ASIAN DEVELOPMENT BANK PPA: INO 24233 Operations Evaluation Department (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 At Project Completion At Operations Evaluation (August 1991) (August 2000) (November 2003)

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

ABBREVIATIONS ADB − Asian Development Bank BAPPEDA − Regional Development Planning Agency (either provincial [level I] or local [level II]) BAPPENAS − Badan Perencanan Pembangunan Nasional (National Development Planning Agency) BME − benefit monitoring and evaluation DGHS − Directorate General of Human Settlements DK – Dinas Kebersihan (Cleansing Department) EIRR − economic internal rate of return EOCC − economic opportunity cost of capital FIRR − financial internal rate of return IUIDP − Integrated Urban Infrastructure Development Program KfW − Kreditanstalt für Wiederaufbau KIP − Kampung Improvement Program LIDAP − Local Institutional Development Action Plan MCK − mandi-cuci-kakus (bathing-washing-toilet) MIIP − Market Infrastructure Improvement Program MOHA − Ministry of Home Affairs MPW − Ministry of Public Works O&M − operation and maintenance OEM − Operations Evaluation Mission PADS – Local Government Revenue PCR − project completion report PDAM − Perusahaan Daerah Air Minum (local water enterprise) PIU − project implementation unit PMU − project monitoring unit RETA – regional technical assistance RIAP − Revenue Improvement Action Plan TA − technical assistance SLF − sanitary landfill SWM − solid waste management UDP − urban development project UFW − unaccounted-for-water VOC − vehicle operating cost WACC − weighted average cost of capital WTP − water treatment plan

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

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

WEIGHTS AND MEASURES

ha − hectare km − kilometer lps − liter per second

GLOSSARY

Dinas – Service departments within provincial or district

(kota and kabupaten) administrations Kabupaten – Regency, district, administrative subdivision of a

province, predominantly rural in character Kampung – Densely populated, unplanned urban

neighborhood Kecamatan – Subdistrict Kota – Municipality, district, administrative subdivision of

a province, predominantly urban Director General, Operations Evaluation Department : Eisuke Suzuki Director, Operations Evaluation Division 2 : David Edwards Evaluation Team Leader : Anjum Ibrahim

Operations Evaluation Department, PE-644

CONTENTS

Page BASIC DATA iii EXECUTIVE SUMMARY v MAP ix I. BACKGROUND 1 A. Introduction 1 B. Formulation 1 C. Purpose and Output 2 D. Cost, Financing, and Implementation Arrangements 2 E. Completion and Self-Evaluation 3 F. Operations Evaluation 3 II. PLANNING AND IMPLEMENTATION PERFORMANCE 4 A. Formulation and Design 4 B. Achievement of Outputs 4 C. Cost and Scheduling 5 D. Consultant Performance, Procurement, and Construction 6 E. Organization and Management 7 III. ACHIEVEMENT OF PROJECT PURPOSE 7 A. Operational Performance 7 B. Performance of the Operating Entity 10 C. Financial and Economic Reevaluation 12 D. Sustainability 13 IV. ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS 14 A. Socioeconomic Impact 14 B. Environmental Impact 15 C. Impact on Institutions and Policy 16 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.

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V. OVERALL ASSESSMENT 17 A. Relevance 17 B. Efficacy 17 C. Efficiency 17 D. Sustainability 17 E. Institutional Development and Other Impacts 17 F. Overall Project Rating 18 G. Assessment of ADB and Borrower Performance 18 VI. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS 18 A. Key Issues for the Future 18 B. Lessons Identified 19 C. Follow-Up Actions 19 APPENDIXES 1. Structure of Government 20 2. Financing Plan 21 3. Organizational Arrangement for Project Implementation 22 4. Status of Completion of Project Components 23 5. Breakdown of Project Cost 29 6. Implementation Schedule 31 7. Financial Performance of Local Governments 34 8. Financial Performance of PDAMs 39 9. Economic Analysis 45 10. Financial Analysis 49 11. Socioeconomic Indicators 51 12. Beneficiary Survey: Project Socioeconomic and Environmental Impacts 52 SUPPLEMENTARY APPENDIXES (available upon request) A. Revenues and Expenditures of Kota Bogor (current and constant prices) B. Revenues and Expenditures of Kabupaten Bogor (current and constant prices) C. Revenues and Expenditures of Kota Palembang (current and constant prices)

BASIC DATA Loan 1111-INO: Bogor and Palembang Urban Development Project

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

Months Amount ($’000)

Approval Date

1588-INO Urban Transportation Planning and Management 1

ADTA 51 596 31 Oct 1991

As per ADB

Key Project Data ($ million) Loan Documents Actual Total Project Cost 234.7 178.9 Foreign Exchange Cost 82.6 86.6 Local Currency Cost 152.1 92.3 ADB Loan Amount/Utilization 140.0 126.5 ADB Loan Amount/Cancellation — 13.5 Key Dates Expected Actual Fact-Finding 12 Feb–5 Mar 1991 Appraisal 26 Jun–13 Jul 1991 Loan Negotiations 26–27 Sep 1991 Board Approval 31 Oct 1991 Loan Agreement 22 May 1992 Loan Effectiveness 20 Aug 1992 7 Jul 1992 First Disbursement 22 Oct 1992 Project Completion 1 Sep 1997 30 Sep 1999 Loan Closing 30 Sep 1997 7 Apr 2000 Months (effectiveness to completion) 60 87 Economic Internal Bogor Palembang Rate of Return (%) Appraisal PCR PPAR Appraisal PCR PPAR Flood Control and Drainage 24.2 37.8 29.7 32.3 34.3 12.9 Kampung Improvement 41.6 63.5 41.2 66.4 53.4 12.1 New Urban Roads 14.8 14.1 — 21.5 18.1 — Road Improvements 62.9 38.0 — 32.6 26.6 — Financial Internal Kotamadya Bogor Kabupaten Bogor Rate of Return2 (%) Appraisal PCR PPAR Appraisal PCR PPAR Water Supply 8.5 11.6 6.0 10.8 18.5 8.7 Solid Waste 15.6 8.1 — 7.2 7.8 — Waste Water and Sanitation On-siteKota and Kabupaten2 26.4 13.9 — — — — Off-siteKota and Kabupaten3 2.9 — — — — —

Kotamadya Palembang Appraisal PCR PPAR Water Supply 8.9 5.2 1.9 Solid Waste 5.4 7.7 — Wastewater and Sanitation On-sitePalembang2 24.4 8.6 — Off-sitePalembang3 9.7 — —

— = not calculated, ADB = Asian Development Bank, ADTA = advisory technical assistance, PCR = 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.

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Borrower Republic of Indonesia Executing Agency Directorate General of Urban and Rural Development in the Ministry of

Settlements and Regional Development 4 (formerly Directorate General of Human Settlements in the Ministry of Public Works)

Mission Data Type of Mission No. of Missions No. of Person-Days Fact-Finding 1 — Appraisal 1 70 Project Administration 12 276 Review5 10 204 Midterm Review 1 42 Project Completion 1 30 Operations Evaluation 1 36

— = not available. 4 Since 23 August 2000, Cabinet reshuffle the Ministry of Settlements and Regional Infrastructure. 5 Includes one special project implementation review for 4 person-days, undertaken in conjunction with Loan 1069-

INO: Second IKK Water Supply Project.

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 Government’s Integrated Urban Infrastructure Development Program and was consistent with the Fourth 5-Year Plan (1985/86–1989/90). It also supported the Asian Development Bank’s (ADB’s) 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 ADB’s 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 ADB’s 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 million—a 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 part of ADB’s portfolio restructuring response to the Government’s 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 months—up 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 infrastructure—the 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

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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 für 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.

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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. BACKGROUND A. Introduction 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 Plan3 further refined the strategy to encourage borrowing by Perusahaan Daerah Air Minum (PDAMs)—local water enterprises—and 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 TA 1588-INO: Urban Transportation Planning and Management, for $596,000, approved on 31 October 1991. 2 REPELITA IV (1985/86 to 1989/90). 3 REPELITA V (1990/91 to 1994/95). 4 The Ministry of Finance has ruled that direct subloans to PDAMs are no longer possible and the required debt-

service coverage ratio for regional governments has, therefore, increased.

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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 June–July 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 für 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 governments—Denpasar 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 Loan 768-INO: Second Bandung Urban Development Project, for $132.4 million, approved on 12 December 1985. 6 At the time of the Operations Evaluation Mission (OEM), the functions of the Directorate of Urban Roads had

merged with those of the Directorate of Metropolitan Cities. 7 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.

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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 projects—all 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 Project’s 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.

8 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.

9 The PCR used the four-category assessment system.

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II. PLANNING AND IMPLEMENTATION PERFORMANCE A. Formulation and Design 15. The Project was in conformity with ADB’s operational strategy for Indonesia, 1989, which emphasized the need to upgrade facilities, including physical infrastructure, and review policy-related matters, including urban planning, in line with existing needs and the expected growth of the urban population. ADB remains engaged in the urban sector of Indonesia and the country strategy and program (2003–2005) focuses on integrated urban development as a key target area for intervention. The Project was in conformity with the Government’s 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 Government’s 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 have 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 A4.1–A4.3. 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.

