Eastern Islands Urban Development Sector Project in Indonesia (Loan 1292-InO)

7/31/2019 Eastern Islands Urban Development Sector Project in Indonesia (Loan 1292-InO)

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ASIAN DEVELOPMENT BANK PPA: INO 24206Operations Evaluation Department (Final)

PROJECT PERFORMANCE AUDIT REPORT

ON THE

EASTERN ISLANDS URBAN DEVELOPMENT SECTOR PROJECT(Loan 1292-INO)

IN

INDONESIA

September 2004


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CURRENCY EQUIVALENTS

Currency Unit rupiah (Rp)

At Appraisal At Project Completion At Operations Evaluation(May 1993) (July 2000) (March 2004)

Rp1.00 = $0.00048146 $0.00011142 $0.00011587$1.00 = Rp2,077 Rp8,975 Rp8,630

ABBREVIATIONS

ADB Asian Development Bank

BAPPEDA Badan Perencanaan Pembangunan Derah (RegionalDevelopment Planning Agency)

BAPPENAS Badan Perencanaan Pembangunan Nasional(National Development Planning Agency)

DGHS Directorate General of Human SettlementsDSA Dream Sukses Airindo

EIRR

economic internal rate of returnFIRR financial internal rate of returnIUIDP Integrated Urban Infrastructure Development ProgramKIP Kampung Improvement Program

LIDAP Local Institutional Development Action PlanMCK mandi-cuci-kakus (communal sanitary and laundry facilities)MIIP Market Infrastructure Improvement Program

MOHA Ministry of Home AffairsMPW Ministry of Public WorksO&M operation and maintenanceOEM Operations Evaluation Mission

PCR project completion reportPDAM Perusahaan Dearah Air Minum (Water Supply Enterprise)PMU project management unit

RIAP Revenue Improvement Action PlanSLA subsidiary loan agreementSWM solid waste managementWACC weighted average cost of capital

NOTES

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

ended on 31 March. Since FY2000, however, the FY has ended on 31December. FY before a calendar year denotes the year in which the fiscalyear ends, e.g., FY2004 ends on31 December2004.

(ii) In this report, $ refers to US dollars.

Director General, Operations Evaluation Department : E. SuzukiDirector, Operations Evaluation Division 2 : D. EdwardsEvaluation Team Leader : A. Ibrahim

Operations Evaluation Department, PE-648


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WEIGHTS AND MEASURES

ha hectarekm kilometer

lps liter per secondm3 cubic meter


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CONTENTS

Page

BASIC DATA iii

EXECUTIVE SUMMARY iv

MAP vii

I. BACKGROUND 1

A. Rationale 1B. Formulation 1C. Purpose and Output 2D. Cost, Financing, and Implementation Arrangements 2E. Completion and Self-Evaluation 3F. Operations Evaluation 4

II. PLANNING AND IMPLEMENTATION PERFORMANCE 4

A. Formulation and Design 4B. Achievement of Outputs 5C. Cost and Scheduling 11D. Consultant Performance, Procurement, and Construction 12E. Organization and Management 12

III. ACHIEVEMENT OF PROJECT PURPOSE 13

A. Operational Performance 13B. Performance of the Operating Entity 16C. Financial and Economic Reevaluation 17D. Sustainability 18

IV. ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS 18

A. Socioeconomic Impact 18B. Environmental Impact 19C. Impact on Institutions and Policy 19

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


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V. OVERALL ASSESSMENT 20

A. Relevance 20B. Efficacy 20C. Efficiency 20D. Sustainability 21

E. Institutional Development and Other Impacts 21F. Overall Project Rating 21G. Assessment of Asian Development Bank and Borrower Performance 21

VI. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS 22

A. Issues and Lessons Learned 22B. Follow-Up Actions 24

APPENDIXES

1. Financing Plan 25

2. Subproject Disbursements 263. Status of Completion 274. Implementation Schedule 335. Financial Performance of Local Governments 346. Financial Performance of PDAMs 527. Financial and Economic Analysis 658. Beneficiary Survey: Project Socioeconomic and Environmental Impacts 67

Attachment: Management Response on the Project Performance Audit Report (PPAR)

on the Eastern Islands Urban Development Sector Project in Indonesia(Loan 1292-INO)


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BASIC DATA

Loan 1292-INO: Eastern Islands Urban Development Sector Project

PROJECT PREPARATION/INSTITUTION BUILDING

TA No. TA Name TypePerson-Months

Amount($000)

ApprovalDate

TA 1472-INO Urban and RegionalDevelopment of Eastern Islands

PPTA 600 31 January 1991

As per ADBKEY PROJECT DATA ($ million) Loan Documents ActualTotal Project Cost 142.0 110.5Foreign Exchange Cost 50.0 48.9Local Currency Cost 92.0 61.6ADB Loan Amount/Utilization 85.0 70.8ADB Loan Amount/Cancellation 14.2

KEY DATES Expected ActualFact-Finding 629 May 1992Appraisal 1127 May 1993Loan Negotiations 2225 Nov 1993Board Approval 21 Dec1993Loan Agreement 2 Mar 1994Loan Effectiveness 31 May 1994 12 Apr 1994First Disbursement 22 Jun 1994Project Completion 30 Sep 1999 31 Jul 2000Loan Closing 30 Sep 1999 15 Jul 2001Months (effectiveness to completion) 64 75

BORROWER Indonesia

EXECUTING AGENCY Directorate General of Urban and Rural Development, within theMinistry of Settlements and Regional Development

MISSION DATAType of Mission No. of Missions No. of Person-DaysFact-Finding 1 Appraisal 1 64Project Administration:

Inception 1 8

Review 5 72Mid-term Review 1 28Special Mission 1 4Project Completion Review 1 42

Total 9 154Operations Evaluation 1 62

__________________

= not available, ADB = Asian Development Bank, PPTA = project preparatory technical assistance, TA = technicalassistance.


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EXECUTIVE SUMMARY

Indonesias long-term growth is increasingly linked to its towns and cities. Urban growthis placing heavy demands on national, provincial, and local governments to provide adequateinfrastructure and basic services to a growing number of urban poor. The Eastern Islands UrbanDevelopment Sector Project (the Project) aimed to provide and rehabilitate urban infrastructure

and services in 17 districts of five provinces, thereby minimizing impediments to increasingproductivity and economic expansion.

The Projects components were identified in the Governments Integrated UrbanInfrastructure Development Program. The Project, the Asian Development Banks (ADBs) 12th

intervention in the urban sector, also supported ADBs 1989 operational strategy for Indonesia,which emphasized the need to upgrade facilities, including physical infrastructure, in line withthe urban populations expected growth.

At approval, the total project cost was estimated at $142.0 million, with a foreignexchange cost of $50.0 million and a local currency cost of $92.0 million. ADBs loan of $85million was to finance the entire foreign exchange cost and local currency costs of $35 million.

The total ADB disbursement was $70.8 million, covering the foreign exchange cost of $48.9million and a local currency cost of $21.9 million. The lower local currency cost financing in dollarterms resulted partly from the devaluation of the rupiah. Budgetary difficulties arising from theAsian financial crisis led to inadequate counterpart funding and the cancellation of $14.2 million ofthe loan.

The ADB loan, approved in December 1993, became effective on 12 April 1994, with anoriginal closing date of September 1999. The loan was extended twice, to March 2000 and laterto July 2000. Actual loan closing was delayed by another year, to 15 July 2001, due to delays inthe collection of the necessary data from remotely located participating cities.

At approval, a sector approach was considered appropriate, as it would have allowed

greater flexibility in subproject selection and ownership by the beneficiaries. However, thegovernments approach at the time was highly centralized and prescribed nationally formulatedstandards and approaches for urban subprojects. This resulted in a lack of ownership by severallocal governments, which, in turn, negatively affected their commitment to fund subprojectoperation and maintenance (O&M).

The beneficiary recall assessment method used to evaluate the Project showed that thecivil works constructed improved the quality of urban infrastructure and service delivery.1 Theobjective to stimulate economic development in urban centers in the Eastern Islands was moredifficult to assess. Although isolating the precise impact of the Project is not easy, data indicatea general worsening of local economies relative to the nation as a whole.

The financial internal rate of return was reestimated only for the water supplycomponents of four towns. The results of the financial reestimation show negative financialinternal rates of return for all subprojects, except for Perusahaan Dearah Air Minum (PDAM)Mataram. Economic internal rates of return were not reestimated, as neither the base data northe supporting figures or assumptions used for appraisal and the project completion report wereavailable.

1The Operations Evaluation Mission visited only six districts, due to logistical problems, limiting its findingsrepresentativeness.


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v

All PDAMs, except for PDAM Kota Mataram, are in a poor financial condition. Most areexperiencing losses, due to their inability to set user charges to cover costs. Without majorfinancial restructuring and significant tariff increases, the PDAMs will continue to lose money.

