Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 6598-IND

STAFF APPRAISAL REPORT

INDONESIA

URBAN SECTOR LOAN

April 23, 1987

UIrban and Water Supply Division

East Asia and Pacific Projects Department

This document has a restricted distribution and may be used be recipients only in the performance oftheir official duties. Its contents mnay not otherwise be disclosed with ut World Bank authorization.

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CURRENCY EQUIVALENTS(As of April 1987)

Currency unit - Rupiah (Rp)US$1.0 - Ro 1,650Rp 1,000 - US$0.61Rp 1 million - US$606

GOVERNi,ENT OF INDONESIA FISCAL YEAR

April 1 - March 31

UNITS AND MEASURES

1 meter (m) - 39.37 inches1 kilometer (km) - 0.62 miles1 hectare (ha) - 2.47 acres

PRINCIPAL ABBREVIATIONS AND ACRONYMS USED

BAPPENAS - National Developmen' Planning AgencyDGBangda - Directorate General Bangunan Daerah (Regional Develop-

ment), Ministry of Home AffairsDGBM - Directorate General Bina Marga (Roads), Ministry of

Public WorksDGBudget - Directorate General Angaraan (Budget), Ministry of FinanceDGCK - Directorate General Cipta Karya (Human Settlements),

Ministry of Public WorksDGMDN - Directorate General Moneter Dalam Negeri (Domestic

Monetary Affairs), Ministry of FinanceDGMLN = Directorate General Moneter Luar Ne-eri (External

Monetary Affairs), Ministry of FinanceDGPajak - Directorate General Taxation, Ministry of FinanceDGPUOD - Directorate General Permerintah Umum Otonomi

Daerah (Local Administration), Ministry of Home AffairsDGWRD = Directorate General Water Resources Development,

Ministry of Public WorksDIP = Daftar Islan Proyek (development budget allocation)GOI - Government of IndonesiaINPRES - Instruksi Presider. (central-local grant by presidential

instuc,ion)IUIDP - Integrated Urban Infrastructure Development ProgramKIP - Kampung (urban community) Improvement ProgramMHA - Ministry of Home AffairsMOF - Ministry of FinanceMPW = Mlinistry of Public WorksOEM - Operations and maintenancePBB - Pajak Bumi dan Bangunan (property tax)PCU = Project Coordination UnitPDN = Pinjaman Dalam Negeri (domestic loans)RGLF = Regional Government Loan FundSOE = Statement of expenditureTK = Inter-ministerial Coordinating Committee for Urban

Development (Tim Koordinasi)

FOR OmICIAL tI ONLY

INDONESIA

URBAN SECTOR LOAN

Table of ContentsPage No.

LOAN AND PROJECT SUMMARY ................................ i

I. THE URBAN INFRASTRUCTURE SECTOR .............................. 1Urban Services Demand ................. 1......................Urban Services Supply and Financing .... . .................... 2Sector Development .................. ,.,.,.,, 4Bank Experience and Strategy ................................. 6

II. THE PROJECT ................ ,... 7Origin ...................... 7Rationale for Bank Involvement .Goals and Objectives ..............................,.,,., 7Project Description ................... , .,. 8The Expenditure Program ..............................,, 8Action Plan Support ...................' .......,,,,,...... 10Technical Assistance ..... 14Cost Estimates ............................................... , 4Fi:lancing Plan ............................ , . , . .... 15Implementation Arrangements .................................. 16

III. JUSTIFICATION AND RISKS .20

IV. AGREEMENTS TO BE REACHED AND RECOMMENDATION . 21Recommendation .22

ANNEXES1. GOI Statement of Policies for brban Development and Action Plan 232. Urban Expendituies 1979-89 ...............................,.,. 353. Technica'2 Assistance and Training Summary .634. PBB Improvement Program .755. Water Enterprise Cost Recovery and Management .916. Local Taxes and Charges ......... . ........................... 977. Regional Development Account ......................... ....... 1018. Central-Local Grants ......................................... .059. Local Gover.mrent Information Systems . 10910. Platning and Programming ..................................... 11511. Local Government Manpower DevelopmenL .13512. Urbsn Development Training Component .... . ................... 14513. Expenditure Program Funding ................................. 16114. Disbursement Arrangements .................................... 16715. Documents Retained in Project File ............ .............. 183

This report is based on the findings and recommendations of an appraisalmission to Jakarta in November 1986. Mission members included IBRD staffPaul R. Stott (leader), Bradley 0. Babson, Jaime Biderinan, Steen L. Jorgen-sen, David G. Williams, and consultants Dietrich Lerche and Murray Mander.Substantial contributions to the appraisal were also made by IBRD staff ofWUD, LOAAS, AEADR, AEPED and AEPUW as noted in the respective Annexes.

This document has a restricted distribution and may be used by recipients only in the performanceof their omcial duties. Its contents may not otherwise be disclosed without World Bank authorization.

INDONESIA

URBAN SECTOR LOAN

Loan and Prolect Summary

Borrower: R'public of Indonesia

Amount: US$270 million equivalent

Terms: Repayable in 20 years i:icluding 5 years of grace atthe standard variable interest rate,

ProjectDescription: The project consists of two principal parts (a) a two-year

time slice (GOI FY87/88 and 88/89) of the Government ofIndonesia's (GOI) entire urban infrastructure expenditureprogram, and (b) a program of institutional reforms andimprovements in local resource mobilization, sector plan-ning and financing arrangements, and sector manpowerdevelopment in accordance with an agreed Statement ofPolicies for Urban Development and Action Plan. The agreedexpenditure program, estimated to total about US$960 mil-lion, is composed of investment and rehabilitation (80%),as well as operations and maintenance (20%) expenditures,and includes high priority investment and recurrent expen-ditures in water supply, drainage, flood protection, sani-tation, roads, and slum upgrading in urbanized areas ofabout 300 local governments nationwide, some of which arealready funded in part through ongoing commitments byexternal donors including the Bank.

The project would support a substantial accelerationof significant sector reforms already initiated by GOI.These reforms are reflected in the Government's Statementof Policies and aim at developing local government capabi-lities, reducir.g Central Government's share of urban in-frastructure financing by increasing local resource mobi-lization, and increasing efficiency by improving resourceutilization. Specific measures would be taken during theproject period, as part of a GOI Action Plan, to: (a)improve property tax and local revenue generation, (tb)introduce an improved source of loan funds for local gover-nments, (c) strengthen urban expenditure planning, prog-ramming and coordination and (d) prepare an urban sectorinstitution and manpower development plan. Technicalassistance and training would be provided to support theAction Plan and assist in project management.

Risks: The principal risks are that: (a) the expenditure programmay be implemented more slowly than expected; and (b)some of the short-term measures included in the ActionPlan may be prDlonged by the difficulties of policy andinstitutional change. The expenditure program has beenreviewed with particular reference to the absorptive

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capacity of the various implementing agencies in order tominimize the risk of delay. Besides, project progresswould be reviewed thoroughly at mid-term to assess firstyear performance and confirm the second year expenditurepro.tam. Progress in implementing the Action Plan wouldbe Lacilitated by consultant assistan e and monitoredclosely. GOI has established an adequately staffed andequipped monitoring unit to help ensure that satisfactoryprogress is achieved. Management of the project and moni-toring of progress with the expenditure program and ActionPlan would be carried out under the direction of an inter-ministerial coordinatirn L m and managed by an executivesecretariate.

Estimnated Costs: Local Foreign Total------ US$ uillion ----

Development expenditures 432.8 307.1 739.9Recurrent expenditures 134.0 52.6 186.7Property valuations 1.0 16.6 17.6Technical assistance 5.7 8.7 14.4Training 3.3 6.0 9.3

Base cost 576.8 390.9 967.7

Price contingencies 30.7 7.4 38.1

Total Project Cost L 607.5 398.3 1005.8

Financing Plan:

GOI 426.9 426.9IBRD 41.6 228.4 270.0Other external finance 139.0 169.9 308.9

Total 607.5 398.3 1005.8

Estimated Disbursement:

Bank FY 1988 1989 1.990------ US$ million ------

Annual 112.0 104.8 53.2Cummulative 112.0 216.8 270.0

Race of Return: Not applicable

IBRD Map No. 11038R1

/i Including identifiable taxes estimated at US$43.3 million.

I. THE URBAN INFRASTRUCTURE SECTOR

Urban Services Demand

1. The urban sector in Indonesia Is large and important to both socialand economic development of the country. In 1980 the urban population wasestimated to be 33 million, or 22% of Indonesia's total population. Itsgrowth rate is about 4% per year, almost twice the overall population growthrate. By the year 2000 the urban population is projected to reach 76 mil-lion, or 36% of the total population; of this two-thirds is predicted tolive in cities on Java. The greatest incidence of urban poverty is found inJava also, chiefly in the centrai and eastern provinces. Ohverall, about 25%of the urban population is estimated to have an income below the povertyline (US$230 per capita - 1983 prices).

2. Indonesia's urban population is reasonably well distributed spatially,occupying four metrcpolitan areas, about 50 major cities and some 350 medium-sized cities and towns, as well as many more small towns. About one half ofthe urban population live ir. the ten largest cities (including the capital,Jakart. with 9 million), where the bulk of the urban population increaseover the coming decade is expected to occur. Most cities and towns arelocated within Indonesia's 247 Kabupatens (second-tier or Level II regionaladministrations), but 54 larger cities have separate administratii?e status asKotamadyas or Level II municipalities. Jakarta has the status of a Province(i.e., first-tier or Level I regional administration), of which there are 27in all. Level II local government administrators report to their respectiveLevel I or Provincial Governor and ultimately the Ministry of Home Affairs(MHA). Besides being responsible for regulating and monitoring the govern-ance of local authorities -- including their responsibility to provide andmaintain urban services -- MHA controls appointments of their senior offi-cials, regulates staffing and salaries, and reviews Cheir developmerit plans,budgets and financial performance.

3. In addition to serving an urban population growing by about 2.2 millionnew residents each year, urban infrastructure is needed to eliminate severeservice backlogs and support growing urban economic activity. In 1983 itwas estimated that about 55% of the urban population did not have access toa piped water supply and 70% did not have satisfactory sanitation facili-ties, In the larger cities inadequate industrial water supply and wastedisp3sal is a serious problem, and congestion and deteriorating urban roadnetworks increase the cost of travel. Many cities, particularly in coastalareas, suffer severe flooding due to inadequate flood control and localdrainage. The Bank's 1984 Urban Services Sector Report (No.48 0-IND) esti-mated conservatively that total expenditures by central and local governmenton urban services investment, and operation and maintenance (O&M) duringRepelita IV (1984-89) should be about Rp 900 billion per year (1986 prices)to meet reasonable growth needs and overcome service backlogs at minimallevels of service. In terms of GOI's service and eqluity objectives, morelow-cost, local or tertiary systems investment is needed in existing under-served urban areas, especially in outer islands. However, as well as theconcomitant need for O&M of the expandin- networks, there is a growing needfor public investments in and rehabilitation of primary and secondary sys-tems, to support the local infrastructure adequately, particularly for watersupply, flood protection and transport in larger centers.

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Urban Services Supply and Financing

4. Emphasis on urban infrastructure development began in earnest duringRepelita II (1974-79) with large-scale improvement of low-income neighbor-hoods in a few large cities through provision of basic infrastructure underthe highly successful 'Kampun, Improvement Program (KIP)' and some important!aitiatives in water supply. These early efforts in KIP and water supplychiefly involved the resources of the few cities concerned. Under Indonesianlaw, provision of urban infrastructure (comprising water supply, waste dispo-sal, drainage anid flood protection, and roads), is considered a decentralizedresponsibility of Level II local governments. In practice, Central Gover-nment agencies have assumed a major role in not only planning and executionbut also financing of urban infrastructure. In an effort to distributedevelopanent benefits more widely and equitably, GOI increasingly supportedsubsequent basic needs programs with development grants. Expenditures in-creased in nominal terms from about Rp 263 billion per year during RepelitaII to about Rp 500 billion per year during Repelita III (1979-84). Thisexpansion came at a time when the Government was experiencing a boom in oilrevenues, and local government capacity to plan and carry out urban infra-structure programs was very weak in general. As a result, almost all capitaland most recurrent expenditure is now financed by the Central Government.The Ministry of Public Works (MPW), which has the responsibility for guidanceand oversight of technical matters in local authorities' affairs, has becomeprominent in planning and, in many cases, implementation of urban infrastruc-ture programs. To date, over 700 cities and towns have to some degreebenefitted from access to basic needs programs in water supply, sanitation,drainage and urban roads, as well as KIP.Z1

5. Although annual-average urban development expenditure in Repelita IIInearly doubled over Repelita II levels, this was still inadequate to meet theincrease in needs, resulting in further accumulation of service backlogs.Further expansion was constrained by (a) limited implementation and O&Mcapacity at both central. and local level; (b) lack of systematic planning andcoordination among key agencies; and (c) more recently, constraints due todeclining oil revenues and hence grants.

6. Expenditures during Repelita III were close to the absorptive capacityof the Government's implementation capabilities and local governments' Q&Mcapabilities. Budget carry-overs of 30-35% were occuring annually in theprograms of Directorate General Cipta Karya (DGCK)-- the principal centralagency concerned with urban infrastructure. Moreover, in the effort toexpand service networks rapidly, consultation between central and localagencies and coordination among sectors and financing sources was inade-quate, and limited attention was paid to institution building resulting inweak performance by many local governments and their enterprises. Late in

/1 Such infrastructure in newly developed areas is increasingly provided bythe private sector (financed mainly through mortgages provided by GOI's Hou-sing Bank, Bank Tabungan Negara, supported by the IBRD's Housing Sector Loan-- Loan 2725-IND). During the remainder of Repelita IV it is expected thatinfrastructure expenditures by PERUMNAS (the National Housing Authority) andprivate sector developers will total some Rp 400 billion.

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Repelita III, in order to address these issues, a move to return to greaterdecentralization of planning and implementation responsibility to localgovernments was begun. However, other than in the very largest cities,local govertiment capabilities in investment planning, implementation andfinance are very weak in relation to the task. This is because of trainedstaff shortages (due in part to adverse conditions of service at Level II)and cumbersome management and administrative procedures. Although O&M isfully a local government responsibility and is reasonably budgeted in gene-ral, present performance is constrained by these institutional factors.

7. Systematic planning for urban development is difficult for urbanmanagers under present circumstances because of the large number of centralagencies and financing sources concerned. Within the Ministry of PublicWorks, responsibility for urban roads is with Directorate General Bina Marga(DGBM), urban flood control and raw water supply with Directorate GeneralWater Resources Development (DGWRD), and for other types of infrastructurewith DGCK. Central-Local grant programs for urban infrastructure (primarilythe lNPRES Dati II block grant and INPRES Jalan or roads programs) areadministered by MHA's Direc?orate General for Regional Development (DGBangda).Funding releases to urban programs are controlled by three d-fferent Direc-torates General in the Ministry of Finance (MOF). The limited development andrecurrent expenditure programs financed from local government's own sourcesare subject to approval by MHA's Directorate General for Local Administration(DGPUOD) and the Provincial Governor. Historically, coordination of urbanprograms among the various central agencies has been weak and this fragme!t!.-.approach is mirrored in the budget approval process at local and centrallevels. To improve coordination at the national level an informal forum forpolicy discussion, the Institute for Urban Policy Analysis (IUPA), was estab-lished in 1984 among the leading agencies under the chairmanship of MOF. Theinitiatives fostered by IUPA form the basis of many elements of GOI's sectorreform agenda (paras 9-12).

8. The recent sharp decline in oil revenues has severely limited GOI'sability to maintain the past levels of substantial capital and recurrentfinancing from Central Government budget to sustain the momentum in urbandevelopment achieved in recent years. Expenditures during the initial yearsof Repelita IV had to be curtailed from the planned levels and held close tothe previous levels. The particularly severe budget cuts necessitated inearly-1986 and ,he expected continuation of budget austerity in the future,simply do not allow for completion of a number of on-going projects, muchless the expansion in urban expenditures envisaged in the Bank's sectorreport. The sources of finance for urban infrastructure are: (a) CentralGovernment grants (including DIP grants administered by Central Governmentdepartments, and salary and INPRES grants allocated for local routine anddevelopment expenditures respectively); (b) assigned revenues, levied by thecentral government but assigned wholly or in part to loca' government (e.g.,property tax revenues); (c) revenue from local taxes and service charges,including revenues of local enterprises and service departments; and (d)loans to local governments and enterprises from both domestic and foreignsources. In addition to the large volume of centrally planned and executedinvestments in urban areas financed directly by the central governinr.~ntbudget, central government transfers through the grant system account for

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more than 75% of overall local government routine arLd development expendi-ture; although in larger municipalities this proportion is closer to 50%.In GOI's FY85/86, the total public expenditure on urban infrastructure(irvestment and O&M) was about Rp 470 billion (about US$ 430 million equiva-lent in 1985 prices) of which Rp 350 billion or 74% was funded from CentralGovernment budget. This pattern of local goverr.ment dependence on CentralGovernment grants was increasing up to the end of Repelita III and resultedin a lack of incentives for efficient local resource mobilization as well asdistortions in the allocation of urban expenditures. More recently, reducedgrant availability has been a constraint to rapid expansion of services.Moreover, those local governments which have shown interest in doing morehave been constrained by a lack of reliable borrowing mechanisms. There is aclear need to rationalize and augment the existing loan schemes by establis-hing a single central loan funding source which would lend at realisticinterest rates and consistent terms for all projects and cities. The recentdecline in oil Drices and Central Government revenues has dramatized the needto reform the present system of local government finance and gradually shiftthe burden of financing and generating revenues for local expenditures fromthe center to local governments,

Sector Development

9. GOI has been moving towards greater sector efficiency and improvedquality of urban services through, (i) improving arrangements for planning andimplementing urban infrastructure investment programs; (ii) initiating changesin urban infrastructure financing arrangements; and (iii) by addressing localgovernment manpower development needs, particularly with respect to manage-ment, planning, programming, budgeting and O'xM. The current resource con-straints in Indonesia have led to policy decisions to accelerate changes inall of these areas including shifting the financing pattern for urban infra-structure expenditures from predominantly Central Government grant support tomore reliance on locally generated revenues and loan finance.

10. Planning and Programming. GOI has already taken several Liftiatives toimprove planning and programming processes in the sector in conjunction withthe fiscal reforms described below. The major actions are: (a) to implement anew integrated urban infrastructure investment planning system that has beendeveloped by DGCK with UNDP and Bank assistance; (b) to issue guidelinesdefining investment policies and criteria, as well as roles and functionalresponsibilities of central and local agencies for key urban services; and (c)to establish a formal urban policy coordinating committee among the Ministriesof Finance, Public Works, Home Affairs and the National Planning Agency,BAPPENAS, along with an appropriate working level support mechanism. Improve-ments now being introduced by MHA and MPW are aimed at introducing techniquesand fostering greater local skills which would lead to, among other things,fuller local participation in program development. It is expected that localinvolvement will lead to better targetting and prioritization of investmentsas well as greater commitment to O&M of the facilities provided, Of parti-cular significance is the system of integrated urban infrastructure planningand programming (known as IUIDP) introduced in 1985. By means of thissystem GOI intends to develop its central agencies as effective intermediaries

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urban institution building and services delivery. IUID? would allow WOI toapply its limited technicil and financial resources through a largeLy region-ally-administered process to locally generated, priority projects confor-ming to specified planning a..d financing criteria. In order to develop theprocesses involved GOI has embarked, with UNDP and Bank assistance, on thenationwide training of staff in medium/large cities i.t integrated physicalplanning and project planning tech.iques, and provincial level staff inproject appraisal and programming techniques. The training is currentlybased or, published guidelines for planning, design, and financing of urbaninfrastructure within DGCK purview. The IUIDP concept would be extendedunder GOI's sector reform Action Plan (para 16) to include DGBM and DGWRD-supported urban infrastructure investments.

11. Urban Infrastructure Financing. GOI recognizes that the more limitedavailability of Central Government grants means that: (a) cost sharing arran-gemealts for different sub-sectors need to be reviewed; 'b) present grant andloan financing Mechanisms need to be modified to provide incentives for localrevenue generation and borrowing; and (c) local governments must mobilizeadditional revenue in order to sustain present or even reduced levels ofurban expenditure. The Government has taken some concrete steps to increaselocal resource mobilization, including (i) the new property tax (PBB) law,effective in January 1986, which provides revenues to local governments, (ii)a draft law on local taxation, (iii) pilot efforts (assisted by Bank loans),to improve tax administration and financial management in a number of cities,and (iv) developraent of rLational tariff guidelines for water enterprises.However, despite the improved and simplified structure which characterize thePBB, the tariff structure and the proposed local tax law, Little has so farbeen done to implement these and related efforts, in order to produce signi-ficant results by the end of Repelita IV. The key element of GOI's medium-term strategy for local resource mobilization would be the full implementa-tion of its new property tax law. In view of the important yet underutilizedrole of the property tax in local government finance (currently accountingfor about 10% of receipts including grants), as well as the revenue growthpotential in urban areas, the initial actions proposed would focus on a step-by-step improvement in the valuation of urban properties and tax administra-tion. Concurrently, the Government will be taking other steps to improvelocal resource mobilization, including (a) measures to improve cost recoveryby water supply enterprises; (b) steps to improve the structure and adminis-tration of local taxes and charges; (c) establishment of a consolidated loanfund (Regional Development Account or RDA) for local governments and theirenterprises; and (d) the formulation of specific proposals for reform of thecentral-local grant system. Taken together, these actions should lead. to asignificant shift in public resource generation from Central Government tolocal governments to finance urban infrastructure in the 1990s. Many of theconcrete steps needed to increase local revenue generation and thereby enablelocal governments to contribute a larger share of the financing requirementsfor urban infrastructure in Repelita V are incorporated in GOI's abovemen-tioned Action Plan for the next two years.

12. Manpower Development. The move to deconcentrate MPW authority placesincreased responsibility on local government and requires training of staffto help them adapt to new roles. In addition, the emphasis on local

participation in planning and the strengthening of revenue generation, finan-cial management and O&M capabilities will mean the recruitment of new staffas well as training to ensure adequate capacity in local government agencies.The most crucial needs lie at the management and professional levels. A keyfactor in the attraction and retention of competent professionals is theconditions of service for local government staff which affect benefits andcareer structures. Local governments currently have few trained professionalstaff and face difficulty in attracting new staff. Mid-career entry isvirtually impossible, promotions are based almost exclusively on seniority,and few transfers between authorities occur. Within authorities, scarce keyprofessionals are rotated frequently among various departments. Training ofexisting staff and new, inexperienced entrants is the most important priori-ty. Present training capacity within the sector is fragmented and uncoordi-nated, divided mainly between MHA and MPW, with som'.- also being carried outby the Ministry of Finance. MHA has the most widespread capabilities follo-wing assistance it has received over the past few years from the United StatesAgency for International Development. Under the Baiik's Loans 2275-IND and2632-IND assistance is being provided to DGCK for water supply manpower deve-lopment, and under Loan 2258-IND for IUIDP :raining, both in conjunction withNetherlands Government aid. Future training, however, should be coordinatedon the basis of a sound manpower development plan for the sector and assig-nment of clear responsibility among the Ministries concerned. GOI's ActionPlan mentioned previously includes an assessment of manpower development needsin urban management and priority skill areas, and development of a strategyand action program to bring about the desired upgrading of human resources andimprovement of service conditions in the sector through a future project.

Bank Experience and Strategy

13. The Bank has developed extensive knowledge of the urban -ector througheleven urban, housing and water supply projects financed since 1974. Ofthese, five have been completed/2. Important lessons learned include theneed for greater attention to balanced planning of investments among andwithin subsectors, and to better O&M, in part through better cost recoveryfrom local revenues. Studies supported by the Bank and other donors duringthis period have contributed to sector policy and institutional development.Drawing on this experience, in 1984 the Bank's Urban Services Sector Reportexamined the longer-ter;., issues in the sector and discussed several areaswhere policy and institutional reform were needed. A more recent review oflocal government finance (carried out as part of the Bank's forthcomingPublic Resource Management Sector Study), examined the feasi'lility of greaterlocal resource mobilization and measures required to further this objective.The Government has also recently completed with UNDP assistance an extensivestudy which analyzed options and directions for national urban developmentstrategy. The Bank's strategy in assisting GOI's efforts in the sectorconsists of supporting a series of sector and project-level operations aimedat add-ess4ng the basic issues of underinvestment and institutional weakness

/2 Three completion reports and Project Performance Audit Reports (PPAR)have been issued to date: Loan 1040-IND - Jakarta Urban Development Project(PPAR No. 4620); Loan 1049-IND - Five Cities Water Supply Project (PPAR No.6256); Loan 1336-IND - Second Urban Development Project (PPAR No. 6329).

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in the sector, through: (a) implementing appropriate sectoral and institutio-nal policies; (b) strengthening agencies responsible for sector planning andoversight, and local administration, operation and maintenance; and (c)improvement of environmental services.

II. THE PROJECT

Origin

14. The proposed loan was identified in February/March 1986 during Bankdiscussions with the Government concerning the impact of sharply decliningoil revenues on the development budget/3. Further discussions between GOIand the Bank, led to GOI's agreement in June 1986 to prepare draft proposalsfor (i) a Sector Policy Statement and detailed Action Plan for reform mea-sures, (ii) a sector expenditure program, and (iii) project management andimplementation arrangements, with a view to obtaining funding by early 1987for the remainder of the Repelita IV program. Three working groups chairedand staffed respectively by officials of BAPPENAS, MPW and MOF, assisted byMHA and with the help of consultants, prepared the above-mentioned three mainelements of the project proposal whicz. were appraised in Novembe.r 1986.Negotiations with the Government were held in Washington D.C. during March30-April 3, 1987. The GOI delegation was led by Mr. Soelaeman Soemardi,Deputy for Social Cultural Affairs, BAPPENAS.

Ration&le for Bank Involvement

15. The proposed operation, based on the Bank's well-established operatio-nal relationship ana policy dialogue in the sector with GOI, has already ledto the formulation and acceleration of a coherent strategy and action planfor reform in several key areas of the sector, including the pattern ofresource mobilization, by extension of effective policies and proceduresdeveloped under previous Bank-supported projects to the national urban prog-ram. This would help ensure that the level of expenditures in the sectordoes not shrink further, at a time when demand due to urban population growthneeds is increasing. The Bank's experience, analysis and advice on the speci-fic elements of this program would help the Government address key issuesappropriately; and the Bank's participation would serve as a catalyst toassist the various Government agencies involved to work together to achievethe objectives of the adjustment program.

Goals and Objectives

16. GOI has prepared a Statement of Policies for Urban Sector Develop mentoutlining five basic goals: (a) planning, programming and identification ofinvestment priorities in Level II authorities will be improved through a

/3. Indonesia's net oil/LNG earnings in 1986/87 are estimated to be US$2.2billion; down f^om US$5.7 billion the previous year and only 20% of the peaklevel in 1981/82. At the time of the oil pr,ce collapse, GOI declared itsexpenditure priorities as being those for (a) ongoing projects -- particula-rly foreign-funded operations -- with high impact on employment and equity;and (b) O&M of completed projects.

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decentralized and integrated process guided by Central Government; (b) LevelII capabilities to mobilize resources and optimize the use of funds will beupgraded; (c) urban services financing mechanisms will be improved; (d)local govArnment institutions and staff capabilities will be enhanced; and(e) coordination and consultation among che various agencies and levels ofgovernment will be strengthened. Detailed objectives have been formulatedfor each of these goals and an Action Plan for the project period has beendesigned tv implement the steps necessary to achieve them. The Statement ofPolicies and Action Plan agreed at negotiations are presented in Annex 1.

17. The objective of the proposed operation is to help GOI maintain, in themidst of severe economic constraints, the momentum of its ongoing urbaninfrastructure expenditure program while adjusting and strengthening sectorinstitutions and procedures to cope with rapidly-growing urban servicesneeds in accordance with the GOI's Action Plan. A principal aim of theproject therefore, in addition to financing the GOI's urban infrastructureexpenditures for the remaining years of Repelita IV (GOT's fiscal yearsFY87/88 and FY88/89), is to suppo.t short-term measures in an action plan ofcomprehensive reform which would, in the medium-to-long term (i.e., 5-10years), improve local resource mobilization significantly and increaringlyshift responsibilities for urban infrastructure planning, financing andimplementation, from central to local government.

Project Description

18. The project comprises two parcs: (a) a two-year time slice of GOI's urbaninfrastructure expenditure program for FY87/88 and FY88/89, composed essen-tially of high priority expenditures estimated to total about US$960 million,including investmpnt and rehabilitation (80%), as well as O&M (20%) expen-ditures, and (b) implementation of GOI's Action Plan for sector policy andinstitutional reform aimed at laying the foundations for a substantial shiftin responsibility from Central Government to local governments for plan-ning, implementing, operating/maintaining and financing urban services.Support for the Action Plan would comprise two components, firstly, techni-cal assistance, training and contract property valuations for the propertytax (PBB) improvement program; and secondly, technical assistance and trai-ning for sector financing reform, improvement of planning and programming,strengthening of water supply subsector management, and development of urbaninstitutions and manpower. The project is expected to be complete withinthree years, by September 1989.

The Expenditure Program

19. The urban infrastructure program for GOI's FY87/88 and FY88/89 wouldhave an estimated total cost of about US$960 million equivalent. The prog-ram has been reviewed with the Government and adjusted to ieflect the high-est priorities of the sector consistent with reasonable intersectoral balan-ces and the absorbtive capacity of the agencies concerned. In accordancewith agreed priorities, the majority of capital expenditures are for comple-ting ongoi.-g projects, particularly foreign-funded ones; about 55% would befor projects related to external donor-financed operations that are alreadyongoing (53%), or committed in principle (2%), i.e., appraised and which

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would be carried out during the second year4. The program review took intoconsideration: (a) conformity with established GOI priorities, (b) approp-riateness of O&M provisions, (c) appropriateness of subsector planning andproject appraisal criteria, and (d) past trends in expenditure and funding.

20 The agreed program which is acceptable to the Bank would consist ofca)ital 'nvestment (70%), rehabilitation (10%) and recurrent expenditures(20%), in over 300 Level I and II local authorities and their enterprises.Capital expenditures would be for civil works, equipment and services in-cluded in ongoing projects for raw and treated water supply (about 54% oftotal), drainage and flood protection (30%), roads (21%), Kampung improvement10%), sewerage and sanitation (6%), and solid waste management (4%). Plan-ning, engineering and construction supervision services, and overheads ac-count for about 9% of program costs. Annex 2 describes the details of theoverall program. The 1987/88 expenditure program was confirmed in detail(including composition, estimated costs. and schedules of expenditure) atnegotiations. Effectiveness of the loan would be conditional upon the GOI'sauthorized budget for FY87/88 including allo. ations for the agreed program.The 1988/89 expenditure program (about 51% of total) was agreed in principleat negotiations, and would be confirmed in detail following a review of the1987/88 program implementation performance with the Bank not later than Feb-ruary 1988. Disbursement against 1988/89 expenditures would be conditionalupon the respective budgetary all.ocations being authorized by GOI.

21. Much of the proposed capital expenditure was deferred in earlier yearsdue to local financing constraints, which has led to delays in project comple-tion and fo-egone benefits. The project would enable momentum to be regainedso that, in real terms, the proposed program would reprosent, overall, areasonable 6-7% p.a. average growth since 1983/84 for both capital and recur-rent expenditures. However, trends among subsectors vary widely (Annex 2).Water supply, and sewerage expenditures are all expectAd to show about 14%p.a. growth overall. An increasing focus on better planning, O&M capacitydevelopment and cost recovery would occur in these subsectors in futurethrot,.gh the sector programming improvements to be carried eut under the ActionPlan (para 26). Drainage Rnd flood control expenditures show over 21% averagegrowth p.a. since 1983/84 through significant support by the Japanese Gover-nment's Overseas Economic Cooperation Fund in recent years. Rcads expendituresare expected to show only 4% growth p.a., reflecting GOI's nascent urbantransport planning capability. Strengthening of urban transport capabili-ties and subsector finances is being addressed in preparation for forthcomingprojects focussing on this subsector in several major cities. Despite stren-gthening, KIP (and concomitent low-cost sanitation expenditures) are expectedto show nearly -5% p.a. overall decline due to institutional weaknesses.Further strengthening of these programs would be an urgent priority for GOI inits Repelita V plannning in order to improve the urban program's impact on

/4 Committed projects include Bank Loans 1972, 2236, 2275, 2408, 2560 and2632-IND, as well as projects financed by the Asian Development Bank andvarious bilateral donors including the Governments of Japan, Netherlands,Federal Republic of Germany, France, and Switzerlanl. Planned commitmentsinclude the proposed Regional Cities Urban Transport Project expected to bepresented to the Board during FY87.

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low-income groups and environmental pollution. 0&M expenditure trends indicatesimilar variations among sectors although information may not be complete.However in future, it is clear that improved management of 0&M by localgovernments will be essential to better use of O&M resources. An ongoing studyby MHA, supported by the Fifth Urban Development Project--Loan 2408-IND, isexpet ted to recommend measures to strengthen 0&M policies and practices inLevel II local governments and lead to implementation of an O&M developmentprogram to be piloted in four major cities. A fuller discussion ofsubsector trends and issues is given in Annex 2.

22. Although the expenditure program has been revised considerably, acomplete restructuring of the program composition as a significant means ofredressing imbalances and issues was infeasible at this stage because of theongoing nature of the program and the relatively inflexible commitmentsentailed, as well as the long lead time needed to shift emphases and intro-duce possibly more appropriate new projects. The Government therefore , whilewishing to complete the present program an composed, has agreed that stepstoward the strengthening of future sector investment policy and expenditurecoordination has been taken through the establishment prior to negotiations,of an interagency Coordinating Team for Urban Development (Tim Koordi-nasi or TK) together with an executive secretariate located in BAPPENAS.

23. TK has been formed by means of a Ministerial Decree, and will havebroad responsibility for coordination of urban policy and program planning(Annex 10, Attachment 1). The Team will be assisted by the Executive Secreta-riate which will report to the chairman of the Steering Committee and providestaff support to the Steering Committee and its working groups. The work planof TK and the Secretariate would be reviewed by the Bank. All concernedagencies of Government wqill be represented on the Steering Committee and/or inWorking Groups on Programming, Implementation, Finance and Institutional Deve-lopment to address strategic issues under the guidance of the Steering Commit-tee. For the purposes of implementation of the agreed Action Plan the standingworking groups would be assigned appropriate responsibilities and ad-hocgroups would be formed to address, inter alia, issues of (i) urban transport;and (ii) urban water 1Lasources, Assurances were obtained at negotiations thatappropriate future expenditure program balance and the various abovementionedissues would be addressed by T" working groups under the Action Plan as partof sector planning and programming for Repelita V urbfan infrastructure expen-ditures, and TK would prepare and review annually with the Bank a 5-yearsector expenditure program (para 28).

Action Plan Support

24. The GOI's Statement of Policies for Urban Development presents the broadprinciples underlying the sector policy and institutional changes on which GOIhas embarked. The Action Plan provides the details of the proposed measuresand builds upon the significant actions taken by Government over the past 12-18 months (paras 10 and 11). The Action Plan embodies a 10-15 year frameworkot future change and focusses in detail on the key steps to which Governmentis committed during the next 2-3 years in order to accelerate each of the fourmain areas of change as described below:

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(a) local resource mobilization (para 26) through measures to strengthen(i) property valuation and tax administration; (ii) water enterprise costrecovery ard management; and (iii) local revenue administration;

(b) urban infrastructure financing mechanisms (para 27) through: (i)operatioralization of a consolidated borrowing scheme for local gover-nments and their enterprises; (ii) development of improved grant allo-cation criteria and guidelines, and (iii) strengthening local governmentinforma'zion systems;

(c) planning and programming (para 28) through (i) strengthening ofdecentralized integrated urban infrastructure planning procedures; (ii)issue of planning guidelines; and (iii) formulation of a medium term(five-year) urban sector plan and expenditure program; and

(d) sectoral institutions and manpower through (i) preparation of alocal government institu.ional and manpower development plan (para 29);(,i) a review to strengthen central and provincial capabilities toprovide technical assistance to Level II local governments (para 29);and (iii) support for ongoing key training programs (para 30)

25. Assurances were obtained at negotiations that GOI would (a) provide thenecessary resources and carry ol;t the Action Plan, and (b) review annuallywith the Bank the progress achieved in its implementation; the first reviewto take place no later than February 1988. Adequacy of progress would beviewed in relation to agreed key steps identified in the Action Plan time-table as crucial to the objectives of the project. GOI would monitor prog-ress closely (para 35), and the Bank would allocate appropriate staff super-vision resources for the purposes of the annual and other interim progressreviews, including two policy-related studies (sector investment policydevelopment (para 28 (b)) and manpower de"elopment planning (para 29)). Thedetails of the Action Plan are discussed below; the overall plan, includingimplementation timetable, is summarized in the Attachment to Annex 1.

26. Local Resource Mobilization. The Action Plan focusses on the Gover-nment's most significant opportunities for local resource mobilization inthe short to medium-term. The following actions, together with intensifica-tion of collection efforts, should lead to some increase in assessments andrevenues even during the project periodZ5:

(a) MOF's Directorate Gene:al of Taxation (DGPajak) will initiate alonger-cerm program of improvement of property tax (PBB) performance intax administration and valuation with the assistance of qualified

/5 The overall revenue target has been agreed as a doubling of the 1985-86property tax revenues by 1988-89 (i.e., a 25% annual increase is nominalterms). However, the main impact of the prcgram would be felt after 1990,when the new valuations begin to be reflected in the tax bills. Since about60% of the 100,000 higher-valued urban properties (which currently accountfor two-thirds of total urban PBB revenues) would be covered under theAction Plan, the projected increases in revenue after 1990 are expected tobe even h,igher than 25% p.a.

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advisors through the followi..g measures: (i) developing a property valua-tion capabilAty in DGPajak; (ii) valuing individually about 10,000 topvalue properties in 3 key cities (Jakarta, Bandung and Medan) and valuingsemi-individually about 50,000 high value properties in Jakarta, by meansof contractors, and upgrading the index-based mass assessment system forother urban properties during 1987-89; and (iii) improving tax managementand administration through updating of registers, computerization of bil-lings, and improved collections and appeals procedures (details are givenin Annex 4);

(b) improvements in water enterprise cost recovery and managementthrough measures being taken by DGCK and DGPUOD (Annex 5) aimed at: (i)implementation in all water enterprises, commencing in Java, of thenationally prescribed water tariff structure and an appropriate level oftariff to ensure -inancial viability; as well as the nationally pres-cribed water enterprise accounting system with the assistance of localconsultants; (ii) implementation of provincial monitoring and develop-ment units (as recently established in East and West Java) in the provi-nce of Central Java with the assistance of foreign and local consu-ltants; and (iii) reviewing optimal water enterprise organization arran-gements for all provinces (with the assistance of foreign and localconsultants to be funded from the Second East Java Water Supply Project--Loan 2632-IND), and implementation of appropriate arrangements accordingto schedules to be discussed with the Bank; and

(c) improvements in Level I and II taxes and charges through: (i)recommendations by Directorate General of Domestic Monetary Affairs(DGMDN) for legislation to reform and simplify the structure of localtaxes and charges; and (ii) evaluation and extension of improvements inlocal tax and service charge administration by MHA (DGPUOD) includingreorganization of the local tax offices and related changes in theManual for Revenue Administration with the assistance of foreign andlocal consultants (Annex 6).

27. Sector Financing. The Action Plan focusses on the following keysteps in the area of urban infrastructure financing mechanisms:

(a) DGMDN would design and implement an operational consolidated loanfund (called Regional Development Account--RDA), (with the assistance offoreign and local consultants to be funded in part by UNDP) which wouldbecome the central source of loans to local governments and their enter-prises covering the whole range of urban infrastructure services, lendingat consistent positive interest rates, and applying rigorous appraisalstandards and criteria; specific actions would include: (i) consolidatingexisting domestic loan schemes into the recently established RegionalDevelopment Account (RDA) and reviewing disbursements r.nd commitments tolocal governments and enterprises under the existing schemes; (ii) estab-lishing realistic lending terms, and revising the current Level II debtservice ratio regulations for local governments; and (iii) establishingoperational procedures, appraisal and eligibility criteria, and accoun-ting systems, and training of staff to enable the RDA to operate as aloan fund (Annex 7).

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(b) TK would review the existing grant system and develop im-proved grant allocation criteria and guidelines including: (i) as aninitial step, review the recommendations of the ongoing study of theINPRES program and submit specific grant reform proposals ror ministe-rial review and decision; and (ii) for the longer term, formulate,review and submit to Parliament comprehensive legislative and regula-tory proposals for a streamlined grant system designed to provide localgovernments wich fiscal resources commensurate with their assignedfunctions, equalizing revenue capacity among local governments, andproviding ince..tives for local resource mobilization (Annex 8).

(c) improve local government Information systems (Annex 9) with theassistance of consultants including: (i) agreement between Buro PusatStatistik' (BPS), MOF and MHA on respective institutional roles; (ii)design and implementation of new financial and demographic informationsystems; and (iii) strengthening of the MHA's Directorate GeneralAgraria's urban mapping program in dissemination of map sheets to usersand to provide line maps to DGPajak for PBB purposes.

