Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No.: 18049

IMPLEMENTATION COMPLETION REPORT

REPUBLIC OF INDONESIA

SECOND JABOTABEK URBAN DEVELOPMENT PROJECT(Lean 3219-IND)

June 23, 1998

Urban Development Sector UnitIndonesia Country Management UnitEast Asia and Pacific Region

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.

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CURRENCY EQUIVALENTSCurrency Unit = Indonesian Rupiah (Rp)

(As of January, 1990)US$1.00 = Rpl,795

(As of July, 1997)US$1.0 = Rp2,400(As of March, 1998)US$1.0 = Rp8,500

WEIGHTS AND MEASURESMetric Units

FISCAL YEAR OF BORROWERApril I - March 31

ABBREVIATIONS AND ACRONYMSBAPPEDA - Regional Government Development Planning, BoardCRBDP - Citraum River Basin Development ProjectCTWLP - Cisadane Treatnent Water Line ProjectDG - Director GeneralDGCK - Directorate General Cipta Karya (Human Settlements)DGWRD - Directorate General Water Resource DevelopmentDKI Jakarta - Special Capital Region (Daerah Khusus lbukota) of JakartaEIRR - Economic Internal Rate of ReturnFIRR - Financial Rate of ReturnGO] . Government of IndonesiaIUDIP - Integrated Urban Infrastructure Development ProgramJABOTABEK - Jakarta Metropolitan RegionJSSP - Jakarta Sewerage and Sanitation ProjectJUPCO - Project Coordinating Unit in DKI Jakarta. BAPPEDA.lWRMS - Jabotabek Water Resource Management StudyKIP - Urban Neighborhood (Kampung) Improvement ProgramMoHA - Ministry of Home AffairsOECF - Overseas Economic Cooperation Fund of JapanOED - Operations Evaluations DepartmentO&M I - Operations & MaintenancePAM JAYA - Water Enterprise for DKI JakartaPD PAL - PD Pengelola Air Limbah (Sewerage Manag,ement Enterprise)Pl) - Project Implementation UnitPJSIP - PAM JAYA System Improvement ProjectPMU - Project Management UnitPO. - Authority of JatiluhurPRWLP - Pejompongan Raw Water Line ProjectPSP - Private Sector ParticipationTA - Technical AssistanceUfW - Unaccounted for WaterWTC - West Tarum CanalWTP - Water Treatment Plant

Vice President Jean-Michel Severino

Country Director Dennis de Tray

Sector Manager Keshav VarmaTask Manager Alain Locussol

FOR OFFICIAL USE ONLYIMPLEMENTATION COMPLETION REPORT

REPUIBLIC OF INDONESIASECOND JABOTABEK URBAN DEVELOPMENT PROJECT (Loan 3219-IN)

Table of Contents

PREFACE .in.................. 1EVALUATION SUMMARY ....................................... iV

PART I: PROJECT IMPLEMENTATION ASSESSMENTA. STATEMENT/EVALUATION OF OBJECTIVES .................................. 1B. ACHIEVEMENT OF OBJECTIVES ...... 2....................2C. MAJOR FACTORS AFFECTING THE PROJECT .............................. .. 8D. PROJECT SUSTAINABILITY............ .9.......... 9E. BANK PERFORMANCE ..................... . 10F. BORROWER PERFORMANCE ...................... 10G. ASSESSMENT OF OUTCOME ...................... .. 11H. FUTURE OPERATIONS ...................... 11I. KEY LESSONS LEARNED ..................... 12

PART II: STATISTICAL ANNEXESTABLE 1. SUMMARY OF ASSESSMENT .13TABLE 2. RELATED BANK LOANS .14TABLE 3. PROJECT TIMETABLE .16TABLE 4. LOAN DISBURSEMENTS-CUMULATIVE ESTIMATED AND ACTUAL .16TABLES. KEY INDICATORS FOR PROJrECT IMPLEMENTATION (5A1, 5A2, 5B1 &5B2) .17TABLE 6. KEY INDICATORS FOR PROJrECT OPERATION (6A 1 & 6A2) .21TABLE 7. STUDIES INCLUDED IN PROJECT .23TABLE 8A. PROJECT COSTS .................................................. 26TABLE 8B. PROJECT FINANCING .................................................. 26TABLE 9. ECONOMIC COSTS-BENEF ITS .................................................. 26TABLE 10. STATUS OF LEGAL COVENANTS .................................................. 27TABLE 11. COMPLIANCE WITH OPERATIONAL MANUAL STATEMENTS .............................................. 30TABLE 12. BANK RESOURCES-STAFF INPUTS .................................................. 30TABLE 13. BANK RESOURCES-MISSIONS .................................................. 31

APPENDICES:A. MISSION 'S AIDE-MEMOIRE ........................................................ 34B. BORRowER'S CONTRIBUTION TO TEIE ICR ........................................................ 38C. ECONOMIC RATES OF RETURN ...................... 53

MAPS (IBRD Nos. 21674, 21675, 22039)

SUPPLEMENTARY TABLES AVAILABLE IN PROJECT FILESTABLE 1 A & B. PAM JAYA Income Statement 1990-96TABLE 2 A & B. PAM JAYA Sources and Applications of Funds 1990-96

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.

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TABLE 3 A & B. PAM JAYA Balance Sheet 1990-96TABLE 4 A & B. PDAM Tangerang Income Statement 1990-96TABLE 5 A& B. PDAM Tangerang Sources and Applications of Funds 1990-96TABLE 6 A& B. PDAM Tangerang Balance Sheet 1990-96TABLE 7 PD PAL JAYA Connections and Service Areas

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IMPLEMENTATION COMPLETION REPORT

REPUEBLIC OF INDONESIASECOND JABOTABEK URBAN DEVELOPMENT PROJECT

(loan 3219-IND)

Preface

This is the Implementation Completion Report (ICR) for the Second JabotabekUrban Development Project in the Republic of Indonesia, for which Loan 3219-IND in theamount of US$190.0 million was approved on June 5, 1990 and made effective on February27, 1991. Part of the proceeds of the Loan, the equivalent of US$124.0 million, was on-lentby the Government to (a) DKI Jakarta (US$19.0 million); (b) PAM JAYA (US$92.0 million);and (c) PDAM Tangerang (US$13.0 million) for 20 years at 9.5 percent per annum interest.

Loan 3219-ND was closed on December 31, 1997 after a one year extension of theoriginal closing date of December 31, : 996. Final disbursement took place on April 30, 1998,and a balance of US$15,265,338.84 was canceled.

The ICR was prepared by a team consisting of Alain Locussol (Task Manager),Dong Liu, Jaehyang So (EASUR), Leila Elvas, Mohamad Nuch (EACIF), and Ephrem Asebe(EASTR), consultant. It was reviewed by Messrs. Dennis de Tray, Director, IndonesiaCountry Management Unit, and Keshav Varma, Manager, Urban Development Sector Unit,East Asia and Pacific Region.

Preparation of this ICR started during the Bank's December 1996 supervisionmission. The ICR is based on material in the Project file and data gathered during the ICRmission of December 1997, at which time discussions on the draft ICR were held with theBorrower. The Borrower contributed to the preparation of the ICR by providing its ownevaluation of the Project, as reflected in the mission's Aide-Memoire (Appendix A), and bypreparing an extensive separate evaluation of the Project, the summary of which is shown inAppendix B.

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IMPLEMENTATION COMPLETION REPORTREPUBLIC OF INDONESIA

SECOND JABOTABEK URBAN DEVELOPMENT PROJECT(Loan 3219-IND)

Evaluation Summary

i. Background. During the mid-1980s, the Government of Indonesia (GOI) introducedthe concept of Integrated Urban Infrastructure Development Programming (IUIDP), groupingunder a single umbrella: urban transport, water supply, sewerage and sanitation, drainage andflood control, solid waste management and kampung (neighborhood) improvement (KIP)investments. Due to the size of Jakarta and its region, known as Jabotabek (Jakarta, Bogor,Tangerang, Bekasi), it was felt difficult to undertake activities in all sub-sectors under asingle IUIDP project; IUIDP activities were thus divided into three projects. The firstJabotabek Urban Development Project (JUDP I - Ln. 2932-IND & ICR No. 17116-IND)dealt with urban transport. JUDP III (Ln. 3246-IND), which is ongoing, deals with KIP andsolid waste management. The project under review, JUDP II (Ln. 3219-IND), dealt withwater supply, sanitation, flood control and drainage.

ii. Project Objectives. As stated in the Staff Appraisal Report (SAR) No. 8339-IND,the Project's main objectives were to develop and implement a coordinated program ofphysical investments, technical assistance and policies for urban water supply, waste waterdisposal, drainage and water resource/quality management which would: (a) balance theexisting production capacity with that of the transmission and distribution facilities; (b)increase piped water supply to about 50 percent of the population; (c) result in improvedservice for the poor through construction of standpipes and removal of monopoly water saleby vendors; (d) improve waste water disposal; (e) strengthen management, staffing andfinancial viability of water supply and sewerage institutions; and (f) strengthen Jabotabekwater resource planning capabilities. JUDP II was consistent with GOI policy to decentralizedesign, financing and construction responsibilities of urban water supply to municipal watersupply companies and to implement cost recovery measures to ensure sustainability of thelatter.

iii. Project Components. The Project focused primarily on improving Jakarta's watersupply through three major components: (a) the PAM JAYA (Jakarta Water SupplyCompany) System Improvement Project (PJSIP); (b) the Pejompongan Raw Water LineProject (PRWLP); and (c) the Cisadane Treated Water Line Project (CTWLP). In addition,the Project financed: (d) the completion of the Jakarta Sewerage and Sanitation Project(JSSP) initiated under an earlier project; (e) priority flood control and major drainage worksin Jakarta; (c) the preparation of a Jabotabek Water Resource Management Study (JWRMS);(f) the preparation of future projects; and (g) support to the overall Project Coordination Unit,JUPCO.

iv. Evaluation of Objectives. Project objectives were simple, focused and wellunderstood by all implementing agencies. The Project was important for all of them. It was inparticular challenging for PAM JAYA, which for the first time was given responsibility for

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implementing a large construction program. The design of the Project benefited from earlierOperations Evaluations Department 4iOED) reviews of the Indonesian water and sanitationprojects. Accordingly, Loan covenants rightly emphasized cost recovery, cash flow,contribution towards capital expendiiture, and commitments to regular tariff increases. TheProject's objectives were realistic, and targets for service coverage and performanceimprovement were based on Bank experience in these sectors in Indonesia.

Implementation Experience and Results

v. Achievement of Objectives. The Project has substantially achieved its physical,management and financial objectives and realized most of the benefits anticipated, with someshortcomings. The three major components of the Jakarta Water Supply project have resultedin more balanced production and distribution capacities. As a result, an additional 2.3 millionpeople, including lower income groups, now have access to piped water through anadditional 234,000 connections. The service ratio in DKI Jakarta is now estimated to beabove 50 percent, slightly higher than the appraisal forecast. Groundwater abstraction islikely to have been limited to its 1990 level, but still remains the main water source for manyhouseholds and for most high rise buildings that cannot yet rely on PAM JAYA's service.The overall quality of piped water did not improve significantly because of the deterioratingquality of raw water sources; consequently most households still boil water obtained from thepiped system before consumption. In 1997, unaccounted for water (UfW) was 56 percent,i.e., two percentage points above the 1990 figure of 54 percent. PAM JAYA's inability toreduce UfW is the main failure of lthe Project. PAM JAYA's tariffs have been increasedregularly, as initially agreed; the 1997 tariff increase, however, was delayed to April 1998,pending conclusion of the negotiations with the two private operators who took over PAMJAYA's operations in February 1998. While debt and capital structure covenants werecomplied with, its contribution to the overall investment program remained slightly below therequired 30 percent. PDAM Tangerang's bulk water tariff to PAM JAYA, although higherthan appraisal forecast, is still below what is needed to cover operations and maintenance(O&M) costs and debt service. PDAM4 Tangerang's tariff increase, due in January 1996, waspostponed until 1998.

vi. The Drainage and Flood Control project was completed on time and within budget;it is estimated to benefit 7,520 hectares of densely populated areas. The Jakarta Sewerageand Sanitation project was only partially successful, partly because a major urban renewaleffort in the Project area since 1990 affected demand for new connections; however, the floorarea of commercial buildings connected to the sewerage system increased threefold. A pilotsewerage project in a lower medium income community was not successful because of a lack ofsupportive policies on the part of GOIT

vii. The main achievement of the Jabotabek Water Resource Management study was asubstantial increase of the ground wvater abstraction fee in DKI Jakarta. The Project alsofnanced the preparation of several IUIDP projects (e.g., Surabaya, Kalimantan, SecondSulawesi) now being implemented.

viii. Costs and Implementation Time Table. The actual project cost was estimated atRp568.4 billion (US$266 million equivalent, compared to the SAR estimate of US$307million). A reallocation of Loan proceeds among implementing agencies was necessary to cover

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the cost overrun of the PRWLP due to implementation delays by about 30 months beyond theappraisal estimate. The Loan was closed on December 31, 1997, after a one year extension ofthe initial closing date.

ix. Economic Internal Rate of Return. The water supply component is estimated to yieldan EIRR of 11.6 percent, close to the appraisal forecast and a FIRR of 10.5 percent. Thesmall drainage component is estimated to yield an EIRR of 59 percent, against the appraisalforecast of 17 percent to 22 percent.

x. Project Sustainability. GOI commitment to addressing water supply issues in DKIJakarta was evidenced by regular tariff increases to make PAM JAYA financially secure, anda willingness to involve private operators in the delivery of water supply services. However,the recent change in government and the dramatic downturn in economic conditions makesustainability of the water supply component uncertain. In particular, the new institutionalarrangement should be more conducive to reducing the high level of unaccounted-for water(UfW) and thus the cost of services. Sustainability of the small sanitation and seweragecomponent is uncertain (even though the physical components have been implemented andfinancial covenants met), in the absence of an appropriate policy framework for the urbansanitation sector. Indications are that the flood control and drainage component of the Projectis likely to be sustainable.

xi. Main Factors Affecting Implementation of the Project. At GOI level, implementationof the Project was mostly affected by a number of regulations in existence at appraisal, thatresulted in, for example, the poorly designed implementation and operational arrangements forthe Cisadane bulk water supply scheme. The standard tariff structure recommended to PDAMsby the Ministry of Home Affairs was suspected to be one of the reasons for high UfW andconsumption distortion. The deterioration of raw water quality delivered to the treatment plantsdid not allow a noticeable improvement in the quality of water distributed by PAM JAYA. Atimplementing agency level, PJSIP's decision to change the initially agreed procurement planand to award more than 200 contracts (more than three times what was initially agreed), led toless than optimum construction quality.

xii. Bank Performance. Bank performance during identification, preparation, and appraisalwas satisfactory. Project objectives were kept relatively simple. The main institutionaldevelopment that occurred during implementation, i.e., the privatization of PAM JAYA'soperations, an event parallel to but facilitated by the Project, was not envisaged by GOI and theBank at appraisal as private sector participation was still a new concept at that time. Bankperfornance during supervision was also satisfactory, focusing on technical, financial andinstitutional aspects. The Bank was also vigilant on procurement and environmental issues.

xiii. Borrower Performance. GOI performance was satisfactory, as evidenced by a Projectwhose physical components have been fully implemented, within budget, and with only minordelay. PAM JAYA's performance was good, considering its inexperience in implementing alarge construction project. The coordinating role of JUPCO was limited due to its lack ofauthority to address problems promptly.

xiv. Project Outcome. Overall Project outcome is rated satisfactory. Most of the physicaland financial objectives have been achieved. Facilities financed by the Project are already beingheavily used, but O&M costs may rise because construction quality was only barely acceptable.

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The failure of the UfW reduction program, and the pilot sewerage project were the mainshortcomings of the Project.

Future Operations and Lessons Learned

xv. Future Operations. In February 1998, two 25-year "cooperation" agreementsbetween PAM JAYA and two private consortia became effective. Initially, each consortiumincluded an international operator and a local partner. Following the May 1998 change ofGovernment, the international operators were asked to buy the shares of their local partners;this has now been done. The "cooperation" agreements are modeled after concessioncontracts: PAM JAYA remains the owner of existing facilities and will become the owner offacilities financed by the operators: PAM JAYA will remain responsible for setting the tariffthat applies to consumers. The agreements include detailed performance indicators thatwould allow for further monitoring of the piped water supply service in DKI Jakarta. Theinstitutional arrangements in place are likely to improve these performance indicators. PAMJAYA has officially provided the Bank with a copy of the two "cooperation" agreements toenable an assessment of their impact on the Loan Agreement.

xvi. The current arrangement for operating the Pejompongan transmission line issatisfactory; transferring O&M activities to one of the two private operators is underconsideration. The current arrangement for operating the Cisadane bulk water supplyfacilities could be improved. PDAM Tangerang has contracted out the management of thetreatment plant to a private operator; transfer of the operation of the transmission line andpumping plants to a single private operator is also envisaged. PD PAL JAYA is likely toremain a small operation, with limited impact on the sanitary environment in Jakarta, becausethe assets it manages do not allow for a significant increase of the customer base.Arrangements for operation of the major drainage facilities are adequate, althoughavailability of central government financing for rehabilitation projects, such as that financedby the Project, could encourage inadequate budgeting for regular maintenance.

