Document of The World Bank

FOR OFFICIAL USE ONLY

Report No.: 543934)

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED MULTI DONOR FUND FOR ACEH AND NORTH SUMATRA

IN THE AMOUNT OF US$8.2 MILLION

TO THE

REPUBLIC OF INDONESIA

FOR THE

NIAS ISLANDS LIVELIHOODS AND ECONOMIC DEVELOPMENT PROGRAM (NIAS-LEDP)

July 23,20 10

Indonesia Sustainable Development Unit East Asia and the Pacific Region

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

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Document of The World Bank

FOR OFFICIAL USE ONLY

Report No.: 543934)

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED MULTI DONOR FUND FOR ACEH AND NORTH SUMATRA

IN THE AMOUNT OF US$8.2 MILLION

TO THE

REPUBLIC OF INDONESIA

FOR THE

NIAS ISLANDS LIVELIHOODS AND ECONOMIC DEVELOPMENT PROGRAM (NIAS-LEDP)

July 23,20 10

Indonesia Sustainable Development Unit East Asia and the Pacific Region

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

CURRENCY EQUIVALENTS

(Exchange Rate Effective June 24,20 10)

AARD ADB AMDAL AusAID BBP BIPPKIPP BPP BRR

Camat CDD DRM DAFEP Desa DINAS EA FEAT1 GO1 ILO IPM IREP Kabupaten Kecamatan Kimpraswil KPDT

LSC M&E MDF MOA MOF NGO PDCS PIU PMC

Currency Unit = Indonesian Rupiah

US$1 = IDR9,040 IDR1,OOO = US$O.1106

FISCAL YEAR January 1'' - December 3 1 St

ABBREVIATIONS AND ACRONYMS

Agency for Agricultural Research and Development Asian Development Bank Analisis Dampak Lingkungan (Environmental Assessment) Australian Agency for International Development Balai Benih Pembatuan (Seed Support Unit) District Center for Information and Extension Agricultural Extension Office at Sub-district Level Badan Pelaksana Rehabilitasi dan Rekonstruksi (Executive Agency for Rehabilitation and Reconstruction) Sub-district or Cluster Community Driven Development Disaster Risk Management Decentralized Agricultural and Forestry Extension Project Village Local Authority Environmental Assessment Farmer Empowerment through Agricultural Technology and Information Project Government of Indonesia International Labor Organization Integrated Pest Management Infrastructure Reconstruction Enabling Program District Sub-district Pemukiman Prasarang Wilayah (District level Public Works Department) Kementrian Negara Pembangunan Daerah Tertinggal (State Ministry for the Development of Disadvantaged Areas) Local Steering Committee Monitoring and Evaluation Multi-donor Fund Ministry of Agriculture and Forestry Ministry of Finance Non-Governmental Organization Planning, Design, Construction and Supervision Project Implementation Unit Program Management Consultant

PMU Program Management Unit PSC Program Steering Committee PRA Participatory Rural Appraisal RACB TA Technical Assistance UNESCO WB World Bank

Rural Access and Capacity Building Program

United Nations Educational, Scientific and Cultural Organization

Vice President: Country Director (Acting):

Sector Managers:

Task Team Leader:

James W. Adams, EAPVP Shubham Chaudhuri, EACIF Franz R. Drees-Gross, EASIS Vijay Jagannathan, EASIN Khairy Al-Jamal, EASIS

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

INDONESIA Nias Islands Livelihoods and Economic Development Program (Nias-LEDP)

CONTENTS

Page

A. STRATEGIC CONTEXT AND RATIONALE 1, Country and Sector Issues 2. Rationale for Bank and MDF Involvement 3. Higher level objectives to which the project contributes

B. PROGRAM DESCRIPTION 1. Lending Instrument 2. Program development objectives and key indicators 3. Program components 4. Lessons learned and reflected in project design 5. Alternatives considered and reasons for rejections

C. IMPLEMENTATION 1. Partnership arrangements 2. Institutional and implementation arrangements 3. Monitoring and evaluation of outcomeshesults 4. Sustainability 5. Critical risks and possible controversial issues 6. Grant conditions and covenants

D. APPRAISAL SUMMARY 1. Economic and Financial Analysis 2. Technical 3. Fiduciary 4. Social 5. Environment 6. Safeguard policies 7. Policy Exceptions and Readiness

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3 3 3 4 8

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10 12

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16 17 18

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Annex 1: Annex 2:

Annex 3:

Annex 4:

Annex 5:

Annex 6:

Annex 7:

Annex 8:

Annex 9: Annex 10:

Annex 11: Annex 12:

Annex 13: Annex 14:

Annex 15

Annex 16:

Country and Sector or Program Background Major Related Project Financed By The Bank and/or Other Agencies

Results Framework and Monitoring Detailed Project Description Project Costs Implementation Arrangements Financial Management and Disbursement Arrangements Procurement Economic and Financial Analysis Safeguard Policy Issues Project Processing Documents in the Project File Statement of Loans and Credits Country at a glance Governance and Accountability Framework Map of the Project Area

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INDONESIA NIAS ISLANDS LIVELIHOODS AND ECONOMIC DEVELOPMENT PROGRAM (NIAS-LEDP)

PROJECT APPRAISAL DOCUMENT EAST ASIA AND PACIFIC

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Date: July 23,2010 Country Director (Acting) : Shubham Chaudhuri Sector Director: John Roome Sector Manager: Franz R. Drees-Gross Project ID: P110635

Source Borrower MDF Total:

Local Foreign Total 0.00 0.00 0.00 0.00 8.20 8.20 0.00 8.20 8.20

Lending Instrument: Specific Investment Loan

FY 2010 Annual 0.00 Cumulative 0.00

Team Leader: Khairy Al-Jamal Sectors: Crops (50%); Public administration- Agriculture, fishing and forestry (28%); Animal production (10%); General agriculture, fishing and forestry sector (1 0%); Public administration- Information and communications (2%) Themes: Rural policies and institutions (55%); Rural markets (25%); Other rural development (10%); Gender (10%)

2011 2012 2013 3.10 4.50 0.60 3.10 7.60 8.20

Projec Financing Data [ ] Loan [ 3 Credit [ X ] Grant [ ] Guarantee [ 3 Other:

Does the project depart from the CAS in content or other significant (Re$ PAD A.3) Does the project require any exception from Bank policies (Ref PAD D. 7) Does the project include any critical risk rated “substantial” or “high” (Re$ PAD C. 5) Does the project meet the Regional criteria for readiness for implementation (Re$ PAD D. 7)

No No Yes Yes

local economic development. The program will be implemented by the Ministry of Disadvantaged Regions (KPDT between 2010 -2012. The project development objective is to facilitate post-disaster economic recovery by improvinl the ability of the Government to work with poor rural households in Nias to identify, develop and sustain livelihool opportunities. The objective will be pursued through the following components:

Component 1 : Livelihood Groups and Institutional Empowerment (US$1.95 million) The objective of this component is to empower beneficiaries (livelihood groups and district government) to improvl their capacity to acquire the technical, social, organizational, financial, management and marketing skills fo livelihoods development activities. Most of the activities involve training and group facilitation, and include:

1. Training for Agriculture Livelihoods Groups: 2. Training for Women’s Livelihoods Groups: 3. Training and Equipment for Local Government Agriculture Services

Component 2: Agricultural and Other Livelihoods Improvement (US$4.60 million) Component 2 would finance implementation of program activities (set-up throughout Component 1) utilizing smal group Community Support grants and technical support services. This component has two sub-components related tl the implementation of: (i) agriculture and women’s livelihoods groups’ activities, and (ii) support to local governmen agriculture services.

Component 3: Management. Monitoring and Evaluation (US$l.65 million) The objective of this component is to develop management and technical capacity for implementation of livelihood programs in Nias within the Kabupaten/Kota and Kecamatans, as well as with KPDT. A consultant team will providl ihe necessary project implementation, program management, i d technical livelihoods support Safeguard policies triggered by the project (Ref PAD D. 6, Technical Annex 10). The project triggers Environment0 Assessment (OP/BP 4.01), Involuntary Resettlement (OP/BP 4.12) and Indigenous Peoples (OP/BP 4.10). The projec is classified as category B. Significant nonstandard conditions, if any (Ref PAD C. 7) Board Presentation - None

Loadcredit Effectiveness Conditions - These are: (i) the Recipient has adopted the Project Operations Manua acceptable to the Recipient and the World Bank; (ii) the KPDT shall have issued a request for proposal, satisfactory tc the Recipient and the Bank, for program management and implementation consultants; and (iii) the execution an( delivery of the Grant Agreement on behalf of the Recipient would be duly authorized or ratified by all necessq governmental action.