28. Planning and Programming. The Action Plan addresses a number of tasksessential to the strengthening of planning and programming of urban infrastru-cture expenditures in the near and medium-terms (as described in Annex 10).Technical assistance will be provided to various MPW agencies to help addressthe following:

(a) the institutionalization of the IUIDP process in the core agenciesrepresented in TK (i.e. BAPPENAS. MOF, MPW and MHA) and in regionallevels of government and their enterprises for urban infrastructuresectors including water supply (raw and treated), flood control anddrainage, human and solid waste management, kampung improvement, andurban roads;

(b) the setting of policy guidelines by TK (para 22j (with theabovementioned assistance of MPW line agencies and the.r consultants)for medium-term planning criteria relating to flnctional and financialresponsibility, levels of service and O&M, cost sharing and financing,technical standards, project appraisal standards and criteria, andorganizational arrangements;

(c) the development of a medium-term five-year expenditure program forthe sector by the MPW agencies, which indicates institutional arrange-ments, investment priorities for the sector, balances among subsectorinvestments and O&M, and sources of finance.

29. Institutional Development. The Action Plan would address:(i) local government institution and manpower development planning for thesector through a study to be carried out by MHA and the Civil ServiceAdministration Agency with the assistance of foreign and local concultantsof sectoral manpower needs in the context of present staffing and trainingresources, and service conditions (Annex 11), and (ii) a review of DGCK'scapacity to provide technical assistance to local governments.

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30. TraininR The project would support training in three important areasof support to the Action Plan (Annex 12), as follows:

(a) property valuer training through a wide range of valuer educationincluding: (i) three-year scholarships at overseas universities forprofessional valuation degree qualification; (ii) three-month coursesfor valuer technicians at the Malaysian Government's National Institute;and (iii) in-house block courses and in-service training conducted byIndonesian private sector valuers and Directorate PBB's training unit;

(b) integrated infrastructure programming training by DGCK through exte-nsion of ongoing EDI/IHS(Netherlands)-supported, IUIDP-training manage-ment and pilot training project (financed in part from Loan 2258-IND)into four regional centers to be equipped to train local authorities ofvarying capacities in: (i) strategic urban infrastructure planning andresource mobilization; (ii) program and project management; and (iii)project preparation, implementation, O&M; and

(c) urban planning training by DGCK's Directorate of City and RegionalPlanning through development of materials, curricula and regional trai-ning centers for training of, inter alia, physical planning supportstaff in all provinces, in the provision of development planning andregulation advice to local governments.

Technical Assistance

31. To support the Action Plan through advisory and implementation assista-nce, and policy-related studies, as described above, the project would in-clude technical assistance totalling about 80 manyears of foreign and 135manyears of local consultants, in accordance with agreed terms-of-reference(as summarized in Annex 3), confirmed at negotiations. Major tasks would be:(a) support of the property tax improvement program (para 26); (b) est:ablis-hinent of the RDA (para 27); (c) assistance to TK in formulation of sectorpolicy guidelines (para 28); and (d) preparation of a manpower developmentplan (para 29). Work on the Action Plan has already begun and preparationfor all forthcoming measures ic quite advanced (e.g., terms of reference havebeen agreed for all major technical assistance tasks and recruitment is underway in several cases). Tefchnical assistance for detailed engineering andconstruction supervision of the p'.ogriimmed expenditures is already in placeunder existing donor commitments and locally-funded assignments.

Cost Estimates

32. The total cost of the project as shown in Table 1 below is estimated tobe about hp 1660 billion (US$1006 million equivalent) including estimateddirect and indirect foreign exchange costs equivalent to Rp 660 billion(US$400 million) or 40% of total, and estimated taxes equivalent to about Rp70 billion (US$43 million). Base costs are estimated as of February 1987.In view of the programmatic nature of the ongoing expenditures and shortnessof the time-slice, no physical contingency allowance is considered necessa-ry. Price contingencies have been estimated on the basis of the followingexpected inflation factors -- for foreign costs: 3% in 1987 and 1% p.a.

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thereafter; and for domestic costs: 10% in 1987, 5% in 1988 and 3.5% p.a.thereafter -- and are equivalent to Rp 63 billion (US$38 million) or 4% oftotal. Details of subsector program costs are given in Annex 2. Technicalassistance and training base costs for (a) PBB improvements (Part Bl of theproject -- Annex 4) are estimated to be about RplO.4 billion (US$6.3 mil-lion), and (b) Action Plan implemenLtation (Part B2) about Rp27 billion(US$17 million).

Table 1: PROJECT COSTS

Total Local Foreign X Total Local Foreign X

Component --- US$ million ------ foreign ------- Rp billion ------ total

Part A - Sector expenditure program:

Development expenditures: 739.9 432.8 307.1 41.5X 1220.8 714.1 506.7 76.5%

Water supply 301.4 181.6 119.8 39.72 497.2 299.6 197.6 31.1%Severage and sanitation 31.0 17.2 13.8 44.5X 51.2 28.4 22.8 3.2%Drainage and flood protection 168.3 119.2 49.1 29.2X 277.7 196.7 81.0 17.4%Solid waste managemnt 21.9 5.1 16.8 76.72 36.1 8.4 27.7 2.3XKampung Improvement Program 52.8 42.5 10.3 19.52 87.1 70.1 17.0 5.5%Roads 113.8 52.3 61.5 54.12 187.7 86.2 101.5 11.8%Engineering/supervision 50.8 14.9 35.9 70.6% 83.8 24.6 59.2 5.2X

Operation and maintenance 186.7 134.0 52.6 28.22 308.0 221.1 86.9 19.3%

Part B - Action Plan Support:

3l - Property tax improvement: 24.6 2.4 22.3 90.72 40.6 4.0 36.8 2.5%

Advlsers 2.7 0.0 2.7 100.0% 4.5 0.0 4.5 0.3%Contract valuations 17.6 1.0 16.6 94.3X 29.0 1.7 27.4 1.8%Training and equipment 4.3 1.4 3.0 69.82 7.1 2.3 5.0 0.4%

32 - Technical assistance/training: 16.6 7.6 8.9 53.62 27.4 12.5 14.7 1.7%

Local resource mobilization 3.1 2.4 0.6 19.42 5.1 4.0 1.0 0.3%Sector financing 1.5 0.3 1.2 80.0% 2.5 0.5 2.0 0.2%Planning and progra-ing 6.1 2.5 3.6 59.0% 10.1 4.1 5.9 0.6%Institutional/manpower developmnt 1.0 0.5 0.5 50.02 1.7 0.8 0.8 0.1%Training 4.9 1.9 3.0 61.22 8.1 3.1 5.0 0.5%

Total base cost (Feb. 1987) 967.7 576.8 390.9 40.4X 1596.7 951.7 645.0 100.0X

Price contingencies 38.1 30.7 7.4 19.4X 62.9 50.7. 12.2 3.9%

rotal project cost la 1005.8 607.5 398.3 39.6X 1659.6 1002.4 657.2 103.9%

/a Including identifiable taxes estimated at $43.32 million

Financing Plan

33. The project financing plan is shown 'n Table 2 below. The Bank loanwould finance (a) the equivalent of 25% of the total agreed expenditureprogram costs net of tax, and (b) 100% of the net costs of contract valua-tions, technical assistance and training in support of the PBB component andAction Plan (excluding vehicles amounting to about Rp 0.5 billion, whichwould be considered reserve procurement). Based on the agreed total 2-yearsector expenditures and technical assistance program, the Bank Loan isestimated to be US$270 million. This amount has been derived after fullytaking into account existing donor commitments (amounting to 31% of programfunding), as well as those provided so far in principle (1%), including theBank's. Such commitments tof-ther with the proposed loan would finance

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about 58% of the total project cost. Due to their minimal impact on programfunding, the commitments yet to be confirmed do not constitute a seriousrisk to the program objectives if delayed. Because the time slice to befinanced commences with GOI's fiscal year FY87/88, retroactive financing notexceeding US$27 million equivalent would be provided for expenditures incurredafter March 31, 1987 and before loan signing. Local contributions for urban-related programs would be financed by (a) the development budgets (DIPs) ofthe Ministry of Public Works; (b) loans (PDNs) to be provided to local gover-nments by the Ministry of Finance for urban infrastructure; (c) urban-relatedcomponents of central government grant (INPRES) programs for local government;and (d) local government budgets.

Table 9 - FINANCING PLAN

Source Local Foreign Total-US$ million ------

GOI 426.9 426.9IBRD 41.6 228.4 270.0Other external finance!a 139.0 169.9 308.9

Total 607.5 398.3 1005.8

!a existing commitments including ongoing Bank loans

Implementation Arrangements

34. Project Management. The project would be executed by the Ministries ofPublic Works, Finance and Home Affairs guided through an interagency steeringcommittee (Tim Koordinasi or TK). The TK executive secretariate would beresponsible for: (a) monitoring and coordinating the following: (i) implemen-tation of the Action Plan, and (ii) the diverse project management and accoun-ting activities; and (b) preparing reports on these matters and on compliancewith covenants ir, the Loan Agreement. Execution of the expenditure programwould be the responsibility of MPW's DGCK, DGBM and DGWRD; MHA's DG Agraria,and the Level I and II local governments under the supervision of M&9.

35. Responsibility for implementation of the Action Plan would fall toseveral agencies, namely:

(a) MOF's DGPajak would be responsible for the PBB improvement program(paras 26(a) and 30); and DGMDN would be responsible for (i) the localtax law reform program and RDA development (paras 26(c) and 27(a));and (ii) improvement in local governmenat information systems (para27(c)) through a working group consisting of Buro Pusat Statistik,DGCK, DG Agraria and DGPUOD;

(b) MHA's DGPUOD would be responsible for improvement of local tax andcharge administration (para 26(c)) and jointly with DGBangda for theinstitutionalization of IUIDP (Annex 10); DG Agraria would be responsiblefor tax mapping (para 27(c)); and the Secretary General's Office (Plan-ning Division) together with the CivLl Service Administration Agency

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for the urban institution and manpower development study (para 29);

(c) MPW's DGCK would be responsible fcr the improvements i-. water enter-prise cost recovery and management together with MHA's DGPUOD (para26(b)), and for IUIDP and urban planning training; the Secretary Gene-ral's Office for IUIDP institutionalization (Annex 10); and DGBM togetherwith the Ministry of Communication's Directorate General Land Transport,for traffic management institutional responsibilities (Annex 2) and

(d) BAPPENAS through TK would be responsible for and improvements insector planning and programming policies and procedures, and five-yearexpenditure plan preparation (para 28) with working groups comprisingMOF, MPW and MHA representatives.

36. Confirmation was obtained at negotiations that the foregoing arrangementshave been made, and that agency project managers (APMs) have been appointed inMPW's Seretary General's Office, DGCK, DGWRD, and DGBM; MOF's DGPajak, DGMLN,DGMDN and DGBudget; and MHA's Secretary General's Office, DGPUOD, DGBangda andDGAgraria; Bank Indonesia and Central Bureau of Statistics. To provide over-all coordination, a full-time Project Management Unit (PMU) has been estab-lished within the IK Executive Secretariate. The Project Manager is a Vice-Executive Secretary of the Executive Secretariate. Specific responsibilitiesof the PMU are to: (a) monitor and coordinate overall progress and disburse-ment of the Bank loan; (b) report quarterly to TK and the Bank on the statusand progress; (c) raise issues needing attention to TK and suggest potentialsolutions; (d) arrange for timely audits of project accounts and disbursementStatements of Expenditures; and (e) prepare the project completion report. Toassist the Executive Secretariate, technical assistance would be providedunder the loan for consultant support for (i) monitoring and reporting on theexpenditure program, loan disbursements and auditing; and (ii) monitoring ofthe Action Plan and provision of policy advice and analysis on issues to beaddressed by TK and its Working Groups (Annex 3).

37. Expenditure Program Monitoring. The quarterly reports on the expendi-ture program would provide the following information: (a) for DIP funding:actual expenditures (SPMs) made to date, by agency and program; (b) forINPRES funding (Level II and Jalan): (i) authorized budget allocation, and(ii) actual expenditures made to date, by Province and Level II authority;and (c) for PDNs: (i) commitments to date, and (ii) disbursements todate, by borrower (Orders to Pay from DGMDN similar to SPM). Bank supervi-sion of the expenditure program implementatior would be carried out selecti-vely in conjunction with reviews of related existing Bank-assisted projectand consultation with other donors involved in the expenditure program.

38. Procurement Arrangements. The loan proceeds would be used to financeprocurement in the following four areas:

(a) Specific investments in the GOI's urban infrastructure expenditureprogram totalling about US$450 million equivalent (for which the loanwould provide US$158 million equivalent), which consist mainly of smallcivil works to be implemented in 2,000-3,000 contracts (each valued atless than US$500,000 equivalent) throughout Indonesia in about 300

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local authorities, and which would be procured following local proce-dures which have been reviewed and are satisfactory to the Bank. Theremainder of the agreed expenditure program (approximately 53% of thetotal including almost all direct foreign exchange requirements of theprogram) is subject to commitments under existing agreements with severalmultilateral and bilateral donors, including the Bank. Procurement underthose commitments will follow a mixture of international and local compe-tetive bidding procedures in accordance with the respective agreements.

(b) Property valuation services totalling about US$18 million equiva-lent (to be funded entirely by the loan) consisting of contracts (eachexpected to be less than US$1 million in value) for property valuationswould be procured following the above-mentioned local procurement pro-cedures.

(c) Consulting services in support of the Action Plan, training andproject management totalling about US$24.5 million (loan amount US$24million equivalent) would be procured in accordance with the Bank'sguidelines.

(d) Imports required during the project period (para 41), not exceedingUS$70 million equivalent (to be funded entirely by the loan) consistingof goods conforming to a positive list of imports broadly-related tothe sector (Annex 14) would be procured following commercial procure-ment practices acceptable to the Bank in contracts valued at not lessthan US$50,000 equivalent.

39. Assurances were obtained at negotiations that contracts exceeding US$5million equivalent each, if any, would be procured through internationalcompetetive bidding procedures in accordance with Bank Guidelines. With theexception of contracts procured through ICB, all GOI bidding and contractdocumentation would be retained by the agencies concerned for selective post-award reviews by the Bank. ICB documents in respect of contracts funded fromthe lcan proceeds would be subject to prior review by the Bank.

4C. Disbursement Arrangements. Disbursements would be mada against eligibleexpenditures on (a) civil works, minor equipment and related services fundedthrough specific GOI national budget channels during GOI's FY87/88 andFf88/89 as follows: (i) 91% of local expenditures and 100% of foreign expen-ditures under MPW's DIPs for urban-related development programs; (ii) 20% ofINPRES Level II and INPRES Jalan expenditures; and (iii) 80% of MOF's eligib-le domestic loan (PDN) disbursements; (b) 100% of certified C&F expendituresagainst sector-related imports up to a limit of US$70 million equivalent; and(c) 100% of agreed technical assistance and valuation services expendituresin support of the Action Plan. Expenditures in respect of land, as well asgoods, works and services procured under (i) existing donor commitments, and(ii) by local governments using their own revenues (other than INPRES) would

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not be eligible for disbursement under the loan /6. Disbursement againstcivil works expenditures during GOI's FY88/89 would be conditional on confir-mation of an agreed sector expenditure program for that period (para 20).

41. In order to simplify disbursement administration because of thewidespread dispersion of the works and the variety of funding channels, GOIhas agreed to establish a special account in Bank Indonesia to be maintainedby DGBudget's Directorate of Budget Administration, and to introduce newprocedures for speedier, centralized processing of disbursements andwithdrawals/i. The Special Account would make (a) direct payments againstOrders to Pay issued by the MOF in respect of expenditures designated for Bankfunding, and (b) reimburse GOI for other, mainly small, eligible expenditureswhich it typically prefinances at the local level. In bot1h cases theappropriate documentation in respect of all eligible expenditures, for thepurposes of Special Account withdrawals and replenishments, is convenientlyavailable centrally (in the MOF's DGBudget in the case of DIP and PDN fundingand Bank Rakyat Indonesia in the case of INPRES funding). Replenishments ofthe Special Account would be based on Statements of Expenditure (SOE)reflecting disbursements from the Special Account for eligible expenditures.The DGBudget would create a disbursement processing unit to manage the SperialAccount and process withdrawals. Details of the new procedures andarrangements are given in Annex 14.

42. Because of the need to avoid (i) the potential risk of funding ineligibleor non-urban related expenditures, (ii) becoming directly involved in

/6 Almost all ongoing donor funding is linked, in accordance with GOIbudgetary practice, to earmarked DIP expenditures. The documentation routi-nely submitted to DGBudget, supporting the payment requests and/or receiptsfor the various expenditures financed through DIP channels would indicaterelated external donor funding, if any, Lncluding the proposed loan. Suchdocumentation relating to donor commitments other than the proposed loanwould not be acceptable for disbursement from the Special Account (para 40).The proportions of expenditures to be financed under the eligible INPRESprograms and PDN loans have been selected conservatively to take into ac-count non-urban programs, land, taxes, and the limited remainder of donorfunding reflected in these programs. These arrangements, in conjunctionwith the auditing of project accounts, are expected to avoid any significantpossibility of double financing. Since the documentation of local govern-ment-financed expenditures other than INPRES (which is monitored by BankRakyat Indonesia) is not available centrally, the exclusion of such expendi-tures other than INPRES for disbursement purposes, is made in order to avoidthe difficulty in establishment aind administration of a nationwide loanwithdrawal system for the 300 local governments concerned.

/7. The proposed procedures and Special Account are expected to shortendisbursement cycle times significantly; currently the gap between an expen-diture and its corresponding disbursement is about 6 months. In recentmontns GOI has had to maintain its foreign-loan prefinancing fund at a levelof about Rp 300 billion to cover the gap. If successful, the procedures maybe applied to existing and future Bank loans.

- 20 -

cofinancing of ongoing donor-funded contracts, and (iii) the establishmentof a withdrawal system for the multiplicity of O&M and minor works expen-diLures financed by the 300 local governments, it is estimated that onlyabout 75% of the loan would be disbursable through the Special Account.Moreover, as with any major procedural change, the Special Account andassociated procedures will take some time to reach full operation. In orderto avoid heavy reliance on scarce GOI prefinancing funds in the meantimethterefore and to facilitate disbursement, up to US$70 million or 25% of thetotal loan proceeds would be disbursed to GOI against Statoments of Expendi-tures on a positive list of imports that would be broadly sector related.Documentation of import expenditures would be prepared by GOI's customs sur-veyors, Societe General de Surveillance (Annex 14), and provided to Bank Indo-nesia for withdrawal purposes. Expenditures in respect of the following wouldnot be eligible: (a) goods not listed (see Annex 14, Attachment 3 for lis-ting); (b) goods from countries other than Bank member countries, Switzerlandand Taiwan, China; (c) goods procured under contracts costing less thanUS$50,000 equivalent; and (d) goods procured under existing donor commitments.

43. Confirmation was obtained at negotiations that GOI has made satisfactoryarrangements for: (a) establishment of a Special Account in Bank IndonLesia tobe administered by the MOF for disbursement of Bank loan funds based oneligible DIP, PDN, and INPRES expenditures; (b) procedures for operating,accounting and auditing the Special Account; (c) procedures whereby DGBudgetwill prepare loan withdrawal applications on basis of SOEs in respect of suchdisbursements in order to replenish the Special Account; and (d) a mechanismfor disbursement of a portion of the Bank loan against a positive list ofimports. t.s a condition of effectiveness, MOF would establish the SpecialAccount in Bank Indonesia.

44. Disbursement is expected to be completed in three years. Loan closurewould be scheduled for March 31, 1990. The disbursement period is basedupon the program time-slice to be financed as there is no exact precedentfor this type of operation in the Region.

45. Accounting and Auditing. Project accounts would be maintained byDGBudget in respect of program expenditures, and by the responsible agenciesin respect of technical assistance expenditures financed from loan proceedsstarting with accounts from COI's fiscal year ending March 31, 1987. Spe-cial Account records and SOE records for their respective withdrawal appli-cations woi'Id be maintained by DGBudget and Bank Indonesia. Assuranceswere obtained at negotiations that the project accounts, SOEs and the SpecialAccount would be audited by independent auditors acceptable to the Bank and anaudit report furnished to the Bank within nine months of the close of eachfiscal year.

III. JUSTIFICATION AND RISKS

Justification

46. The GGI's pngoing uroan infrastructure expenditure program for theremainder of Repelita iV represents a reasonably composed program whichwould produce high economic and social retur.:. Economic rates of return

21 -

(ERR) for sample subprojects in the program financed by the major donorsrepresenting 30% of the investments, range from 11% to 41%. These calcula-tions are not a complete measure of the ERR for investments and recurrentexpenditures in social services such as KIP, water supply and sanitation,because they do not adequately account for all the benefits which would resultfrom the new systems. An economic analysis of the project as a whole isfurther complicated by the large number of subsectors and projects representedin th.e program. However, the justification of the project is not based on itsERR but rather on the contribution it would make toward the provision ofuninterrupted and more efficient urban services and hence urban economic andsocial development. On the basis of the above sample of projects, about onehalf of the program beneficiaries would have incomes below the estimated urbanpoverty threshold of US$230 per capita (1983 prices). The program wouldimprove the health and environmental living conditions of the population,through the provision of improved water supplies and water pullution control,sewerage, drainage and solid waste services, roads, and slum upgrading, and isexpected to have a net positive environmental impact. The Action Plan wouldpromote better resource allocation in the future through improved planning andprioriization of investments and O&M in urban areas, as well as help changeurban infrastructure financing arrangements leading to more effective provi-sion of urban services.

Risks

47. In light of the Government's past lecord in responsible economic mana-gement and demonstrated willingness to carry out difficult reforms, and inview of the actions which have already taken place in the urban sector,there is every reason to believe that GOI is fully committed to carry outthe necessary steps to bring about the desired changes in the sector. Theprincipal risks are (a) that the expenditure program may be implemented moreslowly than expected; and (b) that the implementation of the short-termmeasures incorporated in the Action Plan may be prolonged by the difficul-ties of policy and institutional change. The expenditure program has beenreviewed with particular reterence to absorptive capacity of the variousimplementing agencies in order to minimize risk of delay. Progress on theAction Plan would be facilitated by consultant assistance and monitoredclosely by the PCU. Project progress would be reviewed thoroughly at mid-term to assess first year performance and confirm, inter alia, the secondyear expenditure program. At that point actions to strengthen programimplementation or cancel unusable loan funds would be initiz .ed if necessary.

IV. AGREEMENTS REACHED AND RECOMMENDATION

48. During negotiations confirmation was obtained on the following:

(a) the final sector expenditure program composition and costs, andquarterly sector expenditure and budget release schedules for FY87/88(para 20);

(b) Tim Koordinasi would prepare and carry out an annual review with theBank of the sector expenditure program (para 23),

- 22 -

(c) that GOI would carry out the agreed Statement of Policies for UrbanDevelopment and Action Plan, and review annually with the Bank progresson implementation of the measures included in the Action Plan (para 25);

(d) terms of reference and short-lists for all technical assistance andtraining required in support of the Action Plan (para 31) and projectmanagement (para 36);

(e) arrangements for project management and coordination (para 36);

(f) administration of the Special Account, SOE withdrawal procedures,and disbursement procedures for imports-based expenditures (para 43);and

(g) project auditing arrangements (para 45).

49. As conditions of effectiveness:

(a) the GOI's authorized budget for Fiscal Year 1987/1988 would includeallocations for the urban expenditure program accptable to the Bank (para20); and

(b) GOI would establish the Special Account in Bank Indonesia (para 43).

50. As a condition of disbursement of the amount of Bank loan related tothe FY88/89 sector expenditure program GOI would provide the Bank with satis-factory evidence that GOI's authorized budget for Fiscal Year 1988/1989includes allocations for the urban expenditure program acceptable to the Bank(para 20).

Recommendation

51. Subject to the above, the project is suitable for a Bank loan of US$270million equivalent, for a term of 20 years including a grace period of fiveyears at the standard variable interet rate. The Borrower will be theRepublic of Indonesia.

- 23 -

ANNEX 1Page 1

MINISTER OF PLANNING/CHAIRMANOF THE NATIONAL DEVELOPMENT PLANNING AGENCY (BAPPENAS)

REPUBLIC OF INDONESIA

No.: 1458/K/4/1987 Jakarta, April 11, 1987

Mr. Attila KaraosmanogluVice PresidentEast Asia & Pacific Regioral OfficeWorld Bank1818 H Street, N.W.Washington D.C.

Dear Mr. Karaosmanoglu,

As you are aware, the Government of The Republic ofIndonesia has negotiated with the World Bank a loan to support UrbanSector Investments in Indonesia during our fiscal years 1987/88 and1988/89.

The Government understands that the Bank is prepared to makethis loan, inter alia, because it has reviewed and supports thepolicies and programs of the Government in this sector. TheGovernment has, therefore, agreed to provide a summary of its policiesfor the Urban Sector together with its action plans. It is mypleasure to convey with this letter the Lequested Statement of Policyand Action Plan.

Yours sincerely,

(signed)

J.B. SumarlinMinister of National DevelopmentPlanning/Chairman of Bappenas

-24 - ANNEX IPage 2

GOVFR',EINT OF INDONESIA

Statement of Policies for Urban Development In Indonesia l-

A. Definition

Local governments refer to the Special Region of Jakarta (DKI), allurban Level II Governments, and any form of local administration that may bedesignated for contiguous urban areas.

B. Introduction

Among the many development activities which will be continued,expanded and improved in the Fourth Five-year Development Plan (Repelita IV),are construction and maintenance related to urban development, particularlythat of urban infrastructure. This is considered important not only becauseof the rapid growth of Indonesian cities due to natural increase in thepopulation and rural-urban migration, but also because of expectations anddemands of the urban population and industries.

Based on moderate assumptions, it is expected that the urban popula-tion will have increased from around 33 million (22% of total population) in1980 to 76 million (36% of total population) by the year 2000, with the urbangrowth rate of 4.3% per annum while the average annual growth rate of thetotal population is projected at only 1.8-1.9%. This also implies that abouttwo thirds of the total !.980-2000 population growth, or some 2.2 millionpeople per year on average, will accrue to urban areas.

Considering the projections above, it becomes clear that policiesneed to be continuously developed in order to better manage the growth ofIndonesian cities so as to achieve an appropriate balance between growth andoverall socio-economic development of the population, both between and withinthe cities themselves, and in the most efficient and equitable manner.

In this connection, a variety of measures are being implemented toupgrade government capabilities, especially at the Regional (Local) levels, toplan, implement and manage programs providing necessary urban infrastructuresuch as clean water supply, sanitation, drainage, roads, kampung improvement,garbage disposal, fire protection, market facilities and several others.

From Repelita I (1969-74) to the present, numerous efforts of theCentral Government have been made to address the needs of urban residents forsocial and economic infrastructure, by means of extensive assistance from theCentral Government and from the Local Governments' own resources, with theparticipation of the local community. Total annual expenditures on urban

~./ Version dated March 25, 1987 referred to in Minister of NationalDevelopment Planning/Chairman of 2appenas' letter of April 11, 1987, asagreed at negotiations.

- 25 - ANNEX IPage 3

infrastructure have grown in nominal terms from about Rp 6 billion in 1969/70to about Rp 360 billion in 1985/86.

Nevertheless, due to constraints in available financial and manpowerresources, and due to the rise Li demand for urban services as a function ofpopulation and socio-economic growth, the results of development carried outso far have not been sufficient to meet the needs. It is estimated, forexample,that at the end of Repelita III (1983) about 60% of the urban popula-tion did not have access to clean piped water, while about 80% did not haveadequate sanitation for disposal of household and human waste. It wasestimated at the beginning of Repelita IV that development and recurrentexpenditures totaling some Rp 900 billion per year, on average, would benecessary to provide a basic level of infrastructure services to the urbanpopulation during Repelita IV.

In line with the Basic Guidelines of State Policies (GBHN),especially in Repelita IV, all relevant efforts have been further increased toobtain the necessary resources and apply themii efficiently and equitably,including the assessment and adjustment, as appropriate, of the Government'spolicies applicable to urban infrastructure development, with particularreference to: (a) funct±onal and financial roles, mechanisms and responsibi-lities for infrastructure provision and maintenance; (b) local resourcemobilization; (c) efficient resource usage; and (d) institutionalcapabilities.

The goals expected to be achieved over the next five to ten yearsthrough these efforts include (a) effective decentralization of urban infra-structure planning, implementation and operation; (b) the strengthening ofLocal Government's responsibility for financing urban infrastructure; and(c) the strengthening of Local Government's capabilities to carry out theseresponsibilities. To date such initiatives include the application of anintegaated approach to urban infrastructure development programming (IUIDP),which has as basic principles: (i) functional decentralization and/or decon-centration of planning and program development, (ii) integration of physicalprograms, and (iii) integration of financial resources between Central andLocal Governments. In this context, a very important initiative includes theefforts to increase the revenues of Local Governments, among others, byestablishing a property tax (PBB) as a replacement of IPEDA. All theseinitiatives will be continued and expanded in the context of the followingpolicies and related objectives.

C. Policies and Objectives

Within the context of the considerations introduced above and theneed to expand the provision of urban infrastructure and increase thettichrnical, financial and institutional capabilities of Local. Governments, theGovernment reaffirmed the following established policies related to urbaninfrastructure development:

Policy 1: Development of urban infrastructure and the operation andmaintenance thereof, in principle, is within the authority and responsibilityof the Local Governments, with the assistance and guidance of the Provincial(Level I) and Central Governments.

- 26 - ANNEX IPage 4

Objectives:

(a) Provision of urban infrastructure and services will continue to be acooperative effort of all levels of government, with the goal ofLocal Governments eventually taking the leading role in urbandevelopment programs, while ultinotely the role of CentralGovernment will be mainly to pro'ide technical guidance.

(b) Local Government institutions will continue to be strengthenedespecially the agencies which will be responsible for urban servicesand urban infrastructure development in accordance w:th theirauthority and responsibility.

(c) Urban infrastructure definitions and classifications in all subsec-tors will be reviewed in order to define appropriate functional andfinancial responsibilities of Central, Provincial and Local Govern-ments in its planning, implementation, operation and maintenance.

Policy 2: Planning, programming and identification of investment prioritiesby all levels of Government for urban development will continue to be improvedby means of a decentralized and integrated approach which, among others, hasalready started through the "Integrated Urban Infrastructure DevelopmentProgramming" (IUIDP/P3KT) system.

Objectives:

(a) Local Governments will prepare plans for its overall investment andrecurrent needs for urban infrastructure development on the basis oftechnical guidelines issued from time to time by Central Government;these plans will be evaluated by Provincial (Level I) and CentralGovernments in order to provide required financial support andtechnical aasistance.

(b) The financial support and technical assistance of Central Governmentto Local Governments for the purpose of urban infrastructuredevelopment will be related to the varying levels of localcapability and the relative priority of urban infrastructureneeds. These positions will be established on the basis of therespective Provincial (Level I) and Local Governments developmentprograms and related budgetary resources (APBD).

(c) In setting expenditure priorities, emphasis will continue to begiven to the effective operation and maintenance needs of theexisting urban infrastructure, including rehabilitation, withparticular attention to reducing water losses, improving solid wastecollection and human waste disposal, maintaining access and reducingflooding. Infrastructure improvements benefiting the lower incomepopulation would also continue to receive priority.

Policy 3: In order to develop Local Government responsibility for providingurban infrastructure services, there will be further strengthening of theLocal Government's capability to mobilize resources and optimize the use offunds.

- 27 - ANNEX IPage 5

Objectives:

(a) In the context of the foregoing, systems, administration, proceduresand mechanisms will be continuously improved for all sources oflocal revenue, in particular:

(i) in view of the importance of assigning property tax (PBB)revenues for Local Governments, the PBB law will be fullyimplemented and its administration upgraded, includingadjustment of the prescribed assessment ratio as may beaopropriate from time to time, in order to expand revenues fromthis source;

(ii) taxes levied by Local Governments will be assessed in order toimprove administration of the more productive taxes;

(iii) service charges collected by Local Governments and theirenterprises will be adjusted to cover the cost of the servicesconcerned in accordance with Central Government policy whereapplicable.

(b) Improvement will be made in the management and supervision systemsof local government enterprises responsible for urban infrastructure3ervices (PDAMs, market authorities, sanitation units, parkingadministrations, etc.) by making improvements and adjustments inregulations and through manpower development in order that suchenterprises can be managed more effectively and efficiently.

(c) Improved financial management capability will be establishedparticularly in the areas of capital budgeting, accounting,information management, control and auditing in Local Governments.

(d) Local Government fiscal trends and performance will be monitoredthrough an information system to be established and updatedregularly.

Policy 4: In accordance with the principles of decentralization of urbaninfrastructure responsibilities, the Government will, in addition to themeasures described under poilcy 3, endeavor to improve the financing systemfor urban infrastructure systems. The purpose of the improvements would beto: (i) strengthen Central-Local Government borrowing scheme for LocalGovernment urban infrastructure investment needs and (ii) provide incentivesfor local resource mobilization and borrowing.

Objectives:

(a) Proceeds of foreign loans and funds available from appropriatedomestic sources will be consolidated ana channeled in the form ofloans or other forms to Local Governments or local urban servicesenterprises according to their ability to repay the loan and thefinancial/economic viability of the projects. In the long term, thepossibility is not excluded that this source may be used to financeother sectors of the overall local development program.

-28 - AMN=X IPage 6

(b) To endeavor that Central-Local development grant funds are allocatedand used more efficiently, allocation criteria will be improved. Toprovide incentives to Local Governments for local revenue generationand borrowing, improved criteria will also be developed forresources allocation.

Policy 5: The capability of Provincial (Level I) and Local Governments' staffand institutions to execute urban development activities more effectively inthe context of strengthening their roles and responsibilities will be enhancedby institutional development procedural improvement, where appropriate, aswell as training to be provided by means of a coordinated program of localgovernment manpower development.

Objectives:

(a) An overall assessment of Local. Government manpower and trainingneeds, with special emphasis on urban managers, will be conductedwhich will be used as a basis for preparing coordinated long-termmanpower planning and training programs for all urban governmentalunits.

gb) Emphasis will be given to raising the capabilities of urban develop-ment staff and institutions, as immediate priorities, in the areasof:

(1) local revenue administration, especially registration,assessment and collection;

(ii) planning and preparation of urban investment programs, projectimplementation and supervision; and

(iii) operation and maintenance, in order to carry out immediaterehabilitation of existing urban infrastructure, and to operateand maintain it adequately.

(c) Technical guidance will continue to be provided for all urbangovernment units in order to ensure successful implementation of theprogram for integration of urban infrastructure development andother programs requiring coordination.

Policy 6: Coordination and consultation between the various agencies andlevels of Government (Central, Provincial and Local) involved in the develop-ment of urban infrastructure and services will continue to be strengthened forthe smooth implementation of development activities and to provide a mechanismfor review and formulation of future sector policy recommendations.

29 - ANNEX IPage 7

Objectives:

(a) To facilitate urban infrastructure development activities and theimplementation of various measures intended to support theachievement of the above mentioned objectives and to ensuresynchronization of planning, financing, and implementation ofvarious urban development investments, an inter-agency CoordinationTeam for Urban Development will be established.

(b) Particular attention w;1l be giveia to developing the institutionalstructure, regulations and procedures necessary for the smooth flowof information between agencies involved in the management anddevelopment of urban infrastructure, and to developing capability tosupport future urban development policy review and recommendations.

D. Policy Action Plan

The policies and objectives for integrated urban development aselaborated in this Statement of Poiicies for Urban Development in Indonesiaare further operationalized through the attached Action Plan which is tobecome part of the formal agenda of the above-mentioned Coordination Team.

Jakarta, March 25, 1987

- H

cn II

INDONESIA

URBAN SECTOR LOAN

Policy Action Plan /a

Key steos during project period(04187-09189) (crucial stepsPolicy area/objectives Medium-ter. goals Actions proposed indicated by **) Timetable Monitoring indicators

1. Strengthen local government 1.01 Classify designated Assign working group that would de- ** Assign working group and provide 0#/87 Working group assignedresponsibility for urban Infrastruc- utrban Infrastructure in all fine classification policy (by Tim TORture development, operarion and Kotanadyas and assign func- Koordinast - TK); agencies te carrymaintenance: tional responsibilities o0Jt classification (by OcaBM, DGWRI, - Formulete Urball services inven- ;19/87 Functional classification(1987-91) DG(K, oGPUI,O0) torv and classification policies guidelines

(c D Deftne nnd classify urban and workplan to address allInfrastructure and assign Kotamadvastn,,ctlonal and ftinancial

responsibilities for plan- 5* Complete surveys and classifica- 07/88 Agreed classification

ning, implementation. oper- tions in ten cities maps -nd inventories

ation and atntenance tocentral. Level I and Level

- Conctinue rolling program of clas- commence Agreed classification11 governments

sification in remaining cities 07/88 maps and inventories(Kotamadvas and urbanizedKabupatens)

1.02 Define institutional, Study and assign responsibilities - Define issuies and workplan for 06/87 Agreed workplan.responsibilities for traffic for traffic management and policy resolutionmanagement in urban areas coordination (by OGBM, DGLT and(1987-R9) DGPUOD) - Assitn working group 10/87 Working Rroup assigned

Assign pbased responsibility to 03/89 !nstructions Issuedselected Level 1 citiles1.03 Develop program respon- Application of ll'IDP processes to ** Issue directives to MPW agencies 08/87 Directives issuedsibilities tor local govern- all urban infrastructure ser ices to apply IDIP Processes in urbanaents (IUIDP) including raw water supply, flood tnstructure planningProtection, urban roads, water sup-

ply and sanitation, solid waste nan- ** Issue directives to Level I and o)3/88 Directives issuedagement, drainage and KIP (by TK, It local governments to adoptMPW and MIA) [IDIP process approved by TK

2. Integr.ted expenditure planning 2.01 Develop and refine IUIDP Develop guidelines for non-CIpta - Develop multivear program alter- 02/88 Projections issuedanl programming improvement planning guidelines Karya subsectors within MPW as well natives

as Cipta Karva subsectors andlse(a ) local governments to pre- updated guidelines for all subsec- ** Issue annual updates of IIIIDP 09/8f Guidelines issuedPare investment plans on tors from time to time, Including guidelinesbasis of guidelines from multiyear financial information (by vCentrai Government

TK, MPW, MOF, KHA)

(b) financial support of localgovernments to be based onlocal capabilities andneeds

(c) emphasis to be given to O&Mprovisiio.s and low-incom.~group needs

A"~ ~ ~ ~ ~ ~~~~~~~F . *. -- 1. ... .r:s .r..r,.r ItI7-' 4I t t -1 I II e -rei. .o:; Artit -. rr'p'tscd 1:11 art-I t: **) Tittab,e Yonltririr indcT-at.-rs

I. Lt. + ... i-l ' . . tr..-itnt *t r- 1$,!tl julie ierfl.-rncnt l ilt rn, !..............Irgr.r c~e r.ttr;te- It- -rn ti 4f 'lt¾e- ** A:sit 'It i.lrtiavi,, jul......... 1:.i*-u -ia nJe - t'4 v7 P.dviSlbt annt,inted. ,U < ' -- ifZ<t 1:l * n-h, is lawr (I'i#B,-95) . rtv Iont fi'B!i; tlrrctt.n!::rt.i. rltt.1 mXe:t lxicis.trs t: in,rcir-ve '"hi -so-

taxz a-lrn in5vrair il tliuit e.i ) terns - i uu tss it !tvsall:sti.tti,

1 - .i! , roil *r r.l-, .r-tI - t;.fle- in di veltta I IN m ,1 x-natI a/8Y N--. ot properties valuedt I I .' I 1, *I ri tta'n-' : top-va 1tse trlper isi

lal triol anod two r.ther Oitit-

ITvl-i , y-t-rr - ti t - lrt - sc,xi-indiilttal lv 5,'' ; 'ino. of properties valued.oItt rttrtr.es biel-ca,t- ortl)Xerrries n !Akf,krta

l s Irnittlt-r oil .-'.veritrtt,tt - I .pgrale Index valttatitin sv-tern )9/87 No. of cities/areas/pro-'Itt trw i-il tsartixt-x-t'nt *-tori- i.t ->tiler orsoin proxrtte-, oewards nettleS classiftedhi lit It's

** T-rainine valtiers .ttd technicirans i/87 No. of trained valuers-twards and technicians

impr-ve tax ad,rittistration (49/47-rih/89 (i) Property coverage;thrt-ght updating registers, c-rn- (ii) Billing and collec-puteriatilon of hillint.s nd it- tion performance (revenueprttv,mrents in c.llection and growth)anpeals procedures

1.02 Imprnove cost recoverv Improve user tltargt-/r-ost recov.-rv ** Analyze -. st rec.tverv terf or-nattce oQ/.7 Improvement action nlanandt mb-a-ge-ert of all regi-nal perform.aice of PDAMs i .lava (by of all water enterrlIses sub)ct recommendationswater enterprises (1987 CCKj`/')CPl1iOD) to SKII 4Jt4-27/KP`TS/R4 and idt-n-onwards) tifv problem PDAMs

** Inpienent instructions cornencing commence No. of water enterprises fin -ava and Sumatra regarding the 08/87 c-rnpIvin-tadoption of (1) Water Tariff Istr,ucture and appropriate tarifflevel to cover O&M costs, depre-ciation or debt service (which-ever is larger) and (ii) at-count-Ing system for water enterprises,based on natisnal guidelines ofMPW,MRA

Assign water enterprise monittoring - Assi-in functions and provile bud- 12/87 PIrectives issued andand development fun,ctionls to or.ovirn- gets and staff to Central and ,,nits onerattonal in Javacial 9PUis throught,ut Indonesia (bv West .lava DPI sDGCK / DlPl;D)

- Appoint consultants to (i) assIst I2/87 Co,,ntract sienedfThus; and (ii) assist water

enter;risex

Review optimal water enterprise - Formulation of 1'Dk 18/87 Agreed TORorganization arrangements for altpro.vinces hased on efficIenr cri- - Appointment of consultants 09/87 Contract extension signedteria (h, TX, D(;MDN', OCPllr4, tlC:CK)

- Complete review of recomtewnda- t12/88 lava provinces structuretions for initial implementatit)n defined; implementationin Java timetable agreed

3.013 Improve revenue perfor- Improve the struct,re of local taxes ** Prepare instruments required 13j89 Instruments prepared ,

-ance of local taxes and ser- and charges (bv PGMVN/nGPlOD)vice charges (i587 onwards)

Iniplemnentatin of local tax offi-ce - V.luate Dilet tax office reform, 1 2/87 Evaluation reportand procedure reform (by DGPI'0D) in !!rhan IV' (Loan 1972-IND)

cities

- Appoint consultants to implem,,ent i21/h7-'i6/89 Contract signed; collec-tax office reform in selected tions growthcities and implement

Key Steps during project period(04/87-09189) (crucial stepsPolic- area/objectives Medium-term goals Actions proposed indicated bv **) Timetable Monitoring indicators

4. l'sprove ftnacing ysstems and 4.01 Provide a viable source Establish a Central-Local Government ** Assign consultants to review 08/87 Consultants asstgnedmechanism for urhan infrastr.cture of loan finance for local gov- borrowing scheme (bv DtG;DN) policies for the recently estab-and incentives for local resource ernments (19R7 onwards) - lished Regional nevelonmentmobiltzat on Account (RDA)

(a) freAte a consolidated loan - Consolidate existing domestic A8/87-06/88 Consolidated loan *echoa-run.- for local governments oan schemes and review (ii ism policies defined-commitments and disbursements to revised guidelines Irsaud(h) Improve gran.t al locatto.n tocal governments; (ti) lending if necessarvcriteria terms and interest rates; and(Iii) Level 11 debt service -atioguidelines

- Appoint consultants to assist in 113/P8 Contrazt signedoperationalizing RDA

- Prepare operating procedures, t4/88-03/8Q ODerating and accountingappr.isal and eligibility criter- manualsia, accountinF. system, and orga-nization arrangements

- Train staff and operationallze 04/q9 Staff tralned; RDA effee-RDA tive

4.02 Improve allocation mech- Improve allocation criteria and ** Assign working grurp fl8/87 Working group assigned 03nisms of grant finance guidellnes for Central-Local grant(1987-69) system (bV TK) - Review recommendations of onpoing 02188 Working group report vith

Central-Local prant syitems specific improvement pro- kposais

- Prepare instruments required for (03/89 Instruments Dreparedimpr-ve.ents in Central-Localfiscal relations

4.13 Improve information base Improve local zovernment financial - Peach agreemenc between 3P, and 08/87 Agreement reacbedfor policy development and and demographic information svstem other agencies on institutionaloporational decisions on local (by TK. 8PS/DGMIDNP)CPP01D and rolesgoverntent tinance DGAgraria)

- Complete detailed information 1919t8 Tested svstem designsystem design

- Impl-nent svstem 113939 Complete set of localgovernment revenue andexpendtture accounts ankdPopulation data for1 987/98

- Reacticate arhac mapping users P)A/87 Committee activerommi tt ce and p:epare actioin pl- .5.