Key Lessons Learned

xvii. Key lessons learned from the project are listed below:

Physical Implementation:

* Good quality preparation is the key to successful implementation;* The procurement plan agreed at appraisal should be followed without major

modifications; there is little or no advantage in splitting supply and laying ofpipes into separate contracts; and

* UfW is more an institutional than a physical problem.

Institutional Development:

* PDAM performance cannot be improved simply by providing technicalassistance and training;

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* To prepare a meaningful PDAM performance improvement program, it isnecessary to understand the incentive framework in which it operates;

* UfW reduction programs should be envisaged as part of a larger effort to reduceoperating costs; and

* UfW is magnified by inappropriate pricing practices, such as low raw watercharges, and a distorted piped water tariff structure.

Financial Developnent:

* Simple financial covenants are well understood by PDAMs and can beimplemented if both the PDAM and the local government are committed toimprovement;

* Financial covenants should be carefully designed to avoid automatic transfer ofa PDAM's inefficiencies to users; tariff increases should not be granted withoutat the same time instituting a strictly monitored performance improvementprogram; and

* Agencies that cannot submit timely audit reports by Government auditors shouldbe requested to engage private auditors to meet this requirement.

IMPLEMENTATION COMPLETION REPORTINDONESIA

SECOND JABOTABEK URBAN DEVELOPMENT PROJECT(Loan 3219-IND)

PART I. PROJECT IM0PLEMENTATION ASSESSMENT

A. Statement/Evaluation of Objectives

1. Background. During the mid-1980s, the Government of Indonesia (GOI) introducedthe concept of Integrated Urban Infrastructure Development Programming (IUIDP), groupingunder a single umbrella: urban transport, water supply, sewerage and sanitation, drainage andflood control, solid waste management and kanpung (urban neighborhood) improvement(KIP) investments. Due to the size of Jakarta and its region, known as Jabotabek (Jakarta,Bogor, Tangerang, Bekasi), it was felt that activities in all sub-sectors under a single IUIDPproject would be difficult; IUIDP activities were thus divided into three projects. The firstJabotabek Urban Development Project (JUDP I - Ln. 2932-IND & ICR No. 17116-IND)dealt with urban transport. JUDP III (]Ln. 3246-IND), still under implementation, deals withKIP and solid waste management. The project under review, JUDP II (Ln. 3219-IND), dealtwith water supply, sanitation, flood control and drainage.

2. Project Objectives. As stated in the Staff Appraisal Report (SAR) No. 8339-IND,the Project's main objectives were to develop and implement a coordinated program ofphysical investments, technical assistance and policies for urban water supply, waste waterdisposal, drainage and water resource/quality management which would: (a) balance theexisting production capacity with that of the transmission and distribution facilities; (b)increase piped water supply to about 50 percent of the population; (c) result in improvedservice for the poor through construction of standpipes and removal of monopoly water saleby vendors; (d) improve waste water disposal; (e) strengthen management, staffing andfinancial viability of water supply and sewerage institutions; and (f) strengthen Jabotabekwater resource planning capabilities. JUDP II was consistent with GOI policy to decentralizedesign, financing, and construction responsibilities of urban water supply to municipal watersupply companies and to implement cost recovery measures to ensure sustainability of thelatter.

3. Project Components. The Project primarily focused on improving water supply inDKI Jakarta through three major components: (a) the PAM JAYA (DKI Jakarta water supplycompany) System Improvement Project (PJSIP), to extend the distribution network to cover70 percent of Jakarta's territory, reduce unaccounted-for water (UfW) from 49 percent to 37percent, and improve PAM JAYA's management capacity (PJSIP was co-fnanced by a loanfrom the Japanese Government); (b) the Pejompongan Raw Water Line Project (PRWLP) toimprove the quality of the raw water delivered to the Pejompongan water treatment plant(WTP); and (c) the Cisadane Treated Water Line Project (CTWLP) to improve bulk watersupply to the westem part of DKI Jakarta by linking the Cisadane WTP (financed earlier by a

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loan from the French Government) to PAM JAYA distribution system. In addition theProject financed: (d) the completion of the Jakarta Sewerage and Sanitation Project (JSSP)initiated under an earlier project; (e) priority flood control and major drainage works in DKIJakarta; (c) the preparation of a Jabotabek Water Resource Management Study (JWRMS); (f)the preparation of future projects; and (g) support to the overall Project Coordination Unit,JUPCO.

4. Evaluation of Objectives. Project objectives were simple, focused and wellunderstood by all implementing agencies. The Project was important for all of them; it was inparticular challenging for PAM JAYA, which for the first time was given responsibility forimplementing a large construction program. The design of the Project benefited from earlierOperations Evaluations Department (OED) reviews of the Indonesian water and sanitationprojects (OED Report No. 6256 of June 1986). Accordingly, Loan covenants rightlyemphasized cost recovery, cash flow, contribution towards capital expenditure andcommitments to regular tariff increases. Project objectives were realistic and targets forservice coverage and performance improvement were based on the Bank experience in thesesectors in Indonesia.

B. Achievement of Objectives

5. Overall Assessment. The Project has substantially achieved its physical and financialobjectives and has realized most of the benefits anticipated, with some exceptions.

Bl. Jakarta Water Supply

6. The three major components in Jakarta water supply (PJSIP, PRWLP and CTWLP)have been completed. Their major physical and financial objectives have been substantiallyachieved, with some exceptions. The economic and financial rates of return of the watersupply components (11.6 percent and 10.5 percent respectively) are comparable to appraisalforecasts (Appendix C).

7. PAM JAYA System Improvement Project (PJSIP). Table 1 below summarizes theevolution of water supply service in DKI Jakarta between 1990 and 1997. During this period,2,265 km of distribution pipes were added, and the number of connections more than doubledto 462,000; however, the number of standpipes, forecast to increase from 2,100 to 4,900,went down to below 1,500 (para. 18). As of end 1997, about half of DKI Jakarta's populationhad access to piped water; however, while actual water production was above SAR forecastby 13 percent, water sales were below by 14 percent, reflecting PAM JAYA's inability toreduce UfW (para. 8).

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Table 1. Jakarta Water Supply-Mlin Physical Achievements

1990 1996 1996 1997 1997 % (Est/Units Actual SAR Actual SAR Est. SAR)

Population in service area 000 6,439 8,260 8,695 8,695 8,880 110

Service ratio % 35.4 46.5 45.3 49.1 52.1 95

Population served 000 2,280 3,840 3,940 4,135 4,624 112

Population not served 000 4,160 4,420 4,755 4,290 4,256 115

Connections 000 228 384 394 414 462 108

Standpipes unit 2,100 4,900 1,500 31

Production capacity i3/s 10.4 16.7 16.3 17.93 17.0 95

PAM JAYA own production mio rn3/y 263 326 401 339 430 127

Purchase from Cisadane mio rn3/y 0 65 10 76 38 50

Total production mio i3/y 263 390 410 415 463 112

Sales mio n3/y 123 219 176 237 205 86

Unaccounted for water (UfW) % 54 44 57 43 56 130

Distribution network km 3,672 5,653 5,937

Connection density J/km 62 70 75

8. In 1997, UfW reached 56 percent, i.e., two percentage points above the 1990 figureof 54 percent or 13 percentage poinits above the SAR forecast of 43 percent. The UfWreduction program is the main failure of the Project. At the time of appraisal, UfW wasmostly perceived as a "physical" problem, and the UfW reduction program, designed alongthe lines of a Bank manual that had just been published, focused mostly on rehabilitatingwhat was perceived to be a "leaky"' distribution network. Between 1990 and 1997, 178elementary distribution cells out of sa total of 250 were rehabilitated by PJSIP and handedover to PAM JAYA after UfW in each cell was measured below 30 percent. This has nottranslated into a reduction of PAM JAYA's overall UfW, which remained above 50 percentthroughout the Project implementaition period. In retrospect, it would have been moreappropriate to focus first on improving commercial management by placing PAM JAYAwithin an incentive framework, encouraging reduction of operating costs and increase inrevenues. The fact that the two private operators, who took over operations early in 1998(para. 33) and who would operate in such a framework, are confident that UfW can bereduced to 35 percent by end 2002, by combining an overhaul of commercial managementand the continuation of the rehabilitation program initiated under PJSIP, tends to confirm thisdiagnosis.

9. Between 1990 and 1997, the quality of piped water distributed in Jakarta did notimprove as expected because of the deteriorating quality of raw water delivered to the watertreatment plants (WTPs) and contamination in the distribution system in areas not yet servedwith sufficient pressure. As a result, customers still boil piped water or use bottled water fordrinking purposes.

10. In 1997, PAM JAYA sold about 82 million m3 of water (2.6 m3/s or 225,00 m3/day)more than in 1990. This extension of the piped water service is likely to have resulted in a

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stabilization of groundwater abstraction, since the population with no access to piped waterremained unchanged at about four million. However, DKI Jakarta, which is now responsiblefor monitoring ground water abstraction, is believed to meter and tax no more than 30 percentof groundwater pumped from deep aquifers. In 1997, most high rise buildings were still usingtheir own water sources, because the piped water supply service does not guaranteecontinuity and quality. Land subsidence resulting from over abstraction in deep aquiferscontinues to be a major constraint for the drainage system of a city that barely lies above sealevel.

11. Pejompongan Raw Water Line Project (PRWLP). PRWLP involved: (a) limitedrehabilitation of the West Tarum Canal (WTC); (b) the construction of an intake andpumping station on WTC; and (c) construction of twin pipelines 1.6 m diameter, to replacethe current supply of the Pejompongan WTP from the polluted Banjir canal by that of WTC.Construction suffered a delay of about 30 months beyond the appraisal estimate, but facilitiesfinally became fully operational in June 1997. The 8 percent cost overrun that resulted fromthis delay forced a reallocation of the Loan proceeds among implementing agencies. It is notyet possible to fully assess the impact on operations of the Pejompongan WTP (mostlysavings on chemicals) because of the short period of observation.

12. Cisadane Treated Water Line Project (CTWLP). CTWLP involved theconstruction of a transmission line between the Cisadane WTP and PAM JAYA'sdistribution network. It was implemented by PDAM Tangerang. Construction suffered adelay of about 20 months beyond the appraisal estimates, because of slow acquisition ofrights of way. Operations started only in 1996, but PAM JAYA's distribution system wouldhave not been able to absorb incremental production earlier. Negotiations of the bulk watersupply agreement between PDAM Tangerang and PAM JAYA took more than two years.The current arrangement for operating this bulk water scheme is not optimum and involves:(a) a private operator under contract with PDAM Tangerang for the Cisadane WTP; (b)PDAM Tangerang for the portion of the transmission line located in kabupaten Tangerang;and (c) the private operator for the western part of PAM JAYA water supply system, for theportion of the transmission line and pumping plants located in DKI Jakarta. In Serpong, theProject also financed a small distribution network that was built on time.

13. Institutional Development Objectives-PAM JAYA. The impact of the Projectwas modest. The action plan designed to address PAM JAYA's management weaknesses andagreed upon at the time of appraisal, was prepared with the assistance of a TA team from alarge international private water distributor. Procedures prepared by this team becameeffective in April 1995. Soon after, PAM JAYA decided to implement a more decentralizedstructure; this decision, combined with too many reassignments of staff who had earlier beenformally trained on new procedures, hampered implementation of the latter. Nevertheless,between 1990 and 1997, improvement could be noticed in the preparation of managementreports and audits, number of audit qualifications, management of personnel, quantity oftraining provided, reduction of accounts receivable, and in number of employees per 1000connections. Less success could be noticed on staff qualification and motivation, customerrelations, efficiency of training, and cost control. In fact, PAM JAYA's commitment toimproving its performance through the above action plan declined sharply, when GOIinitiated negotiations to transfer the responsibility for operating and developing the pipedwater supply service to two private consortia (para. 33) and when it became clear that PAMJAYA was unlikely continue as the operator because of an obvious conflict of interest. Bank

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financing for the above institutional development technical assistance (TA) contract wasterminated soon after the Bank was informed that the TA company was one of the twoprivate consortia.

Table 2. PAM JAYA-Selected Management Indicators

1990 1996 1996 1997 1997Units Actual SAR Actual SAR Est.

Number of employees person 2,186 3,160 2,180 3,265 2,213Employees per 1000 connections person 9.6 8.2 7.6 5.5 4.8Days account receivable days 66 76 15 76 35UfW 0", 54 44 57 43 56Audit qualifications None None

14. Institutional Development Objectives-Authority of Jatiluhur (POJ). The impactof the Project was marginal on a public authority with limited commercial orientation, eventhough an action plan to improve POJ accounting and budgeting procedures and preparationof financial reports was successfully implemented in 1994. In the case of PDAM Tangerang,the program to improve its accounting and budgeting procedures was undertaken, but therecent decision to split PDAM Tangerang into two, following the creation of a kotamadya(municipality) distinct from the kabupaten (regency) is likely to have a negative impact onthe efficiency of its operations.

15. Financial Objectives-PAM JAYA. The project's financial objectives wereachieved. PAM JAYA's water tariff was adjusted in November 1991 by about 30 percent,and again in July 1994 by about 54 percent. The latter increase resulted in an averagerevenue of about Rpl,450/m3 (equivalent to US$0.65/m3 at the exchange rate ofRp2,200/m3 prevailing on that date), a very high rate by Indonesian and South East Asianstandards. The tariff increase due for 1997 was implemented when the two private operatorstook over operations in February 1998. In April 1998, the average tariff was Rpl,920/m3(equivalent to US$0.23/m3 at the exchange rate of Rp8,500/US$). Although the financialcrisis that hit Indonesia in July 1997 mrnakes comparison difficult, the average 1998 tariff isbelow that of 1994, expressed in constant Rupiah. This reflects both expected productivitygains, and a rescheduling of PAM JAYA's debt granted by the Ministry of Finance. (TheBank's views have not been sought on the latter.) PAM JAYA water tariff structure wassimplified in 1994, but still remained fairly complex until the 1998 tariff revision; it wassuspected to be a reason for high UfW by implicitly encouraging meter readers to reduceactual readings in order to maintain billings in lower blocks. It also distorted consumption;industrial and commercial customers still preferred to use substitute sources of supply, suchas poorly regulated groundwater, in part because of the high rates applied to them for PAMJAYA water. Groundwater abstraction fees in DKI Jakarta were adjusted in August 1994 andplaced above the highest block for pipeSd water to discourage such action.

6

Table 3. PAM JAYA-Selected Financial Indicators

1990 1996 1996 1997 1997Units Actual SAR Actual SAR Est.

Average tariff- Current prices Rp/m3 682 1,176 1,491 1,352 1,491

Total operating revenues Rp bn 91.6 262.4 296.3 325.9 349.5

Total operating expenses Rp bn 66.1 159.4 170.5 181.2 214.4

Working ratio % 72 61 58 56 61

Operating ratio % 70 77 68 74 72

Current ratio 2.3 2.9 0.5 3.1 1.1

Debt service coverage ratio 3.0 1.9 1.8 2.6

Debt/Debt plus equity ratio % 57 58 74 54 69

Contribution to investment Annual % 26 23 29 64 17

3 year average % 37 24 31 52 19

DKI equity ( after adj. in 1990) Rp bn 2.6 26.9 43.0 35.5 18.7

RoR on re-valued assets % 7.8 6.0 17.2 7.0 11.9

1/ There was no loan amortization due for payment in 1997 because this has been included in theloan rescheduling scheme which took effect on the effective date of the concession.

16. PAM JAYA's debt and capital structure covenants were complied with, butcontributions to the overall investment program from cash generation remained below 30percent, because the non PJSIP investment program (mostly the second phase of CTWLP)did not materialize. Also, DKI Jakarta decided to reduce its equity contribution, not reallyneeded after the 1994 tariff increase that resulted in a very comfortable cash situation forPAM JAYA. Between 1990 and 1995, PAM JAYA's profit distribution to DKI Jakartatotaled Rp3O.6 billion (US$8.0 million equivalent), despite recommendation of the Ministryof Home Affairs (MoHA) to retain earnings for financing system extensions until thecoverage ratio reached 75 percent.