Covenants applicable to project implementation - These are: (i) The KPDT secretariat, PMU, and PSC arc established, with terms of reference satisfactory to the Bank; (ii) Sub-project Operations Manual, covering paymen verification for subprojects as agreed by the Bank prior to disbursement of Community Support grants; (iii) The Fh consultant (through the firm) will be mobilized prior to disbursement of the Community Support grant; and (iv Individual financial management consultants with term of reference acceptable to the Recipient and the Bank shall br engaged at the central Project implementation level by the date which is not later than the date which is one month afte the effectiveness date to ensure that he/she will assist the project on preparing the sub-grant manual

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A. Strategic Context and Rationale

1. Country and Sector Issues

1. Nias Reconstruction. The December 2004 tsunami and subsequent March 2005 earthquake caused severe damage to the island of Nias, totaling US$392 million, equivalent to 108 percent of the island’s gross regional domestic product (GRDP). Over 13,000 houses were destroyed, and transportation infrastructure was badly damaged (1 2 ports were destroyed and over 1,000 km of roads were impassable).

2. The Government of Indonesia’s (GoI) Agency for Reconstruction and Rehabilitation in Aceh and Nias (BRR), together with local and provincial governments, donors and NGOs made significant progress rebuilding damaged assets and restoring the local economy. The transport network is in better condition than before the disaster, and is a key for building Community Support for continued economic recovery.

3. Post-BRR and Low-Capacity Context in Nias. The BRR’s mandate ended in April 2009, so now local and provincial governments continue the reconstruction agenda. The current capacity of the district civil service in Nias is low by country standards and within the Province of North Sumatra. Unlike Aceh, Nias will not benefit from special autonomy funds - and Nias still receives the lowest per capita central government allocations in the province and roughly half the national average. 1 Given the severe capacity constraints, continued support to local government and directly to communities is required to ensure the reconstruction agenda continues. The recent ‘split’ of the district of Nias into three kabupatens and one kota will add to capacity constraints - now there are five districts in Nias Islands, three newly formed, with a diluted civil service.

4. Economic and social indicators in Nias are among the lowest in North Sumatra, and lag national averages. Nias’ poverty rate (32%) is double the national average (16%). Health and education indicators are also low. Only 15 percent of households in Nias and 8 percent in Nias Selatan have access to clean water. Connection rates to the PLN grid in Nias (33 percent) and Nias Selatan (25 percent) are the lowest in North Sumatra (70 percent), and less than half the national average (65 percent). Contributing factors include, i.) Nias’ remote location, ii.) restricted markets and information access, iii.) weak local government capacity, iv.) low levels of public investment, and v.) poor access to services.

5. Nias is a rural society dependent on subsistence farming, which accounts for 42 percent of the Gross Regional Domestic Product (GRDP) and employs 87 percent of the workforce (compared to 45 percent of the labor force nationally). The major crops by planted area are rubber (60,000 ha), coconut (60,000 ha), rice (27,000 ha), and cocoa (7,000 ha). Farming is by smallholders, and the unavailability of large tracts of land precludes larger plantation practices for crops like oil palm or other estate crops.

6. Agricultural yields are low f o r all crops in Nias relative to comparable benchmarks. Cocoa productivity is on par with the low national average of about 0.8tha caused by insect attack (Cocoa pod borer), little or no fertilizer input on poor soils, and very poor genetic stock .with almost universal use of unselected local seedlings. Post harvest grading to

Average rice yields (2.5 tha) are half the national average.

Nias and Nias Selatan’s per-capita transfers from central government in 2006 (Rp 497,000 and 295,000 respectively) are the lowest in North Sumatra (Rp702,OOO) and below the national average (772,000). From, Managing Resources to Build Back and Create a Better Future for Nias: Nias Public Expenditure Analysis 2007. World Bank.

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remove pod borer affected beans or to ferment the best quality beans are inadequate. Rubber productivity (0.6 t/ha) is particularly poor compared to yields of lSt/ha achieved under plantation culture on Sumatra. Further, deliberate post-harvest adulteration of latex (with rocks, soil vegetation and water) is widespread in an attempt to increase marketed weight, but actually results in price discounts of up to 30%. Livestock production (pigs, poultry) is popular, particularly among women, but capital is a constraint, as is poor knowledge of disease, parasite control, and improved feeding strategies.

7. There is considerable scope (through training and improved rural access) to improve productivity and incomes of smallholder farmers. The average farm size (1.5 ha) is still adequate to achieve reasonable livelihoods if yields and quality can be improved. There are an estimated 100,000 farms in Nias, and field observations show that there are large areas of idle land on these smallholder farms that could potentially be used for new planting of rubber and cocoa.

8. Nias ’ poor rural access remains a key development bottleneck creating significant market and production inefficiencies, and limiting access to health, education, and other social services. The majority of the population lives in remote and disbursed settlements, without access by 4- wheeled vehicles. Road network conditions are made worse by the extreme climatic conditions (260 days of rain, 2,600 mm annually), which turn unsealed roads into mud trails passable only by foot for the majority of the year. The BRR completed major portions of the network, but access remains severely restricted.

2. Rationale for Bank and MDF Involvement

9. The World Bank, as partner agency for Nias-LEDP, will draw on its extensive and broad experience (in rural development, agriculture, infrastructure, and community driven development) in Indonesia and globally.

10. The Bank brings international experience and lessons learned in the implementation of projects of this type, where there is a need to strengthen the capacity of government agencies to provide public goods, parallel to adopting improved technology by small rural households. The Bank also has long and diverse experience working with public sector institutions, as well as in assessing public versus private sector roles in operations world-wide. In an operation of this nature, involving smallholders, there is little initial incentive for private sector participation.

11. The Bank has experience in Indonesia with similar rural and community development projects (Farmer Empowerment Through Agricultural Technology and Information Project, FEATI, and the Kecamatan Development Program, KDP etc), which serve as the basis for Nias- LEDP’s participatory approach. These projects are focused on either information shortages (FEATI) or on the provision of community level infrastructure and organization (KDP, etc). Nias-LEDP adopts a focused livelihoods approach (with comprehensive technical and financial support) to address low incomes among poor rural households in a low public sector capacity environment.

12. Nias-LEDP addresses the core themes of the Bank’s Country Partnership Strategy (CPS) - to invest in institutions to improve effectiveness and accountability. The project develops institutional capacity throughout the project cycle at the national, district, and community levels. It is also consistent with the CPS imperative for poverty reduction and sustainable resource management, particularly in poor rural areas.

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13. The MDF supports similar economic development programs in Aceh (Economic Development Financing Facility) - but Nias cannot access these funds or borrow. MDF support is a key in supporting GoI’s agenda to reduce regional disparities and provide targeted support for economic recovery in Nias. This agenda is fully consistent with the mandate of the MDF and its role to support the Go1 to carry-out priority reconstruction programs (guided by the Go1 Master Plan). ’ 14. and livelihoods will take time. mandate of the MDF in Aceh and Nias -which supports projects until 2012.

Furthermore, establishing an enabling environment for improved economic development The Nias-LEDP program is consistent with the operations

3. Higher level objectives of the program

15. The higher-level objectives of Nias-LEDP are to facilitate post-disaster economic recovery by creating an enabling environment for improved livelihoods and human development in the Nias islands. Nias-LEDP will contribute to the economic development of communities affected by the tsunami and earthquake.

16. The project is fully consistent with the focus of the Country Partnership Strategy (CPS) for Indonesia: ‘investing in Indonesia’s institutions’ by improving the capacity of national and local government, including community groups. It also contributes to the core CPS areas of engagement:

i. Community development and social protection, to reduce poverty by improving livelihoods and service delivery, and decrease pockets of vulnerabilities to strengthen inclusiveness.

ii. among smallholders and markets.

Private Sector Development by increasing transparency and efficiency of linkages

iii. Infrastructure, to increase the level and efficiency of investments.

B. Program Description

1. Lending Instrument

17. implemented between 20 10 -20 12.

Nias-LEDP is financed by a US$ 8.2 million grant from the MDF. The program will be

2. Program Development Objective and Key Indicators

18. The project development objective (PDO) is to facilitate post-disaster economic recovery by improving the ability of the Government to work with poor rural households in Nias to identify, develop and sustain livelihood opportunities.

* Nias-LEDP is aligned with all pillars of the GoI’s Master Plan and reconstruction policies to support a post-disaster emergency rehabilitation and reconstruction program in Indonesia. The program’s approaches directly support reconstruction of (i) communities, (ii) the economy, (iii) infrastructure, and (iv) governance.