- Appoint consultants to assi.t L 12/87 Contract signedAgrar, a in line nap Droductionfor PBS Durg.ses

- Produce hoc mans commen_cing WirIl On'!8 Maps lelivered to DCPaJakJava

Kev s!eps during' project period(04/87-09189) (crucial steps

tl,iHc arcafobjectives Nedium-ter. goals Actions proposed indicated by **) Titetable Monitoring indicators

S. Inroyuv.- l-cal g ..rlnment capa- S.fii Strengthen local govern- Carry out a comprehen.ive stud, ot * A-s gn working group and prepare '8/87 Agreed TORbi itieO ment institutions responsible urban institutional and manpower terms of reference

for nrban intrastructure developm-ent needs of local govern-(a) '-.vaiaro 1.. I governmnnt ments (bv MHA and Clvil Service * Appoint consultants 12t87 Sittned contract

aeeds, with particulrar em- Administration Agency - RAKN)ph-sis r,i u,rban managers - Review recommendations with the (5/89 Final report and agreedand c.nipr-ate long-term Hank recommendations to beLrAining~ PrgaMS reviewed by TK

0) R.aise staff caoab4lities in 5.(12 Strengthen management Revlev coordination arrangements - T.su- directrves to D/s 08/87 Instructions issuedlocal revepie i . .instra- and staffing capabilities in between MPW rGs in lilO}P process (bytifn- ;planniov and p-ogram- MPW XCs and Provincial Dinas MPW SecJen),tinq, ind no-eattons and PU, to provide guidance to,,ti,teo,lnce local Fovernments (1987-89) Identify staff skills, training and - Carry out intersil review of DrCCK )4 /89 Assessment finalized

experience required to provide ade- with assistance of managm-eo,t1'r,oviAe uiullance tn all quate managerent, technlc l and fi- consultantsg.nvenomeet units in coo,rdi- nancial advice to local governmentsoti in .of urban Aevelopment (by YPW, KtA and MERPAN)

n. Sirenithe- c.-rlination and con- 6.01 Effective policy coordi- Establishment of an interagency ** Issue Ministerial Decree (SK) 04/)1W87 Decree issued.o,iltari1 i,a the arbjn development nation in the urban sector and coordinating team for urban develop- establishing structure and

. -t.r development of mechanisms to ment and an executive secretariat resources of KADiJPPsupport urban policy review

,a) .st.ihlish an interagency and deciqion-aaking (IR97 - Assign standing working groups As needed Appointments madecoordinating team and ant onwards) inter alia for planning and Dro-.xecutive secretariat gramming. program implementation,

financial resources, and training (b) Develop coordination and institutional developament

arrangements and ahility to-support future urban devel- 6.02 Evaluate existing uirban Assign working group to guide - Draft work program and TORs for 08/87 Agreed vork nrozram.pent policy reviev and intfrastructure programs and medium-term plannitn and programming agency activities and technicalrecommendations prepare recomendations for and assign support teams to respec- assistance

medium-tert sector strategv tive agencies as needed in policyand Program structure, crite- option formulation and recommenda- ** Appoint consultants to respectivc 08/87 Contract signedria and targets, and tions (by TK) agencies as needed onwardsinstitutional arrangements(1987/88) - Conduct policy and technical op- 10/87-07/88 Working papers and recon-

tion analvses and formulate al- amendations to be reviewedternative scenario proposals and by TKrecommendations

-Issue guidance memorandum on se -07188 Memorandum tessuelected strategy ved

Issue regulations and procedures 08/88 Guidelines issued 4;for medium-term planning

- Prepare medium-term 5-year plan 12/88 Medium-term plan endorsedfor sector by TK

/Ia Version as attrched to the Scatement of Policies for lirSan Development in Indonesia, referred to in Minister of iational Development Planning/Chairman of BAPPENA'- letter of April 11, 1987.

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ANNEX 2Page 1 of 14

INDONESIA

URBAN SECTOR LOAN

Urban Infrastructure Expenditures 1979-89

1. Comprehensive data on Indonesia's urban sector expenditures, comprisingcapital investment and recurrent expenditures for raw and treated watersupply, sewerage and sanitation, flood protection and drainage, solid wastemanagement, KIP and roads for GOI FY1983/84 to 1988/89, have been assembledby DG Cipta Karya (DGCK) for the first time /. The expenditures includeinvestment and recurrent costs funded through (a) national budgets, i.e.,(i) the development grant budgets (DIPs) of DGCK, DG Bina Marga (DGBM) andDG Water Resources Development (DGWRD), including foreign loan funding; (ii)domestic loans (PDN) provided by Ministry of Finance (MOF); and (iii) INPRESgrants (Dati I and II, and INPRES Jalan) administered by Ministry of HomeAffairs (MHA); and (b) the development and routine budgets of Levels I andII local governments and their enterprises. The expenditures are summarizedin Table AO attached. Details of the expenditures by city size and bysubsector, and funding sources by agency are given in the attached tablesAl-A6. Expenditures from 1983/84 to 1985/86 are actuals; 1986/87 to 1988/89are projected on the basis of the appraisal findings shown in Table 1 below.

A - Expenditure Trends and Patterns

2. The COI's Repelita targets for national urban sector development pro-grams are given in Attachment 1. Projections by Bank staff at the beginningof Repelita IV suggested that an average level of expenditure of Rp 900billion p.a. (in 1986 prices) would be appropriate to meet growth needs andeliminate serious service backlogs at a level of basic needs. In real termshowever, the experience of the first three years, indicated a -9% declinep.a. in real expenditures and no real growth to date over Repelita IIIlevels. In nominal. terms the expenditure program as su.pported by the pro-posed loan will have grown at the equivalent of almost 19% p.a. on average,from a level of Rp 325 billion per year to Rp 765 billion per year in theperiod between the end of Repelita III and end of Repelita IV. Notwith-standing the acceleration during the last two years of the Repelita due tothe project, the program would still fall short - mainly because of thedramatic change in the revenue situation of GOI. The balance between deve-lopment (80% of total) and recurrent expenditure (20%) is reasonable interms of the estimated aggregate amount of capital stock, but recurrentexpenditure levels vary widely between sectors (para 32).

1/ The information contributing to this Annex was compiled by DG CiptaKarya with the assistance of its consultants Douglas Twigg, Antonio Aragonand Frank Condo,&, UNCHS-managed UNDP project INS/85/005 staff members EmilWegelin, Wim Stolte and Anthony Rissettio, and staff member Gert-Jan deKruijff and consultant Andrew Macoun of UNDP project INS/84/005 (managed byIBRD staff member John Courtney); DG Bina Marga and IBRD staff member Rich-ard C. Podolske; and DGWRD and IBRD staff member Daniel Gunaratnam. Informa-tion on expenditures prior to FY83/84 basefd on partial data is available inthe Bank's Urban Services Sector Report cf July 1984 (Report No. 4800-IND).

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ANNEX 2Page 2 of 14

Table 1: 8UHHARY APPLICATIONS AND SOURCES FY1987/88 AND p11981/89----------------------------------------------- _--______--__---__------------__-

1987/88 1988/89 Total 1987/88 1988/89 Total----- Rp billion ----- ---------- X -----------

Application of Funds:

Development Expenditures: 613.2 597.2 1210.5 81.7 78.0 79.9

Water Supply 265.2 226.4 491.6 35.3 29.6 32.4Human Waste 30.G 20.5 50.5 4.0 2.7 3.3Drainage and Flood 131.9 143.5 275.5 17.6 18.7 18.2Solid Waste 18.1 17.2 35.3 2.4 2.3 2.3KIP 37.5 49.1 86.6 5.0 6.4 5.7Roads 84.3 ;00.5 184.8 11.2 13.1 12.2Prograinig, Training MHgmnt 46.2 40.0 86.2 6.2 5.2 5.7

Operation and Maintenance 137.3 168.2 305.5 18.3 22.0 20.2

Total 750.6 765.4 1516.0 100.0 100.0 100.0

Sources of Funds-

DIP: 178.6 201.1 379.7 23.8 26.3 25.0

Cipta Karya 105.3 102.5 207.8 14.0 13.4 13.7Pengairan 43.9 40.7 84.6 5.8 5.3 5.6Sins Marga 20.5 48.2 68.7 2.7 6.3 4.5Other 9.0 9.6 18.6 1.2 1.3 1.2

Foreign Aid: 266.1 243.6 509.7 35.5 31.8 33.6

Ciata Karya 178.6 132.6 311.2 23.8 17.3 20.5Pengairan 72.3 81.3 153.6 9.6 10.6 10.1BLna Marga 13.8 28.4 42.2 1.8 3.7 2.8Other 1.5 1.3 2.8

Subtotal (DIP + Foreign) 444.8 444.7 889.4 59.3 58.1 58.7

Domestic Loans 39.4 44.7 84.0 5.2 5.8 5.5

APBD I & II (inel. INPRgS): 266.5 276.1 542.6 35.5 36.1 35.8

Level I 21.2 15.3 36.5 2.8 2.0 2.4Level II 146.4 145.6 292.0 19.5 19.0 19.3PDAN 98.9 115.2 214.1 13.2 15.1 14.1

Subtotal Local Expenditures 305.9 320.8 626.6 40.8 41.9 41.3

Total /a 750.6 765.4 1516.0 100.0 100.0 100.0

/a Not of taxes estimated at Rp 71.5 billion and including price contin&encies (4%)

3. As shown in the following Figure (based on Table 3), in real terms theproposed program will have grown about 9% p.a. on average between FY83/84 andFY88/89 (line tl). In view of an urban population growth of over 4% p.a. andservice backlogs this appears reasonable. Without the proposed loan the

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ANNEX 2Page 3 of 14

Figure 1: Total Urban ExpendituresTime Series Results

540 -

520 -

500 -

480 - /

V4

400-

380-

0 360-"-4X4 340-

320 -

300- -

280-

260-1983/84 1984/85 1985/86 1986/87 1987/88 1988/89

Actual + ti v t2 a t3

sector funding trend would indicate a significant decline based on the firstthree year's expenditures from 1985/85 to 1986/87 (line t3). The desirabletrend (line t2) based on the expenditures from 1983/84 to 1985/86, shows thatthe proposed program is still slightly behind. The overall trends, however,mask an uneven pattern of growth (and decline) from year to year - reflectingbudgetary constraints - with the last years' expenditures represen:.-ing acatching-up on deferred projects. The overall picture also masks considerablevariation among individual subsector trends (Table 2 below).

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ANNEX 2Page 4 of 14

TABLE 2 - REAL ANNUAL GROWTH RATES IN URBAN EXPENDITURES (I p.a.)

Subsector 84/85 85/86 86/87 87/88 88/89 Average

Development expenditures: 23.4 -1.9 -20.1 78.4 -6.9 9.9

Water supply 21.8 15.7 -18.1 101.4 -18.4 13.7Sewerage and sanitation 25.4 23.6 25.5 51.4 -34.9 13.8Drainage and flood prot. -7.8 33.4 -21.0 164.2 4.0 21.7Solid waste -28.7 -40.2 -25.4 153.1 -9.0 -6.2KIP -36.5 33.7 -48.7 47.4 -25.0 -4.3Roads 115.8 -45.5 -16.8 9.8 13.9 4.1Pianning and engineering -16.8 128.6 -16.2 40.8 -17.2 13.2

Operations and maintenance 8.1 16.1 -12.7 12.2 17.0 7.6

TOTAL 19.7 2.0 -18.3 61.0 -2.6 9.4

4. Water supply (raw and treated), sewerage/sanitation, and floodprotection/drainage investments show the largest growth. Sewerageinvestments are growing from a very small base, but growth in the othertwo subsectors represent relatively well-established programs ofexperienced agencies. Roads investments show minimal growth but pastlevels vary erratically. The declir.e in KIP, solid waste management,and concommitant low-cost sanitation expenditures is a cause forconcern in view of the significance of these programs to GOI's equityand environmental protection objectives. Following is a briefdiscussion of subsector characteristics and issues, to be consideredby KADUPP in the formulation of sector strategy and policy for RepelitaV (Annex 10).

B - Subsector Backgrounds and Issues

Water SUpplY

5. Background Treated water supply is the responsibLlity of localgovernments, either as a Dinas or local enterprise (PDAM). Developmentof new water supply enterprises and many existing system expansioninvestments is the responsibility of DGCK which has, with strongassistance from the Bank and other donors since the inception in 1974,established a significant capital works program and, more recently, agrowing institutional development capacity in the sector. Monitoringof water enterprises' performance is the nominal responsibility of MHA,but DGCK is in practice the main source of technical assistance. Bulkraw water supply, which is of particular importance to large cities, isthe responsibility of DGWRD - usually through its provincial units.

- 39 -

ANNEX 2Page 5 of 14

6. Program Features and Issues Water supply expenditures have grown signi-ficantly during Repelita IV and would constitute Rp 677 billion or nearly onehalf of total urban program expenditures in the next two years; about two-thirds for development and the remainder for recurrent expenditures (TableAl). DGCK is responsible for 51% of the budgeted expenditures (mainly fordevelopment purposes and concentrated chiefly in 10 large foreign-fundedprojects - Table Al.l). DGWRD is responsible for about 4% - relating mainlyto one major raw water supply project (Table A1.2). Local governments andtheir PDAMs would provide the balance (45%) including most recurrent expendi-tures, financed from domestic loans (11%), internal cash generation and someINPRES grants. The works include civil works and equipment expenditures in(i) 6 major cities for expansion of treatment and distribution systems total-ling 5.1 cu.m/s; (ii) basic needs systems (chiefly deepwell sources and dis-tribution systems ranging from less than 0.01 0.1 cu.m/s each) in some 160cities and towns: (iii) small extensions to existing systems in about 190towns; and (iv) rehabilitation and O&M in PDAMs nationwide. The program isexpected to provide about 95,000 connections and 1300 standpipes per year,serving a total of about 2.5 million people. Details of the program areavailable in project files (Annex 15). Although the Government has made goodprogress toward its goals for water supply provision, several issues are nowevident: (a) program balance is distorted toward small-medium cities wheredemand is relatively low and cost recovery weak; (b) unit investment costsoverall (US$166/capi.ta) are quite high; (c) large city levels of service arerelatively low and worsening; (d) operation and maintenance capabilities havefallen behind; and (e) water resource management issues including raw waterallocations and water pollution control are becoming prominent in largercities,

7. The distribution of expenditures among cities has changed since 1983/4with greater emphasis on small-medium cities - despite the severest (and mostpressing) backlogs being evident in large cities. During the proposed programperiod about 32% of DGCK-managed development budgets would be spent in Jakartaand other major cities (with over half of the urban population); 39% inmedium-sized cities; and 19% in small (IKK) towns. This reflects in partdistortions caused by the current incentives in water supply financing poli-cies of GOI which primarily provides grants for basic needs systems in small-medium cities. DGCK resources are heavily concentrated in the planning andexecution of such programs and local governments typically play a minor role,often leading to operational difficulties. Demand is often low and costrecovery is difficult in smaller cities despite low unit costs (US$40/capita)in some cases, and many BPAM/PDAMs are unlikely to be large enough to reachbreak-even in the foreseeable future. Large cities, generally have existingaverage levels of service close to or higher than their designated basic needslevels (90-120 l/c/d for 60% of the population) and are usually profitable,hence able to use loans when available to finance their expansions, but low-income group supplies are often poorly provided for in these systems. LargePDAMs play a larger role in investment decision-making but consultation withDGCK and DGWRD is often more complex and progress slow; even more so recentlyin view of a growing scarcity in domestic loan financing. DGWRD's river bas.nmanagement capabilities are in process of formalization which should improveraw water allocations and pollution control in future.

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ANNEX 2Page 6 of 14

8. The accelerated development in recent years has generallyoutstripped the operational capabilities of the Kabupatens and smallerKotamadyas, and not always led to expected levels of revenue and costrecovery. Many water enterprises are newly formed BPAMs, subject toDGCK administration until reaching a viable level of operation. DIPbudgets currently include Rp 9.3 billion for O&M support of BPA.Is.Operations of BPAMs and PDAMs alike suffer from management and staffingweaknesses as well as inadequate cost recovery. DGCK and, to a lesserextent, MHA are beginning to give attention to manpower development withassistance from Loans 2275 and 2632-IND, but overall needs are verylarge. A recent assessment estimated some 40,000 water supply staffwill be required and must receive training but in view of other localgovernment manpower development needs these levels are unlikely to bemet in the short-term.

9. Repelita V GOI's Action Plan for the sector will address thefolegoing issues. Specific attention will be given to improvement ofcost recovery and enterprise management, commencing with Java (seeArniix 5). Planning for Repelita N water supply program will be givenparticular attention by KADUPP and its water resources working group(see Annex 1.0). The group is expected to focus on (a) optimaloigaanization of water enterprises to facilitate management andoperation tor full financial viability; (b) strengthening of sector'rperatior1s arid maintenance capabilities; (c) improved planning andprioritization of investments and O&M expenditures through implement-ai,on of (i) decentralized integrated planning and programmingprocedures; (ii) guidelines for planning and financing of investmentsand (iii) strengthening of agencies responsible for sector planning andoversight; and (d) appropriate sector development strategy, includingwater resources management for urban areas.

Sewerage and Sanitation

10. Background In recognition of the relatively low levels ofsanritation in Indonesia's urban areas, long regarded as a matter forprivate household investment, GOI gave prominence to development of thehuman waste disposal subsector in 1984 by establishing a separateDirectorate of Environmental Sanitation (Dt PLP) in DGCK, responsiblefor sewerage and sanitation, as well as drainage and solid waste. Theprimary task of DtPLP was to support the KIP program with complementaryprograms but several ongoing, major sewerage pilot schemes and othercity-wide programs were also inherited. The new directorate isturrently attempting to develop its limited capabilities to address theRepelita IV goals set for the subsector with assistance from UNDP andbilateral agencies as well as support from Bank loans 2236-IND and2408-IND. A discussion of the drainage and solid waste subsectors isirJvon in paras 15 and 19 respectively. Emphasis in the human waste (or

excreta disposal) sector to date has been given to implementation of!3(wcrage systems in a few major cities. The relatively low afford-;bil i'!' of high-cost sewerage systems limits their applicability in'I-:dLesia. By contrast low-cost sanitation approaches as originally

- 41 -

ANNEX 2Page 7 of 14

developed under the KIP programs are receiving relatively littleattention. Planning of subsector investment programs is theresponsibility of Directorate Bina Program (DtBP), itself relativelyinexperienced in the task. Strengthening of the subsector and itsinstitutional capabilities will be a major task for Repelita V.

11. Program features and issues The two-year expenditure programwould total Rp 52 billion which would be almost all developmentexpenditure (Table A2). Details of O& expenditures were unavailablebut in view of the few operational units dealing with this sector andthe limited responsibility taken by local governments to date, O&Mexpenditures are likely to be small. The expenditures are mainly forpilot sewerage schemes in 4 large cities but amount to less than 10% ofwater supply expenditures. The issues for sector as mentioned aboveare (a) development of sector planning capabilities; (Q) development oflow-cost sanitation approaches as a major component of the human wastedisposal strategy. Details of the program are available in projectfiles (Annex 15)

12. Institutional development The backlog in service coupled withthe increasing availability of piped water supplies places clearpriority on development of a suitable plan for the sector. The absenceof clear direction for the subsector is a severe constraint. Responsi-bility is currently divided between DtBP, DtPLP, and also DirectorateHousing (DtPer) - responsible for the KIP program (para 23). DGCK willform a working group from among these Directorates in order to developa more effective distribution of responsibilities in the context of theIUIDP planning and programming system, coordinated with ongoing UNCHS-supported Ministry of Health efforts. At the same time it is expectedthat the Ministry of Population and Environment - responsible for enviro-nmental protection policy - will encourage a stronger emphasis on waterpollution control which is now a major problem in major cities. Thestrategy for human waste disposal which will address both health andwater pollution issues would be a major focus for KADUPP's strategicthinking for Repelita V. The DGCK working group would focus on develop-ment of the technology and institutional requirements needed to supportcities in planning, implementation and operation of the facilities.

13. Human waste disposal strategy A range of options for human wastedisposal are open to Indonesia's cities depending mainly uponaffordability. Sewerage solutions are presently limited to high valueand high income areas. At the other end of the scale the publictoilets (or MCKs) promoted under KIP projects have a limitedapplication to densely populated, low income areas. An intermediate,household-based solution suitable for mass delivery for low-middleincome families is required together with suitable financing anddelivery systems. The prov'sion of facilities in private householdshas not been carried out to any significant degree in GOI programsalthough about 3,000 latrines were provided by Jakarta under the KIPprogram. Appropriate systems are under development with UNDPassistance, and possibly other alternatives would be developed under

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ANNEX 2Page 8 of 14

DGCK's ongoing IUIDP-planning technical assistance effort. Theseoptions would be considered by the abovementioned KADUPP working groupin finalizing Repelita V strategy.

14. Repelita V The Repelita V expenditure program should see aconsiuerable increase in hutan waste disposal-related investments,particularly in low-cost systems for individual households. Theprog,am must begin to bear some relationship to the water supplyinvestment program in order to cope with increasing waste waterdisposal and water pollution problems. However, attention to thestrengthening of sector planning capabilities followed by developmentof implementation capacity and commensurate operations and maintenancecapabilities will be necessary as a prerequisite to major growth.

Draipage and Flood Protection

15. Background Flood protection of urban areas involves measuresboth external and internal to the city. Flood control measures inupstream (and downstream) river basin areas are et.sential to avoidmajor inundation from overbank flows, particularly in tidal areas. Awell-functioning drainage system is, of course, essential to preventlocal flooding and to convey waste water effectively. DGWRD isresponsible for flood control in main river systems through itsDirectorate of Rivers (Dt Sungai or DtS). About 30% of DtS's programfor protection of 500,000 ha during Repelita IV relates to urbanizedareas in 14 major and 30 minor centers containing 16 million people.The DtS flood control program is financed wholly by central government.Local governments are responsible for city drainage systems but it isnot always clear what elements are part of the local or main systems,although a satisfactory mechanism for coordination between DtS and thecities exists. DGCK assists local governments in the improvement oftheir main drainage system elements, but most expenditures are forminor drains and funded by the local governments. The trend, however,has been toward main system improvements with greater centralgovernment grant assistance. In FY83/84 local governments provided Rp4.6 billion or 82% of drainage funding; whereas in 1986/87 the share isexpected to be 68%, although funding would increase to Rp 13 billion(Table A4).

16. Program Features and Issues The proposed two-year subsectorprogram expenditure would total Rp 298 billion of which flood controlwould amount to Rp 215 billion or 72% (Table A4.1) and drainage Rp 83billion or 28% (Table A4.2). About 10% of these expenditures would befor O&M. Details of the expenditures are available in project files(Annex 15). The DGWRD program would consist chiefly of civil works forthe improvement of over 930 km of channelq for the protection of npPrly190,000 ha, including 129,000 ha in 14 of Indonesia's larger floodpronecities. The DGCK and local government programs would address internaldrainage deficiencies in 12 of the abovementioned cities, as well asminor works, rehabilitation and O&M in cities and towns nationwide. Themain issues in the sector are (a) ad-hoc flood control planning for

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ANNEX 2Page 9 of 14

urban areas, often with little coordination with city authorities; (b)an absence of technical standards and cost recovery for urban floodcontrol and drainage; and (c) improvement of operations and maintenance.

17. Sector Planning and Oversight DGWRD would continue to beresponsible for flood control in river basins, possibly through riverbasin authorities in future (as now being considered for the Jatiluhurand Brantas systems), which would improve coordination of basinoperations (i.e., water allocation, pollution control and floodcontrol) and their financing. In the meantime DtS would develop itstechnical capabilities in urban flood control and strengthen itsprovincial representation in Dinas PU to coordinate more effectivelywith local governments and DGCK. A joint DGWRD/DGCK/MHA task forcewould be formed to develop coordination, cost sharing, cost recoveryand hand-over arrangements in accordance with IUIDP procedures underthe direction of TK. Classification of systems would be carriedout in order to clarify functional and financial responsibilitiesbetween DGWRD and local governments. DGCK would also developstandards, cost sharing and cost recovery criteria for urban drainage,as well as a training program for local government drainage staff.Training by DGWRD and DGCK would emphasize O&M.

18. Cost Recovery Present costs of flood protection vary from Rp1.5 million to over Rp 5 million per ha. On average this would suggesta level of cost recovery equivalent to Rp 350,000 per ha in order tomaintain systems effectively. This level is unlikely to be covered byPBB revenues at present assessment rates for urban areas. Anotherpossible source would be a poll tax possibly covering not only drainagebut also sewerage and sanitation services. These and other optionswould be reviewed by TK for possible application during Repelita V.

Solid Waste Management

19. Background Solid waste management is fully a local governmentresponsibility, usually carried out by a service Dinas but in one city(Bandung) a local enterprise has been formed and similar moves arelikely in other large cities. DGCK assists local governments indevelopment of new solid waste management services and in many existingsystem expansions. In recognition of the significance of solid wastemanagement in public health matters, Repelita IV targets expect DGCK toprovide assistance to some 200 cities (in contrast to 15 citiesassisted over the previous Repelita. To help achieve this objective,among other things, DGCK was reorganized in 1984 to create the DirPLP(para 10) including a Subdt of Solid Waste. The main thrust of DGCK'sprogram to date has been in collection systems in support of KIPprojects through a modular system approach (aimed at providing 50%coverage of domestic waste and 100% of commercial waste), and indevelopment of environmentally acceptable disposal methods, but animportant feature is the institutional development aspect of theprogram. DGCK capacity is still limited, however, and although

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ANNEX 2Page 10 of 14

projects are currently ongoing or planned in about 80 cities an overalldecline in expenditures is expected in real terms. Planningof future solid waste investments will be dependent on the IUIDPprocess. Significant strides must yet be made in providing reasonablesolid waste services in Indonesia and the institutional developmentrole of DirPLP will be crucial to effective progress.

20. Program Features and Issues Expenditures on solid wastemanagement during the next two years will total about Rp43 billion ofwhich about 18% would be for O&M (Table A3). Local expenditure infor-mation including O&M is not complete however. DGCK would manage about50% of proposed expenditures which would be a significant increase overearlier years. Details of the program are available in project files(Annex 15). The issues for the subsector are: (a) institutionaldevelopment and strengthening of DirPLP technical assistance capacity;and (b) cost recovery for solid waste services.

21. Local institutional development Local government solid wastemanagement services often do not fully recover their operating costs,much less cover depreciation of this equipment intensive sector. Lackof management skills and experience, unsuitable equipment, and poormaintenance, all contribute to low productivity and the inability ofcities to provide reasonable service coverage. DGCK programsincreasingly include assistance in development of local institutionalcapacity as well as advice on technology, procurement and system designbut DirPLP capacity and experience is limited. An ongoing study by MHAis currently investigating solid waste operations institutional policyand is expected to help define the training role of DGCK. Technicalassistance would be provided under the action plan to assist DGCKdevelop a training program. The same study will also examine costrecovery options and make recommendations on strengthening of costaccounting, work planning and tarifs. Well-established Dinas (e.g. inJakarta and Surabaya) are expected to convert to financially viablelocal enterprises during Repelita V. In order to have greater impacton institutional development future DG';K supported programs should aimat city-wide system development in addition to KIP support.

22. Repelita V Planning for Repelita V should be based on a clearstrategy for solid waste management sector development which willsupport institutional development and better cost recovery for theservice. DGCK should also provide local governments with clear planningguidelines for the sector as part of the IUIDP process.

KIP

23. Background Kampung improvement or KIP has been a major urbansector activity in Indonesia since 1974. KIP consists of small-scale,multisectoral infrastructure investments (typically footpaths,micro-d iinage, standpipes, MCKs, solid waste collection and healthcenters) in low-middle income areas, planned and executed by localgovernments. The Bank has participated to date in KIP projects

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ANNEX 2Page 11 of 14

totalling over US$400 million, and similar support has been provided byother donors. Originally financed entirely by the local governments ofthe larger cities, in recent years DGCK has attempted to stimulate suchprograms in all cities by means of grant support for minimal coverageand matching grants for higher levels of coverage. Some 7,000 ha wereimproved during Repelita II, increasing to 15,000 ha in Repelita III.To date during Repelita IV sorne 9.600 ha have been improved to variousdegrees in 278 cities, together with 230 ha of market area improvement(MIP) in 43 cities. This was, however, only 75% of plannedexpenditures and also reflects a decline in coverage standards, i.e.,fewer services per ha. Weak direction of the program (partly due todiversification in the Directorate concerned, together with a change inplanning responsibilities in DGCK and a shift by donors to support ofprimary infrastructure in recent years), has resulted in the decline inKIP expenditures. Also in some larger cities (e.g. Jakarta) theinitial KIP coverage is almost complete. However, many kampungs remainuntouched, and many of the early kampungs covered 10-15 years agorequire rehabilitation or infilling. The revitalization of the KIPprogram would be a significant step in ensuring that urban developmentbenefits reach the urban poor. The current series of IUIDP planningstudies is expected to result in a renewed focus on KIP but somereformulation of program guidelines would provide a basis for a moresustainable investment program.

24. Program features KIP investments during the proposed programyears would total almost Rp87 billion (Table A5). This represents 6%of total urban expenditures - in contrast to 12% at end-Repelita III.Investments would cover about 4,500 ha, but mostly at the minimalcoverage standard (i.e., Rp2.8 million per ha), other than in theforeign-funded projects. Details of the investment program areavailable in the project file (Annex 15).

25. Program development Future KIP products should be diversified toaddress: (a) infilling and upgrading of areas previously provided withminimal coverage; (b) rehabilitation of older KIP areas where serviceshave deteriorated; (c) provision of water supply and sanitation wherepreviously neglected; (d) 'guided KIP' in urbanizing fringe areas toassist newcomers and landowners to subdivide rationally. More import-antly, there should be more flexibility in the allocation of costs tosuit actual kampung conditions and the DIP should be used only as amatching grant to mobilize local government and community-levelcontributions. However, most important would be the strengthening ofthe DGCK organization responsible for management of KIP in order todevelop the new strategy, and oversee planning and implementation ofthe Repelita V program.

26. Sector planning and oversight With the introduction of Dt BinaProgram (DtBP) two years ago, the responsibility for guidance of citiesin planning of their investment and 0&?4 programs passed from thesectoralized line directorates to DtBP. Together with the impendingreduction in their direct implementation responsibilities, the line

- 46 -

ANNEX 2Page 12 of 14

directorates have to adapt to their new roles and redefine theirfunctions and staffing to focus more on policies, standards, andtechnical assistance and monitoring of 'Local governments. Moreover,with the simultaneous creation of Dt Environmental Sanitation (DtPLP)the responsibility for sanitation sector matters (previously managedand delivered through KIP - and therefore the responsibility of DtHousing (Perumahan or DtPer)) became confused. The adaptation processis proceeding slowly and greater clarity is needed in defining futureroles. It is proposed that a DGCK working group should be formed fromDtBP, DtPLP and DtPer to consider ways and means to respond to KADUPPdirectives on future KIP strategy, and to rationalize responsibilitiesand organization in DGCK to meet Repelita V objectives for KIP.

27. Repelita V Planning Strategic guidance would be provided byKADUPP based on analytical work by the proposed DGCK working groupconcerning: (a) functional and financial responsibilities for KIP; (b)appropriate technology, coverage standards and financing/implementationarrangements; (c) appropriate levels of service and public awareness;and (d) institutional arrangements for planning, implementation andcoordination of investment and O&M in the context of IUIDP.

Roads

28. Background Traffic conditions have been deteriorating inIndonesia's cities over the past decade, caused in large part by analmost 15% annual increase in the number of motor vehicles. At thesan.e time there has been a serious degradation of the road networkwhich indicates likely early structural failure of 17% of the mainurban road network, and that capacity is severely constrained in nearlyone-third of the system. Weak traffic engineering capabilities andpoor OQM capacity are significant factors in increasing vehicleoperating costs. Prime responsibility for sector planning andoversight lies in DG Bina Marga (DGBM) and in DG Land Transport (DGLT);the former being responsible for planning, construction and O&M ofthe national road network, and the latter for planning of all othertransport modes. A separate public enterprise, Jasa Marga, responsibleto DGBM, has been established to provide and operate urban andinter-urban toll roads. Central government spending on urban roadshas amounted to about 30% of total non-toll expenditures and centralgovernment grants to local authorities account for a further 50%;locally generated funds account for the remainder. DIP expenditures onurban roads (Table A6) have varied widely in past years (Rp 77 billionin FY83/84 to Rp 154 billion in FY 84/85), reflecting ad-hoc centralplanning (e.g. heavy expenditures in Jakarta during FY84/85 and 85/86included investments by DGBM in access to the new Jakarta airport).INPRES and local axpenditures have been more consistent, amounting toabout Rp 65 billion p.a. on average.

29. Program features and issues Total expenditures on urban roadswill amount to about Rp 274 billion over the two-year program period.Development expenditures in Jakarta (24%), large cities, (Bandung,

- 47 -

ANNEX 2Page 13 of 14

Medan, Semarang and Surabaya - 21%), and 16 other cities (21%) amountto about two-thirds of total and O&M in all cities accounts for thebalance. Details of the program are available in the project file(Annex 15). Issues for the subsector include (a) investment programimbalance; (b) weak sector planning; and (c) limited local governmentcapabilities, especially in traffic management and O&M.

30. Planning and Programming The program balance reflects adistribution of development expenditures roughly consistent with urbanpopulation distribution but masks a substantial underinvestment inrelation to needs. The vehicle population is overwhelminglyconcentrated in the five largest cities. Planning trends in DGBM,however, s'ow an overly-large concentration of proposed Jasa Marga tollroad investments in metropolitan and large cities. This approachalthough supposedly self-financing to some degree is not likely to bethe most cost effective solution to pressing traffic ard transportproblems. However, efforts by DGBM to involve the private sector infinancing of toll roads is a promising development, Financing isnonetheless seen to be the chief constraint to subsectoir growth andlocal government contributions in particular must increasesignificantly if an appropriate level of investment and O&M is to beachieved. Cost recovery options, including a possible provincialgasoline tax are to be explored (Annex 6). In line with theirincreasing financial responsibilities, local governments will in futuretake an increasing role in planning and decision making through theIUIDP process now being adopted by DGBM. To facilitate planning,functional and financial responsibilities for national, provincial andlocal roads have been classified and will be formally adopted as partof GOI's Action Plan (Annex 10). The need and capacity exist for muchgreater levels of investment in the sector, and the proposed Jakartaand Regional Cities Urban Transport Projects should help in stabilizingfuture trends on a sound basis. Future 5-year rolling programs areexpected to be reviewed annually by the Bank under the forthcomingRegional Cities Urban Transport Project which would also addressstrengthening of local O&M and traffic planning capabilities.

31. Urban traffic management responsibilities (i.e., road capacityimprovements, traffic control and signing, public transport regulationand traffic law enforcement) ere currently inappropriately distributedbetween DGBM, DGLT, the national police force and local governments.All these agencies, participate in each of these functions to somedegree, often without coordination. To clarify matters and strengthentraffic management it is proposed that (a) primary responsibility fortraffic engineering and management be assigned to local governmentfollowing development of their capacity; (b) at the national level,sole responsibility be assigned to DGBM for the development ofstandards for road capacity improvement and the associated provision oftraffic control and regulatory devices, and a technical assistancecapacity developed in order to train local government staff; and (c)DGLT take full responsibility at the national level for development ofpublic transport planning and regulation and gradually devolve this

- 48 -

ANNEX 2Page 14 of 14

function to local governments. Under GOI's Action Plan a Tim Koordinasiworking group would be formed to review this issue and makerecommendations.

C - Operations and Maintenance

32. While the overall conclusion that the program O&M expenditures ofabout Rp 300 billion are not unreasonable in general, is fair - theserepresent about 3% of estimated capital stock - the data obtained forO&M are incomplete and actuial levels could be more or less. Thefur.etional breakdown is based on local entities' judgment as currentlocal government bu'geting systems do not reflect costs on the basis offunctional cost centers. Such accounting practices, as well as weakorganization, make O&M not only difficult to identify among pastexpenditures, but also impossible to plan and implement effectively.O&M is entirely a local government responsibility (although salaries oflocal permanent officials are financed by centrally-funded SDO grants).

33. About 90% of the projected program expenditures reflect watersupply and roads O&M. The water supply O&M expenditure levels (60%of total) in particular appear satisfactory overall; these aregenerally fully covered by BPAM/PDAM revenues. Road O&M expenditures(25-30% of total) account for 25-30% of local government expenditure onroads but there is some evidence that these are made too late foroptimal benefit. Earlier routine maintenance would help prolongpavement life and reduce overall costs. Flood protection anddrainage O&M expenditures are the third largest (7% of total) butinadequate in terms of overall capital stock and effective routinemaintenance of local drains. Solid waste O&M expenditures may beunder-reported but are likely inadequate. KIP maintenance isr,articularlv poor; the present program places almost total emphasis oninvestment. O&M in KIP is expected to be provided by the beneficiariesthrough self-help methods but these are rarely effective, often due tolack of local involvement in planning and prioritization. In general,local organization and staffing for O&M is weak, budgeting isunreliable and systematic planning absent. Expenditures are made on a'worst-first' basis which, as mentioned above, leads to sub-optimalmaintenance.