17. Financial Objectives-POJ. Financial objectives were partially achieved. SincePRWLP covered only a small part of POJ's fixed assets, financial covenants were limited tofinancial aspects directly related to the Project. POJ raw water tariff to PAM JAYA wasadjusted in 1994 and again in 1997 to Rp35/m3; it covers O&M costs, but not depreciation ofthe facilities built. The large difference between raw and treated water tariffs did not providePAM JAYA an incentive to reduce its production costs and thus to limit physical UfW.Concerning PDAM Tangerang, the bulk water tariff it charges PAM JAYA is above theappraisal estimate, but below what is needed to cover the cost of the Cisadane WTPmanagement contract and the debt service associated with the CTWLP. PDAM Tangerang'stariff increase, due for January 1996, was postponed until 1998. The debt coverage ratio andcontribution to capital covenants were not complied with; nevertheless, PDAM Tangerangpaid dividends to its local government, against MoHA recommendations.

18. Poverty Reduction Objectives. This objective was partially achieved. The totalnumber of public hydrants reached about 2,150 in 1993, but by 1997 it was back to its 1989

7

level of about 1,480. PAM JAYA had little incentive to install new hydrants where water issold below cost. While construction of an additional 234,000 connections between 1990 and1997 had a positive effect on lower income groups who could purchase water from theirneighbors, the impact of the hydrant program, as initially envisaged, has not been sustained.Two independent reviews concluded that liberalization of water sales by households to theirneighbors had a positive effect, but ifound no compelling evidence of the existence of amonopoly in the hydrant operator-vendor market. They also cautioned that the unit cost ofoperating hydrants may increase as their numbers increase and the volume of water sold byeach hydrant decreases, and they fiurther demonstrated that promoting a social houseconnection program would be both economically and financially superior to providing publichydrants. The two operators who took over PAM JAYA's operations in 1998 (para. 33) arenot required to provide additional hydrants, but are instead encouraged to seek attractivecommercial policies to favor connections to lower income households.

B2. Other Physical Components

19. Jakarta Sewerage and Sanitation Project (JSSP). The objectives of thiscomponent were only partially achieved. The Project financed the completion of worksstarted under an earlier Project, whose outcome was rated "unsatisfactory" (OED ReportPPAR No. 13285). Construction was carried out on time, but because of the major urbanrenewal that affected the Project area between 1990 and 1997, the number of connectionsremained at its 1990 level of about 1,000, compared with the SAR estimate of about 3,700.However, the floor area of commercial buildings connected increased threefold. (Becausemost high rise buildings connected ito the sewerage network are not connected to PAMJAYA's piped water, PD PAL JAYA, the DKI Jakarta municipal waste water utilitycompany, uses floor area rather than water consumption as a basis for billing.) The targetedvolume of waste water to be treated al: the Setiabudi ponds was achieved. The Bank declinedto finance the "low cost sewerage pilot project" built in a lower middle incomeneighborhood, Malakasari, because no agreement could be reached on a process forconsulting households targeted for connection. To date, despite completion of sewers and ofa small waste water treatment plant, no households have been connected. PD PAL JAYAremains a small operation, employing 125 staff and serving only about 1,000 connections,with growth possibilities limited to the Project area and depending mostly on connections tonew high rise buildings. Although PD PAL JAYA complied with financial covenants (mostlycoverage of O&M costs), assets built under the first JSSP have not yet been transferred bythe central government. The Project also financed "micro drains" in neighborhoods newlyserved with piped water. This component was successfully implemented.

20. Flood Control and Major Drainage. The objectives of this component weresubstantially achieved. It included the dredging and rehabilitation of main canals and of alarge storm water drainage reservoir and associated pumping stations, and the construction oftwo tidal gates. Assets have been transferred to DKI Jakarta, which is responsible for O&M.It is estimated that a total of about 7,500 hectares of densely populated areas would benefitfrom the improved drainage conditions. Increase in land value, as a result of flood anddrainage improvements, yielded a 59 percent economic rate of return, to be compared to SARestimates of 17 to 22 percent (Appencdix C).

8

B3. Major Studies and Project Coordination

21. Jabotabek Water Resource Management Study (JWRMS). JWRMS had apositive impact on identifying possibilities and constraints in the management of waterresources in the Jabotabek area. It: (a) formulated scenarios for long term water demand, inparticular in relation to pricing policy; (b) reviewed surface and ground water options; (c)compared transfer schemes; and (d) proposed pricing strategies. JWRMS' main conclusion todevelop a new transmission line from the Jatiluhur reservoir in the next decade, before a newreservoir located West of Jabotabek is built, may, however, have to be reconsidered. JWRMSdid not cover the complex institutional aspects of water resource management in the twoprovinces of West Java and DKI Jakarta, where Jabotabek is located. This may explain thesomewhat limited follow-up activities so far in preparing long term solutions along the linesrecommended.

22. Other Studies and Project Coordination. The Project made a substantialcontribution to the preparation of several follow-on Bank supported IUIDPs (Surabaya,Kalimantan, Semarang-Surakarta, Second Sulawesi) which are now under implementation. Italso made a contribution to the development of a project monitoring system within theDirectorate General of Human Settlements of the Ministry of Public Works. The Projectfinanced limited TA to the GOI team that negotiated the "cooperation" agreements with thetwo private consortia (the main TA contract was financed by a PHRD Grant) and TA toJUPCO for overall monitoring and coordination of JUDP II.

C. Major Factors Affecting the Project

23. Factors Outside Government Control. All major factors affecting the project werewithin government or implementing agency control.

24. Factors Subject to Government Control. The Project was designed to fitregulations in effect at the time of appraisal, in particular those governing PDAMs. Some ofthem had an impact on the achievement of Project objectives. For example, the poorlydesigned implementation and operating arrangements for the Cisadane bulk water supplyscheme (paras. 12, 34) reflect the rule "one PDAM per local government-each PDAMresponsible for projects in its territory". The distorted water consumption and high UfW mayhave their roots in the tariff structure recommended by MoHA and raw water tariffs that POJwas allowed to charge (paras. 15, 17). The deterioration of raw water quality delivered to theWTPs did not allow for a noticeable improvement in the water distributed by PAM JAYA(para. 9). Procurement regulations that restrict the selection of certain categories ofcontractors for smaller constructions barred PAM JAYA from attracting better qualifiedcontractors. Splitting pipe supply and laying contracts, a practice initially designed to favorlocal steel pipe manufacturers (imposed on most PDAMs by central government agencies)has not proven to be very efficient and cost effective. The absence of a clear policy in urbansanitation did not allow for testing the feasibility of sewerage options in lower incomeneighborhoods (para. 19). Slow transfer of assets built by central government agencies wasoften a cause for the delays in audit reports (para. 19). It does not appear that implementationof PJSIP suffered from GOI's decision to privatize PAM JAYA's operations (para. 33); staffmorale was affected to some extent, although an agreement was reached early with theconsortia that there would not be lay-offs. The decision to split PDAM Tangerang into twomay affect implementation of its management improvement program (para. 14).

9

25. Factors Subject to Implementing Agencies Control. Delays in procurement andimplementation were often an issue. While procurement was generally handled in areasonable manner by most agencies, PJSIP's decision to split the 64 contracts initiallyagreed in the procurement plan into more than 200, led to an additional administrative burdenand to the selection of poorly qualified contractors. As a result, quality of construction ofsmaller diameter pipes under this component can be rated less than optimum. Delays inconstruction were mostly due to slow issuance of digging permits (PJSIP), slow acquisitionof rights of way (CTWLP), or the extreme difficulty in laying large diameter pipes in thecenter of a very busy city (PRWLP). No major changes were made to the Project, apart fromthe reallocation of the Loan proceeds among agencies to finance the PRWLP cost overrun(para. 11). The only serious environiental issue to be addressed was the proper disposal ofthe spoil from the Pluit storm water reservoir (para. 20); this was handled professionally,according to a plan agreed with the Bank. Resettlement was not a major issue and the fewhouseholds that had to be resettled, mostly under PRWLP, were properly compensated. Aswith most projects in the sector, implementation depended heavily on TA provided byinternational and local consultants; TA absorbed 20 percent of total disbursements. Theperformance of consultants was satis factory.

D. Project Sustainability

26. GOI's commitment to addressing Jakarta's water supply issues was demonstratedthrough its willingness to set tarliffs at a level that ensured PAM JAYA's financialsustainability, and the strong drive lo involve the private sector in the provision of service.The institutional arrangements that became effective on February 1, 1998 are likely to bemore sustainable than the one envisioned at appraisal. The expected increase in efficiencyfrom improved monitoring of the operator's performance should eventually translate intolower tariffs. The two professional operators are likely to be more successful than PAMJAYA in lobbying for implementation of a water resource management program and inobtaining additional sources in a tinnely manner; the protection of raw water quality is alsolikely to become a priority (para. 21). An appropriate regulatory framework still needs to beput in place to guarantee that all ca1tegories of consumers will benefit from efficiency gainsachieved by private operators. Nevertheless, the recent change in government and thedramatic downturn in economic conditions make sustainability of the water supplycomponent uncertain.

27. JSSP had a marginal input on the sanitary environment in Jakarta. Between 1990 and1997, GOI only made limited progress in developing a sanitation strategy for Jakarta. Themaster plan prepared in 1991 under Japanese financing was never approved, and alternativesconsisting of developing "modular systems" were rapidly faced with the issues of landavailability for waste water treatment plants and the environmental problems related to theiroperation. Sustainability of the flood control and drainage component of the Project is likely,even if rehabilitation activities, such as dredging of major canals and storm drainagereservoirs, are mostly deferred maintenance that should be financed by O&M budgets ratherthan by investment budgets.

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E. Bank Performance

28. Bank performance during Project identification, preparation and appraisal wassatisfactory. The appraisal team tried to keep the Project simple in its objectives andcomponents, although the Project eventually had to deal with three main urban sub-sectors,and eight different implementing agencies. The quality of preparation was sufficient to allowfor immediate implementation of most components. The designs of the UfW reductionprogram and of PDAM performance improvement program reflected the thinking thatprevailed at the time of appraisal (paras. 8 & 13). In the late 1980s, private sectorparticipation (PSP) in the delivery of water supply services was still a new concept for bothGOI and the Bank; had GOI proposed a PSP option, it would have most likely been turneddown by the Bank, following other unsuccessful experiences in Indonesia. The Bank had amore limited input in the design of the other sub-projects, but after the failure of the firstJSSP, it could have refused to support a repeater project without prior agreement on asewerage and sanitation policy framework. In the case of the flood control and majordrainage component, the Project merely supplemented funding of the largest financier in thisfield, OECF of Japan.

29. Bank performance during supervision was satisfactory. The Bank supervised theProject at least twice a year during the initial years of implementation. Once mostimplementation problems were solved, annual supervisions were carried out, with brieffollow-up missions visiting the main implementing agencies at least three times a year tofollow-up on actions agreed upon. Further support was provided by staff of the residentmission on an as required basis. Supervision missions focused mostly on technical, financialand institutional aspects. They paid less attention to the poverty reduction objective, afterreviews suggested that the public hydrant program might not have been the optimum serviceoption (para. 18).

30. No deviations from Bank policies and procedures were noticed duringimplementation. The Bank was particularly vigilant on procurement issues, and paid closeattention to environmental and resettlement issues. Representatives of the OECF-financedproject generally joined supervision meetings with PAM JAYA; since the Bank and OECFprojects were implemented in different geographical areas, this was more for mutualinformation on progress than for detailed coordination.

F. Borrower Performance

31. GOI performance was satisfactory, as evidenced by a Project whose main objectiveshave been achieved; physical components have been fully implemented, within budget andwith only minor delay. Agencies tended, however, to focus too much on implementationissues, and not enough on achievement of objectives. PAM JAYA's performance was ofgood quality, taking into account its inexperience in implementing large constructionprograms; however, planning and procurement procedures could have been better. Allagencies issued sufficiently documented progress reports and audit reports. However, thecoordinating agency JUPCO has recently experienced delays in obtaining audit reports fromGovernment auditors. All agencies demonstrated commitment to the Project objectives, andmost covenants were complied with. Coordination could have been somewhat better; JUPCO,acting mostly as an intermediary between the various implementing agencies and the Bank,lacked the authority to promptly address issues such as the reallocation of Loan proceeds

11

(para. 11) and to accelerate negotiations of the Cisadane bulk water supply agreement (para.12).

G. Aisessment of Outcome

32. On the whole, the Project's outcome is assessed as satisfactory. The Project hasachieved most of its physical and financial objectives. The privatization of PAM JAYA'soperations, an event parallel to, but facilitated by the Project, is likely to further achievedevelopment objectives. Facilities financed by the Project are already being heavily used, butthe average quality of construction of some distribution pipes might lead to higher thanstandard O&M costs. The UfW reduction program and the low cost sewerage pilot projectare the main failures of the Project.

H. Future Operations

33. Jakarta Water Supply. In February 1998, two 25-year "cooperation" agreementsbetween PAM JAYA and two private consortia became effective. Initially, each consortiumincluded an international operator anld a local partner. Following the May 1998 change ofgovernment, the international operators were asked to buy the shares of their local partners;this has now been done. The "cooperation" agreements are modeled after concessioncontracts: PAM JAYA remains the owner of existing facilities and will become the owner offacilities financed by the operators. PAM JAYA will remain responsible for setting the tariffthat applies to consumers. The agreements include detailed performance indicators thatwould allow for further monitoring of the piped water supply service in DKI Jakarta. Theinstitutional arrangements in place are likely to improve these performance indicators. PAMJAYA has officially provided the Bank with a copy of the two "cooperation" agreements toenable an assessment of their impact on the Loan Agreement.

34. The current arrangement for operation of the Pejompongan transmission line by POJis satisfactory; POJ envisages the possibility of transferring O&M activities to one of the twoprivate operators under a "management" contract. The arrangement for operation of theCisadane transmission line could be improved. PDAM Tangerang has recently contracted outthe management of the Cisadane WVTP to a private operator. For the time being, PDAMTangerang still operates the part of the facilities located in its territory, while facilities locatedin Jakarta are operated by the private operator for the western part of the PAM JAYA'soperations (Para. 12). This private operator could take over O&M responsibility for the entireCTWLP scheme.

35. Jakarta Sewerage and Sanitation. PD PAL JAYA is likely to remain a smalloperation, with a limited impact on the sanitary environment in Jakarta, because the assets itmanages do not allow for a significant increase of the customer base. However, it should beable to continue financing its O&M from user charges.

36. Jakarta Flood Control and Major Drainage. DKI Jakarta will operate the majordrainage facilities, but availability of central govermment financing for rehabilitation projects,such as that financed by the Project, could be a disincentive to adequate budgeting for regularmaintenance.

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I. Key Lessons Learned

37. Physical Implementation. The main lessons learned are:

(a) Good quality preparation is key for successful implementation (para. 28);

(b) The procurement plan agreed at appraisal should be followed without majormodifications (para. 25); there is little or no advantage in splitting supply andlaying of pipes in separate contracts (para. 24);

(c) UfW is more an institutional than a physical problem (para. 8).

38. Institutional Development. The main lessons learned are:

(a) PDAM performance cannot be improved simply through the provision of TAand training (para. 13);

(b) To prepare a meaningful PDAM performance improvement program, it isnecessary to understand the incentive framework in which it operates (para.8);

(c) UfW reduction programs should be envisaged as a part of a much largereffort to reduce operating costs (para. 8)

(d) UfW is magnified by inappropriate pricing practices, such as low raw watercharges and distorted piped water tariff structure (paras. 15, 17).

39. Financial Development. The major lessons learned are:

(a) Simple financial covenants are well understood by PDAMs and can beimplemented if both the PDAM and its local government are committed toimprovement (pares. 15, 17);

(b) Financial covenants should be carefully designed to avoid automatic transferof PDAM inefficiencies to users; tariff increases should not be grantedwithout instituting a strictly monitored performance improvement program(para. 15, 17); and

(c) Agencies that cannot submit timely audit reports by Government auditorsshould be requested to engage private auditors to meet this requirement(para. 31).