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19. The PDO will be achieved by:

i. Identifying and addressing community organization, knowledge, input and marketing constraints to livelihood development in selected Kecamatans of Nias Island. The project would train and empower smallholder farmers and government staff to support village group-led activities in increasing farming efficiency. It would emphasize successful small farming business development rather than large-scale agricultural development. Training to support this aim would emphasize the technical, social, organizational, financial, management and marketing aspects of small business.

ii. Implementing agricultural and other livelihood improvement activities.

iii. Raising the capacity of the district (Kabupaten and Kota) governments in program management, monitoring and evaluation.

20. The key indicators (outputs) in the Results Framework are:

i. and monitoring and evaluation skills to be able to assist communities

Training of at least 5 Kabupatemota staff (per district) in program management,

ii. and are accessing information, finance, and markets resulting in improved livelihoods

At least 25% of livelihood groups retain technical and group organizational skills,

iii. At least 5 KabupatenKota Dinas Pertanian staff (per district) have acquired specific technical skills in tree crops nursery management and fertilizer handling and distribution. At least 3 KabupatenKota seedling nurseries are established, introducing improved rubber and cocoa varieties, with sustainable operating models

iv. of improved seeds of high-yielding varieties and fertilizer use.

Increased rice yields to 3.3 tons3 per hectare in targeted groups through introduction

21. These outcomes would be measured using a combination of baseline and monitoring surveys conducted by field consultants on a routine basis by an M&E team leader supported by four M&E field staff.

3. Program Component Description

22. Program activities are focused to support local government and community groups. All finds for the program activities (consultants, supplies, equipment, training and study tours) would be channeled through the central level (KPDT PMU). The PMU will be primarily based in the field in Nias to better support district governments and community beneficiaries.

Component 1: Livelihood Groups and Institutional Empowerment (USS1.95 million)

23. The objective of this component is to empower beneficiaries (livelihood groups and district governments) to improve their capacity to acquire the technical, social, organizational, financial, management and marketing skills for livelihoods development activities. Most of the activities involve training and group facilitation, and include:

This would represent about a 30% increase over the current average yields of 2.5 tha.

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i. Training for Aciculture Livelihoods Groups. In social, technical, marketing, and financial aspects of livelihood development for up to 50 mixed gender groups (up to 40 households per group) for agricultural development. These groups would, preferably, be located mainly in the poorest and most isolated villages and would participate in farming systems development involving rubber improvement, cocoa rehabilitation and replanting, plus livestock breeding activities for income improvement and manure supply, handling and application. About 25 individual consultants (agriculture extension technical experts) would be fielded, with each consultant assigned to a cluster of 2 groups. They would also provide both training and physical and financial monitoring for Component 3. The individual consultants/facilitators are specialized in group formatiodorganization and would be recruited at an early stage to accelerate program socialization and group formation before the mobilization of the primary consultancy firm. In addition, the individual field-based consultants will also support the monitoring and evaluation of the groups’ progress, and be an initial point of contact for communities to lodge and resolve complaints.

ii. Training. for Women’s Livelihoods Groups: in social, technical, marketing, and financial aspects of livelihood development for up to 50 women groups (up to 40 households per group). Women’s groups are specifically included because they offer an opportunity to develop a wider range of livelihood opportunities in addition to primary production (retail, processing, marketing, business skills transfer). In addition, cultural factors favor more focused training for women’s groups in order for them to overcome any social constraints to mixing with males. A wider diversity of opportunities will in turn enhance resilience of incomes against economic and disaster related stress.

About 10 consultants/ technical coordinators would be hired to work with women’s groups (under similar terms of reference to mixed groups), each assigned to organize and train a cluster of 5 groups. The consultant technical coordinators will have skills in organization and livelihoods development, with an emphasis on agriculture. A menu of options for livelihood activities will be provided to the groups - the technical consultant coordinators may draw on the expertise and pooled resources from the consultant team to address selected activities where they as individuals may not be subject matter specialists. The field-based technical coordinators will also support monitoring and evaluation, and be an initial point of contacts for communities for lodging and resolving complaints.

iii. Training. and Eauiument for Local Government Amiculture Services staff to facilitate further involvement for activities beyond the project life. The component will provide assistance to KabupatenKota Governments in the implementation of an agricultural support services program to the rice, livestock, and tree crops sub-sectors under Component 2. The assistance will involve training in program development and management, selection of target areas, balancing activities to improve gender equity, and coordination of supply of foundation and commercial rice seeds and appropriate fertilizer. It would also assist with livestock vaccination.

Component 2: Agricultural and Other Livelihoods Improvement (USS4.60 million)

24. Component 2 would finance implementation of program activities (set-up through Component 1) utilizing small group Community Support grants and technical support services. This component has two sub-components related to the implementation of: (i.) agriculture and women’s livelihoods groups’ activities, and (iii.) support to local government agriculture services.

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Sub-component 1. Implementation of Amiculture and Women’s Livelihoods Group Activities

25. This sub-component will implement activities in (i.) 50 agriculture livelihoods groups and (ii.) 50 women’s livelihoods groups - each group composed of 40 households. A contingency amount is included in the budget, to allow for creation of additional groups if feasible. This component addresses the issue of low productivity and poor post harvest processing and market prices (for rubber, cocoa, rice, and livestock), and is focused on livelihood improvement goals, rather than area targets for replanting. The component will provide support to groups for marketing, on and off Nias.

26. Each livelihood group (agriculture or women’s groups) would apply for a small grant (US$2,500: disbursed in two tranches) used against menu of activities in value added through cocoa, rubber, and livestock improvements (other livelihoods are included). The aim is to promote ownership of the activities and the use of farming systems approaches to facilitate sustainable agriculture practices through mixed crop/livestock systems. Small livelihood groups would also be used to address both the low social status of women in Nias and their ability to develop innovative income generation activities involving both production and value added. There should also be less risk of elite capture in such groups.

27. The emphasis and use of the Community Support grant is to complement training activities to improve knowledge and practices and is less focused on the process of group formation, community governance, and administration of the Community Support-grant, as are other Community Driven Development (CDD) platforms. Modeled after the Oxfam livelihoods program (successfully implemented in Nias) -the project uses a ‘farmer-field school approach’ with Community Support grants to supply inputs to enhance training activities. The formation of livelihood groups through the project is expected to increase the exchange of knowledge and ideas within the community, improve social networks (for growers, sellers, and buyers), increase economies of scale for input purchases and post-harvest handling - as well as have spillover demonstration affects to individuals outside of the established groups. Meeting the development objectives does not require the long-term sustainability of the farmer or women’s groups. Project beneficiaries may choose to adopt and continue with the benefits acquired from group activities (and are expected to), but the training will also ensure beneficiaries develop appropriate skills to improve individual livelihoods.

28. Unlike other CDD block-grant projects, allocation of grant resources is not based on competition for funds between competing groups. For Nias-LEDP, once groups are established and satisfactorily demonstrate their commitment to participate in (and adopt) training practices, and show sufficient organization and capacity - the field-based technical trainer will support the groups to develop and implement their proposals for demonstration livelihood activities supported by the Community Support-grant. Furthermore, the field-based consultants will help organize the groups and facilitate training for basic skills required for the groups to administer the Community Support-grant. This approach (which is less administratively intensive and cumbersome than other Community Support-grant models) is appropriate for Nias, given the social dynamics, limited capacity, and time to implement the program. Additional details on Community Support grants are included in Annex 4.

Sub-component 2. Support to Local Government Agriculture Services.

29. This sub-component will strengthen the agricultural support services of the Kabupatemota Government to: (i.) develop improved rice food security, (ii.) develop skills in nursery management for tree crops, (iii.) improve agriculture diversification, and (iv.) strengthen

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support services (e.g. veterinary medicine supply via small cold chains, marketing linkages, etc). All activities will be supported by Nias-LEDP consultants, and material support (purchase of seeds, equipment, supplies, etc) is provided by the central level PMU (project funds are not in the local government budget).

30. The primary activity is a rice intensification and improvement program through the local government, supporting Kelompok Tani (lead farmers). Consultants will support the technical and logistics tasks of supplying foundation seed of high-yield varieties and fertilizer inputs. The fresh seed developed in the first year would be distributed to rice-producing households in the second year, along with a ‘trial bag’ of NPK 15:15: 15 and urea fertilizer to expose farmers to the benefits available from fertilizer. A total of 10,000 ha, and approximately 10,000 farmers in 50 villages would benefit from improved seed over 2 years. The emphasis would be on selecting poorer farmers who would not otherwise have access to the benefits of soil amelioration, which the inputs would provide.

