERFORMANCE AUDIT REPORT

ON THE

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

IN INDONESIA

July 2004

CURRENCY EQUIVALENTS Currency Unit rupiah (Rp) At Appraisal (August 1991) $0.000509424 Rp1,963 At Project Completion (August 2000) $0.000120555 Rp8,295
ABBREVIATIONS

Rp1.00 = $1.00 =

At Operations Evaluation (November 2003) $0.000117405 Rp8,518

ADB BAPPEDA

BAPPENAS BME DGHS DK EIRR EOCC FIRR IUIDP KfW KIP LIDAP MCK MIIP MOHA MPW O&M OEM PADS PCR PDAM PIU PMU RETA RIAP TA SLF SWM UDP UFW VOC WACC WTP

Asian Development Bank Regional Development Planning Agency (either provincial [level I] or local [level II]) Badan Perencanan Pembangunan Nasional (National Development Planning Agency) benefit monitoring and evaluation Directorate General of Human Settlements Dinas Kebersihan (Cleansing Department) economic internal rate of return economic opportunity cost of capital financial internal rate of return Integrated Urban Infrastructure Development Program Kreditanstalt fr Wiederaufbau Kampung Improvement Program Local Institutional Development Action Plan mandi-cuci-kakus (bathing-washing-toilet) Market Infrastructure Improvement Program Ministry of Home Affairs Ministry of Public Works operation and maintenance Operations Evaluation Mission Local Government Revenue project completion report Perusahaan Daerah Air Minum (local water enterprise) project implementation unit project m onitoring unit regional technical assistance Revenue Improvement Action Plan technical assistance sanitary landfill solid waste management urban development project unaccounted-for-water vehicle operating cost weighted average cost of capital water treatment plan

(i) (ii)

NOTES Throughout project implementation, the fiscal year (FY) of the Government ended on 31 March. Starting FY2000, the new FY ends on 31 December. In this report, $ refers to US dollars.

WEIGHTS AND MEASURES ha km lps hectare kilometer liter per second GLOSSARY Dinas Kabupaten Kampung Kecamatan Kota Service departments within provincial or district (kota and kabupaten) administrations Regency, district, administrative subdivision of a province, predominantly rural in character Densely populated, unplanned urban neighborhood Subdistrict Municipality, district, administrative subdivision of a province, predominantly urban

Director General, Operations Evaluation Department Director, Operations Evaluation Division 2 Evaluation Team Leader

: : :

Eisuke Suzuki David Edwards Anjum Ibrahim

Operations Evaluation Department, PE-644

CONTENTS Page BASIC DATA EXECUTIVE SUMMARY MAP I. BACKGROUND A. B. C. D. E. F. II. Introduction Formulation Purpose and Output Cost, Financing, and Implementation Arrangements Completion and Self-Evaluation Operations Evaluation iii v ix 1 1 1 2 2 3 3 4 4 4 5 6 7 7 7 10 12 13 14 14 15 16

PLANNING AND IMPLEMENTATION PERFORMANCE A. B. C. D. E. Formulation and Design Achievement of Outputs Cost and Scheduling Consultant Performance, Procurement, and Construction Organization and Management

III.

ACHIEVEMENT OF PROJECT PURPOSE A. B. C. D. Operational Performance Performance of the Operating Entity Financial and Economic Reevaluation Sustainability

IV.

ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS A. B. C. Socioeconomic Impact Environmental Impact Impact on Institutions and Policy

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

ii V. OVERALL ASSESSMENT A. B. C. D. E. F. G. VI. Relevance Efficacy Efficiency Sustainability Institutional Development and Other Impacts Overall Project Rating Assessment of ADB and Borrower Performance 17 17 17 17 17 17 18 18 18 18 19 19

ISSUES, LESSONS, AND FOLLOW -UP ACTIONS A. B. C. Key Issues for the Future Lessons Identified Follow-Up Actions

APPENDIXES 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Structure of Government Financing Plan Organizational Arrangement for Project Implementation Status of Completion of Project Components Breakdown of Project Cost Implementation Schedule Financial Performance of Local Governments Financial Performance of PDAMs Economic Analysis Financial Analysis Socioeconomic Indicators Beneficiary Survey: Project Socioeconomic and Environmental Impacts 20 21 22 23 29 31 34 39 45 49 51 52

SUPPLEMENTARY APPENDIXES (available upon request) A. B. C. Revenues and Expenditures of Kota Bogor (current and constant prices) Revenues and Expenditures of Kabupaten Bogor (current and constant prices) Revenues and Expenditures of Kota Palembang (current and constant prices)

BASIC DATA Loan 1111-INO: Bogor and Palembang Urban Development Project
Project Preparation/Institution Building TA No. TA Name 1588-INO Urban Transportation Planning and 1 Management Type ADTA PersonMonths 51 Amount ($000) 596 Approval Date 31 Oct 1991

Key Project Data ($ million) Total Project Cost Foreign Exchange Cost Local Currency Cost ADB Loan Amount/Utilization ADB Loan Amount/Cancellation Key Dates Fact-Finding Appraisal Loan Negotiations Board Approval Loan Agreement Loan Effectiveness First Disbursement Project Completion Loan Closing Months (effectiveness to completion)
Economic Internal Rate of Return (%) Flood Control and Drainage Kampung Improvement New Urban Roads Road Improvements Financial Internal Rate of Return2 (%) Water Supply Solid Waste Waste Water and Sanitation On-siteKota and Kabupaten2 Off-siteKota and Kabupaten3 Appraisal 24.2 41.6 14.8 62.9 Bogor PCR 37.8 63.5 14.1 38.0

As per ADB Loan Documents 234.7 82.6 152.1 140.0 Expected

Actual 178.9 86.6 92.3 126.5 13.5 Actual 12 Feb5 Mar 1991 26 Jun13 Jul 1991 2627 Sep 1991 31 Oct 1991 22 May 1992 7 Jul 1992 22 Oct 1992 30 Sep 1999 7 Apr 2000 87
Palembang PCR 34.3 53.4 18.1 26.6 PPAR 12.9 12.1

20 Aug 1992 1 Sep 1997 30 Sep 1997 60


PPAR 29.7 41.2 Appraisal 32.3 66.4 21.5 32.6

Kotamadya Bogor Appraisal PCR PPAR 8.5 11.6 6.0 15.6 8.1 26.4 2.9 13.9

Kabupaten Bogor Appraisal PCR 10.8 18.5 7.2 7.8

PPAR 8.7

Water Supply Solid Waste Wastewater and Sanitation On-sitePalembang2 Off-sitePalembang3

Kotamadya Palembang Appraisal PCR PPAR 8.9 5.2 1.9 5.4 7.7 24.4 9.7 8.6

= not calculated, ADB = Asian Development Bank, ADTA = advisory technical assistance, PCR = project completion report, PPAR = project performance audit report, TA = technical assistance. 1 Attached to Loan 1111-INO. 2 On-site septic tank desludging. 3 Off-site sewerage system.

iv
Borrower Executing Agency Republic of Indonesia Directorate General of Urban and Rural Development in the Ministry of 4 Settlements and Regional Development (formerly Directorate General of Human Settlements in the Ministry of Public Works)

Mission Data Type of Mission Fact-Finding Appraisal Project Administration 5 Review Midterm Review Project Completion Operations Evaluation

No. of Missions 1 1 12 10 1 1 1

No. of Person-Days 70 276 204 42 30 36

4 5

= not available.
Since 23 August 2000, Cabinet reshuffle the Ministry of Settlements and Regional Infrastructure. Includes one special project implementation review for 4 person-days, undertaken in conjunction with Loan 1069INO: Second IKK Water Supply Project.

EXECUTIVE SUMMARY In Indonesia, increasing rural-urban migration has placed considerable demands on the national and local governments to provide adequate infrastructure and basic services to a growing number of the urban poor. Bogor and Palembang Urban Development Project aimed to provide and rehabilitate urban infrastructure and services in Kotamadya Bogor, Kabupaten Bogor, and Kotamadya Palembang, thereby minimizing the impediments to increasing productivity and economic expansion. The Project selected components from the Governments Integrated Urban Infrastructure Development Program and was consistent with the Fourth 5-Year Plan (1985/861989/90). It also supported the Asian Development Banks (ADBs) operational strategy for Indonesia in 1989, which emphasized the need to upgrade facilities, including physical infrastructure, in line with the expected growth of the urban population. While the Project was ADBs 10th intervention in the urban development sector, it was the first in the three project local government areas. At approval, the total ADB funding was estimated at $140 million covering $74.3 million of the foreign exchange requirement and local currency costs of $65.7 million. Actual ADB disbursements amounted to $126.5 million covering foreign exchange cost of $82.4 million and local currency component of $44.1 million. This reflected an increase of 10.9% in ADBs financing of foreign exchange costs and a decline of 33% in local currency costs in comparison to appraisal estimates. The rise in foreign exchange costs was attributed to an increase in the costs of civil works and the extension of consulting services, while the decline in local currency costs in dollar terms was due to the devaluation of the rupiah. Counterpart funding was estimated at $80 million at appraisal, while actual funding amounted to $45.1 milliona decline of 44% attributable to the economic fallout of the Asian financial crisis. Inadequate counterpart funding resulted in the cancellation of $1.9 million in July 1998 as p of ADBs portfolio art restructuring response to the Governments budget difficulties. A further cancellation of $11.6 million was made in April 2000. The ADB loan approved on 31 October 1991 became effective on 7 July 1992, with an original closing date scheduled for 30 September 1997, which was extended three times by a total of about 2 years and 6 monthsup to 7 April 2000. The delays were due to start-up problems related to (i) late recruitment of consultants attributed to procedural bottlenecks, (ii) difficulties in land acquisition because of the inadequate budgeting of resources by local governments to cover increased costs stemming from actual market values that were higher than government valuations of land, and (iii) late provision of counterpart funding. The beneficiary recall assessment used to evaluate the Project showed that the civil works were strategic interventions, which minimized impediments to increasing productivity and economic expansion through the provision of improved infrastructurethe principal objective of the Project. The local water enterprises, Perusahaan Daerah Air Minum (PDAMs) were responsible for carrying out operation and maintenance (O&M) of water supply systems provided under the Project. The improving performance of the participating PDAMs augurs well for sustainability of the water supply component; however, it is conditional on further regular tariff increases at or above the rate of inflation. The major impediment to this remains with the political leadership, which is unwilling to allow the PDAMs to set economic tariff rates on perceived grounds that many consumers, particularly the poor, will be unable to afford them. Local governments (level II) were covenanted to undertake the O&M of drainage, solid waste management (SWM), urban roads, Kampung Improvement Program (KIP) facilities, and

vi sanitation. Revenues from solid waste collections and septic tank desludging fees were much lower than the costs of providing the services and are heavily subsidized. The institutional development plan was realized to the extent that organizational changes were introduced within PDAMs, particularly in giving more importance to meter reading and the billing and collection functions; management information systems were established; and job descriptions were prepared and personnel appraisal systems introduced. Training was undertaken as planned in regional and urban planning, city planning, environment sanitation, housing, building regulations, fiscal planning, budgeting, revenue collection, information systems, and public relations. Training was also provided for waste collection procedures, computerized billing systems, and management information systems operation. The attached technical assistance (TA), for $596,000, focused on urban transportation planning and management within two cities, Denpasar and Semarang. The Operations Evaluation Mission was informed that the study was successful and the reports on Denpasar and Semarang formed the basis of subsequent policy decisions. The financial reestimation was undertaken for the water supply components in Bogor and Palembang only. It was not possible to reevaluate the SWM and sanitation components in Kabupaten Bogor, Kotamadya Bogor, and Kotamadya Palembang since neither the base data nor supporting figures and assumptions used at appraisal and the reestimation for the project completion report (PCR) was available. Furthermore, both the solid waste and septic tank desludging activities within Palembang and Bogor are subsidized, where revenues are insufficient to cover the O&M costs, let alone depreciation. The reestimation of the water supply component shows that all subprojects yielded lower financial internal rates of return (FIRRs) than at appraisal and in the PCR. The FIRR for PDAM Kotamadya Bogor was 6.0%, higher than the weighted average cost of capital (WACC) of 2.9%, and for PDAM Kabupaten, it was 8.7%, also higher than the WACC. Improved operations, expanded production capacity, and improved management in recent years will enhance sustainability in the longer term. PDAM Palembang had a lower FIRR of 1.9% because of the noncompletion of some components as a result of delayed Kreditanstalt fr Wiederaufbau financing, its high rate of unaccounted-for-water, and its past poor financial performance. The economic reestimation used increases in land values as the basis for measuring benefits, but unlike the appraisal and PCR evaluations, only one-off increases were included and these were converted into annual rental streams using rent-to-capital-value ratios. The results of the reevaluation of the drainage component indicated a higher actual economic internal rate of return (EIRR) in Bogor at 29.7% compared with the 24.2% at appraisal because of the expanded area of improvements. The EIRR is lower than that of the PCR on account of the different method used to measure benefits. In Palembang, the actual EIRR for drainage was 12.9% compared to 32.3% at appraisal and 34.3% in the PCR. The changing methodology and marginally higher maintenance costs assumed account for the difference. Both EIRRs are above the economic opportunity cost of capital. In Bogor, the actual EIRR for KIP was 41.2%, which was lower than the 41.6% at appraisal and 63.5% in the PCR. In Palembang, the actual EIRR of 12.1% was lower than the EIRR of 66.4% at appraisal and 53.4% in the PCR. The reason was the increase in land values in Palembang was considerably lower than the increase in Bogor. For Bogor, the returns are well above the economic opportunity cost of capital, while for Palembang, it is just above it. A beneficiary survey undertaken by the evaluation team found that urban economic activity increased as a result of the Project, although the Project was not the only reason. In addition, health conditions had improved and the drainage improvements were effective in mitigating flooding.

vii Three key issues need addressing. First, the Project was complex, comprising seven components within three local authority areas. It may have been more appropriate to focus on an integrated urban development approach to ensure comprehensive improvement of specific areas. Second, institutional action plans need to have more realistic targets in future interventions, particularly those relating to financial performance of the implementing agencies. Third, land acquisition difficulties associated with widely different market and government values need to be addressed. The key lessons learned are (i) providing expensive foreign funding for small items with limited life spans, such as handcarts and container bins, is not the most effective use of money; (ii) solid waste dumpsites designed without proper environmental controls will have long-term negative impacts on the surrounding areas; (iii) O&M of the pilot wastewater system in Bogor would have been better placed under the PDAM, so that charges for water and sewerage could have been levied by the same agency; and (iv) there was no land acquisition plan, no environmental assessment plan, nor a plan to involve the community in the project preparation stage. The last lesson has been taken account of by ADB through its resettlement and environment policies, and greater emphasis on community participation in project preparation and implementation stages. The OEM recommended two follow-up actions: (i) a TA for 2005 to undertake a drainage master plan for Palembang may be considered; and (ii) ADB needs to remain engaged with the Government to further corporatize the PDAMs in an effort to de-link tariffs from political control and to expand the PDAMs area of responsibility to include the sewerage component, as is the case in Medan, upon acceptance of an improvement in the pricing of the service. This may be achieved by the end of 2004. The Project is assessed as successful, because it met its main objective of providing new and improved infrastructure facilities that minimized the impediments to increasing productivity and economic expansion. The TA is assessed successful.

Eisuke Suzuki Director General Operations Evaluation Department

I. A. Introduction

BACKGROUND

1. A key feature of urbanization in Indonesia is the inability of national and local governments to ensure adequate infrastructure and basic services are provided for an increasing urban population. Steadily increasing rural-urban migration has exacerbated the financial constraints that have prevented Indonesian cities from providing such services. This has led to many cities witnessing a dramatic decline in the quality of infrastructure and the growth of unserviced slum and squatter areas where many urban poor lack adequate access to basic services, including potable water and sanitation. In some areas, over 60% of urban dwellers are housed informally. Urban population is growing rapidly, roughly 5% per year, and this poses a real challenge to improving living standards, especially those of the poor. Although provision of services, such as water supply, sanitation, and solid waste disposal has improved, most urban residents still lack basic services. Serious environmental problems include uncollected garbage, water and air pollution, and traffic congestion. 2. Since 1976, the Government has borrowed $1,413 million from the Asian Development Bank (ADB) for 17 loans addressing problems associated with urban development. The Bogor and Palembang Urban Development Project (the Project) was the 10th loan and was requested for two towns that were not included under previous foreign-assisted programs: Bogor Kotamadya (municipality) and Kabupaten (regency)with a combined population of 854,201 in 1990 that was forecast to grow at 3.6% between 1990 and 1995 and 3.0% from 1995 to 2000; and Kotamadya (Kota) Palembang, with a total population of 1.1 million in 1990 that was forecast to grow at 2.8% from 1990 to 1995 and 4.9% from 1995 to 2000. The Government also requested a technical assistance (TA) 1 for urban road planning and management. 3. The Project was to prepare and undertake an integrated urban development project in Bogor and Palembang to improve the living conditions of the growing number of urban poor and to support the economic growth of urban centers. B. Formulation

4. The Government formulated a nationwide Integrated Urban Infrastructure Development Program (IUIDP), first initiated under the Fourth 5-Year Plan, 2 as a means of providing infrastructure facilities, promoting decentralization, increasing local resource mobilization, and enhancing management capabilities at the local level. The Project selected IUIDP components in three urban areas: Kota Bogor, Kabupaten Bogor, and Kota Palembang. The structure of government is in Appendix 1. The Fifth 5-Year Plan 3 further refined the strategy to encourage borrowing by Perusahaan Daerah Air Minum (PDAMs)local water enterprisesand local governments. This involved establishing a debt-service coverage ratio of not less than 1.5 for local government general fund operations and not less than 1.3 for local enterprises, including PDAMs, that aimed to bring the legal borrowing capacity of local governments more in line with their ability to service loans.4

1 2 3 4

TA 1588-INO: Urban Transportation Planning and Management, for $596,000, approved on 31 October 1991. REPELITA IV (1985/86 to 1989/90). REPELITA V (1990/91 to 1994/95). The Ministry of Finance has ruled that direct subloans to PDAMs are no longer possible and the required debtservice coverage ratio for regional governments has, therefore, increased.

2 5. A study that assessed current problems and prepared a plan for future development of urban areas was undertaken with government funding in September 1987. A feasibility study to formulate a project was completed under ADB funding in 1991. 5 Fact-finding was in February March 1991 and the Project was appraised in JuneJuly 1991. C. Purpose and Output

6. The overall purpose of the Project was to promote the socioeconomic development of the Bogor and Palembang urban areas. Specifically, the Project aimed to improve the living conditions in the urban areas of Kota Bogor, Kabupaten Bogor, and Kota Palembang, as well as minimize impediments to increasing productivity and economic growth through the provision and improvement of urban infrastructure and services. The Project also aimed to strengthen the institutional capabilities of the agencies involved and, as a component of decentralization contained in IUIDP, local resource mobilization was to be enhanced through the implementation of covenanted institutional and financial action plans. 7. The main project components included (i) urban roads, (ii) water supply, (iii) drainage, (iv) solid waste management (SWM), (v) wastewater management and sanitation, and (vi) Kampung Improvement Program (KIP)/Market Infrastructure Improvement Program (MIIP). In addition, administrative and consulting services were provided to assist in the implementation of the associated Revenue Improvement Action Plan (RIAP), Local Institutional Development Action Plan (LIDAP), project management and implementation, and staff training. D. Cost, Financing, and Implementation Arrangements

8. The total project cost at appraisal was estimated at $234.7 million with a foreign exchange component of $82.6 million and a local currency component of $152.1 million. ADB was to provide a total of $140 million covering $74.3 million of the foreign exchange requirement and local currency costs of $65.7 million. The Kreditanstalt fr Wiederaufbau (KfW) was to provide a total of $14.7 million for specific project components. The Government was to provide the remaining local currency requirements estimated at $80 million (Appendix 2). 9. An attached TA of $596,000 from the TA Special Funds was to strengthen the capabilities of the Directorate of Urban Roads (BINKOT)6 for urban road planning and management and to provide training and assistance to two local governmentsDenpasar and Semarang. 10. The variety and range of the project components necessitated complex implementation arrangements (Appendix 3). The Directorate General of Human Settlements (DGHS) of the Ministry of Public Works (MPW)7 was the lead executing agency, and the local governments of Bogor and Palembang and the PDAMs were the implementing agencies. DGHS provided oversight for project management and coordinated the input of other central government agencies. The Directorate of Metropolitan Cities was responsible for urban roads and bridges, and the Directorate General for Water Resources Development was responsible for urban flood control and bulk water supply. The Ministry of Home Affairs (MOHA), through its Directorate General for Public Administration and Regional Autonomy, was responsible for assisting local
5 6 7

Loan 768-INO: Second Bandung Urban Development Project, for $132.4 million, approved on 12 December 1985. At the time of the Operations Evaluation Mission (OEM), the functions of the Directorate of Urban Roads had merged with those of the Directorate of Metropolitan Cities. As part of the government reorganization, this was renamed the Directorate General of Urban and Rural Development within the Ministry of Settlements and Regional Infrastructure.