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IMPLEMENTATION COMPLETION REPORT1NDONESIA

SECOND JABOTABEK URBAN DEVELOPMENT PROJECT(Loan 3219-IND)

PART II. STATISTICAL ANNEXESSTATISTICAL TABLES

Table 1. Summary of Assessment

A. Achievement of objectives Substantial Partial Negligible Not applicableMacroeconomic policies [] 5 X SSector policies [5 X 5 O

Financial objectives X 0 5 EInstitutional development [J X 5 5Physical objectives X 5 i 0Poverty reduction [] X 5 O

Gender concerns 5 5 X EOther social objectives [] X O

Environmental objectives [ X El nPublic sector management 5 X O °Private sector development I] X E lEconomic benefits 0 X O a

B. Project Sustainability Likely Unlikely UncertainI5 5 x

C. Bank Performance High1ySatisiqctory Satisfactory Deficient

Identification O X 5Preparation assistance 5 X 5Appraisal 5 X 5Supervision E X E

D. Borrower Performance Hi ghlySatisractorg Satisfactory Deficient

Preparation ] X EImplementation a X 5Covenant compliance 5 X 5Operation 5 X 5

E. Assessment of Outcome HighlySatisfactory Satisfactory Deficient

E x O

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Table 2. Related Urban and Water Supply Bank Loans

Year ofLoan/credit title Purpose approval Status

Precedine.operations *Fourth Urban To implement a nationwide KIP, a sites and services program, and to 1981 ClosedDevelopment Project strengthen the management capabilities of Bank Tabungan Negara(Loan 1972-IND) (BTN) and PERUMNAS.Fifth Urban To improve basic urban services and strengthen municipal administration 1984 ClosedDevelopment Project in the project cities (Surabaya, Semarang, Surakarta, and Ujung Pandang)(Loan 2408-IND) and augment the capacity for local resource mobilization.

ousing Sector Loan To expand access to housing fnance for low and middle income 1986 Closed(Loan 2725- IND) households; to reduce overall subsidies to the lowest income groups; to

reduce the reliance of the housing finance system on government fundsand introduce new instruments for resource mobilization; to stimulate theproduction of more low cost housing by both public and privatedevelopers; to generate employment and to strengthen BTN andPERUMNAS.

Urban Sector Loan To carry out GOI's FY87/88 and FY88/89 urban infrastructure 1987 Closed(Loan 2816-IND) expenditure program; to strengthen sector institutions and procedures; to

improve local resource mobilization; and to increase the responsibilitiesof local governments for urban infrastructure planning, fnancing andimplementation.

Regional Cities To implement a program for relieving traffic congestion and promote 1987 ClosedUrban Transport transport efficiency; to strengthen city government capabilities in theProject planning, implementation, and maintenance of traffic and transport(Loan 2817-IND) facilities; and to establish a process of coordinating the investment

activities of central, provincial and city government agencies in urbantransport programs. ll

Jabotabek Urban To provide technical assistance for institutional development and training 1988 ClosedDevelopment Project in urban management; and physical works for road improvement and(Loan 2932-IND) construction. l.

Third Jabotabek To introduce a more effective and sustainable approach to provision of 1991 ActiveUrban Development basic services in Jabotabek through extensive community participation in

roject recognized low-income urban communities; to strengthen environmental(Loan 3246-IND) protection and pollution control in the Jakarta region; and to improve

maintenance of existing infrastructure networks and provide a firmerbasis to plan future development priorities.

East Java - Bali To support urban infrastructure investment (including rehabilitation in up 1991 ClosedUrban Development to 45 local governments in East Java and Bali, including a limitedProject expansion of water distribution system in the city of Surabaya; to(Loan 3304-IND) improve urban infrastructure expenditure programming, fnancial

planning and information management for local governments; toencourage local revenue generation, improved financial management;and to assist sector development nation wide, including preparation offuture projects.

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Table 2 (cont'd)

Year ofLoan/credit title Purpose approval Status

Following projectsSulawesi - Irian Jaya To provide urban infrastructure in selected cities in Sulawesi and Irian 1991 ClosedUrban Development Jaya with increase in access of households to water supply and sanitationProject services; to support improved infrastructure programming and financial(Loan 3340-IND) planning in these cities; to encourage local governments and water

enterprises in revenue genemration and improved financial management.Surabaya Urban To improve: urban service levels and affordability, particularly for the 1994 ActiveDevelopment Project poor in Surabaya; productivity and the effectiveness of investments(Loarn 3726-IND) through better infrastructure planning and management, revenue

mobilization, project implementation and O&M; environmental qualityby enhancing local governmnent capacity to plan, implement and operateinfrastructure in an environmentally sound fashion and also by enhancingcommunity participation.

Semarang-Surakarta To improve the provision of urban infrastructure services and the 1994 ActiveUrban Development efficiency of the urban investments in Semarang and Surakarta; toProject promote stronger, more autonomous, and financially more independent(Loan 3749-IND) municipal governments; and to contribute towards poverty alleviation,

mainly through better access to essential services and an improved urbanenvironment.

alimantan Urban In the five cites of Banjarm,asin, Balikpapan, Palangkaraya, Pontianak, 1995 ActiveDevelopment Project and Samarinda and their respective Water Enterprises (PDAMs), the(Loan 3854-IND) project will improve the provision of urban infrastructure services and

the efficiency of the urban investments; promote stronger, moreautonomous, and financially more independent municipal governments;contribute towards poverty reduction, mainly through better access toessential services; and impirove the environment.

Second East Java To improve the provision of urban services to more than 5 million 1996 ActiveUrban Development residents of urban areas in East Java Province (excluding the city ofProject Surabaya) through appropriate investments in physical infrastructure; to(Loan 4017- IND) strengthen operations and maintenance activities for urban services, and

support improved planning, programming, budgeting, financialmanagement and local revenue generation by local governments; and toimprove urban environmenIt management and reduce environmentalimpacts.

Second Sulawesi To improve the delivery of urban infrastructure services for about 3.6 1997 ActiveUrban Development million residents in 41 towns and cities of 40 local governments of theProject four Sulawesi provinces through appropriate investments in physical(Loan 4105-IND) infrastructure; to strengthen O&M activities for urban services, and

support improved planning, programming, budgeting, financialmanagement and local revenue generation by local governments; and toimprove urban environmental management and reduce environmentalimpacts.

Bali Urban Improve urban infrastructure services in Bali in a sustainable manner to 1997 ActiveInfrastructure Project meet: basic needs in all important urban centers and the needs for(Loan 4155-IND) growing urbanization in south Bali as a result of tourism and other

economic activities.

*Preceding projects are those within the ten year limit.

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Table 3. Project Timetable

Steps in project cycle Date planned Date actual/latest estimate

Identification (IEPS) NA 02/07/88Preparation 03/00/89 03/00/89Preapraisal 06/00/89 06/00/89Appraisal 10/00/89 11/28/89Negotiations* 03/00/89 05/01/90Board presentation 05/00/90 06/05/90Signing 05/00/90 07/06/90Effectiveness 07/00/90 02/27/91Project completion 06/30/96 06/30/97Loan closing 12/31/96 12/31/97* Parallel financing meeting. GOI, OECF and IBRD reviewed funding of OECF mission and agreed on parallel financing;

JUDPII negotiation substantially completed by May 1, 1990.

Table 4. Loan Disbursements-Cumulative Estimated and Actual(US$ million)

Bank FY FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98Appraisal estimate* 5.20 17.10 40.30 74.10 116.40 146.40 190.00 190.0Actual 5.14 17.04 40.24 74.09 116.38 150.82 168.36 174.59Actual as % of estimate 100 100 100 100 100 103 89 91jDate of final disbursement

*Revised estimate.

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Table 5Al. Key Implementation Indicators PAkM JAYA Physical, Management & FinancialPerformance Monitoring Indicators, 1990 - 1997As Appraised

l1990 1991 1992 1993 1994 1995 1996 1997l ___________________________________________ B udgetDEMANDPopulation in Service Area - 000 6,439 6,897 7,178 7,471 7,776 8,093 8,257 8,425Population Served 32% 34% 37% 39% 42% 44% 46% 49%Water Connections - 000 208.63 233.63 263.63 293.63 323.63 353.63 383.63 413.63Total Eff. Production Capacity-Liters/second 13,230 14,930 14,930 17,930 17,930Total Eff. Production Capacity - Million M3 417.22 470.83 470.83 565.44 565.44% Unaccounted-for-Water (Target) 50% 49% 48% 47% 46% 45% 44% 43%Max. Water Available for Sale-Million M3 221.19 280.80 286.00 340.47 346.55Forecast Volume Sold - Million M3 124.87 137.79 152.53 167.28 183.96 201.40 218.49 236.60Volume Produced and Purchased - Million M3 315.62 340.67 366.18 390.16 415.09PAM JAYA Production -Million M3 249.74 270.18 293.33 306.75 311.54 318.00 325.56 339.09Cisadane Production Capacity -Million M3 29.33 82.12 82.12 82.12 82.12

MANAGEMENT# Days Accounts Receivable 76 76 76 76 76 76 76 76Number of Employees 2,554 2,705 2,790 2,870 2,940 3,055 3,160 3,265Employees per 1000 Connections 1:2.24 11.58 10.58 9.77 9.08 8.64 8.24 7.89% Increase # of Employees 8% 6% 3% 3% 2% 4% 3% 3%

FINANCIALAverage Tariff in Current Prices (Rp/m3) 700 910 980 980 1,176 1,176 1,176 1,352Average Tariff Increase 0% 30% 8% 0% 20% 0% 0% 15%Working Ratio 58% 55% 52% 53% 49% 54% 61% 56%Contribution to investment (Annual) 29% 23% 35% 27% 55% 29% 23% 54%Cont. to Invest. (Ave. of 3 Years) 23% 28% 34% 28% 54% 28% 24% 52%Rate of Return 16% 22% 19% 10% 9% 8% 6% 7%Debt Service Ratio 3.37 5.26 6.91 3.33 4.64 2.12 1.88 2.62Debt on Debt Plus Equity 0.60 0.59 0.63 0.64 0.62 0.61 0.58 0.54

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Table 5A2. Key Implementation Indicators PAM JAYA Physical, Management & FinancialPerformance Monitoring Indicators, 1990-1997Actual

1990 1991 1992 1993 1994 1995 1996 1997Audited Audited Audited Audited Audited Audited Audited Estimated

DEMANDPopulation in Service Area - 000 6,439 6,897 7,178 7,471 7,776 8,128 8,695 8,880Population Served 35% 39% 42% 44% 44% 46% 49% 52%Water Connections - 000 227.83 267.11 298.89 327.43 340.85 366.73 396.71 462.48Total Eff. Production Capacity-Liters/second 10,385 10,435 12,485 12,485 12,530 12,380 16,292 17,035Total Eff. Production Capacity -Million M3 327.50 329.08 393.73 393.73 395.15 390.42 515.19 537.22% Unaccounted-for Water (Actual or Target) 54% 53% 54% 53% 51% 53% 57% 56%Max. Water Available for Sale-Million M3 118.52 132.58 163.32 158.35 171.46 164.26 180.69 210.42Actual or Forecast Volume Sold - Million M3 123.47 138.67 144.12 158.36 167.61 164.05 176.42 204.76Volume Produced & Purchased - Million M3 262.62 288.85 312.11 336.10 344.23 347.43 411.03 467.53PAM JAYA Production - Million M3 262.62 288.85 312.11 336.10 336.30 347.00 401.05 429.69Cisadane Production Capacity - Million M3 - - - - - - 25.30 50.46Ciburial Production Capacity - Million M3 - - - - 7.88 4.73 6.45 6.60

MANAGEMENTAverage Collection Period (Days) 66 29 15 13 11 9 15 35% Receivable in Billings 18% 8% 4% 3% 3% 2% 4% 10%Number of Employees 2,186 2,250 2,216 2,117 2,098 2,165 2,180 2,213Employees per 1000 Connections 9.59 8.42 7.41 6.47 6.16 5.90 5.50 4.78% Increase # of Employees 0% 3% -2% -4% -1% 3% 1% 2%

FINANCIALAverage Tariff in Current Prices (Rp/m3) 682 698 927 951 1,197 1,428 1,491 1,491Average Tariff Increase -3% 2% 33% 3% 26% 19% 4% 0%Working Ratio 72% 74% 57% 62% 57% 58% 58% 61%Contribution to Investment (Annual) 26% 26% 19% 47% 28% 24% 29% 17%Cont. to Invest. (Ave. of 3 Years) 37% 18% 20% 42% 23% 37% 31% 19%Rate of Return 8% 8% 12% 7% 10% 13% 17% 12%Debt Service Ratio 3.02 1.62 4.46 3.83 3.49 3.32 1.81 24.41Debt on Debt Plus Equity 0.57 0.66 0.68 0.67 0.70 0.74 0.74 0.69

19

Table 51B1. Key Indicators for Project Implementation PDAM Tangerang Physical, Management& Financial Monitoring Indicators, 1990-1997 As Appraised

1990 1991 1992 1993 1994 1995 1996 1997

DEMANDTangerang Water Production - Million M3/Y 8.6 9.7 10.9 12.1 13.6 15.2 16.7 18.3Cisadane Bulk Production - Million M3/Y 9.0 29.4 48.7 65.3 76.8Volume Produced -Million M3/Y 8.6 9.7 10.9 21.1 43.1 63.8 82.0 95.0% Unac'ted-for water (UfW) mcl. Cisadane 26% 25% 25% 26% 26% 26% 26% 260/oVolume Sold to Tangerang - Million M3 6.4 7.3 8.2 9.1 10.2 11.4 12.5 13.7Volume Sold to PAM JAYA - Million M3 8.9 29.1 48.2 64.6 76.0Total volume sold -Million M3/Y 6.4 7.3 8.2 18.0 39.4 59.6 77.1 89.7

MANAGEMENTDays Accounts Receivable 76 76 76 76 76 76 76 76umber of Employees 329 378 427 546 607 668 729 790

% Increase of Employees 0% 15% 13% 28% 11% 10% 9% 8%umber of Empl/No of Conec x 1000 12 12 12 12 12 12 12 12

FINANCIALOverall Retail Tariff (in current prices) (Rp/m3) 582 679 675 808 803 801 961 963Average Retail Tariff Increase 4% 17% - 1% 20% -1% 0% 20% 00/Bulk Tariff(in Current Prices) 375 375 375 375 375Average Bulk Tariff Increase 0%/ 0% 0% 0%Working Ratio 35% 37% 39% 37% 33% 32% 31% 33%% Cont to Inv w/o Cisadane Production Facility

and Int. Capitalized Average of 3 Yrs 56% 40% 30% 40% 57% 53% 69% 38%Rate of Return Based on Net Income 17.0% 18.2% 17.9% 7.1% 6.2% 9.6% 13.1% 14.70/Debt Service Ratio 5.2 6.0 6.3 11.5 21.7 5.4 6.7 2.3% Debt on Debt Plus Equity 43% 47% 52% 56% 57% 56% 54% 52%

* Debt without Cisadane production facility and excluding asset revaluation

20

Table 5B2. Key Indicators for Project Implementation PDAM Tangerang Physical, Management& Financial Monitoring Indicators, 1990-1997 Actual

1990 1991 1992 1993 1994 1995 1996 1997DEMANDTangerang Water Production - Million M3/Y 21.2 23.7 30.5

9.1 11.6 17.5 17.4 19.2Cisadane Bulk Production - Million M3/Y - - - - - 0.8 22.6Volume Produced - Million M3/Y 21.2 24.5 53.1

9.1 11.6 17.5 17.4 19.2% Unac'ted-for water (U.F.W) incl. Cisadane 28.0% 25.9% 42.1% 38.4% 42.5% 42.2% 42.9% 43.6%Volume Sold to Tangerang - Million M3 12.3 13.8 18.7

6.6 8.6 10.1 10.7 11.1Volume Sold to PAM JAYA - Million M3 - - - - - 0.3 20.5

Total volume sold - Million M3/Y 12.3 14.1 40.26.6 8.6 10.1 10.7 11.1

MANAGEMENT# Days Accounts Receivable 108 47 56 52 45 50 52 30Number of Employees 345 355 356 356 357 353 351 361% Increase of Employees 7% 3% 0% 0% 0% -1% -1% 3%Number of Empl/No of Conn x 1000 11.9 10.6 9.1 8.4 8.0 7.4 7.1 6.9

FINANCIALOverall Retail Tariff (in Current Prices, Rp/m3) 650 668 694 890 849 869 893 867Average Retail Tariff Increase 16% 3% 4% 28% -5% 2% 3% -3%Bulk Tariff (in Current Prices) - - - - 450 450Average Bulk Tariff Increase 0% 0% 0% 0%Working Ratio 48% 61% 66% 53% 56% 53% 67% 84%% Contribution to Investment -228% -95% -183% 8% 20% -9% -14% -19%

(W/o Cisadane Production Facility andInterest Cap. Average of 3 yrs)

% Contribution to Investment- Ave. 3 yrs -23% -10% -8% 4% 13% -9% -14% -19%Rate of Return Based on Assets 12.4% 8.0% 11.2% 26.1% 27.4% 29.1% 0.8% -9.9%Debt Service Ratio 4.0 3.6 0.6