3 1. Other sub-component activities include training (supported by consultants) and material support to establish district managed tree crop nurseries. Still other sub-component activities would be used to develop opportunities to support livestock and crop activities where there are no private sector suppliers, or where village level services could be developed (e.g. village vets, community tree crop nurseries) and to improve timeliness of supply. Given the growth in participatory extension, support would also be provided to Dinas staff to provide information on sources of advice and services outside government as in the Farmer Empowerment Through Agricultural Technology and Information project (FEATI) (ongoing through 20 12).

32. In addition, Sub-component 2 includes budget (US$l50,000) for the PMU to support special studies, trainings, activities, etc (each activity limited to US$50,000). These activities will address ad-hoc program needs (for activities supporting livelihoods not addressed through other components) arising during program implementation.

Component 3: Management, Monitoring and Evaluation (USH.65 million)

33. The objective of this component is to develop management and technical capacity for implementation of livelihoods programs in Nias within the Kabupatemota and Kecamatans, as well as with KPDT. A consultant team will provide the necessary project implementation and management as well as livelihood support as follows:

i. Program Management to support the Program Management Unit (PMU) and Program Steering Committees (PSCs). The majority of consultant resources will be field- based with core expertise supporting i.) monitoring and evaluation, ii.) financial management, iii.) safeguards, iv.) quality assurance, v.) procurement, vi.) adherence to the anti-corruption action plan, and vii.) program reporting.

ii. Livelihoods Support will provide the necessary technical consultants at district and village levels, with dual roles in group strengthening through technical assistance under components 1 and 2. The Monitoring and Evaluation team would be responsible for the elaboration of the baseline survey, monitoring surveys and impact evaluation as a project completion report, prior to project closure.

34. Consultants will work under a Project Management Unit (PMU), which is considered appropriate due to the low capacity of existing local government management, technical and financial systems.

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4. Lessons learned and reflected in project design

35. The project design benefits from the experience of numerous rural development, reconstruction, and community driven development projects - globally, and in Indonesia and Nias.

36. The project utilizes the design of existing Bank CDD programs in Indonesia, albeit with emphasis primarily on livelihood development rather than inftastructure. The key lessons learned from the Bank’s CDD and reconstruction programs which have been applied in the design include the following:

i. Nias presents challenges in implementation due to a range of social constraints, (hierarchy, low status of women, past conflicts), isolation, low capacity in local government, poor logistics and communications, above and beyond the lingering impacts from the earthquake itself. Nias requires robust field-based supervision arrangements, and often longer implementation periods to achieve quality results.

ii. Socialization of the selection process and development of village cooperation through training are key and must precede implementation. The project must be supported by “facilitators” with social, technical and financial skills.

iii. Retention of good facilitators can be encouraged by recognizing that financial and other incentives are needed in challenging conditions such as Nias. For this project, the consultant facilitator’s take-home pay would be fixed at a set minimum prior to consultant contract bidding.

iv. Geographic isolation must be factored into the choice of activities, recognizing that isolated communities may receive less supervision and will therefore require a simpler mix of activities.

37. Nias-LEDP benefits from two agricultural sector projects in Indonesia - both working through community groups, designed to address information shortages in rural areas, and to improve livelihoods through value added production, marketing, and quality assurance.

i. The Famer Empowerment through Agricultural Technology and Information Project (FEATI, 2007- present) uses similar group organization methodologies to avoid elite capture, ensure women’s participation, and promote equity based on village choices of suitable proposals for grant funding. FEATI also promotes higher-level farmer groups at sub-district and district levels, and provides funding to support District Agriculture Extension to support group facilitation and provide technical assistance.

ii. The Decentralized Agriculture and Forestry Extension Project (DAFEP 1999-2004) put in place the legislation allowing direct transfers from the MoF to farmer group bank accounts. Further, group funds were better accounted for by requiring female and male signatures, and management by elected committee.

38. to have sustainable impacts, based on smaller interventions conducted in Nias.

The design and proposed activities under the Nias-LEDP have been field-tested and proven

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i. Demonstration areas of cocoa under an Oxfam livelihoods project (similar to Nias- LEDP, but smaller in scope) showed that yield increases of 0.4t/ha are possible, and that farmers are keen to adopt new knowledge on crop improvement. Twenty functioning women’s groups were formed thiough Oxfam, have organized finance and administration systems, and are eager to participate in the project.

ii. major impact on rice productivity, increasing yields to levels of up to 7t/ha.

A UNDP pilot also demonstrated improved seed and fertilizer inputs can have a

39. More general lessons learned and adopted in the Nias-LEDP design include:

i. Nias farmers are risk averse or constrained to adopt resource-intensive practices. Agriculture programs in Nias that required heavy inputs, or were a marked departure from existing practices, required additional support and time to prove sustainable. Programs adopting low-risk approaches (less inputs, and improving current traditional practices) have largely been successhl, and would benefit firther from follow-up interventions throughout several crop cycles.

ii. There is limited potential for adopting larger plantation style practices (due to unavailability of large tracts of land, economies of scale required for crops like oil palm, capacity, etc) thus this program focuses exclusively on improving existing smallholder practices.

iii. Nias-LEDP addresses sustainability, regarding the ability of poor farmers to pay for inputs in the medium term after project completion. By starting with simple interventions (such as better rice seed, pruning and grafting in cocoa, etc) the project allows gradual improvement suited to a longer-term process later financed by farmers from yield and price improvement. Nias-LEDP also demonstrates the benefits of inputs to build demand.

iv. There is a premium to operate in Nias (due to logistics and other factors), which must be addressed in cost estimates for goods and services, and procurement packaging.

5. Alternatives considered and reasons for rejection

40. Given the limited time frame, capacity constraints, and complicated arrangements required to implement and disburse through two local governments the Go1 expressed a preference for using KPDT as the implementing agency, while involving provincial and local governments (though a local steering committee). The project team judged this to be the best approach.

Provincial or Local Governments as Implementing Agencies.

4 1. Promoting Larger-scale ‘Plantation ’ Practices. Nias farmers traditionally cultivate rubber through systems of inter-cropping, a practice characterized as ‘forest rubber farming”. Yields are low, but the practice is a safety net, providing diverse crops and sources of income for smallholder farmers. Several barriers prevent major shifts from traditional practices, including (i.) farmers’ inability to absorb income loss during replanting (ii.) availability of large tracts of land, and (iii.) limited external support from extension services, private sector, or cooperatives. The current program approach (to improve existing cultivation practices) is believed most beneficial for smallholder farmers in Nias, and will not have the environmental or social impacts associated with conversion to mono-culture plantations practices.

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42. Inclusion of Additional Livelihood Sub-sectors: There is demand to support other sectors; fisheries, tourism, health, nutrition, and information communications technology (ICT). Though justified, program resources are focused on, but not limited to, the established agriculture products that (i.) contribute most to the Nias economy and to food security, (ii.) are cultivated by the majority of the population; and (iii.) are located in ‘economic clusters’ to increase efficiency of program delivery.

C. Implementation

1. Partnership Arrangements

43. International Labor Organization The E O implemented Nias Rural Access and Capacity Building program (RACB) (funded through the MDF) will increase rural access through improvements (to an all weather and low-maintenance design standard) and expansion of the rural road network in Nias. The majority of roads improved through the program are existing foot trails, and un-surfaced district and sub-district roads. All work will improve access to markets and social services. Further, the L O investments will be implemented in the same economic clusters as Nias-LEDP. Given the RACB’s focus on improving and targeting the overall network and maximizing the population served, RACB will have positive impacts in the same communities where LEDP is implemented.

44. Both programs are operationally independent - neither requires the other to achieve its development objectives. While both are funded by the MDF, LEDP is implemented on-budget through KPDT, and RACB directly through the L O . The two projects share the same national level steering committee (composed of Bappenas and KPDT) to improve higher-level coordination. At the local level, both coordinate though the same Local Steering Committee. There are no safeguard linkages between the programs (see Annex 10). The balance between operational independence, with coordination at the national and local steering committees will help maximize impacts for both programs, while ensuring there are no significant reputational risks for all parties under these arrangements.

2. Institutional and implementation arrangements

Project Implementation

45. Bappenas coordinates all Aceh and Nias reconstruction work following the BRR’s exit, and is the executing agency for Nias-LEDP. The Ministry of Disadvantaged Areas (KPDT) is the implementing agency and head of the Project Management Unit and Secretariat. The Local Steering Committee (LSC), based in Nias, is composed of the North Sumatra Provincial Government and the districts of Nias and Nias Selatan. The World Bank, as partner agency with KPDT, will oversee and supervise the program.

Central Government Level

46. Bappenas, as the GoI’s executing agency, will be responsible for Nias-LEDP’s overall planning and evaluation consistent with the grant agreement between the World Bank and the GOI. Bappenas will also coordinate with the Ministry of Finance (MOF), KPDT and other central government agencies.