33. Funding levels notwithstanding, the chief issues in O&M are (a)institutional strengthening, i.e., development of effective O&Morganization, management and cost accounting, and hence planning andbudgeting systems; (b) reliable financing, through appropriate costrecovery; (c) cost effective 0&M strategy development; and (d) trainingof staff in cost effective planning. cost accounting, and maintenancetechniques. A study financed from Loan 2408-IND is being carried outby MHA to determine more effective O&M policies for local governments.The study will develop recommendations for a series of incrementalchanges organizational approaches and operational procedures for trialimplementation in four large cities during 1987-88. The experiencefrom this effort is expected to be widely replicated during Repelita V.

INDONESIA

URBAN SECTOR LOAN

Summary Application and Sources of Funds (Real 1983/84 Rupiahs)

1983/84 19R4185 1985/86 1986/87 1987/88 1988/89 1983/84 1984/95 1985/86 1986/87 1987/88 1988/89-(-Rp-- ---- -- --- tRP billior.) ------------------- ----------------------- (t) -----------------------

Application of FundsDevelopment Expenditures 247.3 305.1 299.3 238.9 426.4 396.9 76.1 78.4 75.4 73.7 81.7 78.0

Water supply 79.3 96.6 111.8 91.6 184.4 150.9 24.4 24.8 28.2 28.3 35.3 29.6Human waste 7.1 8.9 11.0 13.8 20.9 13.6 2.2 2.3 2.A 4.3 4.0 2.7Drainage and flood 35.7 32.9 43.9 34.7 91.7 95.4 11.0 8.5 11.1 10.7 17.6 18.7Solid waste 15.7 11.2 6.7 5.0 12.6 11.5 4.8 2.9 1.7 1.5 2.4 2.3KIP 40.6 25.8 34.5 17.7 26.1 32.6 12.5 6.6 8.7 5.5 5.0 6.4Roads 54.6 117.8 64.2 53.4 58.6 66.8 16.8 30.3 16.2 16.5 11.2 13.1Planning, training & overhead 14.3 11.9 27.2 22.8 32.1 26.6 4.4 3.1 6.8 7.0 6.2 5.2

Operation and Maintenance 77.7 84.0 97.5 85.1 95.5 111.A 23.9 21.6 24.6 26.3 18.3 22.0

Subtotal 325.0 389.2 396.8 324.0 521.9 508.7 100.0 100.0 100.0 100.0 100.0 100.0

Sources of FundsDIP 126.3 195.8 141.0 62.9 124.2 133.6 38.9 50.3 35.5 19.4 23.8 26.3

Cipta Farya 73.5 69.4 83.2 40.5 73.2 68.1 22.6 17.8 21.0 12.5 14.0 13.4Pengairan 37.3 36.0 32.3 16.1 30.5 27.1 11.5 9.2 8.1 5.0 5.8 5.33ina Marga 15.5 90.4 25.6 6.3 14.3 32.0 4.8 23.2 6.4 1.9 2.7 6.3Other 0.0 0.0 0.0 0.0 6.2 6.4 0.0 0.0 0.0 0.0 1.2 1.3

Foreign Aid 22.3 38.7 62.7 78.4 185.1 161.9 A.9 9.9 15.8 24.2 35.5 31.8Cipta Karya 20.2 36.3 52.6 60r.6 124.2 88.2 6.2 9.3 13.3 18.7 23.8 17.3Pengairan 2.1 0.0 3.7 8.3 50.3 54.0 n.6 0.0 0.9 2.6 9.6 10.6Bina Marga 0.0 2.4 6.5 9.5 9.6 18.9 0.0 0.6 1.6 2.9 1.8 3.7Other 0.0 0.0 0.0 0.0 1.0 0.8 0.0 0.0 0.0 0.0 0.2 0.2

Subtotal DIP + Foreign 148.6 234.5 203.7 141.3 309.3 295.6 45.7 60.2 51.3 43.6 59.3 58.1

Domestic Loans 3.5 7.0 9.3 9.2 27.4 29.7 1.1 1.8 2.4 2.8 5.2 5.8

APBD I & 11 (incl. INPRES) 172.9 147.7 183.7 173.5 266.3 276.0 53.2 38.0 46.3 53.6 35.5 36.1Level 1 5.0 5.3 5.5 6.6 21.2 15.3 1.5 1.4 1.4 2.0 2.8 2.0Level 1I 109.0 73.1 100.9 92.5 146.2 145.5 33.5 18.8 25.4 28.5 19.5 19. PDAM 58.9 76.5 91.1 98.5 98.9 115.2 18.1 17.8 19.5 23.0 t3.2 15.1

Subtotal local expenditures 176.4 154.7 193.1 182.7 212.6 213.1 54.3 39.8 48.7 56.4 40.7 41.9

Total 325.0 389.2 396.8 324.0 521.8 508.7 100.0 100.0 100.0 100.0 100.0 100.0

INDONESIA

URBAN SECTOR LOAN

Summary Application and Sources of Funds, by Agency

19831/84 1984/85 1985/86 1986/87 1987/88 1988/89 1983/84 1984/85 1985/86 1986/87 1987/88 1988/89------------- (Rp billion) ---- … ----------------------- () --------------------- -

Appiication of Funds

Developmnt Expenditures 247.3 336.4 352.6 315.9 613.? 59i.9 76.1 78.4 75.4 73.7 81.7 78.0Water supply 79.3 106.5 131.7 121.1 2h5.2 226.S 24.4 24.8 28.2 28.3 35.3 29.6Human waste 7.1 9.8 13.( 18.? 30 .' 20(.5 2.2 2.3 2.8 4.3 4.n 2.7Drainage and rlond 35.7 36.3 51.7 4z5.q 1-31.9 143.5 11.( 8.5 11.1 10.7 17.6 18.7Solid waaste 15.7 12.3 7.8 6.6 18.1 17.2 4.8 2.9 1.7 1.5 2.4 2.3KIP 40.6 28.5 41.7 293.4 37.5 49.1 12.5 6.6 8.7 5.5 5.0 6.4Roads 54.6 1'29.9 75.6 70.6 84.3 MI(J.5 16.8 30. 3 16.2 16.5 11.2 13.1Plan:oing, training & overhead 14.3 13.1 32.0 TA.z 46.2 40(.0 4.4 3.1 6.8 7.0 6.2 5.2

operation and Maintenance 77.7 92.7 114. I 211.9 !37.3 168.2 23.9 21.6 24.6 26.3 18.3 22.0

Total 325.0 429.1 467.4 428.5 750.h 76,9.4 100.0 100.0 100.0 100.0 100.0 100.0

Sources of Funds)Tp 126.3 215.9 166.1 83.2 178.6 2(1.1 38.9 50.3 35.5 19.4 23.8 26.3Cipta Karva 73.5 76.5 Q8.U 53.6 105.3 102.5 22.6 17.8 21.0 12.5 14.0 13.4Pengairan 37.3 39.7 38.1 21.3 43 - 40.7 11.5 9.2 8.1 5.0 5.8 5.3Bina Marga 15.5 99.7 30.1 8.3 20., 48.2 4.8 23.2 6.4 1.9 2.7 6.3Other 0.0 n.o 0 (1 (.O 9.0 9.6 0.0 0.0 n0. 0.0 1.2 1.3

Foreign Aid 22.3 42.6 73.9 103.7 266.1 243.6 6.8 9.9 15.8 24.2 35.5 31.8Cipta Karya 20.2 40.0 61.9 80.2 178.6 132.6 6.2 9.3 13.3 18.7 23.8 17.3Pengairan 2.1 0.0 4.3 10.9 72.3 81.3 0.6 0.0 0.9 2.6 9.6 10.6Bina Marga 0.n 2.6 7.6 12.6 13.k 28.4 0.0 0.6 1.6 2.9 1.8 3.7Other 0.0 0.0 0.0 0.0 1.5 1.3 n.o 0.0 0.0 0.0 0.0 0.0

Subtotal DIP + Foreign 148.6 258.5 240.0 186.9 444.8 444.7 45.7 60.2 51.3 43.6 59.3 58.1

Domestic Loans 3.5 7.7 11.0 12.1 39.4 44.7 1.1 1.8 2.4 2.8 5.2 5.8

APBD I & 11 (incl. INPRES) 172.9 162.9 216.5 229.5 266.3 276.0 53.2 38.n 46.3 53.6 35.5 36.1Level I 5.0 5.8 6.5 8.7 21.2 15.3 1.5 1.4 1.4 2.0 2.8 2.0Level II 109.0 80.6 118.9 122.3 146.2 145.5 33.5 18.8 25.4 28.5 19.5 19.0PDAM 58.9 76.5 91.1 98.5 98.9 115.7 18.1 17.8 19.5 23.0 13.2 15.1 13

Subtotal local expenditures 176.4 170.6 227.5 241.6 305.7 320.7 54.3 39.8 48.7 56.4 40.7 41.9 F

Total 325.0 429.1 467.4 428.5 750.4 765.3 100.0 100.0 100.0 100.0 100.0 100.0- - - - - - - - - - 0~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

INDONESIA

URBAN SECTOR LOAN

Appli7ation and Sources of Funds - Water Supply Subsector

1983/84 1984/85 1985/86 1986/87 1987/88 1988/89 1983/84 1984/85 1985'86 1986/87 1987/88 1988/89------------------- (Rp billion) ------------------- -- ( )-

Application of FundsDevelopment Expenditures 60.8 81.7 106.5 90.2 242.7 195.1 48.6 49.7 52.6 45.5 68.9 60.1

DKI 12.4 7.1 16.6 11.9 54.0 25.9 9.9 4.3 8.2 6.0 15.3 8.0Large cities 8.9 15.0 15.3 12.4 46.4 48.6 7.1 9.1 7.6 6.2 13.2 15.0BNA 14.3 26.4 27.1 19.5 76.7 79.5 11.4 16.1 13.4 9.8 21.8 24.5IKK 14.5 14.9 16.0 20.9 29.1 21.0 11.6 9.1 7.9 10.5 8.2 6.5Overhead, trairing etc. 10.7 18.3 31.5 25.6 36.6 20.1 8.5 11.1 15.6 12.9 10.4 6.2

Local Projects 18.5 24.8 25.2 30.9 22.5 31.3 14.8 15.1 12.5 15.6 6.4 9.6

Operation and Maintenance 45.8 57.9 70.7 77.0 87.0 98.3 36.6 35.2 34.9 38.9 24.7 30.3

Total 125.1 164.4 202.4 198.1 352.2 324.7 100.0 100.0 100.0 100.0 100.0 100.0

Sources of FundsDIP 46.9 50.3 62.9 31.2 61.8 57.7 37.5 30.6 31.1 15.8 17.6 17.8Cipta Karya 45.2 48.5 58.7 29.8 55.3 53.0 36.1 29.5 29.0 15.0 157 16.3Pengairan 1.7 1.8 4.2 1.4 6.5 4.7 1.4 1.1 2.1 0.7 1.8 1.5

Foreign Aid 10.4 23.7 32.6 46.9 145.5 103.2 8.3 14.4 16.1 23.7 41.3 31.8Cipta Karya 10.4 23.7 32.5 44.6 138.0 98.3 8.3 14.4 16.1 22.5 39.2 30.3Pengairan 0.0 0.0 0.1 2.3 7.5 5.0 0.0 0.0 0.0 1.1 2.1 1.5

Subtotai DIP F Foreign 57.3 54.0 95.5 78.1 207.4 161.0 45.8 45.0 47.2 39.4 58.9 49.6

Domestic Loans 3.5 7.7 11.0 12.1 35.3 36.7 2.8 4.7 5.4 6.1 10.0 11.3

APBD I & II (incl. INPRES) 64.2 82.7 95.9 107.9 109.5 127.0 51.4 50.3 47.4 54.5 31.1 39.1Level I 3.8 4.5 3.5 5.1 8.5 9.4 3.0 2.7 1.7 2.6 2.4 2.9Level II 1.5 1.7 1.3 4.3 2.1 2.4 1.2 1.0 0.6 2.2 0.6 0.7PDAM 58.9 76.5 91.1 98.5 98.9 115.2 47.1 46.5 45.0 49.7 28.1 35.5

Subtotal local expenditures 67.7 90.4 106.9 120.0 144.8 163.7 54.2 55.0 52.8 60.6 41.1 50.4

Total 125.1 164.4 202.4 198.1 352.2 324.7 100.0 100.0 100.0 100.0 100.0 100.0

I-"

INDONESIA

URBAN SECTOR LOAN

Application and Sources of Funds - Cipta Karya Water Supply Agency

1983/84 1984/85 1985/86 1986/87 1987/88 1988/89 19R3/84 1984/85 1985/86 1986/87 1987/88 19R8/89------------------- (Rp billion) ------------------- ----------------------- (Z) ---------------- ---- …---

Application of FundsDevelopment Expenditures 59.1 79.9 102.2 86.5 228.7 185.4 47.9 49.1 51.6 44.5 67.6 58.8

DKI 12.4 7.1 14.1 10.8 40.8 17.0 10.1 4.3 7.1 5.5 12.1 5.4Large cities 7.2 13.2 13.6 9.8 45.6 47.8 5.8 8.1 6.8 5.0 13.5 15.2BNA 14.3 26.4 27.1 19.5 76.7 79.5 11.6 16.2 13.7 10.0 22.7 25.2IKK 14.5 14.9 16.0 20.9 29.1 21.0 11.8 9.2 8.1 10.7 8.6 6.7Overhead, training etc. 10.7 18.3 31.5 25.6 36.6 20.1 8.7 11.2 15.9 13.2 10.8 6.4

Local Projects 18.5 24.8 25.2 30.9 22.5 31.3 15.0 15.2 12.7 15.9 6.6 9.9

Operation and Maintenance 45.8 57.9 70.7 77.0 87.0 98.3 37.1 35.6 35.7 39.6 25.7 31.2

Total 123.3 162.6 198.1 194.4 338.2 315.0 100.0 100.0 100.0 100.0 100.0 100.0

Sources of FundsDIP 45.2 48.5 58.7 29.8 55.3 53.0 36.6 29.8 29.6 15.3 16.4 16.8

Cipta Karya 45.2 48.5 58.7 29.8 55.3 53.0 36.6 29.8 29.6 15.3 16.4 16.8Pengairan 0.0 0.0 0.0 0.e~ o.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Foreign Aid 10.4 23.7 32.5 44.6 138.0 98.3 8.4 14.6 16.4 22.9 40.8 31.2Cipta Karya 10.4 23.7 32.5 44.6 138.0 98.3 8.4 14.6 16.4 22.9 40.8 31.2Pengairan 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Subtotal DIP + Foreign 55.6 72.2 91.2 74.4 193.3 151.3 45.1 44.4 46.0 38.3 57.2 48.0

Domestic Loans 3.5 7.7 11.0 12.1 35.3 36.7 2.8 4.7 5.6 6.2 10.4 11.6

APBD I & II (incl. INPRES) 64.2 82.7 95.9 107.9 109.5 127.0 52.1 50.9 48.4 55.5 32.4 40.3Level 1 3.8 4.5 3.5 5.1 8.5 9.4 3.1 2.8 1.8 2.6 2.5 3.0Level II 1.5 1.7 1.3 4.3 2.1 2.4 1.2 1.0 0.7 2.2 0.6 0.8PDAM 58.9 76.5 91.1 98.5 98.9 115.2 47.8 47.0 46.0 50.7 29.2 36.6

Subtotal local expenditures 67.7 90.4 106.9 120.0 144.8 163.7 54.9 55.6 54.0 61.7 42.8 52.0

Total 123.3 162.6 198.1 194.4 338.2 315.0 100.0 100.0 100.0 100.0 100.0 1ID.0

Notes: Division between large cities and BNA pre-1987/88 assumed the same as in 1987/88 and 1988/89.

INDONESIA

URBAN SECTOR LOAN

Application and Sources of Funds - Pengairan Raw Water Agency

1983/84 1984/85 1985/86 1986/87 1987/88 198R/89 1983/84 1984/85 1985/86 1986/87 1987/88 1988/89------------------ (Rp billion) ------------------- ----------------------- () ------------------------

Application of FundsDevelopment Expenditures 1.7 1.8 4.3 3.7 14.0 9.7 100.0 100.0 100.0 100.0 100.G 100.0

DKI 0.0 0.0 2.6 1.1 13.2 8.9 0.0 0.0 59.3 29.5 94.2 91.8Large cities 1.7 1.8 1.8 2.6 (.8 0.8 100.0 100.0 40.7 70.5 5.8 8.2BNA 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 O.0 0.0IKK 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Overhead, training, etc. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Local Projects 0.0 o.n 0.0 0.- 0.0 (.0 0.0 0.0 0.0 0.0 0.0 0.0

Operation and Maintenance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total 1.7 1.8 4.3 3.7 14.0 9.7 100.0 100.0 100.0 100.0 100.0 100.0

Sources of FundsDIP 1.7 1.8 4.2 1.4 6.5 4.7 100.0 100.0 98.0 38.9 46.2 49.0Cipta Karya 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Pengairan 1.7 1.8 4.2 1.4 6.5 4.7 100.0 100.0 98.0 38.9 46.2 49.0

Foreign Aid 0.0 0.0 0.1 2.3 7.5 5.0 0.0 0.0 2.0 61.1 53.8 51.2Cipta Karya 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Pengairan 0.0 0.0 0.1 2.3 7.5 5.0 0.0 0.0 2.0 61.1 53.8 51.2

Subtotal DIP + Foreign 1.7 1.8 4.3 3.7 14.0 9.7 100.0 100.0 100.0 100.0 100.0 100.1

Domestic Loans 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

APBD I & II (incl. INPRES) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Level I 0.0 0.0 0.0 0.0 0.0 0.0.0 0.0 0.0 0 0.0 0.0 0.0Level II 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0PDAM 0.0 0.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Subtotal local expenditures 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total 1.7 1.8 4.3 3.7 14.0 9.7 100.0 100.0 100.0 100.0 100.0 100.1 3!1 i

4FINDONESIA

URBAN SECTOR LOAN

Application and Sources of Funds - Sewerage and Sanitation Subsector

1983/84 1984/85 1985/86 1986/87 1987/8R 1988/8q 1983/84 1984/85 1985/86 1986/87 1987/88 1988/89------------------ (Rp billion) ----- …----- () -----

Application of FundsDevelopment Expenditures 5.1 7.i 10.4 16.0 24.6 16.7 69.7 72.0 78.8 86.0 80.4 79.9Large cities + DKI 5.1 7.2 10.4 16.0 19.9 14.7 69.7 72.0 78.8 86.0 65.0 70.5Other citles 0.0 0.0 0.0 0.0 3.1 0.2 0.0 0.0 0.0 0.0 [0.2 1.0Technical assistance & overhead 0.0 0.G 0.0 0.0 1.6 1.8 0.0 0.0 0.0 0.0 5.2 8.4

Local Projects 2.1 2.6 2.6 2.2 5.4 3.8 28.7 26.3 19.3 11.9 17.7 18.2

Operation and Haintenance 0.1 0.2 0.2 0.4 0.6 0.4 1.7 1.7 1.9 2.1 1.9 1.9

Total 7.3 10.0 13.2 18.6 30.6 20.9 100.0 100.0 100.0 100.0 100.0 100.0

Sources of FundsDIP 2.n 2.R 2.5 3.8 5.0 3.8 26.9 28.0 18.9 20.6 16.4 18.3Cipta Karya 2.0 2.8 2.5 3.8 5.0 3.8 26.9 28.0 18.9 20.6 16.T WTOther agenries 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Foreign Aid 3.1 4.4 7.9 12.2 17.2 10.2 42.8 44.0 59.8 65.5 56.2 4°.1Cipta Karya 3.1 4.4 7.9 12.2 7.2 10.2 42.8 44.0 59.8 65.5 56.2 49.1Other agencies 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Subtotal DIP + Foreign 5.1 7.2 10.4 16.0 22.2 14.1 69.7 72.0 78.8 86.0 72.6 67.4

Domestic Loans 0.0 0.0 0.0 0.0 2.4 2.6 0.0 0.0 0.0 0.0 7.9 12.5

APBD I & lI (incl. INPRES) 2.2 2.R 2.& 2.6 6.0 4.2 30.3 28.0 21.2 14.0 19.6 20.1Level I 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 = 00OLevel II 2.2 2.R 2.8 2.6 6.0 4.2 30.3 28.0 21.2 14.0 19.6 20.1PDAM 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Subtotal local expenditures 2.2 2.8 2.8 2.6 8.4 6.8 30.3 28.0 21.2 14.0 27.5 32.6

Total 7.3 10.0 13.2 18.6 30.6 20.9 100.0 100.0 100.0 100.0 100.1 100.0

Note: - All local expenditures accredited to Level II.

te

INDONESIA

URBAN SECTOR LOAN

ApDlication and Sources of Funds - Solid Waste Subsector

1983/84 1984/85 1985/86 1986/87 1987/88 1988/89 1983/84 1984/85 1985/86 1986/87 1987/88 1988/89- --- ------------ (Rp billion) --------------- …___ ----------------------- (Z) …-----------------------

ApDliCatiol of F1inds

Development Expenditures 4.0 5.8 3.3 1.1 7.2 13.7 25.5 46.2 36.2 15.2 34.8 61.6.arg? c'tles + 1)D1 1.0 1.5 i.8 (.4 3.6 4.9 6.5 11.8 9.3 5.3 17.6 22.1ottier cities 3.0 4.3 2.5 0.7 1.8 7.0 19.0 34.4 27.0 9.9 8.7 31.4Technicsl assistince & overhead 0.C 0.0 0.( 0.0 1.8 1.8 0.0 0.0 0.0 0.0 8.5 8.2

Local Projects 11.7 6.6 4.6 5.5 10.9 3.6 73.9 52.7 50.7 79.4 52.7 16.2

operation and Maintenance 0.1 0.1 1.2 N.4 2.6 4.9 0.6 1.1 13.0 5.5 12.5 22.2

Tota1 15.8 12.5 9.1 7.0 2n.7 22.2 100.0 100.0 100.0 1no.o 100.0 ino.oSources of Funds

D)1I' 1.6 2.? 2.2 0.8 3.3 7.2 9.8 18.0 24.0 11.7 15.9 32.4ipta Karva 1.6 2.2 2.2 0.8 3.3 7.2 9.8 18.05 24.0 11.7 15.9 32.4Otlher agelncies 0.0 0.0 0.0 0.0 a0

0.0 0.0 0.0 0.0 0.0 0.0 0.0

toreign Aid 2.5 3.5 1.1 0.2 2.3 4.1 15.7 28.3 12.3 3.5 10.9 18.5Cipt.a Karv;- 2.5 3.5 1.1 (0.2 2.3 4.1 15.7 28.3 12.3 3.5 10.9 18.5)ther age:cies 0.0 0.0 0.0 0.o 0.0 0.0 0.0 0.0 0.() 0.0 0.0 0.0

Subtotal DIP + Foreign 4.0 5.8 3.3 1.1 5.6 11.3 25.5 46.2 36.2 15.2 26.8 50.9

D)onestic Loans (1.0 0.0.0 0.0 1.6 2.4 0.0 0.0 0.0 0.0 7.9 10.7

APBI) I & It (mincl. tNPRFS) 11.8 6.7 5.8 5.9 13.5 8.5 74.5 53.8 63.8 84.8 65.2 38.4L,eve I I 0.0 0.r0 .0 00 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Level 11 11.8 6.7 5.8 5.9 13.5 8.5 74.5 53.8 63.8 84.8 65.2 38.4PDitM 0.0 0.0 0.0 0.0 n.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Subtotal local exoenditure9 11.8 6.7 5.8 5.9 15.1 10.9 74.5 53.8 63.8 84.8 73.1 49.1

Total 15.8 12.5 9.1 7.0 20.7 22.2 100.0 100.0 100.0 100.0 99.9 100.0

Note: - All local expenditures accredited to Level II.

INDOONESIA

URBAN SECTOR LOAN

Application and Soturces of Funds - Drainage and Flood Protection Subsector

1983/84 1984/85 1985/86 1986/87 1987/88 1988/89 1983/84 1984i85 1985/R6 1986187 1987/88 1988/89

------------------- (Rp billion) ------------------- ----------------------- (Z) …-----------------------

Application of FundsDevelopment Expenditures 29.9 29.4. 36.0) 29.6 105.3 119.4 67.4 63.5 59.2 57.5 73.7 77.0

Large cities + DKI 16.5 14.9 18.9 19.4 78.8 96.6 37.1 32.2 31.0 37.7 55.1 62.4

Other citiec 13.5 14.5 !7.1 10.2 26.5 22.7 30.3 31.3 28.1 19.8 18.5 14.7Technical assistance 0.0 0.0 0.0 0.0 2.1 2.2 0.0 0.0 0.0 0.0 1.4 1.4

Local Projects 5.7 6.9 15.7 16.3 24.5 22.0 12.9 14.9 25.8 31.7 17.1 14.2

Operation and Maintenance 8.8 10.0 9.2 5.( 11.1 11.4 19.7 21.6 15.1 10.8 7.8 7.4

Total 44.4 46.3 60.9 51.5 143.0 154.9 If- 0 100.0 100.0 100.0 98.6 98.6

Sources of FundsDIP 36.0 3l.4 38.5 22.0 44.5 46.9 80.9 83.0 63.3 42.8 31.1 30.3

Cipta Karva 0.4 0.6 4.7 2.2 7.1 10.9 0.9 1.2 7.7 4.3 5.0 7.0

Pengairan 35.6 37.9 33.8 19.8 37.4 36.0 80.0 81.8 55.6 38.5 26.2 23.2

Foreign Aid 2.7 0.9 6.2 12.6 69.0 82.3 6.0 1.9 10.1 24.6 48.3 53.1Cipta Karya 0.6 0.9 1.9 4.0 4.3 6.0 1.4 1.9 3.2 7.7 3.0 3.9Pengairan 2.1 0.0 4.2 8.7 64.7 76.4 4.6 0.0 6.9 16.9 45.3 49.3

Subtotal DIP + Foreign 38.6 39.3 44.7 34.7 113.6 129.2 86.9 84.9 73.4 67.4 79.4 83.4

Domestic Loans 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

APBD I & II (incl. INPRES) 5.8 7.0 16.2 16.8 29.4 25.7 13.1 15.1 26.6 32.6 20.6 16.6

Level 1 1.2 1.3 3.0 3.6 12.7 5.9 2.7 2.8 4.9 7.0 8.9 3.8Level II 4.6 5.7 13.2 13.2 16.7 19.8 10.4 12.3 21.7 25.6 11.7 12.8PDAM 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Subtotal local expenditures 5.8 7.0 16.2 16.8 29.4 25.7 13.1 15.1 26.6 32.6 20.6 16.6

Total 44.4 46.3 60.9 51.5 143.0 154.9 100.0 100.0 100.0 1(0.0 100.0 100.0

I'm

INDONESIA

URBAN SE(CTOR LOAN

Application and Sources of Funds - Flood Protection (PENGAIRAN) Agency

1983/84 1984/85 1985/86 1986/87 1987/88 1988/89 1983/84 1984/85 1985/86 1986/87 1987/88 1988/89------------------- (Rp billion) ------ ----------------------- (%) -------------------…---_

Application of FundsDevelopment ExDenditures 28.9 27.9 29.4 23.4 92.3 102.5 74.5 71.4 71.7 73.0 80.3 86.6Large cities + DKI 9.5 6.7 7.6 8.4 39.2 45.5 24.5 17.2 18.6 26.1 34.1 8.5Other 12.9 13.9 13.5 7.8 34.8 44.8 33.2 35.5 32.9 24.2 30.3 37.9Teehnical assistance 0.0 0.0 0.0 0.0 18.3 12.1 0.0 0.0 0.0 15.9 10.2

Local Projects 1.2 1.3 3.0 3.6 12.7 5.9 3.1 3.3 7.3 11.2 11.1 5.n

Operation and Maintenance 8.7 9.9 8.6 5.1 9.9 9.9 22.4 25.3 21.0 15.8 8.6 8.4

Total 38.8 39.2 41.0 32.1 114.9 118.3 100.0 100.0 100.0 100.0 100.0 100.0

Sources of Funds

DIP 35.6 37.9 33.8 19.8 37.4 36.0 91.6 96.7 82.4 61.8 32.6 30.4Cipta Karya 0.0 0.0 0.0 0.0 .0 0.0 0.0 0.0 0.0 0.0 0.0 o0.0Pengairan 35.6 37.9 33.8 19.R 37.4 36.0 91.6 96.7 82.4 61.8 32.6 30.4

Foreign Aid 2.1 0.0 4.2 8.7 64.7 76.4 5.3 0.0 10.3 27.0 56.3 64.6Cipta Karva 0.0 0.0 0.0 0.n 0.0 0.0 0.0 o.0 0.0 0.0 0.0 0.0Pengairani 2.1 0.0 4.2 8.7 64.7 76.4 5.' 0.0 10.3 27.0 56.3 64.6

Sub' tal DIP + Foreign 37.6 37.9 38.1 28.5 102.' 112.4 96.9 96.7 92.7 88.8 88.9 95.0

Domestic Loans 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

APBD I & II (tncl. INPRES) 1.2 1.3 3.0 3.6 12.7 5.9 3.1 3.3 7.3 11.2 11.1 5.0Level 1 1.2 1.3 3.0 3.6 12.7 5.9 3.1 3.3 7.3 T1.2 11.1 5.0Level II 0.0 0.0 0.0 O.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0PDAM 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 o.0 0.0 0.0

Subtotal local expenditures 1.2 1.3 3.0 3.6 12.7 5.9 3.1 3.3 7.3 11.2 11.1 5.0

Total 38.8 39.2 41.1 32.1 114.9 118.3 100.0 100.0 100.0 100.0 100.0 100.0

INDONES I A

URBAN SECTOR LOAN

Application and Sources of Funds - Drainage (ClPTA KARYO) Agency

1983/84 1984/85 1985/86 1986/87 1987/88 1988/89 1983/84 1984/85 1985/86 1986/87 1987/88 1988/89-------------------- (Rp billion) -- … ---------------------- ) ---------------- -

Application of FundsDevelopment Expenditures 1.0 1.4 6.6 6.2 15.1 19.1 18.0 20.2 33.4 31.8 53.7 52.0

Large cities + DKI 0.5 0.9 3.0 3.8 4.9 6.3 8.1 12.3 15.0 19.4 17.3Other 0.6 0.6 3.6 2.4 8.2 10.6 9.9 7.9 18.4 12.5 29.1 29.0Technical assistance 0.0 0.0 0.0 0.0 2.1 2.2 0.0 0.0 0.0 0.0 7.3 5.9

Local Projects 4.5 5.6 12.7 12.7 11.8 16.1 80.6 78.2 64.6 65.6 42.0 43.9

Operation and Maintenance 0.1 0.1 0.5 0.5 1.2 1.5 1.4 1.6 2.7 2.5 4.3 4.2

Total 5.6 7.1 19.8 19.4 28.1 36.7 100.0 100.0 100.0 100.0 100.0 100.0

Sources of FundsDIP 0.4 0.6 4.7 2.2 7.1 10.9 7.0 7.8 23.6 11.3 25.3 29.7

Cipta Karya 0.4 0.6 4.7 2.2 7.1 10.9 7.0 7.8 23.6 11.3 25.3 29.7Pengairan 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.o

Foreign Aid 0.6 0.9 1.9 4.0 4.3 6.0 11.1 12.3 9.8 20.5 15.3 16.3Cipta Karya 0.6 0.9 1.9 4.0 4.3 h.n 11.1 12.3 9.8 20.5 15.3 16.3Pengairan 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Subtocal DIP + Foreign 1.0 1.4 6.6 6.2 11.4 16.9 18.0 20.2 33.4 31.8 40.5 46.0

Domestic Loans 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

APBD I & 11 (tncl. INPRES) 4.6 5.7 13.2 13.2 16.7 19.8 82.0 79.8 66.6 68.2 59.4 54.0Level I 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Level II 4.6 5.7 13.2 13.2 16.7 19.8 F2.0 79.8 66.6 68.2 59.4 54.0Pt M 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Subtotal local expenditures 4.6 5.7 13.2 13.2 16.7 19.8 82.0 79.8 66.6 68.? 59.4 54.0

Total 5.6 7.1 19.8 19.4 28.1 36.7 100.0 100.0 100.0 100.0 99.9 100.0

Note: - All local contributions assigned to APBD II.

INDONESIA

URBAN SECTOR LOAN

Application and Sources of Funds - KIP Subsector

1983/84 1984/85 1985/86 1986/87 1987i88 1988189 1983/84 1984/85 1985/86 1986/87 19R7/88 1988/89------------------- (Rp billion) ------------------- --------------------- () … ------------- ---------

Appltcation of FundsDevelopment Expenditures 22.0 21.9 29.6 16.1 29.2 41.5 54.2 76.8 72.7 68.8 77.9 84.5KIP and MIP 21.0 20.9 27.8 14.3 23.0 35.2 51.7 73.4 68.3 61.1 61.4 71.7Building information centers 1.0 1.0 1.8 1.8 2.4 2.4 2.5 3.4 4.4 7.7 6.4 4.9Technical assistance & overhead 0.0 0.0 0.0 0.0 3.8 3.9 0.0 0.0 0.0 0.0 10.1 8.0

Local Projects 18.6 6.6 11.1 7.3 8.3 7.6 45.8 23.7 27.3 31.2 22.1 15.5

Operation and Maintenance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total 40.6 28.5 40.7 23.4 37.5 49.1 100.0 100.0 100.0 100.0 100.0 100.0

Sources of FundsDIP 20.6 18.0 23.6 12.6 20.3 20.8 50.7 63.2 58.0 53.8 54.2 42.4

Cipta Karya 20.6 18.0 23.6 12.6 20.3 20.8 50.7 63.2 58.0 53.8 54.2 42.4Other 0.0 0.0 0.0 0.0 0.0 0.0 0.n 0.0 0.0 0.0 o.0 0.0

Foreign Aid 1.4 3.9 6.0 3.5 6.8 4.2 3.4 13.7 14.7 15.0 18.1 8.6Cipta Karya 1.4 3.9 6.0 3.5 6.8 4.2 3.4 13.7 14.7 15.0 18.1 8.6Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Subtotal DIP + Foreign 22.0 21.9 29.6 16.1 27.1 25.0 54.2 76.8 72.7 68.8 72.3 50.9

Domestic Loans 0.0 0.0 0.0 0.0 0.0 3.0 0.0 0.0 0.0 (.0 0.0 6.1

APBD I & II (incl. INPRES) 18.6 6.6 11.1 7.3 10.4 21.1 45.8 23.2 27.3 31.2 27.7 43.0Level I 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Level It 18.6 6.6 11.1 7.3 10.4 21.1 45.8 23.2 27.3 31.2 27.7 43.0PDAM 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

SuStotal local expenditures 18.6 6.6 11.1 7.3 10.4 24.1 45.8 23.2 27.3 31.2 27.7 49.1

Total 40.6 28.5 40.7 23.4 37.5 49.1 100.0 100.0 100.0 100.0 100.0 100.0

Notes: No information on split ir city sizes, no historical data on technical assistance and overhead.

.,

INDONESIA

URBAN SECTOR LOAN

Application and Sources of Funds - Urban Roads Subsector

1983/84 1984/85 1985/86 1986/87 1987/88 1988/89 1983/84 1984/85 1985/86 1986/87 1987/88 1988/89------------------- (Rp billion) ------------------- ----------------------- (%) --------…-------

Application of FundsDevelopment Expenditures 54.6 129.q 75.6 70.6 84.3 100.5 70.5 84.2 69.2 70.7 70.1 65.4

DKI 94.9 34.4 32.2 32.3 30.7 25.9 61.5 31.5 32.3 26.8 20.0Large cities 18.1 16.1 19.1 22.4 26.0 54.6 23.4 10.4 17.5 22.4 21.6 35.5Other 16.4 18.9 22.1 16.0 26.0 15.2 21.2 12.2 20.2 16.0 21.6 9.9

Operation and Ma'itenance 22.9 24.4 33.6 29.2 36.0 53.1 29.5 15.8 30.8 29.3 29.9 34.6

Total 77.5 154.3 109.2 99.8 120.3 153.6 100.0 100.0 100.0 100.0 100.0 100.0

Sources of FundsDIP 15.5 99.7 30.1 8.3 20.5 48.2 20.0 64.6 27.6 8.3 17.0 31.4

3ina Marga 15.5 99.7 30.1 8.3 20.5 48.2 20.0 64.6 27.6 8.3 17.0 31.4Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Foreign Aid 0.0 2.6 7.6 12.6 13.8 28.4 0.0 1.7 7.0 12.6 11.4 18.5Bina Marga 0.0 2.6 7.6 12.6 13.8 28.4 0.0 1.7 7.0 12.6 11.4 18.5Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Subtotal DIP + Foreign 15.5 102.3 37.7 20.9 34.3 76.6 20.0 66.3 34.5 20.9 28.5 49.9

Domestic Loans 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

APBD I & II (incl. INPRES) 62.0 52.0 71.5 78.9 86.0 77.0 80.0 33.7 65.5 79.1 71.5 50.1Level I 0.0 ..0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Level II 62.0 52.0 71.5 78.9 86.0 77.0 a0.0 33.7 65.5 79.1 71.5 50.1PDAM 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Subtotal local expenditures 62.0 52.0 71.5 78.9 86.0 77.0 80.0 33.7 65.5 79.1 71.5 50.1

Total 77.5 154.3 109.2 99.8 120.3 153.6 100.0 100.0 100.0 100.0 100.0 100.0

Notes: - Does not include toll roads.- Local Government contributions all -.ttributed to Level II.- 0&N include betterment program §. project years.

INDONESIA

URBAN SECTOR LOAN

Application and Sources of Funds - Planning and Engineering

1983184 1984/85 1985/86 1986/87 :987/88 1988189 1983/84 1984/85 1985/86 1986/87 1987/88 1988i89------------------- (Rp billion) ------------------- --------------------- (Z) --- …----_ , ~~~~~~~.1Application of FundsTraining (PAP) 0.0 0.5 0.6 0.4 0.4 0.5 0.0 3.8 1.7 1.2 0.9 1.3Efficiency improvement (PEAPP) 0.0 0.2 0.2 0.2 1.3 1.4 0.0 1.5 0.7 0.5 2.8 3.6Infrastructure (PPFP) 0.0 0.1 0.1 0.1 1.Q 0.8 0.0 0.6 0.3 0.2 4.1 l.4Tech. assistance (Bina Program) 0.0 1.8 10.7 13.5 14.6 10.6 0.0 14.1 33.5 44.8 31.5 26.4Planning (D(CK) 14.3 10.5 20.4 16.1 17.5 15.9 100.0 80.0 63.8 53.4 37.9 39.7PUODISDO planning 0.0 0.0 0.0 0.0 5.8 6.2 0.0 0.0 0.0 0.0 12.7 15.5Agrarta - napoing 0.0 0.0 0.0 0.0 4.3 4.3 0.0 0.0 0.0 0.0 9.2 10.6IUPA and TK 0.0 0.0 0.0 0.0 0.4 0.4 0.0 0.0 0.0 0.0 0.9 1.0Total 14.3 13.1 32.0 30.2 46.2 40.0 100.0 100.0 10i.0 100.0 77.3 72.9

Sources of FundsDIP 3.8 4.4 6.3 4.4 23.2 16.4 26.6 33.5 19.7 14.5 50.2 41.1Cipta Karya 3.8 4.4 6.3 4.4 14.2 6.9 26.6 33.5 19.7 14.5 30. 17.1Other agencies 0.0 0.0 0.0 0.0 9.) 9.6 0.0 0.0 0.0 0.0 19.4 23.9Foreign Aid 2.2 3.6 12.5 15.7 11.5 11.1 15.4 27.6 39.1 52.0 25.0 27.7Cipta Karya 2.2 3.6 :2.5 15.7 10.0 9.8 15.4 27.6 39.1 52.0 21.- 24.5Other agencies 0.0 0.0 0.0 0.0 1.5 1.3 0.0 0.0 0.0 0.0 3 ? 3.1

Subtotal DIP + Foreign 6.0 8.0 18.8 20.1 34.7 27.5 42.0 61.2 58.7 66.5 75.2 68.7 71APBD I & II (incI. INPRES) 8.3 5.1 13.2 10.1 11.5 12.5 58.0 38.8 41.3 33.5 24.9 31.2

Total 14.3 13.1 32.0 30.2 46.2 40.0 100.0 100.0 100.0 100.0 100.1 99.9

1g!,-J

Annex 262 - Attachment

INDONESIA

URBAN SECTOR LOAN

Urban Infrastructure Expenditures

GOI Repelita III & IV Urban Infrastructure Development Targets

Repelita III Repelita IVSubsector --- (1979/80-83/84)- --- (1984/85-88/89) ----

Amount Service 6ual Amount Service goal(cities) (% of population! (cities) (% of population)

Water Supply:Large/medium sizecities (BNA):new schemes 350 60% 150 75%expansions 350 75%

Small towns (IKK) 1,800 75%

Environmental sani-tation:Sewerage 4 /a 10 10%

Solid waste 15 / 200 50%/b

Drainage 25 / 200 60%

KIPZ_ 400 n.a. 227 n.a.

Roads /d n.a. n.a.

