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@!l~~JQ INDONESIA

INITIAL ENVIRONMENTAL EXAMINATION

PROGRAM/ACTIVITY DATA:

Country Code-SO: Economic Growth

Country: Indonesia

Program: World Bank PIO Grant to PNPM Mandiri Urban Support Fund

Funding Begins: FYIl; Funding Ends: FY13; LOP Amount: $23.7 million

TEE Prepared by:

EG~ date: 7/7/~I( Richard ChenlEGIUSAIDllndonesia

TEE Amendment (YIN) : N Current Date: If 'YES' , Number and Date of Original lEE: N/A

ENVIRONMENTAL ACTION RECOMMENDED: (place X where applicable) Categorical Exclusion: X Positive Determination: [j

Negative Determination: X Deferral: [J

ADDITIONAL ELEMENTS: Place X where applicable) CONDITIONS: X

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SUMMARY OF FINDINGS: This lEE provides the initial threshold determinations for the proposed USAlD contribution to the World Bank PIO Grant to the PNPM (Program Nasional Pemberdayaan Masyarakat Mandiri or National Program on Community Empowerment) Mandiri Urban Support Fund (PNPM Urban).

World Bank PIO Grant to PNPM Urban is recommended for a Categorical Exclusion in accordance with 22 C.F.R.216.2( c) (2)(i) for its activities in education, technical assistance, or training programs, except to the extent such programs include activities directly affecting the environment (such as construction of facilities, etc.); analysis, studies, academic, or research workshops and meeting (22 CFR 216.2(c)(iii» ; for projects in which A.I.D is a minor donor to a multi donor project and there is no potential significant effect upon the environment of the United States, areas outside any nation's jurisdiction or endangered or threatened species or their critical habitat (22 CFR 216.2(c)(2)(iv», for, and for document and information transfer (22 CFR 216.2(c)(2)(v). USAID's $23.7 million contribution is estimated less then 4% of the total PNPM Mandiri Urban trust fund budget ($632.7 million).

Negative Determination with Conditions is recommended under 22 CFR 216.3(a)(2)(iii) for activities that are expected to have impact to the physical environment covering small-scale clean water supply systems, rehabilitation/improvement of village roads, schools, village irrigation, community health service, local markets, and bathing, washing and toilets facilities (MCK). However, significant adverse impacts will are not foreseeable from the implementation of these activities if the mitigation measures outlined in this lEE are used in applying best practices of small­scale construction and rehabilitation/improvement activities. Regional engineers, PNPM coordinators, and village committees are responsible for identifying potential minor impacts and appropriate mitigation measures for each activity. Environmental mitigation, monitoring and evaluation are part of the PNPM Mandiri Urban Program, which includes Government of Indonesia environmental safeguards and procedures developed with the World Bank. These are established procedures canied out by the Integrated Safeguard Data Sheet Appraisal Stage and Project Appraisal Document stage for the PNPM loan to the GOI. There is also a PNPM Urban Field

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Manual for implementing public work, which includes environmental safeguards.

I. BACKGROUND AND ACTIVITY DESCRIPTION

l.lBackground/Fit within PNPM

The earthquake and tsunami of December 26, 2004 devastated Aceh's social, political, and economic systems. More than 125,000 people lost their lives and hundreds of thousands were displaced and unable to return to their communities. Critical infrastructure and services (water supply and sanitation, power, housing, roads and bridges, health and education facilities), local government functions and local economies were all decimated.

Since the disasters occurred, Indonesia has made good progress in reconstruction and recovery of relief efforts to mitigate the impacts of the tsunami and earthquake. However, there is still much left to be done as economic activity in disaster-affected areas are still lacking and poverty continues to rise among the urban poor. The North Sumatran economy is composed of agriculture (23%), industrial (32%), and service sectors (45%). Similar to other developing regions, urbanization is taking place in North Sumatra with nearly half of the total population in urban areas. However, there are indications that job opportunities and job creation in urban areas are limited and not keeping pace with growing job needs. The share of urban employment in total employment is declining in recent years from 41.5% in 2008 to 39.2% in 2010. The unemployment rate in urban areas as of August 2010 (10.8%) is more than two times higher than the rural unemployment rate (5.1 %). Also, while the rural unemployment rate is constantly improving in the last years, the urban unemployment has been stagnating. Consequently, almost half of the total poor population in North Sumatra (46%) lives in urban areas.

Aceh is experiencing the same problems. Around 30% of the total popUlation dwells in urban areas and the share of urban employment compared total employment has not changed much in recent years, staying at approximately 30%. As of August 2010 the unemployment rate in urban areas (9.5%) is higher than the rural unemployment rate (7.9%). About 20% of the total poor population resides in urban areas.