5.2 5.5 2.5 9.3 8.2% Debt on Debt + Equity 19% -15% 24% 54% 56% 64% 66% 84%

Debt without Cisadane production facility and excluding asset revaluation

Table 6A1. Key Indicators for Project Operation Future PAM JAYA Monitoring Indicators, 1998-2002

Projected GARUDA DIPTA SEMESTA (West Sector) KEKARPOLA AIRINDO/THAMES WATER(East Sector)

19981 19991 20001 2001 2002 19981 19991 20001 20011 2002 19981 19991 20001 2001 2002DEMANDPopulation in Service Area -000 9,282 9,467 9,696 9,848 9,996 5,132 5,217 5,302 5,383 5,460 4,150 4,250 4,394 4,465 4,536Population Served - 000 4,611 5,437 6,109 6,578 6,965 2,279 2,877 3,321 3,562 3,797 2,332 2,560 2,788 3,016 3,168Population Served -% 50% 57% 63% 67% 70% 44% 55% 63% 66% 70%/ 55% 59% 63% 68% 70%/Water Connections at Year-End -000 470,674 571,776 653,885 711,003 757,129 219,067 290,169 342,278 369,396 395,522 251,607 281,607 311,607 341,607 361,607% Non-Revenue Water 50% 47% 42% 38% 35% 50% 47% 42% 38% 35% 50% 47% 42% 38% 35%Max. Water Available for Sale-Million M3 7,827 8,495 7,706 6,972 6,421 3,672 4,007 3,696 3,344 3,080 4,155 4,487 4,010 3,628 3,342Actual orForecastVolume Sold - MillionM3 210 244 281 317 342 105 123 145 164 174 105 121 136 153 168Volume Produced and Purchased - Us 15,654 18,074 18,347 18,347 18,347 7,344 8,526 8,799 8,799 8,799 8,310 9,548 9,548 9,548 9,548Volume Produced and Purchased - Million M3 496 573 582 582 582 233 270 279 279 279 263 303 303 303 303PDAM Jaya Production - Us 13,585 15,085 15,375 15,375 15,375 5,710 6,010 6,300 6,300 6,300 7,875 9,075 9,075 9,075 9,075PDAM Jaya Production - Million M3 431 478 488 488 488 181 191 200 200 200 250 288 288 288 288Bulk Treated Water Purchases - I/s 1,819 2,701 2,684 2,684 2,684 1,634 2,516 2,499 2,499 2,499 185 185 185 185 185Bulk Treated Water Purchases - Million M3 58 86 85 85 85 52 80 79 79 79 6 6 6 6 6

MARKETINGTariff Revenues - Million Rp 361,469 474,085 595,459 729,116 837,031Tariff Revenue Rp/ m3 Sold 1,721.28 1,942.97 2,119.07 2,300.05 2,447.46Tariff Increase (%) 12.00% 8.97% 8.72% 8.47% 6.00%/

FINANCIALAverage Annual Water Charge 1,548 1,652 1,767 1,877 2,007 1,724 1,839 1,963 2,088 2,218 1,371 1,461 1,559 1,651 1,788Annual Water Charge - Million Rp 324,975 402,978 496,659 595,035 686,316 181,020 226,197 284,635 342,432 385,932 143,955 176,781 212,024 252,603 300,384Average Tariff in current prices (Rp/m3) 1,721.28 1,942.97 2,119.07 2,300.05 2,447.46Average tariff increase 12.00% 8.97% 8.72% 8.47% 6.00%/61

21

22

Table 6A2. Key Indicators for Project Operation Future PDAM TangerangMonitoring Indicators, 1998-2002

1998 1999 2000 2001 2002IDEMANDITangerang Water Production - Million M3/Y 32.3 38.0 44.9 49.2 53.6Cisadane Bulk -Production - Million M3/Y 56.0 93.3 93.3 93.3 93.3|Volumne Produced - Million M3/Y 88.3 131.3 138.3 142.5 146.9% Unac'ted-for water (UfW) incl. Cisadane 41.7% 40.1% 39.1% 38.1% 37.1%Volume Sold to Tangerang - Million M3 20.1 24.0 28.9 32.1 35.5Volume Sold to PAM JAYA - Million M3 52.9 87.1 87.1 87.1 87.1Total volume sold - Million M3/Y 76.1 114.2 119.1 122.3 125.7

MANAGEMENT# Days Accounts Receivable 30 30 30 30 30Number of Employees 363 365 367 369 371/% Increase of Employees. 0.55% 0.55% 0.55% 0.54% 0.54%

umber of Empl/No of Conn x 1000 6.55 5.37 4.48 4.14 3.86

FINANCIALOverall Retail Tariff (in current prices, Rp/m3) 875 1,115 1,119 1,485 1,516Average Retail Tariff Increase 0.90% 27.52% 0.32% 32.72% 2.12%Bulk Tariff (in current prices) 450 558 558 558 558Average Bulk Tariff Increase 0.0% 24.0% 0.0% 0.0% 0.0%Working Ratio 70.49% 47.32% 46.69% 44.93% 45.67%% Contribution to Investment 55.99% 28.60% 952.07% 79.48% 55.29%

(W/o Cisadane Production Facility andInterest Cap. Average of 3 yrs)

% Contribution to Investment- Ave. 3 yrs 55.99% 28.60% 952.07% 79.48% 55.29%Rate of return based on assets -6.03% 5.41% 7.12% 10.40% 12.44%Debt Service Ratio 2.0 2.7 2.4 2.4 2.5% Debt on Debt + Equity* 94.17% 94.34% 93.66% 88.99% 83.61%

* Debt without Cisadane production facility and excluding asset revaluation.

23

Table 7. Studies/Technical Assistance Included in the Project

Tut"~ ~~utn

A. PJSIP (Zones 1,2,4,5) TA - /Supervision of Construction. Rehabilitation Works. To help PAM JAYA plan DGCK/PAM Satisfactory.

and execute the JAYArehabilitation program.

2. Final Engineering Design of To prepare FEDs TDs for DGCK/PAM Satisfactory.Infill/Extension Works. infill/extension. JAYA3. TA for Final Engineering Prepare designs and tender DGCK/PAM Satisfactory.Design of Primary Distribution documents. JAYAmeans in Zones 3 and 6. l

4. Construction Management To strengthen the PIU DGCK/PAM Satisfactory.Services I _gth__JAYA

B. Institutional Development

I. Institutional Development To improve PAM JAYA's PAM PAM JAYA underwent reorganization inoverall operations. JAYA/DGCKI April 1995. Most of the procedures

PUOD developed by institutional developmentand training for the former structure hadnot been implemented.

2. Consumer Survey To improve PAM JAYA's PAM JAYA Limited.knowledge of walerconsumer behavior

3. Training To develop PAM JAYA's PAM Limited.in-house training units JAYA/ DGCK/

PUODC. Pejompongan Pipeline

1. Consulting Service for To support the PIU PSJ Completed on 31/12/96. Project sufferedSupervision of Construction of a delay of some 30 months but thethe Pejompengan Pipeline facilities were fully completed. Impact on

operation of the Pejompongan WTP(mostly savings on chemicals) is stilldifficult to assess, because of short periodof observation.

2. Institutional Strengthening To improve financial DGWRD/POJ Satisfactory.and Management Information conditions of POJ.Study3. Training To strengthen the training DGWRD/POJ Satisfactory.

unit at POJ with specificemphasis on training forO&M of the PejompenganPipeline __ __

24

Table 7 (cont'd)

D. Cisadane Treated Water Transmission Main

1. Construction Supervision To support the PIU DGCK/ Satisfactory. Completed on 8/15/95.Services for the Treated Water PDAM Construction suffered a delay of about 20Transmission Main and PDM. Tangerang months beyond appraisal estimate, mostly

because of slow acquisition of rights ofI____________________ _________ ways and operations started late in 1995.

2. Management Improvement To improve management DGCK/ Satisfactory. Completed on 05/01/95.Study for PDAM Tangerang organization and capability PDAM Impact was positive, but the recent

of PDAM Tangerang. Tangerang decision to split PDAM Tangerang in two,l____________________________ may have a negative impact.3. Training To develop training PDAM Satisfactory.I __________________________ program. Tangerang l

E. JSSP Extension

1. Consultant Services for To support the PIU DGCK Limited. Project completed on 31/03/95.Construction and Supervision. The number of residential connections

remained at its 1990 level of about 1000with growth possibilities limited to Projectarea and depending only on new high riseconnections.

2. Institutional Development To develop BPAL/PDAL DGCK Limited. Completed in 12/91.

F. Priority Major Drainage

1. Consulting Services for To support the PIU during PPJR/ Satisfactory.Finalization of Designs, tendering and execution of DGWRDPreparation of Tender Documents the worksand Construction Supervision. l

2. Training To develop training program PPJR/ Training program was not includedI_________________________ IDGWRD because staff have already the knowledge.

G. Jabotabek Water Resources Project

1. Jabotabek Water Resource DGWRD Completed on 01/12/93.Management Study.2. Jabotabeck Water Data Center DGWRD Completed on 01/01/93.

3. Consultant Services for Advisory service for DGWRD Completed on 30/09/92. JWRMS'Jabotabek Water Management institutional development findings and recommendations led to theServices (JWRMS). and water resources study substantial ground water abstraction tariff

coordination increase in Jakarta, implemented in 1994;prompted preparation of project that woulddisconnect from WTC three rivers in orderto improve raw water quality delivered to

I _______________________ ___________________ ________ various W TPs.4. Ground Water Investigation DGWRD Satisfactory. Completed on 11/15/92.

5. Water Quantity and Quality DGWRD Satisfactory. Completed on 03/18/93.

6. Socio-economic and Ground DGWRD Satisfactory. Completed on 08/21/92.Water Surveys7. Geotechnical Investigation and DGWRD Satisfactory. Completed on 04/24/93.Topographical Survey andMapping l

9. Jabotabek Institutional and DGWRD Satisfactory. Completed on 09/30/92.Advisory Services

25

Table 7 (cont'd)

H. IUIDP Studies and Future Project Preparation1. National Program Preparation Institutional strengthening in DGCK Satisfactory.and Management Assistance for central govemment,Urban Development assistance to programme

preparation and arrangement& assistance to localgovemments l

2. CPMO Management Assistance to project DGCK Satisfactory. Completed on 08/27/93.Information Systems monitoring in DGCK l3. DGCK/DKI Management Upgrading of project/ DGCK Satisfactory. Completed on 8/22/93.Training Project program development and

L ______________________ _ management4. Metro and Large Cities IUIDP Future urban development in DGCK Bank financed IUIDP projects (Surabaya,

metro and large cities: Kalimantan, Semarang/Surakarta, Sulawesi

Assistance to PDAM DGCK Satisfactory. Completed on 01/06/92.Surabya for Preparation ofimplementation for water

L ______________________ sector (SSUDP)Kalimantan Urban DGCK Satisfactory. Completed on 8/06/94.Development ProjectSupport to completeAppraisal & Preparation forLoan

Assistance for DGCK Satisfactory. Completed on 03/31/98.implementation oi SSUDPPreparation for DGCK Satisfactory.implementation SecondSulawesi (UDP)

5. HRD in the Water Supply DGCK Completed on 01/04196.Sector (PRMDUs, Gov't ofNetherlands Counterparts, etc.) I6. Planning & Management of Policy and guidelines DGCK Not carried out.New Large Scale Urban Settlement development; establishmentDevelopments in Jabotabek Area of mechanism ancl pilot

application in Jabotabeckarea

7. Development of Private Sector Identify opportunities and DGCK Not carried out.Participation in Jabotabek Urban the mechanisms for privateServices sector participation in

provision of urban services,particularly in Jabotabek I

26

Table 8A. Project Cost Estimate and Financing(US $ million)

Original Project Cost Estimate Actual/Latest EstimateItem Local Foreign Total Local Foreign TotalPAM JAYA WlSystem Improvements 57.4 65.1 122.5 66.80 75.64 142.44Pejompongan Raw Water Pipeline 21.8 26.2 48.0 25.55 30.72 56.27Cisadane Treated Water Trans. Main 10.0 5.5 15.5 10.52 5.77 16.29Jakarta San. Sewerage Ext. Project 10.0 7.6 17.6 9.52 7.19 16.71Waste Water Disposal (Micro-drainage) 1.3 0.0 1.0 1.11 0.00 1.11Priority Major Drainage 13.9 5.9 19.8 16.31 6.93 23.24Water Resource Management Study 1.4 5.3 6.6 0.69 2.70 3.39Miscellaneous Studies 1.0 2.3 3.3 0.92 2.14 3.05Overall Project coordination 1.5 1.5 3.0 1.78 1.65 3.43

Total Base Cost 118.3 119.4 237.3

Physical contingencies 14.3 13.3 27.6Price contingencies 23.6 18.2 41.8

Total Project Cost 136.0 150.9 306.9 132.21 132.72 265.93

*Excludes the appraisal cost of PAM JAYA Water System Improvements financed by OECF amounting US$41.5 millionplus contingencies.

Table 8B. Project Financing Plan Summary(US $ million)

_____________________________________ _ : lAppraisal Actual/estimatesSource of Financing Local Foreign Total Local Foreign TotalGOI (DKI Jakarta, PAM JAYA, Tangerang) 110.5 0.0 110.5 91.34 0.0 91.34IBRD 61.7 128.3 190.0 41.87 132.72 174.59

Total ~ ~~~~172.2 128.3 300.5 133.21 132.72 265.93

* Excluding the contributions of OECF estimated at US$44.7 million and Govemment of Netherlands at US$1.1 millionequivalent.

Table 9. Economic and Financial Evaluation

Estimates at Appraisal Estimates at Completion*Water (82% of total project costs)ERR of water supply 11.7 %** 11.6%NPV (Rp. billion) 49.0 34.0FIRR of water supply 8.1 % 10.5%NPV (Rp. billion) n.a. 10.0

Drainage (7% of total project costs)Drainage/flood control 17% to 22% 59.0%/oMicro-drainage improvements 1590/oNPV (Rp. billion) n.a. 364.0

* For approach used, see Appendix C: Economic Evaluation of Water Supply and Drainage Components** ERR lowered to 8.6% when excluding savings of boiling costs.

27

Table 10. Status of Legal Covenants

Agreement Section Covenant Present Description of Covenant Commentstype status

Loan 3.03 (a) 10 C Carry out project implementation Complied with.I _____ ________ ________ arrangements

3.03 (b) 5 CP Carry out action program to (a) PAM JAYA: The contract wasstrengthen PAM JAYA, PDAM terminated in July 1995 soon after theTangerang and POJ. Bank was informed that the consulting

firn had initiated negotiation of a long-term "cooperation" agreement, becauseof conflict of interest; (c) PDAMTangerang - complied with. But therecent decision to split PDAMTangerang into two, following thecreation of Kotamadya (municipality)may affect impact; (c) POJ - the actionplan to improve POJ's accounting andbudgeting procedures and preparation offinancial reports was successfully

l_______ ________ implemented in 1994.3.04 (a) 12 C Establish PD PAL by April 1, Perda issued on 26 September 1991.

1991. Full establishment on 11 February 1992.3.04 (b) I 2 C Allow BPAL to retain revenues Complied with.

for operational purposes.3.04 (b) II 2 C Cause to break-even from March Complied with.

31, 1991 on.3.04 (c) 6 C Ensure satisfactory operations and Complied with.

maintenance of sewerage ponds.3.05 12 C Establish JUPCO for overall Complied with.

I_______ project coordination.4.01 (b) I NC Cause special account to be JUPCO Project Account for FY94/95

audited and submitted to Bank and FY95/96 audited by BPKP not yetwithirt nine months after the end sent for review.of each year.

4.01 (b) I CD Cause annual audited accounts for Complied with after delay.(11) PAM JAYA, PDAM Tangerang

and BPA/PDAL to be submittedto Bank within nine months. Afteryear-end, start with FY92(Fy/89/90/91 submission of accts.

l________ Is 15/15/12 months respectively.4.01 (b) I CP JUPCO to submit report on Partially complied with.(III) actions taken to carry out the

auditor's recommendations toBank within three months of audit

l __________ ________ ________ _______ com pletion.

28

Table 10 (cont'd)

Agreement Section Covenant Present Description of Covenant Commentstype status

4.03 (a) 2 CP PAM JAYA to review tariffs and Tariff adjustment due for January 1,to adjust them by April 1, 1991 1994 effective on July 1, 1994. Tariffand by January I in each third year adjustment that was due in 1996 wasthereafter. postponed until 1998, pending results of

negotiations with the private sector.4.03 (b) 9 C Provide to Bank the results of Complied with.