3 governments and encouraging local institutional development comprising urban development management, local revenue improvement, and urban development finance. All participating agencies were represented in the Coordination Team for Urban Development, under the auspices of the National Development Planning Agency (BAPPENAS), which was responsible for the formulation of urban and regional policies and strategies. 11. Project management units and project implementation units in Bogor and Palembang were established to manage the Project, provide technical support, and coordinate implementation. These arrangements were similar to those established under previous projectsall of which were assessed successful by the project completion reports (PCRs). Of the urban development projects evaluated, all were assessed successful with the exception of one out of three projects that were covered under one project performance audit report. 8 E. Completion and Self-Evaluation

12. The PCR, circulated in February 2001, rated the Project successful.9 It confirmed that the physical achievements generally met or exceeded appraisal targets. It also confirmed that the Project delivered the intended benefits, especially to poor communities under a greatly expanded KIP component (para. 22). The financial internal rates of return (FIRRs) were generally higher than appraisal targets and exceeded the weighted average cost of capital (WACC). The economic internal rates of return (EIRRs) were also higher than appraisal targets (except for urban roads) and exceeded the economic opportunity cost of capital (EOCC). 13. The PCR noted that the institutional capacity building targets were not met. It also noted that project completion was extended three times. This was attributed to difficulties in land acquisition, late provision of counterpart funding, and delayed recruitment of consultants. The Project was completed on 7 April 2000 instead of the expected completion on 30 September 1997. The evaluation was well supported by evidence; however, the PCR did not assess the TA. F. Operations Evaluation

14. The Operations Evaluation Mission (OEM) visited Indonesia from 25 November to 12 December 2003 to evaluate the Projects performance. The OEM held discussions with representatives of various government agencies, including those at local, provincial, and central levels responsible for the operation and maintenance (O&M) of the components and the implementation of RIAP, LIDAP, project management and implementation, and staff training. A survey was carried out to determine the impact of the Project on the beneficiaries. The survey sample was representative of a cross-section of beneficiaries who had been the principal users of the facilities before and after the improvements financed under the Project. For the new facilities constructed under the Project, the recall/self-assessment methodology was used. Discussions were also held at the Directorate of Metropolitan Cities to assess the impact of the urban transport TA.

The exception was ADB. 2000. Project Performance Audit Report on Three Integrated Urban Infrastructure Development Projects: Secondary Cities Urban Development (Sector) Project, Botabek Urban Development Project, and Bandar Lampung Urban Development Project in Indonesia. Manila. The first was assessed partly successful. The PCR used the four-category assessment system.

4 II. A. PLANNING AND IMPLEMENTATION PERFORMANCE

Formulation and Design

15. The Project was in conformity with ADBs operational strategy for Indonesia, 1989, which emphasized the need to upgrade facilities, including physical infrastructure, and review policyrelated matters, including urban planning, in line with existing needs and the expected growth of the urban population. ADB remains engaged in the urban sector of Indonesia and the country strategy and program (20032005) focuses on integrated urban development as a key target area for intervention. The Project was in conformity with the Governments long-term targets as contained in the ongoing IUIDP and 5-year plans, which prioritized the project cities on the basis of population levels and growth. 10 Urban development remains a priority of the Government as indicated by the ongoing IUIDP and the current 5-year plan. 16. The United Nations Development Programme and several bilateral agencies, including those of Australia, France, Germany, Japan, and Netherlands, supported the Governments efforts in urban development. During project processing, ADB conferred with external funding agencies to coordinate the IUIDP. 17. The project design for individual civil works was appropriate with some minor exceptions. To illustrate, the location of the southern dumpsite in Kota Bogor, which is now not in use, was inappropriate since it was near a major spring water intake and a residential area. Due to exchange rate variations as a consequence of the financial crisis, additional rupiah were available from loan proceeds, which allowed for greater flexibility in expanding the number of project components during project implementation than would otherwise h ave been possible (para. 24). The overall design of the Project, consisting of seven components within three local authorities was too ambitious and included components from three distinct sectors: urban roads, water supply, and urban development. Consequently, the impact of the Project was spread thinly in the three project areas. It may have been more appropriate to focus on one component in an effort to maximize its impact on the beneficiaries. B. Achievement of Outputs

18. Actual output compared with appraisal estimates is in Appendix Tables A4.1A4.3. The distribution of actual works in the three project areas is in Appendix4, Table A4.4. 19. In Kota Bogor and Kabupaten Bogor, new roads constructed totaled 11.3 kilometers (km) (82% of appraisal target) including, respectively, 4.9 km (81.7% of appraisal target) and 6.4 km (82.1% of appraisal target). Road improvement and betterment works covered 12.8 km (640% of appraisal target) and 15.4 km (257% of appraisal target) in these localities, respectively. Three bridges (300% of appraisal target) were replaced, one in Kota Bogor and two in Kabupaten Bogor. In contrast in Palembang, new roads constructed totaled 30.6 km (138.7% of appraisal target), while road improvement and betterment works covered 171 km (356% of appraisal target). Six bridges (86% of appraisal target) were constructed. The Project financed the construction of the southern ring road, including part of the Ogan III bridge, improved 11 intersections (35% of appraisal target), and completed four footbridges as planned at appraisal.

10

Ten metropolitan cities of more than a million, and 40 secondary cities with a population between 100,000 and 500,000 were initially targeted for urban development projects.

5 20. While most appraisal targets under the water supply component in Kota Bogor were met, actual works implemented in Kabupaten Bogor failed to meet expectations due to the absorption of land belonging to Kabupaten Bogor by Kota Bogor in 1995. Thus, appraisal targets for water supply, water transmission mains, and distribution pipes were lower than those actually achieved in Kota Bogor and higher than those achieved in Kabupaten Bogor. Actual implementation of the water supply component in Kota Palembang was generally below expectation. Water intake capacity increased by 1,200 liters per second (lps) as targeted at appraisal. The planned construction of two water treatment plants (WTPs), and two water intakes were financed by a loan from KfW (para. 28). In spite of finance available from connection fees, new house connections totaled 20,249 or only 30% of the appraisal target. The OEM was informed that the reason behind this was inadequate distribution pipes and the poor financial performance of PDAM Palembang, which was unable to increase tariffs because of political concerns. 21. The drainage component rehabilitated 12 km (86% of appraisal target) and 30.9 km (94% of appraisal target) in Kota Bogor and Kabupaten Bogor, respectively, and provided one regulator gate. No new drains were built as planned since the districts opted for rehabilitation instead. Most physical targets under the wastewater and sanitation component in Kota Bogor were achieved including 497 house connections for the pilot sewer system. The planned wastewater and sanitation interventions in Kabupaten Bogor were canceled at the Governments request and funds were subsequently reallocated to an expanded KIP. The SWM component improved capacity in Kota Bogor and Kabupaten Bogor through the provision of small-scale community facilities, bins, and trucks. Targets for handcarts (97.4% of appraisal target), arm roll and container bins (2,830% of appraisal target), and trucks and other SWM equipment (72% of appraisal target) were largely met. However, the life span of some small items like handcarts is limited, normally no more than 5 years. In Palembang, t e drainage h component was expanded with 74 km of existing drains improved/rehabilitated and nine retention ponds built, which exceeded the target of 35.4 km and zero ponds. The communal sanitary and laundry facilities (MCKs) program in Palembang was reduced with only 65 MCKs built (9% of appraisal target). The planned pilot sewerage system was not constructed and the funds were used instead to procure 11 desludging trucks (367% of appraisal target), 12 trailers (none at appraisal), 4 pick-up trucks (none at appraisal), and the construction of a septic sludge treatment plant. Targets for containers and waste bins (481% of appraisal targets), hand carts (164% of appraisal target), and trucks and other SWM equipment (196% of appraisal target) were exceeded. 22. In Kota Bogor, Kabupaten Bogor, and Palembang, all KIP targets were exceeded with 72 sites covering 879.9 hectares (ha). The KIP sites served 296,448 persons and included the improvement or construction of access roads, footpaths, drainage, public baths/toilets, water supply, and solid waste transfer points. In addition, three markets were improved in Palembang. 23. The institutional support packages for the RIAP (paras. 4451) and LIDAP (para. 70) were completed for all the local governments, albeit often after the commissioning of associated physical infrastructure subcomponents. C. Cost and Scheduling

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

6 in ADBs financing of foreign exchange costs and a decline of 33% in local currency costs in comparison to appraisal estimates. The rise in foreign exchange cost financing was partly attributable to an increase in the costs of civil works and partly to the extension of consulting services. The lower local currency cost financing in dollar terms resulted from depreciation of the rupiah. Since price increases lagged behind depreciation, funding for the original scope of the Project consumed fewer dollars than expected, leaving more funds for additional works and enabling some components to be expanded, particularly KIP. 25. Counterpart funding was estimated at $80 million at appraisal, while actual funding amounted to $45.1 milliona decline of 44% from appraisal targets attributable to the economic fallout of the 1997 Asian financial crisis. The consequent budgetary crisis led to difficulties for the Government in raising additional amounts, which resulted in the cancellation of $1.9 million of the loan in July 1998. This was part of ADBs portfolio restructuring response to the Governments budget difficulties. A further cancellation of $11.6 million was made in April 2000. 26. KfW was expected to finance $14.7 million, however, actual funding at the time of the OEM was $18.5 million. 27. The implementation schedule for the three project locations is in Appendix 6, Tables A6.1A6.3. The Project was completed on 7 April 2000, about 2 years and 6 months after the appraisal target of 30 September 1997. The OEM confirmed that delays were due to difficulties associated with land acquisition for final dumpsites, new roads, and drainage improvements, and attributed them to inadequate local budget allocations based on the government valuation of land rather than its market value. The late provision of counterpart funds and recruitment of consultants as a result of procedural bottlenecks in their appointment also delayed implementation. Charges of nepotism in the selection of consultants, investigated and dismissed by ADB, further delayed project implementation. 28. Some coordination problems were witnessed during project implementation between KfW and ADB. These were attributed to different evaluation and procurement procedures of the two agencies and programming difficulties with integrated components funded by them. For instance, ADB financed the purchase and laying of distribution pipes from two WTPs in Palembang in 1992 that were to be funded by KfW. But the WTPs funded by KfW were not completed until 2001. 11 Furthermore, once the WTP came online, considerable water losses occurred because of the increased pressure and leakages in the system. Checks then had to be made throughout the system to find the source of leakage. D. Consultant Performance, Procurement, and Construction

29. Consultants were appointed by DGHS in accordance with ADBs Guidelines on the Use of Consultants to support four major project activities: (i) project management and implementation; (ii) LIDAP preparation, inclusive of forward plans for capital works programs and establishing departmental systems for effective maintenance of public works and SWM; (iii) RIAP preparation; and (iv) under TA 1588-INO urban transportation study for Denpasar and Semarang. The OEM confirms the PCR findings that the consultants undertaking the RIAP and LIDAP components had insufficient time, i.e., 6 months, to prepare the appropriate plans. In
11

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

7 addition, start-up delays in the recruitment of consultants were the result of lengthy government procedures as well as delays by the implementing agencies. 30. Procurement of goods was under international competitive bidding and in compliance with the Guidelines for Procurement under ADB loans. Six international competitive bidding contracts were awarded under the Project. Some of the contracts awarded under local competitive bidding procedures took more time. 31. Civil works were of good quality although appraisal schedules were not met because of (i) problems of land acquisition and clearance, (ii) late completion of detailed civil works designs, (iii) inclement weather, and (iv) the lengthy budget process. E. Organization and Management

32. BAPPENAS, with the support of IUIDP Implementation Management Group, provided overall policy coordination satisfactorily. This was attributed to the proximity of the project urban centers to Jakarta, which, facilitated project management. BAPPEDAS provided adequate guidance and coordination to the local governments (level II) and adequately liased with the political leadership of the project areas. The PDAMs, the Dinas Kebersihan (DK)cleansing departmentsand both levels of local government also provided adequate support. However, community participation during preparation and implementation of the Project was minimal, apart from the KIP component. 33. The management arrangements under the Project had been successful in previous donor agency interventions in the urban sector, including ADB and the World Bank. The OEM found them appropriate. III. A. ACHIEVEMENT OF PROJECT PURPOSE

Operational Performance

34. Urban provincial roads, new and upgraded, are generally well constructed in all three project towns. There is little sign of deterioration with evidence of routine maintenance having been undertaken. In Kota Bogor and Kabupaten Bogor, the project roads have provided strategic links within the city network, including the upgrading/construction of an inner ring road, junction improvements, and additional access to the toll road from Jakarta. With the exception of a few locations where a number of stretches were not completed, including some along the inner ring road, 12 traffic flow improved considerablyan assessment based on the recall method. Asphalt and concrete have been used for the road surfaces, and appropriate covered drains, kerbs, street lighting, and landscaping have been provided in Kabupaten and Kota Bogor. In Palembang, the new and improved roads and junction improvements have helped improve traffic flow in a congested city. Most roads are well used, with the exception of the single carriageway, southern stretch of the outer ring road, which has been built well in advance of demand and passes through an area of largely agricultural and swampy land. Additionally, in Palembang four bridges were built, each with single carriageway roads. They are well designed with crash barriers on the approach roads and adequate road markings.

12

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

8 35. Urban local roads built under the Project, though well constructed, have fared relatively worse in terms of routine maintenance expenditures than those of the provinces. A few stretches of roads in Palembang, including Jalan Sukala and Jalan Gandus/Jalan Hisbullah, require major rehabilitation because of overuse as a consequence of traffic diversion during reconstruction of an alternate route, lack of adequate maintenance, and poor ground conditions.13 36. The three principal water supply facilities constructed in Kota Bogorthe intake, WTP, and reservoirare functioning well and are regularly maintained. To illustrate, the WTP has a major clean up and overhaul every 3 months. At the time of the OEM, the WTP was providing clean water at the rate of more than 500 lps above target. The upgraded and expanded spring water source in Kota Bogor has increased and provides a reliable and constant supply to the city (142 lps). Likewise, the expanded and improved spring water intakes of PDAM Kabupaten Bogor have increased supply in volume and reliability. The installed distribution pipes and house connections/meters have enabled the billing of additional water sales, leading to increased revenues in both areas. In Palembang, two new WTPs and intakes were built under the Project.14 House connections and the procurement of new and replacement meters have enabled PDAM Palembang to move away from flat rate charging to direct customer billing based on consumption. All facilities are operating at near full capacity and are adequately maintained. 37. In Kota Bogor and Kabupaten Bogor, water is flowing freely in both the newly constructed and improved drains and although some contain sediments, garbage, and vegetation, evidence is that they are being maintained. In Palembang, despite the improvements, there was some evidence of flooding in low-lying areas; however, it was attributed to a recent rainfall. 15 Despite this, water was flowing in most channels and there were few signs of floating garbage. The drainage retention ponds worked well, and helped to overcome the problem of high river levels. However, conditions have changed since project completion, with more development and higher water levels, and there is now a need for a new and comprehensive drainage master plan for Palembang. 38. In Kota Bogor, the pilot wastewater plant is no longer functioning and has been temporarily closed because of inadequate funds for covering operating costs. The oxidation ponds hold stagnant water, and the associated laboratory is empty and in disrepair. However, the local government has covered the pond with mosquito nets to ensure that the stagnant water does not breed mosquitoes. The final solid waste disposal site in Kota Bogor is no longer being used. After initial problems with a landslip, which more than halved its capacity, pressure from the local community led to its permanent closure last year. The old city dumpsite is being used once again. Many of the vehicles procured under the Project are no longer in use. Their life span of 7 to 10 years appears to be less than anticipated at appraisal, particularly for the dump trucks. Irregular maintenance appears to have been the main cause. The OEM also verified the completion and use of the two final disposal sites in Kabupaten Bogor, which are open dumps where garbage is simply dumped and leveled. No environmental controls have been incorporated and scavenger families live within the site boundaries.

13 14 15

Rehabilitation is under way for Jalan Hisbullah. These were constructed using KfW loan funds. A heavy rainfall and high river level were experienced in Palembang on the day before the OEM site visit. The amount of rainfall was equivalent to a 20-year flood. Normal rainfall allows the water to be drained within 5 to 6 hours.

9 39. In Palembang, local arrangements for collection of SWM are working well and the transfer stations and containers located on effective concrete stands (4 square meters in area) are well used. The community-based collection system using handcarts to carry waste from residences to transfer stations and containers functions and generates income for the carriers, which often is enhanced through informal recycling activities. Overuse of the transfer stations may prove to be a problem in the future unless more frequent trips 16 are made by the public dump trucks to collect waste from the handcarts. Additionally, in Palembang, one of the two final disposal sites provided is now closed. Although operational from 1997 to 2001, the poor condition of the access road has prevented dump trucks from reaching the site. The road, built under the Project, now requires extensive rehabilitation of about 2 km of its total 3.6 km length. Poor soil conditions and minimal maintenance have been blamed for its deterioration. Plans to repair the road and reopen the site in 2004 have been made. The other final disposal site in the north is now the prime dumping area, and is similar to the ones operating in Kabupaten Bogor open dumps where garbage is simply dumped and leveled using the equipment provided under the Project with no environmental controls. However, the bulldozers, also provided under the Project, are no longer used on account of broken tracks for which more appropriate, wider replacements are proving difficult to obtain. The metal solid waste container bins have not lasted in any of the three project towns , where leachate has eroded the steel,17 and most are no longer used. Handcarts, too, have had a limited life of 3 to 4 years in both cities. 40. KIP in Bogor involved the construction of access roads, footpaths, drainage, and MCKs. Only a small water supply component was included, since most people were either using deep wells or were connected to the main supply. The civil works were found to be in good condition, there was evidence that maintenance was carried out and in some places further improvements had been made by the communities. Extensive upgrading of most houses took place since the infrastructure was improveda direct result of the Project. KIP project sites in Kabupaten Bogor are now part of Kota Bogor, with the latters expansion, which accounts for the dramatic rise in the value of the land. 41. In Palembang, KIP projects focused on very poor neighborhoods where houses had been built in permanently water logged and swampy areas. Adequately constructed, concrete footpaths, access roads, and terraces18 were the major investment, although drainage, communal toilets, and water supply facilities were built in some sites. Sanitation involved the construction of new MCK facilities 19 and a septic sludge treatment works located near the northern final solid waste dumpsite. The treatment works is operating despite its damaged pumps, which have not been repaired on account of insufficient budgetary releases from the local government. Evidence shows that the MCKs are used and maintained by the communities. Although there was evidence of new investments in some sites, the generally poor ground conditions and lack of a comprehensive approach to upgrading, including appropriate drainage improvements, combined with the very low-income levels, contributed to the lack of further community-induced improvements in KIP sites in Palembang. 42. The workshop facilities of the maintenance depot of DKs funded under the Project are well built and functioning, but there are many non-operating vehicles on account of the difficulties of the local government in sourcing funds for their rehabilitation.
16

17 18 19

Only two trips per day are made by dump trucks, and in one station, a container was placed to accommodate the additional garbage being regularly trans ported. The manual transfer of garbage from handcarts to the container was less effective than a direct transfer to the dump truck would have been. In Palembang, the city is replacing the steel containers with wooden ones, which has solved the leachate problem. Elevated footpaths in swampy areas. Communal toilet blocks built directly on a septic tank.

10

43. The facilities under the Project are, by and large, well constructed and the OEM confirmed that the roads and the drainage components are effective in meeting the project objective to minimize impediments to increasing productivity and economic growth. However, the 199798 financial crisis led to a significant decline in growth which, correspondingly, affected measures of productivity. In addition, the financial crisis also accounted for a rise in the overall incidence of poverty in Indonesiafrom 17.6% to a high of 23.4% in 1999 demonstrating the vulnerability of the poor to inflationary shocks. With rising population, partly due to migrants being attracted to the project sites because of improved facilities and partly due to the natural population growth rate, to assess the impact of only the project facilities on improved living conditions, a project objective, proved difficult. Thus, the beneficiaries of project sites surveyed (paras. 6066) were split down the middle in terms of the impact of KIP. However, there was agreement that SWM was not adequate but had improved considerably since before the Project. B. Performance of the Operating Entity

44. RIAP covenanted under Schedule 6.II required the local governments to increase collection of land and building tax and Local Government Revenue (PADS), including local taxes (business, entertainment, and advertising taxes) by 5% in real terms for Kota Bogor and Kabupaten Bogor and 7% per annum for Palembang. Revenue increases from local fees and charges (market fee, terminal fee, cleaning fee, and parking fee) of 17% per annum in nominal terms in Bogor and 13% per annum in Palembang were also targeted. Increasing tax collection efficiency, preventing excessive operating cost rises, and formulating development expenditure programs affordable for the level II governments were also covenanted. In addition, SWM charges and desludging fees were to be reviewed annually. 45. In the case of PDAMs, RIAPs involved the regular review and raising of tariffs to meet operating costs, debt service, depreciation, and provision for future investments. A return of 10% to 12% on assets was required. In addition, targets were to reduce accounts receivable to an average of 2 months and unaccounted-for-water (UFW) to 29% by 31 December 1995 in Bogor and a year later in Palembang. Details of the actual financial performance of local governments are contained in Appendix 7 and that of the participating PDAMs in Appendix 8. 46. Two of the three local governments exceeded the appraisal targets by achieving a nominal annual growth rate of local revenues in excess of inflation and population increases. Kota Bogor was the exception.20 There was mixed success of specific tax and revenue targets. Overall, revenue growth from FY19921993 to FY19992000 was slow, but revenues have increased significantly since FY2000. The financial projections made for the local governments at appraisal were conservative. 47. Total local government revenues 21 of Kota Bogor have grown in real terms at 8% per annum from FY19921993 to FY2003. With a high annual population growth (17% from 1992 to 1998) on account of the enlargement of the administrative area of Kota Bogor, real growth rate of PADS was 0.2% only. In nominal terms, the growth was 15.5% (Table A7.1). From FY1992 to FY2003, property taxes increased at 23% per annum in real terms, and local taxes at 10%. Both
20

The three participating local governments were the source of total revenues and total expenditures in current and constant prices. This results in minor discrepancies in the average rate of inflation as implied by the difference between the growth rate in total income in current and constant prices between the three towns. 21 Comprise local government income (local taxes, retribution, enterprise share profit and other locally raised income, normally referred to as PADS) plus share taxes, including property tax, and nontax revenue.