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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 Government’s 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, the drainage 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. 44–51) 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%

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in ADB’s 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 million—a 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 ADB’s portfolio restructuring response to the Government’s 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 A6.1–A6.3. 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 ADB’s 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.

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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 departments—and 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. ACHIEVEMENT OF PROJECT PURPOSE A. 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 considerably—an 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.

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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 Bogor—the intake, WTP, and reservoir—are 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 Rehabilitation is under way for Jalan Hisbullah. 14 These were constructed using KfW loan funds. 15 A heavy rainfall and high river level were experienced in Palembang on the day before the OEM site visit. The

amount of rainfall was equivalent to a 20-year flood. Normal rainfall allows the water to be drained within 5 to 6 hours.

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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 trips16 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 improved—a direct result of the Project. KIP project sites in Kabupaten Bogor are now part of Kota Bogor, with the latter’s 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 facilities19 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 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.

17 In Palembang, the city is replacing the steel containers with wooden ones, which has solved the leachate problem. 18 Elevated footpaths in swampy areas. 19 Communal toilet blocks built directly on a septic tank.

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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 1997–98 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 Indonesia—from 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. 60–66) 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 FY1992–1993 to FY1999–2000 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 FY1992–1993 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.

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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 FY1992–199823 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 FY1992–1993 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.

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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.

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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 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. 25 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.

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IV. ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS A. 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 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.

27 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 regularly 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 respondents 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 Palembang30 and in the PDAMs. The results of a questionnaire

28 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. 29 In 2003, areas of the central business district of Kota Palembang confirmed that air pollution is a problem,

including a constant haze indicative of a high level of airborne particles. 30 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 Development–West.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. OVERALL ASSESSMENT A. Relevance 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 Development–West, 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 Project’s 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. Overall Project Rating 78. The Project and the TA are rated successful. G. Assessment of ADB and Borrower Performance 79. ADB’s 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 Borrower’s performance was assessed as satisfactory.

VI. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS A. Key Issues for the Future 81. The Project was complex and covered seven components within three local 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” projects—water 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 long-term 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. Follow-Up Actions 88. A TA to undertake a drainage master plan for Palembang for 2005 maybe considered. 89. There is a need for ADB to remain engaged with the Government to further 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]

Municipality [Kota]

Subdistrict

[Kecamatan] Subdistrict

[Kecamatan]

Village [Kelurahan]

Village

[Desa]

Legend: ------------ Co-administration Decentralization

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

Appendix 2 21

Item

Borrower-Financed 0.0 80.0 80.0 0.0 45.1 45.1 0.0 (34.9) (34.9)% of Change (44%) (44%)

ADB-Financed 74.3 65.7 140.0 82.4 44.1 126.5 10.9 (21.6) (10.7)% of Change (33%) (10%)

KfW-Financed 8.2 6.5 14.7 4.2 3.1 7.3a (4.0) (3.4) (7.4)% of Change (49%) (52%) (50%)

Total 82.6 152.1 234.7 86.6 92.3 171.6 4.0 (59.8) 55.8% of Change 5% 39% 24%

ADB = Asian Development Bank, KfW = Kreditanstalt für Wiederaufbau.aAt 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.

ForeignExchange CurrencyExchange Currency Total

FINANCING PLAN($ million)

Change from AppraisalForeign Local

ActualLocalForeign Local

Appraisal Estimate

Exchange Currency TotalTotal

Kota Palembang

South Sumatra

Palembang

South Sumatra

South Sumatra

LEGEND: Direction Coordination Reporting and Monitoring

22 Appendix 3

ORGANIZATIONAL ARRANGEMENT FOR PROJECT IMPLEMENTATION

Kabupaten Bogor

MOHA BAPPENAS MPW FINANCE

TKPP

DG PUOD

DG BANGDA

IMG

Governor West Java

Mayor PFO PMU PMO

BAPPEDA I

West Java

PFO PMU PMO

BAPPEDA II

Kota Bogor

CPMO

CPFO

DGCK

BUPATI

BINKOT

DGBM

West Java

KANWIL PU

PMOO

PFO

BAPPEDA II

PIU

Cleansing

PIU

Public Works

PIU

PDAM Revenue

Central Government Projects

On-Site Sanitation

Solid Waste

KIP

Drainage

Local

Water Supply

PIU

Cleansing

Solid Waste

On-Site Sanitation

PIU

Public Works

Water Supply

Local Roads

Drainage

PIU

PDAM

Water Supply

Off-Site Sanitation

Revenue

BAPPEDA = Regional Development Planning Board, BAPPENAS = Badan Perencanaan Pembangunan Nasional (National Development Planning 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 (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, PDAM = local water supply enterprise, PIU = project implementation unit, PFO = Program Finance Office, PMO = Program Management Office, PMU = 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

No. Item Unit At Appraisal ActualI. Water Supply

Water Intake Improvement lps 400 to 908 810 100Raw Water Transmission Pipe km 6 6 100Water Transmission Pipe km 6 6 100WTP Construction m3/h 2 x 200 2 x 200 100Reservoir Construction m3/h 12,000 12,000 100Distribution Pipe km 139 139 100House Connection no. 9,500 9,500 100Water Loss Reduction Program % 29% 32% 91

II. Urban RoadsNew Construction km 6 5 82Road Improvement km 2 13 640Bridge Replacement no. — 1 —Procurement of O&M Equipment pkg — 5 —

III. DrainageNew Construction of Main Drain km 1 0 0Improvement and Rehabilitation km 14 12 86Mud Dredging and Cleaning m 750 0 0

IV. SanitationService, Lateral, and Interceptor Sewerage km 4 11 298House Connections no. — 497 —Pilot WW Treatment Plant m3/day 534 436 82Pumping Station no./lps 16 16 100Force Main m3/day 200 108 54Suction Truck no. 2 2 100Trailer no. 2 2 100Pick-up Vehicle no. 2 2 100

V. Solid WasteTrucks no. 20 21 105Container Bin no. — 16 —Loader no. 1 1 100Hand Carts no. 337 349 104Bulldozer no. 1 1 100Final Disposal Sitea ha 25 9 37

VI. KIP/MIIPSites no. 10 14 140 Area ha 80 229 286 Population Servedb no. 6,400 78,991 1,234 Access Road m 875 6,820 779 Footpath m 3,100 9,162 296 Drainage m 6,025 15,434 256 Water Supply no. — 14 —Public Bath/Toilet no. 7 17 243Temporary Disposal Site no. 1 2 200

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.

— = not available, h = hour, ha = hectare, KIP = Kampung Improvement Program, km = kilometer, m = meter, m3 = cubic meter, lps = literper second, MIIP = Market Infrastructure Improvement Program, no. = number, O&M = operation and maintenance, pkg = package, WTP =water treatment plan, WW = wastewater.

PercentageAchieved

STATUS OF COMPLETION OF PROJECT COMPONENTS

Table A4.1: Kota Bogor

24 Appendix 4

No. Item Unit At Appraisal ActualI. Water Supply

Water Intake/Broncaptering Cons. lps 160 210 103Water Transmission Pipe km 28 14 50Reservoir Construction unit 4 6 150Booster Pump unit — 2 —Distribution Pipe km 550 415 75Public Tap no. — 10 —House Connection no. 16,800 9,057 54Break Pressure Plant no. — 1 —

II. Urban RoadsNew Construction km 8 6 82Road Betterment km 6 15 257Dump Truck no. 2 2 100Asphalt Sprayer no. 1 — 0Bulldozer no. — 1 —Excavator no. — 1 —Wheel Loader no. — 1 —Bridge Replacement no. 1 2 200

III. DrainageNew Drainage Channel km 9 — 0Improvement and Rehabilitation km 31 31 100Regulator Gate no. — 1 —

IV. SanitationSeptic Tank no. 1,100 — 0Septic Tank Desludging Trucks no. 5 — 0

V. Solid WasteArm Roll Trucks no. — 4 —Arm Roll Bin no. 10 0 0Bin Container no. — 550 —Dump Truck no. — 12 —Transfer Sites 10 m3 no. 29 — 0Transfer Sites 2 m3 no. 141 — 0Bulldozer no. — 3 —Compactor no. — 16 —Final Disposal Sitea no. 25 2 8Hand Carts no. 361 331 92

VI. KIP/MIIPSites no. 6 8 133Area ha 34 129 379Population Servedb no. 1,800 61,681 3,427Access Road m 700 6,024 861Footpath m 1,500 22,416 1,494Drainage m 1,650 17,073 1,035Water Supply no. — 9 —Public Bath/Toilet no. 12 11 92Solid Waste Transfer Point no. 3 3 100

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 inIndonesia . Manila.

PercentageAchieved

Table A4.2: Kabupaten Bogor

— = not available, ha = hectare, KIP = Kampung Improvement Program, km = kilometer, lps = liter per second, m = meter, m3 = cubic meter, MIIP = MarketInfrastructure Improvement Program, no. = number, O&M = operation and maintenance.

