Document of The World Bank FOR OFFICIAL USE ONLY Report No: 57888-ID PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF US$150 MILLION TO THE REPUBLIC OF INDONESIA FOR THE WATER RESOURCES AND IRRIGATION SECTOR MANAGEMENT PROGRAM (PHASE II) February 25, 2011 Indonesia Sustainable Development Unit Sustainable Development Department East Asia and Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective December 31, 2010) Currency Unit = Indonesian Rupiah IDR = US$0.000108108 US$* = IDR 9,250 *All $ in this document refer to US currency unless otherwise noted. GOI FISCAL YEAR January 1 ­ December 31 ABBREVIATIONS AND ACRONYMS AMDAL Full Environmental Assessment APBD(K) Kabupaten (District) Government Budget APBD(P) Provincial Government Budget APBN Central Government Budget APL Adaptable Program Loan AWP Annual Work Program Balai PSDA Provincial River Basin Management Organization Bangda DG Regional Development, MoHA Bappeda Local Government Development Planning Board Bappenas National Development Planning Board B (B)WS National River Basin Management Organization BPKP Central Government Audit Agency BWRC Basin Water Resources Council (Committee) BWRM Basin Water Resources Management BWRMP Basin Water Resources Management Planning CDD Community-driven development CDP Community Development Plan CPS Country Partnership Strategy CSO Civil Society Organization DA Designated Account DAS River Basin DGWR Directorate General of Water Resources, MoPW DGAIF Directorate General of Agriculture Infrastructure and Facilities DGRD Directorate General of Regional Development Dinas Pertanian Local Government Agriculture Department Dinas PUP Local Government Public Works Department Dinas SDA Local Government Water Resources Department EMP Environmental Management Plan FMR Financial Monitoring Report GOI Government of Indonesia GP3A/IP3A Federation/Apex Body of Water Users Associations (WUAF) IBRD International Bank for Reconstruction and Development ICR Implementation Completion Report IFR Interim Financial Reports IMEU Impact Monitoring and Evaluation Unit KIIF Kabupaten Irrigation Improvement Facility (DPIK) KLH State Ministry of Environment KOMIR Irrigation Commission (Committee) KPIU Kabupaten Project Implementation Unit KPMU Kabupaten Project Management Unit MIS Management Information System MoA Ministry of Agriculture MOF Ministry of Finance MoHA Ministry of Home Affairs MoPW Ministry of Public Works NPIU National Project Implementation Unit NPMU National Project Management Unit NSCWR National Steering Committee for Water Resources NWC National Water Resources Council O&M Operation and Maintenance PAD Project Appraisal Document PDO Project Development Objectives Perda Local Government Regulation PIM Participatory Irrigation Management PIU Project Implementation Unit PJT I/II Bulk Water Supply Corporation I/II PKPI Irrigation Management Reform Policy PMU Project Management Unit PMM Project Management Manual PPIU Provincial Project Implementation Unit PPMU Provincial Project Management Unit PPTPA River Basin Water Resources Management Committee PWRC Provincial Water Resources Council (Committee) SRI System of Rice Intensification RBC River Basin Corporation RIM River Infrastructure Maintenance TA Technical Assistance WISMP Water Resources and Irrigation Sector Management Program WS River Territory WUA Water User Associations WUAF Water User Association Federation (GP3A/IP3A) WUR Water Use Right Vice President: James Adams, EAPVP Country Director: Stefan Koeberle, EACIF Sector Director: John Roome, EASSD Sector Managers: Franz Drees-Gross, EASIS Vijay Jagannathan, EASIN Task Team Leader: Xiaokai Li, EASIN Table of Contents I. Strategic Context ................................................................................................................... 1 A. Country Context ................................................................................................................. 1 B. Sectoral and Institutional Context ...................................................................................... 1 C. Higher Level Objectives to Which the Project Contributes ............................................... 4 II. Project Development Objectives .......................................................................................... 5 A. Project Development Objectives (PDO) ............................................................................ 5 B. Project Beneficiaries ........................................................................................................... 5 C. PDO Level Results Indicators ............................................................................................ 5 III. Project Description ................................................................................................................ 6 A. Project Components ........................................................................................................... 6 B. Project Financing ................................................................................................................ 7 IV. Implementation...................................................................................................................... 9 A. Institutional and Implementation Arrangements ................................................................ 9 B. Results Monitoring and Evaluation .................................................................................... 9 C.Sustainability ..................................................................................................................... 10 V. Key Risks and Mitigation Measures .................................................................................. 10 VI. Appraisal Summary ............................................................................................................ 11 A. Economic and Financial Analysis .................................................................................... 11 B. Technical .......................................................................................................................... 12 C. Financial Management ..................................................................................................... 13 D. Procurement...................................................................................................................... 13 E. Social ................................................................................................................................ 14 F. Environmental ................................................................................................................... 14 Annex 1. Results Framework and Key Monitoring Indicators ............................................ 16 Annex 2: Detailed Project Description..................................................................................... 18 Annex 3: Implementation Arrangements ................................................................................ 28 Annex 4. Operational Risk Assessment Framework (ORAF) .............................................. 40 Annex 5: Implementation Support Plan .................................................................................. 43 Annex 6: Team Composition ..................................................................................................... 46 Annex 7: Economic and Financial Analysis ............................................................................ 47 Annex 8. Better Governance Action Plan ................................................................................ 54 Annex 9: Status of WISMP APL Triggers .............................................................................. 58 Annex 10: Statements of Loans and Credits..........................................................63 Annex 11: Country at a Glance...................................................... ...................66 Map : IBRD 38329 INDONESIA Water Resources and Irrigation Sector Management Program (Phase II) PROJECT APPRAISAL DOCUMENT EAST ASIA AND PACIFIC Indonesia Sustainable Development Unit (EASIS) Sustainable Development Department Date: February 25, 2011 Sector(s): Irrigation and drainage (50%); General Country Director: Stefan Koeberle water, sanitation and flood protection sector (50%) Sector Director: John Roome Sector Managers: Franz Drees-Gross and Theme(s): Water resource management (P); Vijay Jagannathan Irrigation & Drainage (P); Rural governance and Team Leader: Xiaokai Li institution building (S) Co-Team Leader: Paulus van Hofwegen Project ID: P114348 EA Category: B Lending Instrument: Adjustable Program Loan Project Financing Data: Proposed terms: [X] Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other: Source Total Amount (US$M) Total Project Cost: 202.56 Borrower: 52.56 Total Bank Financing: 150.00 IBRD 150.00 IDA 0.00 Borrower: Republic of Indonesia Responsible Agency: Ministry of Public Works Contact Person: Director for Programming, DGWR Telephone No.: 6221 72796158 Fax No.: 6221 72796155 Address: Jl. Patimura 20, Jakarta Selatan, Indonesia Estimated Disbursements (Bank FY/US$ m) Fiscal Year 2012 2013 2014 2015 2016 2017 Annual 15.0 30.0 37.5 45.0 12.5 10.0 Cumulative 15.0 45.0 82.5 127.5 140.0 150.0 Project Implementation Period: Start: May 1, 2011 End: May 31, 2016 Expected effectiveness date: May 1, 2011 Expected closing date: November 30, 2016 Does the project depart from the CAS in content or other Yes No significant respects? If yes, please explain: Does the project require any exceptions from Bank policies? Yes No Have these been approved/endorsed (as appropriate by Bank Yes No management? Is approval for any policy exception sought from the Board? Yes No If yes, please explain: Does the project meet the Regional criteria for readiness for Yes No implementation? If no, please explain: Project Development Objective: The project development objective is to assist the Borrower to improve its capacity for basin water resource and irrigation management and increase irrigated agriculture productivity in the Project area. Project description: The project consists of the following four components: Component 1. Basin Water Resource Management Improvement: (a). Improvement of operational effectiveness of basin management institutions and community-based catchment management at: (i) central level in selected national and provincial river basins; and (ii) Province level in selected provincial river basins in Participating Provinces; and (b). Improvement of physical system performance of river basins at: (i) central level in selected national river basins; and (ii) Province level in selected provincial river basins in Participating Provinces. Component 2. Participatory Irrigation Management Improvement: (a) Improvement of participatory irrigation management institutions in: (i) Participating Provinces; and (ii) Participating Kabupaten, including establishment and enhancement of local participatory irrigation management regulatory frameworks and capacity building of local institutions such as government irrigation and agriculture agencies, Irrigation Commissions, and Water Users Associations Federations; (b) Light and moderate rehabilitation and repair of: (i) Participating Province; and (ii) Participating Kabupaten irrigation system infrastructure; (c) Provision of support to irrigated agriculture, and carrying out of climate change adaptation measures, including support to farmers in relation to: (i) adoption of new technology and development of agribusiness management skills in: (A) Participating Provinces; and (B) Participating Kabupaten; and (ii) establishment of public-private partnerships for farming and marketing through the implementation of Community Subprojects in: (A) Participating Provinces; and (B) Participating Kabupaten; and (d) provision of technical assistance in relation to implementation of Parts 2 (a), (b), and (c) of the Project. Component 3. Jatiluhur Irrigation Management Improvement: (a) Improvement of Jatiluhur irrigation system management institutions, including: (i)establishment and strengthening of participatory irrigation management institutions at various levels; (ii) development of effective inter- agency management arrangements; (iii) development of a funding mechanism for management of the Jatiluhur irrigation system; (b) Rehabilitation and improvement of irrigation and drainage infrastructure in the Jatiluhur irrigation system, including: (i) removal of bottlenecks in East and North Tarum Canals; and (ii) rehabilitation of secondary irrigation systems; and (c) Preparation for overall rehabilitation and modernization of the Jatiluhur irrigation system, including provision of technical assistance in relation to: (i) implementation of Part 3 (b) of the Project; and (ii) preparation of management, institutional, and technical design documents and tender documents for future modernization of East and North Tarum Canals and future rehabilitation of additional secondary irrigation systems. Component 4. Project Management and Implementation Support: Provision of advisory support to entities involved in Project implementation in relation to Project management, implementation, including administrative and financial management, disbursement, and procurement, and monitoring and evaluation, at: (a) central; (b) Participating Province; and (c) Participating Kabupaten levels. Safeguard policies triggered Environmental Assessment (OP/BP 4.01) Yes No Natural Habitats (OP/BP 4.04) Yes No Forests (OP/BP 4.36) Yes No Pest Management (OP 4.09) Yes No Physical Cultural Resources (OP/BP 4.11) Yes No Indigenous Peoples (OP/BP 4.10) Yes No Involuntary Resettlement (OP/BP 4.12) Yes No Safety of Dams (OP/BP 4.37) Yes No Projects on International Waters (OP/BP 7.50) Yes No Projects in Disputed Areas (OP/BP 7.60) Yes No Summary of Main Legal Covenants Loan Agreement Description of Condition/Covenant Date Due Reference Article 5.01 The Borrower shall adopt a Project Management Manual, in Entire project form and substance satisfactory to the Bank, setting out period implementation, organizational, administrative, monitoring and evaluation, financial management, disbursement, and procurement arrangements for purposes of project implementation, and including the Governance and Anti- Corruption Plan. Schedule 2. The Borrower shall maintain throughout project Entire project Section I. A. implementation, the National Steering Committee for Water period Resources, National Project Management Unit, National Project Implementation Units, Basin Project Implementation Units, Jatiluhur Project Implementation Unit, Provincial Project Management Units, Provincial Project Implementation Units, Kabupaten Project Management Units and Kabupaten Project Implementation Units, with an adequate composition, institutional framework, functions and resources. Schedule 2. The Borrower shall issue a circular, in form and substance No later than Section I. D. (a) satisfactory to the Bank, setting forth the procedures to be three (3) months applied by the Participating Province or Kabupaten for the after the Effective flow of funds, the role of the various parties, and the Date sanctions to be applied in the event of the use of funds for expenditures other than those required for the carrying out of the Project. Schedule 2. The Borrower shall enter into, and thereafter maintain in Prior to Section I. D. (b) effect throughout Project implementation, an on-granting implementation agreement with the Participating Province or Kabupaten on of Parts 1 (a) (ii) terms and conditions approved by the Bank, specified in the and (b) (ii), 2, and Project Management Manual, and including the obligation 4 (b) and (c) of of the Participating Province or Kabupaten to: (i) provide, the Project promptly as needed, its contribution in respect of expenditures for Parts 1 (a) (ii) and (b) (ii), 2, and 4 (b) and (c) of the Project in accordance with the PMM; and (ii) monitor and evaluate the progress of the Project on the basis of the performance indicators. Schedule 2. The Borrower shall ensure that the Project is carried out in Recurrent in Section I. G accordance with the provisions of the Environmental and entire project Social Safeguards Framework, the Environmental period Management Plan, any additional environmental management plans, Integrated Pest Management Plan, Land Acquisition and Resettlement Policy Framework and Action Plans, and Indigenous Peoples Policy Framework and Plans. The Borrower shall take all measures necessary on its part to regularly collect, compile, and submit to the Bank, as part of Project Reports, information on the status of implementation of the dam safety measures agreed in relation to the Jatiluhur dam under the Dam Operational Improvement and Safety Project. Schedule 2. The Borrower shall monitor and evaluate the progress of the Not later than Section II. A.1 Project and prepare semi-annual Project Reports on the forty-five (45) basis of the agreed indicators. days after the end of the period covered by such report Schedule 2. The Borrower shall prepare and furnish to the Bank, interim Not later than Section II. D. 2 unaudited financial reports for the Project covering the forty-five (45) quarter, in form and substance satisfactory to the Bank. days after the end of each calendar quarter Schedule 2. The Borrower shall have its Financial Statements audited by Not later than Section II. D.3 independent auditors acceptable to the Bank in accordance six (6) months with terms of reference satisfactory to the Bank. Each audit after the end of of such financial statements shall cover the period of one (1) such period fiscal year of the Borrower. The audited Financial Statements for each such period shall be furnished to the Bank. I. Strategic Context A. Country Context 1. Indonesia has made remarkable progress over the last decade in terms of macroeconomic and political stability. Macroeconomic performance since the late 1990s has seen consistent output growth and rapid decline in external imbalances. With inflation under control and rising incomes, Indonesians have been enjoying improving living standards and poverty levels have fallen, although many remain close to the poverty line. Indonesia was less affected by the global economic downturn of 2008-09 than most economies, and by late 2009 the economy had recovered to grow faster than pre-crisis averages. The outlook is that Indonesia's economic momentum will continue to build, with growth rising above 6 percent in 2011 and with scope for growth to average 7 percent by mid-decade, despite the weaker global economic outlook. 2. Water resources management and irrigation play a very important role in Indonesia's socio-economic development in terms of food security (bulk of the grain crops is from irrigated areas) and water security particularly because of the country's high exposure to climate change impacts. Though Indonesia is in general a water rich country, spatial and seasonal variation of water availability poses high risks for water security for domestic, municipal, industrial and agricultural uses. Population growth, urbanization, economic development, and the impacts of climate change place increasingly high pressure on land and water resources and increase the vulnerability of the nation to water related risks such as floods. As a result, many catchments are degrading rapidly with severe soil erosion and sedimentation of storage reservoirs, increased floods, landslides and reduced availability of water in dry seasons. Urbanization and economic development is leading to rising water pollution and farmland conversion endangering food security. Furthermore, increasing seasonal water shortage over wide areas worsens use competition for water and groundwater overexploitation in different provinces, especially in urban areas, and threatens water security for socio-economic development. B. Sectoral and Institutional Context 3. Over the past decades, Indonesia's water resources and irrigation sector has gone through a transformation from a centralized development and investment system to a decentralized system of service delivery in which more efficient use of resources and service quality are emphasized. Development of water resources and irrigation between the 1970s and mid 1990s focused on achieving self sufficiency in rice after a period of serious food shortages. During five consecutive five-year plan periods starting 1969, some 2.5 million hectares of irrigation schemes were rehabilitated and 1.7 million hectares of new areas were developed. River basin management was mainly seen as a requirement for securing irrigation supplies and flood protection. This effort was supported by massive expansion and farm input programs leading to self sufficiency in rice in 1984. However, the government could not maintain this self- sufficiency. One of the reasons was the lack of attention to and underfunding for O&M of the newly rehabilitated and developed irrigation systems. The rapid deterioration of the physical systems led to frequent and premature rehabilitation to address the deferred maintenance of infrastructure. 1 4. Within this context, the key development issues in the water resources and irrigation sector,i as detailed in the Project appraisal document of the Water Resources and Irrigation Sector Management Program Phase I) (WISMP1, World Bank, May 23, 2003) are: (i) strong need for strengthening sector governance and management institutions to meet the changing paradigm of water resources and irrigation management; (ii) requirement for improving fiscal sustainability of the sector; (iii) high demand for upgrading of water resources and irrigation infrastructure; and (iv) substantial room for increasing agricultural water productivity. The government started to tackle these inter-related issues beginning in the late 1990s with the assistance of development partners, including the Bank. While such issues require sustained interventions over a long period, they have evolved over the years with significant improvement in many aspects, particularly through the Bank-supported Water Resources Sector Adjustment Loan (WATSAL, 1999-2004), the Indonesia Water Resources and Irrigation Reform Implementation Program (IWIRIP, 2001- 2004) and the WISMP Program (See sections below and Annex 2). These programs still remain highly relevant today. 5. Government Strategy. The government strategy for the sector is to adopt a basin-based integrated water resources management approach, and to improve sector governance for accountability and effective service delivery of bulk water supply, irrigation, flood management and other services in different basins. This is to be accomplished through the establishment and strengthening of multi-stakeholder institutions and platforms for planning and decision making, inter-agency coordination and role-sharing mechanisms, as well as related technical and management capacity building interventions. The government proposes to address the long-term fiscal sustainability of systems through the introduction of asset management practices and needs-based O&M arrangements with increasing contributions from local governments and from different users. On the irrigation front, the key strategy is to promote participatory management which centers around modernizing infrastructure and management institutions, empowering farmer user communities through the establishment of WUAs and WUAFs, and linking them to irrigation and agricultural services through the multi-stakeholder irrigation committees at the district levels, for better governance and accountability for service delivery. This participatory management approach also serves to address the issue of cost recovery for irrigation schemes through joint management and a sharing of O&M responsibilities, and that of system performance in connection with agricultural water productivity increases which enable higher levels of food security and farm income. 