Review.4.04 (a) 2 NC PAM JAYA Debt service coverage Not in compliance.

of 1.5.4.04 (b) 2 NC Debt Limitation of 70%. Not in compliance.

4.05 (a) 2 CP PAM JAYA net internal cash Amounted to about 25% in 1993, 17% ingeneration not less than 30% of 1994. 32% in 1995; and 295 in 1996.three year average capitalexpenditures (excluding BuaranII).

4.05 (b) 4 CP DKI to provide new equity to Partially complied with.PAM JAYA, equal to 10% of totalexpenditure 1990/96.

4.06 (a) 1 C PDAM Tangerang to review and Complied with.adjust tariffs by January 1993 andevery three years thereafter.

4.06 (b) 9 C Provide the Bank the result of Complied with.review.

4.07 (a) 2 C PDAM Tangerang debt service Complied with.X_______ ________coverage 1.5.

4.07 (b) 2 C Debt limitation of 70%. Complied with.

4.08 (a) 2 C PDAM Tangerang net internal Tariff adjustment due for January 1,cash generation not less than 30% 1994 effective on July 1, 1994. Tariffof annual average of total capital adjustment that was due for Januaryexpenditures incurred over 3-year 1996 was postponed until 1998.period (excluding Cisadane)

4.09 (a) 2 CP Review and adjust tariffs every Tariff of raw water delivered to PAMthree- years for full cost recovery JAYA (Pulogadung and Buaran IWPS)on raw water pipelines. was adjusted in 1994 to Rp. 25/m3 and

again in April 1997 to Rp. 35/m3 tocover additional 0 &M costs of the newPejompongan raw water facilities; POJestimates that if depreciation is takeninto account, both water rates shouldreach Rp. 40/m3, Rp. 55/m3 and Rp.74/m3 for supply to the Buaran,Pulogadung and Pejompongan WTPSrespectively.

29

Tablle 10 (cont'd)Agreement Section Covenant Present Description of Covenant Comments

type status4.10 2 CD DKI Jakarta to review and adjust New tariff effective on July 1, 1995.

ground water abstraction fee byApril 1, 1990 and every threeyeanr there after.

4.11 4 C Borrower to provide all financing Complied with.for Bluaran II and Cisadane toextend existing grace period andaccumulation of interest andcomrnitment fees through

l_______ December 31, 2000.6.01 (a) 3 C Execution of subsidiary loan Complied with.

agreements re: DKI Jakarta, PAMl ____ _____ _____ _____ JAYA and PDAM Tangerang.

6.01 (b) 5 C Establishment of JUPCO and Complied with.L _______ ________ _________ ________ senior positions filled.

6.02 (a), 4 C Ratification of the above Complied with.(b) &(c) subsidiary agreements.

Present Status: Covenant typeC = Covenant complied with I = Account/AuditsCD = Complied with after delay 2 = Financial performance/revenue generation from beneficiariesCP = Complied with partially 3 = Flow and utilization of project fundsNC = Not complied with 4 = Counterpart funding

5 = Management aspects of project or executing agency6 = Environmental covenants7 = Involuntary resettlement8 = Indi,genous people9 = Monitoring, review, and reporting10 = Project implementation not covered by categories 1-91 1 = Sectoral or cross-sectoral budgetary or other resource allocation12 = Sectoral or cross-sectoral policy/regulatory/institutional action13 = Other

30

Table 11. Compliance with Operation Manual Statements

Statement number and title Description and comment on lack of compliance

OD 10.60 Accounting, Financial Reporting, and 4.01 (b): Cause special account to be audited and submitted toFuditing Bank within nine months after the end of each year.

JUPCO Project Account for FY94/95 and FY95/96 audited byBPKP was not sent for review.

Table 12. Bank Resourcestaff Inputs

Staff-week AmountStages of project cycle Actual US$ ('000)

Through pre-appraisal 98.8 203.2

Appraisal-effectiveness 54.7 109.0

Supervision 183.5 363.3

Completion 17.5 40.1

TOTAL 354.5 715.6

31

Table 13. Bank Resources-Missions

Stages of Month/ No. of SW Specialities Performnanceproject cycle Year persons\ in represented ratings Types of problems

l __________ I field IS DOThroughAppraisal* l

L________ Nov. 87 3 FA, SE, Ec = _=

Feb. 88 6 EE, SE,, TA(2), WE (2) l

Jun. 88 6 FA, SE,, Ec_(2), E, Sc

Aug. 88 1 FA

Appraisal to Jul. 89 8 FA (2), SE,Board Ec, 0 (2),

ME

Nov. 89 14 FA (3), SE,EE, TS, Ec(3), 0 (2),

_______ ______ ME, E (2) l

Jul. 90 6 0.0 FA (2), TS, 2 1 Procurement of consultants for PJDIP isSupervision 1 E, 0, PO behind schedule -TOR prepared by PAM

JAYA need to be substantially improved;DKI Jakarta reluctant to appoint full-timestaff to JUPCO.

Supervision 2 Nov. 90 5 5.6 FA, E, 0 (2), 2 1 Loan effectiveness date has been extended toSE December 31, 1990, however, further

extension may be required for ratification ofSALs by local government assemblies andobtaining legal opinion.

Mar. 91 3 6.0 0, SE, FA 2 1 DKI action on PAM JAYA tariff adjustmentSupervision 3 requested delayed; achievement of break-

even point and establishment of sewerageenterprise (PDAL) likely to be delayed byone year; PSJ yet to respond to IBRD letterconcerning pipe material.

Supervision 4 July 91 4 0.0 FA, SE, 0 2 1 Disbursement lag seriously due to previously(2) unresolved procurement issues. BPAL audit

for year ending March 3 1, 1990 overdue.Mar. 92 4 3.6 FA, SE, Ec, 2 2 Disbursement lag continues to be serious -

Supervision 5 E by about $40 million from appraisalestimate.

E = Environmental Specialist FA = Financial Specialist 0 = Operation Officer/Procurement specialistEc = Economist PO = Program Officer SE = Sanitation Engineer/Water EngineerEE = Environmental Engineer PS = Procurement Specialist TS = Training Specialist

32

Table 13 (cont'd)Stages of Month/ No. of SW Specialties Performance Types of problems

project cycle Year persons\ in represented ratingsl __________ _____ I field IS DO

Supervision 6 Oct. 92 3 4.6 FA, SE, E 2 2 Tariff adjustments from PDAM Tangerangand ground water in Jakarta will be neededduring 1993; water demand in zones 4 and 5of Jakarta require start of preparation ofPhase II project; and two management actionprograms (RKL) are needed in respect ofmajor drainage component. ImprovementPJSIP construction quality and contractadministration needed; unaccounted forwater higher than expected in some sales.

Supervision 7 Jun. 93 4 10.7 FA, SE (2), 3 2 DKI assembly and MOHA not approved theE new groundwater tariffs as yet; UFW is

increasing partly due to higher waterpressures; procurement is slow; budgetingneeds to be accelerated; slow construction;PAM JAYA is currently unable to make30% contribution to construction frominternal cash generation; current projectionsindicate at least 50% tariff increase will berequired effective January 1, 1994; threeaudit reports are qualified (PAM JAYA forvalue of land and GOI equity: PDAMTangerang for reconciliation of accountsreceivable, adequacy of provision for the baddebts, and value of GOI equity; projectlaccount for consistency of format).

Supervision 8 Nov. 93 3 0.6 FA, SE (2), 2 2 Ground water tariffs represent about 100%increase by January 1, 1994; raw watercharge increase from Rp22/m3 to Rp25m3to coincide with effectiveness of PAMJAYA's new tariffs.

Supervision 9 Jun. 94 2 4.2 FA, SE 2 2 Physical implementation of the largestcomponent (PAM JAYA) still laggingbehind; delay in compliance with audit andcost recovery covenants; project accountaudit is expected to be completed by endJune 1994 instead of 12/3/94; PD PAL(sewerage) audit for 1992 will now becombined with 1993 audit and completed by9/30/94; PAM JAYA tariff adjustment hasbeen delayed from 1/1/94 to 7/1/94; rawwater tariff adjustment has been delayedfrom 1/1/94 to 7/1/94; and groundwatertariff adjustment has been delayed from4/1/93 to 7/1/94; unaccounted for water will

___________ _ _ need continued action on along-term basis.

E = Environmental Specialist FA = Financial Specialist 0 = Operation Officer/Procurement specialistEc = Economist PO = Program Officer SE = Sanitation Engineer/Water EngineerEE = Environmental Engineer PS = Procurement Specialist TS = Training Specialist

33

Table 13 (cont'd)Stages of Month/ No. of SW Speciaeties Performanc Types of problems

project cycle Year persons\ in represented e ratingsI field IS DO

Supervision 10 Dec. 94 1 0.9 SE S S All agencies complied with financialcovenants, but in particular the municipalwater utilities remain weak organizations toaddress the complex issues of providing avery large urban area with a reasonable watersupply service at an affordable price.

Supervision 11 Jun. 95 1 SE Follow-up.(limited) I-Supervision 12 Nov. 95 3 2.9 SE, FA, 0 S S Delays in rehabilitation of PAM JAYA water

distribution network zones I and 2 requires aone year extension of the closing date; a sub-project of major drainage component(Sentiong cut-off in Ancon) is now beingproposed to be financed by the on goingOECF loan; financing of the cost overrun(US$4.0 million short) of Pejompongan RawWater Transmission Line; very high price ofpiped water in Jakarta (average ofRpl450/m3 or US$0.65/m3; also very hightariff of ground water DKI Jakarta createscollection difficulties; audit of PDAMTangerang's account show increased numberof qualifications; unaccounted for waterremains at very high, 52% of PAM JAYA'sproduction despite intensive rehabilitationcarried out under the project.

Supervision 13 Jun. 96 SE, 0 S S Cost-overrun of the Pejompongan Raw Watertransmission line project; official reallocationand request for extension of loan closing stillnot yet received. Tariff of ground water inDKI Jakarta is so high that it has become

l ________ _______ _____ almost impossible to collect.

Nov. 96 3 0.0 SE, FA, 0 S c Delays in rehabilitation of PAM JAYA waterSupervision 14 distribution network in zones 1 & 2 justified a

one year extension of the loan closing date.No bulk water supply agreement has beensigned between PAM JAYA and PDAMTangerang for the supply of the Cisadanewater and the Jatiluhur Authority for thesupply of raw water from the West TarumCanal to the Pejompongan treatment plant.

Supervision 15 Mar. 97 1 0.0 SE No problems were reported.Supervision 16 Oct. 97 1 0.0 SE S S Initiated ICR preparation.Supervision 17 Dec. 97 5 SE, E, FA S S Delays in audits.(ICR mission) (2), 0 _

E = Environmental Specialist FA = Financial Specialist 0 = Operation Officer/Procurement specialistEc = Economist PO = Program Officer SE = Sanitation Engineer/Water EngineerEE Environmental Engineer PS = Procurement Specialist TS = Training Specialist

34

Appendice A

SECOND JABOTABEK URBAN DEVELOPMENT PROJECT(JUDP II - LOAN 3219 IND)

LAST SUPERVISION and COMPLETION MISSION(December 1 to 12,1997)

AIDE MEMOIRE

A. Introduction

1. A mission composed of Messrs./Mmes. A. Locussol, D. Liu, J. So (EASUR), L. Elvasand M. Nuch (EACIF) visited Jakarta between November 1 and 12, 1997 to carry out a lastsupervision and an implementation completion mission of the Second Jabotabek UrbanDevelopment Project (JUDP II). The mission thanks the various agencies involved in the projectfor their cooperation and the courtesies extended.

2. This aide-memoire summarizes the mission's findings and recommendations. The draftaide memoire was discussed during a wrap-up meeting chaired by Mr. B. Panudju, SecretaryTKPP on December 11, 1997. Its findings, presented in a format consistent with the ProjectImplementation Completion Report (PICR) the Bank will submit to its Board before June 30,1998, are subject to confirmation by Bank management. Since most agencies were not able tocarefully read the draft PICR, it was agreed that they will send their comments to JUPCO andTKPP before the end of the year, so that they can be taken into account in the final draft PICRwhich will be submitted to the Government for comments not later than March 1998. Missionmembers will be available to discuss their findings during their regular visits in Jakarta.

B. Status of Project at Completion

3. Loan 3219 IND of US$190 million was approved on June 5, 1990 and became effectiveon February 27, 1991. It will close on December 31, 1997 after a one-year extension. The Loanaccount will remain open until the end of April 1998 to allow for the processing of disbursementapplications for contracts implemented before end 1997. All physical components of the Projecthave been implemented. According to the latest information provided by JUPCO, about US$9.35million or 5 percent of the Loan amount will remain undisbursed and will have to be canceled.The main saving comes from the PJSIP component which is scheduled to use only US$98 millionout of its US$107 million allocation.

4. The following issues still have to be addressed:

(a) The Bank may have to suspend disbursement until delayed audit reports ofJUPCO's 1994/95 and 1995/96 project accounts, due for December 31, 1995 andDecember 31, 1996 respectively are submitted. The audit report for the 1996/97project account is due for December 31, 1997. According to information

35

provided by JUPCO, project accounts will be submitted again to the auditors inDecember 1997, and the audit reports will be forwarded to the Bank in April1998;

(b) Despite a clear position expressed during the last two supervision missionsagainst financing of the construction of sewers in Malakasari from the Loan,payment under the construction contract has been processed under the SOEprocedure; the Bank may decide to request the Government to refund thecorresponding amount;

(c) PAM JAYA officially transmitted to the mission a copy of the two "cooperationagreements" that have been signed with private operators; the Bank will reviewthem to assess how they affect execution of the Loan; and

(d) PAM JAYA's debt will be rescheduled by the Ministry of Finance, in order tolimit the required tariff increase to about 12 percent; the mission reminded thatthe Bank position should be officially sought if the Subsidiary Loan Agreement(SLA) between MoF and PAM JAYA is to be amended (Loan Agreement:section 3.01 (c));

(e) PDAM Tangereang is also negotiating an amendment of its SLA with MoF; theBank's position should also be officially sought.

C. Review of Implementation Performance and Lessons Learned

5. During the November 1996 supervision mission, all agencies were provided with Bankprocedures to help prepare their contribution to the PICR. To date reports have been receivedfrom JUPCO, PAM JAYA System Improvement Project (PJSIP), Pejompongan Raw Water LineProject (PRWLP), Cisadane Treated Water Line Project (CTWLP), Ciliwung Cisadane RiverBasin Development Project (CCRBDP), Jakarta Sewerage and Sanitation Project (JSSP), microdirainage (DPU - DKI Jakarta) and miscellaneous studies (DG Cipta Karya). The report thelabotabek Water Resource Management Study by Directorate General of Water ResourceDevelopment (DGWRD) still has to be submitted. The completion reports submitted generallyinclude: (a) an assessment of the project objectives, design implementation and operationexperience so far; (b) an evaluation of the implementing agencies and lessons learned; (c) anassessment of the Bank performance; and (d) views on the operational phase of the Project.

6. Additional data must be submitted by some agencies so that the final draft PICR can beissued: (a) PAM JAYA and PDAM Tangerang: audited financial statements for 1990 to 1996,financial indicators and monitoring data, consistent with audited data, estimates for 1997, andprojections for 1998 to 2002; (b) final figures on resettlement for the PJSIP and PRWLPcomponents; and (c) increase in land value in the area served by CCRBDP, to estimate the rate ofreturn of this latter component. Mr. Nuch (EACIF) will regularly contact the various agencies ifsuch data are not received before the end of 1997.

7. The mission met with representatives of the two private operators who should take over]PAM JAYA's operations early in 1998 to seek their views on achievement of the Project, inparticular on the quality of design and construction of the various assets and management toolsfinanced by the Project. A detailed inventory of PAM JAYA's assets will be carried during the

36

first 12 months of their contracts and a position would be expressed at that time. Digitizedmapping and mathematical models of the distribution network developed by the Project aredeemed valuable management tools by the operators, at least for the initial years of their activity.

8. A representative of the OECF financed Project Management Unit attended meetings withPJSIP and informed the mission of the extension of the closing date of the Loan until mid-1998and of the various actions to be carried out before that date, in particular with regards to therehabilitation of the elementary cells in zones 3 and 6.

D. Project Operational Plan

9. The "cooperation" agreements signed by PAM JAYA with two private operatorsconstitute the "operational plan" of the water supply service in Jakarta. They include a series ofphysical performance targets (number of connections, UfW, volume of water sold, waterquality...) which constitute PAM JAYA's future operational plan (annex 1). Also, the contractsincluded detailed financial statements, including a consolidated statement, that constitute PAMJAYA's financial forecast. These figures will be attached in the final PICR. In addition, the twooperators will report on raw water quality in WTC, treated water quality at the WTPs and treatedwater quality and water pressure in various locations of the distribution networks. Also, theoperators will report on the number and nature of complaints by customers and on groundwatermonitoring.