Appendix 4 25

No. Item Unit At Appraisal ActualI. Water Supply

Construction of Intake (KfW loan) no. 2 2 100WTP (KfW loan) no. 2 2 100Procurement of Transmission Main (KfW) km 3 19 633Installation of Transmission Main km 19 19 100Procurement of Distribution Pipes km 123 137 111Installation of Distribution Pipes km 123 90 73Procurement of Material for House Connections no. 68,000 33,000 49Installation of House Connections no. 68,000 20,249 30Procurement of Water Meter no. 38,000 40,000 105Replacement of Water Meter no. 38,000 28,000 74Distribution Center no. 2 2 100Reservoir no. 3 2 67Small Pipe for Block Renovation no. — 68,849 —Procurement of Water Tank Truck and Capsule no. — 37 —Procurement of Distribution Pump pkg — 1 —Procurement of Intake Pump 40 lps for WTP pkg — 1 —

II. Urban RoadsNew Construction km 7.5 30.6 308Road Improvement km 48 171 356Bridge Construction km 2 2 100Bridge Replacement no. 5 4 80Footbridge no. 4 4 100Improvement of Intersection unit 31 11 35

III. DrainageImprovement and Rehabilitation km 35 74 211Retention Pond no. — 9 —Procurement of Equipment unit 1 0 0

IV. SanitationSewers km 3 0 0Pumping Station no./lps 1/21 0 0Force Main no./lps 2.5 0 0Construction of WWTP km 750 0 0New Septic Tank no. 909 0 0Sludge Treatment Plant no. — 1 —Construction of New MCK no. 731 65 8Pickup no. — 4 —Suction Truck no. 3 11 367Trailers no. — 12 —

PercentageAchieved

Table A4.3: Kota Palembang

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

26 Appendix 4

No. Item Unit At Appraisal ActualV. Solid Waste

Waste Bin no. 250 1,314 425Laboratory Tank no. — 2 —Handcart no. 1,200 1,963 164Truck no. 69 129 187Operational Car no. — 8 —Sweeper Car no. — 2 —Container no. 108 409 279Bulldozer no. 4 8 200Loader no. 2 1 50Road Grader no. 1 0 0Excavator no. — 1 —Container Base no. — 242 —Workshop no. — 2 —Transfer Station no. 80 12 15Maintenance Depot no. 1 1 100Final Disposal Site no. 4 2 50

VI. KIP/MIIPSites no. 43 51 119Effective Area ha 436 522 120Population Serveda no. 61,000 155,876 256Access Road m 1,318 11,045 838Footpath m 5,338 63,270 1,185Drainage m 1,160 2,202 20Water Supply no. 3 13 433Public Bath/Toilet no. 12 52 433Handcart no. 4 34 850

a Original estimate was low.Source: Asian Development Bank. 2001. Project Completion Report on the Bogor and Palembang Urban Development Project in

Indonesia . Manila.

PercentageAchieved

Table A4.3: Kota Palembang—Continued

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

Appendix 4 27

Item Unit Kota Kab. Kota Kota Kab. Kota TotalBogor Bogor Palembang Bogor Bogor Palembang

Water SupplyWater Intake/Offtake no. 2 1 2 5 1 1 0 2

lps 674 160 1,200 2,034 810 210 1,200 2,220Treatment Plant lps 400 160 1,200 1,760 400 0 600 1,000Water Transmission Mains km 12 28 31 71 12 14 19 45Reservoirs unit 1 4 3 8 1 6 2 9Storage and Distribution Centers no. 0 0 2 2 0 0 2 2Distribution Pipes km 139 550 123 812 139 415 90 644New Household Connections no. 9,500 16,800 68,000 94,300 9,500 9,057 20,249 38,806Replacement of Water Meters no. 0 0 38,000 38,000 0 0 28,000 28,000Break Pressure Plant no. 0 0 0 0 0 1 0 1Water Loss Reduction % 29 0 29 58 32 — 43 —

Sewerage, WW & Sanitation SystemSewers km 4 0 11 15 11 0 0 11Treatment Plant no./m3pd 1/534 0 1/750 2 1/436 0 1/1750 2Pumping Station no./lps 1/16 0 1/21 1 1/16 0 0 1Force Main no./m 1/200 0 1/2,500 2 1/108 0 0 1Septic Tanks no. 0 1,100 909 2,009 0 0 0 0MCKs no. 0 0 731 731 0 0 65 65Trucks no. 6 5 3 14 6 0 27 33 Suction no. 2 0 3 5 2 0 11 13 Trailer no. 2 0 0 2 2 0 12 14 Pick-Up no. 2 0 0 2 2 0 4 6Septic Tanks Desludging no. 0 5 0 5 0 0 0 0House Connections no. 0 0 0 0 497 0 0 497Sludge Treatment Plant no. 0 0 0 0 0 0 1 1

Solid Waste ManagementHandcarts no. 337 361 1,200 1,898 349 331 1,963 2,643Trucks no. 20 36 69 125 21 16 129 166 Arm Roll Truck no. 0 2 0 2 — 4 — 4 Dump Truck no. 0 0 0 0 — 12 — 12Bulldozer no. 1 0 4 5 1 3 8 12Loaders no. 1 0 2 3 1 0 1 2Road Grader no. 0 0 1 1 0 0 0 0Waste/Arm Roll Bin no. 0 10 250 260 0 0 1,314 1,314Container no. 0 0 108 108 16 550 409 975Final Disposal Site ha 25 0 57 82 9 2 30 41

no. 1 0 4 5 1 1 2 4Transfer Site 10 m3 no. 0 29 0 29 0 0 0 0Transfer Site 2 m3 no. 0 141 80 221 0 0 12 12Maintenance Depot no. 0 0 1 1 0 0 1 1Compactor no. 0 0 0 0 0 16 0 16Operational Car no. 0 0 0 0 0 0 8 8Sweeper Car no. 0 0 0 0 0 0 2 2Container Base no. 0 0 0 0 0 0 242 242Laboratory Tank no. 0 0 0 0 0 0 2 2Workshop no. 0 0 0 0 0 0 2 2Excavator no. 0 0 0 0 0 0 1 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.

Actual

Table A4.4: Consolidation of Project Outputs by Location

Appraisal TargetTotal

28 Appendix 4

Table A4.4: Consolidation of Project Outputs by Location—Continued

Item Unit Kota Kab. Kota Total Kota Kab. Kota TotalBogor Bogor Palembang Bogor Bogor Palembang

Urban RoadsNew Roads km 6 8 8 21 5 6 31 42Road Improvement/Betterment km 2 6 48 56 13 15 171 199Bridge Replacement no. 0 1 5 6 1 2 4 7Bridge Construction no. 0 0 2 2 0 0 2 2Footbridges Constuction no. 0 0 4 4 0 0 4 4Improvement of Intersection no. 0 0 31 31 0 0 11 11O&M Equipment no. 0 0 0 0 5 0 0 5Dump Trucks no. 0 2 0 2 0 2 0 2Asphalt Sprayer no. 0 1 0 1 0 0 0 0

DrainageNew Drainage Channel km 1 14 0 14 0 0 0 0Rehabiliation/Improvement of Existing Drains km 14 33 35 82 12 31 74 117Mud Dredging and Cleaning m 750 0 0 750 0 0 0 0Retention Pond no. 0 0 0 0 0 0 9 9Regulator Gate no. 0 0 0 0 0 1 0 1

Sites no. 10 6 43 59 14 8 51 73Area to be Improved ha 80 34 436 550 229 129 522 880Population Served persons 6,400 1,800 61,000 69,200 78,991 61,681 155,876 296,548Market Infrastructure Improvement no. 0 0 0 0 0 0 3 3Access Road km 1 1 1 3 7 6 11 24Footpath km 3 2 5 10 9 22 63 95Drainage km 6 2 11 19 15 17 2 35Water Supply no. 0 0 3 3 14 9 13 36Public Bath/Toilet no. 7 12 12 31 17 11 52 80Solid Waste Transfer Point no. 1 3 4 8 2 3 34 39

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

Appraisal Target Actual

Kampung Improvement Program

BREAKDOWN OF PROJECT COST

Item

By Cost CategoryLand 0 3,185 3,185 0 2,680 2,680 0 6,740 6,740 0 12,605 12,605Equipment 5,965 5,084 11,049 2,960 7,010 9,970 19,890 20,910 40,800 28,815 33,004 61,819Civil Works 342 5,109 5,451 250 4,530 4,780 9,400 26,252 35,652 9,992 35,891 45,883

0 1,595 1,595 0 850 850 0 1,670 1,670 0 4,115 4,115Taxes and Duties 0 1,665 1,665 0 1,475 1,475 0 7,675 7,675 0 10,815 10,815Design and Supervision 335 806 1,141 178 894 1,072 1,981 3,865 5,846 2,494 5,565 8,059Project Administration 0 760 760 0 250 250 0 930 930 0 1,940 1,940

1,620 1,444 3,064 720 764 1,484 2,070 1,873 3,943 4,410 4,081 8,491Studies 1,090 961 2,051 250 150 400 1,760 1,854 3,614 3,100 2,965 6,065