Participating local governments experienced minimal growth in local revenues up to 2000

but much more rapid growth thereafter, reflecting increased current receipts and the payment ofarrears. Local governments also increased their efforts to expand the tax base. However,increases in local revenues cannot be attributed to two project-sponsored plans, the LocalInstitutional Development Action Plan and the Revenue Improvement Action Plan. These plansare more a reflection of local efforts.

The funding necessary for appropriate O&M is not forthcoming. Generally, communitiesare unaware that they are responsible for maintaining some of the project facilities, such asdrainage and communal toilets. Hence, short-term sustainability of the project component isunlikely. Awareness exists, however, of the need to increase charges for local services andimprove budget allocations for maintenance.

Six issues and related lessons were identified:

First, a sector approach for intervention in the urban sector may be a more appropriatemodality when decentralization is associated with adequate capacity at the local level. Theuniform approach taken under the project failed to recognize that local government capacity wasvariable in the selected towns and particularly limited in the Eastern Islands. More extensivecapacity development in future interventions would be advisable, particularly where associatedwith increased local autonomy.

Second, local public works departments undertook most of the civil works. Oncompletion, PDAMs and local governments became responsible for the assets and theirmaintenance. Future capital investments should be made conditional on local governments and

associated utilities having adequately funded comprehensive maintenance programs for publicassets, to ensure ownership of obligations and assets.

Third, cost recovery was a failure in the Project. In this event, to consider that localgovernments would be in the position to afford to borrow funds through subsidiary loanagreements for investments in components, which at that time and still today realize onlyminimal revenues, was optimistic. The ability of PDAMs and local governments to borrowdepends upon substantial improvements in revenue collection and major increases in charges,particularly for services, that the public had not committed to paying for the full cost of provision.

Fourth, most of the participating PDAMs remain in a poor financial condition, areoverstaffed, and lack appropriate middle and senior management. Major changes are required

in PDAM structures. These changes will involve private sector participation encouragement;improved ownership structure that better reflects local stakeholders, communities, and financeproviders; greater independence of operations; existing PDAM consolidation; and alternativemodes of financing.

Fifth, wastewater treatment and disposal are a serious problem throughout Indonesiaand failed in the Project. Clear responsibilities for wastewater management and setting andcollecting user charges need to be established and institutionalized.


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viSixth, in most towns, solid waste management operates reasonably well. However, in a

number of towns, the final disposal sites are unsanitary dumping areas, and some items ofequipment financed under ADBs loan had a relatively short life. Local governments need tomake appropriate provisions in their annual budgets to build reserves for the replacement ofsuch equipment, and reconsideration needs to be given to the financing of such items throughADB loan proceeds. While dump sites can be run in an efficient and sanitary manner, if a city is

committed and staff members are sufficiently trained to manage and operate these sites,evidence suggests that properly functioning collection and disposal systems are appropriate forgreater private sector participation.

Three follow-up actions are identified: (i) more extensive training programs for localgovernment staff members need to be institutionalized and provided through local academiesand educational establishments, focusing on key operational services; (ii) financial restructuring,independent supervision, and PDAM consolidation are called for, which will require ADB toremain engaged with the Government in 2004 in exploring the possibility of greaterindependence of the PDAM boards of directors, to ensure greater representation fromconsumers and other nongovernment stakeholders; (iii) community information campaigns needto be initiated in 2005, so that maximum use can be made of wastewater treatment and disposal

facilities and equipment. Public awareness of the need for environmentally sound wastewatermanagement practices should be launched in 2004.

The Operations Evaluation Mission rated the Project partly successful in five of the sixcities visited. The destruction of 60% of project facilities in Ambon precluded a rating.

Eisuke SuzukiDirector GeneralOperations Evaluation Department


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I. BACKGROUND

A. Rationale

1. Indonesias urban population grew from an estimated 20% of the total in 1980 to almost40% in 1999. Urban growth trends are projected to continue. Indonesias long-term growth is

expected to be increasingly related to that of its towns and cities, with approximately half ofIndonesias gross domestic product currently being produced within urban areas.

2. In several towns and cities, about 60% of the population resides in informal settlements,often under extremely poor conditions. Growth in population has put severe strains oninfrastructure in many secondary cities where basic services are limited. Inadequate solid wastemanagement and sanitation services, poor drainage, and traffic congestion adversely affectedthe environment and living conditions, to the detriment of health. The Eastern Islands, with agross regional domestic product per capita of half the national average, had urban problemssimilar to those of the rest of the country but on a much larger scale. The region particularlyexperienced a lack of institutional capacity and revenue-generation capability within local andprovincial governments, an average per annum urban population growth rate of 5.7%, and a

variety of services that were increasingly inadequate.

3. In response to these problems, the Government requested assistance from the AsianDevelopment Bank (ADB) to support economic growth in selected urban centers as well asprovide urban infrastructure to a growing number of poor households. The Eastern IslandsUrban Development Sector Project (the Project) was ADBs 12 th intervention in the urban sectorand covered 17 districts of four provinces and one former province: East Nusa Tenggara,1 WestNusa Tenggara,2 East Timor (now Timor-Leste),3 Irian Jaya,4 and Maluku5 (map). The selectioncriteria for involvement in the Project was based on identification of priority urban centers innational development plans, willingness of local governments to participate, significant urbanpopulation growth, potential for economic growth, and infrastructure inadequacy.

B. Formulation

4. The Government of Indonesia formulated the nationwide Integrated Urban InfrastructureDevelopment Program (IUIDP),6 first implemented during the Fourth Five-Year Plan (REPELITAIV [1985/86 to 1989/90]). IUIDP focused on integrating key urban physical infrastructuredevelopments with the institutional and financial strengthening of service providers. IUIDP alsoidentified project components in priority urban centers for which feasibility studies wereundertaken.

5. In 1991, ADB provided project preparatory technical assistance7 for the preparation of asuitable investment package based on project components identified in selected IUIDP urbancenters. Project preparatory work was undertaken from September 1991 to May 1992. Fact-

1

Two districts were included: Kupang and Waingapu.2

Five districts were included: Mataram, Praya, Raba Bima, Selong, and Sumbawa.3

Three districts were included: Baucau, Dili, and Los Palos. The Project predated independence.4

Five districts were included: Biak, Jayapura, Manokwari, Sorong, and Wamena.5

Two districts were included: Ambon and Ternate.6

The IUIDP also supported a 5-year local development plan, an urban master plan, and a medium-term investmentprogram.

7ADB. 1991. Urban and Regional Development of Eastern Islands. Manila.


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2finding was in May 1992, and appraisal was in May 1993. The Project was approved on21 December 1993.

6. A sector approach was preferred for three reasons. First, ongoing support for the IUIDPwas provided by external funding agencies, including ADB and the World Bank. Second,subprojects funded a time slice (19941998) and an area slice (Eastern Islands of Indonesia).

And, third, the Executing Agency, the Directorate General for Human Settlements (DGHS) hadthe requisite experience to implement the Project.

C. Purpose and Output

7. The projects objective was to assist in improving the quality of urban infrastructure andservice delivery and stimulate economic development in selected urban centers in the EasternIslands. The objective also aimed to strengthen the institutional capabilities of the agenciesinvolved and enhance local resource mobilization through the implementation of covenanted localinstitutional development action plans (LIDAPs) and revenue improvement action plans (RIAPs).While poverty reduction was not a primary project objective, a positive impact on poorbeneficiaries was expected through enhanced economic activity that resulted as a project

consequence. The Kampung Improvement Plan (KIP) component, while targeting some very poorareas, did not exclusively focus on low-income settlements.

8. The project scope at appraisal comprised two parts: Part A consisted of urbaninfrastructure that provided the core of 5-year urban infrastructure expenditure programs for 17participating local governments, and financing was to be provided for six subsectors, comprisingwater supply, drainage, sanitation, solid waste management, KIP and the Market InfrastructureImprovement Program [MIIP], and urban roads. Part B constituted institutional support.

D. Cost, Financing, and Implementation Arrangements

9. The total project cost at appraisal was estimated at $142 million, with a foreign exchange

cost of $50 million and a local currency cost of $92 million. ADB was to provide a total loan of$85 million, to cover the entire foreign exchange cost and local currency costs of $35 million(Appendix 1). The remaining 40% of the costs were to be borne by the Borrower.

10. Civil works comprised about 81% of the Project. Institutional support accounted for 6% ofthe total project cost, comprising implementation assistance and training and projectadministration. Interest during construction accounted for the balance. A cost breakdown bycomponent in each urban center is in Appendix 2.