/ Coverage standards not set/b Including 100% of commercial (markets, etc) solid waste/c KIP is a multisectoral activity which includes improvements to

access (typically 35% of program expenditures), drainage (35%),solid waste (3%), public sanitation (8%), water supply (15%) andhealth clinics (4%) in lower income areas. Coverage standards arebased on unit cost allowances which permit various mixes ofimprovements according to local needs.

Ld Urban roads not targetted separately from total roads

-63- ANNEX 3Page 1

INDONESIA

PROPOSED URBAN SECTOR LOAN

Technical Assistance Summary

A. Local Resource Mobilization

1. Valuation and Tax Administration Advisers

Executing Agency: Directorate General of Taxation (Directorate PBB)

Objectives: (a) Develop and implement a new valuation system basedon individual market values, primarily for urbanproperties; (b) initiate and implement improvements inPBB tax administration.

Duration of Services: 1987-1989

Costs: Man-months Cost (Rp mln)

(i) ValuationForeign 181 3,584

(ii) Tax administrationForeign 43 851

Total 224 4,435

TOR Status: TOR confirmed at negotiations.

2. Establishment of Regional Water-Enterprise Monitoring and DevelopmentUnits (PMDUs)

Executing Agency: Directorate Ceneral Cipta Karya (DGCK) in cooperationwith DGPUOD

Objectives: Based on the East Java model, establish and opera-tionalize Provincial Monitoring and Development Unitsin remaining provinces of Java. The Units would bebased in Level I Dinas DGCK to supervise performanceand development of all WEs with respective provinces.Engineering, financial analysis and managementexpertise will be provided. Emphasis will be onreplication of the units in terms of organization,staffing, training operating procedures and type ofassistance to be provided to the WEs.

- 64- ANNEX 3Page 2

Duration of Services: June 19 1989

Costs: Man-months Cost (Rp mln)

Foreign 36 713Local 72 416

Total 108 1,129

TOR Status: TOR confirmed at negotiations.

3. Management Advisory Services to WEs

Executing Agency: DGCK in cooporation with DGPUOD.

Objectives: Assist selected WEs in Java (except in East Java) inresolving their orgainzation, management, accounting,administrative and technical problems. The WEs will beselected on the basis of need identified by respectiveProvincial Monitoring Units. It is estimated that aquarter of WEs will need assistance averaging six man-months each.

Duration of services: June 1987-June 1989

Costs: Man-months Cost (Rp mln)

Local 250 1,444

TOR Status: TOR confirmed at negotiations.

4. Advisory Services for Water Supply Organization Study

Executing Agency: DGCK in cooperation with DGPUOD

Objectives: Expand the scope of the water supply organizaticnstructure study for Irian Jaya, North and SulawAsiprovinces to (a) cover all provinces in Java aniSumatra, and (b) cover the rest of the provinces inIndonesia. The study would review and analyzealternative organization structure based on financialviability, staffing adequacy and operating efficiencycriteria to meet water supply needs.

Duration of Services: January 1987-December 1988

-65- ANNEX 3Page 3

Costs., Man-months Cost (Rp mln)

Foreign 36 713Local 72 416

Total 108 1,19,

TOR Status: TOR will be updated by DGCK by end-November 1986.

5. Level rr Tax Administration

Executing Agency: Directorate General for Regional Autonomy (DGPUOD)

Objectives: (a) Simplify structure of local taxes and charges andincrease local revenue generation; and (b) provideassistance to DGPUOD to (i) evaluate a pilot program,and (ii) undertake required training and supervisionaind (iii) install the system.

Duration of Services: 1987-1989

Costs: (i) Evaluation Man-months Cost (Rp mln)

Foreign 3 59Local 12 69

Subtotal 15 129

(ii) Trai:.ing/Supervision

Foreign 11 218Local 64 370

Subtotal 75 587

(iii) Installation

Local 256 1,478

Subtotal 256 1,478

Total 346 2,194

TOR Status: TOR confirmed at negotiations.

-66 AU- 3

B. Sector Financing

1. Regional Development Account (RDA) Lending Policy

Executing Agency; Directorate General Internal Monetary Affairs (DGMDN)

Objectives: To advise DGMDN with regard to policy implications ofthe RDA

Duration of Services: 1987-89

Costs: Man-months Cost (Rp mln)

Foreign 40 825

TOR Status: TOR confirmed at negotiations.

2. Regional Development Account Operationalization

Executing Agency: Directorate General Internal Monetary Affairs (DGMDN)through UNDP/UNCHS

Objectives: To operationalize the RDA.

Duration of Services: 1987-89

Costs: Man-months Cost (Rp mln)

Foreign 24 475Local 48 277

Total 72 752

TOR Status: TOR confirmed by DGMDN and Bank at negotiations; willbe agreed with UWDP/UNCHS by September 1987.

3. Local Government Financial and Demographic Information System

Executing Agency: Ministry of Finance/Bureau Pusat Statistik/PUOD

Objectives: To provide assistance to Ministry of Finance/BPS forthe design and implementation of improved informationsystems on (a) local government finance and (b) popula-tion.

-67 A-n 3Page 5

Duration of Services: 1988-89

Costs: Man-months Cost (Rp mln)

Foreign 24 475Local 48 277

Total 72 752

TOR Status: TOR confirmed at negotiations.

4. Urban Mapping Dissemination and Local Cadaster Production

Executing Agency: DG Agraria, Ministry of Home Affairs

Objectives: To (a) provide line maps for fiscal cadaster purposesto DG Pajak, (b) support IUIDP planning, (c) strengthenlarge-scale mapping capacity of DCAgraria, and (d)improve coordination, distribution and use of urbanmaps.

Duration of Services: 1987-89

Costs: Man-months Cost (Rp mln)

Foreign 48 950

TOR Status: TOR confirmed at negotiations.

C. Planning and Programming

1. Program Development and Monitoring

(a) Urban Policy Adviser

Executing Agency: DCCK

Objectives: To provide assistance to the Project Coordinating Unitin overall monitoring of the Government's urban sectordevelopment action plan and to provide policy adviceand analysis on issues to be addressed by the UrbanDevelopment Coordination Team (Tim Koordinasi).

Duration of Services: April 1987-March 1990

- 68 - AMEX 3Page 6

Costs: Man-months Cost (Rp mln)

Foreign 50 990Local 90 520Equipment 165

Total 1,675

TOR Status: TOR confirmed at negotiations.

(b) Water Resource Planning and Programming

Executing Agency: DGCK/DCWRD/PUOD

Objectives: To assist the Water Supply Working Group under TimKoordinasi in formulating sector policy and workprogram relating to, inter alia, (a) integratedinvestment planning and programming at national level;(b) financing criteria; (c) provision of services tolow-income groups at affordable prices; (d) waterresource management; (e) environmental issues; (f)support to Provincial Monitoring and Development Units,and water enterprises; and (g) manpower development andtraining.

Duration of Services: 1987-1989

Costs: (i) Water Supply Man-Months Cost (Rp mln)

Foreign 18 356Local 12 69

Subtotal 30 425

TOR Status: TOR will be confirmed by September 1987.

(c) Spatial Planning and INUDS Support

Executing Agency: DGCK (Extension of UNDP/UNHCS project INS/85/005 team)

Objectives: To provide spatial plenning support to Tim Koordinasiand assist in the institutionalization of capacitiesand systems developed in connection with the NationalUrbanization Strategy (NUDS) Project.

Duration of Services 1987-98

Costs Man-months Cost (Rp mln)

Foreign 36 713Local 42 243Support equipment 100

Subtotal 78 1,055

- 69 -ANNEX 3Pase 7

2. Project Monitoring Assistance and Equipment

Executing Agency: Ministry of Public Works (Secretary General)

Objectives: To provide assistance to the Project Coordinating Unit,the Program Monitoring Specialist will: (a) preparequarterly reports on the status and purposes of theurban expenditure program; (b) prepare quarterlyreports in collaboration with D.C. Budget and BankIndonesia on status of Bank loan disbursement andoperations of the Special Account; (c) arrange foraudits of loan accounts in Bank Indonesia and Ministryof Finance and of Bank Rakyat Indonesia's INPRES andexpenditure reporting; and (d) ensure consolidatedreports on project accounts and audits are provided tothe Bank in a timely fashion.

Duration of Services: April 1987-March 1990

Costs: Man-months Cost (Rp mln)

Foreign 36 713Equipmient 83

Total 796

TOR Status: TOR confirmed at negotiations.

3. Subsector Policy Development

Executing Agency: Tim Koordinasi through DGCK and DGWRD

Objectives: To develop appropriate suibsector development strategiesand investment programs for the medium term.

Duration of Services: 1987-89

(b) DGCK sectors:

Costs: (i) Water supply Man-montha Cost (Rp mln)

Foreign 40 825Local 140 825

Subtotal 180 1,650

(ii) Sanitation

Foreign 20 413Local 70 412

Subtotal 9U 825

-70- - WX 3Page 8

(iii) Solid waste management

Foreign 20 413Local 70 413

Subtotal 90 825

(iv) KIP strategy

Foreign 20 413Local 70 412support

Subtotal 90 825

(v) Kalimantan IUIDP implementation

Foreign 60 1,238Local 210 1,238

Subtotal 270 2,415

Total 6,600

(c) DGWRD--Urban flood protection

Costs: Man-months Cost (Rp mln)

Foreign 30 594Local 40 231

Total 70 825

TOR Status: TOR to be developed by agencies concerned in consulta-tion w4th Tim Koordinasi. Outline TOR to be agreed atnegotiations.

D. Institutional and Manpower Development

1. Manpower Development Study

Executing Agency: Ministry of Home Affairs, (Secretary General) incooperation with BAKN

Objectives: (a) To define the urban infrastructure developmentplanning, programming, financing, implementation,operation, maintenance and urban management functionsto be performed at the second level of local governmentin the light of recent policy changes; (b) to defineinstitutional, organizational, systems, procedural and

- 71 -ANNEX 3Page 9

policy changes which would lead to enhanced capacitiesof local authorities to execute their urbandevelopment-related functions in the absence offundamental changes in local government structure; todefine where further investigation is required in thecase of systems or procedures of a technical nature;(c) to assess the existing local authority manpowerstock quantitatively and qualitatively, and to definethe highest priority training and manpower needs to bemet over the next two plan periods (1989-94 and 1994-99); (d) to investigate the organizational and staffingimplications of the technical support and trainingrequired by local authorities from provincial andcentral government agencies; and (e) to identify urbanmanpower development and training programs for phasedimplementation over the next two plan periods.

Duration of Service.: 1987/88

Costs: Man-months Cost (Rp mln)

Foreign 44 871Local 125 722Equipment 50

Total 269 1,643

TOR Statu3: TOR will be confirmed by Septemaber 1987 followingreview by BAKN.

2. DGCK Institutional Development

Executing Agency DGCK

Objectives To assist with DCCK Secretariate (a) review the DG'spresent organization and institutional capacities withspecial attention to the Introduction of IUIDP and theincreasing role of local governments, and (b) recommendimprovements.

Duration of Services: 1988-1989

Costs: Man-months Cost (Rp mln)

Local 24 139

TOR Status: TOR will be confirmed by September 1987.

I Ali,

I~ C/0 =z

CrI ' OCr'

S1 stE7I [ow - If l((It 8SSISIU U 1a 5tlEx 5SIR

slanted ------------------ stirated --- -Issigtnt Executing Bssinxt lmthid Losts /e Funding ----------------- linettle -------------------------------

Agenc eriod ----------- U ' p rl 5ourCt l5/5krtllst bord Lawent(e pietionforeign LOca foreign Local Iotal foreign Local il

I(CSICR K 6SSISIKE:

Locoa resotrce IlobLlization:

Valution aduisers jt Waja-k 1 i 181 i 2172 2172 35834 ¾ 384 xb.se,.x niSL, existing W9VS I?O.7 09iMlai atMinistratiot aduvser WEPaj 1987-B9 13 1! 516 r 81 r d5S USL existing' Mi/?7 09ifJ7 B9/

If fnitoring and deelopxnt IlCKS 19W7-N 16 72 1 432 252 ta1 713 4ij 1129 LSL Coistig US/I 09'S87 094119unt (1RDU estsalzsbtnt we86UE nagqetnt assistance DEC1 19W7-i9 250 B875 85 5 1411 s44 USL tXiSting' 08/07 09/i9 0949

U orguanzation study DE6CK IW-B9 36 72 432 ZS2 684 713 41b '123 Lown 26i3-IND ellistig O/V7 0917 C9uB9mu~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~/

Lewel 1 a ndinistration ID 1W7-I9luEalttion phlse 3 I? 36 4Z 70 59 r -'23 ; Loan 1972-ID existing' SBI7 09/07 /1149Irelmentation - trngMonxtoring 11 61 132 221 356 21B 7C B 587 USL existing. 124/7 02id 01s41

instailation Z56 896 096 14;8 '7I USL ex:shtng 1247 02'18 01/l9Sector filnnci:g:

Lending policv DM 1'47-B9 4' Soo S50 825 9'5 6so] 3087 n.a. 08i7 06/D8RN mratetalioaztion aIlm 1987-19 21 ' 88 16 456 4175 2' 7?2 UWIlPDlMic 08:7 03/,3 01i88 09,89

L6 filancial adtd socix-econanic IfS'. 198-9 Z t8 288 It0 456 475 :. ?52 US eXisiting 19iB7 1087 0Q1/inforsaln syste mll

Orsuntnpping 0,sswiination D6 fgermrna 1917-89 i 8 576 0 576 950 9 450 USL existing 11/8 1/67 tu349and fiscal cadister production i

Sector Progranung:

Program etiopeent I mnitoring DECI 19d7-d9 So 1D 61D 315 915 9% i20 1jf0 USL existinw 8157 t907 03/90Uater resources isCK/ll I1 12 216 42 258 356 bS it ; USL tb 0987 10187 09099Setial plaming I IKUDS support D6UI 36 42 432 IU? 579 713 243 9SS USL enisting/g erious varioni 091BII

espxent/f 160 ItD 26 264 aU

Project riotaring assistance IflUSekJen) 19W7/I i 36 i 132 432 713 '13 USL existing- 01/47 08/0? 03/18and equipnent e5 SE 83 83 USL

Subsector program deuelapenta: DEC 19t7/88 v:s ious ouas09

Uater supelg S0 sI Sf1 SII 1XD 825 025 tSO USL lbSaoutation 28 70: 20 250 5DD 413 1li 375 USL fbSolid aste rne gtent 28 78 2S8 250 500 113 4;3 6'5 LiSL tbt;lP 2 701 2S8 250 500 413 i°S '25 U04 fbalonwton IUIDF ipleentation I I 211 758 7s l I5O0 1230 i 38 475 . 0SL fb

DmB: 080 i 30 1401 360 14D Soo S94 31 B2S USL UrbAn flood protection

Institutional and bnpeer denelopient:

Institutionel I r_ar PIOtSetJen)/ 1988/Il i 1 IZ 528 431t 966 871 722 643 A St existingib 83/6 014 DSiVdenelopent study SRxl

Qiopieut 1 31 3D Sl o USL

BEEK institutioa denwloptet 06CK 1 24 Di 0 139 'I9 Lown 20-11 existiWb SI 09/87 "A8

leclaicul fssistanct Sub-total 8 819 116 1 1 6843 16223 16797 q970 Z6o?o w , 3

5ub-tota Urbaw Sector Loaw IRS 716 1568 8924 5497 14421 14725 06S 3704 :4------------------------------- - -- - ----- : ------- ------- ------- ------ --- ----

OM SECTOR LWm - TEDIICML OSSISIKCE R TR_INIU _MI_

Estinated ------------------ Estinated ------------------Rsslont Lxecuting ssigmet r1nV thd Costs it f mding ----------------- linetale

Rgency period ----------------- USS 'DOO Rp miillion source lOR/Shortlist Rwd Cme C letimnforeign Local foreign Loc Total foreign Local Total

TRIIIIIIN:

IUIIP training extension DOCK 1967-l9 1 1" 30S 1 1680 1068 27t8 2772 1761 1533 USL existing 09/87 10/8? K6M

Urban Planning training DirlKTD 1987-89 60 229 1 960 800 1760 158t 1320 2901 USL existing D9/67 10/97 116/Iand eqllent ffi ' IDD 100 165 165 ilb

PO8 valuer training OCPaJxt 1987-89 1 9 2970 675 3615 901 1111 60Dl 1 USL wious 12/87 12/97 09/89

Traimng Assistance Sib-total: 200 53t 5710 25t3 8253 91Z2 *195 13617

Sub-total Urban Sector Loan Training 200 531 5710 2543 8253 9122 t195 13617 1

: I

IO1IL 1A RN11 IIRA1N1I6 1919 2250 iSIS90 asI tt47S 26219 1tKS 1Q384.s.....3.n.. =-.......= ~ =s a.- a.- ..

Sub-total UrIban Sector Lom I/A and Training 1 916 7Mt 1631 9039 22673 2t116 1326t 371410.SXSStknt- S..fl.S=t=Zt S..SWtttlSkSU nag SS= aga canS ===s ===s us-==. ==--. I=5

09'r-17 - Revision 36

* Direct appointnents/a Block allwcations to be distributed auq subsctrs fel revina of policy developnent and dium-temn planming needs

and Tgi. omts sh*am are indicative, and in st m es incdlde for epnpnent needs./h TI and sortlists to be discued uith the before 1957/c Subject to revision of N1W project INI/1S. F diqng ay be Ally provided fro USL./d lhunth allocations within birectrates 6eeat ay be reallated am" resective items hmn as ciratmstances reluire./e hi inclding price contingscies (qr . 7n of total w R 2 billion)/f Epip,ent and furshing bet allocation aWp rately 9100,tOI for pregrvmiig adviser ane U,W for spatial plaming aduisers/g Extesior of ooing IIIS project cwratly fibmed by M

ANNEX 4- 75 - Page 1

INDONESIA

URBAN SECTOR LOAN

PBB Improvement Plan

Background

1. As part of a comprehensive tax reform the GOI in 1986 introduced anew tax on land and buildings/PBB (integrating the former IPEDA, wealth taxand local household tax) with the aim of strengthening the revenue base ofregional/local government and improving the overall equity of propertytaxation. As the new PBB law stipulates that tax assessments are to be Lisedon (actual) market values of land and buildings, this calls for a completerevision of the current index valuation system. In addition, improvements intax management/administration are needed in order to ensure successfulimplementation of the PBB law and capture the full revenue potential of thistax.

Overall Strategy

2. Considering the large number of taxpayers (approximately 33 mil-lion), the bulk of whom pay little more than US$l per year, and also the costand technical expertise involved in setting up a new valuation system as wellas the constraints in manpower, managerial capacity, and resources, it isobvious that a careful implementation strategy and process of selecting targetgroups of properties has to be developed. This strategy would take intoaccount revenue contributions by sector, by type and value of property and byregion as well as the need for equitable treatment of various target groups.In addition, the strategy must be realistic in view of the above-mentionedconstraints.

3. The proposed medium-term strategy would involve a generalimprovement in property valuation and tax administration over a period of 10years. This could include measures focussing on urban and rural properties aswell as special sectors (mining, forestry and estates). In view of the long-term growth potential and greater feasibility for short-term improvements inthe urban sector, the initial strategy that has been developed would focus ona step-by-step improvement in the valuation and tax management of urbanproperties. With 15% of taxpayers (approx. 5 million), the urban sectorcontributed about one third of total revenues in 1985-86, Based on presentassessments, the 100,000 urban properties in the top assessment ranges(Rp. 100,000 and above) account for about two thirds of urban PBB revenues(see Annex 4, Table 2). Of these, 60,000 are located in Jakarta alone, and anadditional 32,000 are in the next 15 largest cities. The proposed strategyinvolves the individual valuation of the highest-valued properties in majorurban centers as well as upgrading of the index appraisal system andimprovements in registration, billing and collection.

- 76 - ANNEX 4

Page 2

Action Plan for 1987-89

4. The first stage of the PBB improvement program, covering a three-year period (1987-89), would comprise about 10,000 individual valuations inJakarta, Bandung and Medan as well as semi-individual valuations for another50,000 properties, the upgrading of the index assessments covering urbanproperties throughout Indonesia and improvements in tax administration. Evenwith this limited scope, the three-year program is quite complex and will notbe easy to implement.

5. The first phase of the three-year Action Plan would consist of anInception Phase for detailed design of the program, to be followed by the mainimplementation phase. The salient elements of the Action Plan comptise:

(a) the appointment of a core team of foreign advisors which wouldassist PBB in valuation and tax administration, including assistancein organizing and supervising the valuation of some 60,000 urbanproperties by private firms and individual valuers;

(b) training of valuers both within Indonesia and abroad; and

(c) related equipment and materials.

The total cost of the proposed Action Plan is estimated at US$ 24.6 millionfor the 1987-89 period. A detailed breakdown is provided in Table 1 below. Adetailed step-by-step outline of the Action Plan is also given in Attachment 1and 2. Below, the Action Plan components dealing with (A) valuation andB) tax administration are described in more detail.

PBB Action Plan A (Valuation)

Phase I: Inception Phase - Valuation

6. In Phase I, the first and most important step will be to separate inthe PBB Head Office the valuation function from the tax administrationfunction. A Sub-Directorate-Valuation will be established, headed by a ChiefValuer, and an advisor to the Chief Valuer will be appointed. Three PBBofficers would be designated as Assistants to the Chief Valuer and threeadditional advisors would assist those officers to carry out their duties.The inception phase is to be completed by July 1987 and the proposedactivities will end in 1989, after which the newly valued properties would beassessed for tax purposes. The Chief Valuer will report to the Director PBBand have overall responsibility for all of the valuations for PBB and theassociated coordination and control of all valuation activities. Theresponsibilities of the Chief Valuer's immediate assistants will be groupedunder three main activities:

(a) Assistant Chief Valuer Operations, directly in charge of valuingoperations in the urban area;

(b) Assistant Chief Valuer - EDP, who will plan, develop and supervisecomputerized systems to provide computer-assisted valuationestimates and adjustments of values by indexation and other methods;

- 77 ANNEX 4Page 3

(c) Assistant Chief Valuer - Training, who will administer all of thevaluer training programs, both academic and pratical.

As it is intended to value properties in Medan and Bandung, in addition toJakarta, it will be desirable to have two further advisors stationed in thosecities where they will assist in helping organize and coordinate the valuationwork under the direction of the Head Office core unit. This organizationalstructure will facilitate future extensions for similar programs to improvethe Rural and Special Properties segments of PBB.

Phase II: Improvement of the Valuation System

7. To value individually over 5 million urban properties wouldimmediately require resources of an enormous scale. As a consequence, aninitial scheme is proposed whereby lG,000 top-value properties in the citiesof Jakarta, Bandung and Medan will be individually valued by contract, and inJakarta a further 50,000 by semi-individual methods by 90 PBB valuers underthe direction of 10 expatriate individual valuers. All of the properties tobe valued will be identified in the first instance by preliminary survey bylocal staff using aerial photographs which are preaently available fromAgraria, as well as field surveys. Tenders will then be called to valuemanageable groups of the top 10,000 properties by foreign valuation firms ororganizations, in conjunction with counterpart local firms. Concurrently, the10 expatriate individual valuers will appraise the 50,000 next most-valuableproperties in Jakarta, assisted by 90 local valuers who have already had someformal valuation instruction and experience.

8. Throughout the program, valuer training activities will beestablished to provide for a wide range of valuer education. Three-yearscholarships will be offered for overseas universities for professionalvaluation degree qualifications at overseas universities. At technicianlevel, three-month courses will be organized at the Malaysian Government'sNational Institute of Valuation and also the existing GAPPI/PBB courses will:ontinue. The training unit will provide in-house block courses and in-service training on a continuous basis while undertaking evaluation of traineeperformance.

9. To compile and maintain a large property tax base requires researchand development of appropriate computerized valuation systems. The EDPsection will design, introduce and supervise computer assistance systems togenerate valuation estimates and also adjust valuations by indexation andother methods. A computerized data base will be developed to improveinformation on property sales and other valuation related information.

10. As a modern system of valuation cannot be introduced immediately forall properties in Indonesia, an upgrading of the index system of appraisal byproperty classification will be undertaken by the Head Office core unit duringthe program period. The salient features will be establishing field teams forcollecting market information, improving the land-value mapping and buildingindexation systms, first in Jakarta and then extending to other areas.

-78-AU £34

PsiePageX 4

PbB Action Plan B: Tax Manapemnt/Admini-tration

11. A separate improvement program for overall tax management/administration ofPBS has been identified. This program is linked to the valuation program aswell as to tax reform measures being undertaken by D.J. Pajak and relatedTechnical Assistance programs. As in Action Plan A, the focus will be on theurban sector because of its high revenue potential and the more usanageablenumber of properties, but improvements in taxpayer registration, assessments,and tax collections will have large positive spread effects throughout the PBSsystem. Subprograms under this action plan address the following key areaswhich reflect main constraints inherited from IPEDA:

(a) taxpayer identification and registration;

(b) assessment system (tax billing);

(c) collection/enforcement system; and

(d) exemption review and appeals system.

In addition, public relations programs (for 1990 assessments) and a systematicmonitoring of the impact of PBB reform and implementation will be carried out.

12. The first st- (to be carried out by May 1987) will be to set up atask force or PBB uni for this program, define its authority and functionsand appoint its PBB head, who will be assisted by the chief foreign taxmanagement advisor. The Indonesian team, consisting of at least four full-time qualified staff members, will coordinate all actions with the heads ofthe assessment and collection departments. By the end of 1987, the firstpreliminary studies/reports on PBB manpower planning as well as guidelines fora tax management information system should be completed. Since most of thesubprograms in assessment, collection, etc., are of continuous nature, many ofthe dates given in the attached Action Plan refer to submission of initialstudies or improvement proposals, not the completion of the task as such.

13. After obtaining aerial photographs for the urban sector (100 cities)from Agraria, the first key administrative improvement program would focus onincreasing accu.acy and refining taxpayer coverage and recording of proper datathrough field surveys, matching of PBB data with those from other sources,review of exemptions, active contacts with notaries, etc. This should help tobring up the taxpayer coverage ratio from its presently relatively low level ofabout 70X. Up to now urban PBB relies almost exclusively on property dataprovided by the taxpayers. As part of the program, a comprehensive review ofthe exemption status of many urban properties will be carried out and shouldyield a substantial increase in assessments.

14. Computerization in the area of processing assessments or handling oftax bills offers large scale opportunities for increasing speed, accuracy andcost savings. This has so far been done only for Jakarta's 0.8 million tax-payers. An improved computer system which accommodates also the new marketvalue should be developed and extended (by PAIR) for Jakarta, Bandung andMedan by December 1989, to be followed by other major cities.

79 jjM31

15. Increasing tax assessments obviously concerns only one part of PBSadministration. Low collection ratios (60X of current assessments) and therather high average collection cost of 201 (including the 101 collectioncomissions) indicate IArge areas for efficiency improvements. By January1988, a first study should outline in more detail proposals for improvingenforcement, including more effective application of sanctions and/orincentives.

16. In addition to the above measures directly related to registration,assessment and collection, other measures to be pursued to improve taxadministration would include the following:

(a) in the context of overall tax reform, a link should be establishedto the PAIK master file (NPWP) and the payment control system (NPCS)in order to match income taxpayers and high ;alue properties;

(b) with the new (individual) valuation system in place and increasedtax liabilities, objections, appeals or applications forexemption/reductions by taxpayers are likely to increase, whichcalls for building up a proper (internal) appeals system and reviewboard;

(c) the application of new market values for the 1990 asaessments implythe need for a long-range and well-designed public informationcampaign; and

(d) a study team including PBB staff as well as possibly short-termforeign experts and/or domestic consultants/universities, shouldcarefulLy monitor the imupact of improvement measures on, e.g., taxrevenue, cost, taxpayer compliance, administrative efficiency andtax incidence.

ANNEX 4-0 - I=Tabl 1

INDONESIA

URBAN SECTOR LOAN

PBB Improvement Plan - Summary of Costs

Foreign Local TotalMan- US$' Man- US$' Man- US$'

months 000 months 000 months 000

AdvisersChief valuation adviser 31 372 - - 31 372Tax management adviser 31 372 - - 31 372Valuation adviser (Operations) 30 360 - - 30 360Valuation adviser (Training) 24 288 - - 24 288Valuation adviser (EDP) 24 288 - - 24 288Supervising valuer Medan 30 360 - - 30 360Supervising valuer Bandung 30 360 - - 30 360Short-term experts 24 288 - - 24 288

Subtotal 224 2,688 - 224 2,688

-n.ntract Valuation by Firms 13,716 997 14,713

Individual Valuers 240 2,880 - - 240 2,880

Subtotal 19,284 997 20,281

Training of ValuersOverseas degrees (45) 2,430 - 2,430Overseas short courses 540 - 540GAPPI/PBB courses - 450 450Block courses - 225 225

Subtotal 2,970 675 3,645

EquipmentVehicles & operating costs - 300 300Microcomputers, calculators, 200 200tapes, training equipment

Aerial mapping materials 216 216

Subtotal - 716 716

Total 22,254 2,388 24,642

INDONESIA

URBAN SECTOR LOAiN

Distribution of PBB Taxpayers and Assessments by Size of Assessment and Urban Center (1986/87)

RemainingTotal Jakarta 15 largest cities 21 major cities

Assessment r;:nge Taxpayers Assessment Taxpayers Assessment Taxpayers Assessment Taxpayers Assessment(Rp) ('000) (Rp mln) (-000) (Rp mln) ('000) (Rp mln) ('000) (Rp mln)

(I+II+III) -------- (I) -------- ------- (II)-------- ------- (III) -- …

I. Less than 5,000 3,363 6,955 244 715 2,243 4,207 876 2,033

TI. 5,000 - 25,000 1,260 12,859 297 3,842 715 6,627 248 2,390 X

III. 25,000 - 100,000 348 15,631 162 7,b27 142 5,677 44 2,127

IV. 100,000 - 500,000 86 19,995 .52 iO,772 26 5,420 8 3,803

V. Above 500,000 15 49,584 8 22,172 6 22,725 1 4,687

Total 5,072 105,024 763 45,328 3,132 44,656 1,177 15,040

Source: PBB Directorate.

D- HcZ I

I

INDONESIA

URBAN SECTOR LOAN

Action Plan for PBB Improvement

A. Improvement of Valuation System

Key areas Steps Time frame

Phase I (Inception) Prepare Inception Plan1. Assign functions of Chief Valuer & By August 1987

his staff. Define authority andfunctions.

2. Appoint Chief Valuer Adviser. By September 1987

3. Separate valuation from, other PBB By August 1987 X.functions and prepare draft decreeto establish valuation regulations.

4. Inception Report completed. By November 1987

5. Mobilization of 5 Valuation By November 1987Advisers.

Phase II (Implementation)N. Setting guidelines and standards 1. Research and development of basic Commence September 1987 9

for tender of individual methodology and systems. C n xappraisals. O 4

2. Final approval of imolementation By November 1987plan covering staffing-resourceallocation.

3. Produce forms, manuals and guide- By November 1987lines.

4. Prepare tender specifications and By December 1987have them advertised.

Key areas Steps Time frame

B. Identifying propercies for indi- 1. Obtain aerial photographs for By July 1987vidual appraisals in Jakarta, Jakarta, Bandung and Medan.Bandung and Medan.

2. Obtain printouts of properties in By July 1987Book V.

3. Operations Technical Adviser By September 1987commence effective work.

4. Preliminary field survey to physi- Start September 1987cally identify 10,000 Book V prop- Finish January 1988erties in Jakarta, Medan andBandung.

5. Divide Book V properties into suit- By March 1988able packages for teno. r.

6. Effective contract valuation work May 1988to commence.

7. Valuations completed. By September 1989

C. Establish training systems and 1. Select courses and candidates for 1987-89 pprepare and conduct training long-term (Valuation Degree)programs. courses for professional qualifica- 2 4w

tion. 0 0P%

2. Training Adviser commenced By Seprember 1987effective work.

Key areas Steps Time frame

C. (cont-d) 3. Select candidates for INSPEN - 1987-89Malaysia courses.

4. Select candidates for short-term 1987-89introductory course forvaluation/MAPPI/GAPPI/PBB.

5. Block courses and seminars for 1987-89improved PBB index systems, field/sales data gathering, land valuemapping.

6. Preparation and updating instruc- Continuous fromtions and manuals. September 1987

'. Identifying and valuing semi- 1. Develop system and methodology for By March 1988individual appraisal propeI-ties semi-individual appraisal.(52,000) Book IV.

2. Preliminary field survey to By March 1988physically identify 52,000.Book IV properties in Jakarta.

3. Recruit and appoint 10 expatriate By January 1988valuers. Select 90 PBB valuerswith training to work in conjunc-tion with expatriate valuers.

4. Commence field work. By February 1988

5. Complete valuations for Book IV By September 1989properties.

Key areas Steps Time frame

E. Establish computer-assisted 1. EDP adviser commence effective By September 1987

valuation program. work.

2. Preliminary research on feasibility By January 1988of EDP assistance to valuationprocess.

3. Develop system, complete gross By June 1988design.

4. Establish system of recording sales Continuing 1987-89& property related data.

5. Develop system for updating/ Continuing 1987-89

equalization of property values.

F. Improving index assessment 1. Establish field team for collecting Continuous from

system. market information from appropriate September 1987

resources.

2. Prepare land value maps pilot By June 1988project in Jakarta.

3. Implement land value maps in other By June 1989 1U Icities. l I

4. Improve building index in Jakarta Continuous fromand then extend improvements to September 1987

other cities.

INDONESIA

URBAN SECTOR LOAN

Action Plan for PBB Improvement

B. Improvement of PBB Tax Management/Administration

Key areas/program Steps Time frame

Phase I (Inception)A. Set up task force/unit for overall 1. Assign PBB head of task force and August 1987

improvement of PBB management/ his staff.administration.

2. Appoint foreign advisor and define September 1987functions and authority of taskforce.

3. Inception Report completed. November 1987

Phase II (Implementation)A. Monitoring of overall strategy and 1. Prepare intermediate/long-term January 1988

action plan. revenue estimates/targets.

2. Prepare preliminary manpower and April 1988training plans/programs.

3. Prepare guidelines/system and April 1988improvement proposals for a PBBmanagement information system(forms, reporting etc.).

Key areas/program Steps Time frame

B. Improve and increase property/tax- 1. Havc aerial photographs/maps ready End 1987 for photomapspayer identification and coverage. for major urban centers. for 100 cities & line

maps for Jakarta; mid-1989 for line maps for46 cities.

2. Collect information on property Continuous fromidentification/description. January 1988

3. Review status of exempt properties March 1988and draft decree o- exemption ofgovernment property.

4. Check property identification/ Continuous fromregistration based on results from June 1988aerial photographs and field sur-veys, starting with top-value careas.

C. Improve assessment system (tax 1. Prepare SK to base actual assess- Ready for 1990billing). ment on market values as determined assessments

by subdirectorate responsible forvaluation.

2. Review current DKI computer system. September 1989

3. Introduce/extend computerized PBB Continuous from 1990 w registration/assessment system, 0starting in cities with more than I '

300,000 taxpayers.

4. Prioritize the issuing & distribu- Continuous from 1990tion of assessments/collections.

Key areas/program Steps Time frame

D. Improve collection system. 1. Study of current collection system, Febraury 1988practices and cost. Analysis ofarrears and effectiveness ofpenalties.

2. Defining collection authority, March 1988procedures and commissions betweenPBB and local government staff.

3. Develop procedures for implementing June 1988improved sanctions and enforcementsystem.

4. Linking high-value PBB assessments January 1988to PAIK master file (NPWP) andpayment control system (NPCS).

E. Establish an appeals system and 1. Make available appropriace details Commencing 1990institution. of assessment methodology to permitindividuals to review assessments.

2. Establish internal appeals system. September 1989

3. Review Board for exemptions/ September 1989deductions.

F. Public relations program 1. Information campaign in mass media December 1990

2. Conducting seminars, etc. Commencing 1990

3. Monitor the impact of PBB reform 1. Review with the Bank, proposals for Septebmer 1989and implementation impace monitoring of PBB reform andimplementatton program

)INW1* SI

aDVd SIHI

-6'V ,

ANUIEX 5- 91 - Page 1

INDONESIA

URBAN SECTOR LOAN

Water Enterprise Cost Recovery and Management Improvement

A. User Charges

1. User Charges levied by either service departments of local govern-ments (Dinas) or local enterprises (Perusahaan Daerah) constitute a veryimportant source of local revenue.

2. In view of the constrained financial position of the CentralGovernment, it has been agreed to increase resource mobilization and reducesubsidies at the local level. Water enterprises constitute a large proportionof the local enterprises sector and thus deserve special attention.

3. Under the existing water supply projects (Loans 1709, 2275 and2632), GOI has already agreed to take all steps needed, including increases inboth PDAM and BPAM water enterprises' (WEs) tariffs to provide water revenuesat least sufficient to cover their respective operating expenses (includingdepreciation on revalued assets) and interest and debt amortization in excessof depreciation. Accordingly, the Bank-supported WEs are expected to meettheir operating expenses and debt service obligations on completion of therespective projects while maintaining affordability, i.e., water charges to beless than 4% of monthly income. Success of the policy is partly attributed toimplementation of National Water Rate Struct'li promulgated by the jointdecree of the Minister of Home Affairs and th. sinister of Public Works inconsultation with the Bank in early 1984.

4. It is now desirable to apply the same policy relating to tariffstructure and level to the rest of the WEs in Indonesia. It has been agreedthat practical implementation would be carried out in the following phasedmanner:

(a) issue binding instructions by December 1986 to all WEs to

(i) implement the National Water Rate Structure; and

(ii) implement accounting system already approved by CK.

(b) implement tariff structure and level in BPAMs which are alreadycovering cash operating expenses particularly in Java and Sumatra,by June 1987;

This Annex is based on the findings and recommendations of IBRD staff membersAli N. Memon and Rene Costa during the appiaisal mission to Jakarta inNovember 1986.

X92 -

(c) implemntation of tariff structure and level in all PDAMs to becompleted by December 1987; and

(d) implementation in all WEs to be completed by December 1988.

B. Water Organization and Management

5. While it is acknowledged that the GOI's policy for water supplytariff level and structure constitutes a major step toward a more effectiveand equitable mobilization of resources at the local level, its widespreadimplementation in all WEs and the optimization and monitoring of its resultswill require strong coordination of the ministries involved at the centrallevel, and the aet-up of well-managed and organized WEs, each with a n'imber ofconnections large enough to ensure the financial viability of their activ-ities, and with the highest managerial and operational efficiency standards.The rationale for an improved policy and organizational framework at thenational and local levels is given below.

6. The main constraints evident are related to fragmentation of watersupply policy making, weaknesses in water supply organization, as well asmanagement and monitoring of Water Enterprises, including scarce manpower andinsufficient internally generated financial resources through user charges.These constraints have often impeded implementation and led to operationaldifficulties. The user charges have been addressed above. Resolution ofother issues is also required.

7. The Directorate General Cipta Karya (CK) of the Ministry of PuhlicWorks is chiefly responsible for GOI's urban water sector investment programand its technical direction. Local-government-administered WEs (PDAM), CK-administered WEs or local service departments (Dinas) are responsible foroperations and maintenance. In cooperation with the Ministry of Home Affairs(MHA), which is responsible for oversight of local government and WE adminis-tration, CK is now beginning to address the institutional issues emerging fromthe accelerated development of the past. The proposed TIM KADUPP provides anexcellent opportunity for co-rdinating consolidating presently fragmentedwater supply policy making. is agreed that a standing working group wouldbe created under the direction of TIM KADUPP for formulating, implementing andmonitoring sector policy in terms of, inter alia,:

(a) determination of priority for investment at national level;

(b) determination of sector financing policy (loans vs. grants) level oflocal and national tax on WEs, level of electricity tariffs for WEs,and use of profits, if any;

(c) provision of services to low income groups at affordabale prices;

(d) water resource management;

(e) environmental issues;

-03 - Page 3

(f) provision of support to Provincial Monitoring and Development Unitsand WE; and

(g) manpower development and training. The proposed working group wouldbe set up and staffed by September 1987. Technical assistance wouldbe provided to the Working Group.

8. While the Working Group mentioned above will play a very usefulrole, the responsibility for supervision of water sector rests wich PUOD inMHA and the Development Sub-Directorate of Water Supply (SDD) in CK.Strengthening of staff of PUOD and SDD is critical. In particular:

(a) a deputy to the head of Subdirectorate Development supported byfinacial expert would be appointed;

(b) an institutional development expert. would be appointed in PUOD;

(_) staff capacity of PUOD and CK would be increased in order toeffectively supervise WEs through the provincial monitoring units.

Organization of Water Enterprises

9. The practice in Indonesia is for each level II local government tohave its own WE for its jurisdiction. Until a few years ago, only the majorcities and towns had piped municipa; water systems and thus there were only afew municipal WEs in operation. With the significant expansion rf the watersupply program to small towns (IKKs), GOI faced the prospect of creating over2.000 WEs. However, it quickly became clear that this is not realistic inview of serious manpower constraints in the country (both technical andfinancial skills), and high operating costs. Under the first East Java WaterSupply Project, it was agreed that WEs would be established at the Kabupatenlevel (each Kabupaten contains several IKKs and BNA towns) and for each of themajor cities (Kotamadya). This meant a reduction in the number of waterenterprises in Indonesia from over 2,000 to about 250.