Total Base Cost 9,352 20,608 29,960 4,358 18,603 22,961 35,101 71,769 106,870 48,811 110,981 159,791

By ComponentWater Supply 5,229 9,081 14,310 1,738 3,780 5,518 10,184 14,999 25,183 17,151 27,861 45,011Wastewater and Sanitation 400 1,037 1,437 137 172 309 953 1,483 2,436 1,490 2,691 4,182Solid Waste Management 369 823 1,192 767 640 1,407 2,565 5,555 8,120 3,701 7,018 10,719Urban Roads 473 5,790 6,264 574 11,959 12,533 14,530 33,531 48,060 15,577 51,280 66,857Urban Drainage 170 368 538 172 705 877 3,040 10,075 13,115 3,382 11,148 14,530KIP/MIIP 0 494 494 0 183 183 0 1,770 1,770 0 2,447 2,447Project Administration 0 760 760 0 250 250 0 930 930 0 1,940 1,940Others 2,710 2,255 4,965 970 914 1,884 3,830 3,427 7,257 7,510 6,596 14,106

Total Base Cost 9,352 20,608 29,960 4,358 18,603 22,961 35,101 71,769 106,870 48,811 110,981 159,791

ContingenciesPhysical Contingency 637 1,488 2,125 288 1,242 1,530 2,516 5,457 7,973 3,440 8,187 11,627Price Contingency 1,107 4,120 5,227 530 3,434 3,964 4,387 15,757 20,144 6,023 23,312 29,335Subtotal 1,744 5,608 7,352 818 4,676 5,494 6,902 21,215 28,117 9,464 31,499 40,963

Total Before Interest During Construction 11,095 26,216 37,312 5,176 23,279 28,455 42,003 92,984 134,987 58,274 142,479 200,753

IDC 6,175 2,125 8,300 4,370 683 5,053 13,739 6,830 20,570 24,284 9,638 33,922

Total Project Cost at Appraisal 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.

ForeignExchange

Local

Institutional Development/ Consulting Services

Incremental Operation and Maintenance

Kota Bogor

ExchangeLocal

Currency Exchange Currency Total

Appendix 5 29

Total Exchange Currency TotalTotalCurrency

Table A5.1: Breakdown of Project Cost (at appraisal)($ '000)

TotalForeign Local

Kota PalembangForeign LocalForeign

Kabupaten Bogor

Item

By Cost CategoryLand 0 724 724 0 1,224 1,224 0 549 549 0 2,497 2,497Equipment and Materials 9,972 373 10,345 4,863 680 5,543 13,350 8,963 22,313 28,185 10,016 38,201Civil Works 2,670 8,266 10,936 4,755 9,412 14,167 17,098 37,435 54,533 24,523 55,113 79,636

0 0 0 0 0 0 0 0 0 0 0 0Taxes and Duties 0 0 0 0 0 0 0 0 0 0 0 0Design and Supervision 108 937 1,045 93 1,351 1,444 1,775 4,356 6,131 1,976 6,644 8,620Project Administration 0 0 0 0 0 0 0 0 0 0 0 0

1,856 2,192 4,048 386 421 807 5,366 5,813 11,179 7,608 8,426 16,034Studies 0 0 0 0 0 0 0 0 0 0 0 0

Total Base Cost 14,606 12,492 27,098 10,097 13,088 23,185 37,589 57,116 94,705 62,292 82,696 144,988

By ComponentWater Supply 7,013 5,472 12,485 2,763 2,920 5,683 17,520 17,805 35,325 27,296 26,197 53,493Wastewater and Sanitation 657 812 1,469 71 42 113 253 357 610 980 1,211 2,191Solid Waste Management 162 1,171 1,333 758 480 1,238 2,250 3,109 5,359 3,170 4,760 7,930Urban Roads 4,721 3,909 8,630 5,909 8,692 14,601 10,045 21,430 31,475 20,674 34,031 54,705Urban Drainage 195 297 492 439 703 1,142 4,835 10,809 15,644 5,468 11,809 17,277KIP/MIIP 143 203 346 157 251 408 1,124 2,052 3,176 1,424 2,506 3,930Project Administration 0 0 0 0 0 0 0 0 0 0 0 0Others 1,716 627 2,343 0 0 0 1,563 1,554 3,117 3,279 2,182 5,461

Total Base Cost 14,606 12,491 27,097 10,097 13,088 23,185 37,589 57,116 94,705 62,292 82,696 144,988

ContingenciesPhysical Contingency 0 0 0 0 0 0 0 0 0 0 0 0Price Contingency 0 0 0 0 0 0 0 0 0 0 0 0Subtotal 0 0 0 0 0 0 0 0 0 0 0 0

Total Before Interest During Construction 14,606 12,491 27,097 10,097 13,088 23,185 37,589 57,116 94,705 62,292 82,695 144,987

IDC 5,694 1,456 7,150 3,936 1,525 5,461 14,654 6,657 21,311 24,284 9,638 33,922

Actual Project Cost 20,300 13,947 34,247 14,033 14,613 28,646 52,243 63,773 116,016 86,576 92,333 178,909

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 1991–1994 and 3.7% per annum

thereafter; for local currency, 10% for 1991, 9% for 1992, and 8% per annum thereafter.4. Actual costs comprise actual disbursements from the Asian Development Bank loan, government counterpart funds, and Kreditanstalt für Wiederaufbau loan.Asian Development Bank. 2001. Project Completion Report on the Bogor and Palembang Urban Development Project in Indonesia . Manila.Source: Operations Evaluation Mission.

30 Appendix 5

Incremental Operation and Maintenance

Institutional Development/Consulting

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

TotalForeign Local

Kota PalembangForeign LocalForeign

Kabupaten BogorKota Bogor

Currency TotalTotal Exchange Currency TotalActual as of 7 April 2000 (Loan Closing Date)

ExchangeLocal

Currency TotalForeign

ExchangeLocal

Currency Exchange

Component I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV

1. Water Supply

2. Wastewater and Sanitation

3. Solid Waste Management

4. Urban Roads

5. Urban Drainage

6. Kampung Improvement Program

7. Studies

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.

1991 1992 1993 1994

IMPLEMENTATION SCHEDULE

1995 1996 19991997 1998

Table A6.1: Kota Bogor

1 2 3 4 5

Appendix 6 31

Component I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV

1. Water Supply

2. Wastewater and Sanitation(not implemented)

3. Solid Waste

4. Urban Roads

5. Drainage

6. Kampung Improvement Program

7. Studies(not implemented)

Source: Government project completion report. March 2000.

19991997 1998

Table A6.2: Kabupaten Bogor

1994 1995 19961991 1992 1993

1 2 3 4 5

32 Appendix 6

Component I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV

1. Water Supply

2. Wastewater and Sanitation

3. Solid Waste

4. Urban Roads

5. Drainage

6. Kampung Improvement Program

7. StudiesMapping urban areas

8. Urban TransportationSemarang and Denpasar(actual data not available)

Note: Revised loan closing date of Kreditanstalt für Wiederaufbau is August 2001.

Source: Report of Kota Palembang as of Project Completion Review Mission 21 August–1 September 2000, and Government project completion report of March 2000.

1991 1992 1993

Table A6.3: Palembang

1994 1995 1996 19991997 1998

1 2 3 4 5

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 taxes2 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 charges3 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 revenues4 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 Loan Agreement for the Bogor and Palembang Urban Development Project between the Asian Development Bank

and the Government of Indonesia, May 1992. 2 Entertainment, business, and advertising taxes. 3 Market, terminal, cleaning, and parking fees. 4 Comprise local government income and share taxes and nontax revenue, including property tax. 5 This comprises local taxes, retribution, enterprise share profit, and other locally raised income, normally referred to

as PADS. 6 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 as a proportion of total income from 51.3% in 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 Local taxes, local retribution, and property taxes, however, showed positive real growth. 8 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 GovernmentsAverage Annual Growth Rate, FY1992/93 to FY1999/00 and FY2000 to FY2003

FY1992/93 to FY 1999/2000 (%) FY2000 to FY2003 (%) FY1992/93 to FY2003 (%)

Category Current At 1993 Current At 1993 Current At 1993 Current At 1993 Current At 1993 Current At 1993 Current At 1993 Current At 1993 Current At 1993Prices Prices Prices Prices Prices Prices Prices Prices Prices Prices Prices Prices Prices Prices Prices Prices Prices Prices

A. Income1.

a. Local Taxes 24.5 5.6 34.7 14.2 17.0 (0.8) 32.2 21.0 32.8 21.5 14.7 4.9 27.2 10.3 31.2 13.8 17.7 2.1b. Local Retribution/

Service Charge 7.1 (9.2) 32.0 11.9 12.4 (4.7) 36.0 24.4 26.1 15.3 33.3 21.9 14.4 (0.8) 27.6 10.7 20.0 4.1c. Local Enterprise