11 have exceeded the 5% per annum appraisal target. Local fees and charges, however, showed negative real growth over the same period. 48. Local government income (PADS)22 of Kabupaten Bogor grew at 13.9% per annum from FY1992/93 to FY2003 in real terms, higher than the negative population growth over the FY19921998 23 period as a result of reduction in its area because of the changing boundaries of Kota Bogor (para. 40). PADS exceeded the target set at appraisal, with a real growth rate of 14% over the same period. From FY1992 to FY2003, property taxes have also increased by 14% per annum in real terms, exceeding the 5% per annum real growth target. Local fees and charges increased at 11% per annum in real terms over the same period. 49. In Kota Palembang, local revenues grew in real terms at almost 9% per annum from FY19921993 to FY2003, much higher than that of the population (2% per annum). Local government income (PADS) exceeded the target set at appraisal, with a real growth rate of about 6% per annum. From FY1992 to FY2003, property taxes increased at 10% per annum in real terms. Local fees and charges increased at 4% per annum in real terms. 50. PDAM Kota Bogor has realized only moderate profits since 1991, but in real terms, they have not reached the high of 1996. In 2002, profits declined in real terms from those in 2001, but a modest improvement is expected in 2003. A return on net fixed assets of about 5.6% is expected in 2003. From 1997 to 2003, the average return on net fixed assets was just over 6%, below that expected at appraisal. Tariffs increased in 1996 and 2000, with average increases of about 46% and 31%, respectively. The next tariff increase is proposed for 2004 with rates to increase by an average of 70%. Collection rates of monthly dues were said to be about 90% in recent years, and accounts receivable averaged just over 6 months at the end of September 2003. Many of the arrears are because of nonpayment by government agencies for water consumed. UFW declined from 34% of production in 1991 to 29% at the end of 1995 (thus satisfying the conditions of the Loan Agreement), but increased to 32% in 1999. Since then, it has remained at about 32%, although figures for the first 9 months of 2003 show a fall to 29%. Accomplishment of the action plan agreed at appraisal was generally satisfactory. 51. PDAM Kabupaten Bogor achieved moderate profits since the losses incurred in 1991 and 1992. A return on net fixed assets of about 9% is expected in 2003. From 1991 to 2003, the average return on net fixed assets was almost 8%, although the 10% target was exceeded from 1994 to 1997. Tariffs increased in 1995, 1999, and 2000, with average increases of about 11%, 25%, and 28%, respectively. The next tariff increase is scheduled for 2005 with rates to increase by about 30%. Similar increases are planned for 2008 and every 3 years thereafter. Collection rates of monthly dues are said to have been about 85% to 90% in recent years. Accounts receivable averaged about 8 months at the end of 2002. Much of this, however, is due from government agencies. UFW declined from 34% of water production in 1991 to 26% at the end of 1995 (thus satisfying the conditions of the Loan Agreement), but increased to 42% in 1999. Since then, UFW has remained between 41% and 43%. A water loss reduction program has been implemented since 2001 and a target of 20% has been set for 2006. Accomplishment of the action plan agreed at appraisal was partial.

22

This comprises local taxes, retribution, enterprise share profit, and other locally raised income, normally referred to as PADS. 23 Population figures beyond 1998 were not available, although the OEM was informed that if taken to 2003, total population may have increased marginally over its1992 level.

12 52. After a period of substantial losses from 1991 to 2000, PDAM Palembang realized profits in 2001 and 2002. Preliminary figures show that a larger profit is estimated for 2003, and a return on net fixed assets of about 5% is expected. Throughout the period, the average return on net fixed assets has been negative. For 2001 and 2002, returns of 2.9% and 1.4% respectively were realized. Tariffs were increased in 1995 and 2000 and a further increase before 2005 is unlikely. Collection rates of monthly dues were 74% in 2002, although accounts receivable averaged some 19 months at the end of the year. UFW increased from a level of 38% of water production in 1991 to 42% in 1996, but fell to 39% in 1999. Since then, there has been a significant increase and in 2002 some 74% of water produced was unaccounted for. Clearly, the target set at appraisal has been missed by a long margin. A water loss program only started in 2003 and UFW is estimated to have fallen to 69%. Accomplishment of the agreed action plan at appraisal was mixed. C. Financial and Economic Reevaluation

53. The FIRRs were reestimated for the water supply component only. EIRRs were reassessed for the KIP and drainage components. No reestimation was possible for the urban roads, sanitation, and SWM components since supporting data and detailed assumptions used at appraisal and in the PCR for the computations had not been retained by ADB. Furthermore, logistical difficulties precluded undertaking traffic surveys and vehicle counts needed to recompute the EIRRs for the new urban roads and road improvement components. Actual FIRRs and EIRRs were compared with the PCR and appraisal estimates. The computations were based on the achieved targets of the Project and their actual costs, representing changes in project design and outputs. Appendixes 9 and 10 provide details of the economic and financial analysis, respectively. 54. The economic analysis used increases in market land values as the basis for measuring benefits, but unlike the appraisal and PCR estimations, only one-off increases were included and these were converted into annual rental streams using a rent-to-capital-value ratio within the towns. The results of the reestimation of the drainage component indicated higher actual EIRR in Bogor at 29.7% compared with the 24.2% at appraisal because of the expanded area of improvements. The EIRR is lower than that of the PCR on account of the different method used to measure benefits. In Palembang, the actual EIRR for drainage was 12.9% compared with the EIRR of 32.3% at appraisal and 34.3% in the PCR. The changing methodology and marginally higher maintenance costs assumed account for the difference. Both EIRRs are above the EOCC. In Bogor, the actual EIRR for KIP was 41.2%, which was lower than the 41.6% at appraisal and 63.5% in the PCR. In Palembang, the actual EIRR of 12.1% was lower than the EIRR of 66.4% at appraisal and 53.4% in the PCR. The reason was that the increase in land values in Palembang was considerably lower than the increase in Bogor. For Bogor, the returns are well above the EOCC, while for Palembang it is just above. 55. The financial analysis followed the methodology adopted at appraisal and for the PCR, although changes were made to make it more rigorous and match the data that was available locally. The reestimation shows that all subprojects yielded lower FIRRs than at appraisal and in the PCR. The FIRR for PDAM Kota Bogor was 6.0%, higher than the WACC of 2.9%; and for PDAM Kabupaten, it was 8.7% also higher than the WACC of 2.9%. Improved operations, expanded production capacity, and improved management in recent years will enhance sustainability in the longer term. PDAM Palembang had a lower FIRR of 1.9% because of the noncompletion of some components as a result of delayed KfW financing, its high rate of UFW, and its past poor financial performance.

13 D. Sustainability

56. The sustainability of the project components was to be ensured by adequate O&M expenditures (Schedule 6, para. 10). PDAMs were responsible for carrying out O&M of water supply and sewer systems provided under the Project. The OEM noted that the water supply facilities were well maintained; however, Palembang suffers from many illegal connections and a distribution system with considerable leakage, which requires major work for greater effectiveness. Furthermore, decentralization and autonomy have caused the burden of funding for PDAMs to shift to the local government and this has further eroded their financial capability to undertake major new capital investments. However, the recently improving performance of the participating PDAMs augurs well for sustainability of the water supply component. But this is conditional on further regular tariff increases at or above the rate of inflation. In addition, the sewer system built in Kota Bogor does not fall under the local PDAMs, where DK is the main agency responsible for its maintenance. The major impediment to adequate O&M remains with the political leadership, which is unwilling to allow the PDAMs to set economic tariff rates on perceived grounds that many consumers, particularly the poor, will be unable to afford them.24 An independent regulatory framework empowered to establish tariff rates maybe appropriate to deal with political resistance to tariff increases.25 57. Local governments (level II) were covenanted to undertake the O&M of drainage, SWM, urban roads, KIP facilities, and sanitation. While the provincial roads are being routinely maintained adequately, there are problems within the local government over the maintenance of municipal roads because of funding shortages. This is particularly pronounced in Palembang, where a number of roads are in poor condition because of minimal maintenance. 58. Revenues from solid waste collections and desludging fees were much lower than the O&M costs of the services. In Kota Bogor, solid waste revenues were about 41% of the costs, excluding depreciation, from 1997 to 2003, but the proportion of recovery has fallen from 47% to 25%. For desludging, the service is less subsidized, although revenue averages 60% of the cost of operations and administration over the 2001 to 2003 period. Cost recovery, however, fell from 62% to 54%. The OEM was informed that charges have not been increased since 2000. In Palembang, solid waste and desludging charges were last increased in 1998. Combined revenues for both services recover about 16% of the costs, excluding depreciation, from 2000 to 2003. With no increases in charges, the proportion of recovery has deteriorated from 27% to 12%. No data was available from Kabupaten Bogor, but it is clear from the two local governments where data was available that the services are heavily subsidized. 59. The KIP is being continued in Kota Bogor and Palembang, and this has included the addition of new works within or in neighboring sites to those of the Project. At the national level, policy changes have been initiated within KIP to support the devolution process. Local governments are now required to put up matching counterpart funding to that provided by the national Government. Greater community involvement and self-help construction is being encouraged. Income generation and livelihood programs are being more closely integrated with KIP to enhance sustainability.
24

25

An affordability analysis was undertaken during appraisal but this was not updated in the PCR. Due to logistical difficulties, the OEM did not have sufficient household income data to reassess the affordability of charges. ADB provided two TA grants to establish an independent regulatory framework for water supply. These were TA 2501-INO: Water Tariff Structures and Financial Policies of Water Enterprises , for $600,000, approved on 22 December 1995; and TA 3761-INO: Regulatory Framework for Private and Public Water Supply and Wastewater Enterprises, for $790,000, approved on 6 November 2001.

14 IV. A. ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS

Socioeconomic Impact

60. Impacting the Project during implementation was the reversal of a robust growth in the urban economy in 1997 as a result of the Asian financial crisis. Against this backdrop, urban poverty rose from 19.8% in 1996 to about 25% in 1999. The urban population also witnessed a steady rise during and beyond implementation: from 20% of total population in 1980 to 31% in 1990 to 42% in 2002. 61. Appendix 11 provides select socioeconomic indicators as gathered by the national socioeconomic survey. Secondary data confirms an annual increase in the number of households in Kota Palembang and Kabupaten Bogor (4.5% each) and Kota Bogor (19.1%), between 1993 and project completion in 1999. Similarly, the number of households with access to piped water in Kota Palembang, Kabupaten Bogor, and Kota Bogor increased from 4.1%, 19.7%, and 4.1% per annum, respectively, between 1993 and 1999. The number of households with sewerage or septic tanks improved from 189,000, 357,000, and 35,000 in 1996 to 238,000, 561,000, and 62,000, respectively, in 1999. 62. An independent survey undertaken by domestic consultants to assess (i) socioeconomic and environmental impacts of key project components, and (ii) beneficiary perceptions on project achievements supported the observations of the national socioeconomic survey. The survey comprised 98 respondents in Kota Bogor, 105 respondents in Kabupaten Bogor, and 102 respondents in Palembang.26 Key project results at the goal and purpose level as gathered from the beneficiary survey are summarized in Appendix 12. 63. Field interviews confirm that the Project generally met its objectives although achievement varied across project components and project locations. On the downside, some negative impacts were reported including increased vehicular traffic leading to an increase in accidents and uncontrolled new housing developments. 64. Health conditions improved as a consequence of the Project. In Kota Bogor, 86% of respondents stated that overall health conditions improved and two thirds of respondents reported a decline in the incidence of waterborne diseases. In Kabupaten Bogor, 50% of the respondents noted a decline in the incidence of waterborne diseases. In Kota Palembang, half of the respondents said that overall health conditions had improved and a majority noted no significant illnesses in their community after provision of water supply services.27 65. The drainage component in all three project locations was able to mitigate the effects of flooding problems but did not totally eliminate them. However, 87% of the respondents in Palembang ascribed these to increases in the level of the Musi river as the cause of flooding. In Kota Bogor where rain falls almost daily, drainage works were successful in preventing inundation of urban roads. In Kabupaten Bogor, 31% of respondents reported continued

26

27

Two domestic consultants (one each for the Bogor and Palembang components) conducted field interviews from 14 November to 14 December 2003. The survey covered a total of 305 persons including 93 respondents for the water supply component, 55 respondents for the urban roads component, 34 respondents for the urban drainage component, 38 respondents for the SWM component, 36 respondents for the sanitation component, and 49 respondents for the KIP component. In Palembang, the number of people infected by waterborne and other environmental diseases declined from 412 cases per 1,000 persons in 1992 (before project) to 13 cases per 1,000 persons in 1997 (after project).

15 flooding in their community (as compared with 38% before the Project) albeit with decreased frequency. 66. In Kota Bogor, 50% of respondents noted that garbage is now r egularly picked up. Nonetheless, 20% of respondents complain of problems in disposing solid wastes. In Kabupaten Bogor, 50% of the respondents expressed satisfaction with the solid waste disposal compared with 30% before the Project. In Palembang, 66% of r espondents noted that solid waste disposal significantly improved and that garbage is regularly picked up by the DK. This compares with 61% of respondents reporting limited collection of garbage before the Project due to lack of vehicles/trucks. 67. Between 75% and 80% of respondents in Kota Bogor and Kabupaten Bogor said that the urban roads stimulated economic activity and improved income and employment. In Kota Bogor, 65% of respondents claimed the roads helped open up new land for settlement while another 35% said it helped increase trading activities. In Kabupaten Bogor, 48% of respondents said the urban roads helped increase trading activities due to the project roads and 43% said the roads helped open up new land for settlement while 5% cited ease of access or travel after the Project as a contributing factor to the increased economic activity in the project communities. The majority of respondents from the Bogor components also said that KIP stimulated economic activity and contributed to improved living conditions in the communities. In Kota Palembang, the majority of respondents said employment and income had not risen as a consequence of the Project. Nonetheless, a similar majority pointed out there was an increase in the availability of public transport to and from the community. 68. A significant and mirror indicator of project success has been the estimated change in land values in the three project locations (before and after the Project) 28 (Appendix 12). B. Environmental Impact

69. Based on the recall method, the OEM assessed that positive environmental impacts have been realized, particularly as a result of improved water supply and sanitation, enhanced drainage, and better solid waste collection. However, increased water supplies without a significant improvement in wastewater treatment is a cause for concern. The lack of environmental controls for the final solid waste disposal sites is having a negative impact on the surrounding areas. In Kota Bogor and Kota Palembang, road improvements have increased vehicular traffic, assessed through the recall method, which have led to traffic problems and delays. In addition, some respondents stated their concern over increasing air29 and noise pollution, crime, and accidents in the road-influenced areas. In Kota Bogor and Kabupaten Bogor, respondents cited the need for more traffic signs. C. Impact on Institutions and Policy

70. LIDAP envisaged organization improvements, systems development, and training in the local governments of Bogor and Palembang 30 and in the PDAMs. The results of a questionnaire
28

29

30

Factors external to the Project also contributed to the improvement in land values. Land values increased significantly in Kota Bogor due to its status as a weekend city for the wealthy of Jakarta. In 2003, areas of the central business district of Kota Palembang confirmed that air pollution is a problem, including a constant haze indicative of a high level of airborne particles. This related to the local IUIDP team, the city regional development planning agency (BAPPEDA), the local public works agency (DPU), the revenue agency (Dipenda), the city cleaning department, and the market agency (Dinas Pasar dan Informasi Harga).

16 sent out to PDAMs by the OEM indicated that training was carried out effectively during the project period and has continued; organizational changes were introduced, particularly in giving more importance to meter reading and the billing and collection functions; management information systems were established; and job descriptions were prepared and personnel appraisal systems introduced. Training was undertaken as planned in regional and urban planning, city planning, environmental sanitation, housing sector, building regulations, fiscal planning, budgeting, revenue collection, information system, and public relations. However, frequent transfers of trained staff between government departments continues to be a major deterrent to realizing the full impact of training provided under the Project in the long run. While there is evidence that the PDAMs have improved their performance, there appears to be no direct linkage with the Project. Training was also provided for waste collection procedures, computerized billing systems, and management information systems operation. The OEM noted that the project consultants foresaw that PDAM Palembang would be unable to cover O&M costs and might not be in the position to adequately service all of its debts. Hence, PDAM Palembang will remain financially weak. Additional assistance was required to complement the efforts made in RIAP and LIDAP under the Project. 71. The TA for urban transportation planning and management focused on two cities, Denpasar and Semarang. The study was successful and the reports on Denpasar and Semarang have formed the basis of subsequent policy decisions. This was confirmed by the Directorate of Urban and Rural DevelopmentWest.31 The output of the TA focused on three areas. First, to minimize the cost of transportation systems through road upgrading, road widening or construction, intermodal coordination, and changing demand behavior. Second, an urban road improvement and transportation systems manual was produced that focused on requirements, maintenance cost estimates, user cost savings estimates, and economic and financial evaluation. Third, planning processes and modeling structures were devised based on city size. Four manuals were prepared covering training workshops and institutional arrangements for the structure and staffing of transport planning units in local government. The final report recommended deregulation, delicensing, strengthening databases, and prioritizing investment based on city size. Databases have been strengthened and investment is being prioritized according to city size. The TA was relevant and reflected the need for Indonesian cities to undertake urban transportation planning and management. However, the TA was not related to the rest of the Project, to which it was attached, either in terms of outputs or of cities and it is not clear why this particular TA was attached to this particular loan. However, the TA met its objectives to the extent that the study is being used in the two cities. The consultant inputs were adequate and the outputs were satisfactory. The TA is assessed successful. V. A. Relevance OVERALL ASSESSMENT

72. The Project was relevant as it aimed to improve three urban centers, identified as priority areas in a nationally integrated urban development plan, through construction of new, and rehabilitation of existing, infrastructure facilities. In addition, the Project aimed to improve the capacity of local governments and of PDAMs, including their revenue-generating capacities. The rise in revenue and the institutional changes are evident, though it is difficult to ascribe them entirely to the Project.
31

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

17

B.

Efficacy

73. The objective of the Project to improve the living conditions in the urban areas of the three project sites was achieved to the extent that the majority of the beneficiaries are satisfied with the design of the facilities as shown by the socioeconomic survey. The project objective of minimizing impediments to increasing productivity and economic expansion was difficult to assess as it is not easy to isolate the impact of the project components from that of other developments in the national and regional economies. However, the survey based on the recall method did reveal that a majority of the respondents were satisfied that the Project had contributed to an increase in urban activity. The OEM also noted that the civil works are of good quality and are generally well maintained. The assessment is efficacious. C. Efficiency

74. The lead executing, implementing, and oversight agencies, as well as the consultants, were generally efficient in the delivery of services. The reestimated EIRRs for drainage and KIP are higher than the EOCC. FIRRs exceeded the WACC in two of the three water supply subprojects. Action plans that led to institutional improvements and revenue enhancements were implemented. The Project is rated partly efficient, mainly because of the performance of PDAM Palembang (para. 52). D. Sustainability

75. The civil works are well maintained; however, the financial position of the PDAMs and local governments, even though greatly improved, is likely to cause impediments to meeting the steadily rising funding required to maintain project facilities in the future. Until there is adequate O&M, sustainability will be less likely. However, within all the participating departments and local governments, there is a growing awareness of and concern about the need to improve maintenance. The Project is assessed as sustainable, provided that this awareness translates into greater revenues and adequate O&M allocations. E. Institutional Development and Other Impacts

76. Reorganization reflecting political priorities was effected during implementation. However, the OEM could not confirm that this was a consequence of the Project. The socioeconomic impacts were assessed as positive with improved urban roads, better SWM, improved drainage, and water supply. However, there is a need to improve the performance of the PDAMs and even though revenues have increased in Palembang, they are insufficient to adequately service debt and build up capital for future development. The socioeconomic survey indicated that there were positive environmental impacts as a result of improved water supply and sanitation, drainage, and solid waste collection. However, the vehicular traffic increase raised concerns over air and noise pollution (para. 69). The Projects institutional development and other impacts are assessed as moderate. 77. The KIP component was greatly expanded with a corresponding impact on poverty reduction. However, in terms of the overall outputs, KIP was a small component and while its effects on the project sites are visible, within the overall context of poverty in Indonesia its impact was limited.