6. The Government of Indonesia envisions, by 2025, that integrated water resources management would be rooted and practiced in the country to ensure sustainable use of its water resources for different productive uses and the wellbeing of the people of Indonesia. All basins need to have long term strategic plans and sustainability-focused water resources master plans which outline key actions for conservation of water resources in terms of quantity and quality, for use of water resources to deliver high quality water services, for managing and reducing risks associated with water, and for increasing the capacity of water management institutions to implement these plans under a multi-stakeholder governance umbrella. At the time, national food self-sufficiency will be maintained through two channels. One is to substantially increase agricultural water productivity of existing irrigation systems through the modernization of physical systems and management institutions integrated with necessary agricultural production chain investments, leading to much more reliable water supply, much higher use efficiency and farm incomes. In parallel, efforts will be stepped up to enforce control over land conversion, and 2 to develop new irrigation areas, especially off-Java. The WISMP Program was formulated to support the government in implementing its strategy through an adaptable approach in existing irrigation schemes. 7. WISMP-APL Context. The Water Resources and Irrigation Sector Management Program (WISMP APL) was launched in 2003 as a three-phase adaptable program loan, to continue the strategic support for reform of Indonesia's water resources and irrigation sector initiated through the WATSAL. The Program objectives are: (a) sustainable and equitable management of surface water resources and their utilization infrastructure by (i) transparent sector governance institutions and, (ii) more accountable and better performing sector agencies; (b) increased irrigation farm household incomes and improved regional food security as a result of raising the overall productivity of irrigated agriculture, and reducing its vulnerability to natural and economic shocks through (i) sustainable participatory irrigation management for more reliable and equitable water provision, and (ii) better agricultural and marketing support services for members of irrigation water user associations; and (c) more cost-effective and fiscally sustainable management of sector agencies. 8. The first phase of WISMP APL (WISMP 1) closed in December 2010. The main achievements of WISMP 1 in relation to the Project's objectives are: (i) Part A ­ Basin Water Resources Management (BWRM): Under the new Law on Water Resources (Law 7/2004) and its downstream government and ministerial regulations, which form a new institutional framework of the sector for decentralization, stakeholder participation, transparency and accountability, a large number of provincial and national river basin organizations have been established and their capacity strengthened through WISMP1. With the issuance of a Presidential Regulation in March 2009, the National Water Resources Council was officially established. The Council Secretariat, hosted by the Ministry of Public Works, has been active since mid-2008. Also following this regulation, several provinces and river basins established multi-stakeholder Provincial Water Resources Councils and Basin Water Resources Councils (also referred to as Basin Coordination Committees). (ii) Part B ­ Participatory Irrigation Management (PIM): Government regulation 20/2006 on irrigation and its related Ministerial Regulations laid out the PIM policy and principles and provided the legal basis for empowering farmers through their WUAs/WUAFs in all management processes from planning, design, and construction to operation and maintenance. With most of the facilitating national-government regulations now issued and most of the institutions in place, local governments are starting to operationalize them. To date, over 1,000 Water User Association Federations (WUAFs), covering some 800,000 hectares of irrigation command areas, have been legally established and strengthened. In most of the participating districts and provinces, Irrigation Committees have been established with WUAF representation. Provincial and district-level implementing regulations on irrigation management have been issued, reflecting the provisions of new government and ministerial regulations. 9. Preliminary qualitative results of independent surveys by the technical assistance consultants, the independent monitoring & evaluation unit (IMEU) and the Padjadjaran University show that with the partnerships established between irrigation services and WUAFs, and the linking of irrigation management programs with agricultural improvement programs, the 3 harvested area and crop yields have increased. Conflicts among water users appear to have been reduced, and through better management, additional income is generated through a higher level of involvement of the WUAFs in the maintenance and rehabilitation works of the irrigation agencies. Nevertheless, for the majority of schemes, the participatory process has just started and needs consolidation support in line with the new local regulations. This development progresses at a slow pace as it needs to adjust to the rate at which the regional and local government agencies and civil society-based organizations can develop the requisite local consensus, and adapt to the new paradigm. Moreover, the newly formulated tasks, responsibilities and associated activities need to be consolidated and firmly embedded in routine government and user communities' systems of operations. 10. Triggers for initiating WISMP2. Four triggers were provided in the program appraisal document (PAD) of WISMP for initiating WISMP APL2. These include: (a) four fully functional provincial river basin management units (Balai PSDA); (b) fifty WUAFs legally established and functional with respect to governance, maintenance and rehabilitation of schemes, financial sustainability, and using extension services and credit; (c) operational guidelines agreed on river basin management including environmental and social safeguards; and (d) fifty percent of external funding disbursed. As of November 2010, the summary status of these triggers are as follows: (a) at least eight provincial river basin management units are fully functioning; (b) 1,175 WUAFs are legally established and some 170 WUAFs are fully functional; (c) operational guidelines on river basin management have been issued; and (d) over 90% of the external funding has been disbursed. A detailed account of the status of triggers is provided in Annex 9. All the triggers have been fully met and in several cases exceeded, confirming that the WISMP APL program is ready for the next phase. 11. Rationale for Continued Bank Support. The Bank has unique sector experience, particularly since 1999, including Bank-financed operations such as WATSAL and WISMP, as well as other projects piloting the reforms, e.g., West Nusa Tenggara Province (NTB) funded by the Government of Netherlands and European Union Trust Funds administered by the Bank1. The WISMP Program was designed to address the critical sector issues of governance and institutional capacity, and remains fully in line with the national decentralization policy. While some aspects of the Program have changed since WISMP 1 was approved in 2003 prior to the issue of UU 7/2004, such as rearrangement of basin water resources management authority and mandates, the key elements of an integrated and participatory management approach and interventions for improving planning and management capacity and fiscal sustainability at the river basin level and below, are still highly relevant and in line with the WATSAL Letter of Sector Policy upon which WISMP is based. The Bank is well positioned to support the sector reform efforts under the WATSAL-initiated enabling framework now enshrined in national legislation and regulations. C. Higher Level Objectives to Which the Project Contributes 12. The higher level government objectives are presented in GOI's Medium Term Development Plan 2009-2014. Through improved agricultural productivity and water security, 1 "Indonesia Water Resources and Irrigation Reform Implementation Program" (IWIRIP) (GoN TFs 27755 & 27756) (2001- 2004) and "NTB Water Resources Management Project (NTB-WRMP) (EU TF No. 055997) (2005-2010). 4 the project contributes to economic growth, poverty reduction and food security. Food security is still a concern of GOI, and the irrigation systems included under the program are the backbone of Indonesia's staple food supply. Most of the country's poor are still in rural areas, and will benefit more than others from the project. The principal policy interest relates to the decentralization of public services, improvement of water resources and irrigation management governance, and infrastructure development and management efficiency, all of which are leading themes of the 2009-2012 Country Partnership Strategy for Indonesia, "Investing in Indonesian Institutions for Inclusive and Sustainable Development". II. Project Development Objectives A. Project Development Objectives (PDO) 13. The Project Development Objective of WISMP 2 is to assist the Borrower to improve its capacity for basin water resource and irrigation management and increase irrigated agriculture productivity in the Project area. 14. As a result of a WISMP 1 implementation review, it was decided in consultation with the GOI that APL2 and APL 3 would be combined into one final phase - WISMP 2. This is in consideration of the long delays incurred in WISMP 1 implementation caused by late issuance of the enabling law and regulations. The WISMP program would therefore end with closure of WISMP 2. WISMP2 serves to complete the key institutional development interventions of the Program with some modifications to the scope, while infrastructure improvement will be the focus of possible follow-up sector programs. B. Project Beneficiaries 15. The main beneficiaries of the project are over 500,000 farmer households which directly benefit from more reliable and efficient irrigation water supply and increased agricultural productivity through improved irrigation water management and agricultural interventions in 390,000 ha of irrigated area in 101 districts. The numbers of men and women are virtually the same. In addition, some 600,000 farmer household beneficiaries of WISMP 1 will continue to benefit from the WISMP 2 activities. Another group of beneficiaries include the national, provincial and district water resources and irrigation management agencies, and agricultural support services in the project areas. They benefit directly through institutional development and capacity building activities and improved infrastructure for water resources and irrigation service delivery. Further, non-agricultural water user groups in the project basins and districts will indirectly benefit from the project in terms of increased water security through improvement in water resources and irrigation governance and management capacity, as well as improvement of river infrastructure in 18 river basins. C. PDO Level Results Indicators 16. Achievement of project development objectives would be evaluated through the following key performance indicators: (a) number of national and provincial basin management agencies fully functional; (b) number of Irrigation Commissions fully functional; and (c) increase in irrigated areas with over 15% increase in agricultural production. There will be many sub- 5 indicators based on which to obtain these indicators (details are in the PMM). In addition, there are a number of intermediate outcome indicators related to different components. III. Project Description A. Project Components 17. The Project covers a total 18 river basins, 14 provinces and 101 districts. The basins, provinces and districts largely overlap with the WISMP1 and the EU funded and Bank administered sister program NTB Water Resources Management Project. They were selected based on an evaluation of their performance under those projects through an extensive consultation process with participating national, provincial and district agencies. The Project consists of the following four components (details in Annex 2). Component 1. Basin water resources management improvement (US$41.32 million): (a) Improvement of operational effectiveness of basin management institutions and community- based catchment management at: (i) central level in selected national and provincial river basins; and (ii) Province level in selected provincial river basins in Participating Provinces; and (b) Improvement of physical system performance of river basins at: (i) central level in selected national river basins; and (ii) Province level in selected provincial river basins in Participating Provinces. Component 2. Participatory irrigation management improvement (US$81.83 million): (a) Improvement of participatory irrigation management institutions in: (i) Participating Provinces; and (ii) Participating Kabupaten, including establishment and enhancement of local participatory irrigation management regulatory frameworks and capacity building of local institutions such as government irrigation and agriculture agencies, Irrigation Commissions, and Water Users Associations Federations; (b) Light and moderate rehabilitation and repair of: (i) Participating Province; and (ii) Participating Kabupaten irrigation system infrastructure; (c) Provision of support to irrigated agriculture, and carrying out of climate change adaptation measures, including support to farmers in relation to: (i) adoption of new technology and development of agribusiness management skills in: (A) Participating Provinces; and (B) Participating Kabupaten; and (ii) establishment of public-private partnerships for farming and marketing through the implementation of Community Subprojects in: (A) Participating Provinces; and (B) Participating Kabupaten; and (d) provision of technical assistance in relation to implementation of Parts 2 (a), (b), and (c) of the Project. Component 3. Jatiluhur Irrigation Management Improvement (US$ 62.73million): (a) Improvement of Jatiluhur irrigation system management institutions, including: (i)establishment and strengthening of participatory irrigation management institutions at various levels; (ii) development of effective inter-agency management arrangements; (iii) development of a funding mechanism for management of the Jatiluhur irrigation system; (b) Rehabilitation and improvement of irrigation and drainage infrastructure in the Jatiluhur irrigation system, including: (i) removal of bottlenecks in East and North Tarum Canals; and (ii) rehabilitation of secondary irrigation systems; and (c) Preparation for overall rehabilitation and modernization of the Jatiluhur irrigation system, including provision of technical assistance in relation to: (i) implementation of Part 3 (b) of the Project; and (ii) preparation of management, institutional, and 6 technical design documents and tender documents for future modernization of East and North Tarum Canals and future rehabilitation of additional secondary irrigation systems. Component 4. Project Management and Implementation Support (US$16.68 million): Provision of advisory support to entities involved in Project implementation in relation to Project management, implementation, including administrative and financial management, disbursement, and procurement, and monitoring and evaluation, at: (a) central; (b) Participating Province; and (c) Participating Kabupaten levels. B. Project Financing Lending Instrument 18. This is the second and final phase of the WISMP APL (APL 2). It follows WISMP 1 (APL 1) which was completed in 2010. The lending terms call for a Variable Spread Loan (VSL) in US Dollars with a 24.5 year repayment and a 9 year grace period. Project Cost and Financing 19. The total project cost is US$202.56 million, and total financing required (including Bank front-end fee and interest during construction) is US$206.75 million, of which the Bank will finance US$150 million or 73% while the central and local governments will finance the remaining US$56.75 million or 27% of the total cost. The central government will provide the required counterpart funds through co-financing arrangement from central source of funds, while the local governments will provide parallel financing from their local sources of funds. The table below shows the project costs and IBRD financing by component. Project Cost and Financing Summary by Component ( in US$ Million) % of Project IBRD IBRD Component Cost Financing Financing A. Improvement of Basin Water Resources Management 37.56 26.30 70 B. Improvement of Participatory Irrigation Management 74.39 56.33 75 C. Jatiluhur Irrigation Management Improvement 57.03 42.62 75 D. Project Management and Implementation Support 15.16 11.21 75 Total Base Project Costs 184.15 136.46 74 Physical Contingencies 0 0 Price Contingencies 18.41 13.54 74 Total Project Costs 202.56 150.00 74 Front-end fees 0.38 - - Interest During Construction 3.81 - - Total Financing Required 206.75 150.00 73% 7 Lessons Learned and Reflected in the Project Design 20. The lesson learned from Bank supported analytical work and investments in Indonesia and elsewhere as highlighted in the IEG studies on water resources and participatory irrigation management, as well as the Asian Development Bank (ADB) and Japanese International Cooperation Agency (JICA) supported participatory irrigation management operations in Indonesia, were analyzed and incorporated in the design of WISMP2. Particular attention was given to the experiences of WISMP 1. The key issues identified and reflected in WIMSP 2 design are: (a) A participatory approach in basin water resources and irrigation management not only helps improve decision-making effectiveness, but also enhances ownership of the solutions by different stakeholders. More emphasis is given in WIMSP 2 to the development and strengthening of the basin and irrigation management stakeholder platforms. (b) The integration of irrigation sector reform interventions and agricultural production activities of interest to communities creates incentives for active participation of beneficiaries and enhances project sustainability. (c) The division of authority, responsibilities and tasks between national, provincial and district agencies for both river basin water resources management (BWRM) and irrigation management in the systems under central government authority appeared insufficiently regulated. Many of the issues on distribution of tasks and responsibilities are presently being addressed by MOUs. A more structured approach is incorporated in WISMP 2 through new or modified ministerial (for Jatiluhur irrigation system) and Director-General level (for BWRM) regulations. (d) Human resources in both central and local government agencies are scarce in terms of quantity and quality. Serious efforts are required to design and implement a human resource development strategy. The possibility of outsourcing of certain activities in both basin and irrigation management may be considered to meet the immediate capacity needs and reduce the medium to long term burden on government agencies. Providing WUAFs with more management tasks and responsibilities is one part of the outsourcing and has been given more emphasis in WISMP 2. (e) Local governments have a high staff rotation rate resulting in a continuous need to train new people and transfer knowledge in WISMP processes. To address such issues, WIMSP2 will continue the practice of preparing institutional and program profiles for each project district and province as part of its knowledge base development. (f) Lack of implementation readiness and delays in procurement due to weak procurement, financial management and monitoring & evaluation capacity of government teams are often significant contributors to slow project progress. Additional efforts have been made to enhance the project teams' procurement, financial management, and monitoring & evaluation capacity, and to ensure project readiness. (g) In the course of WISMP implementation, budget (DIPA) release had always been late leading to delays in implementation and only partial disbursement. Adopting advance procurement and flexible contracting arrangements, where appropriate, will help a great deal in completing much of the works planned. 8 IV. Implementation A. Institutional and Implementation Arrangements 21. Overall Implementation Arrangements. The implementation arrangements for WISMP 2 resemble those of WISMP1. The main line ministry agencies to be involved in the project are: MoPW-DGWR; MoA­DG Agricultural Infrastructure and Facilities (DGAIF); and MoHA-DG Regional Development (DGRD). MoPW is the anchor ministry and the National Development Planning Board (Bappenas) will be the cross-sector coordination agency. Project management units (PMUs) and implementation units (PIUs) have been established at national, provincial and district levels. These units are, and will remain, part of the (local) government structure. 22. The NPMU is located in DGWR in the Directorate of Planning and Programming and works under the supervision of the National Steering Committee for Water Resources (NSCWR). Four national level NPIUs will be established at the MoPW-DGWR (for Basin Water Resources Management and Irrigation), MoA­DG AIF, and MoHA-DGRD respectively. A special PIU will be established for the Jatiluhur Component in BBWS Citarum, under the NPIU Irrigation, DGWR. A Basin PIU will be established for each concerned National River Basin Organization under the WRM NPIU, DGWR. 23. At the provincial and district levels, PIUs will be established for all participating provinces and districts at the respective development planning board (Bappeda), water resources department (Dinas SDA) and agriculture department (Dinas Pertanian). Coordination will be the responsibility of PMUs established at the local Bappedas. 24. The project management and implementation units will be assisted by a number of technical assistance consultant teams. Detailed implementation arrangements are described in Annex 3. 25. Community Participation: Civil society organizations will be engaged in project investment identification and selection, as well as social mobilization and capacity building of irrigation water user community organizations (WUAs and WUAFs). WUAs and WUAFs will be actively involved in participatory planning, design and construction of lower canal system improvement. WUAFs will take responsibility for managing completed lower canal systems. Communities will also be involved in the construction of small river infrastructure improvement works. B. Results Monitoring and Evaluation 26. Building on the experience of WISMP1, the results monitoring framework has been simplified and the number of indicators has been reduced. Project input, process, output and outcome indicators will be tracked and reported through a web-based project management information system (PMIS) managed by the NPMU. Outcome and impact monitoring will be carried out by the impact monitoring and evaluation unit (IMEU) under the National Steering Committee Secretariat. Incremental costs of the project M&E arrangements, including M&E TA, will be financed from loan proceeds. 9 27. NPMU will prepare and submit to the Bank, semi-annual progress reports with inputs from the project implementing units at different levels through the PMIS. IMEU will produce independent evaluation reports on project results. C. Sustainability 28. To ensure technical sustainability, the project will engage international and national technical assistance consultants to guide the implementing units and ensure that technical designs of project facilities are in line with modern practices and the works will be of good quality. Participatory planning, design and construction, involving the key stakeholders (WUAFs, in the case of irrigation system rehabilitation) will further improve the quality and sustainability of works. 29. From the institutional perspective, the project has a strong institutional development and capacity-building element to equip basin and irrigation management staff with the skills and knowledge needed for implementing and managing the project basins, irrigation systems and different facilities. The participatory approach of the project design and implementation arrangements help build a strong sense of ownership, and create a favorable environment for the sustainable use of project facilities. Establishment of irrigation committees will enable better accountability for system performance and timely technical and extension services to farm communities. The empowerment and capacity building of WUAFs in irrigation management, and the new coordination and role-sharing mechanisms to be established for basin water resources management, will strengthen institutional sustainability. 