Share Profit (0.8) (15.9) 74.5 48.0 61.4 36.8 14.5 4.7 66.0 51.9 (3.8) (12.0) 2.4 (11.2) — — 44.7 25.5d. Other Income (18.2) (30.7) 57.3 33.4 17.8 (0.1) 93.2 76.7 44.5 32.2 155.8 134.0 3.3 (10.4) 44.9 25.7 44.3 25.2

Subtotal (1) 8.1 (8.4) 35.6 15.0 15.4 (2.2) 35.8 24.3 32.4 21.1 33.3 21.9 15.5 0.2 31.3 13.9 21.9 5.8

2.Property Taxes 37.7 16.7 30.3 10.5 13.1 (4.1) 52.6 39.6 41.1 29.0 58.1 44.7 42.0 23.1 30.9 13.6 27.0 10.2

— — 19.7 1.5 (19.6) (31.9) 261.5 230.7 (100.0) (100.0) 318.6 283.0 — — (100.0) (100.0) 33.0 15.4Subtotal (2) 38.2 17.2 29.0 9.4 10.8 (6.1) 65.9 51.8 37.5 25.8 70.9 56.4 45.9 26.6 28.8 11.7 28.1 11.1

Total Revenues (A) 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

3.Subsidies 35.8 15.2 26.6 7.3 18.8 0.7 81.8 66.4 45.4 33.0 51.0 38.1 47.5 28.0 35.2 17.3 30.6 13.3Grant 16.8 (1.0) 24.6 5.7 4.1 (11.8) 18.7 8.6 (29.1) (35.1) — — 14.6 (0.6) 4.0 (9.8) — —

Subtotal (3) 26.9 7.6 25.9 6.7 14.7 (2.7) 68.6 54.2 33.5 22.2 40.7 28.8 36.7 18.6 29.9 12.7 25.0 8.4

Total Income 22.0 3.4 28.1 8.6 14.3 (3.1) 62.6 48.7 33.8 22.4 43.6 31.3 32.0 14.5 30.0 12.7 25.1 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.

Kota PalembangKabupaten Bogor Kota Palembang Kota Bogor Kabupaten BogorKota BogorKota Bogor Kabupaten Bogor Kota Palembang

Source: Local governments of Kota Bogor, Kabupaten Bogor, and Kota Palembang.

Subsidies and Grant

Other Taxes and Nontax

Local Government Income (PADS) – Routine Revenues

Share Taxes/Nontax

38 Appendix 7

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 PDAM 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 (m3) 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 Loan Agreement for the Bogor and Palembang Urban Development Project between ADB and the Government of

Indonesia, May 1992, Schedule 6. 2 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 m3 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 m3, 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.

Actual ProjectedItem 1998 1999 2000 2001 2002 2003Operating DataProduction ('000 m3) 14,829 15,011 15,681 16,012 17,682 18,263 19,508 22,241 24,022 26,805 28,587 31,444 31,708 7.1Water Sold ('000 m3) 9,767 10,427 11,289 11,810 12,471 12,831 13,667 14,668 16,259 18,196 19,564 21,406 22,439 7.4Nonrevenue Water ('000 m3) 5,062 4,584 4,392 4,202 5,211 5,432 5,841 7,573 7,763 8,609 9,023 10,038 9,269 6.4Nonrevenue Water (%) 34 31 28 26 29 30 30 34 32 32 32 32 29 (0.6)Average Tariff (Rp/m3) 450 458 597 632 635 833 833 843 850 909 1,101 1,147 1,191 8.9Population Service Area ('000) 274 265 267 267 648 671 506 506 506 506 506 506 506 5.7Population Service ('000) 166 135 143 149 158 181 207 227 247 280 302 324 346 6.3Service Coverage (%) 61 51 54 56 24 27 41 45 49 55 60 64 68 0.5Connections (no.) 22,731 24,466 25,975 27,109 28,823 33,447 38,501 41,193 44,894 52,072 56,439 63,109 65,787 9.7Incremental 1,735 1,509 1,134 1,714 4,624 5,054 2,692 3,701 7,178 4,367 6,670 2,678

RevenuesWater Sales 4,395 4,776 6,740 7,465 7,918 10,687 11,382 12,359 13,820 16,534 21,531 24,546 26,719 16.9Other Revenues 653 706 843 804 1,123 1,558 1,855 1,801 2,018 3,513 3,855 4,682 3,405 19.6 Gross Revenues 5,048 5,482 7,583 8,269 9,041 12,245 13,237 14,160 15,838 20,047 25,386 29,228 30,124 17.3 Allowance for Bad Debts 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Net Revenues 5,048 5,482 7,583 8,269 9,041 12,245 13,237 14,160 15,838 20,047 25,386 29,228 30,124 17.3

Expenditures Operating Expenses 12,950 Personnel 928 1,314 1,636 1,797 1,928 2,560 2,873 3,078 3,958 4,947 7,651 9,208 7,046 23.2 Power 454 469 436 532 617 682 724 617 166 425 613 1,110 1,140 8.5 Chemicals 186 55 79 103 96 145 171 472 470 643 744 1,036 823 16.9 Maintenance 654 652 835 967 1,325 1,107 1,164 1,341 1,107 1,248 1,041 2,040 2,484 10.9 Water Rights 0 0 0 0 0 0 0 0 161 203 228 278 0 — Administration 381 310 495 531 568 563 702 585 1,039 474 820 908 1,457 8.2 Others 0 0 0 0 0 0 0 1 443 1,961 2,837 3,734 0 — Subtotal 2,603 2,800 3,481 3,930 4,534 5,057 5,634 6,094 7,344 9,901 13,928 18,314 19,639 19.4

Income Before Depreciation and Interest 2,445 2,682 4,102 4,339 4,507 7,188 7,603 8,066 8,494 10,146 11,458 10,914 10,485 14.6Depreciation 607 725 799 827 1,080 845 3,739 4,104 4,387 4,085 4,579 4,877 4,877 20.9Income from Operations 1,838 1,957 3,303 3,512 3,427 6,343 3,864 3,962 4,107 6,061 6,879 6,037 5,608 11.4Interest 0 0 0 0 0 0 1,106 3,599 3,138 3,063 2,817 2,673 2,673 —Income Before Other Income 1,838 1,957 3,303 3,512 3,427 6,343 2,758 363 969 2,998 4,062 3,364 2,935 5.6Non-Operating Income 821 452 456 434 446 417 342 199 174 170 59 135 95 (15.1)Taxable Income 2,659 2,409 3,759 3,946 3,881 6,760 3,100 562 1,143 3,168 4,121 3,499 3,029 2.5Income Tax 922 773 1,268 1,460 1,139 1,984 942 158 333 979 1,176 1,116 0 1.8Net Income After Tax 1,737 1,636 2,491 2,486 2,742 4,776 2,158 404 810 2,189 2,945 2,383 3,029 2.9Real Income After Taxa 1,992 1,782 2,491 2,306 2,316 3,711 1,489 159 279 689 837 632 730Ratios:Working Ratio 0.52 0.51 0.46 0.48 0.50 0.41 0.43 0.43 0.46 0.49 0.55 0.63 0.65Operating Ratio 0.64 0.64 0.56 0.58 0.62 0.48 0.71 0.72 0.74 0.70 0.73 0.79 0.81

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

Table A8.1: Kota Bogor PDAM Income Statement(Rp million in current prices)

1991 1992 1993 1994 1995 1996 1997Average Growth (%)

1991–2002

42 Appendix 8

Actual ProjectedItem 2003Operating DataProduction ('000 m3) 10,722 11,522 12,674 13,868 28,279 31,567 34,850 37,262 41,256 43,132 45,369 49,205 48,032 14.9Water Sold ('000 m3) 7,148 7,681 9,546 9,657 20,920 21,903 22,081 22,770 24,129 24,706 26,196 28,247 28,360 13.3Nonrevenue Water ('000 m3) 3,574 3,841 3,128 4,211 7,359 9,664 12,769 14,492 17,127 18,426 19,173 20,958 19,672 17.4Nonrevenue Water (%) 33 33 25 30 26 31 37 39 42 43 42 43 41 2.3Average Tariff (Rp/m3) 531 546 590 778 898 897 938 950 1,038 1,209 1,259 1,594 1,889 10.5Population Service Area ('000) 1,645 1,686 1,772 1,798 1,825 1,850 1,875 1,900 1,925 2,339 2,370 2,431 2,376 3.6Population Service ('000) 203 213 233 302 310 327 361 388 408 435 455 474 487 8.0Service Coverage (%) 12 13 13 17 17 18 19 20 21 19 19 19 20 4.2Connections (no.) 33,912 35,676 38,795 50,261 51,607 54,583 60,226 64,723 67,935 72,618 75,880 78,939 82,159 8.0

RevenuesWater Sales 3,795 4,197 5,634 7,512 18,795 19,650 20,704 21,641 25,049 29,862 32,980 45,036 53,587 25.2Other Revenues 1,004 592 758 908 654 1,403 2,373 2,387 1,644 2,724 3,370 3,372 3,844 11.6 Gross Revenues 4,799 4,789 6,392 8,420 19,449 21,053 23,077 24,028 26,693 32,586 36,350 48,408 57,431 23.4 Allowance for Bad Debts 25 38 63 70 78 114 103 81 112 0 0 0 (100.0) Net Revenues 4,774 4,751 6,329 8,350 19,371 20,939 22,974 23,947 26,581 32,586 36,350 48,408 57,431 23.4