10. Experience to date indicates that even the Kabupaten/Kotamadya levelWEs may be too small for reasons of efficiency (management, staffing,finances, and operations). Analysis of tariff indicates that the smaller WEsare not likely to be financially viable, since they have little scope forcross-subsidization from larger cities to smaller towns and rural areas orfrom commercial/industrial to residential users. Larger consolidated WEswould improve their potential viability as well as make the task of monitoringmuch easier and more manageable. An interministerial working group workingunder IUPA has recognized the problem and recommended rationalization ofWEs. The group has recommended mergers of WEs into regional or provincialPDAMs as needed on a case-by-case basis. Tnis flexible approach is expectedto be formally adaptea by GOI through issue of an appropriate guideline byMinister of Home Affairs by February 1987.

11. The Second East Java project includes consultancy services fordetermining suitable organization structures for water entities with

ARM31 5-94 - -ag 4

particular emphasis on Irian Jaya, South Sulawesi and North Sulawesiprovinces. TOR of the study are being expanded to focus on Java and Sumatrain Phase II and the rest of the country in Phase III, The draft study, whichis expected to be completed by March l, 1987, is expected to recommend optimumarea of coverage for the three provinces as well as the rest of the country(i.e., regional, provincial or Kotamadya/Kabupaten level) for water enter-prises based on managerial, financial and operational efficiency criteria.GOI would discuss the report with the Bank in June 1987, and subsequentlytake decisions on changes required to enhance tne effectiveness of specificWEs, including issue of required decrees, by September 1988.

12. The target dates for defining water entities in Java and Sumatra andimplementing the new organizations is September 1988.

C. Monitoring of Water Enterprises

13. WEs are responsible to their district heads (Bupatis) and through alengthy administration chain to MHA. Supervision of operation and maintenanceby higher levels of government is important because, as experience has shown,WEs may not engage in the best of utility practices due to shortage of funds,s-aff and experience. As part of its institution-building function oncentrally funded projects, CK sets up management systems and trains stafi forWEs. However, for operations and maintenance (after project completion), CKhas neither the powers nor sufficient staff to continue this assistance andcontrol, nor does MHA yet have the staff or qualifications to do so.

14. Periodic review of operating results of WEs under the Bank-financedprojects using available data indicates large amounts of unaccounted-forwater; operating losses; poor collection of water bills; and large &acountsreceivables (particularly from government agencies) at most WEs. Review ofstaffing indicates several vacancies at senior 'Levels; high incidence ofexisting staff who are not permanent employees of the WEs and are frequentlywithdrawn causing disruption to operations; limited career development oppor-tunities; and lack of authoritative direction to support the organizationaldevelopment of WEs.

15. There is an urgent need to designate/create provincial developmentand monitoring units along the lines of the East Java model to monitor theperformance of the WEs, take cotrective action and provide developmentalassistance in a systematic and timelv manner. The functions of these Unitsshould include:

(a) provision of technical and financial guidance and relatedimplementation support to the WEs;

(b) supervision of the operation, finance and management of WEs;

(c) review of and assistance in the preparation of tariff and othercharges;

(d) appraisal of investment proposals and review of their priority andjustification; and

- 9S- ANIt 5AM 5

(e) provision of channels to exchange information on the improvement ofsystems and procedures.

It is important that these units have has adequate personnel and budgetresources. It was agreed that these units would be set up, staffed, andfunded in Java by December 1987. Units in the other provinces would be fullyoperative by June 1989.

16. The monitoring units (with assistance of consultants as needed),woult review aanagement and performance of all PDAMs and BPAMs includingstructure and efficiency of their Supervisory Boards, Boards of Directors,maintenance programs, billing and czllection procedures and unaccounted forwater. Consultants as needed would be engaged by June 1988, the review wouldbe completed and action program established by December 1988 for Java and byDecember 1989 for the rest of the country. Human Resource Development Program(HRDP) would be expanded to all provinces and decision of establishment ofrequired regional training centers would be reached by December 1988.

I NDONESIA

URhAN SFCT.IR LOAN

Water Action Plan

Policy Objectives Action proposed By Key steps Time-table Monitoring imdicagere

I -- Development of responstbility Define institutional framework for - Study optimum ares of coverage DrP1!OD - Study of WEs- rationaltzatlon. 08/87 - Consm.:tants complete utiytor infrastructure to local most efftcient proviston of water (regtonal, provincial. or level DGCK on three provtnces.governmenrs. suPply services. 11) for Water Fn:erprtses (.JEs),haset on efficiency criteria - Review financial viability of 02/88 - Consultants complete stmfy(managerial, financial and PDAMs. I)iscuss results with on lavS and Smatra.ODerational). Bank. Define WEs to be

copsol idated.

3 - StrenFgten local governmeot Improvement financial management - Improve cost recoverv perform- DCJPUOD - An-lyze cn t recovery perform- 06/87 - Resedial action planresources mobilization and practices of Water Supply Enter- ance of WEs through: DGCK ance of all water enterprises recomendAtionfinancial management. prises (WEs). with respect to SKB/1984 and

identify problem PDAHa.

(t) application of national - Implement instructions comenc- Commencewater tartff level policy !ng in Java and Sumatra requir- 08/87 - Number of water enterprtierequiring that revenues ing adoption of (i) water tariff conplyingshould be sufficient to structure and appropriate tariffcover O&M costs. deprecia- level to cover O&Mt costs. depre-tton or debt service pay- ciation or debt service (which-ments (whtchever is larger). eve- is larger); and ('I)

(ti) Application of national accounting system for waterwater tariff structure enterpriset based on nationalpolicv. giidelines.

(tit) Implementation of nationalacccL..iting system. - Continue program in the rest of 12/88 - Number of WIEs complying. .

all WEs (about 40 per year).

- Timely auditing of WEs. - Auditor-a Reports.

- Impr,ov, provinc al and local a. At the provincial level. - Implement Provtncial Monitortng - Assign functions and provide 12/87 - Instructions issued and sitsmevernmnnt canability. and Development Units (rl4APUs). budgets and staff to Central and operational in Java.West Java DPUS.

h. At the local lessi. - Under the supervision of PF1ADtJs, DGPUOD - Engage consultants as r,eed_d 12/87 - Bank approval of conslttantsreview management, organization. DCCK under TOR. agrerd with ha.*>. and TORa agreed.and operatt ,nal performance of PMADUs - Complete revie', of WEa in Java. - Fiqal reports.all PDOAs and BPAMs where re- - Continue prog am in the rest of 12189 - Final reports.quired, inciuding structure and the country.efficiency of Supervisory Boardand Board of Directors, mainte-nance programs, billing and col-lection procedures, and un-accounted for water issues, etc.

6 - Strengthening of policymaking Consolidate Dresently fragRented Strengtheniong of staff In PIJDO and DGPUOD - Appointment of special staff to 08/87 - Confirmation of staffard impl'm-.ntat Ion. decision-making process and tmple- CK. DCCK head of Subdirectorate Develop- assignments.

mentation capacity In the water sent in 058 supported by asutpply and sanitation sector. strong financial expert.

- Appointment of an Institutional 1)8/87 - Appoint-bent.Development Expert in PUOD0.

- In PU0e and CK increase staff 09/87 - Appointmert.capacity to effectivelv super-vise liEs through ProvincialMonitoring Units.

p

a 5 ~~~~~~~~~~~~~~~AfflX 6_97 _Pape 1

INDONESIA

URBAN SECTOR LOAN

Local Taxes and Charges

1. Local governments levy nearly 100 taxes. However, few ,f thesetaxes are individually very important in local finances, and even in theaggregate local taxes constitute a small proportion of total level I and IIrevenues (although they are a relatively more significant revenue source inthe Kotamadya than in nonutban Kabupaten). Existing taxes could be utilizedmore efficiently if administrative improvements in registration, assessment,collection and enforcement can be made. Elimination of the numerous unproduc-tive taxes, dS proposed in the draft law on local taxation, would reduce dis-tortions, lower collection costs, and allow concentration of efforts on themost productive taxes. The revenue impact on this proposed reform would beminor, since the additional collection effort for the remaining taxes shouldmore than make up for any short-term revenue losses. The draft legislationalso contains two new Laxes for level II governments, a tax on gasoline con-sumption and a betterment tax, which are strongly recommended. Regulationsdrafted in connection with the new legislation should also increase the amountof discretion allowed to local governments in setting tax rates.

2. Fur second level regional governments, charges for services,licenses and permits (retribusi) together constitute the largest single sourceof locally generated revenues and produce double the income from localtaxes. However, there is a proliferation in many second level regionalgovernments of small charges which probably cost more to collect than theyyield and for many services, charge levels are (a) not determined in relationto the costs of providing the service; and (b) not reviewed and increased inmany years to reflect rising costs. Legislation to rationalize the structureand control of charges which was under consideration in the Ministry of HomeAffairs, is now expected to be combined with the local tax legislationreferred to in pdra. 1 above,

3. The attached Action Plan for local taxes and charges has two maincomponents: (a) draft. legislation instruments to reform and simplify thestructure of local taxes and charges; and (b) the evaluation and extension ofimprovements in tax (and service charge) administration, including thereorganization of local tax offices (Dinas Pendapatan Daerah or DIPENDA) andrelated changes in the Manual for Revenue Administration. The timetable forpreparing the proposed legislation on local taxes and charges is shown inAction Plan A, which assumes that the basic ob2ectives and content of thelegislation will not be modified significantly. The Bank would need to beinformed of any major changes in the proposed legislation. Regarding improve-ments in local revenue administration, as indicated in Action Plan B, theongoing pilot program in six urban areas (five Kotamadya and one urbanizedKabupaten), which is expected to be completed by mid-1987, would be evaluatedby the end of 1987. After incorporating any recommended changes, the revenueadministration improvement program would be extended to selected Kotamadyaduring the three years covered by tile Action Plan.

LTiz . _ ~~~~98"''- 4_

ACTION PLAN A

DRAFT LAW ON LOCAL TAXES AND CRARGES

Policy 3: Strengthen local Government Resource Mobilization

Objectives: Simplify Structure of Local Taxes and Charges and Increase

Local Revenue Generation

Actions Target dates

1. Draft proposed instruments December 1987

2. Draft instruments, Revision I August 1987

3. Sounding with Local Government Financial August 1987Staffs

4. Draft instruments, Revision II January 1988

5. Synchronise instruments on Taxes and Charges January 1988

6. Instruments submitted to Minister of Finance June 1988

:~A . ~- 9

ACTION PLAY I

LOCAL REVUUE ADINIISTRAION IMPROVEMENT PROCRAM

Policy 3: Strengthen Local Government Resource Mobilization

Objectives: Increase Local Revenu* Generation and Efficiency

Actions Target dates

I. Phase I - Evalution

1. Finalize TOR for Evaluation of Pilot August 1987Program in 6 cities

2. Complete Pilot Program August 1987

3. Appoint Consultant for Evaluation September 1987

4. Final Evaluation Report distributed November 1987

S. Discuss Recommendations within GOI December 1987and with the Bank

II. Phase II - Extension

6. Finalize TOR for Extension of Program August 1987to at least all Kotamadya

7. SK (MHA) relating to new National Manual January 1988for Revenue Administration issued

8. SK (MHA) concerning Level II Tax Office January 1988reorganization issued

9. Appoint Consultants for Extension of January 1988Program

10. Inception Report March 1988

11. Mid-term Evaluation of Implementation September 1988and Results

12. Completion of Improvement Program January 1989

.~z= H

- 10 --

INDONESIA

URBAN SECTOR LOAN

Regional Development Account (RDA)

i. At the preaent time, local government development expenditures arelargely funded by central government grants or foreign loans passed on bycentral government. An ad hoc and complex system of domestic loan schemes hasalso developed, channelling funds to local government for only specificsectors (almost exclusively for certain revenue-earning activities) and atvery "soft" and inconsistent terms. This system has not encouraged localreource mobilization, integrated local government development, setting oflocal priorities and equitable financing arrangements. Moreover, inadequatefunding for the loan schemes, whose low lending rates do not allow themobilization of nongovernment resources, is presently a severe constraint forthe expansion of loan finance.

2. Since GOI's ability to continue providing grants (or soft loans) islimited, access to a reliable source of loan funds cou'.d be an important meansof financing local government development expenditures and stimulating localgovernment resource mobilization. To this end, there is a clear need for aconsolidated central source of loan finance for regional governments and theirenterprises which would cover the whole range of infrastructure activities andhave uniform and realistic lending terms, as well as rigorous appraisalstandards and criteria.

3. Although GOI recognizes the need for what has come to be known as aRegional Government Loan Fund (RGLF) and has created a Regional DevelopmentAccount (RDA) as a precursor to this Fund, an Action Plan is required for thefull implementation of the RDA, to ensure, inter alia, that:

(a) it is implemented without further delay;

(b) it consolidates the current array of ad hoc loan schemes, whichwould be phased out over the next few years;

(c) it lends at consistent and positive interest rates in real termsreflecting its average cost of funds;

(d) it has adequate appraisal standards and eligibility criteria; and

(e) it maintains full and separate financial accounts.

4. The GOI delegation confirmed at negotiations that the RDA will beestablished as an account of the Ministry of Finance. Its function will be tolend funds to local governments (Level I and Level II) and to local governmententerprises for capital investments in infrastructure, equipment and facili-ties and for their bridge financing needs. Initially the RDA will lendprimarily for urban areas, but, as experience is established, lending may be

-102-

extended to non-urban areas. All sectors of local povernmnt activity(including non-revenue earning activities as well as revenue-earning activi-ties) will be eligible for loan finance from RDA. The lending terms andconditicn' would be structured to ensure consistent treatment of all localgovernments and sectors, as well as the financial viability of RDA.

5. A detailed Action Plan for RDA implementation is attached. Terms ofReference for the technical assistance required to operationalize the RDA havebeen finalized and special arrangements for financing this assistance havebeen made through the UNCHS/UNDP Project IN/85/005 and the Bank. In addi-tion, terms of reference have been formulated for studies related to RDAfocussing, inter alia, on loan demand and debt service capacity as well as onthe links between grAnt allocation and loan finance, to be carried out by in-house consultants to DCGDN.

_- . . . ....... . ..^ _ o3 _ ..... =~~~Pige 3

Action Plan for Regional Development Account (RDA)

Policy 4: Improve Financing Systems and Mechanisms for UrbanInfrastructure

Objectives: Provide consolidated source of loan finance for RegionalGovernments and their enterprises

Actions/Steps Target dates

I. Policy-related Actions

1. Prepare TOR and work plan for review of RDA-relatedpolicies June 1987

2. Assignment of in-house Consultants to reviewRDA-related policies August 1987

3. Commence detailed study of loan disbursements and August 1987commitments to regional governments and theirenterprises and exptcted loan repayments underexisting loan schemes

4. Commence assessment of existing urban loan channel3 August 1987and recommendations for their consolidation intothe RDA:

a. Consolidation into RDA of existing Direktorat September 1987Pembinaan Kekayaan Negara managed Loans forlocal government and local government enterprises

b. Consolidation into RDA existing Direktorat April 1988Dana Investasi-managed Loans for localgovernment and local government enterprises

c. Consolidation into RnA of other loans (if any) March 1989to local government or local governmententerprises

5. Determination of lending policy, eligibility March 1988criteria to be applied and terms and conditionsto be adopted for RDA

6. Establishment of financial instructions, regulations March 1988and procedures pertaining to the account, includingrevision of debt service ratio (DSR) regulati3ns ifnecessary

7. Development of the framework including inter- March 1988and intraministerial relationships for RDAoperations

-104-£32it ~~~e F ;---t -- =r --~~~~~Pge

II. The Operationalization of Regional Development Account

1. Revise TOR for operationalization of RDA August 1987

2. Appointment of consultants for operationalization March 1988of RDA

3. Preparation of operational procedures, including: Sept. 1988loan application forms and information requirements,loan agreements, and disbursement procedures,including banking arrangeMents

4. Design of organization arrangements and manpower Sept. 1988requirements

5. Appraisal standards and procedures finalized Sept. 1988

6. Accourting System established March 1989

7. Loan Portfolio Management System established March 1989

8. Design and implementation of training programs for Sept. 1988the staff involved with the operation of RDA

a. Training of Level I and II Local Government Sept. 1988Officials in preparation of Loan Proposals (start)

b. Training of Central Government Officials in Sept. 1988Project Evaluation and Loan Analysis

c. Training RDA staff in the operation of the Sept. 3988Regional Development Account

- 103 -

9IrLOQSIA

URBAN SECTOR LOAN

Central-Local Grants

1. Central grants account for a large share of lccal governmentfinances and a significant portion of the central government budget. Inaddition there are important overlaps between three areas of the Urban SectorAction Plan and Central grants: the assignment of appropriate functional andfinancial responsibilities; the upgrading of local tax revenues; and thecreation of a regional government loan fund. Decisions in each of these areashave implications for the design of central-local grant systems, and viceversa. It is therefore of paramount importance that the Urban Sector ActionPlan explicitly addresses the issue of Central-local grant design.

2. Prior studies have sbown that there are numerous ways in which theIndonesian Central-local Grant oystem could readily be improved, including areduction of fragmentation and of detailed central control; greaterpredictability; improvements in the incentive and revenue equalizationeffects: and streamlining of procedures, Many of the improvemnnts might befacilitated by a new law, but this is not a prerequisite for r st of them. Inview of the wealth of existing or ongoing studies, much more Aetailed studyis not needed. Instead, specific proposals for reform of the central-localgrant system can now be formulated with a view to eventual implementation.

3. In addressing issues of Central-local grants the followingconsiderations should be taken into account:

(a) The grant system should satisfy the basic criteria of:

(i) providing local government with fiscal resourcescommensurate with their assigned functions, local revenueauthority, and national resource availability, and in areasonably predictable manner;

(ii) allowing fcr differential local resource mobilizationcapacities among local jurisdictions (equalizationobjective);

(iii) giving incentives to local governments to respond to alimited number of specific, welL-articulated centralgovernment priorities (e.g., incentives to augment localresource mobilization efforts); and

This Annex is based on the findings and recommendations of IBRD staff memberJohannes Linn during the appraisal mission to Jakarta in November 1986.

rtS~~~~~~~~~~ :ag 2 M-

(iv) relying on simple allocation rules and efficientdisbursement procedures.

(b) The treatment of transfers will be explicitly placed in the contextof:

(i) the intended clarification of functional and financialresponsibilities for urban infrastructure development,operation and maintenance (under Policy 1 of the UrbanSector Action Plan);

(ii) the impact of local revenue reforms (PBB, local taxes anduser charges);

(iii) the approach to local government loan finance developed forthe Urban Sector Action Plan.

In practical terms this probably means that the impact of anyproposed grant system needs to be explored for a representativesample of local governments, making allowance also for the impactsof items (i)-(iii) above on the financial position of these localgovernments.

(c) The treatment of transfers and grants will be comprehensive,considering routine grants, development grants, DIPs, shared taxesand any other possible fcrms of grants (including, e.g., any regulartransfer of asset), and should cover Level I and Level II (Dati Iand Dati II) local governments.

(d) No major new scudies need to be initiated in view of the variousstudies already in existence.

4. In view of these considerations the following approach will beadopted:

(a) An interagency Working Group on Central-local grants will be set upby Tim Koordinasi by April 1987;

(b) This Working Group will review the Birmingham study on INPRES and onthe basis of this review formulate specific INPRES reform proposalsthat can be implemented in the short term within the framework ofexisting legislation, satisfying the criteria and considerationslaid out in para 3. above. These proposals will be submitted byDecember 1987 for ministerial review and decision.

(c) For the longer-term, the Working Group will review existing studiesand develop specific proposals for comprehensive reform of central-local fiscal relations (again based on the criteria and considera-t:ons of para. 3 above), with a view to prepare draft legislationand regulation for submission to Parliament by March 1989.

- 1l7 pe- 3

Action PlanCentra 1 -Local Grants

Policy 4: Sector Financing Mechanisms

Objectives: Improvement of Central-Local Grant Allocation System

Note: The action plan below only contains the main steps currentlyidentified. Additional intermediate steps will be iden'ifiedby the Working Group on Central-Local Grants immediately uponbeing constituted.

Actions Target dates

1. Set up interagency Work Sub-group on Central-Local Grants under Tim Koordinasi August 1987

2. Sub-group submits recommendations on ongoingcentral-local grant system study for ministerialreview and decision. February 1988

3. Sub-group prepares instruments required forimprovement of central-local fiscal relations March 1989

0Y zI.c

0=04-

H -1

109 ~~~~~~~Page1

INDONESIA

URBAN SECTOR LOAN

Local Government Information Systems

A. Information System on Local Government Finance

1. The only well established data base on Level II government financeis currently that provided by tho Buro Pusal Statistik (BPS) through itsinnual publication "Statistik Keuangan Pemerintah Daerah". This only relatesto local government actual expenditures and revenues. It suffers from severaldeficiencies:

(i) capital expenditures and receipts relating to the Inpres grant-financed programs are not included as yet at Dati II level(Provinces have, however, been asked to provide this data in summaryin recent years; and it is understood this will be extended to DatiII. but .he information is very summary in nature);

(ii) there is no sectoral analysis of development expenditure, and nodepartmental analysis of routine expenditure;

(iii) although the main types of local taxes are separately analysed,there is no similar analysis of regional charges or of dinas income;

(iv) there is inconsistency of treatment of government grants as betweenregions -- e.g. on development a/c some second level regions includethe Inpres Dati II, while others exclude it (and the relatedexpenditures);

(v) province statistics do not usually "square" with those of the DatiII in relation to transfers between levels of authority (e.g."development a/c transfer from province to lower level regions arenot anaysed between those for Dati II and for Desa; and the figuresare usually widely different from the sunm of the correspondingreceipts shown in the Dati II statistics;

(vi) balances brought forward are now shown for both routine anddevelopment accounts, but balances carried forward are not shown;analysis of certain regional figures suggests chat, from year toyear, the balances brought forward do not tie up with the impliedbalances carried forward from the previous year;

(vii) there are many anomalies to be found when comparing individualregions' figures from one year to the next, which suggests that thestatistics must contain substantial numbers of errors, implyinginadequate checking procedures at the regional level where the datais collected.

-110- ANNEX 9Page 2

(viii) the data take a very long time to produce in published form -typically around 18 months to 2 years.

2. The Directorate of State Wealth Management (Dit. PKN) in theMinistry of Finance is attempting to overcome some of these problems bycollezting much more detailed information on regional realizations at bothprovince and Dati II level. The exercise is coordinated with that for the BPSfigures. However, there are many problems still to be overcome, especiallyconcerning accuracy (even a cursory inspection of some of this collected andtabulated data, reveals numerous errors, both of classification and ofomissions, and in some cases the size of the probable error is very large).

3. There is no information available centrally at all on budgets ofsecond level regions; and altnough Dep. Dalam Negeri collect the provincebudgets they do not generally produce any comprehensive and detailed summaryof them.

4. Comprehensive data on central grants to region3 is not available -either for budgets or for actual realizations. The data exists in variousformats in the Ministry of Finance (D-J Anggaran) and Dep. Dalam Negeri (D-JBangda) but often not in a readily accessible form. The records of these twodepartments often do not reconcile with each other.

5. There are also no readily available figures on central governmentDIPs in support of regional government expenditure programs.

6. Loan finance data is especially lacking in availability, It can beclassified as follows:

(i) donor loans to GOI passed on as loans to regions - these areadministered by Directorate Dana Investasi in the Ministry ofFinance, but comprehensive records do not seem to be available fromthis source;

(ii) donor loans to GOI passed on to regional projects as DIPs(effectively grants) - these appear to be administered fromsomewhere within D-J Moneter Luar Negeri but again, comprehensivedata is lacking;

(iii) domestically-funded loans from Rekening Dana Investasi (RDI), InpresPasar, Bantuan Uang Muka (BUM) Ipeda, and Lain-Lain Penbangunan (LLP- usually for equity investment (Penyertaan Modal Pemerintahan -PMP) in regional water supply and other regional enterprises; allexcept RDI are administered by Dit PKN and data can be obtained onan "ad hoc" basis; but again, there is no consolidation data source.

7. Accurate Data of this kind will be essential, not just to informcentral personnel of progress and performance of regional finances in general,but also for project evaluation in connection with the proposed RGLF. AnAction Plan (Table 1) has therefore been agreed for the establishment of aninformation system on regional government finance. A parallel effort willfocus on improving demographs information on local government.

r' ~~~~~~~~~~~~- liii - Pape 3

Table 1: INFORMATION SYSTEM ACTION PLAN ON LOCAL GOVERNMENT FINANCE

Actions Target Dates

1. Identify data needs formats, sources, August 1987collection agencies, collection frequency,and transfer methods.

2. Reach agreement between BPS and other ag2ncies August 1987on institutional roles.

3. Appoint consultants. August 1987

4. Complete preliminary design and undertake February 1988detail design of new systems:

a. revise questionnaireb. identify flow of documentsc. analyse collection methodd. analyse processing methode. produce computer programs

5. Report on proposed system detailed design August 1988circulated and discussed.

6. Trial-run of proposed system and revisions. November 1988

7. Implement systems:Hay 1989

a. Hardwareb. Softwarec. Maintenanced. Training

B. Local Government Socio-economic and Topographic Information Systems

8. Basic urban information which is fairly reliable and current isessential to determine and adjust national policy and allocation, and toprepare programs and projects at the local level. Many agencies collectinformation relevant to their areas of responsibilities but it is oftenfragmented and not coordinated for the purposes of planning and evaluation ofoverall urban strategy and development. Key sources for this purpose are BPSfor basic demographic, socio-economic, financial and services data, and DJAgraria for airphotos and line maps. The so-called INUDS data base in DJCipta Karya uses inputs from -arious sources for analysis of environmentalconditions of urban areas, infrastructure unit costs and levels of service.

Am=I 9112 Page 4

The NO? is developing a similar capacity to INUDS for urban financeanalysis. MHA is studying a possible urtan information sharing anddissemination system.

9. For the immediate future, to provide consistent, reliable andcrucial data to formulate national urban policy, and to support local IUIDPplanning, the following actions are required, as summarized in Table 2:

(a) BPS to (i) aggregate its desa-level demographic census informationto pro ide a functional definition of urban areas (withcollaboration from INUDS staff); (ii) prepare, as described in PartA above, a series on Dati II finances by year showing both revenues(including own taxes by source, user charges and central andprovincial govt. transfers) and budgeted and realized expenditures(by administrative costs, capital investment, and operation andmaintenance, by major sector); and (iii) to publish this informationas official GOI statistics and as inputs to .he MOF, MHA and INUDS.

(b) DJ Agraria to (i) re-establish the map users committee; (ii) store,file, and then disseminate the air-photomaps preppred under IBRDLoan 1972-IND (Urban IV) to the relevant sector & local governmentagencies and follow up with user training program and; (iii) prepareline maps from the airphotomaps for the special needs of PBB(requested by D.G. Pajak).

INDONESIA

URBAN SECTOR LOAN

Information System Action Plan for Local Government Socio-economic and Topographic Data

Policy andobjectives Actions required By Whom Timetable

Information - Prepare definition of functional urban areas BPS (INUDS) March 1988systems for demographic statistics on basis of BPS

census and public.

- Advise Dati I1 on format of financial statis- BPS (PUOD, MOF) 08/87tics.

- Prepare data set for Repelita IV and establish BPS 02/89system for future reporting.

- Hire consultant assistance for the above areas BPS 08/87 w(see TOR).

- Establish steering committee for above study. KADUPP 08/87

- Reestablish map users committee and prepare Agraria 08/87detailed action plan. KADUPP

- Disseminate airptotomaps. Agraria 09/87 (Java)12/87 (other 1

islands)

- User training. Agraria 10187-10/88(Cipta Karya)

- Prepare line maps for DJ Pajak. Agraria 06/88 for46 cities

- Hire consultant to ass'st on the above. Agraria 08/87

)INV'1E SI

aoVd SIHIa,,~~~~~~~~~~~~~~~~~~~~~~~~~~~~

INDONESIA

URBAN SECTOR LOAN

Planning and Programming

A. Integrated Urban Infrastucture Development Planning (IUIDP)

Context and Issues

1. Most urban services in Indonesia are legally the responsibility oflocal and provincial governments (Level II and Level I). But localgoverntments are very dependent on higher levels for financing both theiradministrative and capital expenditure and for expenditure approval. Duringthe 1970. and early 1980 the Central Goveranment received substantial. revenuesfrom oil which were disbursed both as grants directly to local governLments andthrough the central Ministries which implemented most new capital-developmentprojects in the cities. This centralized approach produced new projects inmany localities and established low-cost, standardized products for many urbanservices. However, the rapid expansion con.cealed several weaknesses which arebecoming evident now that central oil revenues have declined while urbangrowth and development are continuing in numerous centers. These weaknessesinclude:

(a) increasing difficulty to plan and manage projects in numerouslocalities from the center;

(b) uncoordinated injection of projects to localities (local governmentswere often not adequately consulted, leadinig to projeccs unrelatedto local needs and a reluctance to take ov%~r, operate and maintainthe projects);

(c) vertical sectoral planning and implementation produced investmentsin different sectors unrelated to each other, leading to inefficientdevelopment at the city level;

(d) intersectoral imbalance, generally leading to overemphasis on grantsupported water and road investments and neglect of sanitation andmicroinfrastructure;

(e) weak local-revenue generation (because of the domination of centralfinancing and grants unrelated to local performance, localgoverments had no incentive to raise revenues and becameinc.easingly dependent on more central assistance);

(f) fragmented financing, La.id fragmented and unclear responsibilitiesfor planning, delivering and financing urban services resulted inconfusion and inaction at the local level; and

- 116 - PUIX 2

(g) with contracting and managemnt responsibilities located at thecenter, local governments could not attract good staff, and trainingand staff development were neglected.

2. In order to improve the coherence and impact of the urbaninfrastructure program and to develop better capabilities in planning,budgeting, management and coordination at the local level, GOI (initially DCCipta Karya (DCCK), but with increasing support from other DCs in MPW, MOF andMHA) has initiated an improved planning and evaluation prccess for urbaninvestments known as IUIDP (Integrated Urbaut Infrastructure DevelopmentProgramming). The basic approach is that the local (Level II) governmentwould take the lead, with sectoral agencies providing advice, in preparing(a) a medium-term development plan (five to seven years) which identifiesneeds and priorities spatially and by sector; (b) an investment and O&M planand program by sector with a multiyear budget for both "national" and "local"components; (c) a financing plan and local revenue development strategy; and(d) a yearly budget submission. The development plan and yearly budget wouldbe submitted to the provincial government for allocation of grant and loanfunds. In addition to this review, the provincial government would alsoprovide guidance on IUIDP procedures and assistance to local government asneeded. The IUIDP function in the province would be headed by the Bappedawith coordinated technical inputs from other departments. The Dinas PU wouldprovide technical assistance in planning and design of projects, appraiseprograms and manage implementation of integrated projects. Dinas Keuanganwould assist in budgeting and financial appraisal. The central governmentrole would be limited to (a) setting standards; (b) providing financing (grantand loan) mechanisms; (c) providing guidance on the IUIDP planning process forregional governments rnd Technical assistance when necessary, (d) sppraisingmetro and large-city IUIDP programs; and (e) training local staff in planning,implementation and O&M procedures.

3. Managed properly, the IUIDP process, could offer (a) integratedplanning of infrastructure based on rational technical criteria and standardsbut tailored tc the city's economic and social requirements; (b) improvedcoordination between central, provincial and local government investments inurban areac; (c) improved estimating and budgeting for O&M requirements;(d) an incentive for local revenue generation; and (e) coherent city-levelplans, programs and project priorities which can be appraised by provincialand Central Government with minimum changes or duplication. However, IUIDP isnot a panacea for improved urban management. Much will depend on the qualityof policy devel1,pment to be initiated through the Tim Koordinasi strategicplanning arrangements (pare. 7) and the responsiveness of MPW, and DGCK inparticular, to institutional reform and improvement in staffing and training.

4. DGCK has issued guidelines to provincial and local government andheld discussions with them on the way co undertake their IUIDP planning, andlocal governments in most provinces have now undertaken one year's cycle ofIUIDP. The experience to date has been mixed. Most local governmentswelcomed the concept as a means for them to get a better grip on their city'sinvestment program. However, most included only 'Cipta Karya subsectors" intheir proposals (water supply, KIP, sanitation, solid waste), omittingimportant elements such as roads and macro-drainage. Many of the proposals

- 117 -Palge 3

also amounted to a single-year budgeting exercise, since time (and guidance)was inadequate to prepare more comprehensive medium-term investmentprograms. The larger cities also tended to produce more coherent proposalsthan the smaller ones. Nevertheless, the effort was a useful start and can beimproved over the next two or three cycles. DGCK has nov fielded severalconsultant teams which, together with Provincial DPU staff, are assistingabout 150 cities over the next 2-3 years. Additional contracts intended tocover all remaining significant urban centers are under preparation.Concurrently, a training program for local and provincial government staff isunder way, assisted by Dutch aid (Annex 12). Responsibility for overallmanagement of IUIDP and development of its palicy and operational guidelinesis located in DGCK's Dt. Bina Program and is being assisted by consultantsfinanced through UNDP and administered by UNCHS/Habitat.

5. Key issues concerning the IUIDP process which would be addressedace:

(a) All the key arban infrastructure sectors should now be incorporatedin IUIDP. This means bringing the other MPW Directors General ofRoads and of Water Resources Development into the IUIDP process.During the appraisal mission this was discussed with the relevantofficials, who showed interest in participation. It was agreed thatthe MPW would issue a directive to all Directors Generai to orienttheir urban activities to TUIDP and participate in the process.

(b) Variations in IUIDP planning procedures would be developed torespond to the different sizes and complexities of cities. Smallerlocalities (say, 15,000-80,000 population) will not need the sameextent of analysis or options compared to the larger cities. GOIwould concentrate its attention on the 50 largest and the fastest-growing localities to avoid dissipating its energies. The remainderwould be covered by training the provincial-level staff to assistthe smaller localities.

(c) IUIDP guidelines would be updated and simplify and put into anattractive format which can be easily understood by localgovernments. The main guidelines would emphasize and clarify theoverall IUIDP process, with details on procedures and methodsattached as Annexes, and indicate appropriate levels of service andintersectoral expenditure balances.

(d) For the medium and large cities, medium-term strategic plans shouldbe prepared. These would identify in tabular and spatial formsocioeconomic and demographic characteristics of the city and futureprojections, development constraints and opportunities,infrastructure requirements and linkages, subsector plans, financingantd revenue-generation action plans and an immediate-term investmentprogram. These plans would serve to give substance to Repelitapolicies, could be updated every five years, would produce sensiblelocal investment projects and can be used by higher levels ofgovernment for project appraisal and as a basis for subsequentmonitoring. The IUIDP guidelines should emphasize the importance

ANN 10Page 4

and utility of medium-term planning, prepare good descriptions onits process and techniques, and disseminate it through training.

(e) There is still confusion in provincial and local governments overtheir role and responsibilities and how to organize and staff forIUIDP activities. Clear directives are needed from the Ministriesof Home Affairs with assistance from the Ministry of Public Worksand Finance to provincial and local governments on this matter.

(f) In order for local governments to plan realistically, the CentralGovernment should provide rough estimates of grant and loan fundsavailable on a multiyear basis (say, three-year estimates) updatedyearly. While agreeing with the benefits of this approach, Bappenasstated that it could not propose such estimates officially. How-ever, the new central-level interagency committee (TK) should beable to supply these estimates to provincial and local governmentson an advisory basis.

(g) Budget Review Process. The IUIDP planning process is intended togive greater confidence and flexibility to regional governments todevelop coherent, balanced urban programs budgeted with availableresources. It is important that this not be undermined by centralsectoral agencies' submitting their budget and loan requestsdirectly to BAPPENAS and BAPPENAS' authorizing these requestswithout full consultation with lower levels. It was thereforeproposed that sectoral budget requests (including "nationalinfrastructure" affecting urban areas) are submitted only throughthe local government IUIDP program to the province, or to TK for themetro and large cities' IUIDPs. Any budgetary reduction requiredwill then be made on the the local IUIDP program as a whole, and thelocal government allowed to modify its overall program. This yearlymodified program would be approved and individual subprojects wouldnot th.erefore require approval by BAPPENAS. The implementat an ofthis process could proceed in stages st.arting with the cities whichhave first prepared a thorough IUIDP.

6. The COI's Action Plan incorporates the above seven topics.

B. Medium-Term (Repelita V) Preparation

7. Since the growth period of the 1970s, there have been major shiftsin the economic and policy environment affecting urban- and local-governmentdevelopment. There are severe constraints on the central government budgetrequiring a greater proportion of funding for local services to be borne bylocal governments. There is a slow but steady movement to devolve moreresponsibilities and functions on local governments. GOI has taken steps toimprove local-government tax sources and administration, which the projectwill a!so support. GOI is establishing a Regional Government Loan Fund (RGLF)which will provide a revolving loan fund for al{ local-government capitalinvestments, and is also considering some adjustir nts in the central grantsstructure to respond to the above initiatives. Finally, the IUIDP processwill provide a means for local governments to direct and coordinate develop-

- 1 ADMIX 10

ment in their cities and enable them to submit coherent multisectoralproposals for funding to higher levels of government and the RCLI.

8. The preparation period for the next five-year plan (1989/90-1994/95)will commence shortly. Given the significant changes noted above, it will beespecially important to guide and coordinate these changes and to developappropriate s'zbsector policies and development strategies to fit with theoverall policy directions (See Attachment 1). In order to achieve this, GOIand the mission agreed that a set of working groups would be establishedwithin the framework of the Inter-Agency Committee of Directors General(formerly called IUPA, now strengthened and renamed interagency CoordinatingTeam for Urban Development (Team Koordinasi or TK) - Attachment 1). Therewould be a steering committee which would provide overall guidance to theworking groups, develop a common data base, synthesize the other groups'contributions and finalize the overall analyses and proposals in terms of anagenda of planning and programming issues for the sector and its varioussubsectors (Attachment 2).

9. In addition, there would be a working group on financial policies toreview the national grant system and its links with the loan systems and theRGLF, and three subsector working groups on (a) raw water resources and watersupply, (b) sanitation, flood prevention and KIP, and (c) urban roads andtransport. These subsector working groups would establish classifications fortheir infrastructure types which would identify implementation and maintenanceresponsibilities, develop criteria for preparation and appraisal of theirsubsectors, and policies on basic needs levels of service, technology options,rough unit costs (including O&M) and options on financing. These proposals,together with institutional and management arrangements, would then bereviewed and adjusted by the Overview Working Group to prepar3 a set of policyoptions for Bappenas and other Ministries which will make decisions onRepelita V policies in accordance with the Action Plan timetable(Attachment 2).

)INV7[H SI

¶IOVd SIHI'T, "o

- 121 -

DECREE OFTHE MINISTER OF NATIONAL DEVELOPMENT PLANNING/

CHAIRMAN OF THE NATIONAL DEVELOPMENT PLANNING AGENCY (BAPPENAS)

NUMBER: KEP. 016/KET/3/1987ON

THE COORDINATION TEAM FOR URBAN DEVELOPMENT

THE MINISTER OF NATIONAL DEVELOPMENT PLANNING/CHAIRMAN OF THE NATIONAL DEVELOPMENT PLANNINC AGENCY (BAPPENAS)

Considering (a) whereas to meet the needs for urban infrastructuredue to increasing population growth and socialeconomic activities in the urban areas, more pur-posive snd integrated urban development policiesand programs need to be developed comprising theprovision of infrastructure, financial resourcesand institutional development;

(b) whereas a Coordination Team for Urban Developmentis needed with the task to coordinate, synchronizeand monitor the implementation of che integratedpolicies and progr^n activities.

Referring to: 1. Presidential Decree Number 44 and 45 Year 1974 joPresidential Decree Number 57 Year 1974;

2. Presidential Decree Number 35 Year 1973 jo Presi-dential Decree Number 19 Year 1983;

3. Decree of the Minister of National DevelopmentPlanning/Chairman of the National DevelopmentPlanning Agency (BAPPENAS) Number 073/Ket/5/1983.

Taking into account: Consultation with the Minister of Home Affairs, PublicWorks and Finance.

Has decided.

To stipulate: The decree of the Minister of National DevelopmentPlanning/Chairman of the National Development PlanningAgency (BAPPENAS) on the establishment of the coordina-tion team for urban development

Article 1

(1) The structure of the Coordination Team for Urban Development is composedof:

(a) A Steering Committee(b) Permanent Working Groups for:

gy .~~~~~~~~~~~~N 10- 122 - Attachment I

Page 2

(i) Policies and Programs?(ii) Program Implementation;(iii) Financial Resources;(iv) Institutional Development;

(c) A Secretariate

(2) The composition of the leadership and members of the respective organi-zational components as referred to in subarticle (1) is stipulated in theAppendix of the Decree

Article 2

(1) The tasks of the Steering Committee are:

(a) To develop integrated policies and medium (five years) and short-term (annual) programs comprising of the provision ofinfrastructure, financial resources and institutional development,in the framework of cooperation between the Central and LocalGovernments, and with community participation;

(b) To guide the Permanent Working Groups with regard to theirrespective fields, with the possibility of establishing Special/Non-Permanent Working Groups for tasks not covered by the PermanentWorking Groups;

(c) To coordinate and monitor the implementation of integrated programsof urban development by identifying problems and seek theirsolutions though interagency consensus;

(d) To assist the implementation units in the respective agenciesinvolved in urban development;

(e) To develop and guide cooperation with national and internationalagencies and institutions related to urbani development.