30. From the financial perspective, the project would promote need-based asset management for both river infrastructure and irrigation systems. Management of lower canal systems by WUAFs and joint management of the main system will contribute significantly to better fiscal sustainability of the systems through improved O&M. Farm communities' direct and indirect contributions to canal system O&M will help greatly enhance the fiscal sustainability of the physical systems. V. Key Risks and Mitigation Measures 31. The main risks are related to fraud & corruption, procurement and financial management capacity, social safeguards management and fund flow. A summary of the project risks and mitigation measures are presented below while detailed information is presented in Annex 4. The overall project risk is rated as moderate. 10 Fraud and Corruption. Previous experience indicates that a project of this nature is vulnerable to fraud and corruption risk as bidders, contractors, consultants, suppliers or project personnel may engage in fraudulent and corrupt practices during tendering processes, contract implementation and financial transactions. A better governance action plan (see Annex 8) has been developed and included in the PMM. Good practices developed under WISMP 1 (e.g., participatory procurement, use of a project website for information disclosure, and independent monitoring and oversight of project results) will be continued. Construction supervision and quantity surveyors will be included in the TA consultancy for bigger contracts, and sample verification of third party payment documentation and risk-based audits will be undertaken. Procurement and Financial Management Capacity. Inadequate staff procurement capacity at provincial and district levels might lead to unacceptable procurement practices that affect project progress and results. Similarly, inadequate staff capacity to manage the financial aspects of project implementation, especially in a number of PIUs that have no prior experience with WISMP or similar programs, could potentially result in misuse of funds. To mitigate these risks, detailed procurement and financial management manuals have been developed to guide project staff, and hand-on training will be provided to PIU staff before and during implementation. Major procurement will be carried out by NPIUs, while province and district PIUs will carry out small value procurement for goods and works. A TA team with experienced procurement and financial management specialists will support project teams and assist the PMU to verify third party invoices prior to payment. Social Safeguards Management. Lack of due diligence in implementing applicable social and environmental policies for sub-project impact assessment and screening and mitigation planning and execution under different components may lead to less than satisfactory project results. The main mitigation measures include the development of an environmental and social safeguards framework (ESSF) for the entire project and an environmental assessment & management plan (EMP) for the first year work program, and practical training for PMU and PIU staff on Bank safeguards policies and application of the ESSF prior to the start of implementation. New Fund Flow Mechanism. The adoption of a new fund flow mechanism for local government activities increases the uncertainty for timely implementation of certain project interventions. Mitigation measures include: (a) clear rules and operational procedures detailed in the PMM; (b) starting the process for signing the on-granting agreement well before loan effectiveness; (c) preventing delay of project implementation, by mainly focusing on the APBN components in year 1, while APBD components start after signing of on-granting agreements; and (d) having the NPMU/NPIU closely monitor and evaluate the operation of the new fund flow mechanism and take timely corrective actions during implementation. VI. Appraisal Summary A. Economic and Financial Analysis 32. Economic Analysis. The major quantifiable benefits (on an incremental basis) of the project include: (a) increased agricultural productivity derived from the integrated project interventions in irrigation infrastructure improvement, and in water management and agronomic practices; and (b) losses avoided from improved flood management capacity, and benefits from 11 industrial and drinking water supply, brought about by investments in upgrading basin water resources management and multi-purpose river infrastructure. Substantial non-agricultural benefits which will directly accrue from the project are not accounted for in the analysis: (a) savings from appropriate and timely river and irrigation infrastructure maintenance; (b) flood damage reduction; and (c) efficiency gains from institutional development and capacity building. The project would generate an ERR of 22%, 21% and 23% for Components 1 to 3 respectively, while the ERR for the entire project is estimated at 19%. 33. Financial analysis. The project is financially attractive to farmers engaged in different types of improved irrigated agricultural practices. An income analysis using crop budgets and farm models under "with" and "without" project scenarios shows a substantial increase in farmers' income from improved crop production. This will provide incentives for farmers to participate in investments, and take responsibility for O&M of the on-farm irrigation system through WUAs/WUAFs. 34. Fiscal Impact. Counterpart funding of US$56.75 million will be provided by local and national governments. The Project will introduce participatory operation and maintenance (O&M) practices for target irrigation schemes. The funding for O&M for tertiary canal systems after rehabilitation will be fully covered by the WUAs and WUAFs, while the O&M costs for the improved secondary and main canals will be covered by the government as per current water sector policies. This indicates that the project will have some fiscal impacts. More details of the economic and financial analyses are provided in Annex 7. B. Technical 35. Technologies and approaches to be adopted for project interventions are well known to the implementing agencies concerned. Technical studies and designs based on modern design standards will be carried out as part of the sub-project (scheme) selection and design process. Agreed sub-project (scheme) selection criteria and process, covering technical, institutional, cost-effectiveness and safeguards aspects, have been defined in the PMM and will be enforced during implementation. Large civil works (which are not common under this project) will be undertaken by contractor firms working under construction supervision teams. For small scale irrigation works improvements, participatory design and construction will be carried out with technical assistance from implementing units to enhance ownership and build the capacities of WUAFs. Small scale river improvement works will be implemented through community participation. In the case of agricultural technology interventions, technical guidance will be provided to farmer communities by agriculture sector experts. 36. With regard to the Jatiluhur Irrigation System Improvement Component, feasibility studies were undertaken by international consultants. The studies demonstrated the need to improve both the physical and management systems, as well as institutional arrangements for system operation and maintenance. The proposed project will improve a number of high priority sub-systems where a participatory irrigation management approach will be piloted, and carry out limited priority rehabilitation along the East and North Canals to remove bottlenecks. The main system improvement will be further studied under WISMP2 for implementation at a later stage. 12 C. Financial Management 37. The project financial management arrangements follow the government system, especially budgeting, flow of funds, and auditing mechanism. The project uses the same fund flow mechanism as in WISMP 1, except for local government activities that will follow the on- granting mechanism to channel loan funds. For these activities, the central government will transfer funds to the local government's account prior to final payment to the third party. The adoption of this new fund flow mechanism will increase the risk of the project. The project has substantial risk arising from inadequate staff capacity to manage financial aspects of project implementation, especially in the local implementing agencies. This includes payment verification at the NPMU level, particularly for non-physical activities such as training, workshops and consultant services. 38. Financial management risks will be mitigated by providing financial management consultants to assist NPMU/PIU in financial management and in carrying out a financial management training program for project staff. NPMU has developed detailed operational procedures, and will monitor its performance closely and take appropriate corrective action. An action plan to enhance fiduciary oversight and minimize corruption risks has been developed as part of the PMM. D. Procurement 39. Procurement will be carried out in accordance with World Bank Procurement Guidelines and the provisions stipulated in the Loan Agreement. Procurement procedures and standard bidding documents to be used for each procurement method are included in the PMM. Works to be procured consist of irrigation canal improvement and small scale river infrastructure under components 1 to 3. Components 1 and 2 include small scale works contracts for rehabilitation work, whereas some major works will be financed in component 3. Contracts for goods include monitoring equipment for the hydrology program, equipment for operation and maintenance, and small-value office equipment for project implementation and management. Consultant services include technical assistance contracts for supporting the implementation of different components, and project management at the central level covering project administration, procurement, financial management and monitoring & evaluation. 40. The procurement capacity assessment of the project implementing units (PIUs) indicates that they have the basic capacity to carry out procurement activities under the proposed project. Project procurement arrangements take into account lessons learned from WISMP in monitoring and quality control of procurement transactions that are heavily decentralized to the provinces and districts. WISMP 2 will have an increased consultant input for procurement management, in addition to regular post-review visits for quality control and need-based training on Bank procurement. To avoid delays in recruiting the key consultants, the NPMU and the PIUs will carry out advance procurement by initiating short-listing processes and request for proposal (RFP) preparation for priority consultancies prior to loan negotiations. Continued support will be provided by the Bank team for hands-on procurement training and workshops before loan effectiveness. 13 E. Social (including Safeguards) 41. Most project impacts are expected to be positive in terms of social indicators, and no significant negative impacts are expected in terms of land acquisition. An environmental and social safeguards framework (ESSF), including environmental management guidelines, land acquisition and resettlement policy framework as well as indigenous peoples policy framework, has been developed through pubic consultation and disclosed publicly. The ESSF will guide project staff on safeguards screening, assessment and management. The social safeguards policies triggered include the Indigenous Peoples Policy and Involuntary Resettlement Policy. 42. Indigenous Peoples (OP/BP4.10). Some indigenous peoples live in several participating provinces. Since the proposed project will be carried out over several years and the exact activities and sites for year 2 and beyond are yet to be identified under Components 1 and 2, it is possibile that project activities could affect indigenous groups at subproject sites where Indigenous People (IP) are present. No adverse impacts on IP communities are anticipated. However, to ensure that IP share the social and economic benefits from the project, an Indigenous Peoples Policy Framework (IPPF), acceptable to the Bank, has been developed and is included in the ESSF. 43. Involuntary Resettlement (OP/B 4.12) No significant negative impacts are expected beyond very small scale land acquisition that may be required for the construction of works. The project adopts a programmatic approach, and a social safeguards assessment will be carried out as an integral part of the sub-project (scheme) screening and assessment process. Where land acquisition and/or resettlement is needed, a land acquisition and resettlement action plan (LARAP) will be developed and implemented per the policy framework in the PMM. The GOI project team has confirmed that neither land acquisition nor resettlement is involved in the first year work program. F. Environmental (including Safeguards) 44. Environmental safeguards policies triggered include Environmental Assessment, Pest Management and Dam Safety. The overall project document guiding environmental safeguards management is the PMM, which contains detailed procedures to ensure that potential environmental and social impacts of sub-projects or activities are adequately addressed and monitored in accordance with the requirements of GoI and Bank policies. The PMM also contains standard good design and construction practices for physical works under the project. 45. Environmental Assessment (OP/BP4.01). The Project is expected to have positive environmental impacts. The small-scale physical project investments in the river and irrigation works under Components 1 and 2 may have temporary localized adverse environmental impacts. These can be readily mitigated by good engineering design and construction practice by following agreed environmental management guidelines, reinforced by adequate field supervision. Small to medium scale activities under Component 3 that support rehabilitation of irrigation and drainage structures (including canal lining, desilting, and cross structure repairs), may have negative environmental impacts, e.g., increased erosion, temporary deterioration of water quality, scouring of canals, and other construction related impacts. No works will be undertaken that could affect protected or vulnerable ecosystems and forests. Given the project's programmatic approach, an environmental assessment and environmental management plan (EMP) has been prepared for the first year work program, and has been disclosed publicly. 14 46. Pest Management (OP 4.09). This policy is triggered because the improved irrigation management may result in an increased use of agricultural inputs. The project will not finance procurement or application of pesticides. Where pesticides are in use in the WISMP 2 project area, the Integrated Pest Management Plan (IPMP) developed as part of the PMM will be adopted. WUAFs will be trained to adopt good practices for pest management described in the IPMP. 47. Safety of Dams (OP/BP 4.37). This policy is triggered because the Jatiluhur irrigation system is partially fed by the Jatiluhur dam/reservoir. The Jatiluhur dam is part of an on going Bank financed Dam Operational Improvement and Safety Project (DOISP). The necessary actions required by Bank policy are included under DOISP. Progress of such activities will be monitored and included in the regular WISMP 2 project reports. 15 Annex 1. Results Framework and Key Monitoring Indicators WATER RESOURCES AND IRRIGATION SECTOR MANAGEMENT PROGRAM (PHASE II) Project Development Objective (PDO): The project development objectives are to assist the Borrower to improve its capacity for basin water resource and irrigation management and increase irrigated agriculture productivity in the Project area. Cumulative Target Values** Responsibility Description Unit of Baseline Frequenc Data Source/ Core PDO Level Results Indicators* for Data (indicator Measure (FY2011) YR 1 YR 2 YR3 YR 4 YR5 y Methodology definition etc.) (FY2012) (FY2013) (FY2014) (FY2015) (FY2016) Collection Indicator 1. No. 0 0 1 6 9 12 Semi- PMIS PPIUs & NPIU Cumulative annually for Component PO-1 No. of national and 1 provincial basin agencies fully functional* Indicator 2: No. 0 5 10 20 45 45 Semi- PMIS NPIUs and Cumulative annually IMEU PO-2 No. of Irrigation Commissions fully functional** Indicator 3: Ha. 0 20,000 120,000 280,000 340,000 390,000 Annually Field NPIU(MOA) Cumulative sampling on and IMEU PO-3 Increase in irrigated areas representative with over 15% increase in plots agricultural production INTERMEDIATE RESULTS Intermediate Result (Component One): To increase institutional capacity for basin water resource management and improve river infrastructure sustainability. Intermediate Result indicator No. 0 1 3 6 9 12 Semi- PMIS NPIU for Cumulative One: annually Component 1 IO-1.1. No. of basin water allocation plans operational Intermediate Result indicator No 0 0 3 6 9 12 Semi- PMIS NPIU for Cumulative Two: annually Component 1 IO-1.2a. No. of river infrastructure O&M plans formulated and implemented Intermediate Result indicator % 0 11 50 78 100 100 Semi- PMIS NPIU for Cumulative Three: annually Component 1 IO-1.2b. Percentage of river 16 infrastructure established under the Project functional Intermediate Result (Component Two): To develop/strengthen participatory irrigation institution and improve system performance. Intermediate Result indicator No. 1,175 1,275 1,375 1,445 2,000 2,030 Semi- PMIS NPIUs for Cumulative One: annually component 2 IO-2.1. No. of WUAFs duly &KPIUs constituted Intermediate Result indicator Ha. 0 50,000 121,000 207,600 301,500 360,000 Semi- PMIS NPIUs for Cumulative Two: Annually component 2 IO-2.2. Command area with &KPIUs improved irrigation infrastructure and services Intermediate Result (Component Three): To improve Jatiluhur irrigation physical system and management/governance. Intermediate Result indicator Descrip- Decree DGWR- Detailed Mechanis Semi- PMIS NPMU/DGWR One: tive issued PJT2- instituti m annually IO-3.1. Establishment of Province- onal Function- effective institutional District arrange al with mechanism for Jatiluhur system management role ments staffing sharing establis and agreement hed funding signed for O&M in place Intermediate Result indicator Ha. 0 3,000 9,400 16,100 22,800 30,000 Semi- PMIS BBWS Citarum Cumulative Two: Annually IO-3.2. Command area with improved irrigation infrastructure and services Intermediate Result (Component Four): To ensure timely project inputs and implementation support. Semi- PMIS and NPMU& IO-4 Establishment of web- Descriptive Not Functional Functional Functional Functional Functional annually special IMEU based Project management functional monitoring information system in project management and implementation units Notes: The PMM includes detailed criteria and sub-indicators for assessing the functionality of basin agencies and irrigation commissions. 17 Annex 2: Detailed Project Description WATER RESOURCES AND IRRIGATION SECTOR MANAGEMENT PROGRAM (PHASE II) 1. Sector Background. The main development issues and their evolution over the years with additional background information on the water resources and irrigation sector are summarized below. 2. Strong Need for Strengthening Sector Governance and Management Institutions. The new Water Law 7/2004 provides the framework for water resources management based on river basins (territories). Water resources in the provincial basins are managed by the Provincial Water Resources Services while that of cross-province basins and strategically important basins are managed by National River Basin Organizations (RBOs) under the authority of the Ministry of Public Works. The River Basin Organizations are given the responsibility for basin planning, development and management, and river infrastructure development and O&M. In national basins the water resources management function is to be carried out jointly with the Provincial River Basin Organizations. However, the role sharing between provincial and central government RBOs and associated financing mechanisms for this new institutional setup are yet to be formally established. To enable participation, transparency and accountability, multi- stakeholder governance platforms need to be established at national (National Water Council), provincial (Provincial Water Council) and basin (Basin Water Council) levels. 3. For irrigation systems, management responsibilities for a total of 7.4 million hectare of command areas have been divided among districts (3.2 million ha of schemes <1000ha), provinces (1.4 million ha of schemes between 1000 and 3000 ha and cross district boundary) and central government (2.7 million hectare of schemes larger than 3000 ha and cross province boundary). Main (primary and secondary) system management is to be implemented through partnership between the responsible irrigation services (National, Provincial or District) and the Water User Association Federations (WUAF) to improve the effectiveness of management and overcome the overall budget and staffing limitations of government agencies. Tertiary system management is the sole responsibility of the Water User Association (WUA). Participation, transparency and accountability in irrigation management culminate in the Irrigation Commissions composed of an equal number of representatives from government agencies and WUAFs. They have the task to prepare annual and multi-year plans for irrigation management and system improvement which include receiving, evaluating, verifying and prioritizing proposals for funding from the various government sources and WUAF contributions. Figure 1 shows the governance framework for participatory irrigation management. 4. With support from WISMP, many new governance and management institutions mentioned above have been established. These new institutions, such as provincial and river basin councils, require further strengthening and consolidation to function effectively as true representatives of their interest groups, and integrate into routine government operations. Furthermore, some second generation issues emerged during WISMP1 implementation which require close attention, e.g., there is a need to strengthen legal backing with more clarity for role- sharing in basin water resources, catchment and irrigation management among various 18 responsible management agencies at national, provincial and district levels, to enable them to fulfill their mandates. Figure 1. Governance Framework for Participatory Irrigation Management Head of Local Parliament District/Province Priorities for Budget APBD funding Irrigation Commission Proposals + Proposals Verification Participatory WUAF WUAF O&M, Design, Irrigation Service Construction Irrigated Agricultural WUAF WUAF Agriculture Improvement Service 5. Requirement for Further Improving Fiscal Sustainability of the Sector. Inadequate O&M financing has always been a major constraint to proper maintenance of river and irrigation infrastructure in the country. Since the new Water Law only permits water charges for commercial water services, and does not allow for water charges for smallholder irrigation, the sustainability of water infrastructure is dependent on timely allocation of sufficient O&M funds from central, provincial and district government budgets. Figure 2 illustrates the flow and the sources of funding for rehabilitation, new development and O&M across different tiers of government. 6. At the central level, irrigation spending is a joint mandate of MoPW and MoA. The DG Water Resources (DGWR) at MoPW is largely responsible for capital investment and O&M for national river territories and irrigation systems, while the DG Agriculture Facilities & Infrastructure (DGFAI) in e MoA is concerned with support for on-farm and tertiary irrigation development and conversion into irrigated land. 7. Each level of government is responsible for the O&M of the network under its authority. At the central level, DGWR at MPW funds O&M of its systems through the national budget (APBN) and utilizes the "Tugas Pembantuan or TP" transfers to the provincial irrigation services for O&M implementation that often use District agencies for implementation. At the provincial level, the Dinas Water Resources/Irrigation funds O&M of its systems through the provincial budget (APBD-P) originating from their own revenues (PAD) and the general purpose transfers (DAU). At the district level, the irrigation O&M budget comes from the district budget (APBD). The system O&M in all public irrigation systems is expected to be jointly executed with the WUAs/WUAFs under the current irrigation regulation. Such participatory management practice helps reduce the burden of O&M funding. 