Expenditures Operating Expenses Personnel 1,090 1,098 1,479 1,934 3,301 4,435 5,116 5,388 6,977 8,939 10,766 14,913 15,628 26.8 Power 615 620 887 660 1,127 1,263 1,473 2,068 2,490 3,190 3,842 5,322 5,578 21.7 Chemicals 187 188 178 158 270 293 463 1,289 1,413 1,810 2,180 3,020 3,165 28.8 Maintenance 269 271 500 724 1,236 1,689 1,568 1,673 1,574 2,017 2,429 3,364 3,526 25.8 Water Rights 458 461 567 239 408 395 369 417 358 459 552 765 802 4.8 Administration 550 555 414 718 1,225 1,288 1,391 1,711 2,180 2,793 3,364 4,660 4,883 21.4

Others 777 783 618 219 374 836 788 665 639 819 986 1,366 1,431 5.3 Subtotal 3,946 3,976 4,643 4,652 7,941 10,199 11,168 13,211 15,631 20,027 24,119 33,411 35,013 21.4

Income Before Depreciation and Interest 828 775 1,686 3,698 11,430 10,740 11,806 10,736 10,950 12,559 12,231 14,997 22,417 30.1Depreciation 1,432 1,466 1,647 1,800 7,069 7,329 8,174 9,699 8,707 9,103 9,291 11,116 12,745 20.5Income from Operations (604) (691) 39 1,898 4,361 3,411 3,632 1,037 2,243 3,456 2,940 3,881 9,672 —Interest 2 2 0 0 264 1,371 1,585 3,730 2,124 2,537 2,348 2,585 2,676 —Income Before Other Income (606) (693) 39 1,898 4,097 2,040 2,047 (2,693) 119 919 592 1,296 6,996 —Non-Operating Income 65 364 431 132 1,061 1,588 1,982 3,383 1,047 1,723 2,427 4,151 732 45.9Taxable Income (541) (329) 470 2,030 5,158 3,628 4,029 690 1,166 2,642 3,019 5,447 7,728 —Income Tax 0 3 192 843 1,509 914 1,030 0 26 589 594 1,310 2,319 —Net Income After Tax (541) (332) 278 1,187 3,649 2,714 2,999 690 1,140 2,053 2,425 4,137 5,409 —Real Income After Taxa (620) (361) 278 1,101 3,082 2,109 2,070 272 393 646 689 1,097 1,303 —Ratios:Working Ratio 0.82 0.83 0.73 0.55 0.41 0.48 0.48 0.55 0.59 0.61 0.66 0.69 0.61Operating Ratio 1.12 1.14 0.98 0.77 0.77 0.83 0.84 0.95 0.91 0.89 0.92 0.92 0.83— = not available, m3 = cubic meter, no. = number, PDAM = Perusahaan Daerah Air Minum (local water enterprise).a 1993 constant prices.Source: PDAM of Kabupaten Bogor.

Average Growth (%)

Table A8.2: Kabupaten Bogor PDAM Income Statement

1991–200220022001

(Rp million in current prices)

1991 200019931992 199919981997199619951994

Appendix 8 43

Actual ProjectedItem 2003Operating DataProduction ('000 m3) 49,808 50,142 49,196 48,912 50,868 53,832 54,095 53,819 53,381 50,671 52,677 73,501 77,671 3.6Water Sold ('000 m3) 30,881 25,992 26,784 27,828 28,680 29,796 32,136 31,755 32,436 30,089 18,584 19,321 24,270 (4.2)Nonrevenue Water ('000 m3) 18,927 22,564 21,154 19,565 20,856 22,609 20,840 21,720 20,564 20,582 34,093 54,180 53,401 10.0Nonrevenue Water (%) 38 45 43 40 41 42 39 40 39 41 65 74 69 6.2Average Tariff (Rp/m3) 236 362 362 375 427 576 481 436 458 666 1,952 1,937 2,002 21.1Population Service Area ('000) 1,181 1,232 1,273 1,311 1,352 1,355 1,397 1,419 1,458 1,493 1,529 1,566 1,603 2.6Population Service ('000) 324 498 509 544 580 603 634 655 676 571 603 641 681 6.4Service Coverage (%) 27 40 40 41 43 45 45 46 46 38 39 41 43 3.7Connections (no.) 53,000 58,926 61,019 63,552 68,222 71,222 74,759 77,015 79,175 80,771 83,390 84,744 88,978 4.4

RevenuesWater Sales 7,297 9,403 9,702 10,435 12,257 17,177 15,447 13,831 14,843 20,027 36,269 37,428 48,596 16.0Other Revenues 375 601 69 373 448 763 599 462 386 631 870 2,549 5,923 19.0 Gross Revenues 7,672 10,004 9,771 10,808 12,705 17,940 16,046 14,294 15,229 20,658 37,139 39,978 54,519 16.2 Allowance for Bad Debts 146 0 0 0 0 0 0 0 0 0 0 0 0 — Net Revenues 7,526 10,004 9,771 10,808 12,705 17,940 16,046 14,294 15,229 20,658 37,139 39,978 54,519 16.4

Expenditures Operating Expenses Personnel - - - - - - - n/a Power - - - - - - - n/a Chemicals - - - - - - - n/a

Maintenance - - - - - - - - - n/a Water Rights - - - - - n/a Administration - - - - - - - - - n/a Others 175 0 0 0 0 0 0 0 0 0 0 0 0 — Production and Distribution 5,253 5,991 6,093 5,829 8,895 9,400 8,252 10,766 11,539 12,051 15,521 17,326 23,700 11.5 General and Administration 3,644 4,340 4,638 5,218 7,172 6,077 8,207 10,010 12,811 18,877 15,055 17,977 13,348 15.6 Subtotal 9,071 10,331 10,731 11,047 16,067 15,477 16,459 20,776 24,349 30,928 30,576 35,303 37,048 13.1

Income Before Depreciation and Interest (1,545) (327) (960) (239) (3,362) 2,463 (413) (6,482) (9,120) (10,270) 6,563 4,675 17,471 —Depreciation 1,518 1,549 1,771 1,704 2,711 3,213 3,346 4,294 4,794 2,524 1,951 2,100 6,574 3.0Income from Operations (3,063) (1,876) (2,731) (1,943) (6,073) (750) (3,759) (10,776) (13,914) (12,794) 4,612 2,575 10,897 —Interest 862 0 0 0 0 (100.0)Income Before Other Income (3,925) (1,876) (2,731) (1,943) (6,073) (750) (3,759) (10,776) (13,914) (12,794) 4,612 2,575 10,897 —Non-Operating Income 137 118 145 253 476 366 481 358 85 403 570 1,320 —Taxable Income (3,925) (1,739) (2,613) (1,798) (5,820) (274) (3,393) (10,295) (13,556) (12,709) 5,015 3,145 12,217 —Income Tax 59 0 0 0 0 0 0 0 0 0 0 0 0 —Net Income After Tax (3,984) (1,739) (2,613) (1,798) (5,820) (274) (3,393) (10,295) (13,556) (12,709) 5,015 3,145 12,217 —Real Income After Taxa (4,569) (1,895) (2,613) (1,668) (4,916) (213) (2,342) (4,055) (4,676) (3,999) 1,424 834 2,944 (85.4) Ratios:Working Ratio 1.18 1.03 1.10 1.02 1.26 0.86 1.03 1.45 1.60 1.50 0.82 0.88 0.68Operating Ratio 1.38 1.19 1.28 1.18 1.48 1.04 1.23 1.75 1.91 1.62 0.88 0.94 0.80PDAM = Perusahaan Daerah Air Minum (local water entreprise).a 1993 constant prices.Source: PDAM of Kota Palembang.

19931992

(Rp million in current prices)Table A8.3: Kota Palembang PDAM Income Statement

1991 1997199619951994 200119991998 2000Average Growth (%)

1991–20022002

44 Appendix 8

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 A figure of 10% of the local costs was used. 2 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 Appendix 9

B. 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 VAL1) - (LAF x VAL 0)]

Where: BEN = Total benefits RTCV = Rent-to-capital-value ratio to annualize the incremental land value increase LAF = Land area affected by flooding VAL = Land value 1 = With the Project 0 = Without the Project

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 (m2) 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. Kampung Improvement Program

9. The formula for projecting benefits for the KIP component is as follows:

BEN = RTCV x [(LACK x VAL1) - (LACK x VAL0)]

3 A 9% real return on investments, which equates to 15% assuming a forecast inflation rate of 6%. 4 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-to-capital-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 Rp50,000, Rp70,000, and Rp 50,000 per m2 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 benefits7 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 To allow for saleable land net of circulation and open space and for the fact that comprehensive upgrading was not

implemented in all sites. 6 The higher percentage used for Palembang reflects the more dense development and similar upgrading

undertaken within most sites. 7 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.