47. KPDT is responsible for project implementation and budget execution, including making the annual budget application to the MOF and setting up a project satker (Satuan Kerja)

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responsible for management of the annual budget (DIPA). The budget application will be allocated in the following manner: (i) payment to the consultants and firms supporting KPDT, and (ii) operating costs of KPDT. Both KPDT and Bappenas are responsible for counterpart financing (government staff honoraria, taxes and other operational expenses).

48. Program Steering Committee (PSC). The PSC is composed of Bappenas (Head) and KPDT. The role of the PSC is to coordinate with the MDF and World Bank. The PSC is responsible for setting program policies and intergovernmental coordination.

49. Program Management Unit (PMU). KPDT is the head of the PMU and PMU Secretariat, with a representative office in Jakarta and a larger field office in Nias. The PMU is responsible for project coordination and implementation - including procurement, monitoring and evaluation, quality assurance, safeguards, and implementation of the anti-corruption action plan. PMU resources and activities will be concentrated in the Nias-based PMU office to improve program delivery and coordination with local government. Consultant services will support program management of the PMU and project secretariat. All consultants report to, and are managed by the PMU.

Provincial and District Government Level

50. Local Steering Committee (LSC). The LSC comprises local and provincial government, and functions as the coordinating body to represent local development and program priorities, support operations, and coordinate with the PMU. The North Sumatra Provincial government will lead the LSC, and Bappeda from each district government in Nias will represent the local government dinas (agriculture, estate crops, public works, etc) involved in the project. KPDT, as head of the PMU and secretariat of LSC, will implement the general priorities of the LSC. The LSC representatives will identify the preliminary areas for program activities, in coordination with, and subject to the approval of the PMU. The LSC will be supported by program consultants.

5 1. The departments of agriculture and estate crops, agriculture extension services (Ketahanan Pangan, Informasi Penyuluhan Pertanian dan Kehutanan - KPIPPK), and sub-district agriculture extension services (BPP) will coordinate at the program level through the LSC (represented by Bappeda), and support the PMU and consultants to implement the project.

District Government Agriculture Agencies/Dinas.

52. Camat's Oflce. Program activities will be coordinated at the Kecamatans level between the PMU and the Camat's office. The Camat will support the project to facilitate consultation, planning, and group identificatiodorganization with communities.

Consultant Services

53. Nias-LEDP has one consultant package supporting the PMU in (i.) program management support and (ii.) Livelihoods Implementation Technical Assistance. Individual consultants will be hired to support the PMU during start-up stages, and for independent FM verification throughout the project.

Community Livelihoods Groups (Women and Agriculture)

54. The locations of the community groups will be decided by the PMU, LSC, and in consultation with the local Camat offices. The PMU, supported by consultants, will conduct field verification to ensure proposed communities meet required beneficiary criteria as set out in the

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Project Manual. The PMU, with the support of consultants, will also coordinate with the Camat offices to (i.) identify and establish livelihood groups, (ii.) provide technical support and training for livelihood activities, and (iii) help review group proposals for funding suitability. Community grants are not ‘competitive’ proposals, rather, once community groups are established, the technical facilitators (consultants) provide training and guidance for implementation of group livelihood activities. The consultants will evaluate community proposals for suitability and feasibility before the PMU approves financing.

3. Monitoring and Evaluation of Outcomes/Results

55. The program outcome and results indicators will be measured following the results framework (Annex 3). The PMU secretariat, supported by consultants, is responsible for (i.) all monitoring and evaluation (M&E) (ii.) elaboration of the baseline survey, monitoring surveys, impact evaluation, and the project completion report prior to project closure.

56. oversee that the program is implemented according to design, objectives, and schedule.

The PSC at the central level, and the LSC at the sub-national level, will monitor and

57. The World Bank is responsible for overall program monitoring, and will provide bi-annual reports to the MDF on progress achieved based on the results framework. Where feasible, indicators will be harmonized with those of the MDF.

4. Sustainability

58 . Agriculture remains a key national development priority despite the sector challenges. The President of Indonesia has advanced the agenda to revitalize the agriculture, fisheries, and forestry sectors (Revitalisasi Pertanian Perikanan dan Kehutanan/RPP June 2005). The RPPK focuses on the development of human resource capacity and participatory empowerment of farmers through improved information systems, training in community agribusiness development, increased funding for long-term technological research and development to improve agricultural competitiveness. This is also reflected in the Government of Indonesia (GOI) Medium Term Plan, 2005-2009 (RPJM) which calls for revitalizing agriculture through the development of agribusiness linkages to improve farmers’ incomes and through greater diversification. At a national level there is thus keen interest in programs of this nature.

59. The underlying objective of the program is to foster sustainable development in rural areas. Nias-LEDP will focus on the development of a region where access to markets and social services is poor, and poverty rates are high - but are located in economic clusters with potential for contributing to local and regional economic development. The program will focus resources in areas already utilized for agriculture, and not endanger adjacent environmentally sensitive areas. The livelihoods project thus offers the opportunity to test a model of livelihoods development in poor areas for wider implementation if successful.

60. The social process for group formation is based on the proven methodology of the CDD programs. The financial analysis of the project (Annex 9) shows that all farm level investments have NPVs above investment costs at year 15, rates of return above the discount rate, and higher returns per labor-day than wage labor. They should be attractive investments for farmers if the support services from Government (both technical and financial for startup costs) are sustained.

61. KabupatenKota Government budgets for Nias at present levels would not sustain a program of this size. While the national government is interested in successful models of rural

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development for poverty alleviation, few best practice examples for poor regions exist. If the project is successful, it could be more widely adopted. A recent Agricultural Public Expenditure Review (World Bank, in draft) indicates that despite large increases in spending on agriculture, productivity is improving only slowly because much of the spending has subsidized inputs, which have either not been appropriate or not led to additional private investment. One indicator of success for Component 2 is the demonstration effect - the extent to which project innovations are adopted outside target groups and villages. The extent of spread should indicate whether this model is sustainable under private financing and thus suitable for wider national government funding.

5. Critical Risks and Possible Controversial Issues

Risk'

Inadequate spread of benefits from group knowledge due to social tradition and conflict among villagers

Delays in procurement due to limited experience in Bank procedures.

Delays due to unavailability of technical support at village level and uncertainties regarding formation and strengthening of large numbers of groups. The KabupatenKota extension system is largely incomplete and even where established; workers are not always available at the village level. Misuse or sale of agriculture inputs by poor farmers

The PMU will work in a high fiduciary risk environment and the overall project financial risk is rated as Substantial

Overall Risk

Substantial, particularly in Nias Selatan

Substantial

Moderate

Mod era t e

Substantial

Substantial

Risk MitigationMeasures

A specific component targeted at community empowerment and including training on conflict resolution is included. The project will also work with gender disaggregated groups to emphasize benefits to family welfare from livelihood improvement KPDT has been supported by a procurement firm financed by bilateral donor support and the PMU will be supported by an international consultant with procurement specialists experienced in Bank procedures. The hiring of this specialist is expected to occur immediately after effectiveness. The PMU will contract long-term (30 months each for 30 consultants) consultants/ and master trainers in both group formation /strengthening and technical aspects of crop production to work with the junior consultants and villagers. The number of groups may need to be adjusted to match implementation capacity. The inputs will be supplied only after the Desa administrations agree to coordinate and guide the process, accepting the possibility that the second season of support would be withdrawn if inputs were misused as evidenced by poor crop performance or obviously poor management. Consultant support and training in Bank systems will enhance capacity. Regular annual audits of all project accounts will be undertaken in line with Bank policy.

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6. Grantkredit Conditions and Covenants

62. In addition to standard covenants for grants of this type, the grant agreement contains the following effectiveness and disbursement conditions: The conditions for effectiveness are that (i) the recipient will have adopted the final project operations manual; (ii) KPDT shall have issued the request for proposals for program management and implementation consultants; and (iii) the recipient shall have provided a legal opinion on the execution, delivery and authorization of the grant agreement, in each case acceptable to the Recipient and the World Bank. The conditions for disbursement of Community Support Grants is that the recipient will have adopted the Sub- project Operations Manual acceptable to the Recipient and the World Bank, hired financial management consultants at the PMC with terms of reference agreed between the recipient and the Worid Bank, and hired individual FM consultants not later than one month after effectiveness to ensure that he/she will assist the project on preparing the Community Support Grant manual.