19 Figure 2. Flow of funds for river basin and irrigation system management Rehabilitation/improvement Operation & & New development Maintenance Nat. basins Nat. basins and Irrigation APBN DGWR and irrigation APBN DGWR systems through TP (for irrigation) systems APBDP DAU, PAD Prov. basins Prov. Basins and irrigation APBDP and Irrigation systems Systems WUAF for DAK DAU, PAD Irrig. only Irrig. District District Irrigation Irrigation DAU, PAD APBD APBD Systems System DAK DAU, PAD WUAF Irrig. contributions 8. Rehabilitation and new development for national basin infrastructure and irrigation systems are funded and executed through the APBN budget of MPW. Provinces and districts are allowed to invest in rehabilitation of schemes under their responsibility. Rehabilitation for provincial and district systems is primarily financed from the provincial or district budget and for a major part through transfers to the regions (Special Purpose Transfers, or DAK). The DAK and TP budget systems have already been established for irrigation systems; similar arrangements have yet to be developed for river infrastructure. 9. Government spending on irrigation has been quite unstable in the last decade (see Figure 3 from Bank's APER 2010). Central government spending on irrigation decreased in real terms in 2007 (the first year of DAK Irrigation transfers to the regions) and by 2009 it was still below the 2006 level. At the sub-national level, districts and provinces have significantly increased spending, providing more resources to support water systems after decentralization. During 2006-08, the share of the agriculture budget that sub-national governments (both provinces and districts) allocated for water systems grew from 29 to 38 percent. Despite this welcome trend, continued awareness raising and establishment of incentive mechanisms are still required to further improve local budget allocations. Furthermore, the effectiveness of these financing mechanisms needs to be significantly improved. To this end, involvement of stakeholders in the planning and implementation process through the Irrigation Commissions has shown promising results in more efficient use of local financial resources. 20 Figure 3. Evolution of Irrigation Budgets (2001-09) at Different Levels2 (Billion IDR, 2007 prices) 10,000 8,000 6,000 4,000 Billion Rupiah 2,000 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 District Province Central 10. A part of its endeavor to improve cost recovery and fiscal sustainability of river basin management systems, GOI has established two self-financing state River Basin Corporations (PJTI Brantas and PJT II Jatiluhur) under the Ministry of State Enterprises, to be responsible for river and bulk water supply infrastructure operation and maintenance, financed from sales of raw water, hydropower, water quality laboratory fees, and recreation fees, etc. However, all infrastructure development and rehabilitation investments are funded from the national budget through MoPW. 11. High Demand for Water Resources and Irrigation Infrastructure Upgrading. As explained earlier, the condition and adequacy of water resources and irrigation infrastructure have degraded considerably after decades of lack of investments and maintenance. At present, about 18 percent of the total irrigation system of 7.4 million hectares is in need of rehabilitation (RPJM 2010-14). At the same time, GOI maintains a policy of national food security, which implies self-sufficiency in rice. Because 95% of the annual rice production (BPS) in Indonesia is from irrigated land and there is an increasing concern over rapid paddy field loss due to conversion (some 50.000 ha per year) or switch to tree crops, water and irrigation infrastructure is becoming more and more critical. DGWR estimates that there is a need for developing 2 million ha of new irrigated paddy land outside Java between 2008 and 2025. 12. Substantial Room for Increasing Agricultural Water Productivity. Farmers are still at the lower end of the poverty scale and are most vulnerable to climate and market risks due to their smallholder nature (average farmland holding of 0.5 ha, and on Java less than 0.3 ha, per household). Farmers' adaptive capacity rises with their awareness of the risks and income level. 2 Note: Irrigation spending at central level is spending by irrigation sub-function. Province and district irrigation spending includes DAK. 21 Higher income in turn enables farmers to contribute more to irrigation system management. Therefore, investments in infrastructure and irrigation management institutional strengthening need to be accompanied by improvement of irrigated agriculture practices to raise agricultural productivity and strengthen the agricultural value chain and to adapt to climate change. Pilots have been successfully initiated under WISMP1 using the critical mass created by WUAFs for integration of water management, raising productivity and farmers income through intensification, diversification, value-addition activities and enhancing extension and credit services. The pilot initiatives on irrigated agriculture development need to be further advanced, scaled up and disseminated to other areas. 13. Project Components. The proposed project has four components as described below: Component 1. Basin Water Resources Management Improvement (US$ 41.32 Million) (a) Improvement of operational effectiveness of basin management institutions and community-based catchment management at: (i) central level in selected national and provincial river basins; and (ii) Province level in selected provincial river basins in Participating Provinces. The component will support the improvement of basin management institutions' operational effectiveness by strengthening the basin organizations, policy and coordination institutions, and improving basin planning and operational management in selected national and provincial basins, through two tracks: an advanced track with a full package and a moderate track with limited activities (See Appendix 1 to this Annex). The key activities include the following: Strengthening National and Provincial River Basin Organizations in their capacity for river basin hydrology management, basin water allocation management operations, water quality monitoring, river infrastructure asset management planning, flood management, provincial and basin water resources information management (database and MIS), water rights administration (through two pilots in Serayu and Serang-Lusi basins). These activities include operational management plan preparation, network/system development and implementation, and related on-the-job-training, etc. They are intended to enhance service delivery in ten national river basins and eight provincial basins. Increasing the capacity of water resources policy and coordination institutions at provincial and basin levels to enhance participation, transparency and accountability. This includes improving the capacity of the Provincial Water Councils in the 10 project provinces and the Basin Water Resources Coordination Councils in the 10 national basins and 8 provincial basins and their Secretariats. Activities include associating their members with the concepts of integrated water resources management, national water resources policies and related legal instruments, public consultations and workshops for stakeholders, and provision of office facilities and equipment to the Secretariat. It also includes establishment of data base and management information systems and study tours to more developed basins. Enhancing DGWR's knowledge base and capacity to provide guidance for water resources management to national and provincial basins. The main activities include: (i) preparation of Basin Management Strategic Plans and Basin Master Plans for three national (Serayu- Bogowonto, Sadang and Belawan-Ular-Padang) and one provincial (Bima-Dompu) basins; (ii) operational support to the National Hydrology Management Program (NHMP), including hydromet network rationalization, training in monitoring and data quality assurance, database development, workshops, and provision of office facilities and equipment to the Sub- 22 Directorate of Hydrology and procurement of calibration equipment for the Research Center for Water Resources (Puslitbang Air); and (iii) support to operation of the National Water Resources Information System (SISDA). SISDA will be managed by the SISDA Sub- Directorate of in DGWR and implemented in the project basins. The main activities cover data management training, provision of office facilities and equipment for SISDA units, including related incremental operating costs. All these activities include on-the job training. (b). Improvement of physical system performance of river basins. (i) central level in selected national river basins; and (ii) Province level in selected provincial river basins in Participating Provinces. This sub-component will finance the rehabilitation and/or improvement of checking weirs, river bank protection, dykes, water allocation structures, small retention ponds and other related works. This program to improve infrastructure improvement will be implemented under three sub-Project categories. Sub-Projects 1.A. costing above US$250,000 per package in national basins. Preparation will include completion of a feasibility study (technical feasibility, economic analysis, socio- environmental screening/assessment per ESSF) followed by survey, investigation and design (SID). The project study/design will be reviewed by Directorate of River & Coastal and approved by the TKPSDA prior to tendering. Sub-Projects 1.B. costing between US$50,000 and US$250,000 per package will be implemented in national and provincial basins. Preparation will include a simplified feasibility study (with economic analysis) followed by SID and socio-environmental screening/assessment per ESSF. The project design will be technically reviewed by Directorate of River & Coastal in the case of national WS, and approved by the TKPSDA prior to tendering. In the case of Sub- Project B, implemented in provincial WS, the project design will be technically approved by Dinas PU and approved by the TKPSDA of the WS, prior to tendering. Sub-Projects 1.C. costing below US$50,000 per package to be implemented in provincial basins. Preparation will include identification of benefits, with plan and cost estimate and socio- environmental screening/assessment per ESSF. Prior to implementation, the sub-project will be approved by the provincial water resources agency. Component 2. Participatory Irrigation Management Improvement (US$ 81.83 million) This component will improve irrigation service delivery performance and sustainability through replication of WISMP1 good practices of participatory irrigation management (PIM), which integrates institutional development with physical improvements in provincial and district irrigation schemes in districts selected for their high level of commitment and performance under WISMP1 and NTB-WRMP. The Participatory Irrigation Management Improvement component focuses on further consolidation by getting the newly established institutions operational within the government systems along two tracks: (a) advanced track, providing a full program for institutional strengthening for participatory irrigation management and system rehabilitation/improvement in 58 Districts, and (b) moderate track, providing institutional development and capacity building support in 43 Districts. (a). Improvement of participatory irrigation management institutions in Participating Provinces and Participating Kabupaten. This sub-component provides support to the establishment and 23 enhancement of the local PIM regulatory frameworks and capacity building and empowerment of local irrigation management institutions such as government irrigation and agriculture agencies, WUAFs and Irrigation Committees in 101 Districts. Activities will be jointly implemented by the local planning agency (BAPPEDA), the Agriculture Service (Dinas Pertanian) and the Water Resources Service (Dinas Sumber Daya Air) and include: (a) awareness raising among heads of local government and local parliamentarians; (b) completion of local regulatory frameworks for irrigation management; (c) strengthening of the Kabupaten Irrigation Commission; (d) training and fielding of community organizers/facilitators; (e) socio- economic and technical profiles of the irrigation areas for base-line and benchmarking; (f) establishment and strengthening of Water User Association Federations (WUAF); (g) training in participatory irrigation management for WUAFs and District services; (h) strengthening of Dinas SDA for service delivery improvement and cost effectiveness through introduction of multi-year planning, asset management, monitoring and quality assurance processes; and (i) pilot community catchment management activities in four Kabupaten. (b). Light and moderate rehabilitation and repair of Participating Province and Participating Kabupaten government irrigation system infrastructure. This sub-component supports light and medium rehabilitation and improvements of 360,000 ha provincial and district government irrigation system infrastructure in the form of sub-projects for the advanced track, and "stimulants" for some 500 WUAFs representing some 250,000 ha for moderate track Districts, which meet the agreed screening criteria (technical, economic, institutional, social and environmental). (c). Provision of support to irrigated agriculture, and carrying out of climate change adaptation measures. It funds critical agriculture support activities and climate change adaption measures, particularly scaling up technological innovations (e.g., replication of SRI in project areas) for improving agricultural productivity and raising farmers' farm income. The project will also facilitate farmers to improve their capacity to: (a) adopt new technology to better respond to market demand, and development of agribusiness management skills, in Participating Provinces and Participating Kabupaten; and (b) establish public private partnerships for farming and marketing through implementation of Community Subprojects in Participating Provinces and Participating Kabupaten. This would be achieved through: strengthening farmer capacity to become organized and accountable at all levels; and facilitating productive public private partnerships with multiple service providers (technology, markets and knowledge). The component would also serve to strengthen management and organizational capacity of WUAs/WUFs engaged in partnership with agro-business enterprises. Activities include organizational support, monitoring and training of WUAFs leaders and members, at village, district and regional levels. To support agribusiness development in the irrigated areas, the project will provide competitive agribusiness investment grants for WUAFs in districts under the advanced track process. The amount of Community Subproject Grants will not exceed US$150,000 in a single Kabupaten, which will be transferred to selected WUAFs based on the approved proposals and budget. The process of fund application, selection and award, funds management, and monitoring arrangements will be detailed in the PMM. 24 (d). Provision of guidance, monitoring, and supervision, including provision of technical assistance for Sub-components 2 (a), (b) and (c). Component 3. Jatiluhur Irrigation Management Improvement (US$62.73 million) This component represents the first stage in the improvement and modernization of the management of Indonesia's largest irrigation system `Jatiluhur' which involves: (a) introduction of participatory irrigation principles on a scheme-wide network basis beyond the WISMP 1 district-level networks included within the Scheme's boundaries; (b) establishment and strengthening of participatory irrigation management and governance institutions for the Scheme as a whole; (c) improvement and modernization of irrigation and drainage infrastructure; and (d) accelerating irrigated agriculture development and development of farm system resilience for increasing climate variability and competition for water. This component will provide support for system management improvement and physical rehabilitation of parts of the system to improve the performance in irrigation service delivery and sustainability of the irrigation system. It consists of the three subcomponents described below. (a). Improvement of Jatiluhur irrigation management institutions. It supports establishment of PIM institutions at different levels, development of effective inter-agency management arrangements, and funding mechanism for management of the Jatiluhur irrigation system, and the training/capacity-building activities (e.g. PIM, asset management, O&M) of related management agencies such as Jatiluhur BBWS, PTJ II, Provincial and District Dinas, and farmer water user association federations. The basic establishment and strengthening of WUAFs in the participating Kabupaten within the Scheme's boundaries is covered under Component 2. (b). Rehabilitation and improvement of irrigation and drainage infrastructure in Jatiluhur Irrigation System. The sub-component funds removal of bottlenecks in the East and North Tarum Main Canals and rehabilitation of some 30,000 ha of priority secondary irrigation systems. The rehabilitation and repair works concern irrigation and drainage canals, and possibly structures for sediment management. The partial irrigation system rehabilitation serves as a learning ground for the introduction of participatory irrigation management and in particular participatory design and construction models for large scale irrigation systems. Full fledged implementation is foreseen in a separate follow-up project, which will include full rehabilitation/modernization of the East and North Tarum main canals and main secondary canals. (c). Preparation for overall system rehabilitation and modernization in Jatiluhur Irrigation System. For: (a) the implementation of the improvement and rehabilitation works; and (b) preparation of Jatiluhur irrigation management modernization, including institutional and technical designs, tender documents for the rehabilitation and modernization of the East and North Tarum main canals, and future rehabilitation of additional secondary irrigation systems. Activities specific to the Kabupaten and Province within the Jatiluhur command area, e.g., the development and strengthening of WUAs/WUAFs, strengthening of Irrigation Committees, and the implementation of the accelerated agricultural improvement, will be covered under sub- components 2(a) and 2(c). 25 Component 4. Project Management and Implementation Support (US$16.68 million) This Component would provide support to entities involved in Project implementation in relation to project management and implementation, including administrative and financial management, disbursement, procurement, and monitoring and evaluation, at national, province and Kabupaten levels. It covers project management TA (PMTA, covering project management, procurement, financial management, M&E, etc.) and Independent Monitoring & Evaluation (IMEU) TA, and incremental operating costs for the NPMU, the NPIUs, the PPMUs and the PPIUs, the KPMUs and the KPIUs for different components. 26 Appendix 1 to Annex 2: List of Selected River Basins for Component 1 Water Resources No River Basin River Territory N/P Province National Basin Management Unit Provincial Basin Management Unit Agency ADVANCE TRACK PROGRAM : 10 National River Territories and 6 Provincial River Territories in 10 Provinces 1 Serayu Serayu-Bogowonto N (1) Jawa Tengah PSDA BBWS Serayu-Opak BPSDA Serayu-Citanduy 2 Serang-Lusi Jratunseluna N (1) Jawa Tengah PSDA BBWS Pemali Juana BPSDA Seluna 3 Sei Ular Belawan-Padang N (2) Sumatera Utara Pengairan BWS Sumatra II BPSDA Belawan ­ Padang 4 S. Anai Anai-Kuranji-Arau-Mangau-Antokan N (3) Sumatera Barat PSDA BWS Sumatra V BPSDA Bukit Tinggi Pengairan dan BPSDA Way Seputih - 5. Way Sekampung Seputih-Sekampung N (4) Lampung BBWS Mesuji-Sekampung Permukiman Way Sekampung - BPSDA Sungai Citanduy 6. Citanduy Citanduy N (5)Jawa Barat/ (1)Jawa Tengah PSDA BBWS Citanduy - BPSDA Citanduy Serayu 7. Pemali Pemali ­ Comal N (1) Jawa Tengah PSDA BBWS Pemali Juana BPSDA Pemali-Comal (6) DIY dan (1) Jawa - BPSDA Probolo 8. Progo Progo Opak Serang N Kimpraswil and PSDA BBWS Serayu-Opak Tengah - BPSDA DIY 9. Sadang Sadang N (8) Sulawesi Selatan PSDA BBWS Pompengan-Jeneberang BPSDA Sadang 10. Babak P. Lombok N (10) Nusa Tenggara Barat PU BWS NT I BPSDA WS P Lombok 11. Cisadea Cisadea Cibareno P (5)Jawa Barat PSDA - BPSDA Cisadea-Cibareno 12. Bodri Bodri ­ Kuto P (1) Jawa Tengah PSDA - BPSDA Jratun 13. Welang Welang ­ Rejoso P (7) Jawa Timur PU Pengairan - BPSDA Gembong Pekalen 14. Sampean WS Pekalen ­ Sampean P (7) Jawa Timur PU Pengairan - BPSDA Sampean Baru 15. Malino WS Lambunu ­ Buol P (9) Sulawesi Tengah Kimpraswil - UPTD Wilayah II 16. Parado Bima ­ Dompu P (10) Nusa Tenggara Barat PU - BPSDA Bima-Dompu (Bidom) MODERATE TRACK PROGRAM : 2 Provincial River Territories in 2 Provinces. 17. Teunom Teunom - Lambesoi P (11)NAD PU - BPSDA Krueng Aceh Teunom 18. Kambaniru Pulau Sumba P (12) Nusa Tenggara Timur PU - BPSDA Pulau Sumba Notes: 1) Classical Training will be provided to staff in other 3 Provinces: South Sumatera, Banten and West Sulawesi. 2) N = National River territories, P = Provincial River Territories 27 Annex 3: Implementation Arrangements WATER RESOURCES AND IRRIGATION SECTOR MANAGEMENT PROGRAM (PHASE II) A. Project institutional and implementation arrangements Overall Implementation Arrangements. 1. The project will be implemented jointly by the Ministries of Public Works - DGWR, Home Affairs ­ DGRD, and Agriculture DGAIF. The main implementing agency will be DGWR of MoPW. The National Steering Committee on Water Resources (NSCWR), established under WISMP 1 under the Chairmanship of Bappenas, will continue to act as the program steering committee. 