11. Given the number of project components, the implementation arrangements werecomplex but successfully employed under previous ADB and World Bank loans for urbandevelopment projects. At the national level, policy coordination was to be provided by the

National Coordination Team for Urban Development, with the assistance of the IUIDPImplementation Groupboth chaired by officials of Badan Perencanaan Pembangunan Nasional(BAPPENAS), with representatives from the Ministry of Finance, Ministry of Home Affairs(MOHA), and Ministry of Public Works (MPW). At the provincial level, Badan PerencanaanPembangunan Derah (BAPPEDA) was targeted to provide guidance and coordination to localgovernment units.


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312. MPWs DGHS8 was the Executing Agency for the civil works component of the Project.The implementing agencies included (i) Directorate General of Highways, within MPW, whichwas renamed the Directorate of Metropolitan and is responsible for urban roads and bridgesand technical supervision related to roadworks; (ii) Directorate General of Water ResourcesDevelopment, which is responsible for water source development; and (iii) local governmentpublic works departments, including local water enterprises, known as Perusahaan Dearah Air

Minums (PDAMs), and other offices for development activities. Another implementing agencywas MOHAs Directorate General of Public Administration and Regional Autonomy andRegional Development, which focused on the institutional development component related tourban management. In addition, onlending by the central Government to local governments andPDAMs was to be through subsidiary loan agreements (SLAs) or the Regional DevelopmentAccount (para. 23).

13. At the provincial level, a project management unit (PMU) was established and acted as aliaison with central agencies, assisting in subproject formulation, project management,environmental assessment, protection measures formulation, community participation, project-related training, and benefit monitoring and evaluation coordination. At the local governmentlevel, project implementation units were established for each subproject, to coordinate

implementation at the field level.

E. Completion and Self-Evaluation

14. The project completion report (PCR) circulated in February 2002 rated the Project partlysuccessful.9 The PCR did not evaluate subprojects in the three districts of the former province ofEast Timor, since these provinces no longer formed part of Indonesia. No data was provided forthe financial performance of any participating local governments, and the assessed lack ofsuccess of the institutional development component was based on interviews conducted by PCRstaff members. Out of the nine participating PDAMs, financial statements for only seven werereported in the PCR.

15. The PCR noted that although target numbers for the provision of urban infrastructurefacilities and institutional development were exceeded and within the scope and cost originallyenvisaged, several major water supply and sanitation facilities were inoperable, due to (i) lowconstruction capability, (ii) supervision consultant failure, and (iii) overall lack of central projectmanagement or monitoring.

16. In addition, the PCR noted that community participation was limited to identifyingsubprojects, and beneficiaries were unaware of the need to pay tariffs and take responsibility forthe operation and maintenance (O&M) of some project facilities. LIDAPs and RIAPs werereported as having suffered from poor consultant performance and from difficulty in obtainingapproval by local governments to change tariffs and existing regulatory laws.

17. Water supply, solid waste management, and sanitation components were reevaluated.PDAM Mataram had the highest financial internal rate of return (FIRR), at 14.9%. The watersupply components overall FIRR was considered viable, since most individual percentages werebetween 11.6% and 14.9% and exceeded the weighted average cost of capital (WACC) of about

8The Operations Evaluation Mission was informed that in April 2000, as part of the Governments reorganization,DGHS was replaced by the Directorate General of Urban and Rural Development, which is under the Ministry ofSettlements and Regional Infrastructure.

9The PCR was assessed according to the four-category system.


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49.0%. For the sanitation component, the computed FIRRs were negative, since many of theconstructed facilities were not being operated. The FIRR for the solid waste component was alsonegative, because of extremely low tariffs, high transport costs, and low billing collection rates.The economic internal rates of return (EIRRs) were reestimated for nonrevenue generatingcomponents (urban roads, drainage activities, and KIP and/or MIIP). The range of EIRR for urbanroads was computed at 8.444.1%, for drainage at 12.139.1%, and for KIP and/or MIIP at 14.8

36.1%

18. The PCR provided inadequate data from local governments. In addition, ADBs PCR, incomparison to the Governments PCR, overestimated the status of some project outputs(Appendix 3).10

F. Operations Evaluation

19. The Operations Evaluation Mission (OEM) visited Indonesia from 8 March to 2 April 2004,to evaluate the Projects performance. For reasons similar to those stated for the PCR, the OEMdid not evaluate the three project towns in the former province of East Timor. Because of securityproblems, the two East Nusa Tenggara districts (Kupang and Waingapu) were not included in the

OEM, although domestic consultants undertook an independent beneficiary survey on the impactof project facilities in Kupang. Ambon, although visited, was not included in the OEM survey,because of large-scale devastation in the aftermath of the January 1999 riots, which damaged ordestroyed about 60% of project facilities. The OEM also visited Jayapura in Papua, formerly IrianJaya, but did not undertake data collection in the remaining four towns 11 of the province, becauseof logistics problems. Thus, independent surveys were only undertaken for a total of six towns:five visited by the OEM (Jayapura, Mataram, Praya, Selong, and Ternate) and one not visited(Kupang). The survey samples endeavored to be as representative as possible of a cross sectionof beneficiaries in these six towns. To the extent possible, principal users of rehabilitated facilitiesbefore and after the Project were chosen through local knowledge, given the evident disparity ininformation in Government and ADB PCRs. For new project facilities, the survey used abeneficiary recall and/or self-assessment technique.

20. The OEM rated the Project in five of the six cities visited.12

II. PLANNING AND IMPLEMENTATION PERFORMANCE

A. Formulation and Design

21. The Project was in conformity with ADBs 1989 operational strategy for Indonesia, whichemphasized the need to upgrade facilities, including physical infrastructure, and review policy-related matters, including urban planning, in line with existing needs and expected urbanpopulation growth. ADB remains engaged in Indonesias urban sector, and the 20032005

country strategy and program focuses on integrated urban development. However, the currentfocus is on poverty reduction as a key target area for intervention. The Project was in conformity

10For example, the overestimation of water supply house connections in Mataram and Selong was by 5,629 and1,997, respectively. The number of KIP locations was overestimated by 26 in Jayapura, 16 in Mataram, 37 inPraya, 7 in Selong, and 3 in Ternate.

11Biak, Manokwari, Sorong, Wamena.

12Destruction of 60% of project facilities in Ambon precluded a rating.


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5with the governments long-term targets, as contained in the IUIDP, which prioritized projecttowns on the basis of population levels and growth.

22. The United Nations Development Programme and several bilateral agencies, includingthose of Australia, France, Germany, Japan, Netherlands, and United States supported thegovernments efforts in urban development. During project processing, ADB coordinated with

external funding agencies.

23. About $9.3 million of the ADB loan was to be onlent by the central Government to localgovernments and PDAMs through SLAs or through the Regional Development Account. Onlyfive SLAs were entered into, valued at Rp11.2 billion, and these were all with PDAMs.13 Not onelocal government borrowed under the Project, and none of the implementing agencies used theRegional Development Account. The funds programmed to pass through this account insteadwere allocated as regular grants from the Government.

24. At approval, a sector approach was considered appropriate (para. 6). This approach wasexpected to allow greater flexibility in project selection and promote beneficiary ownership.However, the approach followed by the Government, at the time of project approval, was highly

centralized and prescribed nationally formulated standards and approaches for subprojectswithin each urban subsector.14 This resulted in lack of ownership by several local governments,which, in turn, had a negative impact on their commitment to allocate funds for O&M of projectfacilities, thereby adversely affecting the projects long-term sustainability.

25. While strengthening local governments institutional capability and exploring avenues ofincreasing revenues were components of the IUIDP that were supported by ADB, the OEMfound that capacity in several of the participating local governments was inadequate and outlayfor capacity building was small (less than 1% of total project cost). In addition, localgovernments considered capacity building a covenant designed to satisfy ADBs internalprocedures, instead of one designed to assist in the development of their institutions.

26. Wastewater treatment and disposal is a serious problem throughout Indonesia and wasa failure in the Project. Pilot reticulated sewer systems under the Project never operated, andseptic tanks were poorly designed and people are unaware of the need to regularly clean them.The willingness to pay for improved wastewater treatment is low. Clear responsibilities forwastewater management and setting and collection of user charges need to be established andinstitutionalized.

B. Achievement of Outputs

27. The Project financed more physical outputs than envisaged at the time of appraisal,partly due to the rupiah depreciation (para. 61). However, achievement of outputs varied amongproject towns. This resulted partly from local government capacity, including the commitment to

improve revenues, which was generally lacking, and ability to retain trained staff members. Inaddition, a number of inconsistencies in the achievement of outputs between the Governments

13Interest rates were 11.75%, and repayment periods were between 15 and 20 years, including 5-year grace periodson principal repayments. Principal amounts borrowed by location were as follows: Mataram, Rp4.4 billion; Kupang,Rp3.7 billion; Lombok Timur (Selong), Rp1.3 billion; Sumbawa, Rp0.9 billion; and Bima, Rp0.9 billion. OnlyMataram and Lombok Timur (Selong) paid all amounts due. The others are in arrears.