8 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 Bogor Palembang

Appraisal PCR Actual Appraisal PCR Actual

Flood Control Base Case 24.2 37.8 29.7 32.3 34.3 12.9 and Drainage

Kampung Base Case 41.6 63.5 41.2 66.4 53.4 12.1

Improvement Program

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 in Kabupaten Bogor, Kotamadya Bogor, and Kotamadya Palembang 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.

2 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. Results

6. 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.

7. 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 für Wiederaufbau financing, its high rate of unaccounted-for-water, and its past poor financial performance.

Table A10: Financial Internal Rates of Return (%)

Option Kota Bogor Kabupaten Bogor Palembang Appraisal PCR Actual Appraisal PCR Actual Appraisal PCR Actual Base Case 8.5 11.6 6.0 10.8 18.5 8.7 8.9 5.2 1.9 PCR = project completion report. Source: Operations Evaluation Mission.

3 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

Item 1993 1996 1999a 2002PopulationKota Palembang 1,238,153 1,354,608 1,426,335 1,512,424 Kabupaten Bogor 4,047,375 4,451,141 4,843,590 3,599,462 Kota Bogor 278,638 286,520 668,379 891,880

Average Household SizeKota Palembang 5.20 5.00 4.60 4.70Kabupaten Bogor 4.80 4.70 4.40 4.30Kota Bogor 5.00 4.80 4.20 4.20

Number of Households ('000)Kota Palembang 238.11 270.92 310.07 321.79Kabupaten Bogor 843.20 947.05 1100.82 837.08Kota Bogor 55.73 59.69 159.14 212.35

Households with Pipe or Pump Source (%)Kota Palembang 0.64 0.66 0.63 0.56Kabupaten Bogor 0.22 0.38 0.49 0.28Kota Bogor 0.75 0.73 0.34 0.49

Number of Households with Pipe or Pump Source ('000)Kota Palembang 153.34 179.89 195.35 181.17Kabupaten Bogor 183.82 359.88 539.40 236.06Kota Bogor 41.96 43.69 53.63 103.20

Households with Sewerage or Septic Tanks (%)Kota Palembang — 0.70 0.77 0.75Kabupaten Bogor — 0.38 0.51 0.33Kota Bogor — 0.59 0.39 0.69

Number of Households with Sewerage or Septic Tanks ('000)Kota Palembang — 189.10 237.52 240.70Kabupaten Bogor — 357.04 561.42 277.91Kota Bogor — 34.98 62.06 146.31— = not available.

SOCIOECONOMIC INDICATORS

Source: National Socioeconomic Survey, 1993 to 2002.

a The survey data caught up with the administrative expansion of Kota Bogor in 1998.

Appendix 12 52

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 provision of water services helped improve public health conditions in their community.

• 50% of respondents reported a decrease in the incidence of diseases, particularly waterborne diseases; 23% of respondents said otherwise.

• 16% and 26% of respondents said diarrhea and skin disease, respectively, were common illnesses before the Project. The proportions fell to 3% each among respondents following the Project.

• 94% of respondents said they did not experience any waterborne illness in the past 12 months; 3% of respondents reported diarrhea and mosquito fever.

• 86% of respondents stated that overall health conditions in their community improved. Two-thirds (66%) of the respondents cited a decline in the incidence of diseases, particularly waterborne diseases, following the Project; 23% reported otherwise.

• 31% of respondents complained of incidences of diarrhea before the Project and another 34% reported skin diseases. Both ratios declined to 16% each for diarrhea and skin disease, respectively, after the Project.

• 11% and 9% of respondents reported mosquito fever and skin disease, respectively, as illnesses they experienced in the last 12 months.

• 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.

Environmental Conditions Improved (Goal) Urban Roads • 52% of respondents stated there

were no negative impacts caused by project roads in their communities. On the other hand, 34% of respondents reported air and noise pollution following the Project; 8% and 6% of respondents cited increased vehicle traffic and other accidents after the Project.

• 65% of respondents reported an increase in vehicular traffic in the project roads. In addition, a further 15% and 10% of respondents also noted air and noise pollution and increased crime, respectively, in the project-influenced areas.

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

Drainage • 38% of respondents said their community experienced frequent flooding after raining before the Project. Floods in flood-prone areas have been caused by overflow of the river and garbage clogging drainage. About 31% of respondents still report flooding in their areas after the Projectalbeit with decreased frequency.

• respondents confirmed that flood levels in project-influenced areas did not enter residences before the Project. However, shallow rain accumulates in the project roads after raining. Flooding has been caused by rainwater and clogged drainage from garbage. Following the Project, there is now no rainwater on the roads after raining.

• The occurrence of floods declined slightly; 81% of respondents stated 1–2 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.

Solid Wastes • 80% of respondents remarked that solid waste management facilities and equipment do not fully address the issue of solid waste management and reduced hazardous sanitary practices in their community.

• 30% of respondents reported having no problem with solid waste disposal before the Project. On the other hand, 30% claimed that there was no proper place for them to dispose solid wastes. Another 40%

• 60% of respondents stated that solid waste management facilities and equipment do not fully address the issue of solid waste management and reduced hazardous sanitary practices in their community. Only 20% of the respondents felt the project facilities/ equipment were able to fully address the problems.

• 60% of respondents reported having no problem with solid

• 61% of respondents admitted that project facilities and equipment addresses the issue of solid waste management and reduced hazardous sanitary practices in their community.

• Solid waste disposal practices improved; 66% of total respondents confirmed that garbage is regularly picked up by the

Appendix 12 53

Performance Indicator/ Project Component

Kabupaten Bogor Kota Bogor Kota Palembang

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%.

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.

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-

influenced areas increased. These ranged from Rp3,000 to over Rp105,000 per square meter (m2); 76% of respondents estimated land values ranged from Rp3,000 to Rp49,000 before the Project; another 10% reported land values in the range of Rp50,000–100,000. From the high-end market, 14% claimed land values were over Rp105,000 in some project-influenced areas. The respondents’ estimated land values were substantially higher at Rp200,000–705,000 after the Project; 67% reported land values of Rp200,000–490,000 while 29% estimated land values in the range of Rp500,000–700,000 in their area. At the high end, 5% of the respondents said land values were more than Rp705,000 in some road-influenced areas.

• 76% of respondents claimed that the project roads stimulated economic activity and improved income and employment in the community; 48% said the urban roads helped increase trading 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.

• Nominal land values in the road-influenced areas increased significantly. Land values ranged from Rp20,000–100,000 per m 2 before the Project; 70% of respondents estimated land values between Rp20,000–49,000 per m2 while 30% reported land values between Rp50,000–100,000 per m 2. Land values ranged from Rp200,000–700,000 after the Project ; 70% estimated land values between Rp500,000–700,000 per m 2 after the Project; the remaining 30% reported land values at around Rp200,000–499,000 per m2.

• 80% of respondents claimed that the project roads stimulated economic activity and improved income and employment; 65% said the roads helped open up new land for settlement while 35% said it helped increase trading activities in the road-influenced areas.

• 62% of respondents stated that land values and rentals increased. Land values were estimated at Rp10,000–20,000 per m 2 before the Project and Rp30,000–50,000 per m 2 after the Project.

• While 71% of respondents stated that employment and income had not risen as a consequence of the Project, a similar percentage of respondents pointed out an increase in the availability of public transport, the more common vehicles used, to and from the community.

Appendix 12 54

Performance Indicator/ Project Component

Kabupaten Bogor Kota Bogor Kota Palembang

KIP • There was a unanimous consensus among respondents that the KIP component stimulated economic activity of the respondents indicated that KIP contributed to improved living conditions in their areas.

• Due to improved living conditions, land values reportedly increased from before project levels of under Rp30,000–200,000 per m 2 to Rp250,000–300,000 per m 2 after the Project; 71% of respondents said land values initially ranged from Rp30,000 to Rp200,000 per m2 before the Project; a further 19% estimated before project land values at Rp105,000–200,000. Land values reached Rp250,000–300,000 per m 2 after the Project; 48% of respondents estimated land values between under Rp250,000 and Rp300,000 per m 2.

• There was a unanimous consensus among respondents that the KIP component stimulated economic activity; 89% of respondents claimed that KIP contributed to improved living conditions in their areas.

• Due to improved living conditions, land values reportedly increased from Rp30,000–300,000 per m 2 before the Project to Rp250,000–550,000 per m 2 after the Project; 94% of the respondents said land value initially ranged from Rp30,000–200,000 per m 2 before the Project. Land values reached Rp250,000–550,000 per m 2 after the Project; 50% of respondents estimated land values between Rp250,000–300,000 per m2; the remaining 50% claimed land values ranged from Rp405,000–550,000 per m2.

• Some respondents reported vehicle traffic and uncontrolled new housing development as possible cause of concern.

• 80% of respondents stated that the KIP component contributed helped stimulate economic activity and improve living conditions in the community.

• Estimated land values increased from before project levels of Rp10,000–20,000 per m2 to Rp40,000–60,000 per m 2 after the Project. Similarly, rental rates in the community increased from Rp15,000–20,000 per month to Rp50,000–80,000 per month for a 40 m 2 area.