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Tndonesia has made good progress in reducing poverty and improving local governance through a variety of programs particularly within the framework of the PNPM. PNPM Urban was launched in 2006, sterruning from the Urban Poverty Program (UPP). PNPM Urban currently operates in 11,014 Kelurahans in 1,094 Sub-districts. PNPM Urban and PNPM Rural are core programs of the Government oflndonesia's (GOI) national program for community empowerment - Program Nasional Pemberdayaan Masyarakat Mandiri (pNPM Mandiri). The development objective of the National Program for Community Empowerment in Urban Areas Project for Government of Indonesia (GOI) is to ensure that the urban poor in PNPM Urban locations benefit from improved socio-economic and local governance conditions. The project scope includes: (a) provide supplemental block grants to approximately 4,593 existing PNPM-Urban wards to accelerate the implementation of ongoing mid-term village poverty alleviation programs; (b) finance a full community development cycle of PNPM-Urban in about 1,575 additional wards to prepare them to participate in the PNPM beginning in FY09 (GOI FY 2010); (c) incorporate awareness of disaster risk management and emergency preparedness in the community socialization process; and (d) institute enhancements to the revolving funds component to make it more sustainable.

The PNPM urban program has established a strong track record in executing community level programs. To this end, USAlDITndonesia would like to contribute $23.7 million USD through the PNPM Support Facility to PNPM Urban activities in North Sumatra, Aceh, and Nias to continue disaster reconstruction work and poverty reduction.

Activities

The main activities funded under the PIO grant will be to supplement (or adding to) block grants under PNPM Urban. The grant will channel funds through the existing PNPM Urban mechanism to supplement or add to the block grant funding to the provinces of Aceh, North Sumatra, and Nias.

The activities will consist of:

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-Rebuild or improve small-scale infrastructure to accelerate the revitalization of the economy, restoration and improvement of basic servIces (transportation, water sanitation, power, environment, health, and education), and return of people to revived cornmunities. This will include assistance to reconstruct schools, health clinics, municipal buildings, economic infrastructure and markets critical for key industries, trades and livelihoods; secondary roads and bridges; wells and water distribution systems; community level power generation and electrical connections; agricultural and environmental protection infrastructure; and other community-level infrastructure critical for community revival, job creation and livelihood development.

-Restore or improve the management and quality of essential basic services such as health, water and sanitation, education, and environment at the local level.

-Assistance and credit schemes to rebuild shelter and housing in devastated communities to restore livelihoods and facilitate the return of people to their homes, together with technical assistance in community planning, site selection, preparation and reconstruction.

-Technical assistance, training, grants and credit schemes to rebuild livelihoods and economic growth by establishing links to micro and small enterprise finance for working capital and investment purposes.

-Cash-for-work programs to generate short-term employment and income and initiate community level recovery, and other Community based recovery programs.

-Technical assistance, training, and inputs to enhance vocational occupations such as construction, fisheries, agriculture and agribusiness and other manufacturing, trade and business processes, and provide skills to help people return to work.

-Restore or strengthen local governance and government systems, institutions, and functions, based on accountability and citizen participation.

-Technical assistance, training and grants to accelerate the revival of local government functions by providing basic materials for local government and sub-district offices; improving planning and budgeting skills, to ensure

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accountable and transparent management of reconstruction efforts; strengthening the civil service and promoting processes that maXUnIze community and civil society participation in decision-making.

-Technical assistance, training, and grants to accelerate the revival of local parliaments to re-establish legislative functions in setting local policy in support of the reconstruction process; to improve citizen outreach and encourage greater dialogue with communities; and support effective relationships between local legislative and executive institutions.

-Technical assistance, training, and grants to accelerate the revival of local civil society organizations to facilitate community involvement, particularly from women and disadvantaged groups, in the planning, advocacy and implementation of reconstruction initiatives, foster positive discussion between government officials and communities, and civil society advocacy.

-Technical assistance and training to help restore and develop communication and information systems and media to ensure better access to information and communication among affected corrununities, central government and international donors.

-Technical assistance and training to facilitate the restoration and strengthening of justice and legal systems, including election support.

-Technical assistance and support to reinforce the capacity of national, provincial and local governments to plan and undertake reconstruction based on better informed priority setting and decision-making, including community mapping assistance to establish title to land.

-Provide technical advice and assistance to support national and local level strategic planning, implementation of recovery and reconstruction programs, and disaster preparedness.

2. EVALUATION OF ACTIVITIES FOR ENVIRONMENTAL IMPACT POTENTIAL

The activities that are not expected to have an impact on the physical environment include education, technical assistance or training, analyses, studies, academic or research workshops and meetings. USAID's

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complementary monitoring and evaluation activity would have no environmental impact.