14Several of the local governments identified subprojects distinct from those contained in the IUIDP. However, theyhad no capacity to undertake the required feasibility studies that resulted in these proposals being turned down byBAPPENAS.


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6PCR and ADBs PCR were noted (para. 18). The Governments PCR provided minute details ofcontracts awarded and the precise amount allocated for each, data consistent throughout thereport, while the data provided in ADBs PCR did not substantiate each individual contract.Considering these problems evident in gathering and monitoring data in the distant projecttowns, the OEM relied on data provided in the Governments PCR and substantiated it,wherever possible, with local knowledge. However, instances of discrepancy occurred between

ADBs PCR, the Governments PCR, and local knowledge that made substantiating all projectoutputs in the six project towns visited by the OEM difficult (Appendix 3).

1. Ternate

28. In Ternate, the water supply component included the construction of deep wells with atotal capacity of 40 liters per second. One, at Uboubo, with a capacity of 20 liters per second,included an electric pump, compression tank and generator, and associated structures. Thefacility was well constructed, appropriately maintained, and fully functional. A reservoir with acapacity of 500 cubic meters (m3) was financed under the Project, and, at the time of the OEM,showed no signs of deterioration and was fully operational. The reservoir has a bulk water meterthat accurately measured outflow to the distribution system. Some 3,200 new connections were

provided and, along with the new and improved distribution mains, expanded access to watersupply in the town.

29. New and improved drainage of about 18 kilometers (km) and 11 km, respectively, wasprovided throughout the city, although comprehensive systems were present in a number oflocalities, including the Jerebusua and Faceh areas. In most cases, new open drains were built.Covered drains were primarily for plot access. Some 11 km of new drains were constructed, and10 km of drains were rehabilitated.

30. Sanitation covered 25 family toilets and five communal toilets, and five vacuum truckswere purchased. In some cases, the septic tanks served about 10 households. In others cases,septic takes covered communal sanitary and laundry facilities, known as mandi-cuci-kakus

(MCKs) programs (e.g., in Kelapapapendek), and in others both (e.g., in Faceh). The facility inKelapapapendek is located in an area now settled by military families. Many original residentsmoved out. The facility is in good condition and is being maintained by the community it serves.Its use is free of charge. In contrast, the facility at Faceh is in poor condition, only two of the fourtoilet units are functional, and the structure has serious cracks. Communal washing areas arenot in use and are used to store building materials.

31. The project financed the purchase of 9 garbage trucks, 18 containers, and 1 handcart. Anew final disposal site was developed, and a workshop and equipment were provided. 15 The cityhas 16 solid waste management (SWM) collection trucks operating, some more than 20 yearsold. Nine were purchased under the Project. Effective maintenance on the vehicles was beingcarried out. Two bulldozers were located at the final dump site, but only one was operating.

Shortage of funds was given as the reason for the inability to undertake the mechanical repairsneeded. The bulldozers were stored in a covered and locked building that also contained anunused office. The disposal site is well located, being some 13 km from the towns center andabout 5 km from the nearest settlements. A number of solid waste containers were still in use,particularly in the market area, where at least three are located. All are being used and regularlycollected, and their contents are disposed of at the final dump site.

15Comprising an excavator, bulldozer, and shovel loader.


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732. A comprehensive program of road construction and improvement was carried out,covering 10 km of improvements and 10 km of new sidewalks.

33. Six KIP sites, covering 84 hectares (ha), and two MIIP sites, covering 8 ha, wereimproved. Most investment involved road surfacing, footpath construction, and tertiary drainageimprovements.

2. Ambon

34. The major civil unrest of early 1999 drastically affected the local economy16 and resultedin the damage or destruction of about 60% of project facilities. Ambons population fell from331,000 in 1998 to 206,000 in 2000, as many abandoned the city and became refugees outsidethe island. The headquarters of PDAM Kota Ambon, much of the central commercial area, andmany residential areas were burnt and property looted. Land values fell. The subproject,developed from 1995/96 to 1998/99, supported the then ongoing medium-term urbandevelopment program for the Ambon municipality and followed the standard IUIDP approach,with investments in six key sectors. No real innovation occurred in the subprojects. Thedestruction of records during the 1999 troubles made confirming exactly what was financed

under the Project impossible.

35. Water supply covered source works, three reservoirs, house connections, transmissionand distribution mains, and fire hydrants. Apart from the reservoir at Air Kunine, the PDAM hadneither records nor knowledge of the other project investments. All project investments wereconsidered by the PDAM to have been grant funded, as no associated long-term debt iscontained in its financial statements. Discrepancies between ADBs PCR and the GovernmentsPCR are evident, particularly over the number of house connections provided.17

36. The drainage component focused on the primary networks construction andrehabilitation. In total, 7 km were newly constructed, and some 6 km were rehabilitated. Thisfocus appears justified, since local knowledge indicates that flooding was reduced in many

areas.

37. The subproject financed the construction of a sanitary landfill site and septic sludgetreatment plant in one site. The complex included an office, workshop, and ramps and septagedrying beds, oxidation ponds, leachate collection facilities, composting facilities, and accessroads. All facilities were destroyed during the riots, when buildings were burned and equipmentlooted. The facility is no longer operational and was abandoned by the local government.Refugees from the city now live nearby and do not want the facility to be reopened.Nevertheless, the access road is still in good condition, despite lack of maintenance. The sitewas well located at that time, far away from residential properties, and was successfullyoperated for about 3 years. Garbage is now dumped at another location, without theenvironmental controls of the project site. Septic sludge collected is not treated, and this is

dumped within the new disposal site. Most of the 18 garbage trucks procured under the Projectare still operating.

16Gross regional domestic product for Kota Ambon declined by 24.5% in 1999, by 7.2% in 2000, and a further 7.1%in 2001. It has since picked up and positive growth of 3.3% was experienced in 2002. (Source: PendapatanRegional Kota Ambon. 2002. Badan Pusat Statistik. Kota Ambon.)

17ADBs PCR indicates 1,950 house connections, while supporting documentation on contract disbursements in theGovernments PCR indicates that approximately 5,500 were financed. PDAM Kota Ambon had no records of thenumbers financed under the Project.


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838. Some 65 communal toilets with septic tanks were constructed, but Kota Ambonofficialsdid not know the location of most of them. Six vacuum trucks were also procured and areoperating.

39. Many of the Projects 18 KIP and/or MIIP sites were abandoned in 1999, although someevidence indicates that a few families recently returned. Despite this, the concrete footpaths and

access steps were still in good condition in many places, although the tertiary drains neededcleaning (e.g., in KIP Urimising). The still occupied KIP sites generally catered to smallercommunities of about 40 or 50 residences. Footpaths and tertiary drains were provided inplaces, and access improved. In KIP Karang Panjang, several houses were improved or rebuiltafter infrastructure upgrading, but water was a problem with only 2 hours of supply every 2days. No communal sanitation facilities were included in many sites, since the residents had orwere expected to provide their own septic tanks.

40. The urban road component covered 23 km of improvements, 20 km of surfaceimprovements, and 4 km of pedestrian walkways. The impact of the road component wasdifficult to assess, because of the economic decline that followed the 1999 riots.

3. Jayapura

41. Reconciling the figures of the Governments PCR, ADBs PCR, and the knowledge ofofficials of Kota Jayapura is difficult. To illustrate, ADBs PCR indicates that 5 communal toiletswere built, while the Governments PCR indicates 3 MCKs and 10 septic tanks. The city saysnone were built. ADB and Government PCRs indicate the construction of a septic sludgetreatment plant, while personnel from Kota Japaypura said this was not financed under theProject and was built with local funds. Some 12 transfer stations were built under the Project,while ADBs PCR indicates none. A bulldozer was also procured, although this was not shownin ADBs PCR.

42. The sanitation component involved a wastewater treatment plant; water pumps,

electricity generator and associated structures; sewer line installation and 300 houseconnections; and two vacuum trucks. Existing septic sludge treatment works were improved.The wastewater treatment plant, which involved the construction of a 68 chamber aerobicsystem, is no longer functioning, although the sewer lines and house connections wereprovided. Raw sewerage from the pilot system no longer passes the abandoned treatment plantand flows directly into a tidal stream. The plant has fallen into disuse. The septic sludgetreatment plant is no longer operational, although the OEM was informed that it did function until19992000. Equipment problems were given as the reason for its abandonment.