Traffic Management Improved (Goal) Urban Roads • 8% and 6% of respondents cited

increased vehicle traffic and other accidents following the Project.

• 65% of respondents reported an increase in vehicular traffic in the project roads.

• 42% of respondents reported increased vehicular traffic.

KIP • 19% of respondents said traffic increased in KIP-influenced areas.

Water Supply Improved (Purpose) Water Supply • 67% of respondents use water from

the Project for drinking; 33% use the water for washing and gardening; 38% and 30% of respondents use deep well and bottled water, respectively, as alternative water sources; 40% of respondents with alternative water sources use the water source for drinking; 42% of respondents use alternative water sources when there is no water flow from the local water enterprise (PDAM); the remaining 18% of respondents use alternative water sources for daily use.

• 40% of respondents stated they have no problems with water quality and the level of service by PDAM; 33% of respondents admitted they were not satisfied with the water quality and level of service.

• 83% of respondents use water from the Project for drinking and washing; 53%, 13%, and 3% of respondents also use deep well, bottled water, and river water, respectively, as an alternative water source; 13% of the respondents use alternative water source for drinking.

• 23% of respondents admitted they have no problems with water quality and the level of service by PDAM; a greater 57% of respondents stated they were not satisfied with the water quality and level of service.

• 38% of respondents admitted needing to pay higher tariffs to sustain and further improve water services to their

• 83% of beneficiaries use the water for drinking and washing; 61% of respondents use deep well as an alternative water source while 72% use alternative water sources to wash/bathe and garden.

• 78% of respondents said they have no problems with water quality and the level of service albeit 61% of respondents expressed the need to increase access to water/service coverage of PDAM and ensure a 24-hour water supply.

• 61% of respondents stated they were not willing to pay for higher water charges to maintain the quality and level of service; 78% of

Appendix 12 55

Performance Indicator/ Project Component

Kabupaten Bogor Kota Bogor Kota Palembang

• 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 Rp10,000–20,000 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 Rp31,000–50,000 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.

community. Another 15% of respondents said the project communities need to work together to sustain and improve water services; 36% of respondents also stated commitment to avoid illegal off take will improve water 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.

respondents pay Rp10,000–30,000 per month for water services.

• Only 22% of respondents found the project facilities being well-maintained as compared to 61% 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.

Appendix 12 56

Performance Indicator/ Project Component

Kabupaten Bogor Kota Bogor Kota Palembang

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.

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.

• 70% of respondents considered the quality and design of the solid waste facilities and equipment as fairly appropriate to local needs. The remaining 30% found them inadequate.

• 70% of respondents rate operation and maintenance of the solid waste facilities/equipment as fair. The balance found the level of maintenance insufficient.

• 70% of respondents said DKP and community maintains the solid waste facilities/equipment; 30% said DKP must maintain the facilities/ equipment.

• 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.

• 72% of respondents said quality and design of the sanitation facilities and equipment are appropriate to local needs. Only 18% said otherwise.

• Dinas Kebersihan dan Keindahan Kota (Cleansing Agency) maintains the project facilities/equipment; 61% of respondents felt that the sanitation facilities/equipment are being well maintained.

• 72% said that the cleansing agency should do more to prepare the vehicles to transport garbage from transfer depot.

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

• Majority of the respondents stated that travel time to and from their community was reduced by about 5 minutes (from 20 to30

Appendix 12 57

Performance Indicator/ Project Component

Kabupaten Bogor Kota Bogor Kota Palembang

roads appropriate to local needs; 19% cited weaknesses in design including lack of traffic signs and footpaths.

• 71% of respondents found the project roads are well maintained; 29% found road maintenance as inadequate.

• Public transport cost increased; 85% of respondents said public transport cost was Rp1,000 and below per day before the Project; 10% reported a transport cost of Rp1,005 per day; 57% reported transport cost of Rp2,000 and below per day after the Project, 14% said transport cost ranged from Rp2,005 and Rp4,000; 29% of respondents reported transport costs of Rp4,005 and above.

• 38% of respondents travel by foot and public transport, intra-city public minivans (angkot), 10% travel by angkot, 29% travel by angkot and self-owned motorcycle, 19% travel by self-owned motorcycle and cart, and 5% travel by self-owned motorcar and public transport.

• of the respondents replied that the Government must maintain the project roads; 71% said that the Government must take initiative to sustain and improve operation and maintenance; 24% of the respondents said that cooperation with the community is needed to sustain road maintenance.

before the Project was more than 10 minutes; 20% of respondents said travel time before the Project was more than 20 minutes while another 30% said it was within 10–20 minutes. Travel time was substantially reduced with only 10% of respondents reporting a travel time of 10 minutes after the Project. A larger 40% of respondents claimed that travel time was reduced to within 2–5 minutes.

• 50% of respondents did not have problems with the quality and design of the project roads. A further 30% of respondents complained about the lack of traffic signs and footpath.

• The estimated cost of public transport from office to residence/community increased. Public transport cost before the Project was Rp500 to Rp2,000 per day; 60% of respondents estimated public transport cost between Rp500 and Rp900 per day while 40% claimed transport costs to be between Rp1,000 and Rp2,000 per day. After the Project, 60% of respondents reported public transport cost at Rp2,000–3,900 per day. 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 sellf-owned motorcycle, and 10% by self-owned motorcycle and

minutes before the Project and 20–25 minutes after the Project) as a consequence of the roads component.

• 62% of respondents did not have problems with the quality and design of the project roads but 42% of respondents reported increased vehicular traffic, leading to further environmental and noise pollution.

• The estimated cost of public transport from office to residence/community increased from Rp10,000 to Rp20,000 per month before the Project to Rp50,000–100,000 per month.

• Dinas Pekerjanan Umum (Public Work Agency) maintains the project roads; 71% of respondents reported that road conditions are not well maintained and the agency should do regular maintenance especially in the wet season.

Appendix 12 58

Performance Indicator/ Project Component

Kabupaten Bogor Kota Bogor Kota Palembang

car. The remaining 5% travel by foot and motorcycle service (ojeg).

Flooding, particularly in flood-prone areas, decreased.

• 46% of respondents said the drainage facilities did not fully address flooding in their areas; 54% of respondents noted weaknesses in the quality and design of drainage facilities/ equipment, which do not fully meet local needs.

• 77% of respondents said maintenance of the drainage facilities and equipment were not adequate; 15% of respondents said the facilities and equipment were well maintained.

• 65% of respondents said the Government/Public Work Agency need to maintain the drainage facilities/equipment. On the other hand, 20% of respondents stated the need for the community to work together to sustain the facilities and equipment.

• 85% of respondents said that the Government has to initiate action to sustain and improve operation and maintenance; 15% of respondents said that cooperation between the Government and community is needed to sustain or improve operation and maintenance.

• Almost respondents admitted that the drainage facilities and services successfully resolved the flooding in the project-influenced areas; 80% said that the drainage facilities and services fully addressed flooding in their areas. The remaining 20% said the Project was only able to fairly address flooding. Meanwhile, the respondents stated that the quality and design of the drainage facilities were appropriate to local needs.

• Dinas Pekerjanan Umum (Public Work Agency) maintains the project facilities and equipment. respondents concluded that the drainage facilities/ equipment are well maintained; 60% of respondents said each community needs to work together to maintain the project facilities and equipment; 20% said the Public Work Agency should maintain the project facilities 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.

• 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.

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

• 43% of respondents said the quality and design of the KIP component met the community’s needs. In addition, 10% said the KIP fairly met local community requirements. On the other hand, 48% said there were weaknesses in the KIP design.

• 76% of respondent said maintenance of the solid waste, drainage, sanitation, and footpath improvement facilities were inadequate; 24% remarked otherwise.

• 81% of respondents said nobody has taken direct responsibility to oversee maintenance of the project facilities/equipment;19% of respondents remarked that the community must be made responsible for maintenance; respondents noted that their respective communities are not

• 56% of respondents rated the quality and design of the KIP from fair to better in meeting local needs; 44% disagreed.

• Respondents responded positively and admitted that the solid waste, drainage, and footpath improvement facilities/equipment under KIP are well maintained.

• There appears to be strong ownership or commitment by the community for sustaining and improving project facilities and services. respondents agree that the communities themselves must maintain the KIP facilities; 88% of respondents said that cooperation among the community is needed to improve or sustain operation and maintenance. Only 6%

• 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 59

Performance Indicator/ Project Component

Kabupaten Bogor Kota Bogor Kota Palembang

organized to carry out maintenance work.

• 90% of respondents said that cooperation among the community is necessary to sustain or improve operation and maintenance. Only 10% stated that the Government should initiate maintenance activities.

• 19% of respondents said traffic increased, 14% said the delman or traditional transport driven by horse has disappeared, and 14% still observed occurrence of floods in the project-influenced areas.

said the Government should initiate maintenance. However, only 22% of respondents said the communities have been organized to maintain the facilities; 7% said otherwise.

• 67% of respondents said that the project investments did not result in any problems. However, 6% and 11% of respondents cited an increase in vehicle traffic and uncontrolled new development of housing, 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.”