18 F. 78. G. Overall Project Rating The Project and the TA are rated successful. Assessment of ADB and Borrower Performance

79. ADBs performance was satisfactory with a total of 12 missions, including appraisal, one midterm review, and one special project implementation review. ADB worked closely with the Government and responded to resolve implementation issues, including the requests for the three extensions of the loan closing date. However, the absorptive capacity of the local governments had been overestimated at appraisal, which accounted for the moderate success of the LIDAP component. The Indonesia Resident Mission assisted in disbursement and liaison with the Government. However, neither the appraisal report nor the PCR mission retained data on the assumptions for the calculation of the FIRRs and EIRRs thereby making any comparison with the OEM calculations difficult. 80. The Directorate of Metropolitan Cities, as the Executing Agency, dealt with implementation issues appropriately and its performance was satisfactory. Requested changes in the design, including community-based SWM components in Kabupaten Bogor, were promptly agreed by ADB. In spite of delays, attributed partly to the late recruitment of consultants as a consequence of cumbersome procedures, the Borrowers performance was assessed as satisfactory. VI. A. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS

Key Issues for the Future

81. The Project was complex and covered seven components within three local authority areas. Some components are not specifically related (water and urban roads) and it may have been better to focus more on the integrated urban development components than undertake three sub projectswater supply, urban roads, and urban development (para. 17). Future ADB interventions should be less complex and support more interrelated components to ensure the comprehensive improvement of specific areas. 82. Optimistic projections were made at appraisal on the financial performance of the PDAMs. The Project also attempted to change the corporate culture of the participating PDAMs and local governments, particularly over setting tariffs, billing consumers, and collecting revenue. More realistic targets should be set in future interventions and the time allocated for institutional strengthening components should be sufficient to meet the requirements. 83. The targets for new road construction in Kota Bogor and Kabupaten Bogor were not met because of land acquisition difficulties related to price discrepancies between the government assessment and the market value of land and the failure of local governments to earmark adequate funds for this purpose. B. Lessons Identified

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

19

85. Solid waste dumpsites designed without proper environmental controls will have longterm negative impacts on the surrounding areas. Appropriate environmental safeguards need to be put in place as a component of future interventions. A more participatory approach toward the location of final disposal sites, involving communities and other stakeholders, would have prevented the problems seen in Kota Bogor, where local residents forced closure. Such approaches need to be included in the future. 86. The O&M of the pilot wastewater system in Bogor would have been better placed under the PDAM, so that charges for water and sewerage could have been levied by the same agency. 87. There was no land acquisition plan, environmental assessment plan, or plan to involve the community in the project preparation stage. These lessons have been taken account of by ADB through resettlement and environment policies, and greater emphasis on community participation in project preparation and implementation. In addition, a draft Act on Land Acquisition and Involuntary Resettlement for Indonesia was prepared under a regional TA. 32 C. 88. Follow-Up Actions A TA to undertake a drainage master plan for Palembang for 2005 maybe considered.

89. There is a need for ADB to remain engaged with the Government to further corporatize the PDAMs in an effort to delink tariffs from political control and to expand the PDAMs area of responsibility to include sewerage, as is the case in Medan, upon acceptance of an increase in pricing of the service to ensure cost recovery. As a first step in this direction, an independent regulatory body be established by the end of 2004 (para. 56).

32

RETA 5935: National Resettlement Policy Enhancement and Capacity Building, for $500,000 and financed by Japan Special Fund (JSF), was approved on 20 September 2000. The draft has been finalized and is, at present, being circulated for internal government comments.

20

Appendix 1

STRUCTURE OF GOVERNMENT 1. After more than three decades of a highly centralized national government, Indonesia adopted a policy of regional autonomy in May 1999. The decentralization policy was embodied in Law 22 and Law 25, both of 1999, and full implementation took place from 1 January 2001 onwards. These laws provide the framework and legal basis for political and fiscal devolution, under which districts (local governments in rural areas) and municipalities (local governments in urban areas) assumed new functions and powers previously assigned to the central government. 2. Figure A1 shows that local government in Indonesia is divided into four tiers: (i) Tier One the autonomous provinces (propinsi); (ii) Tier Two the districts (kabupaten) and municipalities (kota); (iii) Tier Three the subdistricts (kecamatan) within districts and municipalities; and (iv) Tier Four each subdistrict is subdivided into villages, called desa in rural areas and kelurahan in urban areas.

3. The bupati (district) or walikota (municipality) is the head of the local government unit and is responsible to a directly elected local assembly called Dewan Perwakilan Rakyat Daerah (DPRD).1

Figure A1: Framework of Government According to Law 22, 1999 Central [Pusat]

Province [Propinsi] District [Kabupaten] Subdistrict [Kecamatan] Municipality [Kota] Subdistrict [Kecamatan] Village [Kelurahan] Village [Desa]
Legend: -----------Co-administration Decentralization

In the 2004 elections, for the first time, the bupati and walikota and their deputies will be directly elected.

Appendix 2

21

FINANCING PLAN ($ million)


Appraisal Estimate Foreign Local Exchange Currency Total 0.0 80.0 80.0 Actual Foreign Local Exchange Currency 0.0 45.1 Change from Appraisal Foreign Local Exchange Currency Total 0.0 (34.9) (44%) (21.6) (33%) (3.4) (52%) (59.8) 39% (34.9) (44%) (10.7) (10%) (7.4) (50%) 55.8 24%

Item

Total 45.1

Borrower-Financed % of Change ADB-Financed % of Change KfW-Financed % of Change Total % of Change

74.3

65.7

140.0

82.4

44.1

126.5

10.9

8.2

6.5

14.7

4.2

3.1

7.3a

(4.0) (49%) 4.0 5%

82.6

152.1

234.7

86.6

92.3

171.6

ADB = Asian Development Bank, KfW = Kreditanstalt fr Wiederaufbau. At the time of Operations Evaluation Mission, total KfW funding was estimated at $18.5 million. Source: ADB. 2001. Project Completion Report on the Bogor and Palembang Urban Development Project in Indonesia. Manila and the Government Project Completion Report on the Bogor and Palembang Urban Development Project in Indonesia.

22

ORGANIZATIONAL ARRANGEMENT FOR PROJECT IMPLEMENTATION


Appendix 3 MOHA BAPPENAS TKPP IMG DG PUOD DG BANGDA DGCK CPMO CPFO Governor West Java
South Sumatra

MPW

FINANCE

DGBM BINKOT

KANWIL PU BAPPEDA I PFO PMU PMO West Java West Java South Sumatra

Mayor Palembang BAPPEDA II PFO PMU

South Sumatra

BUPATI BAPPEDA II

PMO

PMO O

PFO Central Government Projects

Kota Bogor Kabupaten Bogor Kota Palembang Cleansing Revenue PDAM PIU Water Supply Off-Site Sanitation Public Works PIU Water Supply Drainage Cleansing PIU Solid Waste On-Site Sanitation On-Site Sanitation Solid Waste KIP Drainage Local Water Supply PIU Public Works PIU PDAM PIU

Revenue

Local LEGEND: Roads BAPPEDA = Regional Development Planning Board, BAPPENAS = Badan Perencanaan Pembangunan Nasional (National Development Planning Direction Agency), BINKOT = Directorate of Urban Roads, BUPATI = chief executive of a kabupaten, CPFO = Country Project Finance Office, DG BANGDA = Directorate General of Regional Development, DGBM = Directorate General of Bina Marga (Highways), DGCK = Directorate General of Cipta Karya Coordination (Human Settlements), DG PUOD = Directorate General of Public Administration and Regional Autonomy, IMG = Implementation Management Group, KANWIL PU = Public Works Office Head, KIP = Kampung Improvement Program, MOHA = Ministry of Home Affairs, MPW = Ministry of Public Works, Reporting and PDAM = local water supply enterprise, PIU = project implementation unit, PFO = Program Finance Office, PMO = Program Management Office, PMU = Monitoring project management unit, TKPP = National Coordinating Team for Urban Development. Source: Asian Development Bank. 2001. Project Completion Report on the Bogor and Palembang Urban Development Project in Indonesia. Manila.

Appendix 4

23

STATUS OF COMPLETION OF PROJECT COMPONENTS Table A4.1: Kota Bogor


Percentage Achieved 100 100 100 100 100 100 100 91

No. Item I. Water Supply Water Intake Improvement Raw Water Transmission Pipe Water Transmission Pipe WTP Construction Reservoir Construction Distribution Pipe House Connection Water Loss Reduction Program II. Urban Roads New Construction Road Improvement Bridge Replacement Procurement of O&M Equipment

Unit lps km km m3/h 3 m /h km no. %

At Appraisal 400 to 908 6 6 2 x 200 12,000 139 9,500 29%

Actual 810 6 6 2 x 200 12,000 139 9,500 32%

km km no. pkg

6 2

5 13 1 5

82 640

III. Drainage New Construction of Main Drain Improvement and Rehabilitation Mud Dredging and Cleaning IV. Sanitation Service, Lateral, and Interceptor Sewerage House Connections Pilot WW Treatment Plant Pumping Station Force Main Suction Truck Trailer Pick-up Vehicle V. Solid Waste Trucks Container Bin Loader Hand Carts Bulldozer a Final Disposal Site

km km m

1 14 750

0 12 0

0 86 0

km no. m3/day no./lps m3/day no. no. no.

4 534 16 200 2 2 2

11 497 436 16 108 2 2 2

298 82 100 54 100 100 100

no. no. no. no. no. ha

20 1 337 1 25

21 16 1 349 1 9

105 100 104 100 37

VI. KIP/MIIP Sites Area Population Servedb Access Road Footpath Drainage Water Supply Public Bath/Toilet Temporary Disposal Site

no. ha no. m m m no. no. no.

10 80 6,400 875 3,100 6,025 7 1

14 229 78,991 6,820 9,162 15,434 14 17 2

140 286 1,234 779 296 256 243 200

= not available, h = hour, ha = hectare, KIP = Kampung Improvement Program, km = kilometer, m = meter, m3 = cubic meter, lps = liter per second, MIIP = Market Infrastructure Improvement Program, no. = number, O&M = operation and maintenance, pkg = package, WTP = water treatment plan, WW = wastewater. a Project site of 25 ha was completed and operated from FY1993 to FY1999; it was closed after the landslide. New disposal site was developed comprising 9.2 ha. b Original estimate was low. Source: Asian Development Bank. 2001. Project Completion Report on the Bogor and Palembang Urban Development Project in Indonesia . Manila.

24

Appendix 4

Table A4.2: Kabupaten Bogor


Percentage Achieved 103 50 150 75 54

No. Item I. Water Supply Water Intake/Broncaptering Cons. Water Transmission Pipe Reservoir Construction Booster Pump Distribution Pipe Public Tap House Connection Break Pressure Plant II. Urban Roads New Construction Road Betterment Dump Truck Asphalt Sprayer Bulldozer Excavator Wheel Loader Bridge Replacement

Unit lps km unit unit km no. no. no.

At Appraisal 160 28 4 550 16,800

Actual 210 14 6 2 415 10 9,057 1

km km no. no. no. no. no. no.

8 6 2 1 1

6 15 2 1 1 1 2

82 257 100 0 200

III. Drainage New Drainage Channel Improvement and Rehabilitation Regulator Gate IV. Sanitation Septic Tank Septic Tank Desludging Trucks V. Solid Waste Arm Roll Trucks Arm Roll Bin Bin Container Dump Truck Transfer Sites 10 m3 Transfer Sites 2 m3 Bulldozer Compactor Final Disposal Sitea Hand Carts

km km no.

9 31

31 1

0 100

no. no.

1,100 5

0 0

no. no. no. no. no. no. no. no. no. no.

10 29 141 25 361

4 0 550 12 3 16 2 331

0 0 0 8 92

VI. KIP/MIIP Sites Area Population Servedb Access Road Footpath Drainage Water Supply Public Bath/Toilet Solid Waste Transfer Point

no. ha no. m m m no. no. no.

6 34 1,800 700 1,500 1,650 12 3

8 129 61,681 6,024 22,416 17,073 9 11 3

133 379 3,427 861 1,494 1,035 92 100

= not available, ha = hectare, KIP = Kampung Improvement Program, km = kilometer, lps = liter per second, m = meter, m3 = cubic meter, MIIP = Market Infrastructure Improvement Program, no. = number, O&M = operation and maintenance. a Disposal site developed under the Project. b Original estimate was low. Source: Asian Development Bank. 2001. Project Completion Report on the Bogor and Palembang Urban Development Project in Indonesia . Manila.

Appendix 4

25

Table A4.3: Kota Palembang


Percentage Achieved 100 100 633 100 111 73 49 30 105 74 100 67

No. Item I. Water Supply Construction of Intake (KfW loan) WTP (KfW loan) Procurement of Transmission Main (KfW) Installation of Transmission Main Procurement of Distribution Pipes Installation of Distribution Pipes Procurement of Material for House Connections Installation of House Connections Procurement of Water Meter Replacement of Water Meter Distribution Center Reservoir Small Pipe for Block Renovation Procurement of Water Tank Truck and Capsule Procurement of Distribution Pump Procurement of Intake Pump 40 lps for WTP II. Urban Roads New Construction Road Improvement Bridge Construction Bridge Replacement Footbridge Improvement of Intersection

Unit no. no. km km km km no. no. no. no. no. no. no. no. pkg pkg

At Appraisal 2 2 3 19 123 123 68,000 68,000 38,000 38,000 2 3

Actual 2 2 19 19 137 90 33,000 20,249 40,000 28,000 2 2 68,849 37 1 1

km km km no. no. unit

7.5 48 2 5 4 31

30.6 171 2 4 4 11

308 356 100 80 100 35

III. Drainage Improvement and Rehabilitation Retention Pond Procurement of Equipment IV. Sanitation Sewers Pumping Station Force Main Construction of WWTP New Septic Tank Sludge Treatment Plant Construction of New MCK Pickup Suction Truck Trailers

km no. unit

35 1

74 9 0

211 0

km no./lps no./lps km no. no. no. no. no. no.

3 1/21 2.5 750 909 731 3

0 0 0 0 0 1 65 4 11 12

0 0 0 0 0 8 367

= not available, KfW = Kreditanstalt fr Wiederaufbau, km = kilometer, lps = liter per second, MCK = mandi-cuci-kakus (bathingwashing-toilet), no. = number, pkg = package, WTP = water treatment plan, WWTP = wastewater treatment plant.

26

Appendix 4

Table A4.3: Kota PalembangContinued


Percentage Achieved 425 164 187 279 200 50 0 15 100 50

No. V. Solid Waste Waste Bin Laboratory Tank Handcart Truck Operational Car Sweeper Car Container Bulldozer Loader Road Grader Excavator Container Base Workshop Transfer Station Maintenance Depot Final Disposal Site VI. KIP/MIIP Sites Effective Area Population Serveda Access Road Footpath Drainage Water Supply Public Bath/Toilet Handcart

Item

Unit no. no. no. no. no. no. no. no. no. no. no. no. no. no. no. no.

At Appraisal 250 1,200 69 108 4 2 1 80 1 4

Actual 1,314 2 1,963 129 8 2 409 8 1 0 1 242 2 12 1 2

no. ha no. m m m no. no. no.

43 436 61,000 1,318 5,338 1,160 3 12 4

51 522 155,876 11,045 63,270 2,202 13 52 34

119 120 256 838 1,185 20 433 433 850

= not available, ha = hectare, KIP = Kampung Improvement Program, m = meter, MIIP = Market Infrastructure Improvement Program, no. = number.
a

Original estimate was low.

Source: Asian Development Bank. 2001. Project Completion Report on the Bogor and Palembang Urban Development Project in Indonesia . Manila.

Appendix 4

27

Table A4.4: Consolidation of Project Outputs by Location


Appraisal Target Kab. Kota Bogor Palembang Actual Kab. Kota Bogor Palembang

Item

Unit

Kota Bogor

Total

Kota Bogor

Total

Water Supply Water Intake/Offtake Treatment Plant Water Transmission Mains Reservoirs Storage and Distribution Centers Distribution Pipes New Household Connections Replacement of Water Meters Break Pressure Plant Water Loss Reduction

no. lps lps km unit no. km no. no. no. %

2 674 400 12 1 0 139 9,500 0 0 29

1 160 160 28 4 0 550 16,800 0 0 0

2 1,200 1,200 31 3 2 123 68,000 38,000 0 29

5 2,034 1,760 71 8 2 812 94,300 38,000 0 58

1 810 400 12 1 0 139 9,500 0 0 32

1 210 0 14 6 0 415 9,057 0 1

0 1,200 600 19 2 2 90 20,249 28,000 0 43

2 2,220 1,000 45 9 2 644 38,806 28,000 1

Sewerage, WW & Sanitation System Sewers km no./m3pd Treatment Plant Pumping Station no./lps Force Main no./m Septic Tanks no. MCKs no. Trucks no. Suction no. Trailer no. Pick-Up no. Septic Tanks Desludging no. House Connections no. Sludge Treatment Plant no. Solid Waste Management Handcarts Trucks Arm Roll Truck Dump Truck Bulldozer Loaders Road Grader Waste/Arm Roll Bin Container Final Disposal Site Transfer Site 10 m3 Transfer Site 2 m3 Maintenance Depot Compactor Operational Car Sweeper Car Container Base Laboratory Tank Workshop Excavator

4 1/534 1/16 1/200 0 0 6 2 2 2 0 0 0

0 0 0 0 1,100 0 5 0 0 0 5 0 0

11 1/750 1/21 1/2,500 909 731 3 3 0 0 0 0 0

15 2 1 2 2,009 731 14 5 2 2 5 0 0

11 1/436 1/16 1/108 0 0 6 2 2 2 0 497 0

0 0 0 0 0 0 0 0 0 0 0 0 0

0 1/1750 0 0 0 65 27 11 12 4 0 0 1

11 2 1 1 0 65 33 13 14 6 0 497 1

no. no. no. no. no. no. no. no. no. ha no. no. no. no. no. no. no. no. no. no. no.

337 20 0 0 1 1 0 0 0 25 1 0 0 0 0 0 0 0 0 0 0

361 36 2 0 0 0 0 10 0 0 0 29 141 0 0 0 0 0 0 0 0

1,200 69 0 0 4 2 1 250 108 57 4 0 80 1 0 0 0 0 0 0 0

1,898 125 2 0 5 3 1 260 108 82 5 29 221 1 0 0 0 0 0 0 0

349 21 1 1 0 0 16 9 1 0 0 0 0 0 0 0 0 0 0

331 16 4 12 3 0 0 0 550 2 1 0 0 0 16 0 0 0 0 0 0

1,963 129 8 1 0 1,314 409 30 2 0 12 1 0 8 2 242 2 2 1

2,643 166 4 12 12 2 0 1,314 975 41 4 0 12 1 16 8 2 242 2 2 1

= not available, ha = hectare, lps = liter per second, KIP = Kampung Improvement Program, km = kilometer, m = meter, m3= cubic meter, m3pd = cubic meter per day, MCK = mandi-cuci-kakus (bathing-washing-toilet), no. = number, WW = wastewater.

28

Appendix 4

Table A4.4: Consolidation of Project Outputs by LocationContinued Appraisal Target Kab. Kota Bogor Palembang Actual Kab. Kota Bogor Palembang

Item

Unit

Kota Bogor

Total

Kota Bogor

Total

Urban Roads New Roads Road Improvement/Betterment Bridge Replacement Bridge Construction Footbridges Constuction Improvement of Intersection O&M Equipment Dump Trucks Asphalt Sprayer Drainage New Drainage Channel Rehabiliation/Improvement of Existing Drains Mud Dredging and Cleaning Retention Pond Regulator Gate

km km no. no. no. no. no. no. no.

6 2 0 0 0 0 0 0 0

8 6 1 0 0 0 0 2 1

8 48 5 2 4 31 0 0 0

21 56 6 2 4 31 0 2 1

5 13 1 0 0 0 5 0 0

6 15 2 0 0 0 0 2 0

31 171 4 2 4 11 0 0 0

42 199 7 2 4 11 5 2 0

km km m no. no.

1 14 750 0 0

14 33 0 0 0

0 35 0 0 0

14 82 750 0 0

0 12 0 0 0

0 31 0 0 1

0 74 0 9 0

0 117 0 9 1

Kampung Improvement Program Sites no. Area to be Improved ha Population Served persons Market Infrastructure Improvement no. Access Road km Footpath km Drainage km Water Supply no. Public Bath/Toilet no. Solid Waste Transfer Point no.

10 80 6,400 0 1 3 6 0 7 1

6 34 1,800 0 1 2 2 0 12 3

43 436 61,000 0 1 5 11 3 12 4

59 550 69,200 0 3 10 19 3 31 8

14 229 78,991 0 7 9 15 14 17 2

8 129 61,681 0 6 22 17 9 11 3

51 73 522 880 155,876 296,548 3 11 63 2 13 52 34 3 24 95 35 36 80 39

ha = hectares, km = kilometer, lps = liter per second, m3 = cubic meter, no. = number, O&M = operation and maintenance. Source: Operations Evaluation Mission.