43. Solid waste management involved construction of a final disposal site, procurement ofassociated vehicles and equipment and 12 transfer stations, and purchase of 14 garbagetrucks (7 dump trucks and 7 container pickup vehicles) and 30 containers. The final disposal

site, located some 20 km from the city and about 1 km from the nearest kampung, included sitepreparation and development, surrounding fence, and access road. The site was closed andcapped with a layer of soil. The steep access, where dump trucks found it difficult to negotiate,was given as the main reason for closure. Garbage is now dumped, burned, and leveled on amore accessible site that previously contained the now disused septic sludge treatment plant.The bulldozer was still operational, although it remained in the open at all times. Other vehiclesprocured under the Project are being maintained, and many are still in use. The containers havea life of about 58 years, and many are now being refurbished in a local workshop, at a muchlower cost than that of purchasing new ones. Transfer stations are now being replaced, over


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9time; vertical structures are being demolished; and containers are being placed on the baseinstead. Difficulty of collecting deposited garbage from the structures was given as the reasonfor their gradual replacement. Garbage from the transfer stations is collected daily.

44. Drainage included rehabilitating 10.0 km of existing drains and constructing1.5 km of new drains. The urban roads component saw the improvement of 32 km of roads,

including a number of developmental roads in the rural parts of the kotamadya, plus theconstruction of 2 km of pedestrian footpaths. Two bridges were also improved.

45. Some 26 KIP sites, covering about 331 ha, were included in the Project. Many were inperi-urban areas and involved access roads, steps (because of the steep terrain), or footpathsand some tertiary drainage. Neither water supply nor sanitation was included, since mosthouses had their own supply, either from the PDAM or from local deep wells, and hadconstructed individual sanitation facilities.

4. Mataram

46. Discrepancies were noted in project outputs regarding ADBs PCR, the Governments

PCR, and the local government, particularly in the numbers of vehicles procured.18 Confirmingmore than three of the 39 KIP sites was not possible.

47. Water supply in Mataram was the largest single investment under the Project. Thisundertaking comprised expansion of a major spring source at Ranget, with installation ofadditional capacity of 300 liters per second (lps); construction of 6 reservoirs; and connection ofsome 7,100 additional houses, 120 hydrants, 70 km of transmission mains, and 144 km ofdistribution pipes.

48. Solid waste management included procurement of about 28 dump trucks, mini trucks,and armroll trucks and equipment for the final disposal site;19 purchase of 8 containers; anddevelopment of a properly engineered sanitary landfill, complete with leachate treatment

facilities. Seven and a half hectares of land were acquired for the disposal site, on whichwarehouse, workshop, and reception facilities were constructed and a liner was installed. Thefacility is well managed. Scattered garbage is minimal, and soil cover is regularly applied. Theleachate treatment facilities are operational.

49. Sanitation covered purchase of 6 vacuum trucks, construction of a sludge treatmentplant, and development of a pilot sewer system with pumping station and waste water treatmentplant. The properly designed and engineered sludge treatment plant was located within the finaldisposal site complex. The plant was not functioning at the time of the OEM, although anaverage of three vacuum trucks a day dumped untreated septic sludge into the drying beds. ToADBs knowledge, the treatment facility was never used. The pilot sewer system neveroperated, although the facilities were constructed and sewer lines were installed. Some 400

house connections to plot boundaries were installed, but households were never connected,since the treatment facility was not operational. Appropriate institutional arrangements were notmade for its operation, and user charges were not approved.20 The pumping station was

18Local government indicated that 24 garbage trucks were procured, although ADBs PCR indicates 34.

19Comprising two bulldozers and a weighbridge.

20The system was built by the Public Works Department and was supposed to be turned over for O&M to DinasKebersihan of PDAM Mataram. Neither agency agreed to the transfer, since no guarantee of funds existed for itsO&M.


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10disused, and the building was emptied of furniture and equipment. Internal electrical wiring andboxes were evident, but the connection to the supply mains were long since disconnected. Thebuilding was showing signs of deterioration, and local officials had no knowledge of the locationof the three pumps.

50. Urban roads involved the improvement of 52 km of main and secondary roads and

rehabilitation of an additional 13 km of roads. Investments were made in more than 70 locations.The drainage component involved the rehabilitation of about 7 km of existing drains and theconstruction of 9 km of new drains. A pumping station, together with pumps, generators, pipes,and outfall to the sea, were financed in Ampanang, along Pertamina Street, to remove waterfrom a floodwater retention pond during periods of heavy rainfall. All facilities were in goodcondition, properly maintained, and fully operational.

51. The KIP was involved the improvement of 19 areas, covering about 200 ha and a further8 MIIP sites, with a total area of 78 ha. Investments included the improvement of footpaths,access roads, and some tertiary drains. Footpaths were well constructed and consisted of smallconcrete brick surfaces that withstood extensive use, with minimal maintenance.

5. Praya

52. Water supply consisted of improvements to a spring water source at Penunjak, with theinstallation of two booster pumps, each with a capacity of 25 lps, and associated transmissionpipes. In addition, some 1,900 house connections, 13 public hydrants, and 65 km of distributionpipes were procured and installed.21 The investment supported improved water supply in Prayaand in the other small towns of Engkol and Kute, the latter a tourist destination that includedabout 600 house connections.

53. Sanitation included six family toilets and one vacuum truck for septic sludge collection.The locations of the family toilets could not be confirmed. Solid waste management comprisedthe procurement of 3 dump trucks, 2 pickup trucks, 2 armroll trucks, 12 garbage containers, and

1 handcart. Three and a half hectares of land were acquired for the development of a finaldisposal site, which involved access (1.5 km) and internal roads construction, drainageimprovements, retaining walls building, and workshop and leachate treatment facilitiesconstruction. The disposal site is in poor condition, and dumping on the internal and accessroads was evident, on account of the breakdown of the bulldozer.22 Soil cover is no longerprovided,23 and the site only has dumping capacity for an additional year. The leachate pondswere barely functioning, and evidence existed of physical damage in a number of places.

54. Three KIP and three MIIP project areas existed. These covered a total area of about 76ha. Components included the improvement of footpaths and tertiary roads, tertiary drainage,and retaining walls.

55. Almost 3 km of drainage channels were rehabilitated and a further 7 km wereconstructed. Urban roads focused on the improvement and betterment of 23 km of roads.Improved base courses, widening services, and hotmix or asphalt surfaces were provided.

21A booster pump to supply water to Engkol and Kute was also said to be financed by ADB. However, no

independent confirmation of this was possible.22

The bulldozer was being repaired, and it will be operating shortly. The OEM was informed that garbage temporarilydumped on the internal site road will be removed.

23The last soil cover was placed in November 2003.


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116. Selong

56. Water supply consisted of the construction of a new intake at the Matrit spring source.Investments covered water capturing works and a small reservoir and transmission pipes.Capacity is 60 lps from a source that provides 300 lps, with the balance being used for irrigation.Two break pressure water tanks were constructed at Sukamulya and Pringgaselu, and a metal

groundwater reservoir was built at Rempung with a capacity of 750 m3. Some 21 km oftransmission mains and 56 km of distribution pipes were installed, along with about 2,600 houseconnections.24

57. Sanitation comprised family toilets and three vacuum trucks, as well as a septic sludgetreatment plant. It was not possible to confirm the family toilets, but the vacuum trucks were stilloperational. An aerobic septic sludge treatment plant, built within the final disposal site complex,is not used properly, and, on average, only two or three tankers empty sludge directly into thedrying beds weekly. The size of the facility is excessive when compared to the limited demandwithin the town for septic tank cleaning services. Damage is now visible within the two pondsconstructed.

58. Solid waste management covered construction of a transfer depot; improvement of thefinal disposal site, with the addition of leachate treatment facilities; improvement of sitemanagement; procurement of equipment (bulldozer, excavator, and backhoe loader) andconstruction of a workshop and warehouse; procurement of nine pickup and dump trucks and21 containers; and purchase and distribution among communities of over 100 handcarts. Thetransfer depot, located on a 300 m3 site, was built but never used. All equipment at the finaldisposal site was operational and well maintained. Seven of the dump trucks were still working,and all containers were used, although most were now being repaired or were replaced by newones.

59. KIP and/or MIIP comprised improvements covering some 124 ha, but confirming theprecise locations or the number of settlements upgraded was not possible. The OEM was

informed that improvements consisted of footpath and access road surfacing and installation ofsome tertiary drainage.

60. Urban roads comprised road betterment (12 km, approximately), sidewalk construction(17 km), new road construction (1 km), bridge improvement of two spans, and major roadimprovements of about 1 km. Drainage improvements covered rehabilitation of about 3 km ofexisting facilities, repair and maintenance of 4.5 km of primary drains, and construction of 2 kmof new drains.

C. Cost and Scheduling

61. Total actual and approved costs are in Appendix 1. Total actual ADB contribution to the

Project was $70.8 million, with a foreign exchange cost of $48.9 million and a local currencycost of $21.9 million. The lower local currency cost financing in dollar terms resulted from therupiahs devaluation. In local cost terms, further expenditures could be made under the sameloan, since price increases lagged behind the devaluation of the currency. Thus, in the six townsvisited, the Project financed more facilities than were proposed in the subproject appraisalreports.