10. For JSSP, the mission proposed that the main indicators to be monitored be: number ofconnections; floor surface of building serviced; waste water flow entering the Setiabudi ponds;waste water quality at the inlet and outlet of the Setiabudi ponds and pollution load removed;operating expenses; manpower expenses.

n:\raja\icrl I .docJune 12, 1998

37

Appendice AAnnex 1

PAM JAYA Water Supply OperationsSelected Monitoring Indicators

(from the Cooperation Agreements with PT GDS and PT KPA)

1997 1998 1999 2000 2001 2002

Production CapacityWest m3/s 5.22 5.71 6.01 6.30 6.30 6.30East m3/s 7.98 8.34 8.53 8.53 8.53 8.53Total m3/s 13.20 14.05 14.54 14.83 14.83 14.83

Bulk Water Purchase m3/s 1.82 2.16 3.06 3.06 3.06 3.06Total Product. Capacity m3/s 15.02 16.21 17.60 17.89 17.89 17.89U1wWest % 53% 50% 47% 42% 38% 35%East % 50% 47% 42% 38% 35%Total % 50% 47% 42% 38% 35%

Water SoldWest m3/s 105 123 145 164 174East m3/s 105 121 136 153 168Total m3/s 194 210 244 281 317 342

Connections (total)West 000' 219.07 290.17 342.28 369.4 395.52East 000' 251.61 281.61 311.61 326.61 361.61Total 000' 447.75 470.68 571.78 653.89 696.01 757.13

Population ServedWest million 1,920 2,279 2,877 3,321 3,562 3,797East million 2,185 2,338 2,566 2,794 2,908 3,174Total million 4,105 4,617 5,443 6,115 6,470 6,971

Total Population'West million 5,054 5,132 5,216 5,302 5,382 5,459lEast million 4.180 4,250 4,321 4,394 4,465 4,536Total million 9.,234 9,382 9,537 9,696 9,847 9,995

Service RatioWest % 38% 44% 55% 63% 66% 70%East % 52% 55% 59% 64% 65% 70%Total % 44% 49% 57% 63% 66% 70%

38

Appendice B

BORROWER CONTRIBUTION TO THE ICR

Republic of IndonesiaJABOTABEK DEVELOPMENT PROJECT

LOAN No.3219-IND

JUDP II: WATER SUPPLY AND SANITATION

BORROWER PERSPECTIVE OF THE PROJECTJUDP II

Edited March 1998The Government Contribution for the ICR

39

Borrower Perspective to the ProjectLoan No. 3219-IND - JUDP II

List of contentsPreface

Part 1: Introduction iMain Report 1A. Project objective 1B. Achievement of Project objective 1C. Major Factors Affecting the Project 2D. Project Sustainability 8E. Bank Performance 9F. Borrower Performance 9G. Assessment of Outcome 10H. Future Operation 10l. Key Lessons learned I I

Part 2: Statistical AnnexesDisbursement cuirveLoan savingPDAM Financial Statement

Appendix: Map

(Judp27.doc: OSA)

NOTE: The above is the table of contents of the Government contribution the ICR,The full text is sent to project file along with the contributions of the implementingagencies.

40

Borrowers Perspective to the

Project loan no321S-lOJD *JUDP.lI

Preface

This is the borrowers perspective evaluation report for the project loan no.3219-1NO-JUDP-II for

which a loan of USO 190 million equivalent was approved on 6 July 1990 and made effective on 21

February 1991.

The loan was closed on 31 December 1997 instead of the original closing date 31 December 1996,

and the last disbursement took place on 31 December 1997 at which time a balance of US3 9.363

million should be cancelled.

Cofinancing for the project was provided by the OECF loan in an amount of Japanesse yen 446,000

to assist in financing part of the distribution zone 3-6 POAM Jaya water supply system improvement

and NLG 7,300,000 of Outch guilder in financing a portion of part of Jabotabek Water Resources

Management Study (JWRMS). Within the current implementation Oucth grants has been terminated

by Gal subsequently the project financing has replaced lo IBRO loan.

The evaluation report was prepared by the borrower (Goll on the basis of the available material in the

projects flils, likewise its as the borrowers contribution to the Bank's ICR.

IJUDOP2I.AQ5

41

Part 1

Main Report

42

Republic of Indonesia

Jabotabek Urban Development Project

Loan no.3219-IND; JUDP-l1

Borrower Perspective of the Project JUDP-I1

Evaluation Report

1. Introduction

Since 1980 the Government of Republic of Indonesia have developed the 'Integrated Urban InfrastructureDevelopment Plan' (IUIOP), grouping under a single umbrella ie: urban transport, water supply; drainage,waste water disposal, solid waste, flood control, sewerage and sanitation and Karnpung ImprovementProject (KIP).

The program have started with stressed to the big cities as the first priority in the beginning and thencontinued to the secondary cities such as the regional capital city, The metro city of DKI Jakarta and itsboundaries called as Jabotabek have startad this program since 1988. Due to tha size of Jabotabek is thelarge region, therefore it was devided in to three l3) activities la JUDP-1 concern to the urban transportp(oject started in 1988, then in 1990 it was continued to JUlDP-l which concern to water supply andsanitation and JUDP-I1 for the Kampung Improvement Project.

JUDP-1 have been completed on end of March 1997 after two (2) tines or 18 months extention time; JUOP11 have been completed in end of December 1997 after I (one) year axtention and JUOP-III have twotimes or 32 months extention time; accordingly it should complete by end of June 1999.This report prepared in accordance to the 'Bank Policy' for evaluaton of the projects out come.whetherthe project has run as the propose target plan mentioned in staff appraisal report estination (SARno.8339-INO dated May 10, 1990), and to assess what is necessary to learn for the future project.

A. StatementJEvaluation of objective

2. Project objective

Project objective and scope of project were described in Staff Appraisal Report ISAR) no. 8339-IND editedMay 10, 1990. The main objective of the project were developed and implement a coordinated programof physical investment, technical assistance and poficies for urban water supply; waste water disposal,drainage; water resources and quality managemenL

43

3. Project component

Project component comprises:li) Water supply group consist of:

- PJSIPIPAM DKI Jakarta- Cisadane Water Supply Project (CS WSP - PAM Tangerang)* Citarum River Basin Development Project (CRSDP OGWRO)

(ii) Flood control and Sanitation grou;p consist of:* Ciliwung Cisadane River Basin Development Ptoject (CCRBDP - OGWRD)* Jakarta Sewerage and Sanitalion PFroject (ext.) (JSSP- DGCK)Micro drainage project (DPU- OKI Jakarta)

(iii) Water Management Studies and rechnical Assistance group* Water Supply Management Studies, (Binagram -DGCK)Jabotabek Water Resources Manaigement Study (JWRMS - DGCKJOverall Coordination Project Of fice (JUPCO -Bappeda DKI)

The project outcomes have been described on1 the following paragraphs

B. Achievement of-Objecive

4. Jakarta Water Supply Sector

The Jakarta Water Supply Sector consists of PJSIP, CRBDP and PDAM Tangetang. in which CRBDP wasduties to provide the raw water supply &2 mOlsec capacity to Pejompongan WTP and CSWSP (PAMTangerang) provided the drinking water supply 2.8 m'lsec capacity to the R5 Distribution Center locatedat Lebak Bulus Area.These projecis have been fully complleted, which the discharges target planned could be reached.evenihought the project completion has been delayed for several months or about two years of thetargeted schedule. This may to influence the financial statement of the companies either or Economicsate of returns (ERR) of the projects.

5. PAM Jaya System Improvement Project IPJSIP)

PJSIP * PAM Jaya is the biggest compcinent in JUDP-II, with USD 107 M 156.3%) of USO 190 total loanno.3219-INO JUOP-I1.PJSIP is the large project within JUOPI'l, therefore it was devided into two stages ie. PJSIP 1" stagofinancing by both IBRO and OECF whichl was inplemented under JUOP-II and PJSIP Z' stage which nowis under project preparation between PAM Jaya and the privat operator.

WtJOZ4 WacO 541

44

The main objective of PJSIP 1' stage were:* to mainiain the pipe-laying rehabilitation works to reduce 51% UFW in 1980 instead of 43% 1997.- to implement the distribution pipe extension to increase 49% of tolal population seived in 1997 instead of

30% in 1989.* to increase the potential employment of the Human Resources, in Management and Technical ability.* to develope the new costumer at the West Jakarta Region by supply of 2.800 llsec drinking water

distributied from POAM Tangerang-to extend the primary distribution system at zones 1,2.4,5 to increase of water supply and pressure waterin tertiary distribution pipe and to develope the new customers in zone 3,6 east of Jakarta by OECFparallel loan.

* to increase of the employment ability to maintain of the project administration execution.

During 7 years project execution in PJSIP. finally have resulted the success, limited and failure area asdescribed below:

Success area:

fi) PAM Jaya own water production capacity has increased to 408 million mn 1997 instead of 263 nmllion mzin i 990. This is higher 120.35%) than SAR estimate 339 rnillion m' in 1997.

(1i) House connection has increased to 448.000 HC in 1997 instead of 228,000 HC in 1990. This was 7.6%higher than SAR estimate 414,000 HO in 1997.

Iiii) The conneclion density was increased to 75 per km pipe lengths in 1997. instead of 62 per km pipelength in 1990. Population served has increased to 47% in 1997, instead of 35.4% in 1990.

.iv) Employment density has increased to 6.8 employees per 1000 NC in 1997 instead of 9.4 employees per1000 HC in 1990. This was 14% better than SAR estimate 7.9 employees per 1000 HC in 1997.

(v) The audit reports now has no any Qualification; and other's project reports; billing issuance has also beenexpedited.

Limited success:

Ii) The Kalimalang Raw Waler quality has insignificant improve due to at recently the raw water has beenpoluted by determination the waste water flooding from some heavy factories, which located at the upstream of KeraWang area.

(ii) The water pressure in distribution pipe at some areas has insignificant improve by this project(iii) Ground waler supply was insignificant reduced owing to PAM Jaya could not be garranted the amounting

of water supply to the factories and large customers; the water tariff is also not competitive yet to thepiped water and also increasing of 4.9 million people in 1997 instead of 4.3 people in 1990, could notserved yet.

(iv) PAM Jaya financial statement has indicated insignificant improved especially in revenues, waterproduction, current ratio. contribution to investment, OM cost accordingly PAM Jaya to date may hassuffered a difficulties to financing the project.

AAiDPtaec.54

45

Failure area:

(i) The UFW increased to 56% in 1997 instead of 53% in 1990, while SAR estimate to 43% in 1997. This isthe mayor failure of PJSIP. This targst is not reached due 1o the pipes rehabilitation works has done onlyat a small parts of served area and administration losses may as a dominant factor. Therefore thereducing of UFW program should make more intensive in the future.

fi) Public Hydrant has decreased to 1500 units in 1997 instead of 2000 units in 1990. This was a lemonprogram because 2800 units planned to be built during PJSIP 1I stage period, must be canceled, due tono one of suitable new location has founded by PAM Jaya, whereas is about 6000 units of existing PublicHydrants have resorted been comedown caLised of reformation of existing area which was outside controlby PAM Jaya.Public Hydrant development is one of the most important Gol's policy to solve the water supply problemfor the low income groupislump area, in which as the 'social cared program ' to the low level community.

6. Cisadane Serpong Water Supply Project (CSWSP) -PDAM Tangerang

This project has prepared to support the P.ISIP in a duty to supply 2800 llsec drenking water, take fromCisadane Water Treatment Plant PDAMi Tangetang, distributed via transmission main pipe (steel pipe)1500 mm diameter to R5 Distribution Center at Lebak Bulus area south of Jakarta as of PAM DKI Jayaown facilities. Cisadane WTP which constructed under French Protocol loan has been fully completed on1992 but commissioning work has not done yet. The WTP commissioning work has done together withtransmission main pipe on December 1996, accordingly this project has suffered delay for 20 monihs.

The imfact of the delays, has burdened the tevenues and the POAM activities; furthermore the waterprice and an amounting schedule of bulk water supply with PAM DKI Jaya is also not satlsfied, likewise1800 iJsec idle capacity would rise during 1997 to 1999, then a complict of interest between bothMunicipal and Tangerang Regency Government concerning 'serviced area', should more burden PDAMTangerang financial. The problem solving sliould requires prudence of related dispute agencies, therefore a.merge system' between two PDAM may could be recommended.

ConclusionThe project has successful lo be completed, however non lechnical issues may foul up PDAM Tangerangfinancial.

7. Citarum River Basin Development Project (CRBDP) -DGWRD

This is also a supplement project to support PJSIP with duty to deliver 6.2 m'Isec of Kalimalang RawWater (originally come from Jatiluhur Reservoir) to Pejompongan Water Treatment Plant whichtransferred via twin concrele pipes 1600 mm diameter with 11.3 km length.

MAJOPZI.*c SA

46

This project has been fully completed by mid of March 1997 with has suffered 795 days or 26.5 monthsdelay from the original contract completion date in which they had run into a difficulty on cost over runamounting to USD 4.2 million (10% ) approximately. This has been taken mayarly from JSSP andanother's loan saving of JUDP-1I component.The delays of completion work, made burden to POJ financial and moreover Raw Water tariff wasinadequated Rp 35Im' in 1997 instead of Rp 251m3 in 1994 (or 2% of average sold price PAM Jaya),whereas the Raw Water Tariff calculation still based on 0 & M cost only, this may against to SAR whichrecommended to 'full cost recovery' calculation.

The following table shown the comparison between P0J Raw Water tariff with average sold price of PAMJaya.

Water Tariff (Rp)

Year POJ Average (2:5) RemarksRaw Water 1%) drinking 1%) 100%

Water Sold. (%)(PAM Jaya)

1. 2 3 4 5 6 71991 22 718 3% Raw water tarift1992 25 12% 1197 67,6 2% Average was 2.45%

of the average sold1997 35 40% 1491 25,3 2,35% price PAM JayaMean 27.3 26% 1135 46% 2.45%

WOU4.cosJJ

47

This figures has shown a big differ striking with average sold price PAM Jaya, therefore POJshould have difficulties on the future to fin.ancing of their operation; if the tariff is not stand on areasonable price.It also arose on POAM Tangerang drinking water supply which paid Rp 450Jm3J (or 40% of averagewaler sold price) by PAM OKI with inconvinient a bulk water supply schedule.These price, my as reflected of PAM Jaya business tact to compensate of their difficulties toreduce of un accounted for waler (UFW) which now stand on 56%.The Institutional Management and Training in PDJ staff have resulted a restructure organization onthe middle manager level, to reduce a number of employees; financial-accouniing systemimprovement; Management Information System (MIS). POJ now has being changed their policy to'profit making' neither-nor 'non profit making'.

Flood Control and Sanitation group

8. Jakarta Sewerage and Sanitation Project Extension (JSSP Ext.

Jakarta Sewerage and Sanitation Project lJSSP) aimed ID continue their remaining program on theprior JSSP IJSSP phase 1) and to develop of the new program of the sewerage such as Low CostSe.wer Project which was clarified as a 'pilot project' who financing by 'SOE' procedure.

JSSP has maintained 40 packages, in which all of contracts packages have been completed in onoriginal time schedule.Nevertheless a pilot project low cost sewer demo package has failured to seek the Bank'sclearance, due to no agreement could be reached on a design, implementation and pricing strategythat should have involved the household targeled for connection; accordingly the Bank's may berefused to finance that piot project. JSS? has been implemented that project, while the Bank'sclearance has not issued yet. The bottom problem was the Banks did not satisfied to JSSPperfDrmance, because JSSP has not submitted a sufficient proposal in accordance to communitywillingness survey; house connection cost; schedule of HC Installation and more over the detaileddesign was not sufficient with the Banks requirement.Mostly all of JSSP objectives have been achieved, except the Low Cost Sewer package and theTraining of PD PAL Jaya stalfs which was dropped out by the project, and JSSPs 1" stage assetswho would be transferred to PD PAL OKI Jaya as Central Government equity, it turn out could notbe done entirely;

The failure area of JSSP are summarized below(il The Bank's may refused to financing a pilot project LCS built in Malakasari a lower middle

income neighborhood.(ii) During 5 year period of JUDP-Il implementation. a transfer of JSSP 1" phase assets could

not rea'ized yet, nevertheless a small parts of I' step amounting to Rp 5,7 million has beentransferred on mid September 1997.

(iii) Training for PO PAL staff was canceled.