BREAKDOWN OF PROJECT COST Table A5.1: Breakdown of Project Cost (at appraisal) ($ '000)
Kota Bogor Foreign Local Exchange Currency Kabupaten Bogor Foreign Local Exchange Currency Total Kota Palembang Foreign Local Exchange Currency Total Total Foreign Local Exchange Currency

Item

Total

Total

By Cost Category Land Equipment Civil Works Incremental Operation and Maintenance Taxes and Duties Design and Supervision Project Administration Institutional Development/ Consulting Services Studies Total Base Cost By Component Water Supply Wastewater and Sanitation Solid Waste Management Urban Roads Urban Drainage KIP/MIIP Project Administration Others Total Base Cost Contingencies Physical Contingency Price Contingency Subtotal Total Before Interest During Construction IDC Total Project Cost at Appraisal

0 5,965 342 0 0 335 0 1,620 1,090 9,352

3,185 5,084 5,109 1,595 1,665 806 760 1,444 961 20,608

3,185 11,049 5,451 1,595 1,665 1,141 760 3,064 2,051 29,960

0 2,960 250 0 0 178 0 720 250 4,358

2,680 7,010 4,530 850 1,475 894 250 764 150 18,603

2,680 9,970 4,780 850 1,475 1,072 250 1,484 400 22,961

0 19,890 9,400 0 0 1,981 0 2,070 1,760 35,101

6,740 20,910 26,252 1,670 7,675 3,865 930 1,873 1,854 71,769

6,740 40,800 35,652 1,670 7,675 5,846 930 3,943 3,614 106,870

0 28,815 9,992 0 0 2,494 0 4,410 3,100 48,811

12,605 33,004 35,891 4,115 10,815 5,565 1,940 4,081 2,965 110,981

12,605 61,819 45,883 4,115 10,815 8,059 1,940 8,491 6,065 159,791

5,229 400 369 473 170 0 0 2,710 9,352

9,081 1,037 823 5,790 368 494 760 2,255 20,608

14,310 1,437 1,192 6,264 538 494 760 4,965 29,960

1,738 137 767 574 172 0 0 970 4,358

3,780 172 640 11,959 705 183 250 914 18,603

5,518 309 1,407 12,533 877 183 250 1,884 22,961

10,184 953 2,565 14,530 3,040 0 0 3,830 35,101

14,999 1,483 5,555 33,531 10,075 1,770 930 3,427 71,769

25,183 2,436 8,120 48,060 13,115 1,770 930 7,257 106,870

17,151 1,490 3,701 15,577 3,382 0 0 7,510 48,811

27,861 2,691 7,018 51,280 11,148 2,447 1,940 6,596 110,981

45,011 4,182 10,719 66,857 14,530 2,447 1,940 14,106 159,791

637 1,107 1,744

1,488 4,120 5,608

2,125 5,227 7,352

288 530 818

1,242 3,434 4,676

1,530 3,964 5,494

2,516 4,387 6,902

5,457 15,757 21,215

7,973 20,144 28,117

3,440 6,023 9,464

8,187 23,312 31,499

11,627 29,335 40,963

11,095 6,175

26,216 2,125

37,312 8,300

5,176 4,370

23,279 683

28,455 5,053

42,003 13,739

92,984 6,830

134,987 20,570

58,274 24,284

142,479 9,638

200,753 33,922
Appendix 5

17,270

28,341

45,612

9,545

23,962

33,508

55,742

99,814

155,556

82,558

152,117

234,675

IDC = interest during construction, KIP = Kampung Improvement Program, MIIP = Market Infrastructure Improvement Program. Source: Operations Evaluation Mission.

29

30

Table A5.2: Breakdown of Project Cost (actual)


Item Kota Bogor Foreign Local Exchange Currency Kabupaten Bogor Kota Palembang Foreign Local Foreign Local Total Exchange Currency Total Exchange Currency Total Actual as of 7 April 2000 (Loan Closing Date) Total Foreign Local Exchange Currency

Appendix 5

Total

By Cost Category Land Equipment and Materials Civil Works Incremental Operation and Maintenance Taxes and Duties Design and Supervision Project Administration Institutional Development/Consulting Studies Total Base Cost By Component Water Supply Wastewater and Sanitation Solid Waste Management Urban Roads Urban Drainage KIP/MIIP Project Administration Others Total Base Cost Contingencies Physical Contingency Price Contingency Subtotal Total Before Interest During Construction IDC Actual Project Cost

0 9,972 2,670 0 0 108 0 1,856 0 14,606

724 373 8,266 0 0 937 0 2,192 0 12,492

724 10,345 10,936 0 0 1,045 0 4,048 0 27,098

0 4,863 4,755 0 0 93 0 386 0 10,097

1,224 680 9,412 0 0 1,351 0 421 0 13,088

1,224 5,543 14,167 0 0 1,444 0 807 0 23,185

0 13,350 17,098 0 0 1,775 0 5,366 0 37,589

549 8,963 37,435 0 0 4,356 0 5,813 0 57,116

549 22,313 54,533 0 0 6,131 0 11,179 0 94,705

0 28,185 24,523 0 0 1,976 0 7,608 0 62,292

2,497 10,016 55,113 0 0 6,644 0 8,426 0 82,696

2,497 38,201 79,636 0 0 8,620 0 16,034 0 144,988

7,013 657 162 4,721 195 143 0 1,716 14,606

5,472 812 1,171 3,909 297 203 0 627 12,491

12,485 1,469 1,333 8,630 492 346 0 2,343 27,097

2,763 71 758 5,909 439 157 0 0 10,097

2,920 42 480 8,692 703 251 0 0 13,088

5,683 113 1,238 14,601 1,142 408 0 0 23,185

17,520 253 2,250 10,045 4,835 1,124 0 1,563 37,589

17,805 357 3,109 21,430 10,809 2,052 0 1,554 57,116

35,325 610 5,359 31,475 15,644 3,176 0 3,117 94,705

27,296 980 3,170 20,674 5,468 1,424 0 3,279 62,292

26,197 1,211 4,760 34,031 11,809 2,506 0 2,182 82,696

53,493 2,191 7,930 54,705 17,277 3,930 0 5,461 144,988

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

14,606 5,694 20,300

12,491 1,456 13,947

27,097 7,150 34,247

10,097 3,936 14,033

13,088 1,525 14,613

23,185 5,461 28,646

37,589 14,654 52,243

57,116 6,657 63,773

94,705 21,311 116,016

62,292 24,284 86,576

82,695 9,638 92,333

144,987 33,922 178,909

IDC = interest during construction, KIP = Kampung Improvement Program, MIIP = Market Infrastructure Improvement Program. Notes: 1. At appraisal, base costs were in June 1991 prices; an exchange rate of $1.00 = Rp1,950 was used. 2. At appraisal, physical contingencies of 5% for materials and equipment and 10% for others were provided. 3. At appraisal, price escalation was estimated as follows: for foreign exchange cost, 4.9% per annum for 19911994 and 3.7% per annum thereafter; for local currency, 10% for 1991, 9% for 1992, and 8% per annum thereafter. 4. Actual Asian comprise actual disbursements from the Asian Report on the Bogorloan, Palembang Urban Developmentand Kreditanstalt fr Wiederaufbau loan. costs Development Bank. 2001. Project Completion Development Bank and government counterpart funds, Project in Indonesia . Manila. Source: Operations Evaluation Mission.

IMPLEMENTATION SCHEDULE Table A6.1: Kota Bogor


1991 Component 1. 2. 3. 4. 5. 6. 7. Water Supply Wastewater and Sanitation Solid Waste Management Urban Roads Urban Drainage Kampung Improvement Program Studies I II III IV I 1992 II III IV I 1993 II III IV I 1994 II III IV I 1995 II III IV I 1996 II III IV I 1997 II III IV I 1998 II III IV I 1999 II III IV

1 Legend: Appraisal. Actual. 1 Date of effectivity, 7 July 1999. 2 Original loan closing date, 30 September 1997. 3 First extension of loan closing date, 30 September 1998. 4 Second extension of loan closing date, 31 March 1999. 5 Closing date of physical components, 30 September 1999. Notes: 1. Data at appraisal included detailed design, procurement, and construction/installation activities. 2. Actual data may not fully reflect the activities from detailed design to completion of construction or installation. Source: Government project completion report. March 2000.

Appendix 6

31

Table A6.2: Kabupaten Bogor 32


1991 Component 1. 2. 3. 4. 5. 6. 7. Water Supply Wastewater and Sanitation (not implemented) Solid Waste Urban Roads Drainage Kampung Improvement Program Studies (not implemented) 1 Source: Government project completion report. March 2000. 2 3 4 5 I II III IV I 1992 II III IV I 1993 II III IV I 1994 II III IV I 1995 II III IV I 1996 II III IV I 1997 II III IV I 1998 II III IV I 1999 II III IV Appendix 6

Table A6.3: Palembang


1991 Component 1. Water Supply 2. Wastewater and Sanitation 3. Solid Waste 4. Urban Roads 5. Drainage 6. Kampung Improvement Program 7. Studies Mapping urban areas 8. Urban Transportation Semarang and Denpasar (actual data not available) 1 Revised loan closing date of Kreditanstalt fr Wiederaufbau is August 2001. 2 3 4 5 I II III IV I 1992 II III IV I 1993 II III IV I 1994 II III IV I 1995 II III IV I 1996 II III IV I 1997 II III IV I 1998 II III IV I 1999 II III IV

Note:

Source: Report of Kota Palembang as of Project Completion Review Mission 21 August1 September 2000, and Government project completion report of March 2000.

Appendix 6

33

34

Appendix 7

FINANCIAL PERFORMANCE OF LOCAL GOVERNMENTS A. Objectives

1. At appraisal, it was noted that the three local governments would need to improve revenue generation and control operating costs. In particular, the realization of revenue forecasts would require a continued increase in the collections of land and building tax (Pajak Bumi dan Bangunan [PBB]), other taxes, and fees. Action plans were agreed by the local governments to increase local tax collection in real terms, increase collection efficiency, and introduce measures to prevent excessive operating cost rises. These were spelt out in revenue improvement action plans where the local governments would carry out PBB enhancement measures, including regular property revaluations and collection efficiency improvements to achieve an annual growth rate in excess of inflation and population growth. In addition, measures would also be undertaken to increase local taxes, fees, and charges. More specific targets were set in Schedule 6 of the Loan Agreement1 as follows: (i) annual revenue increases from property and local taxes 2 of 5% in real terms for Kotamadya and Kabupaten Bogor and 7% real increase for Kotamadya Palembang; and (ii) real annual revenue increases from local fees and charges 3 of 17% in Kotamadya and Kabupaten Bogor and 13% in Kotamadya Palembang. In addition, local governments were required to review and revise solid waste charges and septic tank desludging fees annually to cover operating costs and depreciation. Summary figures on the financial performance of the three project areas are contained in Table A7.1. The average inflation figure as computed by the difference between total income at current and constant prices differs marginally for the three cities. This is based on data collected from the three local governments. B. Accomplishments 1. Kotamadya Bogor

2. Kotamadya Bogor experienced a 22.0% per annum increase in total income from FY1992/93 to FY1999/2000, or a 3.4% per annum increase in real terms. There has been significant growth in total income since 2000 with a 48.7% real annual increase to FY2003. Local revenues 4 declined in real terms from FY1992/93 to FY1999/2000, but have shown positive real growth since at 38.2% per annum to FY2003. Local government income5 declined even more from FY1992/93 to FY1999/200, at 8.4% per annum, although growth since has been at 24% per annum. Total local revenues have declined from 51% of total income in FY1992/93 to an estimated 29% for FY2003, with a corresponding increase in subsidies and grants from 49% to 71% over the same period. 3. Local government income (PADS) has grown in real terms at an average rate of 8.4% per annum from FY1992/93 to FY2003, but lower than the population growth rate of about 17% per annum. Population growth is largely attributed to increases in the area of the Kotamadya. 6 However, local revenues have fallen below the target set at appraisal, with a real growth rate of
1 2 3 4 5 6

Loan Agreement for the Bogor and Palembang Urban Development Project between the Asian Development Bank and the Government of Indonesia, May 1992. Entertainment, business, and advertising taxes. Market, terminal, cleaning, and parking fees. Comprise local government income and share taxes and nontax revenue, including property tax. This comprises local taxes, retribution, enterprise share profit, and other locally raised income, normally referred to as PADS. This high rate of growth is a reflection of the increase in the area of Kotamadya Bogor, which took place in 1995. The area increased from 2,156 to 11,840 hectares.

Appendix 7

35

0.2% over the same period. From FY1992 to FY2003, property taxes have increased at the rate of 23.1% per annum in real terms, and local taxes at 10.3%. Both have exceeded the 5% per annum target. Local fees and charges, however, have shown negative real growth over the same period. 4. Revenues from solid waste collections have averaged about 40.8% of the costs incurred from 1997 to 2003, but the proportion of recovery has fallen from 47.2% in 1997 to 25.7% in 2003. For desludging, the service is less subsidized, although revenue only averages 60.6% of the cost of operations and administration over the 2001 to 2003 period. Cost recovery, however, is falling from 61.8% in 2001 to 54.3% in 2003. The cost figures do not include depreciation. The Operations Evaluation Mission (OEM) was informed that charges have not been increased since 2000. 5. Routine expenditures have increased a a proportion of total income from 51.3% in s FY1992/93 to 73.6% in FY2000, and to an estimated 88.3% in FY2003. In real terms, routine expenditures have increased throughout the period. Lower growth at 8.9% per annum was experienced from FY1992/93 to FY1999/2000, but this was 54.5% from FY2000 to FY2003, or 20.8% per annum average throughout the period. Routine expenditure is estimated to have increased by nearly 21% in FY2003. 6. Projections made up to FY1999/2000 at appraisal proved to be somewhat conservative. For total local revenues, excluding grants and subsidies, the projections were 53% of the actual outturn. For local government income, the projections were 87% of actual figures. Expenditures too were underestimated, with the projected figure being 29% of the actual. 7. More detailed figures on the financial performance of Kota Palembang are contained in supplementary appendix, in current and constant 1993 prices, respectively. 2. Kabupaten Bogor

8. Kabupaten Bogor experienced a 28.1% per annum increase in total income from FY1992/93 to FY1999/2000, and in real terms this represents growth at 8.6% per annum. There has been an improvement since 2000 with a 22.4% real annual increase in total income to FY2003. Similar patterns of growth are exhibited for most sources of local revenue, including local taxes and service charges. Total local revenues have increased from 28.5% of total income in FY1992/93 to 40.6% in FY2002, with a corresponding decline in subsidies and grants from 71.5% to 59.4% over the same period. Figures for the first 9 months of 2003, grossed up for the year, show that in real terms local revenues are estimated to decline because of falling other income and other taxes and nontax receipts.7 Accordingly, local revenues are likely to decline to 28.9% of total income. 9. Total local revenues have grown in real terms at an average rate of 12.9% per annum from FY1992/93 to FY2003, contrasting with contraction in the same period.8 Local government income (PADS) too has exceeded the target set at appraisal, with a real growth rate of 13.9% per annum over the same period. From FY1992 to FY2003, property taxes have increased at the rate of 13.6% per annum in real terms and local taxes at 13.8%, both exceeding the 5% per annum real growth target. Local fees and charges have increased at 10.7% per annum in real terms over the same period, below the target rate of 17% per annum. Data were unavailable on the revenue and cost of the solid waste and sanitation services provided by the Kabupaten.
7 8

Local taxes, local retribution, and property taxes, however, showed positive real growth. The area of Kabupaten Bogor decreased in 1995 with the transfer of some 9,684 hectares to Kotamadya Bogor.

36

Appendix 7

10. Routine expenditures have increased as a proportion of total income from 65.3% in FY1992/93 to 73.6% in FY2000. They have remained at a similar level to FY2002 (75.8%), but a significant decline is estimated for FY2003 to 54.5% of total income. This is attributed to the estimated decline in routine expenditures for the year. In real terms, routine expenditures increased throughout the period to FY2002 at 16.8% per annum. Lower growth at 10.4% in real terms was experienced to FY1999/2000. 11. Projections made up to FY1999/2000 at appraisal were very conservative. For total local revenues, excluding grants and subsidies, the projections were only 36% of the actual outturn. For local government income, the projections were 43% of actual figures. Expenditures too were grossly underestimated, with the projected figure being only 9% of the actual. 12. More detailed figures on the financial performance of Kabupaten Bogor are contained in supplementary appendix, in current and constant 1993 prices, respectively. 3. Kotamadya Palembang

13. Kotamadya Palembang experienced a 14.3% per annum increase in total income from FY1992/93 to FY1999/2000, but in real terms this represents a decline of 3.1%. There has been a substantial improvement since 2000 with a 31.3% real annual increase in total income to FY2003. Similar patterns of growth are exhibited for most sources of local revenue, including local taxes and service charges. Total local revenues have increased from 28.5% of total income in FY1992/93 to 35.4% in FY2002, with a corresponding decline in subsidies and grants from 71.5% to 64.6% over the same period. Figures for the first 9 months of 2003 grossed up for the year show that in real terms local revenues have declined largely because of falling share taxes and nontax receipts.9 As a result, local revenues have declined to 28.9% of total income. 14. Nevertheless, total local revenues have grown in real terms at an average rate of 8.7% per annum from FY1992/93 to FY2003, much higher than the population growth rate of about 2.2% per annum. Local government income (PADS), too, has exceeded the target set at appraisal, with a real growth rate of 5.8% per annum over the same period. From FY1992 to FY2003, property taxes have increased at the rate of 10.2% per annum in real terms and local taxes at 2.1%, against the 7% per annum real growth target. Local fees and charges have increased at 4.1% per annum in real terms over the same period, but this is below the target rate of 13% per annum. 15. Solid waste and desludging charges were last increased in Palembang in 1998. Combined revenues for both services have only recovered an average of 15.5% of the costs incurred, excluding depreciation, over the period 2000 to 2003. With no increases in charges, the proportion of recovery has deteriorated from 27.3% in 2000 to 12.2% in 2003. The services are heavily subsidized. 16. Routine expenditures have increased as a proportion of total income from 65.3% in FY1992/93 to 78.2% in FY2000. However, there has been a small decline since and routine expenditures were about 74.6% of total income in 2002, but have increased to an estimated 80.3% for FY2003. In real terms routine expenditures decreased until FY1999/2000, and have increased since then at a rate of 33.6% per annum to FY2003, but at a lower growth rate than that of local revenues (38.7% per annum). Disturbingly, routine expenditure estimates for
9

Local government income (PADS) showed positive real growth.

Appendix 7

37

FY2003, however, show real growth of just over 19% against a real and actual decline in total local revenues. Such growth needs to be closely monitored. 17. Projections made up to FY1999/2000 in current prices at appraisal proved to be reasonable. For total local revenues, excluding grants and subsidies, the projections were 92% of the actual figure. For local government income, the projection was 90% of the actual figures. Expenditures, however, are more conservative at 65% of the actual. 18. More detailed figures on the financial performance of Kota Palembang are contained in supplementary appendix, in current and constant 1993 prices, respectively. C. Conclusions

19. Two of the three local governments exceeded the appraisal targets in achieving an annual growth rate of total local revenues in excess of inflation and population increases. Kotamadya Bogor was the exception. However, there was mixed success of specific tax and revenue targets. Overall, revenue growth throughout the project period from FY1992/93 to FY1999/2000 was slow, but revenues have increased significantly since FY2000.

FINANCIAL PERFORMANCE OF LOCAL GOVERNMENTS Summary of Local Resource Mobilization Efforts of Local Governments Average Annual Growth Rate, FY1992/93 to FY1999/00 and FY2000 to FY2003
FY1992/93 to FY 1999/2000 (%) Kota Bogor Kabupaten Bogor Kota Palembang Current At 1993 Current At 1993 Current At 1993 Prices Prices Prices Prices Prices Prices FY2000 to FY2003 (%) Kota Bogor Kabupaten Bogor Kota Palembang Current At 1993 Current At 1993 Current At 1993 Prices Prices Prices Prices Prices Prices FY1992/93 to FY2003 (%) Kota Bogor Kabupaten Bogor Kota Palembang Current At 1993 Current At 1993 Current At 1993 Prices Prices Prices Prices Prices Prices

38
Appendix 7

Category

A. Income 1. Local Government Income (PADS) Routine Revenues a. Local Taxes 24.5 b. Local Retribution/ Service Charge 7.1 c. Local Enterprise Share Profit (0.8) d. Other Income (18.2) Subtotal (1) 8.1 2. Share Taxes/Nontax Property Taxes Other Taxes and Nontax Subtotal (2) Total Revenues (A) 3. Subsidies and Grant Subsidies Grant Subtotal (3) Total Income

5.6 (9.2) (15.9) (30.7) (8.4)

34.7 32.0 74.5 57.3 35.6

14.2 11.9 48.0 33.4 15.0

17.0 12.4 61.4 17.8 15.4

(0.8) (4.7) 36.8 (0.1) (2.2)

32.2 36.0 14.5 93.2 35.8

21.0 24.4 4.7 76.7 24.3

32.8 26.1 66.0 44.5 32.4

21.5 15.3 51.9 32.2 21.1

14.7 33.3 (3.8) 155.8 33.3

4.9 21.9 (12.0) 134.0 21.9

27.2 14.4 2.4 3.3 15.5

10.3 (0.8) (11.2) (10.4) 0.2

31.2 27.6 44.9 31.3

13.8 10.7 25.7 13.9

17.7 20.0 44.7 44.3 21.9

2.1 4.1 25.5 25.2 5.8

37.7 38.2

16.7 17.2

30.3 19.7 29.0

10.5 1.5 9.4

13.1 (19.6) 10.8

(4.1) (31.9) (6.1)

52.6 261.5 65.9

39.6 230.7 51.8

41.1

29.0

58.1 318.6 70.9

44.7 283.0 56.4

42.0 45.9

23.1 26.6

30.9

13.6

27.0 33.0 28.1

10.2 15.4 11.1

(100.0) (100.0) 37.5 25.8

(100.0) (100.0) 28.8 11.7

15.5

(2.1)

32.6

12.4

13.3

(4.0)

51.1

38.2

34.5

23.1

51.6

38.7

25.0

8.4

30.2

12.9

25.3

8.7

35.8 16.8 26.9 22.0

15.2 (1.0) 7.6 3.4

26.6 24.6 25.9 28.1

7.3 5.7 6.7 8.6

18.8 4.1 14.7 14.3

0.7 (11.8) (2.7) (3.1)

81.8 18.7 68.6 62.6

66.4 8.6 54.2 48.7

45.4 (29.1) 33.5 33.8

33.0 (35.1) 22.2 22.4

51.0 40.7 43.6

38.1 28.8 31.3

47.5 14.6 36.7 32.0

28.0 (0.6) 18.6 14.5

35.2 4.0 29.9 30.0

17.3 (9.8) 12.7 12.7

30.6 25.0 25.1

13.3 8.4 8.5

Total Routine Expenditure

28.4

8.9

30.3

10.4

17.3

(0.5)

68.8

54.5

34.3

22.9

46.0

33.6

39.3

20.8

27.7

10.7

27.7

10.8

= not available. Source: Local governments of Kota Bogor, Kabupaten Bogor, and Kota Palembang.