24Disbursements were made against 3,900 house connections, but only 2,600 were installed. PDAM Selong claimsthat the balance has not yet been installed.


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1262. Counterpart funding was estimated at $57 million at approval, while actual fundingamounted to $39.7 million (a decline of 24%, attributable to the 1997 Asian financial crisis). Theconsequent budgetary crisis led to difficulties in raising additional amounts, which resulted in thecancellation of $14.2 million.

63. The loan was extended twice (from September 1999 to March 2000 and later to July2000). The OEM was informed that this was due to the rehabilitation work required aftersubstandard construction work on several project components. However, this could not beindependently confirmed in the field, and the OEMs view was that the civil works undertakenunder the Project and accessible to it were largely of good quality. In addition, given the largenumber of components, as well as the Asian financial crisis, the total delay of 10 months wasnot consequential. Actual loan closing was delayed by another year, due to delays in thecollection of the necessary data from the remotely located participating towns. Theimplementation schedule is in Appendix 4.

D. Consultant Performance, Procurement, and Construction

64. The Consultants were appointed by DGHS, in accordance with ADBs Guidelines on theUse of Consultants, to support four major project activities. These activities were (i) projectmanagement and implementation; (ii) LIDAP preparation, including forward plans for capitalworks programs and establishing departmental systems for effective maintenance of publicworks and solid waste management; (iii) RIAP preparation; and (iv) community development.

65. The success of the training, in terms of the preparation of LIDAP and RIAP, was limited,because of frequent interdepartmental transfers of staff members as well as political constraints,under which local governments operate and that affect the ability to increase tariffs and usercharges. In addition, the training component was a very small part of the Project, around 1%,and the local governments felt that the component was designed to meet ADBs internalconditions (para. 25). Therefore, the components impact was also small. However, the OEM

was informed by the Executing Agency and the beneficiaries that consultant performance wassatisfactory.

66. Procurement of goods was under international competitive bidding and in compliancewith the Guidelines for Procurementunder ADB loans. The OEM confirmed that procurementwas generally of good quality. The OEM also noted that construction was generally of goodquality and could not confirm the PCR finding of substandard quality in the subprojectsobserved.

E. Organization and Management

67. BAPPENAS, with the support of IUIDPs Implementation Management Group, provided

overall policy coordination. However, as most of the project towns were in remote areas,logistics problems were encountered. BAPPEDAs provided adequate guidance and coordinationto the local governments and liased adequately with the political leadership of the project areas.The PDAMs and the cleansing agencies also provided adequate support. However, ownershipby the local government was minimal, due to a highly centralized approach (para. 24).

68. The management arrangements under the Project were successful in previous externalfunding interventions, including ADB and World Bank interventions. The OEM found themappropriate.


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13

III. ACHIEVEMENT OF PROJECT PURPOSE

A. Operational Performance

69. Water supply was the largest component in the Project, representing almost 36% of the

total cost. Focus was on increasing production, supplying additional customers, and improvingservice delivery. In five of the six towns visited,25 the water supply component improvedsupplies, and, in all but Ambon, the investment helped to ensure a normal 24-hour supply undergood pressure for most areas. Work was generally of good quality, although in Ambon thereservoir complex, with a storage capacity of 200 m3 and six pumps, was not in good condition.Of the six pumps, one was not working and needs replacing, a number of leaks were present inthe pipes running to and from the reservoir, and the pump house flooded. Water supply facilitiesin Mataram are well managed and maintained, and some water is treated using chlorine gas, acheaper alternative to using powder. The problems noted in the PCR concerning the conditionof the pressure balancing reservoirs in Selong could not be substantiated. Both reservoirs werefound to be in good working order, and the OEM was informed that they were operating sincecompletion. The OEM was unable to confirm the massive leakage referred to in the PCR.

70. Drainage involved the rehabilitation and construction of new primary, secondary, andtertiary channels, to reduce flooding, particularly during periods of heavy rain. Overallconstruction was adequate, and little evidence existed in all towns of flooding in the areasserved. Drains in Mataram, Praya, and Selong were constructed using rocks and cement,capped by concrete and plasterwork, rather than the hollow blocks and concrete usedelsewhere. Maintenance, however, was a problem everywhere, particularly for the primary andsecondary drains, where budgetary shortfalls were often cited as reasons for servicedeficiencies. Community maintenance of tertiary drains in many towns ensured that they weregenerally clean and free from major garbage, sediment, and vegetation. An example is inTernate, where community maintenance was proving to be effective. In most areas, plot ownersoften cleaned the open drains fronting their houses and carried out routine maintenance.

However, periodic and more comprehensive cleaning of the tertiary drains, for example, in theJerebusua area, was organized by local community leaders and carried out by residentsapproximately every 6 months. Little evidence existed of major blockages, and only smallamounts of garbage remained in the drains. In Ambon, water was seen to be flowing freely inthe primary drains visited, including one in the Tulu Kabessy area, where uncollected garbagewas present. Throughout the city, maintenance is a major problem, since many project drainstraverse or are in abandoned areas. Before the riots, communities were organized to undertakethe regular removal of garbage and vegetation. With the abandonment of many areas, cleaningis no longer undertaken. For example, a number of sections of the Way Tilur primary drain arenow blocked with vegetation and garbage, and much of Halve Kecil primary drain was dry,despite recent rainfall. Both traverse abandoned areas. In Jayapura, maintenance was theweakest and little community involvement was not prevalent. Many drains were blocked and a

number were damaged as a result of poor construction.

71. The sanitation component was the least successful of the Project. Pilot sewer systems inJayapura and Mataram were not operational, because the treatment facilities were notfunctioning and many households were not connected to the systems. In Jayapura, the aerobictreatment facility system was never operational, since appropriate revenue sources were notidentified, and local government funds for operations were not forthcoming. Furthermore, the

25Jayapura did not have a water supply component.


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14limited number of connections provided meant that operating the plant was not economicallyadvantageous. The sewer lines were installed, and some households were connected, but thesystem is no longer connected to the treatment works, and sewage flows directly into a river andthe sea. The plant is now abandoned, and no plans exist to reactivate it.26 The installation of thesewer lines also led to a deterioration of the road surface, because of the resurfacing workspoor quality. In Mataram, institutional difficulties regarding responsibilities for O&M and the

approval and acceptance of user charges prevented the systems use. No connections weremade, and no plans exist for its operation in the near future.

72. The septic sludge treatment facilities provided in Ambon, Jayapura, Mataram, andSelong were never used as designed. In Ambon, the facilities were abandoned and destroyedduring the riots, and resistance from the community now living nearby prevented theirrehabilitation and use. In Jayapura, the facility was used until about 19992000, but subsequentproblems with the equipment led to its abandonment. With the closure of the final disposal siteadjacent to the facility, the area has now become a temporary disposal site. No plans exist torepair and operate the facility. Similarly, the plants in Mataram and Selong are seldom used,and raw septage is often dumped in the drying beds, untreated. The limited demand for the useof the facilities in Mataram and Selong indicates that they are unlikely to be used as intended in

the future.

73. Success of the communal toilets and septic tanks was mixed. Some were used and wellmaintained, but others were poorly located and maintained and underused. The communalseptic tanks and associated MCKs were being used and functioning in Ternate. The location ofthe facility in a low-density area of large residential plots is questionable, since manyhouseholds have their own toilets. Desludging will become a problem in the near future, sincemany users do not see the need for servicing. More awareness is required of the need toregularly empty septic tanks every 3 to 5 years. For instance, in one area, access to the septictank was buried under 2 feet of soil, and residents believed that servicing would not beneeded for 40 years. Desludging equipment bought under the Project was being maintainedand is still operational and used. Nevertheless, the charge for the service of Rp50,000 per

cleaning was a deterrent for many low-income households. Septic sludge is dumped untreatedin the final disposal site. One MCK visited in Ambon, in the Way Halong area, was in a poorcondition, although residents indicated that it was regularly cleaned. Of the six cubicles withinthe MCK, the doors of three were broken, and one toilet was blocked. Outflow from the septictank was directly into a tidal drainage channel. No charges were levied for its use.

74. Desludging or vacuum trucks were procured for all towns visited, but limited use is madeof them. People are unaware of the need to regularly clean septic tanks, and many overflow.Most septic tanks are not watertight and often do not have an appropriate base. When tanks arefull, new ones are constructed. Demand for the desludging service is low, and on averageonly about three to five septic tanks are cleaned in a week in Ambon and Selong, and only fiveper month are cleaned in Praya.27 The trucks are underused in all towns, and in Mataram a

number are used to water the city parks.