48

Concluslon of JSSP Assessment and Remedial Action will be taken(i) The BOO effluent of Setiabudi ponds has been reduced to 30 ppm instead of 300 ppm as

inffluent(ii) All of JSSP objective for drainage and sewer constructions have been achieved excepts as above

mentioned.(iii) PO PAL Jaya has been operated the sewerage system and has achieved an increase of a

number of costumers in equivalent to the building squarp meter (m?)(iv) PD PAL Jaya has increased the revenues and surplus on 0 & M parameter budget; then at

present is preparing for the role of full cost recovery'.(v) Future remedial action to be taken are to improve the Project Management personels in order

more familiar to maintain the foreign loan.

9. Cisadane Ciliwung River Basin Develoment Project (CCRBDP-DGWRD)This project aimed to control the flooding and inundation in whole OKI Jakarta project area.CCRBOP as the PIU has been successed to maintain 13 contracts packages under the loan IBRDJUDP-11; in which the parallel OECF loan is also implemented at the same location such as SentiongCut of Channels package and at different locations which aimed to support the entire programes ofDKI Jaya flood control. Insignificant problem arose to maintain this project but generally thisproject has assessed quite satisfactory.The benefit of this project have resulted 7520 Ha existing of inundation area, now could bedrainaged or free from inundation and or flooding impact.

10. Micro drainage DPU-DKIMicro drainage is part of PJSIP program, which aimed to drain the inundation caused of PublicHydrant.This is also a pilot project for sanitation improvement, in which DPU-DKI as the PIU have 12packages of civil works under JUDP-11 * IBRO funds; and several packages under OECF loan.All of packages have been completed in on time with the construction quality are quitesatisfactory.In the future this project will be continued with the simillar project by mutual agreements amongothers DPU DKI, PAM Jaya and PO PAL DKI Jaya.

11. Technical Assistance groupThe technical assistance group comprises of miscellaneous study (water supply * DGCK),

Jabotabek Water Resources Management Study IJWRMS - DGWRO) and Jabotabek UrbanDevelopment Project Coordination Office (JUPCO - Bappeda DKI).Generally the International and NYational consultants performance were satisfactory, includedconsultant's products assessed as, quite interested and able to follow up.The JWRM Study aimed to investigate the Jabotabek Ground Water potential and the arrangementconlrol. The study have been resulted some recommendations to establish the policy and sirategyhow to manage the ground water on the future.

(O2KW O Si0JJ

49

Ptesently the DGWRD has been followecl up the recommendation to reached a new policy ofground waxer abstraction,The miscellaneous study of DGCK is also prepare a new polcy in drinking water supplymanagement related to privat sector parlicipation. The privat sector now has proactiveparticipated in the several PDAMs among others PAM OKI, Tangerang, Bekasi, POJ. Medan andSurabaya.The overall project coordinalion office as maintain through roles of JUPCO in JUDP, have aninteresting experiences as a single windovos 'among other's' agencies, Gol and the Bank, whichturned out the project implementation and disbursement could be expedited and monitored; as wellas procurement and the problem solving. Its arose an advantage to the provincial Government tocontrol in outflow investment, done by the project implementation in their area.The JUPCOs model may could develop in anothers province, now Bali and East Java mainting theirproject simillar with JUPCOs model.

C. Mayor affecting of the Project

12. factor outside of Governmentland acquisition problem is one of a factor outside of Gol; the land pricing which increasespectaculer is not to go on this project. The very high increasing of land prices occured on a smallparts of the transmission main pipe at !?DAM Tangerang components, because of a delays ofpayment to the land owner due to the limited budget available at that time. Resettlement problemhas not to become of because land acquisition system,- is not to move the land owner, howeverthis model simillar to bought a 'permit' for pipe-laying installation. Large varianis of USDexchange rates is the one of the factor out side of Gol.

13. Factor subject to Government controlThe Tangerang Municipal Government stance to establish the New PDAM may affectimplemen.taion cf the management and operation improvement program.The West Java Provincial Government should take a better with the sweet to solve that matter,otherwise may recommend to merge a joint operation between two disputes PDAM.

14. Internal Government ProjectIncreasing of 200 packages in PJSIP irstead of 64 packages as original, due to splitting ofcombined civil work of pipe laying work and supply work; nevertheless the supply packages hasalso splited into smaller packages. This aimed to meet with a better performance of contractorand, to allow a more fair distribution opportunity job.The cost over run in CRBOP, indicated that a lack of control to the budget allocation by the projectmanagement, during cn the procurement step.The tight budget policy should sirengihen in the future.

50

D. Project Sustainability

15. Sustainability of the project outcomes depends on continued in the management and operation ofthe water system. particularly in an expansion of production capacity and distribution to increaseof population served and reducing of UFW.The waler supply sector project is likely to be sustainable, likewise for sewerage enterprises suchas PD PAL Jaya. A joint operation between PAM Jaya-PDAM Tangerang with several privalssectors, presently is on going operation, while POJ PAM Bekasi is also under preparation for ajoint operation with the privat sector.

The prival operator should achieve more efficient gains of operation and maintenance cosL andthis should indicate that the water tariff will decrease significant. If the water tariff trend toincrease: it mean that the privat suctor joint operation is failure.Sustainability of the flood control and drainage component is likely, even if rehabilitation activitiessuch as dredging of major canals; and storm drainage reservoir are mostly deferred maintenancethat should finance by the routine budget rather than by investment budget.

E. Bank's Performance

16. The Bank's performance during project identification, preparation, appraisal and supervision wassatisfactory.The project has noted that Banks procedures were considered to complex and take more iimesconsuming by the borrower.Delegation of responsibility for small ICS procurement to RSI to more expedite the approvalprocess, may could considere by the Bank.

F. Borrower Performance

17. The whole physical project component and loan covenants have been fully implemented; whosemain objective have aLso been achieved, although it has arose significant delay in the projectcompletion time.Generally the borrower performance was satisfactory.The issues of disputes concerning PDAM Tangerang will be reached soon a final solution, whosemay recommend a merge or joint operation system between two POAM which was occured withPDAM Bekasi as well as.The transfer of assets of PD PAL Jaya could be expedited following the 1" stage of PD PALtransfer of assets has been completed.During project implementation, the projects component PJSIP, CRBDP, CCRBDP, DGWRD DPU-OKI very cooperative with the Bank's supervision mission, while JSSP, PAM Tangerang,Miscellaneous Study component was lair.The upper coordination level such as TKPP, DitTua, Bappenas have quick responsed to the projectsproblem solving.

51

G. Assessment of Outcome

18. Overall projects outcomes could be assessed as satisfactory, notwilhstanding some delays of theproject component were occurred in which its may be burdened to the enterprises financialcondition.The projects has been achieved their main objectives as targeted in SAR such as physical, rinancialand management strengthening in whicl privatization in PDAM Jaya, PDAM Tangerang operation,an even parallel to the project, maybe as advantage to achieve a goal in the future developmenL

The shortcoming of the projects objective are:li) Failured to reduce of UFW. fair quality at some pipes-laying construction and inefficiency work in

PJSIPIPAM Jaya may be caused to higher of 0 & M cost then will impact to the water tariffpricing. The privat operator should avoid to increase the water tariff without unreseanablejustification, furthermore if privat operator failure to increase of an efficiency.

(ii) To drop out of PD PAL Jaya training staff, posiphone of transfer of assets to PO PAL Jaya andpoor implementation arrangement on the LCSDP in JSSP component; is one of an inconvenientcondition in JUDP-I1.

(iii) The 'cost over run' in CRBDP, is also an unadvantage to this project due to limited budget controlby. project management during procurement.

These matters was highlighted to improve in the future.

H. Future Operation

I S. Jakarta Water Supply SectorUnder rooperation agreement' in February 1996 the two privat consortia had fully responsible tomanage both of PAM Jaya and POAM Tangerang, included to financing, operating and mainlening,of the works and also bill collecting, whereas the both POAM functions are as the owner of theexisting. and the future assets once the privat operator fully depreciated. Beside that the PDJenvisage the possibiiity to transfet of 0 & M activities to the privat sctor. later to joint operationwater supply under a 'cooperation agreement'.

20. Jakarta Sewerage and Sanitation ProjectAt the time being PD PAL Jaya is also looking a possibility to joint operation with prival sectorsfor the future development under a rnutval cooperation agreement.

21. Jakarta flood Control and Micro drainageMtostly on the mayor drainage facilities availability by the central Government Projects ( CCRBDP)have been transiferted to Government of OKI Jakarta for further extended and operated.Loan saving no.3246-IND; JUOP.11I hiave been used to financing rehabilitation a few of largepumping stalion for DKI Jaya flood control, which now is implementing by DPU-DKI as the PIU.No agreement has been reached so far on the flood control investment program on east JakartaRegion in which would require a mayor land acquisition.

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22. JWRMS, Water Supply Study and JUPCOThe Jakarta water resources management recommendation is on going preparation for inssuanceof the new strategy and policy of the groundwater management, as well as for water supplymanagement.Project coordinition system such as JUPCO's model; may applicate to be implemented in anotherprovinces.

1. Key Leason Learned

23. Physical Implementation

The main lesson learned are:(i) Completion delay

The bottom problem of the completion delays mayorly on land acquistion, procurement,implementation permit (digging. city regulation changes, budget available). Appropriately thesefactors could be mitigated before loan agreement signed. Tender document, included detaileddesign should complete and ready to tender and as well as for land acquisition. Digging permitmay noted lo quality of construction must comply with the technical specification, however insuch case a priority permit may consider to issue.Cost over run and Gal portion need more priority ro.put in AP8NIAPBD. Any changes of DPU-DKI prodence such as did not allow for several mounth's for pipes-laying construction on thenew road financing under the loan (IBRD). should be avoided. The coordination work Interagencies such as synchronization work will make more effective.

24. Financial

Privat sector participation for PDAM should make more efficient to the management; thereforeon the future operation the water tariff may significant reduce.UFW, ground water abstraction, production capacity, increasing of water supply, drinkingwater quality. revenues should more improve by them, while the entire expences componentmake more efficient and fully transparant control.The privat operator annual audit should carry out by independent auditor both local andinternational auditors.The project cost should make more strickly control by related agencies, internal controlers, toavoid a wasteful budget, in which will caused high cost product.Financial projection should prepare more objeclive and reseonable parameters to avoid a biggerdeviation; this may a just every 3-5 year.The failure of outcoming of an efficiency, do not caused to burden by direct transferred tocostumer via tariff increasing. therefore a controling to each efficiency parameter should bedone strickly and continuesly.

/JJOfld.#cD5sE

53

Appendice C

ECONOMIC EVALUATIONWATER SUPPLY AND DRAINAGE COMPONENTS

Economic Analysis of Water Supply Components

As part of the Project implementation review, an economic evaluation was carried out forthe three completed water supply components, including PAM JAYA System ImprovementProject (PJSIP), Pejompongan Raw Wal:er Line Project (PRWLP), and Cisdane Treated WaterLine Project (CTWLP). Together, these components account for about 82 percent of the total]?roject costs.

The benefits of these components can be categorized as: (a) cost savings as a result ofswitching sources of water use from wellls, vendors, etc. to household connections; (b) additionalbenefits to consumers due to increased water consumption; and (c) health-related benefits due toimproved water quality. In principle, these benefits together should be compared with the costsof the investments to determine whether the investments are economically justified. In practice,because the health-related benefits are very difficult to quantify, only the benefits of types (a) and(b) are estimated.

The "with project" and "without project " scenarios were developed to determine theincremental benefits and costs of water consumption as result of the implemented water supplycomponents. The "with project" scenario includes the three components: PJSIP, PRWLP, andCTWLP. The components were evaluated as a whole because two pipelines were installed underPRWLP and CTWLP that supply improved quality bulk water to the PAM JAYA system.Information on investment and O&M costs, including land acquisition, technical assistance andadministration costs, implementation periods, number of connections, and volume of water soldwas gathered from the project implementation agency.

The "without project" scenario includes non-connected households obtaining water fromvendors, public hydrants, wells, rain, etc., and non-residential consumers obtaining water mostlyfrom wells. Information on investmenit and O&M costs and consumption of these alternativesources of water was assembled from existing water use surveys and the implementing agency.Information on external environmental costs of abstracting ground water was also obtained fromthe Jabotabek Water Resources Management Study, which was financed by JUDP II.

The economic analysis estimates that the cost savings as a result of switching sources ofwater use from wells, vendors, etc. to house connections amount to Rp236 billion (all values areexpressed in 1991 price). The avoided costs of abstracting ground water were included. TheSAR had expected that boiling cost savings would result from improved water quality. Sincehouseholds continue to boil piped water, boiling cost savings were not considered in the currentanalysis.

The additional benefits due to increased water consumption were estimated to be Rp93billion. These benefits were considered accruing mostly to residential customers.

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The total benefits are therefore Rp329 billion. After deducting the costs of investmentsof Rp.295 billion, the water supply components, post implementation, are estimated to generate anet present value (NPV) of Rp34 billion for the society, with an economic internal rate of return(EIRR) of 11.6 percent. The investments are thus considered economically justified.

A financial analysis was also carried out for the three water supply components. Theobjective was to determine whether these investments under the current tariff charges wouldprovide a net financial gain or loss. The incremental tariff revenues and connection fees derivedfrom the new connections were compared with the investment and O&M costs. The analysisshows that the investments would create an NPV of RplO billion and a financial rate of return(FIRR) of 10.5 percent. This means that the net result of these investments is positive financially.

As a comparison, the economic analyses that were carried out at project appraisalestimated that the project would have a rate of return of 11.7 percent. This included savings ofboiling costs as it was assumed at the time that the practice of boiling water would be graduallyeliminated. If this savings were not included, the estimated return at appraisal would be loweredto 8.6 percent.

Economic Analysis of Drainage Component

The drainage works carried out under the project were mostly rehabilitation. The totalcosts account for about 7 percent of the total investments.

An economic analysis was carried out for this component as part of the projectimplementation review. A small survey of land values was conducted and land rental valueincreases were used as a measure of the benefits from the completed drainage works. Theanalysis shows that this component has generated NPV of Rp364 billion and a return of 59percent.

At project appraisal, two economic analyses were carried for this component. One wasbased on assessments of avoided property damages. It estimated that the rate of return would beat 17 percent to 22 percent. The other analysis was based on a small survey of a low income andhigh density area. This gave an estimated return of 159 percent.

MAP SECTION

IBRD 21614

106'30' 107 00O

J4BOTABEK AREA

TANCOFRANG JAKARBA

Pn(~~rnpangen BEKASI

_ G Primc0 y Pipelines LU HtAR \AMs &

POW~ RPLANT

106u130' T. Bo-d-g 107'\0'

INDONESA I A B"Ii

SECOND JABOTABEK URBAN DEVELOPMENT PROJECT (JUDP II)PDAM JAYA SYSTEM IMPROVEMENT PROJECT (PJSIP)T. -

EXISTING FUTURE PROPOSED- - ~~~~~Pninrany Pipelin-

* WoIen Trea.tmetPat epn

* * ~~~~~F.ture Distriution Center.Ciaen

Mini Plants Intake Punping Sttian Woler Tnmnnt Plant

(under onnstruotion) (under connitnudctiani/ /

Ecnk Financed oone of Distributin Syslenr

Water Supply Zone Roundarien

D.K.I. Boundary ; Bq.

_____ Roads

Rajlrood-

0 2 4 6 8 10

KILOMETERS

APRIL 1990

IBRD 21675

I ~~~~~~~~~~~~~~~~T

0 L

S.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~EO

SECOND JABOTABEK URBAN DEVELOPMENTPROJECT (JUDP 11)

SEWERAGE

Se-verge Wodks.

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MARCH 1 990

IBRD 22039

CNTRUCTIONlAVA SEA ~~OF PAPA NGGO

DRJN (W.SUINTR

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,,~~~~REGN [p EXC VAT/O

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fEXC'AVI 7TiON OF

PARK/N,1 CANAL,KJELAKrENG,K .DLIR ANDREHA6iL17ATION R IIOF PLIJIT

Iz

%~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

To ~ ~ ~ ~ ~ ~~~T oo Ra N

0 2 4 6 8 10 INDONESIAI I I I I i SECOND JABOTABEK URBAN DEVELOPMENT

KILOMETERSPROJECT (JUDP 11)

DRAINAGE

h oanThb din,PoTi b,,kd 55 e 5 5 ndgUsS *h * *h 0** * hrain, C& abofnytWe>z/l/dr* Ztt/t ?8tit ...... Drains

- Future CanalSUMATERIIJ X _ Major Rivers or Canals and Drains

Roads

-> 0 A W A senbaraSg i-~+---i Railroads

= iakarsa _ DKI Jakarta Boundary

APRIL 1990