2. Overall project management and coordination will be the responsibility of the National Project Management Unit (NPMU), which is located in the planning and programming directorate of DGWR-MoPW. At the national level,the NPMU will be supported by a Project Management TA which includes support for General Management, Financial Management, Procurement, MIS and Monitoring and Evaluation. Each component will have its own National Project Implementation Unit (NPIU), which will be supported by several TAs: (a) Component 1: NPIU ­ PSDA at DGWR with two TA packages: (BWRM and BWRMP); (b) Component 2: NPIU Irrigation Management Improvement under DGWR-MoPW with one TA (IMRI); NPIU Institutional Development under DGRD-MoHA with one TA (IDPIM); and NPIU Agriculture under DGAIF-MoA with one TA; (c) Component 3: JPIU for Jatiluhur Irrigation Management Improvement at the BBWS Citarum will operate under the NPIU Irrigation with one TA for implementation supervision and another TA for design studies of Jatiluhur Irrigation System Rehabilitation and Modernization; and (d) Component 4: NPMU at DGWR with Project Management TA, and IMEU/NSCWR Secretariat at Bappenas with TA. 3. A summary of main roles and responsibilities of government and non-governmental organizations in the project is shown in the following table: Roles and Responsibilities of Government Agencies and Civil Society Organizations Agency Responsibilities Involvement in Project National Level Bappenas (NSCWR) Policy and strategic direction, and Cost recovery policy; application of program coordination. Water Resources Management Reform guidelines. Impact monitoring and evaluation. DGWR (MoPW) National level implementation Institutional development and support, quality assurance, infrastructure improvement for monitoring and oversight of Basin Water Resources Management technical and institutional aspects of and Planning. water resources and irrigation Institutional development of 28 management components. irrigation management institutions, notably irrigation services and Basin governance; B(B)WS capacity WUAFs and irrigation committees building; fiscal sustainability of RIM including Jatiluhur system. and Jatiluhur Irrigation Scheme; basin management and planning, and Infrastructure improvement for water use rights in national basins. Jatiluhur system. DGRD (MoHA) National level implementation WUAF establishment and capacity support, quality assurance, building; institutional strengthening monitoring and oversight of of irrigaton committees, local irrigation and rural governance governments and local regulations, components, and of local budget and financial/fiscal procedures, and cost recovery. community organizer training. DGAIF (MoA) National level guidance for WUA establishment and capacity agricultural support and extension building; coordination of agricultural services. support and extension services. WUAF agricultural support program and community grants. Provincial Level Participating Provincial Provincial and basin governance; Provincial aspects of governance Governments Balai PSDA capacity building; fiscal and planning capacity; river basin sustainability of RIM and provincial management capacity; provincial irrigation schemes; basin aspects of fiscal policy management and planning, and implementation; and investments in water use rights in provincial basins. river infrastructure, institutional strengthening and infrastructure PIM in provincial schemes. improvement in provincial irrigation schemes. Kabupaten Level Participating Kabupaten Irrigation governance, Kabupaten WUA/WUAF capacity building; Governments Dinas PUP capacity-building, fiscal irrigation agency capacity building; sustainability of Kabupaten investments in Kabupaten irrigation irrigation schemes; and irrigated infrastructure improvement through agriculture support. Dinas PUP and WUAFs; Kabupaten aspects of fiscal policy implementation; and irrigated agriculture support. Non-Governmental Organizations Civil Society Organizations Participate in NWC, Provincial and Sector governance and capacity Basin Water Resources Councils; building; WUA strengthening; assist in organizing WUAs/WUAFs; irrigated agriculture support; and project oversight independent monitoring and evaluation of the reform agenda implementation. 29 Implementation Arrangements by Component 4. The implementation of Component 1 in the selected provinces/basins will be through Provincial PPIUs located in the Water Resources Management Service, while for national basins implementation will be through BPIUs located in the respective National River Basin Organizations (B(B)WS). They will be coordinated at the national level by the NPIU-PSDA, which will be located in the Directorate of Bina PSDA. The provincial river basin implementing units will be coordinated by the Provincial Project Management Unit (shared with Component 2). Members of the NPIU will be sub-Directors from different associated Directorates of DGWR. The NPIU will be supported by a technical team. 5. An organizational structure very similar to that of WISMP 1 (PART B) will be used for implementation of Component 2: (i) Provincial Project Management Unit (PPMU) and Kabupaten Project Management Unit (KPMU) for program coordination, planning and reporting. (ii) Provincial Project Implementation Units (PPIU) in the Bappeda (for institutional development and planning), Irrigation Service for irrigation management improvement for provincial and delegated national irrigation systems, and Agricultural Service for productivity improvement and climate change adaptation. (iii)District Project Implementation Units (KPIU) in the Bappeda (for institutional development and planning), Irrigation Service for irrigation management improvement for district irrigation systems and strengthening of irrigation management institutions, and Agricultural Service for WUA strengthening, productivity improvement and climate change adaptation. 6. TA for component 2 will be provided at national Level by three packages attached to each NPIU, and at provincial and district levels will be integrated to enable a better coordinated technical support for the local governments. Eight regional TA offices are foreseen, which will support the PPMUs and the KPMUs, and will thus be hosted by the local Bappedas. 7. The investment scale of Component 3 requires a separate JPIU in the Citarum Basin Organization (BBWS Citarum) under the NPIU in the Directorate of Irrigation and Swamps of DGWR. This JPIU will coordinate all activities with the stakeholders from national, provincial and district levels. These comprise the PJTII, the Provincial Dinas PSDA West Java, the District Bappedas, and the Irrigation Services and Agriculture Services for the Bekasi, Karawang, Subang and Indramayu Districts. JPIU Jatiluhur will establish a Jatiluhur Irrigation Management Improvement Coordination Team (TKPPIJ) with representatives from the above mentioned government entities, including the district irrigation committees representing the districts concerned. JPIU will be supported by a separate TA, hosted by the Citarum Basin Organization (BBWS Citarum). 8. Under Component 4, overall project management will be undertaken by a National Project Management Unit (NPMU) chaired by the DG WR and located in DGWR. NPMU will be assisted by a multi-disciplined project management TA (PMTA) consultant team in project management (including coordination, general guidance, programming, reporting and monitoring, 30 etc), financial management and procurement management. The secretariat to the National Steering Committee for Water Resources (NSCWR), located in Bappenas, will guide, monitor, and independently evaluate project implementation. It will be assisted by a small TA consultant team to undertake periodic independent monitoring & evaluation. B. Financial Management, Disbursements and Procurement 9. Financial Management. The project's financial management arrangements follow the government system, especially on budgeting, flow of funds, and the auditing mechanism. Overall, the financial management risk is rated as `substantial' and `moderate' before and after mitigation respectively. The project faces a major risk in staff capacity to manage project implementation, especially staff capacity in local implementing agencies. There is another risk on payment verification, especially on soft expenditures, such as training, workshops and consultant services. 10. To minimize the risks, financial management consultants will be hired to assist NPMU/NPIUs in financial management and conduct FM training program for project staff. Consultants will assist the PMU in verifying receipts/invoices and supporting documents prior to payment. All payments will be verified and require third party confirmation on a sample basis. 11. Budgeting. The project will follow the existing government budgeting system. Budget will be included in the GoI annual budget and MPW budget documents (DIPA). The budgets for local PIUs will be channeled through DPA Balai and Local DPA for Dinas. Delays in the issuance and effectiveness of DIPA and DPA may be minimized through prior circulars on the work unit (Satker) decree, and early revision of documents when required. The participating Province and Kabupaten have committed to providing a minimum of 25% parallel financing for their respective activities under the project. 12. Flow of Funds. For central government activities, the project will follow the existing system for flow of funds used in WISMP 1. NPMU/PIU through the project work units (Satker) will manage and execute the project budget. All contractor or consultant invoices will be submitted to the commitment officer in the Satker. He/she will review and verify the invoices and relevant supporting documents, and then submit them to the verification officer. The verification officer will review and verify the invoices and documents before issuing the payment request (SPM) to the related treasury office (KPPN). The Treasury Office will then issue a payment order (SP2D) to its operational bank, which will arrange for the remittance of funds from the designated account to the respective contractor's or consultant's account. For local government expenditures, an on-granting fund flow mechanism will be adopted. Detailed procedures have been developed for the implementation of this new mechanism as part of the PMM. 13. Accounting and Reporting. All financial transactions will be recorded in the government accounting system and included in government accountability reports. NPMU/PIUs will prepare a separate set of project financial reports that are suitable for project monitoring purposes. NPMU will be responsible for preparing aggregate Interim Financial Reports (IFR) and submitting these to the Bank on a quarterly basis in agreed formats. The FM consultant under PMTA will assist NPMU to prepare the consolidated reports. 31 14. Internal Control. The internal control risk is substantial. The project will hire FM consultants under PMTA to assist NPMU on financial management aspects, including financial control. The consultant will assist NPMU to review and verify and confirm third party invoices as necessary. Third party confirmation will be for at least 20% of soft expenditures (e.g., travel and housing allowance). 15. Audit Arrangement. PIUs will be responsible for preparing project financial statements and these will be consolidated by the NPMU. These statements will be audited by auditors acceptable to the Bank and in accordance with agreed terms of reference. The annual audit report will be furnished to the Bank no later than six months after the end of the Government's fiscal year. NPMU will be responsible to disclose the audited financial statements. 16. Financial Management Implementation Review. Risk-based implementation reviews of financial management will be conducted during project implementation. This will involve a review of the project financial management system, including project expenditures, accounting, reporting, and internal control framework. The review will also include a review of external audit reports and follow-up action taken in respect of these audit findings. The review will be conducted by Bank financial management specialists and/or consultants. 17. Disbursement Arrangements. The applicable disbursement methods are reimbursement, direct payment and advance to the designated account. The designated account (DA) will be used to finance eligible project expenditures. The DA will be in the name of DG Treasury in the Ministry of Finance. NPMU will be responsible for reconciling the designated account and preparing applications for the withdrawal of additional advances, duly approved by DG Treasury before their submission to the Bank. Copies of the designated bank account statements will be provided to NPMU by the Directorate for Cash Management in DG Treasury, MOF. 18. The ceiling of the advance to the DA will be variable, and the advance(s) will be made on the basis of the six month projected expenditures. Reporting of use of the DA will be based on the quarterly IFR (Interim Financial Report). Applications for advance to the DA will be submitted together with the reporting on the use of DA funds which will consist of: (a) Interim Financial Reports, and list payments for contracts under the Bank prior-review, covering both block grants and others; (b) projected expenditures for consultants and technical assistances for six months; and (c) the DA reconciliation statement. All documentation for expenditures submitted for disbursement will be retained by the implementing unit and be made available to the auditors for the annual audit, and to the Bank and its representatives, if requested. 32 Allocation of Loan Proceeds Category Amount of the Loan Percentage of Expenditures to be Allocated financed (expressed in USD) (exclusive of Taxes) (1) Goods, non-consulting services, $85,710,000 75% works, consultants' services (including for audits), Training, and Operating Costs for Components (Parts) 1 (a) (i) and (b) (i), 2(d), 3, and 4 (a) of the Project (2) Goods, non-consulting services, $20,810,000 100% of the amounts works, consultants' services (including disbursed for audits), Training, and Operating Costs for Components (Parts) 1 (a) (ii) and (b) (ii), 2 (a) (i), (b) (i), and (c) (i) (A), and 4 (b) of the Project (3) Goods, non-consulting services, $36,880,000 100% of the amounts works, consultants' services (including disbursed for audits), Training, and Operating Costs for Components (Parts) 2 (a) (ii), (b) (ii), and (c) (i) (B), and 4 (c) of the Project (4) Community Subproject Grants for $6,600,000 100% of the amounts Component (Part) 2 (c) (ii) of the disbursed Project TOTAL AMOUNT $150,000,000 Notes: Parallel financing to be provided by provincial and district governments in amount equal to 25% of the agreed project costs annually. Bank views these as 100% financing of their share through the Loan (APBD funds remainder)."Parallel financing" means that annual aggregate counterpart budget allocation to be provided by each participating province/district in financing its AWP with a minimum 25% of the total planned costs of the AWP. C. Procurement 19. Applicable Procurement Guidelines: Project procurement will be carried out in accordance with the WB "Guidelines: Procurement under IBRD Loans and IDA Credits" dated May 2004 revised October 2006 and May 2010; and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004 revised October 2006 and May 2010, and the provisions stipulated in the Legal Agreement. 20. Procurement Capacity, a Risk Assessment and Mitigation Measures. A procurement capacity assessment was conducted during project pre-appraisal, which confirmed that the NPMU has been established, and thethx 33 majority of the NPIUs and the PIUs at central, provincial, and district levels will be the same as WISMP1. The NPIUs and the PIUs are familiar with Bank procurement. In general, the capacity at central level is stronger than at local government levels; the latter will be enhanced by the procurement specialist consultants to be hired as part of the project management technical assistance team. 21. In accordance with the project implementation arrangements, the NPMU and the NPIUs would be responsible for the recruitment of respective TA consulting firms, and procurement of works and goods for central government components. The PMUs and the PIUs at provincial and district levels will be in charge of procurement of their civil works, goods and limited consulting services. 22. Procurement Plan. The Borrower has developed a procurement plan acceptable to the Bank, for the first 18 months of project implementation, and will upgrade the plan annually or as required to reflect actual project implementation needs. The procurement methods and thresholds for works, goods and consultant contracts are described below and listed in the subsequent section. The procurement plan will be made available on the government website for the project and on the Bank's external website. 23. Procurement of Works. Project works include small river infrastructure repair and construction, irrigation rehabilitation works, and renovation of a limited number of gauging stations. No International Competitive Bidding (ICB) contracts for civil works are foreseen. National Competitive Bidding (NCB) procurement will be done using the agreed Model Bidding Documents (MBD) for NCB Procurement. Small scale rehabilitation work will be carried out under Community Procurement arrangements with Water User Associations or their federations, following simplified procurement procedures which are included in the PMM. Under such circumstances as specified in Para. 3.8 of the Procurement Guidelines small construction works may be procured through force account method. 24. Procurement of Goods. Goods to be procured under the project include office equipment and furniture, and hydrological equipment, etc. No International Competitive Bidding (ICB) contracts for goods are foreseen. National Competitive Bidding (NCB) procurement will be done using the agreed Model Bidding Documents (MBD) for NCB Procurement. Equipment with proprietary nature, and some goods obtained only from one source or which meet other circumstances as specified in Para. 3.6 of the Procurement Guidelines may be procured through direct contracting. 25. Selection of Consultants. Consulting services will include project management technical assistance, implementation support technical assistance for different components, design and supervision of works rehabilitation, social mobilization for WUAs/WUAFs establishment and strengthening, and results monitoring and evaluation. Services would be provided by consulting firms and by individual consultants. 26. Training, Workshops and Study Tours. Detailed programs for training of government staff and farmers, workshops and study tours will be developed during implementation and included in annual implementation plans for Bank review. Expenditures incurred in accordance with the approved programs will be used as the basis for reimbursement. 34 27. Bank Procurement Prior Review. All ICB contracts and contracts in excess of US$100,000 for goods and US$1,000,000 for works, all direct contracting contracts regardless of value, and all contracts for consultant services in excess of US$100,000 for firms and all contracts awarded under single source selection would be subject to prior review by the Bank. All other contracts would be subject to ex-post review by supervision missions; the post review sampling ratio would be one out of ten contracts. Thresholds for Procurement Methods and Prior Review are presented in the table below. 28. Frequency of Procurement Supervision. In addition to prior review, at least one supervision mission per year will visit the field to carry out post review of procurement actions. Ex-post procurement reviews will be carried out regularly. Expenditure Contract Value Procurement Method Prior Review Threshold Category Threshold ((US$ thousands) 1/ (US$ thousands) 1. Civil Works 10,000 ICB All <10,000 NCB 1,000 <15 FA NA <50 Community Procurement NA 2. Goods 1,000 ICB All <1,000 NCB 100 Prior Approval Direct Contracting All 3. Non 5,000 ICB All Consulting <5,000 NCB 100 Services 4. Consultants' 200 QCBS, QBS, LCS >100 Services <200 CQS >100 Prior Approval Single source selection All Individual consultants - NA Competitive 1/. In addition, the first two NCB civil works and NCB goods contracts are also subject to prior review. D. Environmental and Social Safeguards Management Summary of Environmental Impacts and Social Safeguard Issues 29. Environmental Impacts. The project covers a total of 14 provinces on several islands. Improving environmental conditions through improved water resources and irrigation management is an integral part of project design, and is expected to have positive environmental impacts. The majority of physical works will be limited to localized repair and rehabilitation activities within existing infrastructure and canal systems. Component 2 is not likely to have significant, irreversible or unprecedented adverse environmental impacts, or affect vulnerable or protected sites or be on critical natural habitats, because of the nature and scale of rehabilitation work. 35 30. Component 3 is for Jatiluhur irrigation system management improvement and involves small to medium scale of irrigation and drainage rehabilitation works including canal lining and normalization, intake and control structures, etc. Potential negative environmental impacts may include increased erosion; temporary deterioration of water quality, scouring of canal banks, and other construction related impacts. Positive impacts include more effective water resources management (including water quality/pollution management) at basin, irrigation system and community levels, higher water use efficiency, improved water delivery services, and increased capacity of farm communities in adapting to climate change and hydro-met variability. 31. Social Safeguards Issues. Limited land acquisition may be needed for implementation of Components 1-3 activities. The scale of physical works under Component C will be somewhat bigger, temporary land occupation for canal de-silting and normalization construction, and relocation of an undetermined number of temporary buildings on land owned by the PJT II (Operating Unit) along the right of ways of the secondary canals to be rehabilitated are likely to be required. For instance, in the Benggala sub-system (SC Barugbug) there are about 15 houses with semi-permanent structures along the right bank of the canal to be rehabilitated. The residents are all tenants who pay an annual rental fee. In the Pawelutan sub-system (SC Pawelutan), about 3.6 km from off-take at ETC, there are about 35 temporary wooden buildings which are used as warung (kiosk). However, the implementation agency has confirmed that there will be no need for land acquisition and resettlement under the first year work program. Relocation of temporary structures in CS Barugbug and Pawelutan will be avoided through technical design modifications. 32. Indigenous Peoples. The project will not undertake physical works or develop policies regarding resource (water) use that would negatively affect indigenous people. Experience of WISMP 1 showed that all project activities are in existing irrigation schemes where no vulnerable indigenous peoples reside. However, since the proposed project will be implemented on a programmatic basis over several years, there is possibility that project activities may affect indigenous groups in a positive manner. There are no indigenous communities in the Jatiluhur area. Environmental and Social Safeguards Management Instruments 33. The project entity has prepared an Environmental and Social Safeguards Framework (ESSF) which establishes a set of policies and guidelines to guide the implementing units in screening, appraisal and supervision of the environmental and social aspects of sub-projects. Based on the ESSF, detailed procedures for the environmental and social review of subprojects have been included in the Project Management Manual (PMM). The implementing agencies will be assisted by technical assistance consultants, staffed with social and environmental management specialists. Hands-on training will be provided to the implementing and management unit staff concerned at national, provincial and district levels prior to loan effectiveness. 34. Environmental Safeguards Instruments. An environmental management plan (EMP) has been prepared for the first year work program of Component 3. The EMP requires construction contracts to include clauses that specify mitigation measures that contractors are 36 responsible for implementation. The EMP complies with the Indonesian legal and policy framework for environmental protection as well as Bank environmental safeguard policies. EMPs will be prepared for all sub-projects in the subsequent years which have significant environmental impact. 35. An integrated pest management plan (IPMP) incorporating national and international good practices of pest management has been included in the ESSF and followed in project implementation. 36. Bank policy on Dam Safety is triggered by the Jatiluhur Dam as the storage and regulating facility for Jatiluhur Irrigation System. Jatiluhur Dam is part of the ongoing Bank-supported Dam Operational Improvement and Safety Project (DOISP), and both physical remedial measures and capacity-building interventions (e.g., preparation of an emergency action plan) are included under DOISP. Timely implementation of DOISP activities for the Jatiluhur Dam will enable WISMP2 to meet the Bank dam safety policy requirements. The implementing unit got Component C (BBWS-Citarum) will coordinate with DOISP, track and report regularly on progress in implementing the dam safety management measures. 