D. Appraisal Summary

1. Financial Analysis

63. In a demand-driven framework project of this nature, assumptions about the mix of activities that may be adopted are inappropriate given the wide variety of social backgrounds, access constraints, 'technical knowledge, and training challenges among target groups. For this reason, a traditional cost-benefit analysis was not carried out. Instead, a typical benefit stream of individual actives was developed to determine investment costs, financial rates of return, net present value and the comparative returns in terms of returns per labor-day. These enterprise benefit streams are only examples, actual activities during implementation may be quite different, and the PMU supported by Consultants would identify and screen additional enterprise mix to suit local circumstances.

64. Assessment of the likely overall benefits (Annex 9) to direct participants on a financial basis shows that the project will lead to improved livelihoods, and that the grant is expected to have positive returns in the long term. At a discount rate of IO%, the combined net present value of activities at year 15 is approximately US$11.08 million, demonstrating that the investment is robust at reasonable discount rates. Gross margins of three activities, i.e.: rice (10,500 ha), rubber (5,000 ha) and cocoa (2,000 ha) provide annual benefits of US$9.78 million, or almost all of project cost after project completion in year 4.

65. The number of direct beneficiaries is estimated at 8,000 households for community activities, and 10,000 households from the rice intensification program. Experience from similar Oxfam livelihoods programs in Nias suggests strong demonstration effects, and DAFEP shows that at least an equivalent number of non-direct beneficiary households benefit from the project.

2. Technical

66. The technical approach is designed primarily to mitigate the constraints from the low- capacity (district government and farmer organization) and challenging operating environment in Nias. Furthermore, the rationale for the relatively intense use of consultant resources (with international experts for management while utilizing the strong pool of national technical and extension experts) to support the PMU's implementation of the project is based on (i.) the need to swiftly execute the project given the limited mandate of the MDF, and (ii.) lessons learned from other projects in Nias, showing significant resources are required for field-based socialization, quality assurance, and monitoring. KPDT will implement the program with participation from the

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district and provincial governments. But the capability and resources of the sub-national government to support implementation are severely constrained, and the local government is as much a target beneficiary as partner in execution. Thus the technical approach also targets capacity of local government through a field-based ‘learning by doing’ approach, in addition to more formal trainings through for key competencies, management, and technical skills of the agriculture dinas staff.

3. Fiduciary

Financial Management

67. Financial management risk is rated as “High” and this could arise from the following factors: (1) high fiduciary risk due to a weak control environment in remote area, particularly in Nias; (2) KPDT’s weak capacity in project management which has been noted in the implementation of SPADA; (3) budget delays; and (4) community groups’ limited capacity to manage Community Support grants.

68. Some measures have been proposed to mitigate the risks arising from these factors. KPDT will hire a consulting firm to strengthen KPDT project management capacity. PMU will need to work together with MoF and ensure that budget documents can be issued in a timely fashion. An individual FM consultant will be hired to assist the PMU during the start up stages and for independent FM verification throughout the project. The individual consultant will support the PMU management in overall coordination of financial management for the project, including but not limited to, FM monitoring and oversight; payment verification, collating and preparing Interim Financial Reports and withdrawal applications.

69. A Community Support grant/operations manual will be developed (utilizing standard operating procedures practiced by PNPM urban and rural) and should be agreed by the Bank prior to disbursement of Community Support grants. Training will be provided to the community groups to ensure that they understand about their responsibility related to fund accountability. A consultant firm will provide support in Nias. It will include a FM consultant, who, in addition to providing FM support for expenditures at provincial level, would support communities in maintaining books of accounts, provide training and review and verify the reports that the communities prepare on utilization of Community Support grants.

70. In addition to the above measures, an independent financial audit will be carried out annually. Public exit conferences will be conducted to convey audit findings to communities and local government. The project auditor will work with the local auditor (Bawasda) as far as possible to have more coverage areas. Sufficient segregation of duties between technical and financiaVadministration aspects will be applied.

71. Taking into account the risk mitigation measures proposed, overall, the financial management risks for this operation are assessed as “High” which can be reduced to “Substantial” after the mitigation measures are implemented and have shown results. This assessment has concluded that with the implementation of the action plan, the proposed financial management arrangements will satisfy the Bank’s minimum requirements under OP/BP10.02 and are adequate to provide, with reasonable assurance, accurate and timely information on the status of the grant required by the Bank. More details of the financial management assessment are given in Annex 7.

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Procurement

72. Procurement for the project will be carried out in accordance with the World Bank’s “Guidelines: Procurement Under IBRD Loans and IDA Credits,” dated May 2004 and revised October 2006 and May 2010; and “Guidelines: Selection and Employment of Consultants by World Bank Borrowers,” dated May 2004 and revised October 2006 and May 2010, and the provisions stipulated in the Legal Agreements.

73. Procurement activities will be carried out by State Ministry of Disadvantaged Areas (“Kementerian Pembangunan Daerah Tertinggal” or KPDT). Procurement risks were rated “High” for the project before mitigation measures are applied. Due to KPDT’s utilization of procurement consultants, the straightforward contracts to be procured and under prior review, and other mitigation measures applied, the residual project risks will be reduced to “Substantial”.

74. Procurement will consist of (i.) Selection of Consultants (US$ 4.54 million) based on QCBS method for the major contract (US$4.20 million) and other individual consultants (US$0.34 million), (ii.) Goods (US$2.69 million) consisting of agricultural inputs and equipment, (iii.) Grants to community livelihoods groups (US$340,000) who will manage procurement based Community Participation, and (iv.) Go1 incremental operating costs (US$300,000), with funds for study tours, trainings, and special studies (US$330,000). All procurement procedures will be outlined in the Project Manual. Individual consultants will be mobilized throughout the project to support all procurement of goods.

4. Social

75. The overall social impact is expected to be positive as the project will improve the livelihoods of poor rural communities through technical assistance, capacity building, and financing livelihood activities identified by farmers and women groups. Project activities working with the local government are focused on capacity building, which include empowerment to work with community groups.

76. The project design recognizes the importance of empowering women and other vulnerable groups (poor farming communities etc) through the project design, which focuses on group-led livelihood activities. The program specifically targets poor and vulnerable farmers and women groups. Group proposals for livelihood activities will be screened to optimize impacts to the target beneficiaries.

77. In principle, the PNPM/KDP land acquisition and resettlement policy (per the operations manual) is appropriate for adoption by Nias-LEDP. The full, environmental and social safeguard framework for the project is presented in Annex 10. Social safeguard policies are addressed in the following manner:

78. Involuntary Resettlement. Project activities are not expected to require acquisition of significant amounts of land and/or assets attached to the land. Sub-projects requiring relocation or affected people will not be funded by the project. The farmers and women groups are expected to use their existing farming and land areas, and it is very unlikely that there will be people who will be physically displaced by any program activities. However, in the event that groups may require land for common use (such as for drying and processing harvests, community nurseries, etc) small amounts of land, crops, trees, houses, or other assets may need to be acquired to allow for the most effective, efficient, and beneficial use of resources. In the case a sub-project needs to acquire land, options of schemes for obtaining it should be made in full consultation and

16

agreement with the group members and the land owners. The project will adopt a Land Acquisition and Resettlement Policy Framework in accordance with the OPBP 4.12. Implementation guidelines of this framework for the sub-projects will be elaborated in the project Operation Manual. All land acquisition in the project will be documented by the coordinator of the field-based experts and be consolidated in a monthly report by the environmental/social safeguard specialist of the Nias-based PMU. The project recognizes the complex land tenure arrangements in Nias, and this will be accommodated and designed for during implementation, and the safeguards and IP framework.

79. Indigenous Peoples (IP) or Isolated and Vulnerable Peoples (IVP). The PNPM Mandiri for rural areas (KDP) has recognized that there is a risk of exclusion of vulnerable groups in Nias, including indigenous people (IP) or the Isolated and Vulnerable (IVP) groups. The majority of the population in Nias can be considered indigenous so it is likely that this project will include IPS as beneficiaries. Any sub-project involving IPS or IVPs will carry out free, prior, and informed consultations with the IPS or IVPs and obtain broad community support, including non- governmental organizations (NGOs) interested in supporting IPS or IVPs. This will be conducted at all stages of the project cycle, from the sub-proposal preparation (planning stage), implementation, and post activity operation. In areas where project activities involve IPS or IVPs, the project will follow the IP or IVP policy framework developed in accordance OPBP 4.10 and its implementation guidelines in the project Operation Manual. The project framework ensures that IPS or IVPs (including women, low level sub-clans) participate in decision making throughout project planning, implementation and evaluation, and ensures that they receive benefits equal to the non-IP or non-IVP beneficiaries that are tailored to their needs and cultural values. All IP or IVP related activities in the project will be documented by the coordinator of the field-based experts and be consolidated in a monthly report by the environmentaVsocia1 safeguard specialist of the Nias-based PMU.