75. Investment in urban roads covered widening activities; surface improvement, either withhotmix or macadam asphalt; sidewalk improvements; new road construction; and bridge

26Estimates of the local government indicate that between Rp500 million and Rp1,000 million will be needed torehabilitate the system and complete the planned 2,000 connections. The resources for this are not available.

27No facility for treating septic sludge was provided in Praya, although one vacuum truck was procured. Sludge isdumped in plantations and later used as fertilizer.


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15construction or replacement. Generally, the roads are well built, although in some stretches poorconstruction was evident. The hotmix road surfaces had fared the best in all towns.Maintenance is being carried out, but limited budgets mean that many urgent repairs are notmade when needed, and potholes are becoming larger. Traffic flows relatively freely within alltowns, and new construction, building improvements, and increased economic activity areevident along many of the roads financed.

76. A number of urban roads in Ambon were found in little used and abandoned areas, withno maintenance being undertaken. Others are well used and have encouraged limited economicactivities to develop. The widening and surfacing of Jalan Sat Caitabuan and Jalan KebunCengkih reduced travel times to and from the town center. These roads traverse peri-urbanareas and are relatively well used, but little evidence exists of recent economic development. InJayapura, a number of developmental and main roads were built and remain in reasonablecondition, although early signs exist of potholes forming, indicating a need for bettermaintenance. Jalan Koya Barat, within the Kota Jayapura area, passes through a largely ruralarea but connects to the border of Papua New Guinea. Jalan Koya Barat was found to be notwell used and had encouraged little development, except in the villages it passes through. Incontrast, both Jalan Tanah Hitam and Jalan Ardipura are well used and in good condition. Jalan

Vim, a 2.8-km road improvement built in 19992000, which passes through a majordevelopment area of Kota Jayapura, requires maintenance. Public sector-led development istaking place, including the construction of homes and a fish landing peer and market-terminalcomplex, but major private development has yet to follow. In Mataram, an extensive program ofroad improvements affecting the entire town was financed and has resulted in lower trafficcongestion and increased development. One new connecting road, Jalan Peternalan, is wellused and resulted in significant development over the past few years. The improvement of JalanBung Karno into a dual carriageway road with a central reservation greatly improved trafficcirculation.

77. KIP involved the improvement of basic infrastructure in unserved communities, coveringinternal footpaths, access roads and lanes, and tertiary drainage. Focus was not always on poor

areas, and a number of peri-urban settlements with middle-income families were improved inseveral towns. Very little sanitation improvement work was undertaken, since most residentshad their own septic tanks. MIIP focused on infrastructure improvement of areas surroundingpublic market places, including streets, footpaths, and drainage. In many areas, some, thoughnot extensive, development took place after project completion. Improvements to housingstructures, from the use of temporary to permanent materials, were common, particularly in peri-urban areas. Maintenance is sporadic and needs to be undertaken routinely.

78. Most investment under KIP and/or MIIP in Ternate involved road surfacing, footpathconstruction, and tertiary drainage improvements. The program led to some increases inproperty values and provided the catalyst for the development and improvement of residencesand the stimulus for some vacant lot owners to build. In KIP Toboeu, a 10 ha site with

approximately 400 families, most houses are made of permanent materials, and recentconstruction was evident. Before the Project, the area was largely one of temporary structures.Similar improvements were evident in KIP Kayumerah and KIP Kalumata. In the former, anumber of residents improved their houses using borrowed funds (from banks), after theinfrastructure upgrading. In general, the improvements were of good quality. The MIIP inBastiong improved a commercial area bordering residential streets, while MIIP Pasa Gamalamacombined tertiary drainage improvements with footpath upgrading in a market located in a low-lying area. Both areas now suffer from the encroachment of informal traders, particularly overthe drains. Maintenance is proving difficult, and a number of drains were blocked.


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1679. The roads and footpaths constructed in KIP sites in Jayapura are now in poor condition.In KIP Agupura, a coastal low-income settlement, the access road and footpaths eroded andneed major rehabilitation in many places. Tertiary drains need a major cleaning effort, sinceroutine maintenance is not being carried out. Limited improvements to houses were noted, but anearby settlement of fishermen living in houses over the sea benefited, and structures have

grown in number. A deep well was provided, but the water can only be used for washing. KIPAsano, KIP Kampung Padang Bulan, and KIP Social are kampungs located in peri-urban areas.They comprise fairly large plots and are lower middle to middle-income settlements. The roads,footpaths, and drains are not in good condition, indicating poor work and inadequatemaintenance. Some recent development took place in these settlements, but many plots remainvacant. In Mataram, Praya, and Selong, innovations in the design of the footpaths, usingconcrete bricks, proved effective and lasting. In KIP Balu Ngadang, Praya, the access roadsurface was asphalt and showed signs of wear, but the footpaths of concrete bricks were in verygood condition. Drainage, however, appeared to be blocked, and little maintenance is carriedout. The drainage system is cleaned by the community only once a year. The impact of the KIPin Ambon could not be assessed, as many settlements were abandoned because of the 1999riots. Land values declined, as a consequence, in Ambon.

B. Performance of the Operating Entity

80. Data from six local governments28 show that minimal growth occurred in local revenuesup to 2000, but much more rapid growth was experienced thereafter. Appendix 5 presents asummary income and expenditure statement for the six local governments and reveals that thepattern is similar for each local government. The more recent growth of local revenues reflectsincreased current receipts and the payment of arrears, which followed an improvement of theeconomy from 2000 onward, after the financial crisis of 1997. Local governments also increasedtheir efforts to expand the tax base, in preference to increasing charges and/or tax rates.Discussions with the local governments indicated that none were aware of any formal RIAP.Increases in local revenues cannot be attributable to RIAP and are more a reflection of local

efforts and improving economies.

81. SWM and sanitation user charges are very low in the project towns. In 2003, KotaAmbon recovered only 18.2% of the expenditures on SWM and sanitation. In Kota Mataram,recovery was only 10.0%. In Selong and Praya, a minimal 4.2% and 4.1% was recovered,respectively. Data for 2002, where available, indicate declining cost recovery. The exception isJayapura, where in 2001, 14.4% of the expenditures were recovered, but this increased to19.1% in 2003. Charges for SWM are low in most towns, about Rp1,000 (Selong) to Rp2,500(Jayapura) per month per household.29 Collection is by the local government (Ternate) or insome cases attached to the electricity bill (Jayapura and Ambon) or water bill (Mataram andPraya). Charges for septic tank desludging are generally between Rp40,000 (Mataram) andRp50,000 (Selong), although, in 2001, in Ternate the charge rose from Rp50,000 to Rp150,000

and in Jayapura the charge was Rp150,000200,000. In all towns, the service is poorly used.

28Ambon, Jayapura, Kabupaten Lobok Timur (Selong), Kotamadyas Mataram, Kupang, Lombok Tengah (Praya).Data for Kupang was made available to the mission by the domestic consultants.

29These relate to typical residential properties, but the charges are higher for commercial users.


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1782. Financial and operating data were collected for the five PDAMs.30 Appendix 6 shows thatwith the exception of PDAM Kota Mataram all PDAMs are in poor financial condition and are incrisis. PDAMs Ambon, Lombok Tengah, Lombok Timur, and Ternate lost money since 1995.Lombok Tengah and Ternate are unable to pay their debts. PDAMs Ambon and Ternate aredecapitalizing, while PDAMs Lombok Tengah and Lombok Timur are not decapitalizing,because of increased subsidies from the Government. Tariffs are set below those needed to

cover costs, and planned increases were postponed or reduced by the local governments. Thechance for further improvements in 2004 is small, since this is an election year. In contrast,PDAM Mataram is financially sound being profitable since 1996, and its equity is increasing.Regular tariff increases were made every 2 years, but those proposed for 2003 were postponedto 2005, on account of the local and national elections. This has led to a fall in profits.

83. Despite the riots and the poor performance of PDAM Ambon, private sector participationin water supply was encouraged. A joint-venture company, PT Dream Sukses Airindo (DSA),was established in 1998, between PDAM Ambon and WND Water of the Netherlands. Thecompany was given the exclusive right to supply water and collect charges within one sector,which was operated formerly by PDAM Ambon. This was a service area covering approximately1,800 customers in 2004. Tariffs are the same as those of the PDAM, and they can only be

increased with the approval of the mayor (Walikota). The company has consistently operated ata loss, on account of the low tariff rate and delays in the approval of proposed increases.31

C. Financial and Economic Reevaluation

84. The financial and economic analysis only involved the reestimation of the FIRR for thewater supply components of four towns visited.32 FIRRs for the sanitation and solid wastemanagement projects were not computed, because the associated charges are far below thecost of providing the services. Furthermore, in all towns, some of the facilities, particularly theseptage treatment plants in Ambon, Jayapura, Mataram, and Selong, and the wastewatersystems in Jayapura and Mataram are unused. Also, minimal charges apply for the use of thecommunal toilets. Negative FIRRs would have been computed.