37. Resettlement Instruments. Potential impacts from land acquisition will be identified and mitigated through development and implementation of appropriate resettlement in compliance with Bank policy. The two main resettlement instruments are: (a) Land Acquisition and Resettlement Policy Framework (LARPF, as part of the ESSF). ESSF includes the land acquisition and resettlement policy framework, which bridges gaps between Government policies, and Bank requirements and provides general guidance for land acquisition and resettlement. ESSF not only regulates land acquisition with compensation (for land and other assets, such as buildings and crops) but also provides procedures for marginal land or asset acquisition through voluntary contributions. The requirement for Land Acquisition and Resettlement Action Plan for each sub-project involving land acquisition is also regulated by the Framework. (b) Land Acquisition and Resettlement Action Plan (LARAP). Government teams guided and coordinated by the National Project Management Unit (NPMU), will screen all sub-projects for land acquisition requirements and determine the scale of acquisition and compensation, and the land contribution needs. Sub-projects that involve land acquisition and/or resettlement will prepare a LARAP in accordance with the ESSF. The LARAP will be disclosed in accordance with Bank requirements upon its clearance by the World Bank. The PMUs/PIUs will ensure that the LARAP adhered to. The Bank will supervise the implementation of LARAP confirm compliance with Bank requirements. 38. Indigenous Peoples Instrument. An Indigenous Peoples Planning Framework (IPPF) has been developed as part of ESSF. Where project activities involve the indigenous community, the project design will accommodate any measures set out in the Framework either through the development of an Indigenous People Plan (IPP) or incorporate the plans into the project design. 37 39. Disclosure of Safeguards Documents. Project stakeholders were consulted during the preparation of the ESSF. The ESSF and the EMP for the first year work program have been disclosed at the project website and at the Bank InfoShop. Safeguards instruments such as LARAPs, EMPs and IPPs will be prepared after consultation with stakeholders and disclosed, as specified in the ESSF. Institutional Capacity of Implementation 40. MoPW (DGWR) has experience in dealing with land acquisition in many Bank-funded projects. The NPMU is familiar with Bank safeguards policies through managing WISMP 1 implementation. NPMU, with technical assistance from a consultant team, has developed the ESSF (including LARPF, IPPF and IPMP) through a consultation process, and has overseen the preparation of EA/EMP for Jatiluhur by another technical assistance team. NPMU, with assistance from the implementation support consultants, will lead the preparation of LARAPs and EAs/EMPs for subprojects involving land acquisition and having significant environmental impacts, as well as the preparation of IPPs, where necessary. BBWS-Citarum has implemented Bank and other donor (e.g. Asian Development Bank) funded projects. 41. The capacity of NPMU, and the PIUs, particularly BBWS-Citarum need to be strengthened further, to ensure that the safeguards screening and assessment are carried out properly, and safeguards documents are prepared in conformity with the Bank requirements, and the approved documents are implemented satisfactorily. To this end, safeguards policy training, focusing on environmental impact assessment, indigenous people and involuntary resettlement policies, and application of the ESSF, will be organized prior to loan effectiveness for implementing units responsible for physical works sub-projects. This will be followed by refreshment training by the safeguards specialists of the NPMU TA team. 42. Land acquisition will likely be very minor for community-level works and is expected to be mostly through voluntary land contribution. WUAFs, facilitated by community organizers, are capable of managing it. Community organizers and District Irrigation Committees involved in the project will help ensure that land acquisition (and contribution) follows the proper process and is documented by WUAFs for record and review during Bank supervision visits. Monitoring and Evaluation Arrangements 43. Internal and external monitoring of the implementation of ESSF, EMPs, LARAPs, etc., including grievance handling, will be conducted as part of the project M&E arrangements. NPMU will provide the Bank reports on progress of safeguards implementation, both overall and by sub-projects, as well as consolidated information on community-level land contributions. The Bank will visit selected sub-project sites during supervision missions to assess safeguards compliance. E. Monitoring and Evaluation (M&E) 44. A monitoring and evaluation system has been included in the design of WISMP2. Based on the number WISMP of experience, the monitoring framework has been simplified and 38 indicators reduced to focus on the key outcome indicators. Project inputs, processes, outputs and outcomes will be tracked and monitored through a web-based project management information system (PMIS) managed by NPMU. NPIUs at the national level, and the PMUs at provincial and district levels have primary responsibility for the monitoring and evaluation of project activities in their respective domains, and for consolidation of the information provided by the PIUs. NPMU will prepare and submit to the Bank, semi-annual progress reports, including status of all key indicators (those in Annex 1 and in the PMM). It will also prepare, on behalf of the GOI, a mid-term review (MTR) report for the project around the mid-point of implementation as specified in the Loan Agreement. GOI will prepare and provide the Bank with an implementation completion and results report (ICR) within three months after the Loan closing date. 45. The NMPU and the NPIUs will be assisted by different TA consultant teams. The Project management TA (PMTA) will have M&E specialist(s) to assist in setting up the monitoring and evaluation system and establishing the baselines. The recruitment of the PMTA has started through advance procurement to enable PMIS to be operational at the early stage of implementation. 46. In addition, project outcome and impact monitoring will be carried out by the impact monitoring and evaluation unit (IMEU) under the National Steering Committee's Secretariat. IMEU is expected to produce independent evaluation reports at several key stages, based on the results monitoring framework presented in Annex 1. IMEU will be assisted by a TA consultant team specialized in project monitoring and evaluation. 39 Annex 4. Operational Risk Assessment Framework (ORAF) WATER RESOURCES AND IRRIGATION SECTOR MANAGEMENT PROGRAM (PHASE II) Appraisal and Post Appraisal Package Version Project Development Objective(s) The project development objective is to assist the Borrower to improve its capacity for basin water resource and irrigation management and increase irrigated agriculture productivity in the Project area. PDO Level Results PO-1 No. of national and provincial basin agencies fully functional Indicators: PO-2 No. of Irrigation Commissions fully functional PO-3 Increase in irrigated area with over 15% increase in agricultural production Risk Category Risk Rating Risk Description Proposed Mitigation Measure Status Project Stakeholder Risks Low Some groups in the government a. Raise public awareness of, and support to, the may not support the sector reform reform through consultation, involvement and policy of promoting stakeholder media dissemination of project information. participation, accountability and a. Ongoing b. Enhance synergy among donor programs transparency; and some NGOs and b. Ongoing through regular donor meetings. academic groups may oppose the reform process as Bank driven. Implementing Agency Risks M-I The main risks associated with the a. An anti-corruption action plan is in place to implementing agencies are fraud mitigate fraud and corruption risks during and corruption in project implementation. Good practices developed under procurement and financial WISMP 1, such as participatory procurement, transactions, inadequate capacity in community/CSO oversight, project information a. not yet due procurement and financial disclosure through website, and independent b. ongoing management affecting monitoring of project results will be continued. c. not yet due implementation progress and d. not yet due b. TA consultant team will be hired with quality, safeguards management, as experienced procurement and financial well as risks related to the new fund management specialists. Hands-on procurement flow mechanism for local and FM training will be provided before and 40 government activities. during implementation. c. Practical training will be provided to PMU and PIU staff on Bank safeguards policy and the application of the publicly disclosed Environment & Social Safeguard Framework. d. NPMU will closely monitor the operation of the new fund flow mechanism, documented in the PMM, and take timely corrective actions. Project Risks M-L Implementation/Institutional a. Enhancing the inter-sectoral coordination Arrangement Complexity: mechanism, particularly the roles of Secretariat to The project involves three sector the NSC and NPMU. ministries: Public Works, Home b. TA arrangements are structured to have most Affairs and Agriculture. It concerns consultant staff based in the regions. a. Completed Project Design Risk national, provincial and districts b. Completed governments as well as local c. Inclusion of implementing agencies, especially c. Completed communities with a total of over the BBWS in the project planning process, such 100 implementation agencies. Inter- as preparation of PIP, PMM and annual work governmental and cross-sectoral program. coordination during implementation is challenging. M-I The environmental aspect of project a. Environment and Social Safeguard construction is not managed Framework (ESSF) satisfactory to the Bank is in properly, or relocation and land place; acquisition are not planned and/or b. An Environmental Management Plan (EMP) compensation not paid adequately. has been prepared for the first year program of a. Completed Social & Environmental Jutilulur Component, and will be incorporated in b. Completed the construction contracts; c. Completed c. The ESSF and EMP were disclosed publicly d. Not yet due before appraisal; d. Practical training for PMU and PIU staff will be provided on Bank safeguards policies and application of the ESSF. Low Donor Collaboration: The ADB and the Bank, as the main donors in the Program & Donor Different donors involved in the sector, agree on sector reform principles, and are Ongoing water resources/irrigation sector coordinating closely at the working level donot coordinate in the sector regarding policy and operational issues, and will 41 management reform principles and continue to do so by involving the implementing safeguards policy implementation. ministry (DGWR) and agencies (e.g., BBWS- Citarum), with regard to sector institutional reform, irrigation operational management improvement, and resettlement practices. M-I Inadequate allocation of funds for a. Increased awareness of the importance of post project O&M affects O&M budget allocation to local administrations sustainable use of project facilities. and local parliaments. b. Increase the voice of end-users/beneficiaries in budget allocation discussions through the a. Not yet due Delivery Quality Risk stakeholder platforms. b. Not yet due c. Not yet due c. The project requires WUAFs to manage d. Not yet due tertiary canals and participate in joint- management of main systems. d. O&M funding is a criterion for acceptance, of sub-project completion. M-I MOF requires the project to use a a. Clear rules and operational procedures have new fund flow mechanism for been agreed upon between DGWR and MOF, and activities to be implemented by are detailed in the PMM. local governments. Under this new b. The process for signing the on-granting mechanism, on-granting agreements agreement will be started well before loan need to be prepared with each of a. Completed effectiveness. Fund Flow Risk some 100 participating local b. Not yet due governments. c. To prevent delaying implementation of the c. Not yet due entire project, the project will focus on the APBN d. Not yet due components in year 1. d. NPMU/NPIU will closely monitor and evaluate the operation of the new fund flow mechanism and will take timely corrective actions during implementation. Over Risk: Overall Risk: Preparation Implementation Comments With the scaling down of the project size, project level risks become lower and easier to mitigate and manage. M-I M-I However, adoption of the new on-granting fund flow mechanism for local government activities brings about additional challenges. Considering the above and WISMP 1 experiences, the overall risk is rated medium. 42 Annex 5: Implementation Support Plan WATER RESOURCES AND IRRIGATION SECTOR MANAGEMENT PROGRAM (PHASE II) 1. The strategy for implementation support has been developed based on the project's risk profile, with focus on the main risks identified: fraud & corruption, procurement and financial management capacity, social safeguards management and fund flow, and the mitigation measures. The key principle underlining the implementation plan is to make it as flexible and cost effective as possible. The summary plan to help strengthen the management of main risks is given below. Anti-corruption Action Plan. The Bank will regularly review and supervise the implementation of the better governance action plan (Annex 8) and related risk mitigation measures in the ORAF, and recommend remedial actions for updating the Plan in the course of implementation, taking into account the lessons learned. Such reviews will be undertaken jointly with fiduciary and other reviews, paying particular attention to project monitoring and oversight, procurement process, contract management, payment verifications, complaints handling. The governance specialist based in the country office will provide timely support. Procurement. Procurement, implementation support will include: (a) facilitation in targeted training to the procurement and management staff in the NPMU, the NPIUs, the PPMUs and the KPIUs before and during implementation; (b) reviewing procurement documents and providing timely feedback on prior review contracts and ex-post review results to the project management offices concerned; (c) providing detailed guidance on Bank Procurement Guidelines to project procurement staff; and (d) monitoring procurement progress against the agreed Procurement Plan. The Bank team Procurement specialist will also advise the government teams on establishing effective project procurement management arrangements (including staffing) and review mechanism, identifying bottleneck issues and addressing them effectively. The procurement specialist is based in the country office and will be able to provide timely support and facilitate necessary training. Financial and Fund Flow Management. FM supervision will review the project's financial management system, including but not limited to, accounting, reporting and internal controls. Supervision will also cover sub-projects on a random sample basis, and provide timely feedback on financial management reports, counterpart fund allocation, withdrawal applications, SOE review reports, audit reports and updating of FMM/PMM. Hands on training will be provided by the Bank financial management specialist before and during project implementation. She will also advise the government teams on establishing an effective financial management system and on trouble-shooting. She will pay particular attention to the operation of the on-granting mechanism for local government activities in the early stage of implementation and work with the Borrower's team to resolve any issues identified. The financial management specialist is based in the country office, and will be able to provide timely support and facilitate essential training. 43 Environmental and Social Safeguards. Environmental supervision will focus on the implementation of the agreed Environmental Management Plan, the Environmental and Social Safeguards Framework (ESSF) and the Pest Management Plan (PMP), and provide guidance to the project teams to address outstanding issues. The environment specialist, who will be based in the country office, will provide training and support on sub-project level environmental screening and assessment, implementation of the EMP, and monitoring and reporting in accordance with the ESSF. Similarly, on the social side: the country office based social development team member will assist in to training government project management staff, before and during implementation, on application of the ESSF in sub-project screening, preparation and implementation of LARAPs for potential resettlement and land acquisition, as well as on monitoring and reporting. Technical Guidance and Implementation support. Bank technical (WRM, irrigation and agriculture) specialists will review and provide advice to the government project teams on: technical designs and implementation issues of project components in participating basins, provinces and districts; the establishment and strengthening of institutional mechanisms for PIM in irrigation schemes, including the Jatiluhur Irrigation System; and multi-stakeholder platforms for national basin water resources management. They will also facilitate the organization of important learning and consultation events. They will focus in particular on the long-term sustainability of the newly created sector institutions and governance mechanisms. 2. Most of the Bank team members will be based in the Indonesia country office in Jakarta to ensure rapid and effective response to the Borrower's needs for implementation support. Formal supervision and field visits covering all aspects of project implementation will be carried out semi-annually; enhanced with needs-based visits by small groups. Estimated inputs from different Bank experts during the various stages of implementation are outlined below: Time Focus Resource Estimate First twelve Procurement review, supervision and training Procurement specialist(s) 5 SWs months FM training and supervision FM/Anti-corruption specialists 9 SWs ESSF implementation supervision Social development specialist 4 SWs Environmental training and supervision Environmental specialist 4 SWs Technical review and support WRM/Irrigation/Agricultural (WRM/Irrigation/Agricultural measures) Specialists 15 SWs Team leadership TTL 4 SWs 44 12-60 Technical support for project implementation WRM/irrigation specialists 45 SWs months (WRM/Irrigation and Institutional Dev.) Environment and social safeguards (& WUAs) Environmental specialist(s) 9 SWs monitoring & reporting Social development specialist 10 SWs Financial management &disbursement FM specialist/Anti-corruption 18 SWs specialists Procurement review and support Procurement specialist 13 SWs Agricultural measures and monitoring Agricultural specialist 10 SWs Team leadership TTL 12 SWs Note: SW ­ Staff Week 3. The skill mix required is summarized below. Skills Needed Number of Staff Weeks Number of Trips Comments TTL/Water Resources 9 SWs annually Two-three trips Bank staff Management Specialist River Basin 6 SWs annually Two trips total Bank staff & WRM/Irrigation Consultant Management Specialist Agricultural Specialist 2-3 SWs annually Two trips Consultant Procurement 3-4 SWs annually Two-three trips Country office based Social development 3-4 SWs annually Two-three trips Country office based specialist Environment specialist 2-3 SWs annually Two trips Country office based Financial management 3-4 SWs annually Two-three trips Country office based /Anti-corruption specialists 45 Annex 6: Team Composition WATER RESOURCES AND IRRIGATION SECTOR MANAGEMENT PROGRAM (PHASE II) The World Bank staff and consultants who worked on the project are listed below. Name Title Unit Xiaokai Li Task Team Leader/Senior WRM EASIN Specialist Paulus van Hofwegen Senior Water Resources Specialist EASIS Ilham Abla Senior Operations Officer EASIS Kikkeri Ramu Water Management Institution Specialist Consultant Guy Alaerts Lead River Basin Management Specialist ECSAR Irama Aboesoemono Basin Water Resources Management Consultant Xueming Liu Senior Agricultural Economist FAO Bisma Husen Senior Procurement Specialist EASFM Unggul Suprayitno Senior Financial Management Specialist EASPR Andrew Sembel Environmental Specialist LEGES Ninin Dewi Social Development Specialist Consultant Sameena Dost Senior Counsel LEGES Robert O'Leary Senior Finance Officer CTRFC Andry Utama Thamrin Finance Analyst CTRDM Dayu Amurwanti Governance Specialist EACIF Mariam Rikhana Agriculture Consultant Consultant Sandra Walston Program Assistant EASIN Dewi Sutista Team Assistant EACIF Peer Reviewers: Vahid Alavian (Water Advisor, AFTEG) Joop Stoutjesdijk (Lead Irrigation Specialist, SASAR) Iain G. Shuker (Lead Agricultural Specialist, AFTAR) Yoshiharu Kobayashi (Sr. Water Resources Specialist, MNSWA) Carolina V. Figueroa-Geron (Lead Rural Development Specialist, EASPS) 46 Annex 7: Economic and Financial Analysis WATER RESOURCES AND IRRIGATION SECTOR MANAGEMENT PROGRAM (PHASE II) 1. The Project is to assist the Borrower to improve its capacity for basin water resource and irrigation management and increase irrigated agriculture productivity in the Project area. Project Benefits 2. Quantifiable benefits. WISMP 2 will provide more reliable and efficient water delivery to irrigated agriculture, which will generate confidence among farmers/irrigators in planning and implementing improved agricultural practices (e.g., higher cropping intensity, higher input use, and opportunities for diversification) and as a result, farm output, incomes and economic value will be increased. 3. Non-quantifiable benefits. Other benefits not accounted for in the analysis include: (a) cost savings from appropriate and timely river infrastructure maintenance; (b) cost savings relating to improved management of flooding and mitigation of associated loss; and (c) efficiency gains from institutional strengthening and development associated with the programme. Under the project, there are interventions to improve management of the river basins in Component 1 and improvement of the irrigation systems and agricultural productivity in Components 2 and 3. It is not possible to measure the individual effects of these capital improvement cots, but the benefits flowing from them are assumed to be captured in the increased agricultural productivity and increased net revenue to farmers which are measured in this analysis. 4. Component 1. Basin Water Resources Management Improvement. Table 1 indicates the expected benefits from the investments in improving basin infrastructure and maintenance. Table 1. Component 1 Activities, With Proportion and Expected Benefits by Category Categories of Proportion of Expected benefits activities activities Benefits from conservation activities include, but are not limited to, the 3 extraction of accumulated sand and rock because of the added infrastructure, Conservation 30% preventing decrease in irrigation water flow, possible electricity production where this is feasible, and potential elimination of O & M costs. Water Benefits include, but are not limited to, incremental agricultural production due 40% Utilization4 to improved infrastructure for irrigation use. River Basin Benefits include, but are not limited to, the protection of land, agricultural 30% Maintenance5 production, buildings, and household incomes through river bank protection. 3 Data used for this category was from, "Usulan Kegiatan PPK PKSDA SNVT PPSDA Serayu Opak, Pembangunan Bangunan Pengendalia Sedimen Rejasa dan Bumiroso", Kabupaten Banjarnegara dan Kabupaten Wonosobo, Jawa Tengah, Juni 2010. 4 Data used for this category was from, "Usulan Kegiatan PPK Irigasi I SNVT PPSDA SO, Rehabilitasi Bendung Tajum Daerah irigasi Tajum", Kabupaten Banyumas, Jawa Tengah, Juni 2010 47 5. Component 2. Participatory Irrigation Management Improvement (PIM). Standard cost/benefit approach will be adopted to evaluate two cases, with varying levels of infrastructure rehabilitation requirement. Irrigation rehabilitation investment, in most circumstances, will provide substantial incremental economic returns to the incremental investment involved. 