Appendix 8

39

FINANCIAL PERFORMANCE OF PDAMS A. Objectives

1. At appraisal, it was noted that the participating local water enterprises (PDAMs) were required to review tariffs regularly to meet operating costs and depreciation or debt service, whichever is higher. Tariff increases of 20% every 2 years for PDAM Kabupaten Bogor and 30% every 2 years for PDAM Kotamadya Bogor were estimated. A return of 10% to 12% on assets was required and accounts receivable were to be an average of 2 months by the end of 1995. 1 In addition, reductions in nonrevenue water were agreed as follows: (i) for P DAM Kotamadya Bogor, from 34% in 1991 to 29% at the end of 1995; (ii) for PDAM Kabupaten Bogor, from 23% in 1991 to 29% at the end of 1995; and (iii) for PDAM Kotamadya Palembang, from 38% in 1991 to 29% at the end of 1996. 2 2. To accomplish this, PDAMs committed to implement agreed action plans that covered organizational changes, introduction of water loss reduction programs, recruitment of additional personnel, acquisition of operation and maintenance (O&M) equipment, setting up databases within an overall management information system (MIS), and providing staff training. B. Accomplishment 1. PDAM Kotamadya Bogor

3. Table A8.1 shows that only moderate annual profits have been realized since 1991. Estimates for 2003 show a further profit of just over Rp2 billion. Nevertheless, the profits realized in real terms have not yet reached the high of 1996. In 2002 profits declined in real terms from those in 2001. However, a modest improvement is expected in 2003, although profit is below the level of 2001 in real terms. A return on average net fixed assets of about 5.6% is expected in 2003. From 1997 to 2003 with the project assets on the balance sheet, the average return on net fixed assets was just over 6.1%, but still below that expected at appraisal. The PDAM experienced returns of higher than 10% in years 1992 to 1997, but these were on a smaller average asset base. 4. Tariff increases took place in 1996 and 2000 at about 46% and 31%, respectively. Nevertheless, average revenues per cubic meter (m 3) of water sold have increased in current prices from 1992 to 2002 at about 9% per annum, although this is a decline in real terms. Gross revenues from water sales, too, have shown only modest real growth since 1992 of 2.3% per annum. Water revenues fell substantially in 1998 and 1999, the years of the economic crisis, but have now recovered, although they have yet to reach the levels attained in real terms in 1996 and 1997. The next tariff increase is proposed for 2004 with rates to increase by an average of 70%. Collection rates of monthly dues were said to be about 90% in recent years, and accounts receivable averaged just over 6 months at the end of September 2003. Many of the arrears are because of nonpayment by government agencies for water consumed. 5. Unaccounted-for-water (UFW) declined from 34% of water production in 1991 to 29% at the end of 1995 (thus satisfying the conditions of the Loan Agreement), but increased to 32% in 1999. Since then, UFW has remained at about 32%, although figures for the first 9 months of 2003 show a fall to 29%. Clearly, the target set at appraisal has been reached and the
1 2

Loan Agreement for the Bogor and Palembang Urban Development Project between ADB and the Government of Indonesia, May 1992, Schedule 6. The targets also were specified in the Loan Agreement.

40

Appendix 8

indications are that it is remaining at a slightly higher level. A water loss program was introduced in 1997 and has involved the replacement of water meters, house-to-house inspections, and the establishment of teams to detect and overcome leakages. 6. Accomplishment of the agreed action plan at appraisal was generally satisfactory. Meter reading was transferred in the 1990s to the distribution division and billing and collection is under public relations. Job descriptions for staff were prepared and approved, but only in 2002. A personnel appraisal system has been in place since the 1990s and involves monthly and yearly evaluations. An integrated MIS comprising customers, employees, logistics, and geographic information was set up and has been in operation since the early 1990s. Most of the O&M equipment required at appraisal and noted in the action plan was acquired during the project implementation period. Staff training was provided early in the implementation period (1991 to 1993) and there have been recent training programs for staff in 2003. 2. PDAM Kabupaten Bogor

7. Table A8.2 shows moderate profits every year since the losses that occurred in 1991 and 1992. Estimates for 2003 show a further profit of about Rp5.4 billion. Nevertheless, real profits have not reached the high experienced in 1995. Since then, there was a decline in real profits to the end of 1998, but from then onward, real profits have increased consistently. In 2002, profits declined in real terms from those in 2001, however, a modest improvement is expected in 2003, although profits are still below the level of 2001 in real terms. A return on average net fixed assets of about 9% is expected in 2003. From 1993 to 2003, the average return on net fixed assets was almost 8%, although the 10% target was exceeded from 1994 to 1997. From 1997 to 2003, with the project assets on the balance sheet, the return was about 6% of average net fixed assets. 8. Tariff increases took place in 1995, 1999, and 2000, with average increases of about 11%, 25% and 28%, respectively. Average revenues per m3 of water sold have increased in current prices from 1992 to 2002 at about 10% per annum, although in real terms there has been a decline. Gross revenues from water sales have shown significant real growth since 1992 at 9.6% per annum. Water revenues fell substantially in 1998 and 1999, the years of the economic crisis, but have now recovered and have surpassed the levels attained in real terms in 1996 and 1997. The next tariff increase is scheduled for 2005 with rates to increase by about 30%. Similar increases are planned for 2008 and every 3 years thereafter. Collection rates of monthly dues were said to be about 85% to 90% in recent years, with the decentralization of revenue collection points to district levels. Accounts receivable averaged about 8 months at the end of 2002. Much of this, however, is due from government agencies. 9. UFW declined from 34% of water production in 1991 to 26% at the end of 1995 (thus satisfying the conditions of the Loan Agreement), but increased to 42% in 1999. Since then, UFW has remained at between 41% and 43%. Clearly, the target set at appraisal has not been maintained, although there is stabilization, but at a higher level. A water loss reduction program has been implemented since 2001 and a target of 20% has been set for 2006 provided funds are accessed to repair and upgrade the existing distribution system, and to replace water meters. Efforts are being made to improve the accuracy of meter reading. 10. Accomplishment of the agreed action plan at appraisal was partial. Meter reading and billing and collections have been better staffed and equipped and the public relations division was strengthened in 1997. The PDAM does not have job descriptions for all staff, only for section heads and above; however, this is planned to be completed for all staff by the end of

Appendix 8

41

2004. Furthermore, organizational changes are proposed for next year. A personnel appraisal system has been in place since the 1990s and includes monthly evaluations. An integrated MIS was set up in 2000 and existing databases were linked to it in 2001. Most of the O&M equipment required at appraisal and noted in the action plan was acquired before and during the project implementation period. Staff training was provided mainly in 1993, although further help on water loss reduction was provided in 2002. 3. PDAM Kotamadya Palembang

11. After a period of substantial losses from 1991 to 2000, Table A8.3 shows that PDAM Palembang realized profits in 2001 and 2002, although the amount for 2002 was lower than in 2001. Preliminary figures for 2003, based upon financial data to 30 September, show that a larger profit is estimated for the year, and a return on average net fixed assets of about 5% is expected. Throughout the period, however, the average return on net fixed assets has been negative. For 2001 and 2002, returns of 3% and 1% have been realized, respectively. 12. Tariff increases have only taken place in 1995 and 2000. The average increase in 1995 in unit rates was 26% in 1995 and 207% in 2000. Nevertheless, average revenues per m3 of water sold have increased in current prices from 1992 to 2002 at about 21% per annum, although in real terms this is a modest 6%. Gross revenues from water sales, too, have shown modest real growth since 1992 at less than 2% per annum and in 2002 they were almost back to their 1991 levels in real terms. Water revenues fell substantially during 1998 and 1999, the years of the economic crisis, but have now recovered. A further tariff increase before 2005 is unlikely and will probably be small, about 50% on average. Collection rates of monthly dues were 74% in 2002, although accounts receivable averaged some 19 months at the end of the year. This is an improvement of the 63% collection rate experienced in 1999. 13. UFW has increased from a level of 38% of water production in 1991 to 42% in 1996, but reduced to 39% in 1999. Since then, there has been a significant increase and figures for 2002 show that 74% of water produced was unaccounted for. Clearly, the target set at appraisal has been missed by a long margin. In 2002, some 54 million m 3 of water were unaccounted for. The growth of UFW is attributed to the increased production of water from the new water treatment plants and its resulting higher pressure, many illegal connections, and nonfunctional water meters. A water loss program only started in 2003 and UFW is estimated to be about 53 million m 3, leading to a revenue loss of Rp7,930 millions, and a reduction in the percentage of UFW to 69%. Key components of the program include full management support, training of O&M staff, and improvements to the distribution system including leakage detection and mapping. 14. Accomplishment of the agreed action plan at appraisal was mixed. More focus has been given to meter reading and billing and collection in the organization. The public relations division has been upgraded and job descriptions for staff were prepared and approved in 1995. The job descriptions are currently subject to review. A personnel appraisal system was introduced in the 1990s and is in regular use. An integrated MIS was set up, but only in 2002. Much of the O&M equipment required at appraisal and noted in the action plan was acquired during the project implementation period. Staff training was provided from 2001 to 2003, much later than indicated at appraisal.

Table A8.1: Kota Bogor PDAM Income Statement (Rp million in current prices)
Actual 1996 1997 18,263 12,831 5,432 30 833 671 181 27 33,447 4,624 19,508 13,667 5,841 30 833 506 207 41 38,501 5,054 Projected 2003 31,708 22,439 9,269 29 1,191 506 346 68 65,787 2,678 Average Growth (%) 19912002 7.1 7.4 6.4 (0.6) 8.9 5.7 6.3 0.5 9.7

42
Appendix 8

Item Operating Data 3 Production ('000 m ) 3 Water Sold ('000 m ) Nonrevenue Water ('000 m3) Nonrevenue Water (%) Average Tariff (Rp/m3) Population Service Area ('000) Population Service ('000) Service Coverage (%) Connections (no.) Incremental Revenues Water Sales Other Revenues Gross Revenues Allowance for Bad Debts Net Revenues Expenditures Operating Expenses Personnel Power Chemicals Maintenance Water Rights Administration Others Subtotal Income Before Depreciation and Interest Depreciation Income from Operations Interest Income Before Other Income Non-Operating Income Taxable Income Income Tax Net Income After Tax a Real Income After Tax Ratios: Working Ratio Operating Ratio
a

1991 14,829 9,767 5,062 34 450 274 166 61 22,731

1992 15,011 10,427 4,584 31 458 265 135 51 24,466 1,735

1993 15,681 11,289 4,392 28 597 267 143 54 25,975 1,509

1994 16,012 11,810 4,202 26 632 267 149 56 27,109 1,134

1995 17,682 12,471 5,211 29 635 648 158 24 28,823 1,714

1998 22,241 14,668 7,573 34 843 506 227 45 41,193 2,692

1999 24,022 16,259 7,763 32 850 506 247 49 44,894 3,701

2000 26,805 18,196 8,609 32 909 506 280 55 52,072 7,178

2001 28,587 19,564 9,023 32 1,101 506 302 60 56,439 4,367

2002 31,444 21,406 10,038 32 1,147 506 324 64 63,109 6,670

4,395 653 5,048 0 5,048

4,776 706 5,482 0 5,482

6,740 843 7,583 0 7,583

7,465 804 8,269 0 8,269

7,918 1,123 9,041 0 9,041

10,687 1,558 12,245 0 12,245

11,382 1,855 13,237 0 13,237

12,359 1,801 14,160 0 14,160

13,820 2,018 15,838 0 15,838

16,534 3,513 20,047 0 20,047

21,531 3,855 25,386 0 25,386

24,546 4,682 29,228 0 29,228

26,719 3,405 30,124 0 30,124

16.9 19.6 17.3 0 17.3

928 454 186 654 0 381 0 2,603

1,314 469 55 652 0 310 0 2,800

1,636 436 79 835 0 495 0 3,481

1,797 532 103 967 0 531 0 3,930

1,928 617 96 1,325 0 568 0 4,534

2,560 682 145 1,107 0 563 0 5,057

2,873 724 171 1,164 0 702 0 5,634

3,078 617 472 1,341 0 585 1 6,094

3,958 166 470 1,107 161 1,039 443 7,344

4,947 425 643 1,248 203 474 1,961 9,901

7,651 613 744 1,041 228 820 2,837 13,928

9,208 1,110 1,036 2,040 278 908 3,734 18,314

12,950 7,046 1,140 823 2,484 0 1,457 0 19,639

23.2 8.5 16.9 10.9 8.2 19.4

2,445 607 1,838 0 1,838 821 2,659 922 1,737 1,992 0.52 0.64

2,682 725 1,957 0 1,957 452 2,409 773 1,636 1,782 0.51 0.64

4,102 799 3,303 0 3,303 456 3,759 1,268 2,491 2,491 0.46 0.56

4,339 827 3,512 0 3,512 434 3,946 1,460 2,486 2,306 0.48 0.58

4,507 1,080 3,427 0 3,427 446 3,881 1,139 2,742 2,316 0.50 0.62

7,188 845 6,343 0 6,343 417 6,760 1,984 4,776 3,711 0.41 0.48

7,603 3,739 3,864 1,106 2,758 342 3,100 942 2,158 1,489 0.43 0.71

8,066 4,104 3,962 3,599 363 199 562 158 404 159 0.43 0.72

8,494 4,387 4,107 3,138 969 174 1,143 333 810 279 0.46 0.74

10,146 4,085 6,061 3,063 2,998 170 3,168 979 2,189 689 0.49 0.70

11,458 4,579 6,879 2,817 4,062 59 4,121 1,176 2,945 837 0.55 0.73

10,914 4,877 6,037 2,673 3,364 135 3,499 1,116 2,383 632 0.63 0.79

10,485 4,877 5,608 2,673 2,935 95 3,029 0 3,029 730 0.65 0.81

14.6 20.9 11.4 5.6 (15.1) 2.5 1.8 2.9

= not available, m3 = cubic meter, no. = number, PDAM = Perusahaan Daerah Air Minum (local water enterprise). 1993 constant prices. Source: PDAM of Kota Bogor.

Table A8.2: Kabupaten Bogor PDAM Income Statement (Rp million in current prices)
Actual 1996 1997 31,567 21,903 9,664 31 897 1,850 327 18 54,583 34,850 22,081 12,769 37 938 1,875 361 19 60,226 Projected 2003 48,032 28,360 19,672 41 1,889 2,376 487 20 82,159 Average Growth (%) 19912002 14.9 13.3 17.4 2.3 10.5 3.6 8.0 4.2 8.0

Item Operating Data 3 Production ('000 m ) 3 Water Sold ('000 m ) Nonrevenue Water ('000 m3) Nonrevenue Water (%) Average Tariff (Rp/m3) Population Service Area ('000) Population Service ('000) Service Coverage (%) Connections (no.) Revenues Water Sales Other Revenues Gross Revenues Allowance for Bad Debts Net Revenues Expenditures Operating Expenses Personnel Power Chemicals Maintenance Water Rights Administration Others Subtotal Income Before Depreciation and Interest Depreciation Income from Operations Interest Income Before Other Income Non-Operating Income Taxable Income Income Tax Net Income After Tax a Real Income After Tax Ratios: Working Ratio Operating Ratio
a

1991 10,722 7,148 3,574 33 531 1,645 203 12 33,912

1992 11,522 7,681 3,841 33 546 1,686 213 13 35,676

1993 12,674 9,546 3,128 25 590 1,772 233 13 38,795

1994 13,868 9,657 4,211 30 778 1,798 302 17 50,261

1995 28,279 20,920 7,359 26 898 1,825 310 17 51,607

1998 37,262 22,770 14,492 39 950 1,900 388 20 64,723

1999 41,256 24,129 17,127 42 1,038 1,925 408 21 67,935

2000 43,132 24,706 18,426 43 1,209 2,339 435 19 72,618

2001 45,369 26,196 19,173 42 1,259 2,370 455 19 75,880

2002 49,205 28,247 20,958 43 1,594 2,431 474 19 78,939

3,795 1,004 4,799 25 4,774

4,197 592 4,789 38 4,751

5,634 758 6,392 63 6,329

7,512 908 8,420 70 8,350

18,795 654 19,449 78 19,371

19,650 1,403 21,053 114 20,939

20,704 2,373 23,077 103 22,974

21,641 2,387 24,028 81 23,947

25,049 1,644 26,693 112 26,581

29,862 2,724 32,586 0 32,586

32,980 3,370 36,350 0 36,350

45,036 3,372 48,408 0 48,408

53,587 3,844 57,431 57,431

25.2 11.6 23.4 (100.0) 23.4

1,090 615 187 269 458 550 777 3,946 828 1,432 (604) 2 (606) 65 (541) 0 (541) (620) 0.82 1.12

1,098 620 188 271 461 555 783 3,976 775 1,466 (691) 2 (693) 364 (329) 3 (332) (361) 0.83 1.14

1,479 887 178 500 567 414 618 4,643 1,686 1,647 39 0 39 431 470 192 278 278 0.73 0.98

1,934 660 158 724 239 718 219 4,652 3,698 1,800 1,898 0 1,898 132 2,030 843 1,187 1,101 0.55 0.77

3,301 1,127 270 1,236 408 1,225 374 7,941 11,430 7,069 4,361 264 4,097 1,061 5,158 1,509 3,649 3,082 0.41 0.77

4,435 1,263 293 1,689 395 1,288 836 10,199 10,740 7,329 3,411 1,371 2,040 1,588 3,628 914 2,714 2,109 0.48 0.83

5,116 1,473 463 1,568 369 1,391 788 11,168 11,806 8,174 3,632 1,585 2,047 1,982 4,029 1,030 2,999 2,070 0.48 0.84

5,388 2,068 1,289 1,673 417 1,711 665 13,211 10,736 9,699 1,037 3,730 (2,693) 3,383 690 0 690 272 0.55 0.95

6,977 2,490 1,413 1,574 358 2,180 639 15,631 10,950 8,707 2,243 2,124 119 1,047 1,166 26 1,140 393 0.59 0.91

8,939 3,190 1,810 2,017 459 2,793 819 20,027 12,559 9,103 3,456 2,537 919 1,723 2,642 589 2,053 646 0.61 0.89

10,766 3,842 2,180 2,429 552 3,364 986 24,119 12,231 9,291 2,940 2,348 592 2,427 3,019 594 2,425 689 0.66 0.92

14,913 5,322 3,020 3,364 765 4,660 1,366 33,411 14,997 11,116 3,881 2,585 1,296 4,151 5,447 1,310 4,137 1,097 0.69 0.92

15,628 5,578 3,165 3,526 802 4,883 1,431 35,013 22,417 12,745 9,672 2,676 6,996 732 7,728 2,319 5,409 1,303 0.61 0.83

26.8 21.7 28.8 25.8 4.8 21.4 5.3 21.4 30.1 20.5 45.9

Appendix 8

43

= not available, m3 = cubic meter, no. = number, PDAM = Perusahaan Daerah Air Minum (local water enterprise). 1993 constant prices. Source: PDAM of Kabupaten Bogor.