80. Disclosure and Complaints Handling. Information on all activities (proposals and approved proposals) will be made available to the public at the village and kecamatan levels. The village- based consultants will ensure that information is disseminated and socialized to all people in the respective village and kecamatan. Approaches and instruments for dissemination and socialization are provided in the project manual. The project will set up a complaint handling system from the village level, up to KabupatedKota level. The project will request that the village, kecamatan and KabupatedKota offices assign a person or a team that will handle complaints from farmers and women groups, including receiving, filing, and following-up on complaints. The assigned persodteam will coordinate the follow-up of the complaints to relevant agencies in the project management structure either in the village, kecamatan, andor KabupatedKota level. The village-based consultants will ensure that farmers and women groups can file complaints without fear, and that relevant parties follow up complaints properly and in a timely manner. The complaint handling mechanisms will be provided in the project manual. The Nias-based PMU will document all complaints and follow-up actions, and will have sufficient consulting services dedicated to carrying out activities. Further details on disclosure and complaints handling are highlighted in the Governance and Accountability Framework.

5. Environment

8 1. Nias LEDP interventions are small-scale at village level, Le. small agricultural, training, and livelihoods group activities - thus the level of associated environmental risks is limited. Under the Indonesian Environmental Assessment Rules, they all fall below the minimum size required for a formal Environmental Assessment (EA). It is expected that most activities will contribute to improved environmental conditions (tree plantings, improved agricultural practices

17

and resource management, etc). Any adverse environmental impacts (soil erosion or increased use of pesticides and fertilizers) under this project are expected to be limited and highly localized, and can be readily mitigated through the project’s negative list, or through environmental management plans. The project will utilize and apply existing environmental screening forms that are utilized by PNPM Rural KDP. This method is already ‘tested’ for handling potential negative impacts for projects of this type, through application of a negative list and impact check- list forms.

82. A study was conducted (by Environmental Resource Management, ERM August 2008) to examine the potential environmental and habitat impacts and mitigation measures from Nias- LEDP. This study concluded that the program’s environmental risks are limited. The results and recommendations from this study have been integrated into the project design and safeguards framework.

83. Cultural Prouertv. The highly participatory nature of the project will ensure that the farmers/women groups can identify any proposed activities that may have an impact on cultural property. Given the nature of the project, it is very unlikely that the project will support activities affecting cultural property. However, the village-based consultants (Extension Technical Experts/Coordinators) will screen any sub-project proposal and verify that no cultural property will be affected in the farming areas or in the women groups’ working areas. In cases where the proposed sub-project affects a cultural property, it will not be financed under the project.

6. Safeguards Policies

Project Category and Triggered Environmental and Social Safeguard Policies

84. The project is classified as a B category project as defined in the World Bank’s Environmental Safeguard Policy. The direct environmental impact of activities supported under the project is expected to be small Le., potential impacts are site-specific and can be localized; few if any of them are irreversible; and in most cases mitigation measures can be designed. The Nias-based PMU and its consultant will need to have a good understanding of activities (livelihood group proposals and trainingdactivities with local governments) and possible related environmental and social impacts; and how such impacts can be mitigated as they evaluate activities for approval.

Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.0 1) [XI [ I Natural Habitats (OP/BP 4.04) [ I [XI Pest Management (OP 4.09) [ I [XI Physical Cultural Resources (OP/BP 4.1 1) [ I [XI Involuntary Resettlement (OP/BP 4.12) [XI [ I Indigenous Peoples (OP/BP 4.10) [XI [ I Forests (OP/BP 4.36) [ I [XI Safety of Dams (OP/BP 4.37) [ I [XI Projects in Disputed Areas (OP/BP 7.60) [ I [XI Projects on International Waterways (OP/BP 7.50) 1 [XI

85. Capacity of Nias-based PMU. The Project is aware that the capacity of local government staff in handling environmental and social safeguard issues is relatively weak. The Nias-based PMU’s capacity may also be weak in this regard. Sufficient resources are included in the

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technical assistance of the project to support the PMU implementing the environmental and social safeguards framework, including the hiring of environmental and social safeguards specialists in the advisory consultancy, and training for the PMU and local government staff as well as village- based consultants.

86. Potential Linkage with the Nias Island Rural Access and Capacity Buildinn Promam (Nias- RACBP), The ILO is implementing a separate stand-alone project (funded by the MDF) to improve rural access in the key economic clusters in Nias, where Nias-LEDP will be implemented. The PMUs of Nias-LEDP and Nias-MCBP will have to coordinate their activities at the planning stage, to ensure that the latter implements its approved environmental and social safeguards framework consistently. The Nias-LEDP PMU will review the application of the ILO’s safeguards policies for its sub-projects at the planning stage, or carry out due diligence during sub-project implementation. Corrective actions may have to be requested from ILO should the project find that its approved safeguards framework is not being implemented consistently.

7. Policy Exceptions and Readiness

87. No policy exceptions are anticipated. On the other hand, the KPDT has started the procurement process for the selection of the consultancy firm for program management and the selection of individual consultant. Also, the draft project operation manual has been prepared. It is expected that the program will build on the existing community groups under the ILO program and expand them to cover the scope of the proposed project.

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Annex 1: Country and Sector Background Indonesia: Nias Islands Livelihoods and Economic Development Program

Country and sector issues

1. Agriculture is one of the key sectors in the Indonesian economy, contributing about 17% of the Gross Domestic Product, and providing employment to some 45% of the labor force. About 60% of the population is rural and associated with agriculture, and their expenditure poverty rate is about 19%, almost four times higher than of the urban population. Agriculture averages half of rural household incomes, the rest coming from non-agricultural activities, small-scale trading and seasonal construction work. As such, rural poverty is a key issue in the development of the country.

2. Outside Java, non-agricultural economies are not as well developed and links to urban markets are weaker, such that rural households depend more on agricultural activities and have less diversified sources of income. For the outer islands with wetter climates, tree crops are the more important crops. Estate crops, in particular rubber, coconut, oil palm, cocoa, coffee and tea, make a major contribution to economic development in Indonesia. At least 40 percent (9.5 million ha) of the cultivated land is covered by estate crops, both annuals (e.g. sugar cane) and perennials (e.g. rubber), and employs 30 percent of the labor force. With the exception of large scale estate crops, nearly all agricultural production is undertaken by the 18 million smallholders, most of who farm less than 1 ha. Five crops dominate the sub-sector (rubber, oil palm, coconut, cocoa and coffee) covering 7.6 million ha and generating 50 percent of agriculture exports. All of these estate crops, except oil palm, are predominantly grown by smallholders.

3. Apart from estate crops the food crops sub-sector contributes significantly to the national economy. However, with productivity gains of most food crops slowing down, such crops provide less potential for generating additional employment and income growth. There is now a clear need for the focus to be shifted to agricultural diversification, to building closer ties between smallholders and markets and agribusiness, to open up backward areas with growth potential and to adding greater value to agricultural products.

4. The revitalization of the agriculture, fisheries and forestry sector (Revitalismi Pertanian, Perikanan dun Kehutanan / RPPK) presented in June 2005 is a strategy of the Government of Indonesia (GOI) that focuses on, inter alia, the development of human resource capacity and participatory empowerment of farmers to improve agricultural competitiveness. This is also reflected in the GO1 Medium Term Plan, 2005 - 2009 (RPJM) which recognises the importance of diversification to improving efficiency and farmer welfare and the growing importance of globalization in agricultural competitiveness and calls for the development of agribusiness linkages to improve farmers’ incomes.

Program background

5. The Nias archipelago situated west of North Sumatra is to a large extent depending on agriculture as source of income. About 90% of the population is involved in agriculture (rubber, coconut, paddy and cacao) that contributes to some 50% of the GDP. Farming is, however, at a subsistence level and despite high rainfall (2,800 mdyear) and no distinct dry season, yields are low and below the national average. Nias is considered the poorest area in North Sumatra and Indonesia, with a poverty rate of 32%. Its human development indicators (health and education) are ranked towards the bottom within the province and in the country. Local government capacity

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in terms of human resources, education, revenues and facilities is low.

6 . Following the December 2004 tsunami and March 2005 earthquake that provoked large scale damage and loss of lives, reconstruction activities were started by the GOI, assisted by donors and aid organizations. The GO1 created a Rehabilitation and Reconstruction Agency (Badan Rehabilitasi dan Rekonstruhi (BRR) to provide leadership and management across all aspects of recovery of Aceh and Nias. Most of the rehabilitation and reconstruction activities by multiple donors, NGOs and the Government were initially focused on Aceh, on infrastructural works, and relatively limited h d s were set aside for Nias. In 2007 more funds were directed towards the reconstruction of Nias. Overall BRR has made substantial progress in construction of the primary road network in Nias, and the Multi Donor Fund (MDF) financed Infrastructure Reconstruction Enabling Program (IREP) and Infrastructure Reconstruction Financing Facility (IRFF) programs will continue to build on this following the BRR’s transition in April 2009. However, Nias’ long- term economic recovery will also depend on improving access to the improved network for the disbursed population, while using these infrastructure investments to support key development clusters (rubber, cacao, rice, fisheries, etc).