85. The results of the financial reestimation (Appendix 7) show that for all subprojects,except for PDAM Mataram, the FIRRs were negative. The FIRR for PDAM Kotamadya Mataramwas 4.0%, which was higher than the WACC of 1.5% but lower than that of the 11.4%subproject appraisal and the 14.9% PCR reevaluation.

86. EIRRs were not recomputed, since neither the base data nor supporting figures norassumptions used in the evaluations at subproject appraisal and the reevaluation for the PCRwere available. Furthermore, the ability to identify many of the KIP and/or MIIP activity areas,drainage links, and road sections was improved, to compute the local benefits of the Project.

30Water supply investments were made in nine towns under the Project, excluding those in former East Timor.

Security and other concerns made it impossible to collect financial data from four PDAMs, namely Bima, Kupang,Sumbawa, and Waingapu.

31PDAM Ambon owns 48% of the shares and WND Water 52%. PDAM equity was equivalent to the value of theassets turned over to the company (Rp5 billion), which included a spring water source, a reservoir, associatedequipment and structures, distribution mains, and house connections. WND Waters capital contribution of Rp7billion was used to improve and extend the water system in the area served and to provide working capital. Some1,400 new house connections were provided by DSA since it started operations on January 1, 1999. DSA nevermade a profit. Losses for 2002 amounted to Rp259 million. For 2003, the loss was about Rp300 million.Nonrevenue water is at 44%, about the same as that of the PDAM.

32Six towns were visited, but there was no water supply component in Jayapura, and the system in Ambon suffereddamage because of the 1999 troubles.


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18D. Sustainability

87. The Projects sustainability was envisaged through greater ownership from flexibleimplementation, as a consequence of the sector modality. However, the Project was centralized,and local governments had little or no ownership. This accounts for the small outlay for the

maintenance of civil works undertaken under the Project (para. 24).

88. Most of the PDAMs are experiencing losses, due to their inability to set user charges inan attempt to cover costs (paras. 82 and 83). Hence, the Projects water supply components willalso steadily deteriorate over time, without adequate O&M allocations.

89. Communities in most of the project towns were unaware that they were responsible formaintaining some project facilities, such as drainage and MCKs. Thus, the long-termsustainability of several drains and MCKs is not ensured.

90. The positive impact of technical training was limited in Indonesia because of theGovernments policy of rotating staff members between departments requiring different

technical skills.

IV. ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS

A. Socioeconomic Impact

91. A key objective of the Project was to stimulate economic development in selected urbancenters in the Eastern Islands. In real terms, Indonesian gross domestic product per capitaincreased by 0.4% per annum from 1995 to 2002. Regional domestic product per capita figuresfor four of the five towns visited by the OEM show declining values in real terms over the sameperiod. In these centers, disparities between national gross domestic product per capita and

regional domestic product per capita have increased since 1995. In 1995, regional domesticproduct per capita in Ternate was 41% of the national figure, but fell to 28% in 2002. Similarlythere were declines in Kota Ambon, from 99% to 65%; Kota Jayapura, from 124% to 81%;Kabupaten Lombok Timur (Selong), from 34% to 31%; and Kabupaten Lombok Tengah (Praya),from 31% to 28%. Only in Kota Mataram was there positive growth, as regional domesticproduct per capita improved from 53% of the national figure in 1995 to 55% in 2002. In mostareas, the disparities worsened relative to national growth. In addition, political turmoilexacerbated the problem.

92. A survey was undertaken to assess the (i) socioeconomic and environmental impacts ofproject components and (ii) beneficiary perceptions on project achievements. The surveycomprised 112 respondents in Mataram, 105 in Kupang, 90 in Selong, 89 in Praya, and 60 each

in Ternate and Jayapura.33

Key survey results are in Appendix 8.

93. A significant majority of all respondents from all the survey towns largely agreed thathealth conditions improved as a consequence of the Project, and a decline occurred in

33Two domestic consultants (one for three districts of East Nussa Tenagarra and Kupang, and one for Ternate andJayapura) conducted field interviews from 20 March to 20 April. The survey covered a total of 516 respondents,including 97 respondents for the water supply component, 100 respondents for the urban roads component, 70respondents for the urban drainage component, 75 respondents for sanitation, 89 respondents for the solid wastemanagement component, and 85 respondents for the KIP component.


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19waterborne diseases. In Mataram, 60% of respondents noted a decline in waterborne illnesses,while in Kupang, Praya, and Selong, the percentage was 80%, 75%, and 88%, respectively.

94. The drainage component in Mataram, Praya, Selong, and Kupang mitigated floodingproblems. In Ternate, 40% of respondents reported continued flooding after the Project, whilerespondents in Jayapura indicated that flooding occurs after heavy rains, due to clogged drains.

95. More than 80% of respondents in all the six project towns surveyed said that the solidwaste management facilities built under the Project fully addressed the issue of wastemanagement and reduced hazardous sanitary practices in their communities.

96. More than 80% of respondents in the Ternate and West Nussa Tenggara districts saidthat after the Project their living conditions improved in KIP sites. In Jayapura and Kupang, 90%and 70% of respondents, respectively, said that conditions improved after the Project.

B. Environmental Impact

97. Environmental conditions at the dump site in Ternate are far from ideal, and garbage is

dumped, burned, then flattened throughout the 60 ha area. Very little soil cover is present, andgarbage is scattered and blown about the site. Moreover, neither leachate collection nor asanitary liner are present. However, the local government is developing an initial dumping area,where garbage will be segregated for recycling and the residual will be dumped. The site isfenced off and will have some environmental controls. It will be in operation by late 2004.Recycling and cattle raising provide a livelihood for a small group of about 20 scavengerfamilies living near the dump site.

98. The abandonment of the disposal site and septic sludge treatment plant in Jayapura andthe resulting dumping of garbage and untreated septic sludge will create serious environmentalproblems in the area close to a main road and near a prime growth area of the city. Unsanitaryconditions prevail for the group of scavengers sorting dumped garbage. In contrast are the

properly designed and efficiently run final disposal sites in Mataram and Selong. In Mataram,the site is located some 20 km from the city and is a proper sanitary landfill with leachateextraction and collecting ponds. Adequate soil cover is placed on dumped compacted garbage.The bulldozers and mechanical shovel financed under the Project are in good condition and fullyoperational. They are kept under cover in a small complex that included a ramp for vehiclemaintenance, an office, and caretakers quarters. The site is well managed. Little garbage wasscattered, and the smell of decaying garbage was not present. Appropriate environmentalcontrols were in place. Similarly, the site in Selong had operational leachate treatment facilitiesand operational vehicles and equipment. Garbage was regularly covered by soil. Although, nearthe sea, the leachate treatment facilities were preventing seepage. In addition, wastewatertreatment and disposal remains a serious problem in Indonesia (para. 26).

C. Impact on Institutions and Policy

99. One of the main targets of the IUIDP was to formulate action plans to strengthen theLIDAP and explore avenues for increasing the RIAP. To achieve this purpose, the Projectenvisaged workshops and training in all project locations.

100. The modules for training were appropriate, including regional development planning,strategic management for urban development, urban infrastructure development, andinstitutional development of local governments, and were well attended by the district


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20development planning boards and district government secretariats of project cities. However,the impact was limited due to the failure to undertake a diagnostic approach to capacity buildingthat would have identified key areas requiring strengthening. Thus, the focus on training did notdeal with the (i) failure to retain staff members trained, due to local government policy oftransferring people within various departments; (ii) resistance by the local governments toraising tariff rates, because of political concerns; and (iii) continued heavy reliance on grants

from the central Government.

101. The training for community development was well attended. However, it was restricted tothe identification of the subprojects and did not include sessions on the need to take upresponsibility for undertaking O&M, especially in terms of drainage and cleaning of septic tanks.Thus, the beneficiaries had little idea of the importance of maintenance through higher usercharges or, in some case, the time period after which septic tanks needed to be cleaned.

V. OVERALL ASSESSMENT

102. The Project was rated based on an assessment of five of the six towns visited (para. 20).

As 17 districts were covered by the Project, this limits the representativeness of the findings.Additionally, discrepancies in reporting in ADBs and the Governments PCRs, as well as withinformation provided to the OEM from local sources, made substantiation by the OEM of someproject outputs difficult.

A. Relevance

103. The Project was relevant, since it aimed to improve the quality of urban infrastructureand service delivery in selected urban centers in the Eastern Islands. In addition, the Projectaimed to strengthen the institutional capabilities of local governments and PDAMs and enhancelocal resource mobilization.

B. Efficacy

104. The objective of the Project, to assist in improving the quality of urban infrastructure andservice delivery, was achieved to the extent that each component improved the conditionswithin the urban areas. The quality of the civil works accessible to the OEM was good. Theproject objective of