6. WISMP-2 will cover two types of scheme rehabilitation, with the area of the schemes and the amount of investment based on actual data collected from Phase I implementation. (a). Schemes requiring light physical improvements to bring the system efficiency from 75 to 80 % -with an average investment cost Rp.500,000 per hectare on 280,000 hectares. (b). Schemes requiring moderate physical improvements to bring the system efficiency from 65 % to 80% - with an average investment cost Rp.1,000,000 per hectare on 80,000 hectares. The crop yield increase, crop intensity increase, and/or changes in cropping patterns from paddy to higher value crops were derived from data collected of various sources, as shown below: 7. Sources of data for estimating crop production parameters. In addition to the data collected from WISMP-1 implementation, various other sources of information on incremental agricultural production were taken into account from data gathered from several agencies and reports.6 In each case, the impact of the project was compared to a without-project situation, with incremental benefits generated from: (a) crop yield increase; (b) Crop intensity increase; and/or (c) changes in cropping patterns (from paddy to high value crops). In addition, separate estimates were made for Java and off­Java to reflect the general differences in productivity in the two areas. The production parameters used a weighted average for Java and non-Java to get an overall set of parameters to apply to all project areas. "Without project" assumes all conditions will remain the same. The sizeable effect of the project on cropping intensities is shown in Table 2. Table 2. Measures of change in cropping intensities for Java and off-Java Net Change Java / off-Java WOP WP Java Islands 259.2% 267.9% 3.4% Off Java Islands 218.0% 229.4% 5.2% 5 Data used for this category was from, "Profil Wilayah Sungai Bodri Kuto Balai PSDA Jragung Tuntang", Dinas Pengelolaan Sumber Daya Air, Semarang, Jawa Tengah, Juni 2010 6 (a) Data from BPSDA of West Java Province, showing information of cropping plan and realisation of Jatiluhur irrigated area and kabupaten/kota which are planned to be includes in WISMP-2 as Bandung, Cianjur, Sukabumi, and Bogor West Java province; (b) Cropping Pattern Plan and Realization Evaluation Data for Second Season of Crop Year 2007 of Balai PSDAs (Water Resources Management Institutions) of Ciliwung-Cisadane, Cisadea ­Cimandiri, Citarum, Citanduy Ciwulan, and Cimanuk Cisanggarung; (c) Comprehensive Development Management Plan of Bengawan Solo River Basin, showing the plan of cropping pattern of Kabupatens as Wonogiri, Karanganyar, Sukoharjo, Sragen, Klaten, Boyolali, Blora and Rembang; (d) Nusa Tenggara Barat ­ Water Resources Management Programme (NTB-WRMP) Semi- Annual Consolidated Project Report (July-December) 2009; (e) Final Report Monitoring Outcomes and Impact of WISMP Part B - Development Dynamic Research Centre of Padjadjaran University and the World Bank; (f) Before and planned cropping pattern data used by PISP (Participatory Irrigation Sector Project) from Central Java, East Java and South Sulawesi in evaluation of project benefit; (g) IMRI reports, 50 GP3A; and (h) Field data gathering in 4 provinces with farmers selected by GP3A. 48 8. The yield changes show a somewhat higher gain on off-Java compared to Java as shown in Table 3. Off-Java has a lower base, making the likelihood of a larger relative increase. In absolute terms, the increase in yields on Java and off-Java were estimated to be the same at an increase of 0.50 MT increase for both regions. System of Rice Intensification (SRI), on the other hand, shows a slightly larger estimated relative increase in yields on Java than off-Java. This rice crop is relatively new to Indonesia, and estimates may not be very accurate about future levels of production. While there is an apparent productivity advantage in growing SRI, compared to a regular rice crop, it is believed to have a rather limited potential area because of the high levels of organic inputs that are limited in quantities necessary for more extensive use. Soybeans show a strong increase in yields of about 34 % for both Java and off-Java. Maize yields increase 50% more off-Java than on Java, perhaps reflecting a comparative advantage in Maize production off- Java. There were no changes in estimated yield levels for shallots and sugarcane, and no comparison was possible between Java and off-Java because data on these two crops were not found for off-Java. Further, in comparison with international rice productivity, there is still much room for further increase in Indonesia against productivities of 9.0, 7.9 and 6.6 in Australia, USA and China respectively (FAO, Cropstat 2010). Table 3. Changes in Yields of Crops Grown In Irrigated Areas of Java and Non-Java Java - Off Java WOP WP Net Change Yield change (Rice MT/ha) Java 5.26 5.76 9.5% Off Java 4.04 4.54 12.4% SRI, MT/ha Java 7.75 9.48 22.3% Off Java 7.61 9.00 18.3% Soybeans, MT/ha Java 1.28 1.72 34.4% Off Java 1.15 1.55 34.8% Maize, MT/ha Java 3.17 4.08 28.7% Off Java 2.80 4.00 42.9% 9. The projected cropping patterns as a result of WISMP-2 investments show some variation. Increases in rice area are limited on both Java and off-Java because they are already at very high in irrigated areas. The SRI shows a four-fold increase in cropped areas on both Java and off-Java because of the low baseline of planted areas. Soybeans show a 50 percent estimated increase in cropped area off-Java compared to less than 10 percent for Java. This difference may reflect the acceptance of soybeans as a high-value crop off-Java. Maize showed no change on Java and a minor increase, 2.7 %, off-Java. There were no changes in the estimated sugarcane and shallot area for Java, and data was not available for these two crops off-Java. 49 Table 4. Measures of Change in Total Cropped Area Region/Crop Java Off-Java Rice 0.9% 2.7% SRI 400.0% 400.0% Soybeans 9.4% 50.0% Maize 0.0% -2.7% Shallot 0.0% - Sugarcane 33.3.0% - 10. Component 3. Jatiluhur Irrigation Management Improvement. This component has been treated as a stand-alone sub-project for economic/financial analysis. Benefits of WISMP-2 investments in the Jatiluhur Irrigation System were estimated based on a feasibility study (Korean Rural Community Corporation, August 2010), collected production information on inputs, yields and estimated values for all inputs and outputs. This study did not consider SRI production in the Jatiluhur area, nor any other commodities, such as soybeans, which are grown on a minor scale in the Jatiluhur area. The project is compared to a without-project situation, with incremental benefits measured in the same way as for Component 2. 11. Based on the Jatiluhur study, the overall change in cropping intensity would increase by 3.5% under of the project, from a cropping intensity of 213.1% to 220.5%. Cropping intensity for the "without project" case would decrease from a cropping intensity of 213% in 2010 to 193% in 2020. Most of this change would be due to the reduction in rice area in Jatiluhur. Reduction in cropping intensity without the project investments in Jatiluhur was slightly higher in than the Java and off-Java areas for Component 2, because of its somewhat greater dependence on an assured supply of irrigation water. The yield change of rice for the Jatiluhur area shows a strong increase of 24.0 %, compared to the level of production if the investment had not been made. Data also shows reduction in rice yields without the project, which can be expected because of more limited irrigation water. Since SRI data was not collected separately for Jatiluhur, data for SRI estimated for Java has been used for Jatiluhur as well. This yield nearly doubles the regular rice yield, but the relative increase in SRI yield is about the same at 22.3 %. Table 5. Projected Yield Changes Jatiluhur WOP WP Net Change Rice MT/ha 4.16 5.16 24.0% SRI, MT/ha 7.75 9.48 22.3% 12. With an increase in the cropping intensity, the total rice area increased by nearly 11% while SRI rice increased by 150 % (but still only 2.3% of the total cropped area). With the implementation of WISMP 2, soybeans are expected to be introduced in 3.8% of the cropped area. 50 Project Costs 13. Component 1. Basin Water Resources Management Improvement. Depending on specific project interventions by river basin, if all benefits are included in the PIM, then the entire infrastructure investment costs accordingly are included in the analysis. However, where investments are for multi-purpose structures (irrigation, flood control, industrial and drinking water supply), only costs incurred for irrigation have been apportioned. Non-irrigation costs have been identified and apportioned to the related quantifiable non-irrigation benefits to be extent possible. 14. Component 2. Participatory Irrigation Management Improvement. The following costs are included in the analysis: (a) rehabilitation costs; (b) incremental asset maintenance and O&M costs at scheme level; and (c) investment costs associated with the introduction of the reform program have been apportioned over the area to be covered by the project. 15. Component 3. Jatiluhur Irrigation Management Improvement. This component has been treated as a stand-alone sub-project for the economic/financial analysis, and costs have been matched with the benefits. Economic Analysis 16. World Bank commodity price projections (2015-2020) were used to estimate farm gate prices in constant 2010 terms, in addition to incorporating World Bank current price information (Pink Sheet) and some CIF prices for imported commodities reported by the Central Bureau of Statistics. Estimated prices were then used to calculate farm gate value paddy rice, maize, and soybeans (the most important agricultural commodities in the proposed project area) with appropriate adjustments for domestic and international transport and handling costs for the project areas. These estimated prices are compared with current farm-gate prices in Indonesia in Table 6. Table 6. Commodities Included In Economic Price Analysis Commodity Current price Economic price Rice (paddy), per kg. Rp.2,500 Rp.2,162 Maize, per kg. Rp.2,000 Rp.,1,423 Soybeans, per kg Rp.3,500 Rp.3.466 17. Based on the above methodologies for quantifying project costs and benefits, incremental benefits generated directly from incremental costs of project intervention were identified and quantified. Cash flows of benefits and costs were projected over the project economic life to estimate the base case Net Present Value (NPV) at discount rate of 12 %. EIRRs compiled at the component level indicate EIRRs of 16% for Component 1 (River Infrastructure); 22 % for Component 2 (PIM); and 20 % for Component 3 (Jatiluhur) respectively. The whole project EIRR is estimated at 17 %, with NPV at US$29.28 million with a discount rate of 12%. 51 Sensitivity Analysis 18. Key factors influencing project results are: (a) project cost increases; and (b) decrease in the price of rice. Sensitivity tests show that the factor with significant effect on the EIRR is decrease in rice price. However, the economic price of rice used in the analysis is based on Bank projections, which reflect the declining trend in rice price. The EIRR is therefore resilient to negative changes in major output price decline and project cost increase. Table 7. Results of Sensitivity Tests of Selected Factors Sensitivity factor Tested Change EIRR Switch Value EIRR=12% Project cost increase +20% 16% +28% Decrease in rice price -10% 17% -15% Financial Analysis 19. Financial analysis was carried out for income generating entities. An income analysis has been prepared, for farmers' households, using crop budgets and farm models under "with" and "without project" situations. Results of this analysis are greatly affected by farm size. Average farm sizes throughout Indonesia have become smaller7. Between 1995 and 2007, the average farm size on Java declined from 0.493 to 0.036 hectares. Over the same period of time, the average farm size off-Java changed from 1.491 to 1.347 hectares. For the purposes of household income estimates, the analysis uses 0.360 hectare per farm on Java and 1.347 hectares per farm off-Java. Table 8. Farm Income Analysis Average Farm Farm income WOP Farm income WP Region Change Area, Ha Rp./farm Rp. Per farm Java 0.36 5,752,446 7,580810 32% Non Java 1.347 10,606,935 13,346,628 27% Jatiluhur 0.36 4,775,936 6,809,222 43% 20. Results of the farm household income analysis show a substantial increase in farmers' income from improved crop production as a result of WISMP-2. In the case of Component 2 (PIM), the relative change in farm household income on Java was 32%, and the increase in farm household income off-Java was estimated to increase by 27%. Jatiluhur farmers show a large increase of 43% in household farm income. Most of the difference between Java and Jatiluhur can be explained by the higher cropping intensity in Java, in general, compared to Jatiluhur. These estimates show an overall significant. 52 21. The project is therefore financially attractive to farmers engaged in all types of improved irrigation practices. The substantial increases in beneficiary farmers' incomes will provide adequate incentives and the ability for farmers to participate in the development investment, with the financial capacity to take over responsibility for O&M of on-farm irrigation system through WUAs/WUAFs. Fiscal Analysis 22. The direct fiscal impact in the short run is on the GOI. Governments at national, provincial and district levels will need to allocate a total of US$56.75 million for the project implementation. Funding for O&M tertiary canal systems after rehabilitation will be fully covered by the WUAs and the WUAFs, while the O&M costs for the improved secondary and main canals will be covered by the government as per current water sector policies. This indicates that the project will have some fiscal impacts in the long run as well. 53 Annex 8. Better Governance Action Plan WATER RESOURCES AND IRRIGATION SECTOR MANAGEMENT PROGRAM (PHASE II) 1. Introduction. The Government has issued the Law on Freedom of Information (Number 14/2008), and the Law on Public Service (Number 25/2009) to complement existing laws to counter collusive corrupt practices, e.g., Law on Anti Monopoly and Unfair Trade Practices (Number 5/1999), and the Laws on Corruption Eradication (Number 31/1999, 30/2002, 20/2001). These laws provide a strong legal basis for citizens to access information, to file complaints on poor services, and to report collusive and corrupt practices to law enforcement agencies. 2. The Ministry of Public Works, as part of its policy to implement a nationwide anti corruption strategy, issued a Ministerial Decree (Permen PU no. 21/PRT/M/2008) on Operational Guidelines for Ministry-wide Anti-Corruption Initiatives. The decree spells out the importance of: (i) ensuring transparency and fairness in procurement through the Ministry's electronic procurement system; (ii) strengthening internal controls and supervision; and (iii) addressing issues and complaints. The Better Governance Action Plan (BGAP) of WISMP 2 is formulated to complement the existing national and ministerial governance strategy to ensure the successful achievement of project objectives. The action plan lists the agreed actions and responsibilities to implement mitigating measures, many of which are further detailed in the relevant sections of the PAD and the PMM. 3. Important lessons learned from WISMP 1. The Project is to be implemented at the national, provincial, district and community levels. The risks and mitigating measures vary at different levels as evidenced in WISMP 1. The engagement of WUAFs in planning, design and construction, witnessing the procurement process, and hand-over of delivered works or goods, enhanced ownership and ensured the quality of goods and works delivered under the project. The Impact Monitoring and Evaluation Unit (IMEU), however, needs to have its role expanded into monitoring project performance and making sure that implementation issues are addressed in a timely manner. The following are summary of primary project governance measures introduced in WISMP 1 that are perceived as good practices and will be continued in WISMP 2: (a) Participatory irrigation management. Project design mandates participatory decision making at various levels. Members of the Irrigation Committee represent various groups in the community: representatives of WUAFs, civil society organizations, academia, and public officials. Crucial issues, particularly allocation of resources, are discussed and decisions are made through the Committees. (b) Oversight by WUAFs. WUAFs participate in sub-project design and construction (through community works contracts). In the case of contracted construction, they serve as witnesses in the procurement process, oversee construction and witness the handover of completed works. Such additional oversight by WUAFs increased ownership and quality of construction, and ensured to make sure that contractors fulfill their contractual responsibilities. 4. Under WISMP1, it is acknowledged that regular document review of invoices (including supporting documents such as receipts for reimbursable expenses) may not have been sufficient. It is also recognized that there are weaknesses in the financial management system and capacity, requiring additional measures to be taken and support to be provided to complement the existing 54 system. In addition, the terms of reference for audits should cover sample verification of invoices and claims. The recommended follow-up and implementation results need to be included in the project progress report and IMEU's monitoring report. 5. Corruption Mapping. The Corruption Matrix included in this Action Plan identifies potential risks of corruption and specifies appropriate mitigation measures agreed Government. 6. Action Plan. Specific mitigation actions are presented in the Corruption Mapping Matrix. The following provides a summary: (a) Enhancing Information Disclosure and Transparency. The Project will update the existing website regarding project related information: implementing agencies, locations, activities, procurement related announcements, reports, and contacts for complaints. Progress of the project in the form of figures, narative, and pictures will be presented on the website. Brochures on certain project information will be made available to stakeholders. At the district and at the WUAF levels, critical information such as invitation to bid, expenditures and progress reports will be displayed on notice boards. (b) Continuing Civil Society Oversight. WUAFs will be involved in the decision making processes in the bodies such as the Irrigation Committee. Such bodies will also engage local academia and non-governmental Organizations (NGOs) in independent monitoring and oversight. WISMP 2 will continue beneficiaries' participation initiated in Phase I, whereby beneficiaries take part in witnessing the procurement process and the hand - over of completed works or delivered goods. (c) Mitigating Collusion, Fraud & Nepotism. Fraudulent and collusive behavior still prevails in the country. Transparency, stronger validation of receipts and invoices, more thorough audits, and clear sanctions are keys to mitigate such risks. The project will display a summary of contracts awarded on the project website. Both internal and external audits will involve greater number of samples of transaction, contract remedies such as suspension, cancellation of payments and termination of contracts, and sanctions will be imposed for proven fraudulent behavior. Remedies will also include rejection of payments without valid receipts while contractual obligations remain. Experience from WISMP 1 indicates that validation of invoices and receipts should not be limited to only procedural or documentary compliance, but also extend to, where necessary, cross-check with suppliers/vendors/contractors to avoid mark ups or to identify fictitious documents. Pursuant to PMM stipulations, financial management personnel in the NPMU will be responsible to ensure validity and accuracy of receipts, invoices, and reports. (d) Establishing a Complaint Handling Mechanism. A complaint handling mechanism will be established in each district, with NPMU monitoring the recording (database), handling and tracking of complaints. A central database will be developed to analyze trends and patterns. These complaints will be acted upon in a professional and timely fashion (based on service standards for acting on complaints elaborated in the PMM), and without risk of reprisal to 'whistleblowers'. Serious complaints with indications of corruption will be referred to the Inspectorate General, BPKP and/or other relevant authorities for investigation. IMEU will monitor status of complaints, including response time and outcomes as part of its routine monitoring exercise. 55 (e) Enforcing Sanctions & Remedies. Clear sanctions and remedies are an important final step in the effort to fight corruption. This Project has "zero tolerance" for corruption. Any personnel (government or non-governmental) can be sanctioned if sufficient evidence is available. In all procurement contracts, evidence of corruption, collusion or nepotism will result in contract remedies, with the possibility of additional penalties imposed in accordance with the Bank and Government regulations. IMEU will also maintain a record of performance evaluation and the track record of firms and/or associations, and will make them available to all staff working on this project, particularly members of the procurement committee and project managers. 7. In addition, contracts for supervision consultants will allow project managers to terminate consultants for failing to verify accuracy, quality and quantity of goods/works, as specified in technical requirements. A WUAF that has deliberately misused funds could be excluded from future projects until funds are returned or used for the approved purpose. Funding will cease until: (a) losses due to corrupt practices are recuperated and/or quality of construction meets acceptable standard; and (b) membership of the WUAF management team is changed and approved by the WUAF forum. Disbursement to a particular local government or payment of particular contracts may be suspended pending inquiry, or until issues are addressed. Corruption Mapping Matrix 8. Preventing the occurrence of corruption in this project starts with identifying potential risk areas, i.e., corruption mapping. This mapping and identification of opportunities for corruption will be repeated by the Task Team as part of regular implementation support missions at least every six months as the project progresses and lessons are learned. The following is a summary of the main corruption risks identified and agreed mitigation. Categories of Corruption Risk Description Rating Risk Mitigation Measures Procurement of goods and services Overall procurement Collusive practices, Substantial - Procurement related information (procurement plan, announcements, bribery and kickbacks and award) should be disclosed through website. are prevalent, and - Complaint handling system will be established to ensure that issues are interventions by addressed and investigations conducted by competent organizations for superiors or other serious corruption allegations, and anonymity of informants or parties influence bid whistleblowers will be maintained. evaluation. - Clear sanctions will be defined to include sanctions to staff, bidders, and consultants/contractors/suppliers/vendors for collusive and corrupt practices. Contract Poor quality and/or Substantial - Clear qualifications and technical requires are included in management delays in completion bidding/contract documents. of works or delivery of - Regular monitoring of quality and schedule of project activities, as goods and services. well as supervision consultant performance against contract provisions will be conducted , by project staff and beneficiary communities, and rectifying actions taken in a timely manner. - Documentary and photographic evidence of completion to be properly filed for Bank review. 