The activities that are expected to have an impact to the physical environment include construction for community-based clean water supply, rehabilitation/improvement of village roads, schools, village irrigation, community health service, local markets, bathing, washing and toilets facilities. This includes, inter alia, soil erosion, air pollution caused by construction dust, construction debris and waste including toxic or hazardous materials, noise, increased traffic, and contaminate or deplete sUlface and ground water supplies.

3. RECOMMENDED THRESHOLD DECISION AND MITIGATION ACTIONS

3.1 Recommended lEE Determinations

A Categorical Exclusion is recommended for World Bank PIO Grant to PNPM Urban under 22 C.F.R.216.2( c) (2)(i) for education, technical assistance, or training programs, except to the extent such programs include activities directly affecting the environment (such as construction of facilities, etc.); analysis, studies, academic, or research workshops and meeting (22 CFR 216.2(c)(iii»; for projects in which A.I.D is a minor donor to a multi donor project and there is no potential significant effect upon the environment of the United States, areas outside any nation's jurisdiction or endangered or threatened species or their critical habitat (22 CFR 216.2( c)(2)(iv», and for document and infonmation transfer (22 CFR 216.2(c)(2)(v). USAID's $23.7 million contribution is estimated less than 4% of the total PNPM Urban trust fund budget ($637.2 million).

A Negative Determination with Conditions under the 22 CFR 216.3 (a) (iii) is recommended for small clean water supply, rehabilitation of village roads, community health service, local markets, small scale irrigation and toilets.

When potential adverse impact is identified, the USATD technical office and USAlD implementing partner must ensure that all necessary mitigation measures are followed to abate the negative environmental impacts of such activities. This includes, but not limited to the requirement to adhere to host country environmental or other rules applicable to the proposed activities and to adhere to internationally accepted standards and best practices.

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Activities under the PNPM Urban cover multiple sectors. Specific guidelines and conditions for each sector are found below:

Agriculture and Irrigation http: //www.encapafrica.org/egssaalagyiculture.pdf

Construction http://www.usaid.gov/our work/environment/compiiancelane/ane guidelines/construction ane.pdf

Ecotourism http://www.encapafrica.org/egssaa/ecotourism.pdf

Energy Sources for Development http://wv.'w.usaid.gov/OUf work/environment/compiiance/ane/ane guidelinesiener£y ane.pdf

Fisheries and Aquaculture http://www . usaid.gov/our work/environment/campi iance/ane/ane guidelines/fisheries ane.pdf

Forestry: Including Forest Management, Plantations, and Agroforestry http://www .encapafrica.org/egssaalforestry. pdf

Humanitarian Response Programs and the Environment http://www .usaid. goy/our worklenvironrnentlcompllancelane/ane guidelines/humanitarian ane.pdf

Integrated Pest Management http: //www.encapafrica.org/egssaa/ipm.pdf

Livestock http ://www.usaid.gov/our workienvironment/compiiancelaneiane guidelines/livestock ane.pdf

Solid Waste http ://www.encapafrica.org/egssaa/solidwaste.pdf

Water Supply and Sanitation http: //www .usaid.e:ov/our workienvironment/compl iancelane/ane guidelines/water ane.pdf

Medium and small-scale enterprises guidelines: Introduction - MSEs & the Environment

http: //www.usaid.gov/our workienvironmenticompliance/aneiane guidelines/mse introduction.pdf

Mechanisms for MSEs to Control Environmental Impact

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http://www.usaid.gov/our worklenviromnent/comp! iance/ane/ane guidelines/ruse controlmechanisms.pdf

Institutionalizing Environmental Capacity http://www .usaid. goy/our work/environment/comp! iancelane/ane guidelineslmse institutionalizing. pdf

Sub-Sector Specific Clean Production Briefings http: //www.usaid.gov/our workfenYironmenticompliance/ane/ane guidelines/rose sectorbriefings.pdf

Brick & Tile Production http://www . usaid.gov/our work/environment/compi iance/anelane ouidelineslbrickli Ie. pdf

Food Processing http://www.usaid.gov/our workienvironmenticomptiance/anc/ane guidclineslfoodprocessing.pdf

Leather Processing http://www.usaid.goy/our workienvironmenticompliance/ane/ane guidelines/leather.pdf

Metal Finishing http: //www.usaid.gov/our worklenvironmenticoIDPlianccfane/ane guidelines/metal finishing.pd f

Small-Scale Mining hltp://www.encapafrica.org/egssaa/mining.pdf

WeI Textile Operations http://www . usaid.gov/our workienvironment/compliance/ane/ane guidelines/wettexlile.pdf

Wood Processing and Furniture Making http://www . usaid.gov/our work/envi ronmenticompliance/ane/ane guidelinesfwoodandfumiture.pdf

MSE Annexes http://www . usaid.gov/our work/environment/camp 1 iance! ane/ane guidelines/ruse annexes.pdf

The PNPM environmental procedures established wilh support of the World Bank are deemed to be adequate for the purposes ofUSAlD because of the following:

• PNPM Urban is concerned about preserving the environment ensuring that any negative effect from PNPM Urban activities can be avoided or alleaSI mitigated. PNPM Urban follows official Indonesian Government policy in regard to environmental impact. According to

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the decree of the Minister of Environment No. II of 1994, the types and activities undertaken by PNPM are exempted from formal impact analysis due to very sman scale of investment construction activities supported.