(2) The Steering Committee consists of Chairman, Vice Chairman and membersfunctionally representing the relevant Departments/Non DepartmentalAgencies involved in urban development policies and programs.

(3) The Steering Committee will hold at least bi-monthly meetings, and submitthe results of its meetings to the Minister of National DevelopmentPlanning/Chairman of the National Development Planning Agency (Bappenas)with copies to the Coordinating Minister and for Economic, Monetary andIndustrial Affairs and Supervision of Development and the Ministers ofFinance, Home Affairs, Public Works, Commaunications, Public Housing, andAdministrative Reform/Vice Chairman of the National Development PlanningAgency (Bappenas).

AMX10- 123 - Attachment I123~~~~~Pg 3

Article 3

(1) The task of the Permanent Working Groups is to study issues and recommndactions to the Steering Committee in their respective areas, as follows:

(a) Policies and Programs

To formulate integrated urban development programs, and to identifyinvestment priorities by Central as wvll as Local Governments in theframework of decentralization and real and responsible localautonomy and community participation policies.

(b) Program Implementation

To facilitate smooth implementation of integrated urban developmentprograms, especially the provision and maintenance of urbaninfrastructure.

(c) Financial Resources

To i.mprove financing system from various domestic sources, i.e. fromCentral and Local Governments and the community, as well as frommultinational and bilateral sources.

Cd) Institutional Development

(1) To increase the capability of personnel of Central and LocalGovernments and the community in planning, management andimplementation of urban infrastructure;

(2) To improve regulations and operating procedures for managementand implementation of urban development.

(2) Each Permanent Working Group will consist of a Chairman and a Secretaryrepresenting the Departments/Non-Departmental Agencies concerned, andseveral members (maximum 6 officials) from Departments/Non-DepartmentalAgencies related to the tasks of the respective Working Groups.

Article 4

(1) The Secretariate has the tasks:

(a) To provide and coordinate technical and administrative support tothe Steering Committee and the Permanent Working Groups in theexecution of their respective tasks as well as related to eachother;

(b) To prepare periodic reports to the Steering Committee on theimplementation of urban development projects;

-124- pjEpt1Pass 4

(c) To implement other tasks as assigned by the Steering Comittee inthe framework of facilitating the coordination of urban development.

(2) The Secretariate is headed by an Executive Secretary and assisted bythree Vice Executive Secretaries.

(3) In the execution of their tasks the Executive Secretary and ViceExecutive Secretaries shall work closely with the Secretaries of thePermanent Working Groups.

(4) The Executive Secretary/Vice Executive Secretaries are assisted by 4(four) Assistant Secretaries in accordance with the respective fields ofthe Permanent Working Groups.

(5) The Assistant Secretaries will be appointed by the Chairman of theSteering Committee.

(6) The Secretariate will be staffed by administrative personnel to beappointed by the Executive Secretary with the approval of Chairman of theSteering Committee.

Article 5

To assist the Permanent Working Groups and the Secretariate expertscan be appointed by the Chairman of the Steering Committee.

Article 6

The Chairmen of tie Permanent Working Groups and the ExecutiveSecretary is responsible to the Chairman of the Steerine Committee, and theChairman of the Steering Committee is responsible to the Minister of NationalDevelopment Planning/Chairman of the National Development Planning Agency(BAPPENAS).

Article 7

The expenditures for the administrative implementation of thisDecree will be funded from the Directorate General of Human SettLementsdevelopment b2udget under item 11.1.02.480212.21.05.01.

AM= 10- 125 - Attachment 1

Page 5

Article 8

This decree will be effective as of the date of its issuance throughMarch 31, 1989 with the provision that it can be extended, and the Decree willbe corrected accordingly if and when necessary.

Issued in: JakartaDate: April 1, 1987

Minister of National Development Planning/Chairman of the National Development Planning Agency (BAPPENAS)

(signed)

J. B. Sumarlin

Copies of this Decree sent to:

1. Coordinating Minister for Economic, Moretary and Industry, and Supervisionof Development;

2. Minister of Finance;3. Minister of Home Affairs;4. Minister of Public Works;5. Minister of Communications;6. Minister of Public Housing;7. Minister of Administrative Reform/Vice Chairman of the National

Development Planning Agency (BAPPENAS)8. Chairman of Financial and Development Audit, Agency;9. All Governors of Provinces.

AttIclhint 1- 126 - Poge 6

ANNEX

DECREE OF THE MINISTER OF NATIONAL DEVELOPMENT PLANNING/CHAIRMAN OF THE NATIONAL DEVELOPMENT PLANNING AGENCY (BAPPENAS)

NUMBER: KEP.016/Ket/1/1987DATE: April 1, 1987

MEMBERSHIP OF COORDINATION TEAM FOR URBAN DEVELOPMENT

I. STEERING COMMITTEE

1. Deputy for Economic Affairs, Bappenas - Chairman2. Director General of Domestic Monetary Affairs - Vice Chairman3. Deputy of Social Cultural Affairs, Bappenas - Vice Chairman4. Deputy of Regional Development, Bappenas - Member5. Director General of Public Administration and

Regional Autonomy, Ministry of Home Affairs - Member6. Director General of Regional Development, - Member

Ministry of Home Affairs7. Director General of International Monetary Affairs - Member8. Director General of the Budget, Ministry of Finance - Member9. Secretary General of the Ministry of Public Works - Member10. Director General of Human Settlements, Ministry of - Member

Public Works

II. PERMANENT WORKING GROUPS

1. Working Groups for Policies and ProgramsChairman : Deputy for Social Cultural Affairs, BappenasSecretary : Head of Bureau for Social Welfare and Public

Housing, Bappenas

2. Working Group for Program ImplementationChairman : Director General of Human Settlements

Ministry of Public WorksSecretary : Director of Program Development; Directorate

General of Human Settlements, Ministry of PublicWorks

3. Working Group for Financial ResourcesChairman : Director General of Domestic Monetary Affairs,

Ministry of FinanceSecretary : Director of State Wealth Management,

Directorate General of Internal Monetary Affairs,Ministry of Finance

- 127 - Attachent I

4. Working Group for Institutional DevelopmeatChairman Director Ceneral of Public Administration and

Regional Autonomy, Ministry of Home AffairsSecretary Director of Urban Development

Directorate General of Public Administration andRegional AutonomyMinistry of Home Affairs

III. EECRETARIATE

1. Expert Staff to the Minister of Public Works for Relations with RegionalGovernment, Department of Public Works, as Executive Secretary.

2. Bureau Chief for Social Affairs and Public Housing, Bappenas, as ViceExecutive Secretary I.

3. Director of Program Development Dir-ctorate General of Human Settlements,Department of Public Works, as Vice Executive Secretary II.

4. Bureau Chief for International Cooperation, Department of Public Works, asVice Executive Secretary III.

Issued in! JakartaDate April 1, 1987

(Signed)J. B. Sumarlin

Minister of National Development Planning/Chairman of the National Development Planning Agency (BAPPENAS)

)I-NV7IE SI

aOVd SIHI

.~ ~ ~ ~ ~ ~ ~~~~~~- -. - . ---

AN= 10- 129 - Attachm"t 2

Pale 1

INDONESIA

URBAN SECTOR LOAN

Planning and Prograr ins

A. List of Issues for Core Policy Analysis

It is anticipated that at least the following six (6) issue areaswould be addressed by working groups formed under KADUPP. This outlineidentifies the key issues to be addressed in each area:

ta) Local Government Revenue ImprovemenL and Financial Management

(i) PBB Implementation Strategy and Targets;(ii) Revision of local taxation structure and efficiency (based on

new legislation and strengthening of local tax offices; and(iii) Projections of local goverment revenues and borrowing/debt

service capabilities.

(b) Central Government Grant and Loan Program Structure

Si) Implementation of new consolidated loan mechanism for urbaninfrastructure (RDA/RGLF);

(ii) Alternatives for program financing structure in each subsector(DIP, INPRES, Loans, and other mixes); and

(iii) Projections of central government resource availability andchanneling options.

(c) Urban Land Management Policies and Programs

(i) Land acquisition policies and procedures;(ii) Land consolidation program potential;

(iii) Draft legislation for improved land use and/or developmentcontrols.

(d) Urban Planning and Programming Operations(i) Revised planning process for local governments, including role

of IDAP plans;(ii) Capital improvements programs for local goverments; and

(iii) Refinement of IUIDP process design and procedures.

(e) Institutional Structure and Urban Sector Management Roles

(i) Review and adjustment of roles and responsibilities foragencies at all levels to implement urban sector policies andstrategic programs;

(ii) System of Urban Chief Executive/Management capabilities; and(iii) Classification and administrative status of urban settlements.

-130- AMIUlOAttachent 2

(f) Sectot Training and Manpower Development Programs(i) ;oordination of Sector Training and Program Strategies;(ii) Overall Staffin8 and Manpower 'Dvelopment Policies;(iii) Prioritization and "Critical Path" Sequencing of Training

Needs; and(tv) Resource requirements and availability for training and

manpower development.

(g) Continuing Process for Strategic Planning and Policy Development(SPPD)

(i) Refinement of urban data base and information systems;(ii) Scope of "Urban Sector" for future SPPD coordination and

programming; and(iii) Roles and responsibilities for future SPPD process activities.

ANNEX 10- 131 - Attchment 2

Pass 3

B. List of Issues for Subsector Programs Evaluation

In developing Work Plans and Terms of Reference for each of theurban program subsectors the following basic policy/program issues would beaddressed.

(a) Documentation of existing "Levels of Service" in each settlement,correlated with previous program investments and/or privatedevelopments (e.g. private wells, developer-provided infrastructure,etc.);

(b) Develop and schedule implementation of a classification system forprogram infrastructure components;

(c) Functional definition of "Balanced Basic Needs" reflecting needfuture (1999) service levels in all settlements. (Note: Programstructure options will be based on this definition; thus, carefulattention to functional grouping of settlements which account forboth household and economic infrastruccurE requirements isrequired);

(d) Evaluation oL technology and cost parameters to achieve the"Balanced Basic Needs" service levels most effectively andefficiently. (Note: This may be best expressed as "cost percapita" for each of a series of technical options, which includeland costs, operation and maintenance costs, training and other toestimate "life cycle costing" for alternate technologies on a percapita basis);

(e) Definition of Total. Required Investments for Alternate ProgramTechnologies;

(f) Identification of Program Financing Options based on a classifica-tion of existing facilities and required investments. Based on aninteractive process with the Working Group(s) evaluating sectorfinancing strategies.

(g) Identification of Required Changes to Institutional and/or LegalStructure needed to support full achievement of Balanced Basic Needswith particular emphasis on Operations and Maintenance Systems,manpower training and development, and cost recovery systemsadequate for self-sustaining operation of infrastructure by localgovernment units;

(h) Recommendations of Subsector approach and subsector targets for nextfive-year implementation period (1989-1994);

(i) Evaluation of linkages to other subsectors; and

- 132 -

(3) Definition of Requirem nts for revising operating and proceduresmanuals or other "codes of practice" documents (e.g. planning and/ordesign manuals, project management procedures, monitoring systos,etc.).

f.N; Ete t 3 wnoZ--133 -- mt3

INDONESIA

URBAN SECTOR LOAN

Urban Policy and Program Analysis Action Plan

Step 1 (to be completed by September 1987)

(a) Each infrastructure subsector Working Group shallt:

(i) establish classification system and conduct initial/partialclassification;

(ii) develop definition of "basic needs" levels of services andtechnology opetions for various types of urban areas; and

(iii) estimate per capita unit costs, including O/M costs, associatedwith each alternative level of services (for both incrementaladditions and new projects).

Step 2 (to be completed by November 1987)

Each subsector Workiag Group shall: Combine the financing andresponsibility options with the technical/cost options and evaluate theprogram operational implications of each combined alternative, includingestimates of total required investment, institutional revisions, etc.

Step 3 (to be completed by January 1988)

The macro-analysis Working Groups(s) will receive and consolidatethe subsector evaluations into alternate scenarios which define options forintersectoral balance and division of financing responsibilities.

Step 4 (to be completed by February/March 1987)

Prepare summary evaluation of alternative scenarios andrecommendations for review by Tim KADUPP, and further presentation to GOIdecision makers.

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-135- Poe 1I

INDONESIA

URBAN SECTOR LOAN

Local Government Manpower Development

Introduction

1. The purpose of this annex is to present an overview of programs andissues related to the training and development of local government personnelinvolved with the design, management and implementation of urban developmentprojects as background to the proposed Urban Manpower Development Study. Theprimary sources of data for the annex include reports "Manpower Developmentand Training Needs of Local Government in the Field of Urban Development"(Watson 1986) and "local Government Manpower Development" (Walt 1986)(available in project files, see Annex 15).

2. With the increasing pressures to accelerate and substantiallyimprove the efficiency and effectiveness of urban development projectsthroughout Indonesia, particular attention is being paid to the training anddevelopment of qualified manpower. Over the past decade impressive gains havebeen made in the establishment of a wide range of manpower education andtraining delivery systems. Information provided by the participating minis-tries indicates that they have provided a wide range of training to over58,000 persons in the past twelve months. These ministries all have estab-lished training capabilities with a network of training centers and ongoingprograms of instruction throughout the country.

Manpower Development Needs and Constraints

3. Three broad developments are shaping the manpower needs for thecoming years. First, continued investments in urban development projects willrequire a large number of additional staff at both the local and centrallevels. Second, as the urban development programs expand to the smallercities the average size and complexities of the projects will decrease. Thistrend will increase the need for added attention to operation and maintenanceof the investments already in place and planned, which will necessitate a muchlarger role for local agencies in providing lower-level engineering skillsaugmented by substantial in-service training programs. The role of thecentral and provincial government agencies will increase in the provision ofguidance and supervision. These new roles require new knowledge, skills andattitudes that will have to be developed thorough comprehensive and targetededucation and training programs.

This Annex is based on the findings dnd recommendations of IBRD staff memberR. McCough and consultant R. Walt during a pre-appraisal mission to Jakarta inSeptember 1986.

- 136 - E 1111Page 2

4. With the advent of the Integrated Urban Infrastructure DevelopmentProgram (IUIDP) and continuing major investments by the Government in urbandevelopment particularly at Levels I and II the need to provide a broadspectrum of high impact, relevant management and technical level training isclear. Furthermore, due to the increased emphasis on cross-sectoralintegrated urban development projects, both local and central governmentpeLsonnel, particularly at the management le els, require a much wider rangeof managerial and technical skills. The problem with manpower at the local(and central) levels is both one of supply and qualification.

5. Staff Shortages. In spite of the established training capabilitywithin the three ministries, a major concern voiced by senior officials is thevery severe problem with the availab_.lity of trained and qualified person-nel. The problem exists at virtually all levels and in most disciplinesrelated to the management, implementation, operation and maintenance of urbanservices and development projects. Shortages of personnel, particularly atLevels I and II, have been reported to reach up to 50% or more. Data collec-ted in 1983 indicated that about 5,500 posts (from Section Head and above)were vacant in TK II Bappedas (which are crucial to IUIDP implementation),which represents 88% of the approved establishment. Officials interviewed forthis study confirmed that manpower shortages remain an acute problem. Noaggregate picture can he easily built up of manpower supply (in relation toapproved posts and strengths) in Level II local government. Data exist inaggregated form for all Level II (and I) authorities, undifferentiated byagency, function and level of education or age. There is no general indica-tion of how many posts remain unfilled. Computerization of personnel recordsfor the local authorities by the Ministry of Home Affairs will not be completebefore 1988. Raw data (on proformas) do exist, however, at that Ministry.Data (from 1983) have been obtained on staff shortages in Level I and IIBappeda (See Attachment 1). Data is also available for Cipta Karya staffingat Central Government and Level I, by technical spenialism, by rank, level ofeducation, by Province.

6. In small-medium sized cities, of the staff available, there are fewwith any relevant technical education or training. Most severe shortages wereapparent in the middle 'supervisory/operational' categories (i.e. below Headof Dinas level, but above 'staff' - /designations), thus adversely affectingroutine 'operation and maintenance' functions. Of the people who Cccupiedpositions, it appears that by no means all are trainable (from the commentsmade by senior officials). The norm appears to be that promotion takes placeon the basis of seniority (length of service) not ability. Distribution ofeducationally well-qualified (Bachelor or Masters Degree) recruits takes placeat provincial level, on the basis of judgement uninformed by detailed requestsor justifications from Level II. Bureau of Personnel are usually not involvedin any discussions of the staffing implications of major development programs.

1/ 'Staff' designation in Indonesian public service parlance indicates anonestablished position, outside the administrative structure. Suchpeople are not eligible for regular promotion, and are usually veryjunior in status and may only work temporarily in the agency.

- 137 -Pag 3

7. Training Capacity. It is generally accepted that the present man-power training capabilities of the three ministries, particularly in terms ofcurriculum, instructional capacities and impact, are not adequately respon-sive. This is not to obscure the fact that there are effective training andmanpower development programs being conducted by each of the respective minis-tries. The problem is related far more to relevancy and scope rather thanability or effort.

8. To organize an effective training function (for local authoritystaff or anyone else in government service) is an extremely difficult andcomplex undertaking given current personnel regulations. There is noprovision for routine rotation of capable line staff through training centersas full time instructors (for discrete time periods). No structural positionsexist for full-time trainers. Honoraria are payable to trainers for directteaching hours only (not for materials or session preparation). If honorariaare paid for participation in materials production workshops then they rewardquantity not quality of oi'tputs, and impede sustained working relationshipswith any technical assistance staff involved. Training centers only adminis-ter courses and invite a series of lecturers for particular sessions in acourse. Such centers are typically isolated from the day to day activities ofthe line agencies they serve, and have no inherent or potential capacity toanalyze training needs, prepare and conduct participa> ve training activitiesin class, routinely follow-up classwork in the field,- monitor and evaluatecourses' impact or take effective action to make necessary adjustments. Onlyspecial development project-related training programs have any prospects ofsuccess because they are usually organized by the line agency controlling theproject, and arrangements to recruit and train temporary instructors can bemade. These courses are almost never arranged with reference to trainingagencies.

9. Government Level II Personnel Policy. A major constraint on improv-ing the quantity and quality of local authorities' staff and their work per-formance is the prevailing pattern of personnel policies. Amongst the factorsmost damaging to the motivation of educationally-qualified technical staff toserve at Level II are the absence of a clear career/promotion ladder (includ-ing prospects of serving at higher levels of government), and the uniformstructure of local authorities in Indonesia (in spite of huge variations insize, complexity and scope of the functions they perform). Salary levels, andthe plethora of supplements in typical reimneration packages are a universallypowerful negative factor affecting work performance and superior/subordinaterelationships, but are particularly strong factors at Level II. Up to now fewsignificant development projects (representing extremely important opportuni-ties for earning extra honoraria), have been administratively based at LheLevel II. Most projects have been managed from central government or Level I.In such circumstances, any effective, professionally valuable trainingreceived has sometimes been viewed as a means of escape (perhaps from localgovernment entirely), or as a qualification for promotion to a job not related

2/ Partly because of the cost of instructors' subsistence allowances. Thesemay be up to 25Z of monthly base salary per day in the field.

-138 -T - a 11-138 - Pags 4

to the work function for which the training was designed. The tendency ofheads of local authorities and their personnel bureau to frequently transferstaff within local authority offices is comon. Such practices can nullifyany potential positive impact of training. A constructive analysis of theimpact of current personnel regulations on work performance in local authori-ties--particularly at Level II would be carried out as part of the proposedManpower Development Planning Study. The study would involve the CivilService Administration Agency (BAKN) and would focus on policies which are insome measure changeable or flexible.

Role and Activities of Central and Local Agencies in Manpower Development

10. Training. The training of local and central manpower for the threeministries is performed by a wide variety of internal and external organiza-tion. Internally, each ministry has an organization responsible for coordina-tion and supervision of manpower training. This organization in the Ministryof Public Works is the "Pusat Pendidikan dan Latihan" (PUSDIKLAT) or Centerfor Education and Training, which is responsible to the Secretary General.The PUSDIKLAT has administrative and supervisory control over a central train-ing center (Bidang Diklat Tatalaksana) and five regional training centers(Diklats Wilayah) and three sectoral training units (Bidang Diklat Bina Marga,Pengairan, and Cipta Karya). Also included in the MPW's training system aresubstantial training sections in many of the directorates.

11. The Ministries of Home Affairs and Finance each have a BADANDIKLATwhich is responsible for the coordination of all training and reports directlyto the minister. The BADANDIKLATs also operate a network of regional trainingcenters with their respective ministries.

12. The organization and conduct of manpower training within the minis-tries at both the central and local level is complicated by overlapping linesof authority, responsibility and most significantly, funding from differentbudgets. Although the PUSDIKLAT and BADANDIKLATs have general responsibilityfor coordination of training within their respective ministries, additionaltraining units (Bidang Diklat) exist at each of the Directorates General.Under the 7irectorate General, many of the Directorates also have trainingsections . The directorate level training organizations receive theiroperating budgets from the Directorate General while the PUSDIKLAT (MPW) andBADANDIKLAT (MOF, MHA) receive their operating budgets from the SecretaryGeneral. In addition to the training performed by the permanently establishedtraining organizations within each ministry, manpower training is also con-ducted by development projects.

3/ In Directorate General Cipta Karya, for example, each Directorate isinvolved in training work routinely and in conjunction with projects.Loans 2275 and 2632-IND are supporting the Directorate of Water Supply'sHuman Resources Development Program aimed at training of 40,000 waterenterprise staff. Loan 2258-IND in supporting the Directorate BinaProgram's IUIDP training program focussing on Level I and II Bappeda andDPU staffs.

- 139 Pap1 1 l

13. Although the manpower training delivery systems within the threeministries are supervised by the central office, virtually all of the trainingis designed for local personnel and provided at the request of the respectivelocal government agencies. For example, the Ministry of Public Works operatessix regional training centers (Medan, Bandung, Yogyakarta, Surabaya, UnjungPandang, Jakarta) that provided training to over 3,600 local governmentpersonnel in 1985-86. The Ministry of Finance provided training for nearly6,000 local government personnel in the same period. The Ministry of HomeAffairs, in particular, operates a large network of provincial and regionaltraining centers. This includes nine established provincial centers witheleven under construction, four regional training centers and over 20 diplomalevel "Colleges of Public Administration." Through this training network, theMinistry of Home Affairs provided training to over 55,000 local, provincialand central personnel in 1985-86. A summary of the Ministries' training per-formance is given in Attachment 2.

14. Manpower Development Planning. Each of the three ministriesexpressed dissatisfaction with their ability to appropriately plan for andmanage manpower development. The need for an integrated manpower planning anddevelopment system for efficient and effective human resource management anddevelopment is fully recognized by each of the ministries. The Ministry ofPublic Works is currently attempting to design and install a pilot integratedmanpower development planning system under the MDP I project (IBRD Loan 2258-IND).47

Urbal Manpower Development Planning

15. In order to rationalize planning for the development of GOI staffinvolved in urban development, particularly at Levels I and II, GOI proposesto carry out a comprehensive review of existing conditions and future needswith the assistance of consultants. Because of the primary role of MHA in

4/ The MPW Manpower Planning and Training Project began in January of 1985and is designed to: (a) reduce delays in implementation of MPW projectsby improving the job related skills through improved manpower planningand training; and (b) strengther the overall manpower planning capacityof the Bureau of Personnel and improve the ability of the PUSDIKLAT tocoordinate and deliver more effective training for MPW staff. Thepurpose of the manpower planning component is to design and installwithin the Bureau of Personnel and other personnel offices in MPW, anintegrated system for identifying the training and development needs ofMPW personnel. This system is now being tested in various departments atthe central and local level and includes systems, procedures and manualsfor: (i) Manpower Planning and Forecasting which covers the identifica-tion and analysis of future manpower gaps as a basis of formulatingmanpower recruitment and training plans and programs, including theidentification of target populati..ns; (b) Job Analysis which is used todetermine induction (pre-service) training requirements; and (c) StaffAppraisal which identifies remedial training needs of individualpersonnel.

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local government administration the Secretariate General of MHA will comiss-ion a study aimed at providing Government with information and recommendationson the basis of which it could amend policies and procedures in order tostrengthen local authorities' capacity over the medium-long term to undertaketheir responsibilities. While the primary focus would be on Level II authori-ties, the implications would be examined on the capacity and structure ofsupporting agencies of Level I and '.entral Government.

16. In the context of the enhanced functions of Level II governments inmanaging, planning, programming, and operating and maintaining urban infra-structure, the objectives of the study would be to (a) define institutionalchanges (including personnel policies) that would strengthen capacity; (b) toreview manpower stock and define high priority training needs; (c) to assessthe implications on Level I and Central Government in their supporting role;and (d) to identify urban manpower development and training programs forphased implementation over the next ten years. It is possible that donorassistance would be sought in the implementation of the program.

17. The study would collect data from a stratified sample of localauthorities and review the organizational arrangements, regulatory frameworkand operating policies and procedures in order to make recommendations forappropriate changes required to improve efficiency. A survey of manpower inkey departments of local government (mayor's office, BAPPEDA, revenue, publicworks) would be conducted, with particular emphasis on management levels, inorder to define manning levels and assess educational and experience levels.For key posts initially, a job analysis would be carried out to determine jobdescriptions and education/training and experience requirements, and todetermine shortfalls and recruitment criteria. A review of possible institu-tional obstacles such as personnel policies would be made in order to formu-late feasible changes. Aspects to be addressed would among others includerecruitment, staff allocation, performance appraisal, ranking, promotions,career planning, inter-authority transfers, remuneration, discipline andtraining, as well as personnel z"anagement.

18. Training policies, programs and capacity of existing training insti-tutions would be reviewed by the study. The trends and roles of the involvedministries (MHA, MPW and HOF) would also be examined. On this basis a programfor the highest priority training program would be formulated for appraisal bydonors. The study is expected to take 12 months to complete and would besupervised by an inter-ministerial steering committee. A total of 44 man-months' foreign consultant assistance and 125 local is envisaged (Annex 3).

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MANPOWER SITUATION IN BAPPEDASAT LEVELS I AND II (ALL INDONUSIA)

Total Staff (1983)

BAPPEDA TK I BAPPEDA TK II Total

Approved establishment /a 2,700 11,512 14,212In post 1,857 3,512 5,369Shortage 843 8,000 8,843

/a According to Minister of Home Affairs decision letter 185/190.

Staff Shortages as of 1983 by Level of Post /a

Bappeda Bappeda TK II /bGrade Post Title TK I Type A Type B Type C Total

IVa - IVd Chairman - - - - -

IVa - IVc Deputy Chairman - - - - -

IVa - IVc Secretary - 12 117 74 203IVa - IVc Division Head - 56 492 234 782IIb-IIId Subdivision Head - - - - -

IIIa-IIIc Unit Head - 34 413 300 747IIIa-IIIc Section Head - 236 2,264 1,249 3,749

Total - 338 3,286 1,857 5,481

/a Not including junior support staff.

/b Depending on the size of the Level II authority, Bappedas Level II havedifferent structures. Type A have five divisions (Bidang); Type B four;Type C three.

Source: Directorate General of Regional Development, Ministry of HomeAffairs.

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- 143 - Attacent 2

Training Centers, Programs, and CDapcities - Ministry of Public Works,Ministry of Home Affairs, Ministry of Finance

1. Information was submitted by each of the participating ministriesconcerning current training programs and centers, numbers of trainees bycourse, and anticipated training requiremerts. Details are contained in theReport on Local Government Manpower Development (Walt) available in ProjectFiles--Annex 15).

2. A summary of information related to manpower and training submittedby the Ministry of Public Works is as follows:

(a) Total number of MPW personnel: 137,084 (allcategories

(b) Overall annual rate of growth: 5%(c) Percentage of Manpower Training Needs Now

Being Met: Less than 30%gd) Approximate Budget for Training: Rp 2.1 billion

(Pusdiklat)(e) Anticipated reduction in Training Bud&st

Next Year 10%(f) Number of MPW Personnel Trained in 1985-86: 4,145 (At RTCs)(g) Maximum Number of Trainees/Year: 4,825 (at RTCs)(h) Unused capacity 1985-86: 14%(i) Most Critical Training Requirements:

i) Project Management Training (IUIDP)(ii) Construction Supervisors(iii) Instructors

(j) Priority Actions to Improve MPW Training:

(i) Provide facilities(ii) Training of teachers(iii) Improve management training

3. A summary of information related to manpower and training submittedby the Ministry of Home Affairs is as follows:

(a) Total Number of MHA personnel: 600,000 (allcategories

(b) Overall Annual Rate of Growth: 3.5%(c) Percentage of Manpower Training Needs

Now Being Met: 40%(d) Approximate Budget for Training: Rp 2.0 billion

(Pusdiklat)(e) Anticipated Reduction in Training

Budget Next Year: 50%

144 - Attchment 2

Pg 2

(f) Number of Personnel Trained in 1985-86: 13,220(g) Maximum Number of Trainees/Year: 55,300 (at FTCs)(h) Unused Capacity 1985-86: 76XMi) Most Critical Training Requirements:

ti) Urban Development Training(ii) Management Skills Training(iii) Project Management Training

(j) Priority Actions to Improve MHA Training:

(i) Training of Instructors(ii) Train Managers of training centers(iii) Use more foreign technical assistance

4. A summary of information related to manpower and training submittedby the Ministry of Finance is as follows:

Ca) Total Number of MOF Personnel: 53,884 (allcategories)

Cb) Overall Annual Rate of Growth: 9%Cc) Percentage of Manpower Training

Needs Now Being Met: 60%(d) Approximate Budget for Training: Rp 7.6 billion

CPusdiklat)(e) Anticipated Reduction in Training Budget

Next Year: 20%(f) Number of Personnel Trained in 1985-86: 21,632(g) Maximum Number of Trainees/Year: 21,500 (at RTCs)(h) Unused Capacity 1985-86: 0%Ci) Most Critical Training Requirements:

Ci) Technical trainingCii) Training of teachers(iii) Management training

(j) Priority Actions to Improve MOF Training:Ci) Hire teachers as full time employees(ii) Develop and integrated raining plan(iii) Reduce the cost of training

-145 PA$* I

INDONESIA

URBAN SECTOR LOAN

Urban Development Training Component

1. ~The project will support training in three important areas ofsupport to the GOI's Action Plan (Annex 1), namely; property valuation,integrated urban infrastructure prograumming (IUIDP)t and physical planning.These areas were selected from among several proposals by various centralagencies as GOI's highest priority pending the outcome of the Urban ManpowerDevelopment Planning Study (Annex 11). The following describes the support tobe provided to (a) .he Directorate General of Taxation's (DGPajak) propertyvaluer training program, and (b) the Directorate General Cipta Karya's (DGCK)ongoing IUIDP training program and its proposed urban planning trainingprogram.

A. Property Valuer Training Program

2. Valuer Training To Date. Available statistics indicate that 228officers of PPB have received some sort of valuation training since 1982.Most of these courses have been held for a duration of up to 3 months, thelongest being 6 months valuation instruction and 6 qinths generaladministration instruction. The current GAPPI/PBB t program of courses whichcommenced January 1986 each of 3 months duration, with groups of 35. To date105 staff have been trained, 35 are currently under training and it isintended to train 70 more staff by March 1987. The curriculum is based on theAmerican Society of Appraisers--"Basic Course of Instruction" with additionalinput from other authorities the main one being R.L. Jefferies' "Lecture Noteson Property Valuation" compiled under Contract No. PRJ-87PJ7/1983.

3. At present all of the staff who have received any valuation trainingare continuing to work at the existing IPEDA classification system with theexception of a few "exercise" valuations made on individual properties todemonstrate differences in a Current Market tax base to the IPEDA

l/ The development of property valuation as an organized profession inIndonesia is in a very early embryonic state. There are two very limitedvaluer "Professional" organizations "GPI and "MAPPI".

(a) GAPPI is an Association of Indonesia Appraisal companies whichcurrently comprises 48 member firms.

(b) MAPPI is an organization of individual members of not only valuersbut a wide range of occupations loosely connected with realestate, Of the 650 members approximately 50 are valuers, theremainder being accountants, bank managers and from othermultifarious commercial backgrounds.

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classification. It is evident that there is a heavy bias on quantity surveyand construction detail of buildings which probably flows from theengineering/architectural background of nist of the Indonesian valuers, inparticular those involved in teaching the current course. While this is notimportant for the individual appraisal for special purposes the procedures areoverly detailed for valuations used in the compilation of a property taxbase, The level of valuer qualification achieved by candidates completing thecurrent and past courses could only be classed as low and although useful astechnician training could not be considered as a substitute as training forprofessional level.

4. Future Valuer Training. The Action Plan provides for the proposedHead Office organization to establish a position as one of the threeacsistants to the Chief Valuer to be designated Assistant Chief Valuer-Training, responsible for all valuer training both inside and outside of thePBB. A specialist adviser in Urban Property Tax Valuation will advise theAssistant Chief Valuer-Training in all matters pertaining to his duties andresponsibilities and take an active part in establishing designing andlecturing in internal courses as well as establishing course curriculum andselecting candidates for external scholarships.

Broad Design and Structure of Valuer Training

5. The proposed program provide for the following:

(a) long-term (three years minimum) scholarships to overseasuniversities to the level of the professional standard in theoverseas country selected for the course;

(b) short-term (3-6 months) scholarships to overseas universities/technical institutes/government training centers for technicians orassessor level qualification;

(c) local short-term (3 months) courses with a curriculum to includecurrent PBB systems and procedures;

(d) on the job training from expatriate valuers working in Indonesia inthe revaluation program outlined in the Action Plan.

6. Long-Term Overseas Scholarsiiips for Professional Training. As nouniversity course in valuation is available in Indonesia and since it appearssuch a course would be difficult to establish, it will be necessary to offerscholarships for suitable candidates to take established degree courses inoverseas countries. Such courses are of 3-4 years duration and are availablethroughout Australiasia New Zealand, USA, United Kingdom, Sri Lanka, Malaysia,Singapore and Hong Kong. Any of the urban dcgree courses offered in thesecountries and approved by their national professional body would be adequatefor Indonesian purposes. The most favored would be Malaysia in terms of easyaccess, language and compatible environment for Indonesian students and it isrecommended that this be the first choice for the university training forvaluers to professional level. However, experience from training in severalof the other countries would be advantageous to Indonesia and the best ofthese would be Singapore, Australia and New Zealand.

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7. The graduates would ultimately be the core of the valuationprofession in Indonesia and become responsible for the successfuladministration of the valuation system. With the several years practicalexperience they would potentially be suitable for p:omotion to suitableadministrative positions or become involved in teaching valuation in futureIndonesian educational institutions. It is expected that a target ofapproximately the top 10X of the students who have completed local courses of3 months or more duration would be offered scholarships of 3 years duration tocomplete diplomas/degrees to either of the courses designated in the attachedAppendix III. This would amount to 45 scholarships selected on the usualcriteria of age and performance. Fifteen scholarships would be offered ineach of the years 1987, 1988 and 1989.

8. Short Term (3-6 months) Scholarships to the Malaysian Government'sNational Institute of Valuation "INSPEN" The Institute was established in1985 and amongst other objectives provides valuer and valuer related trainingto other Government Agencies. The Indonesian Government has alreadyapproached the Institute to provide a special training program, to suitIndonesian conditions, for some 60 valuers under a curriculum beingdeveloped. The Malaysian valuation profession has made considerable advancesin recent years and INSPEN courses can be recommended with confidence.Accordingly 60 valuers from previous local valuation courses should be offeredscholarships to attend INSPEN in 1987 and provision made for a further 60 in1988 and 60 in 1989.

9. Local Short-Term (3 months) Courses). As no other local courseswill be available in the foreseeable future the GAPPI/PBB course should becontinued with some revision of the course content which should be carried outin 1987 by the incoming consultant who will be advising the PBB, AssistantChief Valuer-Training, who is to be appointed in the reorganization. Theamendments would include greater emphasis on mass appraisal, particularly ofland value, more practical exercises and also less time on complicatedtechniques of valuing buildings. The above mentioned R.L. Jefferies LectureNotes are would be used for land valuation by "Site Valuing" and the use of"Multiples" for building valuations. Accordingly it is recommended thiscourse continues with 3 courses a year each of 3 months duration with 25students, over the years 1987, 1988 and 1989. By the end of the program 225valuers will have been training (See Attachment I for course content).

10. Block "in house" Courses. It is anticipated that both the P9BValuer Training Officer and his Advisor will be organizing short (2 weeks-lmonth) in house Block Courses for all levels of field staff including datarecorders. These would be focussed on teaching techniques for mass appraisalboth land and buildings as well as gatherings data. Some of these courseswill of necessity be residential but the lecturers will also be required totravel and conduct courses over a wide area. An annual budget would beprovided for those expenses.

11. Establishment of a Professional Valuation Qualification at anIndonesian University or Technical Institute. One of the objectives of theValuer Training Officer will be the establishment of a professional valuationcourse at one or more Indonesian teaching institutes. The selection of a

4 r t; ;~~~~~~~~~~if * 12-. - M48 -

suitable university or technical institute is a matter of Government policybut both private and public valuation course initially would be grafted on toan existing qualification in surveying, business management, engineering,architecture, or other land related faculties or an valuation with specialtiesin either urban or rural. DGPajak and the advisers would discuss theappointment of a qualified lecturer and appropriate curriculum with interestedhigher education institutions.

Table 1: PROPERTY VALUER TRAINING PROGRAM

Fellowships and AmountParticipants Total (USs '000)

1987 1988 1989

Professional valuer overseasfellowship (long-term) 15 15 15 45 1,430

INSPEN fellowships (3-months) 60 60 60 60 540

GAPPI/PBB courses (3-months 75 75 75 225 450

Block courses (2-4 weeks) 150 300 300 750 225

Total 3,645

B. IUIDP Training Program

12. The IUIDP training program has been developed progressively fromAugust 1985 commencing with the IUIDP training workshop in Washington, D.C.organized by the Economic Development Institute (EDI) and attended by seniorofficials from BAPPENAS, MPW, MOF and MHA. This set the guidelines for thegroups to be targetted for training and the main training objectives, as wellas the pattern of operations through operational policy seminars, managementworkshops and specialized courses. Subsequent support has been provided bythe Institute of Housing Studies (IHS or Bowcentrum) of the Netherlandsthrough a field reconaissance survey, development of a plan of operations fora GON-funded pilot training project, and curriculum development workshop inRotterdam (May 1986).

13. The goal of the IUIDP training suport is the successful implementa-tion of the IUIDP approach for planning. project preparation, financing,implementing and operating urban infrastructure. IUIDP training is intendedto be developed over a period of about 5 years into a fully institutionalizedprogram with trained staff. Managers and decision makers would be an import-ant focus of the training and all groups involved directly or indirectly inIUIDP implementation would be targetted. Coverage of the whole of Indonesiais as short a time as possible, consistenm with reasonable quality, isintended. Standardized materials and curricula would be developed to help

-149 Pass 1

achieve rapid dissemination, initially through an operational agency, DCCK'sDirectorate Bina Program. A training management team to direct and coordinateactivities and a training support unit to develop curricula and support opera-tions, have been established. Pilot efforts partly financed from Loan 2258-IND have begun in West Java and will be expanded to Central Java (with ADBassistance). In addition several teams of consultants are currently workingin outer islands on IUIDP program development, including some training.

14. The strategy underlying the training to be supported by the loan isto (a) consrlidate the pilot activities; (b) develop the experience of thevarious consultants through formalization and extension of their trainingactivities; (c) build on existing institutional development to build provin-cial-level capacity; and (d) increase central management capacity.

15. Four basic packages of activities to take place over two years wouldbe funded under the loan:

(a) Package A would comprise technical assistance to set up a trainingmanagement capacity in the provincial IUIDP team in East Java andfunding for two years' training programs there. The trainingcapacity would include development of materials and trainingcourses, training of trainers, and the organization and running ofcourses, including (i) operational policy and management workshops;(ii) Project Cycle Courses (Course I--strategic urban planning andresource mobilization; Course II--program and project management andimplementation; Course III--project preparation, implementation, andO&M (see Attachment 2 for details).

(b) Package B would develop a capacity similar to Package A for the morespecialized purposes of metropolitan and large cities thropgh con-sultants about to assist the cities concerned in program develop-ment.

(c) Package C would provide support to the present consultant teamsworking in outer islands (Sumatra, Sulawesi, etc.) to establish atraining capacity in three Regions.

(d) Package D would provide support for the central training managementteam and training support unit, including technical assistance andfunding for materials development, pilot courses, development ofspecialized courses and communications materials.