56 Participatory irrigation at community level Selection of WUAFs Lack of transparency Moderate - Selection criteria of beneficiaries should be clearly stated in the PMM, and clarity in the and communicated through meetings and website. selection of WUAFs - Complaint handling mechanism is put in place to deal with cases selected to participate related to unfair selection of beneficiaries or WUAFs participating in in the project. the project. Channeling and Under-allocation of High - PMM will describe, in simple language, eligible and non-eligible management of funds funds due to WUAFs, activities for funding. provided to WUAFs misreporting and - WUAFs to announce amount of funds received, used and summary of misappropriation due expenditures through meetings and notice boards. to lack of information - Training will be provided to WUAFs to strengthen capacity. and capacity. - Audit and spot checks will be performed. Financial Management Documentation and Falsification of - PMM will define measures for more effective validation of receipts, Reporting receipts, invoices, and High invoices and documents. documents - Spot checks and cross references will be made to verify validity and accuracy of supporting documents. - Records will be kept, clearly filed and available to audits and supervision missions. Publication and use Audit report is not Moderate - Summary of audit report, and findings as well as formal responses, of audit report available for will be circulated internally to ensure that lessons are learned and implementing units and recommendations are followed up. The PMM will specify mechanisms not publicly disclosed for public access to the audit report. Complaints Resolution and Effective Application of Sanctions Complaints Handling Issues are not reported, Substantial - A complaint handling and whistleblower system will be established. complaints are not As part of its progress report, NPMU shall present summary of addressed adequately complaints- number, nature and status of complaints. - Alternative conduits for complaint (telephone hotline, dedicated e-mail and PO Box) are widely disseminated. Strict procedures will be enforced to ensure anonymity of informants - The following information will be provided in the PMM, in the website, and in all the bidding documents: "The contact point for complaints related to the Project: To : Tel: Fax: e-mail: To: Whistle Blower information here Tel: Fax: e-mail: To: World Bank Fraud and Corruption unit Email: investigationshotline@worldbank.org Website: http://www.worldbank,org/integrity If you prefer to remain anonymous, you may wish to make use of a free email service (such as Hotmail or Yahoo) to create an email account using a pseudonym. This way, we could correspond with you, as necessary, to seek clarification or additional information. This would be helpful for us in pursuing your allegation. Through a Fraud and Corruption Hotline hired by INT for this purpose: (24 hour day; translation services are available) Toll-free: 1-800-83 1-0463 Collect Calls: 704-556-7046 Mail: PMB 3767, 13950 Ballantyne Corporate Place, Charlotte, N C 28277, United States" Enforcement Sanctions may not be Substantial - Guidelines on different levels of sanctions to government officials, effectively enforced WUAFs, and contractors/consultants/vendors/suppliers will be defined in the PMM. - IMEU to include, as part of its report, the enforcement of sanctions. - Lessons learned will be documented and made publicly available by NPMU. 57 Annex 9: Status of WISMP APL Triggers WATER RESOURCES AND IRRIGATION SECTOR MANAGEMENT PROGRAM (PHASE II) Status of Triggers for Migration to WISMP 2 Triggers Status of Trigger (as of November 2010) Remarks a. Four fully functioning river basin management units Trigger Fully Met. (Balai PSDA) that: (i) Are staffed adequately as determined by work Five Balai PSDA are adequately staffed and trained In addition, Balai PSDA Pemali- Comal, load analysis and have been trained in aspects of in Cimanuk Cisanggarung, Jratun, Seluna, Bango Probolo and Serayu-Citanduy Balai management, technical, financial and Gedangan and Sampean. PSDA are also fully functional. communication skills. (ii) Adequately funded up to 50% by provincial All Balai PSDA in Java have been funded by more In budget allocations for 2010, 16 Balai APBD funds for all administrative, operational than 50 % with APBD funds, including for irrigation PSDA and 4 Dinas PU Province have and O&M aspects based on a Need-Based O&M. more than 50% of APBD funding, with Budget. overall average APBD funding for all 50 Balai PSDA at 57.7%. (iii) Have full planning, budgetary and All Balai PSDA, except in two Provinces, have Balai PSDA managed by Head of Work implementation control, as evidenced by Kepala Balai PSDA designated as PPK with full Unit (Satuan Kerja-Ka Satker) is in designating the Balai PSDA Staff as Project budget execution authority. charge of program execution. Manager or as Sub-Project Manager with full spending authority. 58 (iv) Have introduced and implemented an asset The Asset Management Manual for river management and quality assurance program for infrastructure management has been finalized after managing the river infrastructure asset as trial application in 2 provinces in 2009; quality evidenced by the Balai PSDA annual Asset assurance training was completed in 2009, and Management Report. quality assurance program implementation started in all Balai PSDA. (v) Have completed the required data base for basin All Core Balai PSDA have completed the required Stand alone database is now available in water resources management and implemented database for water resources management and MIS most Balai PSDA, and linkage to the an MIS. for Water Resources (SISDA) has been set up at provincial and central system is being provincial level. established under the SISDA program. (vi) Have implemented any or all basin activities, that Activities in Bulk Water allocation, water quality All activities have become part of routine are of importance and agreed to by BWRC, in the monitoring and RIM in different basins have been annual programs. area of bulk water allocation, water quality implemented, and are reported in Balai PSDA monitoring and river infrastructure management, Annual Reports. as evidenced by the Balai PSDA annual report. (vii) Have obtained a satisfactory rating in the annual Annual evaluation has been undertaken in selected Balai PSDA institutional evaluation by the Dinas Balai PSDA with satisfactory results. PUP. b. Fifty WUAFs legally established and functional with See below. Well exceeded. Participation in respect to governance, maintenance and rehabilitation of rehabilitation of schemes mentioned in schemes, financial sustainability, and using extension PAD Triggers relates to PP 77/2001 on services and credit. Irrigation which was abolished by UU 7/2004 and replaced by PPSIP Policy on which the 2006 PP 20 for Irrigation is based. 59 c. Operational Guideline agreed on river basin Guidelines are available for all BWRM activities Fully met. management including environmental and social and are routinely used for training and management safeguards. activities. d. Fifty percent of external funding disbursed. Over 90 % external funding has been disbursed. Fully met. 60 Status of Triggers for Migration to WISMP 2 WUAF Trigger Criteria Status Description Remarks 50 WUAFs Established and 1,575 WUAFs have been established, and 1,175 WUAFs legalized. Functional with respect to the following: Functional with respect to WUAF Participation governed through legislation: law 7/2004 on Water Outcome exceeded with respect to WUAF Governance. Resources; Government Decree 20/2006 on Irrigation; Ministerial decrees on representation on Kabupaten Irrigation participatory Irrigation, Irrigation Committees, Participatory Operation and Committees. Maintenance; 4 Provincial Regulations and 27 District Regulations. Around 450 WUAFs participating as members on 11 provincial and 92 District Irrigation Committees. Functional with respect to Participatory Operation and Maintenance implemented in over 700,000 ha Outcome satisfactory with respect to maintenance and rehabilitation (746 WUAF); participatory design implemented in 275,000 ha (275 WUAF); participatory construction per UU 7/2004 & of schemes. Participatory construction for rehabilitation implemented in both provincial PP 20/2006 regarding Irrigation systems (45,300 ha) and district systems (104,700 ha) through 344 WUAFs. Management. 61 Financial sustainability Government allocations for irrigation management are gradually increasing. UU 7/2004 prohibits the transfer of irrigation At present 54 Participating Kabupaten have supplied from their APBD at least systems to WUAFs and charging of water 60,000 Rp/ha, 41 Kabupaten allocated more than 90,000 Rp/ha, 33 Kabupaten fees by government agencies for supplying more than 120,000 Rp/ha and 22 kabupaten more than 150,000 Rp/ha. The irrigation water to smallholder farmers as it 2009 level of O&M allocation by central government for large irrigation is regarded a basic need. Funding of schemes (> 3000ha) is 148,000 Rp/ha. DAK irrigation allocation varies from irrigation management is legally the 100.000 to 1,200,000 Rp/ha per Kabupaten (District) according to their fiscal responsibility of the central, provincial or capacity and irrigation infrastructure conditions. Kabupaten Governments. WUAFs may make contributions in cash or in kind on a voluntary basis. Government budget allocations are not yet fully based on actual needs. Using extension services and In 18 Kabupaten, many WUAFs have used credit facilities available under credits sub-component Part B4 for crop intensifications, innovative cropping and husbandry practices (e.g. SRI). Reportedly project Kabupaten irrigation and agricultural agencies are providing needed services and technical guidance to WUAFs established. 62 Annex 10: Statement of Loans and Credits INDONESIA: WATER RESOURCES AND IRRIGATION SECTOR MANAGEMENT PROGRAM (PHASE II) Difference between expected and actual Original Amount in US$ Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev'd P117323 2011 Indonesia Power Transmission 225.00 0.00 0.00 0.00 0.00 225.00 0.00 0.00 Development P090991 2010 ID-URBAN WATER SUPPLY 23.56 0.00 0.00 0.00 0.00 22.06 1.83 0.00 P111577 2010 ID-Local Government and 220.00 0.00 0.00 0.00 0.00 220.00 0.00 0.00 Decentralization P113341 2010 ID-Health Professional Education Quality 77.82 0.00 0.00 0.00 0.00 70.89 11.64 0.00 P115052 2010 ID PNPM-Rural III 785.00 0.00 0.00 0.00 0.00 293.39 16.73 0.00 P118113 2010 PNPM - Urban III Project 149.98 0.00 0.00 0.00 0.00 92.78 -57.20 0.00 P107661 2009 ID-BOS KITA Project 1,100.00 0.00 0.00 0.00 0.00 328.69 -169.81 0.00 P100740 2009 PINTAR 110.00 0.00 0.00 0.00 0.00 109.73 9.73 0.00 P096532 2009 ID: Dam Operational Improvement 50.00 0.00 0.00 0.00 0.00 47.99 11.63 0.00 (DOISP) P092218 2009 ID- Indo Infrastructure Finance Facility 100.00 0.00 0.00 0.00 0.00 100.00 0.00 0.00 P105002 2008 National Program for Community 341.19 190.00 0.00 0.00 0.00 0.88 -293.52 8.55 Empower P097104 2008 ID-BERMUTU 24.50 61.50 0.00 0.00 0.00 30.52 10.37 0.00 P096921 2008 ID - National UPP (PNPM UPP) 167.68 125.00 0.00 0.00 0.00 61.34 -49.80 60.76 P079906 2007 ID-Strategic Roads Infrastructure 208.00 0.00 0.00 0.00 1.54 126.05 113.72 64.59 P083742 2007 ID-Farmer Empower. Agric.Tech.&Info 32.80 60.00 0.00 0.00 0.00 29.85 14.54 0.00 P077175 2006 ID-Domestic Gas Market Development 80.00 0.00 0.00 0.00 0.00 26.17 24.50 0.00 Proj. P085375 2006 ID-WSSLIC III (PAMSIMAS) 0.00 137.50 0.00 0.00 0.00 41.97 8.75 0.00 P089479 2006 ID-Early Childhood Education and Dev 0.00 67.50 0.00 0.00 0.00 13.57 -13.64 0.00 P085374 2005 ID-HIGHER EDUCATION 50.00 30.00 0.00 0.00 0.00 22.53 20.78 -0.52 P078070 2005 ID-Support for Poor and Disadvant Areas 69.00 35.00 0.00 0.00 0.00 8.79 5.32 0.00 P085133 2005 Govt Finl Mgt & Revenue Admin Project 55.00 5.00 0.00 0.00 0.00 34.67 34.70 5.56 P076174 2005 ID-Initiatives for Local Govern. Reform 14.50 15.00 0.00 0.00 0.00 5.06 4.88 4.88 P084583 2005 ID-UPP3 67.30 71.40 0.00 0.00 0.00 0.00 -0.58 0.00 P071296 2005 ID-USDRP 45.00 0.00 0.00 0.00 6.57 12.08 17.61 4.43 P071316 2004 ID - Coral Reef Rehab and Mgmt Prog II 33.20 23.00 0.00 0.00 3.17 3.18 5.44 0.00 P074290 2004 ID-Eastern Indonesia Region Transp. 2 200.00 0.00 0.00 0.00 1.00 16.90 17.90 14.23 P063913 2003 ID-Java-Bali Pwr Sector & Strength 303.72 0.00 0.00 0.00 3.57 41.67 15.24 8.29 Total: 4,533.25 820.90 0.00 0.00 15.85 1,985.76 - 170.77 239.24 63 INDONESIA STATEMENT OF IFC's Held and Disbursed Portfolio In Millions of US Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 2006 Bank Danamon 155.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 BonaVista School 1.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 2006 Buana Bank 5.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2006 Centralpertiwi 45.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 Medan NP School 1.75 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2002 P.T. Gawi 11.05 0.00 0.00 3.49 4.90 0.00 0.00 3.49 1989 PT Agro Muko 0.00 2.20 0.00 0.00 0.00 2.20 0.00 0.00 1997 PT Alumindo 2.73 0.00 0.00 0.00 2.73 0.00 0.00 0.00 1989 PT Astra 0.00 0.20 0.00 0.00 0.00 0.20 0.00 0.00 1994 PT Astra 0.00 0.19 0.00 0.00 0.00 0.19 0.00 0.00 2003 PT Astra 0.00 0.12 0.00 0.00 0.00 0.12 0.00 0.00 PT Astra Otopart 0.00 0.70 0.00 0.00 0.00 0.70 0.00 0.00 2005 PT Astra Otopart 24.00 0.00 0.00 0.00 24.00 0.00 0.00 0.00 2000 PT Bank NISP 0.00 2.85 2.86 0.00 0.00 2.85 2.83 0.00 2002 PT Bank NISP 0.00 2.04 0.00 0.00 0.00 2.04 0.00 0.00 2004 PT Bank NISP 35.00 0.00 0.00 0.00 35.00 0.00 0.00 0.00 1997 PT Berlian 0.00 3.35 0.00 0.00 0.00 0.00 0.00 0.00 1993 PT Bina Danatama 0.05 0.00 0.00 0.00 0.05 0.00 0.00 0.00 1996 PT Bina Danatama 0.00 0.00 2.58 4.81 0.00 0.00 2.58 4.81 2004 PT Ecogreen 30.00 0.00 0.00 0.00 30.00 0.00 0.00 0.00 2005 PT Ecogreen 25.00 0.00 0.00 0.00 20.00 0.00 0.00 0.00 PT Grahawita 0.00 0.00 3.75 0.00 0.00 0.00 3.75 0.00 1991 PT Indo-Rama 0.00 3.82 0.00 0.00 0.00 3.82 0.00 0.00 1995 PT Indo-Rama 0.00 1.57 0.00 0.00 0.00 1.57 0.00 0.00 1999 PT Indo-Rama 0.00 0.81 0.00 0.00 0.00 0.81 0.00 0.00 2001 PT Indo-Rama 20.00 0.00 0.00 0.00 0.33 0.00 0.00 0.00 2004 PT Indo-Rama 48.00 0.00 0.00 0.00 41.00 0.00 0.00 0.00 1992 PT KIA Keramik 0.23 0.00 0.00 2.00 0.23 0.00 0.00 2.00 1996 PT KIA Keramik 1.65 0.00 0.00 53.49 1.65 0.00 0.00 53.49 1995 PT KIA Serpih 4.50 0.00 0.00 49.50 4.50 0.00 0.00 49.50 1997 PT Kalimantan 9.38 0.00 0.00 0.00 9.38 0.00 0.00 0.00 PT Karunia (KAS) 16.45 0.00 0.00 3.56 16.45 0.00 0.00 3.56 2006 PT Karunia (KAS) 20.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 PT Makro 0.00 2.34 0.00 0.00 0.00 2.34 0.00 0.00 2000 PT Makro 0.00 1.21 0.00 0.00 0.00 0.71 0.00 0.00 2006 PT Makro 0.00 0.66 0.00 0.00 0.00 0.66 0.00 0.00 1998 PT Megaplast 0.00 2.50 0.00 0.00 0.00 2.50 0.00 0.00 1993 PT Nusantara 0.00 0.00 10.16 7.90 0.00 0.00 10.16 7.90 2004 PT Prakars (PAS) 15.36 0.00 0.00 3.20 15.36 0.00 0.00 3.20 1997 PT Sayap 0.83 0.00 0.00 0.00 0.83 0.00 0.00 0.00 2001 PT Sigma 0.00 1.03 0.00 0.00 0.00 1.03 0.00 0.00 64 2006 PT TAS 7.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1995 PT Viscose 7.81 0.00 0.00 0.00 7.81 0.00 0.00 0.00 2004 PT Viscose 8.31 0.00 0.00 0.00 8.31 0.00 0.00 0.00 1997 PT Wings 0.72 0.00 0.00 0.00 0.72 0.00 0.00 0.00 2001 Sunson 11.62 0.00 0.00 7.35 11.62 0.00 0.00 7.35 2005 WOM 0.00 15.82 0.00 0.00 0.00 15.74 0.00 0.00 2006 WOM 20.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 Wilmar 33.33 0.00 0.00 0.00 33.33 0.00 0.00 0.00 Total portfolio: 560.77 41.41 19.35 135.30 269.20 37.48 19.32 135.30 Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic. 2005 Bank NISP SELF 0.03 0.00 0.00 0.00 2006 Bank NISP Swap 0.00 0.00 0.00 0.00 2006 Orix Indonesia 0.08 0.00 0.00 0.00 Total pending commitment: 0.11 0.00 0.00 0.00 65 Annex 11: Country at a Glance INDONESIA: WATER RESOURCES AND IRRIGATION SECTOR MANAGEMENT PROGRAM (PHASE II) East Lower- POVERTY and SOCIAL Asia & middle- Development diamond* Indonesia Pacific income 2008 Population, mid-year (millions) 228.2 1,931 3,702 Life expectancy GNI per capita (Atlas method, US$) 1,870 2,631 2,078 GNI (Atlas method, US$ billions) 426.8 5,081 7,692 Average annual growth, 2002-08 Population (%) 1.2 0.8 1.2 Labor force (%) 1.9 1.2 1.6 GNI Gross per primary Most recent estimate (latest year available, 2002-08) capita enrollment Poverty (% of population below national poverty line) 17 .. .. Urban population (% of total population) 48 44 41 Life expectancy at birth(years) 71 72 68 Infant mortality (per 1,000 live births) 31 22 46 Child malnutrition (% of children under 5) 20 13 26 Access to improved water source Access to an improved water source (% of population) 80 87 86 Literacy (% of population age 15+) 92 93 83 Gross primary enrollment (% of school-age population) 121 111 109 Indonesia Male 123 112 112 Lower-middle-income group Female 118 110 106 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1988 1998 2007 2008 Economic ratios* GDP (US$ billions) 88.8 95.4 431.9 510.7 Gross capital formation/GDP 28.8 16.8 24.9 27.8 Exports of goods and services/GDP 23.8 53.0 29.4 29.8 Trade Gross domestic savings/GDP 31.5 26.5 29.0 28.9 Gross national savings/GDP 27.2 24.2 18.2 18.5 Current account balance/GDP -6.2 4.3 2.4 0.1 Interest payments/GDP 3.8 7.4 1.4 1.1 Domestic Capital savings formation Total debt/GDP 60.9 158.7 33.0 29.5 Total debt service/exports 40.3 15.9 16.3 12.4 Present value of debt/GDP .. .. 34.2 28.5 Present value of debt/exports .. .. 105.6 81.4 Indebtedness 1988-98 1998-08 2007 2008 2008-12 (average annual growth) GDP 6.6 4.9 6.3 6.1 5.2 Indonesia GDP per capita 5.0 3.5 5.1 4.8 3.6 Lower-middle-income group Exports of goods and services 9.4 6.8 8.5 9.5 3.0 STRUCTURE of the ECONOMY 1988 1998 2007 2008 Growth of capital and GDP (%) (% of GDP) 15 Agriculture 22.5 18.1 13.7 14.4 10 Industry 37.3 45.2 46.8 48.1 5 Manufacturing 19.7 25.0 27.1 27.9 0 Services 40.3 36.7 39.5 37.5 -5 03 04 05 06 07 08 Household final consumption expenditure 59.9 67.8 62.7 62.6 -10 General gov't final consumption expenditure 8.5 5.7 8.3 8.4 GCF GDP Imports of goods and services 21.1 43.2 25.4 28.6 1988-98 1998-08 2007 2008 Growth of exports and imports (%) (average annual growth) Agriculture 2.6 3.2 3.4 4.8 30 Industry 8.3 4.1 4.7 3.7 20 Manufacturing 9.4 4.9 4.7 3.7 10 Services 6.9 6.3 8.8 8.9 0 Household final consumption expenditure 8.7 4.3 8.2 2.9 -10 03 04 05 06 07 08 General gov't final consumption expenditure 2.2 7.6 3.9 10.4 Gross capital formation 6.2 5.2 2.0 12.6 Exports Imports Imports of goods and services 12.7 7.2 9.0 10.0 Note: 2008 data are preliminary estimates. This table was produced from the Development Economics LDB database. * The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. 66 Indonesia P R IC E S a nd G O V E R N M E N T F IN A N C E 19 8 8 19 9 8 2007 2008 Inflation (%) D o m e s t ic pric e s 20 (% change) Co nsumer prices 8.5 58.5 6.4 9.8 15 Implicit GDP deflato r 12.7 75.3 1 .3 1 18.3 10 G o v e rnm e nt f ina nc e 5 (% o f GDP , includes current grants) 0 Current revenue .. .. 17.9 19.4 03 04 05 06 07 08 Current budget balance .. .. 6.8 6.1 GDP deflator CPI Overall surplus/deficit .. .. -1.3 -0.8 TRADE 19 8 8 19 9 8 2007 2008 Export and import levels (US$ mill.) (US$ millio ns) To tal expo rts (fo b) 19,335 48,848 1 8,01 1 5 139,605 150,000 Fuel 7,696 8,079 22,51 8 29,329 120,000 Estate cro p 2,070 3,974 6,329 8,467 M anufactures 5,693 20,088 46,1 40 50,588 90,000 To tal impo rts (cif) 15,279 35,286 94,1 87 128,907 60,000 Fo o d 642 2,612 6,884 7,927 30,000 Fuel and energy 959 2,686 21 ,994 38,038 Capital go o ds 5,096 9,932 19,038 42,397 0 Expo rt price index (2000=100) 32 76 133 146 02 03 04 05 06 07 08 Impo rt price index (2000=100) 126 107 206 263 Exports Imports Terms o f trade (2000=1 00) 25 71 65 56 B A LA N C E o f P A Y M E N T S 19 8 8 19 9 8 2007 2008 Current account balance to GDP (%) (US$ millio ns) Expo rts o f go o ds and services 20,878 105,221 1 30,501 154,849 18 Impo rts o f go o ds and services 18,437 87,933 109,588 144,681 15 Reso urce balance 2,441 17,288 20,91 3 0,1 1 68 12 Net inco me -8,184 -16,378 -15,525 -15,253 9 Net current transfers 254 3,184 5,104 5,385 6 Current acco unt balance -5,489 4,094 10,493 300 3 Financing items (net) 5,263 -7,531 2,223 -2,244 0 Changes in net reserves 226 3,437 2,71 -1 5 1,945 02 03 04 05 06 07 08 M emo : Reserves including go ld (US$ millio ns) 4,814 23,516 55,798 ,1 0 81 1 Co nversio n rate (DEC, lo cal/US$ ) 1,685.7 0,01 1 3.6 9,143.4 9,699.9 E X T E R N A L D E B T a nd R E S O UR C E F LO WS 19 8 8 19 9 8 2007 2008 Composition of 2008 debt (US$ mill.) (US$ millio ns) To tal debt o utstanding and disbursed 54,078 51 1 ,484 142,638 150,851 IB RD 8,003 10,692 6,821 6,968 A: 6,968 G: B: 2,006 IDA 861 694 1,550 2,006 26,565 D: To tal debt service 8,642 1 4 8,31 22,805 22,150 10,988 IB RD 1,063 1,456 1,803 1,622 IDA 13 26 38 40 Co mpo sitio n o f net reso urce flo ws E: Official grants 201 279 991 837 41,967 Official credito rs 2,876 2,754 -1,849 ,1 9 -1 1 P rivate credito rs 63 -3,281 2,558 7,092 Fo reign direct investment (net inflo ws) 576 -241 6,928 8,698 F: 62,357 P o rtfo lio equity (net inflo ws) 0 -4,371 3,559 322 Wo rld B ank pro gram Co mmitments 1,067 1,672 1,383 2,159 Disbursements 1,649 ,21 1 2 986 1,892 A - IBRD E - Bilateral P rincipal repayments 435 754 1,396 1,279 B - IDA D - Other multilateral F - Private C - IMF G - Short-term Net flo ws ,21 1 4 458 -409 613 Interest payments 641 728 445 383 Net transfers 574 -270 -855 230 No te: This table was pro duced fro m the Develo pment Eco no mics LDB database. 12/9/09 67 IBRD 38329 105 120 Andaman NANGGROE ACEH DARUSSALAM Sea Total Basin Management Units: 5 THAILAND INDONESIA Sulu Sea PHILIPPINES Project Core Basin Management Units: 1 Total Kabupatens: 23 Project Kabupatens: 4 WATER RESOURCES AND IRRIGATION INDONESIA Banda Aceh SECTOR MANAGEMENT PROGRAM II BRUNEI Celebes Sea Natuna Medan MALAYSIA Besar SULAWESI TENGAH Total Basin Management Units: 2 Project Core Basin Management Units: 1 Total Kabupatens: 11 SULAWESI Simeulue MALAYSIA Project Kabupatens: 8 UTARA Morotai KALIMANTAN Manado PACIFIC SINGAPORE TIMUR Nias Ternate OCEAN SUMATERA UTARA Pekanbaru GORONTALO Halmahera Gorontalo Total Basin Management Units: 10 RIAU 0 Project Core Basin Management Units: 1 Lingga Pontianak KALIMANTAN 0 SUMATERA KALIMANTAN Samarinda Total Kabupatens: 33 Project Kabupatens: 4 BARAT MALUKU Padang Palu UTARA IRIAN JAYA KALIMANTAN (PAPUA) Jambi Peleng Obi M TENGAH SULAWESI SELATAN JAMBI Bangka SULAWESI e n Palangkaraya Total Basin Management Units: 4 Pangkal Pinang t a Sula Is. Project Core Basin Management Units: 1 w SUMATERA BARAT BANGKA-BELITUNG Total Kabupatens: 24 a i Total Basin Management Units: 2 Palembang Belitung Project Kabupatens: 14 KALIMANTAN Ceram I Project Core Basin Management Units: 1 s SELATAN . Total Kabupatens: 19 SULAWESI Banjarmasin Buru Project Kabupatens: 9 Bengkulu TENGGARA Kendari Ambon BENGKULU JAWA TIMUR Ujung SUMATERA SELATAN LAMPUNG Pandang Muna Total Basin Management Units: 9 MALUKU Total Basin Management Units: 2 Enggano Bandar Lampung Project Core Basin Management Units: 2 Project Core Basin Management Units: 0 D.K.I. JAKARTA Total Kabupatens: 38 Total Kabupatens: 15 JAKARTA Java Sea Project Kabupatens: 13 SULAWESI BARAT Banda NUSA TENGGARA BARAT Total Basin Management Units: 1 Sea Project Kabupatens: 3 BANTEN Total Basin Management Units: 3 Project Core Basin Management Units: 0 Semarang Madura Project Core Basin Management Units: 2 Total Kabupatens: 5 Total Kabupatens: 10 Project Kabupatens: 4 Bandung Surabaya JAWA Project Kabupatens: 7 LAMPUNG BALI Wetar Babar Total Basin Management Units: 3 Moa JAWA BARAT Yogyakarta Alor Project Core Basin Management Units: 1 Bali Lombok Total Kabupatens: 14 Total Basin Management Units: 5 Flores Project Kabupatens: 1 Project Core Basin Management Units: 2 Denpasar Mataram Sumbawa TIMOR-LESTE Total Kabupatens: 26 Project Kabupatens: 9 D.I. YOGYAKARTA Timor PROJECT PROVINCES Sumba Total Basin Management Units: 1 MAIN ROADS JAWA TENGAH Project Core Basin Management Units: 1 Total Kabupatens: 5 Kupang Total Basin Management Units: 6 Project Kabupatens: 4 This map was produced by the PROVINCE HEADQUARTERS Project Core Basin Management Units: 4 Total Kabupatens: 35 NUSA TENGGARA TIMUR Map Design Unit of The World Bank. 0 100 200 300 400 Kilometers The boundaries, colors, NATIONAL CAPITAL Project Kabupatens: 17 Total Basin Management Units: 3 denominations and any other Project Core Basin Management Units: 1 information shown on this map do not PROVINCE BOUNDARIES Total Kabupatens: 21 imply, on the part of The World Bank 0 100 200 300 400 Miles Project Kabupatens: 4 Group, any judgment on the legal INTERNATIONAL BOUNDARIES INDIAN OCEAN status of any territory, or any AUSTRALIA endorsement or acceptance of such Note: Kabupaten data includes districts and municipalities. boundaries. 105 120 JANUARY 2011