Table A8.3: Kota Palembang PDAM Income Statement (Rp million in current prices)
Item Operating Data Production ('000 m3) Water Sold ('000 m3) Nonrevenue Water ('000 m3) Nonrevenue Water (%) Average Tariff (Rp/m3) Population Service Area ('000) Population Service ('000) Service Coverage (%) Connections (no.) Revenues Water Sales Other Revenues Gross Revenues Allowance for Bad Debts Net Revenues Expenditures Operating Expenses Personnel Power Chemicals Maintenance Water Rights Administration Others Production and Distribution General and Administration Subtotal Income Before Depreciation and Interest Depreciation Income from Operations Interest Income Before Other Income Non-Operating Income Taxable Income Income Tax Net Income After Tax Real Income After Taxa Ratios: Working Ratio Operating Ratio
a

44

1991 49,808 30,881 18,927 38 236 1,181 324 27 53,000

1992 50,142 25,992 22,564 45 362 1,232 498 40 58,926

1993 49,196 26,784 21,154 43 362 1,273 509 40 61,019

1994 48,912 27,828 19,565 40 375 1,311 544 41 63,552

1995 50,868 28,680 20,856 41 427 1,352 580 43 68,222

Actual 1996 1997 53,832 29,796 22,609 42 576 1,355 603 45 71,222 54,095 32,136 20,840 39 481 1,397 634 45 74,759

1998 53,819 31,755 21,720 40 436 1,419 655 46 77,015

1999 53,381 32,436 20,564 39 458 1,458 676 46 79,175

2000 50,671 30,089 20,582 41 666 1,493 571 38 80,771

2001 52,677 18,584 34,093 65 1,952 1,529 603 39 83,390

2002 73,501 19,321 54,180 74 1,937 1,566 641 41 84,744

Projected 2003 77,671 24,270 53,401 69 2,002 1,603 681 43 88,978

Average Growth (%) 19912002 3.6 (4.2) 10.0 6.2 21.1 2.6 6.4 3.7 4.4

Appendix 8

7,297 375 7,672 146 7,526

9,403 601 10,004 0 10,004

9,702 69 9,771 0 9,771

10,435 373 10,808 0 10,808

12,257 448 12,705 0 12,705

17,177 763 17,940 0 17,940

15,447 599 16,046 0 16,046

13,831 462 14,294 0 14,294

14,843 386 15,229 0 15,229

20,027 631 20,658 0 20,658

36,269 870 37,139 0 37,139

37,428 2,549 39,978 0 39,978

48,596 5,923 54,519 0 54,519

16.0 19.0 16.2 16.4

175 5,253 3,644 9,071 (1,545) 1,518 (3,063) 862 (3,925) (3,925) 59 (3,984) (4,569) 1.18 1.38 0 5,991 4,340 10,331 (327) 1,549 (1,876) (1,876) 137 (1,739) 0 (1,739) (1,895) 1.03 1.19 0 6,093 4,638 10,731 (960) 1,771 (2,731) (2,731) 118 (2,613) 0 (2,613) (2,613) 1.10 1.28

0 5,829 5,218 11,047 (239) 1,704 (1,943) (1,943) 145 (1,798) 0 (1,798) (1,668) 1.02 1.18

0 8,895 7,172 16,067 (3,362) 2,711 (6,073) (6,073) 253 (5,820) 0 (5,820) (4,916) 1.26 1.48

0 9,400 6,077 15,477 2,463 3,213 (750) (750) 476 (274) 0 (274) (213) 0.86 1.04

0 8,252 8,207 16,459 (413) 3,346 (3,759) (3,759) 366 (3,393) 0 (3,393) (2,342) 1.03 1.23

0 10,766 10,010 20,776 (6,482) 4,294 (10,776) (10,776) 481 (10,295) 0 (10,295) (4,055) 1.45 1.75

0 11,539 12,811 24,349 (9,120) 4,794 (13,914) (13,914) 358 (13,556) 0 (13,556) (4,676) 1.60 1.91 0 12,051 18,877 30,928 (10,270) 2,524 (12,794) 0 (12,794) 85 (12,709) 0 (12,709) (3,999) 1.50 1.62 0 15,521 15,055 30,576 6,563 1,951 4,612 0 4,612 403 5,015 0 5,015 1,424 0.82 0.88 0 17,326 17,977 35,303 4,675 2,100 2,575 0 2,575 570 3,145 0 3,145 834 0.88 0.94 0 23,700 13,348 37,048 17,471 6,574 10,897 0 10,897 1,320 12,217 0 12,217 2,944 0.68 0.80

n/a n/a n/a n/a n/a n/a 11.5 15.6 13.1 3.0 (100.0) (85.4)

PDAM = Perusahaan Daerah Air Minum (local water entreprise). 1993 constant prices. Source: PDAM of Kota Palembang.

Appendix 9

45

ECONOMIC ANALYSIS A. General Assumptions and Methodology

1. The economic analysis was undertaken for the Kampung Improvement Program (KIP) and the drainage components only. The absence of data and detailed assumptions used in the project completion report (PCR) and at appraisal meant that it was not possible to reevaluate the new urban roads and road improvements components. Furthermore, there was insufficient time to undertake the traffic counts and the necessary surveys needed to recompute the economic internal rates of return (EIRRs). 2. Much of the data used for the reestimation was from the PCR and project benefit monitoring evaluation (PBME) report submitted by the Government of Indonesia. This data was validated and added to during the Operations Evaluation Mission (OEM) through field interviews with government officials, local consultants, community leaders, and beneficiaries. All costs were based on those used for the PCR, and amended where more up to date information was available. Revenues, likewise, were based on those available from the PCR, but they were supplemented with additional data made available from the field trips to Bogor and Palembang. 3. The EIRRs were compared to the economic opportunity cost of capital (EOCC), assumed to be 12%. The methodology amended that used previously. Both appraisal and PCR analyses used annual increases in land values throughout the life of the Project as the measure of economic benefits. The OEM considered that taking annual increases in land values was not a true reflection of benefits. Increased land values arising from infrastructure improvements are usually one off and to attribute further increases in subsequent years as a result of the Project was considered inappropriate. In the absence of alternative data, increases in land values were used as the basis for this analysis, but one off increases were determined and these were converted into annual rental streams using a rent to capital value ratio within the towns. 4. The estimated costs and benefits were valued at their economic prices, using the domestic price numeraire in 2003 prices. To convert financial costs to economic costs, the shadow price adjustment factors used were (i) foreign costs, 1.11; (ii) unskilled labor, 0.8; (iii) skilled labor, 1.0; and (iv) local materials, 1.0. These factors were based on those used for similar projects in Indonesia. The economic costs also excluded applicable taxes and duties.1 5. The operation and maintenance (O&M) costs were reassessed, verified, and amended during the OEM. The financial costs were converted into economic costs. In the PCR, the O&M cost for KIP was assumed to be 1% of total capital investment costs annually for 25 years. This was considered to be low and a figure of 3% per annum was adopted in the reestimation. 2 For drainage, an annual figure of 2% of the capital costs was used. The operating life of the project components was reduced from 25 to 20 years, more in line with the nature of the improvements.

1 2

A figure of 10% of the local costs was used. Experience from similar urban projects in Indonesia show that higher percentages are more realistic. Community support for O&M to sustain benefits was variable. In Kabupaten Bogor, there was genuine community ownership, but in Kota Bogor and Kota Palembang, there was resistance toward undertaking maintenance activities and the onus was past to the local government.

46 B.

Appendix 9

Benefit Projections 1. Drainage

6. The formula for projecting benefits for the flood protection and drainage component is as follows: BEN = RTCV x [(LAF x VAL 1) - (LAF x VAL 0)] Total benefits Rent-to-capital-value ratio to annualize the incremental land value increase Land area affected by flooding Land value With the Project Without the Project

Where: BEN = RTCV = LAF = VAL = 1 = 0 =

7. The economic benefit attributed to drainage improvements used at appraisal was increased land valuations as a result of the investments made. This was adopted in a modified form for the reestimation. A reduction in the cost of damage to properties, because of the reduced flooding experienced after the Project, was indicated by the beneficiaries, but in the absence of comparable data, it was not possible to adopt cost savings as a measure of benefit. The appraisal analysis assumed that 25% of beneficiary households would realize a 10% annual increase in land values because of reduced flooding risks. In Bogor, for the PCR reevaluation, benefits were computed using a lower percentage of beneficiary households (15%) and representing only those living in areas with severe flooding. An initial increase of 5% in land values after the Project was used and a 1% annual increase was taken thereafter. In Kota Palembang, the actual increase in land value after the Project, as recorded in the PBME report, ranged from 18% to 75% according to the areas benefited by each drainage subsystem improvement. In the PCR reestimation, only a 5% initial increase in land value was used with a further increase of 1% taken annually thereafter. 8. Annual increases have not been directly used in the reestimation. Instead for Bogor, a one off increase in land values of 16% was used, but this was converted into an annual rental stream using a rent-to-capital-value ratio of 9%. 3 This was applied to 65% 4 of the area served since not all land increased in value as indicated. In Palembang, a one-off increase of 25%, a rent-to-capital-value ratio of 9%, and 65% of the area have been assumed. The one-off increase in land values was phased in accordance with the expenditures and assumed to be realized 1 year after the respective investment. The base land value in 2003 prices was about Rp78,000 per square meter (m 2) in Bogor and Rp55,000 per m2 in Palembang. All assumptions were validated and confirmed by community leaders and residents during the OEM's field visits to the project areas. 2. 9. Kampung Improvement Program

The formula for projecting benefits for the KIP component is as follows: BEN = RTCV x [(LACK x VAL 1) - (LACK x VAL0)]

3 4

A 9% real return on investments, which equates to 15% assuming a forecast inflation rate of 6%. Representing saleable land, net of roads, other circulation, and public open space.

Appendix 9

47

Where: BEN = Total benefits RTCV = Rent-to-capital-value ratio to annualize the incremental land value increase LACK = Land area covered by KIP VAL = Land Value 1 = With the Project 0 = Without the Project 10. Since KIP comprised mainly small-scale projects with components of solid waste, drainage, sanitation, and footpath improvement, the measurable benefit used at appraisal and for the PCR was increases in land values. The appraisal estimated that with improved infrastructure, land values would realize an annual increase of 20%, since disadvantaged kampungs generally exhibit very low land values. For the PCR reestimation, only 20% of the total area improved was used to compute the economic benefits in Kota Bogor. In Kabupaten Bogor, 50% of the area was taken. The area benefited was reduced to include only those kampungs, which were comprehensively improved under the Project. An initial 5% increase in land values was used (compared to PBME reported annualized increase of more than 10%). In Kota Palembang, 80% of the actual land area, an initial 20% increase in land value and 1% increase annually thereafter were used. 11. For Bogor, this PPAR reestimation has taken a one-off increase of about 30%, converted the same into annual rental streams using a rent-to-capital-value ratio of 9%, and has applied this to 50% 5 of the area benefited. In Palembang, a one-off increase of 34%, a rent-tocapital-value ratio of 9% and 90%6 of the area has been taken. The one-off increase in land values was phased in accordance with the actual expenditures incurred and assumed to be realized 1 year after the investment. Base land values in 2003 prices were taken to be 2 Rp50,000, Rp70,000, and Rp 50,000 per m in Kabupaten Bogor, Kotamadya Bogor, and Kotamadya Palembang, respectively. All assumptions were validated and confirmed by community leaders and residents during the OEM's field visits to the project areas. Market Infrastructure Improvement Program (MIIP) economic benefits 7 in Kota Palembang were not included in the analysis, following the approach of the appraisal and PCR. C. Results

12. The results of the reestimation are summarized in Table A9 and are compared with the estimates at appraisal and those verified in the PCR. The computations were based on the achieved targets of the Project8 and actual costs that reflected the changes in outputs. Service area targets for both KIP and drainage components were exceeded. 13. The results of the reestimation of the drainage component indicated higher actual EIRR in Bogor at 29.7% compared with the 24.2% at appraisal because of the expanded area of
5

6 7

To allow for saleable land net of circulation and open space and for the fact that comprehensive upgrading was not implemented in all sites. The higher percentage used for Palembang reflects the more dense development and similar upgrading undertaken within most sites. Identified benefits in the PCR include an increase in market capacity, increase in the number of stalls, improved sanitary conditions, increase in local trading activities, and an increase in retribution from the increase in the number of parking facilities and stalls. The drainage component provided for the improvement of 116.8 kilometers (km) against the 96.5 km (82.1 km of improved drains and 14.4 km of new drainage channels) indicated at appraisal. The KIP area and population served vastly exceeded that established at appraisal. About 880 hectares, 73 sites and 297,000 persons benefited against 436 hectares, 59 sites and 69,000 persons estimated at appraisal.

48

Appendix 9

improvements. The reestimated EIRR is lower than that of the PCR, 37.8%, on account of the different method used to measure benefits. In Kota Palembang, the actual EIRR for drainage was 12.9% compared with the EIRR of 32.3% at appraisal and 34.3% in the PCR. The changing methodology and higher maintenance costs assumed account for the difference. Both EIRRs are above the EOCC. 14. Indirect benefits cited in the PBME report were not considered in the reestimation, which include the cost of damage to roads and other infrastructure, an increased life of the roads as a result of drainage improvement works, improved traffic flow, and decline in waterborne-related diseases. It was not possible to quantify these benefits. 15. In Bogor, KIP covered improvement of roads, footpaths, some drainage, public baths/toilets, public water points, provision of hand carts, and the development of solid waste transfers points. In Kota Palembang, the program also included MIIP for three public markets. 16. In Bogor, the actual EIRR for KIP was 41.2%, which was marginally lower than the 41.6% at appraisal and 63.5% in the PCR. In Kota Palembang, the actual EIRR of 12.1% was lower than the EIRR of 66.4% at appraisal and 53.4% in the PCR. For Bogor, the returns are well above the EOCC, but for Palembang, just above the 12%. In addition to the increase in property rentals, KIP induced improved social and health conditions in communities but these benefits were not quantified since reliable data was not available. The benefits of the MIIP were significant but were not quantified, again because appropriate data was unavailable.

Table A9: Economic Internal Rates of Return (%)


Component Option
Appraisal

Bogor
PCR Actual

Palembang
Appraisal PCR Actual

Flood Control and Drainage Kampung Improvement Program

Base Case

24.2

37.8

29.7

32.3

34.3

12.9

Base Case

41.6

63.5

41.2

66.4

53.4

12.1

PCR = project completion report. Source: Operations Evaluation Mission.

Appendix 10

49

FINANCIAL ANALYSIS A. General Assumptions and Methodology

1. The financial reestimation was undertaken for the water supply components in Bogor and Palembang only. It was not possible to reestimate the solid waste management (SWM) and sanitation components i Kabupaten Bogor, Kotamadya Bogor, and Kotamadya Palembang n since neither the base data nor supporting figures and assumptions used for the evaluation at appraisal and the reevaluation for the project completion report (PCR) was available. This data was not retained by the Asian Development Bank (ADB) and it was impossible to validate the assumptions used. Furthermore, both the solid waste and desludging activities within Palembang and Bogor are subsidized, where the revenues realized are insufficient to cover the operation and maintenance costs (O&M), let alone depreciation. 2. Data used for this financial reestimation was based on the PCR and project benefit monitoring evaluation (PBME) report submitted by the Government of Indonesia (GOI). This was updated, where possible, to include actual figures up to FY2003. The Operations Evaluation Mission (OEM) validated all past financial data with the concerned Perusahaan Daerah Air Minum (PDAMs). Such data was supplemented during the OEM through field interviews with government officials, local consultants, community leaders, and beneficiaries and with reference to published documents. 3. In the absence of the detailed computations and assumptions, the evaluation attempted to follow the methodology adopted at appraisal and for the PCR. However, changes were made to make the methodology more rigorous and match the data that was available locally. Actual financial internal rates of return (FIRRs) were compared with the PCR and appraisal estimates. Costs and revenues were converted to 2003 constant prices, and the FIRRs were compared to the weighted average cost of capital (WACC) computed according to the share of the ADB loan and GOI funding. 1 A 20-year operating life of the investments was assumed for the water supply improvements. Replacement costs, assumed to be 10% of the total investment costs in 2003 prices, were included after 10 years, although such estimates were neither included at appraisal nor in the PCR reestimation. 4. O&M costs for the water supply components were assessed on the basis of actual figures for each PDAM and projected according to assumptions agreed during the OEM. They ranged from between 2% and 5% of the capital costs incurred. B. Revenue Projections

5. Incremental water revenues were computed for the new connections provided under the Project.2 This was different from the PCR where the service area comprised of most of the households and commercial establishments within the PDAM service areas. Water rates were based on the average actual charges per cubic meter for each year up to 2003, and projected thereafter assuming the 2003 rate would remain constant in real terms over the life of the
1

WACC was computed to be between 2.6% and 3.9%, based on the cost of the onlent ADB loan proceeds at 10.5% per annum and the cost of GOI funds over the actual disbursement period of the project component, and the average annual local inflation rate over the same period. Separate estimates were made for each subproject, to account for their different disbursement schedules. For the water supply component, the WACC was 2.8% for PDAM Kabupaten Bogor, and 2.9% for PDAM Kotamadya Bogor and PDAM Palembang. In the case of PDAM Kotamadya Bogor and PDAM Kabupaten Bogor, these were the new connections only of 9,057 and 9,500, respectively. Those for Palembang consisted of the new connections plus 50% of the replacement water meters installed, amounting to 34,249.

50

Appendix 10

investment.3 Revenues were based on the actual and projected water consumption net of nonrevenue water, which was assumed to remain constant at 2003 levels throughout the forecast period. Other revenue was computed on the basis of the actual percentages of water revenues realized to 2003 and projected thereafter as the average percentage achieved over the period 1992 to 2002. Revenue from water sold as a result of reducing nonrevenue water was based upon the reduction that occurred from 1992 to 2000 and computed for 2001 and beyond. For PDAM Kotamadya Bogor, it was 5%, which was applied throughout the evaluation period. For PDAM Palembang and PDAM Bogor Kabupaten, no reduction was experienced and no such revenues were included in the analysis. In Kotamadya Bogor, a further notional 10% increase in water revenues was assumed as a result of the other works completed under the Project, principally the major capacity increases from water intake improvements. Overall, the revenue assumptions are conservative. C.
6.

Results

The results of the financial reestimation are summarized in Table A10, which compares the estimates to those at appraisal and the PCR. The computations were based on the achieved targets of the Project and their actual costs on the achieved targets representing changes in project design and outputs. The reestimation shows that all subprojects yielded lower FIRRs than at appraisal and the PCR. The FIRR for PDAM Kotamadya Bogor was 6.0%, higher than the WACC of 2.9%, and for PDAM Kabupaten it was 8.7% also higher than the WACC of 2.9%. Improved operations, expanded production capacity, and improved management in recent years enhanced sustainability in the longer term. PDAM Kotamadya Palembang had a lower FIRR of 1.9% because of the noncompletion of some components as a result of delayed Kreditanstalt fr Wiederaufbau financing, its high rate of unaccounted-for-water, and its past poor financial performance.
7.

Table A10: Financial Internal Rates of Return (%) Option Kota Bogor Kabupaten Bogor Appraisal PCR Actual Appraisal PCR Actual 8.5 11.6 6.0 10.8 18.5 8.7 Palembang Appraisal PCR Actual 8.9 5.2 1.9

Base Case

PCR = project completion report. Source: Operations Evaluation Mission.

This assumes that equivalent annual increases in revenues will match future inflation. If increases are below inflation, then the returns will be lower.

Appendix 11

51

SOCIOECONOMIC INDICATORS Item Population Kota Palembang Kabupaten Bogor Kota Bogor Average Household Size Kota Palembang Kabupaten Bogor Kota Bogor Number of Households ('000) Kota Palembang Kabupaten Bogor Kota Bogor Households with Pipe or Pump Source (%) Kota Palembang Kabupaten Bogor Kota Bogor Number of Households with Pipe or Pump Source ('000) Kota Palembang Kabupaten Bogor Kota Bogor Households with Sewerage or Septic Tanks (%) Kota Palembang Kabupaten Bogor Kota Bogor Number of Households with Sewerage or Septic Tanks ('000) Kota Palembang Kabupaten Bogor Kota Bogor
a

1993 1,238,153 4,047,375 278,638

1996 1,354,608 4,451,141 286,520

1999a 1,426,335 4,843,590 668,379

2002 1,512,424 3,599,462 891,880

5.20 4.80 5.00

5.00 4.70 4.80

4.60 4.40 4.20

4.70 4.30 4.20

238.11 843.20 55.73

270.92 947.05 59.69

310.07 1100.82 159.14

321.79 837.08 212.35

0.64 0.22 0.75

0.66 0.38 0.73

0.63 0.49 0.34

0.56 0.28 0.49

153.34 183.82 41.96

179.89 359.88 43.69

195.35 539.40 53.63

181.17 236.06 103.20

0.70 0.38 0.59

0.77 0.51 0.39

0.75 0.33 0.69

189.10 357.04 34.98

237.52 561.42 62.06

240.70 277.91 146.31

= not available. The survey data caught up with the administrative expansion of Kota Bogor in 1998. Source: National Socioeconomic Survey, 1993 to 2002.