.... .... rn ,-r.- - i

Page 6

Table 2: SUMMARY OF IUIDP TRAINING ASSISTANCE

Manionths CostActivity Foreign Local (US$'000)

Package A - East Java:

Experts 6 15 124,500Courses 100,000Materials/equipment 100,000

Package B - Metro/large cities:

Experts 9 36 234,000Courses 130,000Materials/equipment 100,000

Package C - Extension to Outer Regions:

Experts 12 50 319,000Courses 480,000Materials/equipment 150,000Rehabilitation 150,000

Package D - Central Training Support:

Experts 12 36 270,000Courses 300,000Materials/equipment 200,000Information/communications materials 100,000

Total 2,757,500

C. Urban Planning Training

16. At the central level, responsibility for physical planning inIndonesia is jointly shared by two government departments, the Ministry ofHome Affairs and the Ministry of Public Works. A recent joint MinisterialDecree defines the areas of responsibility of the ministries, and broadly itis stated that the Ministry of Public Works is responsible for technicala3pects of physical planning, and the Ministry of Home Affairs is responsiblefor administrative tnd financial aspects. Responsibility for plan preparationand localization, however, is vested in Local (Kabupaten/Kotamadya or TK.II)Government, although virtually all of these plans must be approved at higherlevels. Plan preparation can be carried out by local government; but moreoften, work is delegated to local consultants with funding provided by thecentral government (DC PUOD) allotted to production of master plans anddetailed plans for specified urban areas. Assistance to local government in

-151- AMIU 12Page 7

plan preparation is also provided by Central DTKTD directly or through SpaWalPlanning Project Units (P2R) at the provinces. The provincial government Ican also assist local government in plan preparation by Sub-Dinas Cipta Karyain the Provincial Public Works. The IUIDP approach also includes provisionfor the formation of technical teams at both the TK.I and TK.II levels whichinclude representatives of the institutions mentioned above while the mainfunction of these teams concerns IUIDP implementation, this is generally con-sidered to include an overall planning function, particularly in the prepara-tion of IUIDP Development Assessment Plans (IDAP).

17. The IDA? is a central feature of the IUIDP system is the 'IndicativeDevelopment Assessment Plan'--a kind of urban strategic development planindicating the city's development trends, infrastructure needs and investmentpriorities. There are a great many urban areas without development plans ofany kind and a limited capability in DGCK's Directorate of City and RegionalPlanning (DTKTD) and its Provincial Planning Units to prepare large number ofplans. DTKTD has in recent years focussed mainly on preparation of RegionalPlans in less-developed areas, and to a limited extent in metropolitanconurbation planning (e.g., the Jakarta Region--JABOTABEK--planning studyassisted by Loan 1336-IND). The emphasis on implementation of IUIDP and theurgent need for IDAPs, however, creates a need for reorientation andstrengthening of DTKTD to develop an urban planning training capability.Following a screening of strategic urban centers, about 180 cities and townshave been identified as priority targets for IDAP preparation assistance.

18. DTKTD has with some assistance from the Belgian Government developeda limited training capability in regional and urban planning: mainly informal planning skills. It provides training through 4 centers (Jakarta,Denpasar, Bukittinggi and Ujung Pandang). For the future the need is todevelop material resources and systems for both formal and informal (self)development, and for strengthening of the central and provincial trainingcapabilities with the following objectives: (a) strengthening of provinciallevel capability to better undertake their role as a technical assistanceresource to local government in urban planning; and (b) strengthening of local(TKMII) government technical capability to internally prepare appropriateurban plans. The project would provide support to two areas, namely: i) a

2/ In general, the role of provincial government is to provide overall guid-ance and assistance to local government in meeting their planningresponsibilities, as well as to prepare broader Province DevelopmentPlans (Repelitada) based on the five-year national planning cycle. Keyresponsibility is vested in the Provincial Planning Board (Bappeda TK.I),although a major technical role is also played in many provinces by theDTKTD Spatia, Planning Project or Cipta Karya staff in the ProvincialDinas PU. In principle, the role of Bappeda is in overall strategicplanning and policy guidance while that of the Dinas 2U, or the SpatialPlanning Project is in technical guid-nce in preparation of specificregional and city plans. In some cases, however, these roles may beblurred due to distribution of appropriate skills within the provincialgovernment.

5- 1i -

review of urban development planniang techniques and methodolgies in Indonesia$and (ii) developent of an integrated and regionally-specific training programfor urban areas that would be supportive both of the development ofregionally-based training infrastructure and of Level II local governments inIDAP preparation. Costs are given in Table 3. Details are given in the DTXTDproject proposal submission (prepared with UIDP assistance) available inproject files (U-nex 15).

19. Development of Spatial Planning Methodologies. Three DTKTD regionalcenters and three pilot cities (Bandung, Ambon and one other to be selectedeither in Kalimantan or Irian Jaya) would each be the focus for development ofurban planning techniques and methodologies appropriate to Indoresia's variedregional characteristics and a decentralized formal urban planning trainingprogram. They would each receive technical assistance and training, as wellas a microcomputer-based hardware/software package, O0M and resourcematerials. Based on the findings of the pilot city planning studies, a seriesof seminars in each regional center would be held to evaluate the trainingprogram and develop a plan for its replication in other cities. It isexpected that training for other cities would be carried out a roughly 6-monthly intervals. Participations would be from the Level II andcorresponding Level I local governments as well as DTKTD central andprovincial staff.

20. Urban Training Program Development. Intensive support would beprovided to the training effort of the three above mentioned pilot cities for(a) data collection and analysis; (b) map preparation and as necessary,updated aerial photography;- (c) technical and legal support. Centraltraining capabilities would be upgraded to provide increased regional supportfor training in informal techniques. Regional support would include (a)strengthening of Provincial Planning Units to assist local governments through'i) development and issue of technical guidelines and standards, and(ii) assistance in IDAP plan making and coordination with IUIDP; and (b)assistance in planning for urban agglomerations. Experts would be appointedto assist in the development of materials and systems for implementation ofregional-specific training.

3/ It is expected that most cities to be addressed under the program willhave full use of Lhe mapping provided under the DC agraria's UrbanMapping Program funded by Loan 1972-IND.

: 153 r

Table 3: URBAN PLAVNIVC TRAINING PROGRAM

Duration Man-onths Cost(months) Foreign Local (US$'000)

Urban planning advisers 24 52 30 730

Short-term specialists 40 240

Educationalist/materials specialists 40 20 550

Local planning advisers 24 70 245

Equipment 95

Total 1,860

21. The strategic training program would be developed on the basis ofthe planning methodology review carried out during 1987/88, taking into con-sideration previous training experience. A training cycle would be designedduring 1988/89 including needs assessment, materials preparation, training oftrainers, implementation and monitoring and evaluation. The trainingmaterials would be based on needs assessments and target regions, institutionsand groups. Outputs would include:

(a) strategic training program;

(b) strategy for P2R support to Level II local governments includingIDAP preparation;

(c) training materials and dissemination;

(d) formal development plans (as training outputs) for three representa-tive pilot cities; and

(e) trained staff (approximately 60) from cities and districts, es wellas P2R staff.

0 z

lmm

;r ,H .

Property Valuer Training

A. Recomended Content of University and Other Valuation Courses

1. Institute of Technology Mara Shah Alam SelangorDi-ploma in Estate Management (3 years)

Year I: - Valuation- Principles of Building I- Surveying- Statistics I- Economic I

Year U1 - Valuation- Law of Property I- Principle of Building II- Principles of Town and Regional Planning- Statistics II- Economic II

Year III - Valuation and Urban Property Management- Law of Property II- Building Maintenance- Site Planning and Development- Land Taxation- Urban Land Economic.- Report Writing

2. University of Technology: Malaysia-Johor Baru

Faculty of Surveying - Valuation Department

Diploma in Valuation (3 years)

Year I - Mathematics- Economics I- Valuation I- Accounting

Year II - Economics II- Statistics- Valuation II- Building Technology

Year III - Theory and Practice Building III- Law III- Building Services and Equipment- Valuation Land and Building II- Town Planning I- Real Estate Economics I- Estate Management- Accounting II

- 56-hfI- 1Sh - ~~Attachment 1Page 2

Year IV - Theory and Practice Building IV- Estate Management II- Valuation Land and Building III- Real Estate Economics II- Town Planning II- Real Estate Finance- Final Year Project

B. Content of the GAPPI/PBB Course - located at Jakarta

(a) Lectures - Code of Ethics/Introduction to Appraisal- Theory of Appraisal- Appraisal of land, buildings and other land

improvements- Appraisal reports- Application of Appraisal to:

(a) Surveying(b) Photogrammetry(c) Mapping(d) Urban Data

- PBB Tax on Land and Buildings- Appraisal of Plantations- Appraisal of Mineral Properties- Appraisal of Timberland Forests- Comparative Study of Tax on Land and Buildings in

Malaysia

(b) Field Training - Residential buildings- Commercial buildings- Industrial buildings- Surveying and mapping

ANNEX 12- 157 - Attich ent 2

IUIDP TRAINING PROGRAM. COURSE CONTENT

1. ProOct Cycle Course I - Strategic Urban Planning and ResourceMobilisation

Target Croup: Teams of Staff from five (or more as required) TK.IIauthorities plus Level I staff from BAPPEDA and FinanceBureau

Duration: 4 weeks class + 12 weeks field (with supervision) + 2 weeksclass i.e. total 18 weeks (continuous).

Behavioral Objectives (summary only)

(a) able to explain IUIDP and its implications for TK.II governments(b) able to explain full urban planning and project cycle, and relate

current topics to whole(c) able to prepare IDAP (actual IDAP prepared during fieldwork)(d) able to analyze and identify additional revenue sources and current

collection problems (report and action plan prepared duringfieldwork)

(e) able to prepare future outline action plan for infrastructureprogram and project identification (plan produced in finalclasswork).

Location: Jakarta (first Pilot Courses)Regional Centers (thereafter).

2. Complementary Activities l/

Wherever Course I implemented, these would precede it:

Discussion PanelTarget Group: Bupatis/Walikots,

Bappeda Chairman,and DPR (D) Chairmsn of areas for Course I

Duration: 1 1/2 - 2 days

Behavioral Objectives:

(a) able to explain urban planning and project cycle(b) able to explain IUIDP and analyze their role and its implications

for own authorities(c) able to explain objectives and outputs of Course I (incl. IDAP)(d) able to analyze implications for staff absences, help required, own

role and support required during course

1/ These are proposed as additional activities to the IUIDP OperationalPolicy Seminars and IUIDP Management Workshops already planned forProvinces where IUIDP is being implemented.

g r~~~~~~~~~~~~~~. . . ... . ..*. r

9-~~~ 1S8 t ~B 2

Locationt Hotel in ProvinceResource Peoples from Central Agencies and Level I

Orientation Workshop

Target groupsHeads of Dinas Level II andsome middle-rank Level staff of areas for Course I

Duration: 3 - 5 days

Behavioral Objectives

(a) able to explain urban planning and project cycle(b) able to explain IUIDP and implications for their Dinas(c) able to explain IDAP preparation process and own role in its

production(d) able to explain help required by Course participants(e) able to explain role required during revenue investigation and

report.

Location: Training Center in Province

3. Project Cycle Course II - Program and Project Management andImplementation

Target group: (Medium sized towns) Teams of staff from several Level IIauthorities + some sectoral staff from Level I

Duration: 2 weeks class/4 weeks field/2 days class

Behavioral objectives:

(a) able to explain connection of current course topics to completeurban planning and project cycle

(b) able to use analytical tools to draw up programs of interrelatedIUIDP projects

(c) able to complete IUIDP proformas(d) able to follow GOI regulations on project implementation(e) able to use simple project implementation management

Location: Provincial Centers

4. Project Cycle Course III - Project Preparation, Implementation, Operationand Maintenance

Target Group: Teams from a single Kotamadya (Metropolitan Cities) andsome sectoral technical staff from Level I

Duration: 3 weeks class including field visits. Monitoring visits byIUIDP Consultants thereafter.

Behavioral Objectives:

(a) able to explain connection of current course topics to completeurban planning and project cycle

(b) able to draft TOR for Feasibility Study and interpret Reports(c) able to conduct economic and financial appraisal of project proposal(d) able to use management tools to monitor implementation of projects(e) able to plan and monitor operation of infrastructure or service and

plan its maintenance.

Location: City concerned.

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z~onIsiANWNEXS 13Table 1

URBAN SECrOR LOAN

EXPENDITURE PROGRAM FUNDING

lw -1 UEa C rLIs (Ninid Ip billion).. _ ..... ___ .~~~~~~~~~~~~~......... ... _. ......... _...._._ ......._ ..........._.._._.._._

buisi: 6 Totl 1907#- -99-WA 19-7- -- -- ---- 11999 -**---- t/9017*r-6? Total Total 01 02 Q3 04 01 O2 03 04 01

vlpot # W* expuditre 15R2.9 769.0 713.9. ....... ......... ........... _ .. ...... ....... ... ...... ...

Oltr 54ly111.6 W6. 2 22h.4M ec,rotltionh Iraiung M. 131.9 lU.SEirwental witation 5.0 ff.1 37.?KIP 5.6 37.5 49.1oh 134.9 4.3 100.5Flodrg (VAX) 16.2 4.2 40.0MI (all sbsectors) 305.0 137.3 167.?Ix (NU portion) 37.5 1I.5 19.0

Tech. blit. aW Training 70.0 35.0 35.0

Total 1622.9 14.0 118.9 64.5 144.1 232.0 294.6 135.0 147.3 22.6 2n9.7 90.0

surw et or : 1622.9 604.0 161.9__,,,,,,,, . _., ... .... .

htiouol Progrs: 997.0 4.4 40.6 49.8 99.7 l14.5 199.4 49.i 99.? 149.6 199.4 0.0.,,,,, - -.............. --------.. ...... .. .. ... ---- ...... . -----. ----- ..... ----

Rm(OIP/OIP): 417.2 197.2 220.0 19.7 39.4 59.2 79.9 2n.0 44.0 66.0 16.0, .. ._ .... ......... ...... _.,

06 Cipta Kw 207.9 105.3 102.506 Peniran 34.6 43.9 40.7S hi brg 66.7 20.5 49.2Other 18.6 9.0 9.6Tax 37.5 19.5 19.0

raeip Oid (IK): 509.8 266.2 243.6 26.6 53.2 79.9 106.5 24.4 48.7 73.1 97.4__..... ...... ._ ... ...... _

0 Cipta lvre 311.2 176.6 132.66 Penpiran 153.6 72.3 91.3C bina rga 42.2 13.0 26.4

Other 2.9 1.5 1.3

Tech. Asst. ad Training 70.0 35.0 35.0 3.5 7.0 10.5 14.0 3.5 7.0 10.5 14.0

Local program: 625.9 305.6 320.3 14.6 4.4 12.5 95.2 65.2 47.6 76.0 90.3 90.0

Ileutic lowi (P0): 64.1 39.4 41.7 3.9 7.9 11.8 15.9 4.5 1.9 13.4 17.9

IIfS: 153.3 33.0 70.3 0.0 8.3 21.9 24.9 24.9 7.0 21.1 21.1 21.1

Lecl ILevel It

SO: 15.9 7r6 8.3 1.9 1.9 1.9 1.9 2.1 2.1 2.1 2.1

Lewl11

1I a II: 372.6 175.6 197.0 6.8 26.3 43.9 52.7 53.7 29.6 39.4 49.3 69.0

Levl 1 29.3 17.4 11.9Level 11 129.2 59.3 69.9Pmm 214.1 11.9 115.2

- 1.62 _ T 13

vW 2*33WmiI FME Id It kbls) gmE KTMw Ui a WiUsU10-_V lw ism l"l m ~ wo MlIdm Mt ¶W -13a 43-- 1a - __

"JE EKE 331 0 i " " " "

kwutz 16i2.3 34.1 144.1 232.1 23. 15.3 Iff.3 M. 3.7 I.3

io ~~ ~ ~~~16Z 64.S I-KI al 2".6 inJ. Iff.1 22LI MJ ILI

U: 1173.6 46.4 "3. 1H41 3. 17.4 I1.1 1133 11.1 ILI

ItaM) /a 113.0 43. 71.2 5.1 1.3 13.9 3S 7.I 14.1 21.1 IL1 LiU otow 1)uu)hrut hX t ih 2A4.3 IRI 121.1 13.3 5.3 39.9 13.2 12.2 24.4 .s 1.7 3.lbi*umt iroflaug 214.9 131 121. 13.3 2I 1 3.9 92 12.2 24.4 13S 4.7 L3

* 3.0 4. S . 1 . 3.3 Li 3.3 4.1 .3 Li 3.3 3.31tS id 19.3 1 33.3 3.3 3.3 24.3 24.I 24.9 7.0 21.1 21.1 21.1a Id 1S. ?.i .3 I1. 1.9 1.3 1.3 2.1 2.1 2I 2.1 3.IM / M63.3 173. 1I.3 LI 5.3 4. 2? R 13. 29.3 3.4 4.3 69.3

L r pruds: 444.3 2233 224.3 13.1 4.1 37. 3. 17.7 4.3 .3 31.? 3.3

hrot ppws: IS 74.3 7.1 7.4 14.9 22.3 29.7 I. I3.3 23.? 11.3 LI

li Ii 43.7 23. 232 2.4 4.? 7.1 .4 2.6 5.2 7.3 13.1 '.IF s 33.3 ILl 17.9 1.3 3.2 4.7 U.3 1.3 3.3 1.4 7.2 L.ilui.us. 3.3 Li Li 3.1 7.1 Il.1 14.1 S 7.3 .IIS 14.1 1.1

Trwufrs fro (to) U 23.3 143.9 144.M 1.7 29.6 4S.3 5.4 9.7 3.3 46.1 53.1 t.o

MIE?

bm" ML 1.1 111.7 91.4 7S.1 44.0 Si. 37.7 17,3 *1I.4

prts ra*rw at I.0 11.1 1.1 u.1ktrmtiwu ft.,w 41.0 1.0 3.3 43.0Irinfvs fro wpcall At/:

iS rddw Ats 122.3 I5 73.2 3.0 .3 19.9 19.3 19.3 .6 16.3 13.9 13.9BP reiui .ts 49.7 23.5 26.2 2.1 4.7 7.1 9.4 .3 1.2 1.3 13.5 .3

IUS lto to p sta 211.3 143.0 144.9 137 2.1 4S.3 11.4 3.? II 1.1 53.1 1 .1

Cls.q hi1 111.7 93.4 7S.1 44.3 66.3 37.7 17.3 -15.4 I.S

KUL Km3:

*KmIq hLI Si.3 11.1 3L 19.1 12.7 ILI 3.1 19.3 12.7

bos i 51.1 S7.1 Li 157.

b 't 19L3 34.2 I1I.L L.3 3. 13.2 3I 41. 27.1 19.7 I.L t*ksd~~~~. _js;- j - _ _lI 33.2 14.1 2S.1 3.3 2.4 4.7 7.1 3.4 2.3 1.2 7.3

F M5I 3.1 17.1 L I. 1.6 3.2 4.7 1.3 1.1 11 1.4WE IL 3.3 53 66.1 LI3 .I 3.3 19.9 19.3 13. Li3 13. 4.1UP 3.2 14.1 5I I 21.1 4.7 '1: .4 2. 3.2 7. 1

LL3 hiwummui' M257 11.3 14.S L.I 13.2 3L3 4LI 2.3 13.7 3.1 S1 13.3

krw _p' to p.jt:0.7 213.5 52 Li4 L.7 7IL 3.4 3.3 3. 2 7. 17.5 Li.

It LI~1. 1IL3 171. 1.6 3.2 4.7 Li3 1.3 3.3 Li4 ? Li3OM 1 12.3 1.1 .2 I I LI L 19.9 1. 19.9 LI 16.1 13.3 13.

3 3 0.7 23. 52 2.4 t.7 7.1 3.4 2.3 LI2 7.9 IL.1 .cams khI1 1l.5 3LI. 19.3 12. II M1 19.1 12.7 LI

h upu of.#- 5L. of tw3743M P tls i fro SmA iwlh7 NNhW EU of towi moim UP dullin fro, L"M hT fi [dl k * mp w PP

ithg h l

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PR 4.5 15.1 6.6 1 .1 39. 9.9 I S.L IL 3i.9 -19.1

hi (BP) 5.0 LI LI 5.0 LI 5. 0.3

inS 63.L 3.6 21.3L M 4 1 L .6 O.

M 13.2 1U.2 16.1 1.6 1.0 6.O 0.6

, 12t 126.6 1Z.0 6.0 13.3

rfY7 26.2 51.3 6.2 N.3 23.5 122.5 .1 223.1 2".2 VA.3 22.3 "A.

riu.lq Pie - ryi69:U.N 213.6 243.6 6.9 0.1 1.0 0.0 I.R

Up 71.2 5.2 5.2 S.3 3.3 Sl3 52.5 52.5 14.I -53

e 4.5 17.9 g.m 22.3 W.7 11.2 17.9 17.9 .2 -22.3

1/ (UP) LI 5.6 5.6 IL 5.6 35.M 6.6

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- 167 -

URBAN SECTOR LOAN

Proposed Disbursement Arrangeents

I. Background and Overview

1. This Annex describes proposed arrangements for disbursement of theWorld Bank loan funds under the Urban Sector Loan. The objectives are to:

(a) provide adequate finances from the outset of the two-year urbaninfrastructure expenditure program to ensure that implementation ofthe agreed program is not adversely affected by lack of financialresources because of GOI's constrained budget situation;

(b) assure that Bank loan funds are rapidly disbursed in associationwith the two-year agreed expenditure program; and

(c) in achieving the objectives (a) and (b) above, utilize conventionaldisbursement methods against urban infrastructure expenditures tothe fullest extent possible, while minimizing the need for indirectfinancing of this program through imports-based disbursement of Bankloan funds.

2. The proposed arrangements would involve a number of innovations inWorld Bank lending to the Government of Indonesia, including;

(a) establishment of a Special Account, which would further reduce theneed for prefinancing and facilitate channeling of Bank loan fundsto support the agreed urban infrastructure expenditure program (ifsuccessful, such an arrangement could be replicated for otherprojects); and

(b) establishment of institutional arrangements for imports-baseddisbursement of Bank loan funds, wnich could be replicated in futurepolicy-based lending operations.

3. The proposed innovations are intended to facilitate Bank loandisbursement within the framework of GOI budget and expenditure controlpolicies and procedures recently established under Joint Decreee SKB No. 48dated January 27, 1987.

This Annex is based on the findings and recommendations of IBRD staff membersCecil Perera and Andrew Vorkink during the appraisal mission to Jakarta inNovember 1986. Staff member Miguel B. Quintos assisted in its finalization inWashington, D.C.

- 166-_

4. As overview of the proposed disbunrmt raugmmnts is provided inthe chart attached as Attachment 1. In essence two mechanisms would beestablishedi

(a) A portion of Bank loan proceeds not exceeding US$70 millionequivalent, would be eligible for disbursement upon loaneffectiveness based on receipt of Statements of Expenditure (80E)for eligible imports. It is expected that the equivalent rupiahcounterpart funds from this disbursement would support expendituresunder the agreed program through normal budget procedures.

(b) A Special Account would be established within Bank Indonesia fromwhich funds could be drawn to:

(i) make direct payments to contractors on the basis of an SPMissued by DGBudget's Directorate of Budget Administration(TUA) for eligible DIP expenditures (net of tax);

(ii) reimburse the national treasury (BUN) based on SPJsreceived by TUA for eligible DIP expenditures prefinancedby GOI and evidence of eligible DIP expenditures by localKPN offices;

(iii) make direct payments for Pinjaman Dalam Negeri (PDN) urbaninfrastructure-related loan disbursements to localgovernments and local public enterprises based onexpenditure proposals (excluding land and taxes); and

(iv) reimburse the BUN for 20X of INPRES DATI II and INPRESJalan expenditures reported by Bank Rakyat Indonesia (BRI)to DGBudget each week, based on evidence of expenditures.

5. Details of these proposed arrangements are provided in Sections II,III and IV below. A summary of actions to be taken to implement thesearrangements is provided in Section V.

II. Provisions Governing Administration of a Special Account

6. The Loan Agreement provides for GOI to establish a Special Accountwith Bank Indonesia, and at the request of GOI for IBRD to deposit into thisaccount an advance of up to four months of expected reimbursement. Theaccount would be maintained in US dollars and withdrawals could be made onlyfor eligible expenditures at the agreed financing percentage. The accountcould be maintained in an interest bearing form, with the interest accruing toGOI. Its main features would be:

169 AW3 14Page 3

Currency and Amount t US$35.0 millionLocation : Bank IndonesiaAccess to the Account : Directorate of Budget AdministrationFrequency of Submission of : At the end of every month or whenWithdrawal Applications for the balance reaches about 502 of theReplenishment initial deposit, whichever occurs

earlier

Currency conversion : The rate of exchange between the USDollar and the currency of paymenton the date Bank Indonesia debitsthe Special Account would apply.

Responsibilities

7. The Directorate of Budget Administration (TUA) would:

(a) acquire evidence of payment for eligible expenditures made from OIresources, and request BI to reimburse GOI from the Special Account;

(b) if any payment from the Special Account is subsequently found by theBank to be ineligible, TUA would promptly refund to the SpecialAccount or the Loan Account the relevant amount on receipt ofnotification from the Bank.

8. Bank Indonesia would:

(a) maintain the Special Account as a separate account to contain onlyfunds from the IBRD loan;

(b) on receipt of a payment order from TUA (in the case of reimbursementrequests) or from Project Management Units (PMU--in the case ofdirect payment requests), pay the required amount charging theSpecial Account at the exchange rate application on the date theSpecial Account is debited;

(c) after payment, issue to TUA the PMU and other interested parties, adebit advice showing the date of payment, party to whom the paymentwas made, project identification code, the currency and amount ofpayment, the US dollar equivalent charged to the Special Account andthe exchange rate;

-170- AM=Il 14Page 4

(d) at the end of every month or when the balance of the Special Accountreaches about 502 of the initial deposit, prepare and submit awithdrawal application for replenishment of the Special Account.'/

(e) on receipt of payment from IBRD, promptly credit the funds to theSpecial Account; and

(f) issue to TUA at monthly intervals, a statement on the SpecialAccount showing information on the transections conducted during themonth.

III. GOI Reimbursement Procedures

9. This section covers (i) the current procedures that are beingfollowed in the actual release of funds made available under GOI's DevelopmentBudget, and (ii) proposed reimbursement procedures in each of these areasunder the Urban Sector Loan.

Development Budget (DIP)

10. The DIP for development expenditures for specific p:ojects are splitinto the portion to be financed from external sources and the portion to befinanced from GOI resources. Project Managers requesting payment from theirDIP allocations submit a SPP to the local KPN office of DC Budget for expendi-tures to be financed by GOI, and submit a SPPP either to the central cffice ofTITA for expenditures to be financed by reimbursement from external sources orto BI for expenditures to be financed by direct payment from external sources.SPPs and SPPPs may be either (i) requests for payments to a contractor, or(ii) requests for advances (petty cash). Requests for payments to a contrac-tor are accompanied by a copy of the contract (in the first instanceb aprogress report certified by the supervising engineer and a voucher.-

1/ This application should be supported by either (a) modified orders-to-pay(SPM) in the case of payments to contrators showing ti) total contractvalue; (ii) total term payment; (iii) percentage of IBRD financing; (iv)IBRD's category reference; (v) contract number and (vi) progress paymentcertificate number; (b) SPMs of payments to local governments and enter-prises under PDN loans; or (c) BRI weekly reports for eligible INPRESexpenditures; and BI's debit advice evidencing payment from the SpecialAccount. For items that World Bank has agreed to disburse against State-ments of Expenditure (SOE) it is not necessary for BI to submit thesedocuments to the Bank. Instead they should be cross-referenced to thewithdrawal application and retained by TUA or the PMU for review by Bankstaff. A copy of BI's monthly statement of the Special Account shouldalso be submitted on a monthly basis or with the application, if suchcoincides with the submission of the application.

2/ A signed receipt from the contractor, although actual payment has notoccured at this point.

A13114- 171 -

Requests for advances are accompanied by an accounting for expenditures madeunder the previous advance.

11. For SPPPs received by TUA:

(a) TUA issues a payment order (SPM) to BI authorizing payment chargingGOI's BUM account, and copies of the SPM are sent to DC IMA and thePMU and its parent Directorate General;

(b) for payments to contractors, BI transfers funds to the account ofthe contractor; and

(c) for advances to PMU, BI transfers funds to the bank account of thePHU.

12. Under the present reimbursement procedures, BI is responsible forpreparing the application for reimbursement and sends it to the World Bank,after which the Bank reimburses the BUN account for eligible expenditures (netof land and taxes).

13. Under the proposed Urban Sector Loan, with a Special Account inplace, the use of reimbursement procedures would be minimal as TUA would havethe added advantage of being able to tap the Special Account for payments tocontractora, thus making it unnecessary for GOI to provide prefinancing otherthan for the initial payment in the case of advances to PMUs.

Domestic Loan Channels (PDN)

14. The following procedure is used for the release of PDN loan funds*3/

(a) Public Enterprise or Local Government sends loan application to theMinister of Finance through DG Domestic Monetary Affairs (DGMDN).

(b) DGMDN evaluates the loan application with regard to technical,financial, economic and social aspects, and determines whether theapplicant has the capacity to service this and other outstandingdebts.

(c) On approval the applicant sign a loan agreement with DGMDN.

(d) The applicant submits to DGMDN a proposed budget for the projectswhich is periodically updated.

(e) On the basis of the agreed budget, DGMDN sends to DC Budget, anSPP/SKO which is the authority to allocate funds.

3/ When the Regional Development Account (RDA) or Loan Fund (RGLF) becomesoperational, approved loans from these sources could be eligible fordisbursement from the Special Account under arrangements similar to thoseproposed for existing PDN loan channels.

-172- AUIU 14

(I) DCMDE follows this with a SPP-SPM to DC Budget which is authorizedto make quarterly payments to the applicant. The sise of thepayment for a given quarter is determined using the forecast ofexpenditures for that quarter and the actual expenditures in theprevious quarter.

(g) TUA issues an SPM to BI authorizing payment to the applicant.

For the Urban Sector loan, SPMs issued by TUA could form a reasonable basisfor release of loan funds. The Special Account could be tapped by BI for pay-ments to applicants. Withdrawal application preparation can also be central-ied with BI which has sufficent backup documents to support payments. Sincepart of the funds made available through PDN is used for acquisition of land,any application for PDW financing for land would be ineligible for reimburse-ment from the Bank loan.

Grants by Presidential Instructions (INPRES)

15. Funds under this scheme are provided for development in eight typesof grants: namely, DATI I (provinces), DATI II (local governments), villages,schools, health, planting, markets and roads. Annual spending ceilings areestablished for each account. After the work programs are reviewed andapproved, the following procedure is followed for the fund releases:

(a) DG Budget issues spending authority (SKO) to the local body;4/

(b) DC Budget issues SPM to BI to make payment from BUN account to BankRakyat Indonesia (BRI) with BRI to hold the funds for later use bythe local body;

(c) The local body issues SPP, SPK, contract and progress report to BRI;

(d) On the basis of these documents BRI provides a line of credit to thelocal body;

(e) As the work progresses, the local body issues checks against the BRIline of credit to pay the contractor accompanied by updated progressreports retained by BRI; and

(f) BRI sends signed weekly reports on INPRES payments to DC Budget.

16. After completion of this cycle, DC Budget has sufficient informationand documents to file a reimbursement application with BI to transfer thereimbursible funds from the Special Account to BUN and subsequently for BI torequest IBRD to replenish the Special Account. BRI has a reliable system withsufficient controls to monitor expenditures. BRI also has i.n its possessionadditional backup documents. For purposes of the Urban Sector Loan, it is

4/ For INPRES Markets, DGMDN issues the SKO.

-173 - ANNEX 14

proposed to reimburse COI for 201 of INPRtS DATI II and INPRES Jlan, expendi-tures reported by BRI which corresponds to the proportions of such expendi-tures estimated for urban areas net of land and taxes. It is also proposed toreimburse a percentage of DATI I expenditures for Jakarta (DKI) on the basisof documentation of expenditures made. Means would be found to channel pay-ment requests for DATI I expenditure reimbursements through TUA to be drawndirectly from the Special Account.

17. While the major portion of the INPRES payments (mostly those underworks contracts) go through BRI, a much smaller portion (mostly for smalllocal procurements) are channeled through local treasuries .KPN). KPN INPRESpayments are difficult to document, and therefore Bank loan disbursement isnot envisaged.

Payments for Technical Assistance/Training

18. It is expected that the technical assistance and training require-ments for the project will be carried out by consultants contracted by severalproject agencies. In keeping with GOI's and the Bank's common goal ofcentralizing the disbursement function with TUA, means would be found forthese agencies to channel payment requests through BI to be drawn either (a)directly from the Special Account, or (b) directly from the Loan Account.

Replenishment of the Special Azcount

19. Replenishment applications would be prepared by BI based on SOE'sreflecting: (i) SPMs issued for eligible DIP expenditures and PDN loandisbursements; (ii) SPJs issued in respect to advances made for eligible DIPexpenditures; and (iii) BRI weekly reports for eligible INPRES reimbursements,and ZI's debit advice evidencing payment from the special account.

Procurement Arrangements

20. The works contracts to be financed are numerous, small in value andscattered over a wide geographical area. Therefore local bidding proceduresin accordance with KEPRES 29/30 acceptable to the Bank will be used.

IV. Imports Based Disbursement

Responsibilities

21. Bank Indonesia's International Department would be responsible for:

(a) assembling appropriate documentation of eligible imports forpurposes of reimbursement from the Bank loan;

(b) preparing reimbursement applications, using Statements ofExpenditures;

(c) sending reimbursement applications to the World Bank (RSI); copiedto the DG International Monetary Affairs, Ministry of Finance(DGIMA);

-174 _MEK 14

(d) maintaining supporting documentation, as described in para. 24below, for SOE applications; and

(e) facilitating timely audits of SOs and stupporting documentation.

22. DC International Monetary Affairs would be responsible for:

(a) informing the Project Coordination Unit (PCU) of the status ofdisbursement for purposes of overall project monitoring; and

(b) arranging for timely audits.

23. DC Budget would be responsible for utilizing counterpart rupiahfunds from Bank reimbursement of imports expenditures to finance expendituresunder the agreed urban infrastructure program.

24. Documentation and SOE Application. Documentation acceptable to theWorld Bank for purposes of preparation of SOEs is the Pemberitahuan PemasukanBarang Untuk Dipakai (PPUD), which reflects the LKP certificate issued bySGS. A format for SOE application form is attached as Attachment 2. SOEapplications would be submitted in amounts of US$1 million equivalent or morecommencing upon loan effectiveness.

25. Eligible Imports. Attachmnent 3 provides a proposed list of importcommodities (identified by SITC/CCCN coding number) on which certifiedexpenditures made after loan signing would be eligible for reimbursement underthe Urban Sector Loan. Restrictions would apply to:

(a) imports financed wholely or in part by other World Bank loans orother donors;

(b) goods and/or materials which originate in countries other than IBRDmembers, and Switzerland and Taiwan, China;

(c) imports less than US$50,000 equivalent in value (or such otheramount as the Bank may agree from time to time).

26. Procurement. Imports to be financed by the proposed loan should beprocured through ICB procedures, except for contracts valued at less thanUS$5 million equivalent which may be procured in accordance with localprocedures acceptable to the Bank. COI bidding and contract documents wouldbe subject to random postaward reviews by the Bank. Typical procurementpractices in the private sector for the imports concerned are acceptable tothe Bank.

27. Bank Loan disbursement. Upon receipt of SOE applications the Bankwould disburse 100% of the certified C&F value of eligible imports asindicated on the related LKP.

28. DG Budget would maintain accounts and supporting documentationrelating to operations of the Special Account and replenishment of the Account

ANNU 14-175 ^ Page ~

from Bank loan funds. Specifically DC Budget should maintain separate projectaccounts based on SOEs and documentation provided by BI, BRI, DGMWDU, TUA, KPNoffices and project agencies for financial transactions on the Special Accountand for project-related DIP, INPRES, PDN and Technical Assistance/Trainingaccounts. Supporting documentation for evaluation of PDN loans should bemaintained by DGDMDN. A consolidated financial statement to be audited eachfiscal year should be prepared by DG Budget and such consolidated annual auditreports should be provided to the Bank within six months after the closing ofeach fiscal year. Audits of BRI's INPRES expenditures reporting would also berequired.

V. Auditing Arrangements

29. Audits of expenditures included in SOEs submitted for reimbursementfrom Bank loan funds should be carried out by auditors acceptable to the Bankno later than nine months after the end of the GOI fiscal year in which thoseSOEs have been disbursed by the Bank. If private auditors are employed theBank wruld have no objection to financing such audits from the loan.

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- 177 -

ANNEX 14Attachment I

INDONESIA

URBAN SECTOR LOAN

0isbursmoent Arrangsinnts

Disbursement Flows

-------------IRD --l ~~~~LOAN

I ~~~PROJECTII ~~~TECH.

IMPORTS CIAL OTHER.SOEs .ACCODUNT . DONORS

|~~~~~~~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ apl

I . ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I ! APBO ;PDNI INPRES I DIP

. , ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I I GOI i ITreasury I 11 1 ,

(BUN) I GOI FY87/88 & 88'89 URBANSECTOR EXPENDITURE PROGRAM

i ~~~ ~ ~~I I I

Legend:

Funds flows

- Withdrawal rtque5ts

311W~~~~~~~13 11 Nm N1

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-179 AttE 14 3

INDONESIA

URBAN SECTOR LOAN

Eligible Import Commodities

IBRD CCCN SITCcode code Commodity code

161 25.00.000 Salt, sulphur, lime, cement, etc. 27.00.000

191 25.00.000 Metallic ores 27.00.000

(27.14.000 Bitumen 33.54.000{ 27.15.000 to Asphalt 33.56.000 and( 27.16.000 27.89.000{f 39.02.200 Polyethylene 58.31.000{ 39.02.500 PVC 58.34.000

40.09.000 Rubber hose 62.10.500

44.10.000 Wood board 64.16.000l

161 { 49.06.000 Plans 89.28.200

{ 68.00.000 Stone, concrete 66.10.000 and66.30.000

{ 69.01.000 to Bricks, clayware 66.20.000( i69.08.000

{ 70.04.000 and Glass 66.45.000 to{ 70.05.000 66.47.000

{ 73.00.000 Iron and steel 67.10.000

170 82.00e000 Tools 69.50.000

IBRD CCCN SITCcode code Commodity code

{83.01.000 to Hardware 69.01.100 to{ 83.02.000 69.91.300

{84.06.600 71.38.900{84.06.999 71.39.990{84.09.000 72.33.000{84.10.300 74.22.000{84.10.500 740286800{84.11.290 74.32.900

161 {84.18.210 Machinery, equipment 74.36.100(84.21.200 7465207100f84.22.290 74.42.290{84.23.200 72.34.100{84.23.300 72.34. 2G0{84.47.100 72.81.200{84.49.130 74.51.100{84.56.200 72.83.200{84.56.310 72.83.310{84.61.900 74.*920900

171 85.01.214 Elcrcleupet71.62.33285.16.900 Elcrcleupet77.88.290

177 87.03.100 to Special vehicles 78.22.100 to87.0-3.900 78.22.900

199 90.14.900 Instruments 84..41.20090.26.300 87.31.300

. . .. .. .. ..... , . -.-. _

ANN2 14Attachment 4

INDONESIA

URBAN SECTOR LOAN

Estimated Disbursement Schedule for Bank Loan(US$ million)

Expected disbursements/Cumulative

Semester project ex- Amount -- Cumulative --Semester ending penditure j Amount t

1 12/31/87 267.0 100.0 100.0 37.0

2 6/30/88 527.0 12.0 112.0 41.4

3 12/31/88 7f3.5 47.8 159.8 59.1

4 6/30/89 983.5 57.0 216.8 80.0

5 12/31/89 1005.8 45.3 260.1 96.3

6 3/31/90/c 9.9 270.0 100.0

L Including non-reimbursible expenditures/b No comparable operational disbursement profile available/c Closing date

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1- 13 -

ANNEX 15

INDONESIA

URBAIN SECTOR LOAN

Documents Retained in Prolect Files

A. Expenditure Program

1. GOI Summary Proposal for Urban Sector Development Loan(Draft - 9/86)

2. Draft Subsector Expenditure Program Submissior,s:(a) DGCK Directorate of Water Supply (8/86)(b) DGCK Directorate of Environmental Sanitation (9/86)(c) DGCK Directorate of Housing (7/86)(d) DGBM Directorate of Urban Roads (Summary - 10/86)(e) DGWRD Directorate of Rivers (8/86) (Summary - 11/86)

B. Local Resource Mobilization

1. Notes on Property Tax/PBB Improvement Program (Lerche 12/86)

2. Implementation of New Property Tax Law and Improvement of theValuation System (Mander, 12/86)

C. Sector Financing

1. Analysis of the Proposal to Establish a Regional GovernmentLoan Fund (Binder and Devas, Institute of Local governmentStudies, University of Birmingham, 2/86)

D. Planning and Programming

1. Summary of Urban Sector Medium-term Strategic Planning and PolicyDevelopment Process of GOI (Dice 11/86)

E. Manpower Development

1. Manpower Development and Training Needs of Local Governmentin the Field Of Urban Development (Watson 1986)

2. Local Government Manpower Development (Walt 1986)

3. Urban Planning Training Proposal (DGCK, Directorate Tata Kotadan Daerah)

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