• Approach to controlling environmental impact in PNPM Mandiri: As part of the planning process, a form indicating potential environmental problems is developed Icompleted which is then followed up during and aftcr the implementation by village technical facilitators. Potential impacts include serious problems (unlikely to occur) as well as relatively minor problems that are likely to occur.

• Environmental impact control strategy: The method used to ensure that proper attention is paid to environmental concerns is a combination of a standard check list and a special check list for the environment. For each type of sub project, a technical standard is included in the project manuals and these include consideration of environmental effects. The completion of the environmental form is an obligatory part of the planning process. Each type of project is checked for the various measures that must be performed to avoid or minimize environmental impact.

• Field oversight reviews ofPNPM Urban have not identified significant or recurrent environmental impact. The basic environmental impact potential supported through this project is low. Most of the previous environmental issues originated from failing to follow best civil engineering practices and it is likely that these have been addressed through continued training and supervision of engineering staff providing technical advice. It has been made clear that the national government, the donor and the national consultants place high importance on attention to the environment. All civil works in the PNPM Urban are very small and have mostly negligible negative impact. There is no significant long-term potential impact triggered by this project. Mitigation of these minor negative environmental impacts can be done by ongoing training to facilitators, project monitoring and intensified supervision. The project will continue internalize impact mitigation measures in all stages of project activities in order to minimize negative impact.

• The GOI / Project Implementer are familiar and have the capacity to implement the environmental guidelines as they have managed the implementation of Kecamatan Development Program series and PNPM over the last II years. The National Consultant Team is currently assisting the Project Management Unit (PMU) of the

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Implementing Agency and has experts in environmental management. The project will continue strengthening the capacity of project management staff, consultants and facilitators in environmental and social safeguards.

• No significant environmental safeguards issues are anticipated. PNPM Urban investments are very small and under the Indonesia Environmental Assessment rules, they all fall below the minimum size required for a formal environmental assessment.

3.2 Mitigation, Monitoring and Evaluation

As required by ADS 204.3.4, the AO team will actively monitor ongoing activities for compliance with approved IEE recommendations, and modify or end activities that are not in compliance. If additional activities that are not described in this document are added to this program, an amended environmental examination must be prepared.

The Mission Economic Growth Officer is responsible for ensuring that the environmental requirements set forth herein are met, especially the conditions required under the Negative Determination. This includes ensuring that both World Bank and implementing partners for PNPM Mandiri Urban adhere to the requirements outlined herein. The manual and other environmental guidelines produced by the PNPM Urban will be used as references for the independent monitoring and evaluation activity that USAID is funding.

As deemed necessary, s/he is responsible for initiating an lEE Amendment if it is determined that changes are warranted. The Mission Environmental Officer will conduct spot checks to ensure that conditions in the lEE are met and to ensure that all activities are implemented in an environmentally sound and sustainable manner in full accordance with all salient Agency and USG policies and regulations and this lEE.

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APPROVAL OF ENVIRONMENTAL ACTION RECOMMENDED PIO Grant to PNPM Mandiri Urban

MISSION ENVIRONMENTAL OFFICER CLEARANCE: ,

MEO: tr"'"\ Trigeany Linggoatmodjo

date

USAIDITndonesia - Mission Environment Officer

ADDITIONAL CLEARANCE:

EG:~~~ rian Dusza

USAIDlTndonesia - Acting Director of EG Office

ENV: ~~date \' ( . • ') )0U A ed Nakatsuma ~ ( USAlD/lndonesia - Director of Environment

RLA tfdf: Ritu Tanyal

date -::f-pl I I USAIDITndonesia - Regional Legal Advisor

DDlR~ date --4{-s/( ( us:on::r:esia - Acting Deputy Mission Director

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DECISION OF USAIDIINDONESIA MISSION DIRECTOR:

PIO Grant trM Mandiri Urban 1

DIR: ~ date , II J-- ~ Walter North USAIDfIndonesia - Mission Director

Approved: to I

Disapproved:

DECISION OF THE At'liE BUREAU ENVIRONMENTAL OFFICER:

ANE K61 d:/J;h/4ldate ')//f If( Robert Macleod / ASIAIME Bureau Environmental Officer

Approved: % Disapproved: [J

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