52

Appendix 12

BENEFICIARY SURVEY: PROJECT SOCIOECONOMIC AND ENVIRONMENTAL IMPACTS


Performance Indicator/ Project Component Kabupaten Bogor Kota Bogor Kota Palembang

Public Health Conditions Improved (Goal) Water Supply 95% of respondents stated that 86% of respondents stated provision of water services helped that overall health conditions improve public health conditions in in their community improved. their community. Two-thirds (66%) of the respondents cited a decline in 50% of respondents reported a the incidence of diseases, decrease in the incidence of particularly waterborne diseases, particularly waterborne diseases, following the diseases; 23% of respondents said Project; 23% reported otherwise. otherwise. 16% and 26% of respondents said 31% of respondents diarrhea and skin disease, complained of incidences of respectively, were common diarrhea before the Project illnesses before the Project. The proportions fell to 3% each among and another 34% reported skin diseases. Both ratios respondents following the Project. declined to 16% each for 94% of respondents said they did diarrhea and skin disease, not experience any waterborne respectively, after the Project. illness in the past 12 months; 3% of respondents reported diarrhea and 11% and 9% of respondents reported mosquito fever and mosquito fever. skin disease, respectively, as illnesses they experienced in the last 12 months. Environmental Conditions Improved (Goal) Urban Roads 52% of respondents stated there 65% of respondents reported were no negative impacts caused an increase in vehicular traffic by project roads in their in the project roads. In communities. On the other hand, addition, a further 15% and 34% of respondents reported air 10% of respondents also and noise pollution following the noted air and noise pollution Project; 8% and 6% of respondents and increased crime, cited increased vehicle traffic and respectively, in the projectother accidents after the Project. influenced areas. Drainage 38% of respondents said their respondents confirmed that community experienced frequent flood levels in projectflooding after raining before the influenced areas did not enter Project. Floods in flood-prone residences before the Project. areas have been caused by However, shallow rain overflow of the river and garbage accumulates in the project clogging drainage. About 31% of roads after raining. Flooding respondents still report flooding in has been caused by rainwater and clogged their areas after the Projectalbeit drainage from garbage. with decreased frequency. Following the Project, there is now no rainwater on the roads after raining. Solid Wastes

50% of respondents stated that overall health conditions in the community improved; 88% of respondents noted no significant illnesses after provision of water supply services; 83% of respondents mentioned colds and headache as the more common illnesses.

42% of respondents reported increased vehicular traffic, leading to further environmental and noise pollution.

The occurrence of floods declined slightly; 81% of respondents stated 12 flooding per year after the Project as compared to 93% of respondents reporting the similar occurrences before the Project. 87% of respondents pointed to increases in the level of the Musi River as the cause of flooding in the area. 80% of respondents remarked that 60% of respondents stated 61% of respondents solid waste management facilities that solid waste management admitted that project and equipment do not fully address facilities and equipment do facilities and equipment the issue of solid waste not fully address the issue of addresses the issue of management and reduced solid waste management and solid waste management hazardous sanitary practices in reduced hazardous sanitary and reduced hazardous their community. practices in their community. sanitary practices in their Only 20% of the respondents community. 30% of respondents reported having felt the project facilities/ no problem with solid waste Solid waste disposal equipment were able to fully disposal before the Project. On the practices improved; 66% of address the problems. other hand, 30% claimed that there total respondents was no proper place for them to confirmed that garbage is 60% of respondents reported dispose solid wastes. Another 40% having no problem with solid regularly picked up by the

Appendix 12 Performance Indicator/ Project Component Kabupaten Bogor of respondents burn and dispose their solid wastes into river. The number of respondents without any problem on solid waste disposalincluding those regularly picked upimproved to 50% after the Project. On the downside, the proportion of respondents who admitted to burning solid wastes and disposing these to rivers reached 50%. Kota Bogor waste disposal before the Project. On the other hand, 40% claimed that there was no proper place for them to dispose solid wastes. This proportion was improved following the Project with only 20% of respondents complaining of problems in disposing solid wastes. A further 30% of respondents still complain of difficulties in solid waste disposal due to the sm temporary disposal containers. The remaining 50% of respondents indicated that there is now a place for disposal and that garbage is regularly picked up.

53

Kota Palembang cleansing agency after the Project. In contrast, before the Project, 61% of respondents reported that garbage was not transported regularly or just a little due to the lack of trucks and other vehicles.

Kampung Improvement Program (KIP)

14% of respondents continue to observe the occurrence of floods in KIP-influenced areas.

Urban Economic Activity Increased Urban Economic Activity Increased (Goal) Urban Roads Nominal land values in road Nominal land values in the 62% of respondents stated influenced areas increased. These road-influenced areas that land values and rentals ranged from Rp3,000 to over increased significantly. Land increased. Land values Rp105,000 per square meter (m 2); values ranged from were estimated at 76% of respondents estimated land Rp20,000100,000 per m 2 Rp10,00020,000 per m 2 values ranged from Rp3,000 to before the Project; 70% of before the Project and Rp49,000 before the Project; respondents estimated land Rp30,00050,000 per m 2 another 10% reported land values values between Rp20,000 after the Project. in the range of Rp50,000100,000. 49,000 per m 2 while 30% While 71% of respondents From the high-end market, 14% reported land values between stated that employment claimed land values were over Rp50,000100,000 per m 2. and income had not risen Rp105,000 in some projectLand values ranged from as a consequence of the influenced areas. The respondents Rp200,000700,000 after the Project, a similar estimated land values were Project ; 70% estimated land percentage of respondents substantially higher at Rp200,000 values between Rp500,000 pointed out an increase in 705,000 after the Project; 67% 700,000 per m 2 after the the availability of public reported land values of Project; the remaining 30% transport, the more Rp200,000490,000 while 29% reported land values at common vehicles used, to estimated land values in the range around Rp200,000499,000 and from the community. of Rp500,000700,000 in their per m 2. area. At the high end, 5% of the 80% of respondents claimed respondents said land values were that the project roads more than Rp705,000 in some stimulated economic activity road-influenced areas. and improved income and employment; 65% said the 76% of respondents claimed that the project roads stimulated roads helped open up new economic activity and improved land for settlement while 35% income and employment in the said it helped increase trading community; 48% said the urban activities in the roadroads helped increase trading influenced areas. activities in the road-influenced areas; 43% said the roads helped open up new land for settlement; another 5% cited ease of access or travel after the Project as a contributing factor to economic activity in the project communities.

54

Appendix 12

Performance Indicator/ Kabupaten Bogor Kota Bogor Kota Palembang Project Component KIP There was a unanimous consensus There was a unanimous 80% of respondents stated among respondents that the KIP consensus among that the KIP component component stimulated economic respondents that the KIP contributed helped activity of the respondents component stimulated stimulate economic activity indicated that KIP contributed to economic activity; 89% of and improve living improved living conditions in their respondents claimed that KIP conditions in the areas. contributed to improved living community. conditions in their areas. Due to improved living conditions, Estimated land values land values reportedly increased increased from before Due to improved living from before project levels of under conditions, land values project levels of Rp10,000 Rp30,000200,000 per m 2 to reportedly increased from 20,000 per m 2 to Rp250,000300,000 per m 2 after Rp30,000300,000 per m 2 Rp40,00060,000 per m 2 the Project; 71% of respondents before the Project to after the Project. Similarly, said land values initially ranged Rp250,000550,000 per m 2 rental rates in the from Rp30,000 to Rp200,000 per after the Project; 94% of the community increased from m 2 before the Project; a further respondents said land value Rp15,00020,000 per 19% estimated before project land initially ranged from month to Rp50,00080,000 values at Rp105,000200,000. Rp30,000200,000 per m 2 per month for a 40 m 2 area. Land values reached Rp250,000 before the Project. Land 300,000 per m 2 after the Project; values reached Rp250,000 48% of respondents estimated land 550,000 per m 2 after the values between under Rp250,000 Project; 50% of respondents and Rp300,000 per m 2. estimated land values between Rp250,000300,000 per m 2; the remaining 50% claimed land values ranged from Rp405,000550,000 per m 2. Some respondents reported vehicle traffic and uncontrolled new housing development as possible cause of concern. Traffic Management Improved (Goal) Urban Roads 8% and 6% of respondents cited increased vehicle traffic and other accidents following the Project. KIP 19% of respondents said traffic increased in KIP-influenced areas. 65% of respondents reported 42% of respondents an increase in vehicular traffic reported increased in the project roads. vehicular traffic.

Water Supply Improved (Purpose) Water Supply 67% of respondents use water from 83% of respondents use 83% of beneficiaries use the Project for drinking; 33% use water from the Project for the water for drinking and the water for washing and drinking and washing; 53%, washing; 61% of gardening; 38% and 30% of 13%, and 3% of respondents respondents use deep well respondents use deep well and also use deep well, bottled as an alternative water bottled water, respectively, as water, and river water, source while 72% use alternative water sources; 40% of respectively, as an alternative alternative water sources to respondents with alternative water water source; 13% of the wash/bathe and garden. sources use the water source for respondents use alternative 78% of respondents said drinking; 42% of respondents use water source for drinking. they have no problems with alternative water sources when 23% of respondents admitted water quality and the level there is no water flow from the local they have no problems with of service albeit 61% of water enterprise (PDAM); the water quality and the level of respondents expressed the remaining 18% of respondents use service by PDAM; a greater need to increase access to alternative water sources for daily 57% of respondents stated water/service coverage of use. they were not satisfied with PDAM and ensure a 24the water quality and level of hour water supply. 40% of respondents stated they have no problems with water quality service. 61% of respondents stated and the level of service by PDAM; 38% of respondents admitted they were not willing to pay 33% of respondents admitted they needing to pay higher tariffs for higher water charges to were not satisfied with the water to sustain and further improve maintain the quality and quality and level of service. water services to their level of service; 78% of

Appendix 12 Performance Indicator/ Project Component Kabupaten Bogor 30% of respondents admitted needing to pay higher tariffs to sustain and improve water services to the community; another 35% of respondents said project communities must work together to sustain and improve water services; 26% of respondents also stated commitment to avoid illegal off take will help improve water service. 43% of respondents reported that the PDAM maintains the project facilities; 23% of respondents said the community maintains the project facilities. 60% of respondents admitted they were willing to pay a higher water charge to maintain the quality and level of service; 25% said otherwise. 23% of respondents reported paying between Rp10,00020,000 for water before the Project while15% admitted paying more than Rp20,000; 40% of respondents reported paying Rp30,000 per month or lower for water services following the Project, 30% reportedly pay Rp31,00050,000 per month while 23% pay over Rp51,000 per month for water services. 65% of respondents found the water supply facilities/equipment well maintained as compared to 20% who think otherwise. Kota Bogor

55

Kota Palembang

community. Another 15% of respondents pay respondents said the project Rp10,00030,000 per communities need to work month for water services. together to sustain and Only 22% of respondents improve water services; 36% found the project facilities of respondents also stated being well-maintained as commitment to avoid illegal compared to 61% who off take will improve water think otherwise. service. 43% of respondents stated that the PDAM should maintain the project facilities; 26% of respondents s aid the community need to maintain the project facilities. 60% of respondents admitted they were willing to pay for higher water charge to maintain the quality and level of service; 29% said otherwise. 17% of respondents reported paying between Rp10,000 20,000 for water before the Project while 3% admitted paying more than Rp20,000; 51% of respondents reported paying Rp30,000 per month or lower for water services following the Project, 23% reportedly pay Rp31,000 50,000 per month while 9% pay over Rp51,000 per month for water services. 63% of respondents found the water supply facilities/ equipment well maintained as compared to only 6% who think otherwise.

Unsanitary Disposal of Human and Solid Waste Reduced (Purpose) Sanitation Around 20% of respondents said quality and design of the sanitation facilities in general met the local community needs; 10% of respondents indicated that quality and design of the facilities fairly met local requirements. On the other hand, 60% cited weaknesses and said the quality and design of the facilities do not meet local needs. Problems with sanitation facilities/equipment from the Project included foul odor, mosquitoes, wild animals, stagnant wastewater, and high wastewater charge; 45% of respondents reported excessively bad odor and mosquito as a key problem. Another 35% complained of

50% of respondents said quality and design of the sanitation facilities and equipment are appropriate to local needs; 31% said otherwise. Dinas Kebersihan dan Keindahan Kota (Cleansing Department) maintains the project facilities/equipment; 50% of respondents s aid they were satisfied with the services of agency but only 31% of respondents felt that the sanitation facilities/equipment are being well maintained.

56

Appendix 12 Kabupaten Bogor Kota Bogor Kota Palembang

Performance Indicator/ Project Component

Solid Wastes

50% of respondents said the maintenance of solid waste management facilities/equipment were inadequate. A further 20% of respondents said maintenance was only fairly adequate. 60% of respondents said DKP and community maintain the solid waste facilities/equipment; 30% of respondents said DKP maintains the project facilities/equipment; 80% of respondents said the Government should initiate sustaining and improving solid waste facilities/equipment by providing more infrastructure.

high wastewater charges. Stagnant wastewater and the presence of sm wild animals were reported by a further 10% of the respondents. 80% of respondents said the sanitation facilities/ equipment are not well maintained. Only 15% rated the facilities/equipment maintenance as fair or better. 20% of respondents called for DKP and the community to maintain the sanitation facilities/equipment while 55% said DKP maintains the facilities/equipment 25% were undecided. 70% of respondents said that DKP should initiate more attention to improve or sustain operations and maintenance; 15% cited the need for cooperation between the Government and the communities to improve and sustain maintenance. 70% of respondents 72% of respondents said considered the quality and quality and design of the design of the solid waste sanitation facilities and facilities and equipment as equipment are appropriate fairly appropriate to local to local needs. Only 18% needs. The remaining 30% said otherwise. found them inadequate. Dinas Kebersihan dan Keindahan Kota (Cleansing 70% of respondents rate operation and maintenance of Agency) maintains the the solid waste project facilities/equipment; facilities/equipment as fair. 61% of respondents felt The balance found the level that the sanitation of maintenance insufficient. facilities/equipment are being well maintained. 70% of respondents said DKP and community 72% said that the cleansing maintains the solid waste agency should do more to facilities/equipment; 30% said prepare the vehicles to DKP must maintain the transport garbage from facilities/ equipment. transfer depot. 40% of respondents said government initiative is needed to improve or sustain the facilities/equipment. A similar 40% said community initiative is necessary to sustain and improve project facilities and service. A further 20% cited the need to improve human resource development within DKP. Majority of the respondents stated that travel time to and from their community was reduced by about 5 minutes (from 20 to30

Road Conditions and Traffic Flow Improved (Purpose) Urban Roads 62% of respondents in general admitted that travel time is now faster than before the Project. 81% of respondents found the quality and design of the project

Respondents were unanim ous in confirming savings in travel time to and from their community; 50% of respondents said travel time

Appendix 12 Performance Indicator/ Project Component Kabupaten Bogor Kota Bogor

57

Kota Palembang

roads appropriate to local needs; before the Project was more minutes before the Project 19% cited weaknesses in design than 10 minutes; 20% of and 2025 minutes after including lack of traffic signs and respondents said travel time the Project) as a footpaths. before the Project was more consequence of the roads than 20 minutes while another component. 71% of respondents found the 30% said it was within 1020 62% of respondents did not project roads are well maintained; minutes. Travel time was 29% found road maintenance as have problems with the substantially reduced with inadequate. quality and design of the only 10% of respondents project roads but 42% of Public transport cost increased; reporting a travel time of 10 respondents reported 85% of respondents said public minutes after the Project. A increased vehicular traffic, transport cost was Rp1,000 and larger 40% of respondents leading to further below per day before the Project; claimed that travel time was environmental and noise 10% reported a transport cost of reduced to within 25 Rp1,005 per day; 57% reported pollution. minutes. transport cost of Rp2,000 and The estimated cost of 50% of respondents did not below per day after the Project, public transport from office have problems with the 14% said transport cost ranged to residence/community quality and design of the from Rp2,005 and Rp4,000; 29% of increased from Rp10,000 respondents reported transport project roads. A further 30% to Rp20,000 per month of respondents complained costs of Rp4,005 and above. before the Project to about the lack of traffic signs Rp50,000100,000 per 38% of respondents travel by foot and footpath. month. and public transport, intra-city public minivans (angkot), 10% The estimated cost of public Dinas Pekerjanan Umum transport from office to travel by angkot, 29% travel by (Public Work Agency) residence/community angkot and self-owned motorcycle, maintains the project increased. Public transport 19% travel by self-owned roads; 71% of respondents cost before the Project was motorcycle and cart, and 5% travel reported that road by self-owned motorcar and public Rp500 to Rp2,000 per day; conditions are not well 60% of respondents transport. maintained and the agency estimated public transport should do regular of the respondents replied that the cost between Rp500 and maintenance especially in Government must maintain the Rp900 per day while 40% project roads; 71% said that the the wet season. claimed transport costs to be Government must take initiative to between Rp1,000 and sustain and improve operation and Rp2,000 per day. After the maintenance; 24% of the Project, 60% of respondents respondents said that cooperation reported public transport cost with the community is needed to at Rp2,0003,900 per day. sustain road maintenance. The remaining 40% said public transport costs was higher at between Rp4,000 and Rp6,000 per day. All of the respondents stated that the project roads are well maintained; 95% of the respondents believe that the Government should take the initiative in sustaining operation and maintenance of the project facilities while the remaining 5% said the community should take the lead; 85% of respondents said the Government should maintain the project roads; 10% and 5% of respondents said the private sector and communities, respectively, must maintain the roads. 35% of respondents travel by foot and angkot. 40% traveled by angkot, 10% travel by public transport and sellfowned motorcycle, and 10% by self-owned motorcycle and

58

Appendix 12 Kabupaten Bogor Kota Bogor car. The remaining 5% travel by foot and motorcycle service (ojeg). Kota Palembang

Performance Indicator/ Project Component

Flooding, particularly in flood-prone areas, decreased.

Roads, footpaths, solid waste management, drainage, and public bath/toilets in selected kampungs improved.

46% of respondents said the Almost respondents admitted drainage facilities did not fully that the drainage facilities and address flooding in their areas; services successfully 54% of respondents noted resolved the flooding in the weaknesses in the quality and project-influenced areas; 80% design of drainage facilities/ said that the drainage equipment, which do not fully meet facilities and services fully local needs. addressed flooding in their areas. The remaining 20% 77% of respondents said said the Project was only able maintenance of the drainage to fairly address flooding. facilities and equipment were not Meanwhile, the respondents adequate; 15% of respondents said stated that the quality and the facilities and equipment were well maintained. design of the drainage facilities were appropriate to 65% of respondents said the local needs. Government/Public Work Agency Dinas Pekerjanan Umum need to maintain the drainage facilities/equipment. On the other (Public Work Agency) maintains the project facilities hand, 20% of respondents stated and equipment. respondents the need for the community to work concluded that the drainage together to sustain the facilities and facilities/ equipment are well equipment. maintained; 60% of 85% of respondents said that the respondents said each Government has to initiate action to community needs to work sustain and improve operation and together to maintain the maintenance; 15% of respondents project facilities and said that cooperation between the equipment; 20% said the Government and community is Public Work Agency should needed to sustain or improve maintain the project facilities operation and maintenance. and equipment. respondents concluded that there should be cooperation between the Government and the community in order to improve or sustain operations and maintenance of the drainage facilities/equipment. 43% of respondents said the 56% of respondents rated the quality and design of the KIP quality and design of the KIP component met the communitys from fair to better in meeting needs. In addition, 10% said the local needs; 44% disagreed. KIP fairly met local community Respondents responded requirements. On the other hand, positively and admitted that 48% said there were weaknesses the solid waste, drainage, and in the KIP design. footpath improvement 76% of respondent said facilities/equipment under KIP maintenance of the solid waste, are well maintained. drainage, sanitation, and footpath There appears to be strong improvement facilities were ownership or commitment by inadequate; 24% remarked the community for sustaining otherwise. and improving project 81% of respondents said nobody facilities and services. has taken direct responsibility to respondents agree that the oversee maintenance of the project communities themselves facilities/equipment;19% of must maintain the KIP respondents remarked that the facilities; 88% of respondents community must be made said that cooperation among responsible for maintenance; the community is needed to improve or sustain operation respondents noted that their respective communities are not and maintenance. Only 6%

Only 50% of respondents stated they believe the drainage facilities and services fully address the problem of flooding; 43% felt otherwise; 68% of respondents concluded that quality and design of the drainage facilities were not appropriate to local needs. Public Work Agency maintains the project roads; 62% of respondents reported the drainage facilities/equipment well maintained albeit the agency should do regular dragger of the drainage channel.

60% of respondents reported that quality and design of the KIP was appropriate and meets local needs. 80% of respondents felt that the solid waste, drainage, and footpath improvement facilities under the KIP are not well maintained; 70% felt the agency in charge with sustaining operations and maintenance should do regular maintenance of the facilities; 60% of respondents think that the community is organized to maintain the facilities.

Appendix 12 Performance Indicator/ Project Component Kabupaten Bogor Kota Bogor

59

Kota Palembang

organized to carry out maintenance said the Government should work. initiate maintenance. However, only 22% of 90% of respondents said that respondents said the cooperation among the community is necessary to sustain or improve communities have been organized to maintain the operation and maintenance. Only facilities; 7% said otherwise. 10% stated that the Government should initiate maintenance 67% of respondents said that activities. the project investments did not result in any problems. 19% of respondents said traffic However, 6% and 11% of increased, 14% said the delman or respondents cited an traditional transport driven by horse increase in vehicle traffic and has disappeared, and 14% still observed occurrence of floods in uncontrolled new development of housing, the project-influenced areas. respectively, as causes for concern from the project investments. Source: Operations Evaluation Mission beneficiary survey.

Management Response on the Project Performance Audit Report (PPAR) on the Bogor and Palembang Urban Development Project (Loan 1111-INO)

On 10 August 2004, the Director General, Operations Evaluation Department, received the following response from the Managing Director General on behalf of Management: Management takes note of the key issues for the future and the lessons identified in the PPAR and will take them into account for the design of similar future ADB projects.