7. Nias’ remoteness and poor transport network - particularly access to the majority rural population, who are poor and living in low-density disbursed settlements - creates significant market and production inefficiencies, and limits access to health, education, and other key social services. Current agriculture practices are very low-yield and inefficient - but there is significant potential to improve livelihoods and the rural economy through targeted investments and educatiodvocational-training. Doing so requires an island-wide approach to create economic clusters for economies of scale and to better target beneficiaries. But access remains a cross- cutting human and economic development bottleneck in Nias - for any program to achieve sustainable and optimal results, this issue must be addressed in tandem and in an integrated manner. The relative isolation of Nias, extreme climate, and highly dispersed settlement patterns of numerous indigenous communities has resulted in communities being self contained, and prone to local intra-community social conflict. Most development organization in Nias reported delays and complications are common due to Nias’ ‘complex social fabric.’

The government’s strategy now is to build off of the investments and development framework prepared by IREPDRFF, through the proposed Nias Livelihoods and Economic Development Program (Nias-LEDP). The Nias-LEDP overall development objective is to facilitate post- disaster economic recovery by improving the ability of the Government to work with poor rural households in Nias to identify, develop and sustain livelihood. To achieve this objective, Nias- LEDP would: (i) develop and implement focused programs for sustained development and livelihoods in key agriculture and businesses sectors; (ii) support targeted trainings and investments in pilot sectors; and (iii) improve capacity of local government service delivery.

Nias Agriculture Sector

8. The key agricultural livelihood opportunities in Nias are based on improving productivity of rice, cocoa, rubber, and livestock. Coconut is a major crop but is limited by insect problems and world market opportunities for copra and coconut oil. Some 90% of the rubber area and 75% of the cocoa areas are located in Nias. The area cultivated with these two crops is relatively small in Nias Selatan where the more important crops are coconut and paddy rice. Both Kecamatan face similar problems of:

21

poor access in areas more than about 5km from the coast, poor soils derived from coralline limestone with high natural sodium content causing intractability (sticky when wet and very hard when dry) and thus limiting crop opportunities. inadequate training, f h d i n g and incentives for agricultural extension and a lack of village level services In contrast, the opportunities exist to exploit a uniformly distributed average annual rainfall of some 2600 mm, unsatisfied markets locally for rice to meet self sufficiency (current production of about 40-48,000 tons milled rice meets 50% of requirement)and livestock to address a universal inadequacy of protein in the diet International demand for cocoa and rubber at currently very high prices for good quality product Experience gained from a series of small but focused livelihood projects by international NGOs in crops such as rice, cocoa and smallholder rubber

Table 1: Estimated Area of Major Crops, 2006/2007

Total Total Coconut Rice Others Total Rubber Cocoa

Nias 54,339 5,400 39,163 17,135 10,000 126,037 Nias Selatan 6,378 1,944 21,464 10,647 3,406 43,839 Total 60,717 7,344 60,627 27,782 13,406 169,876

Source: Dinas Pertanian dan Kehutanan, Nias and Nias Selatan, 2008. Nias Selatan Dalam Angka, 2006 and field data on output and yield collected from traders and farmers.

9. Table 1 shows that in both Nias and Nias Selatan, crop productivity in all crops is low by national standards Average rice yields are , for example, 2.5 tiha compared to the national average of 4.9 tiha. Cocoa productivity is on par with the low national average of about 0.8tiha caused by insect attack (Cocoa pod borer), little or no fertilizer input on poor soils and very poor genetic stock with almost universal used of unselected local seedling cocoa. Post harvest grading to remove pod borer affected bean or to ferment the best quality bean in Nias are both inadequate. Rubber productivity is particularly poor compared to yields of 1.5tiha achieved in plantation culture on Sumatra and deliberate post harvest adulteration of latex with rocks, soil vegetation and water is widespread in an attempt to increase marketed weight, albeit at the cost of price discounts of up to 30%. Livestock production (pigs, poultry) is popular, particularly among women but faces constraints of capital for livestock purchase and housing and widespread lack of understanding of disease and parasite control and improved feeding strategies.

10. Nevertheless, the average farm size is still adequate to achieve reasonable livelihoods if yields and quality can be improved. There are an estimated 100,000 farms in this island and the average farm size is 1.5 ha. However field observations indicate that there are large areas of idle land that farmers claim as their land and these areas could potentially be used for new planting of crops such as rubber and cocoa

22

Table 2 Crop Production Parameters

Total Production Number of Average Farm Area (Tons) kgha Farms Sue - ha

Nias Rubber Cocoa Coconut Rice Su b-Total

Nias Selatan Rubber Cocoa Coconut Rice Sub-Total Total

54,339 5,400

39,163 17,135

116,037

6,378 1,944

2 1,464 10,647 40,433

156,470

32,878 3,780

37,205 42,838

2,309 1,166 19,302 23,423

605 700 950

2,500

3 62 600 899

2,200

21,933 8,000

25,000 15,000 69,933

3,500 2,500

15,000 12,000 33,000

102,933

2.48 0.68 1.57 1.14 1.66

1.82 0.78 1.43 0.89 1.23 1.52

Nias crop production

Rubber 1 1. 11. Rubber cultivation was introduced to Nias in the 1950’s at the height of the rubber price boom. Virtually all planting was undertaken by the farmers under the swudaya (self-help) system with minimal government assistance in the form of planting material. Over the last 60 years, there has been no major government supported replanting program and many old trees have been replaced with the natural growth of rubber seedlings, jungle trees, fruit trees and more recently with the planting of unselected cocoa seeds. The production system is predominantly “jungle” rubber4, which has very low yields and is unimproved with little or no maintenance. Average production is 500-600 kglhdyear of dry rubber. The use of unselected planting material, inadequate fertilization, improper agronomic practices and poor tapping technique all contribute to low yields.

12. The main rubber growing areas are located in the relatively flat eastern areas of Nias covering the sub-districts of: (i) Alasa, Namohalu and Hiliduho in North Central Nias; (ii) Tuhemberua and Lahewa in Northern Nias: (iii) Mendrehe in Central Nias; (iv) Gunung Sitoli in East Central Nias; (iv) Lahemo in the South Central Nias; and (vi) Lolowa’u and Idin North Nias Selatan.

13. On specialized rubber farms, rubber is the principal source of farm income, ranging from 50 to 80% of the total, with off-farm activities accounting for up to 30%5. Most of the smallholdings are located in remote areas, where infrastructure conditions tend to be poor, and where there are no downstream processing industries. All the old rubber wood is used as fuel wood. Besides the poor roads, the marketing chain from the farmer to the rubber factory can also be long, with many intermediaries.

Refers to self-generating rubber holdings where the seeds are left to grow to replace the old damaged trees. Based on data collected 60m farm visits.

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14. The main problems faced by rubber farmers are: (i) low crop yields; (ii) high transport and transaction costs among intermediaries to factory; (iii) low technical knowledge and poor post harvest practices; (iv) lack of technical and financial assistance and low incentives for replanting.

15. Many farmers are only obtaining less than 1,000 kgha of wet rubber lumps (with a drc of 55%) or 4 kgha per tapping day. Farmers are capitalizing on the current high prices which are double the prices they received 2 years ago, to tap every day if weather permits. The main reasons for low yields are: (i) old age of trees since rubber yields decline substantially after year 20; (ii) general neglect of trees; (iii) poor tapping practices which have caused severe damage and (iv) the absence of the use of fertilizer or manure.

16. Farmers receive very little training on new rubber technology. This places them in a very poor position in controlling plant diseases such as “white root disease” which is prevalent in many areas. Many of the existing rubber areas are either low yielding or completely non- productive, due to either old age or poor tapping system, and need to be replanted.

17. A sustainable household level approach to industry rehabilitation will need to balance the improved income potential from better tapping and post harvest handling practices with the long term investment ( 7 years to first tapping) involved in replanting. Thus a typical farmer might aim to use benefits in price of about 20% available by improving post harvest quality and improved output (10%) from better tapping methods to offset losses from replanting. About 10-15% of existing trees each year might be replanted until the rubber jungle is replaced with a productive smallholder plantation.

Cocoa 18. Cocoa is a relatively new crop introduced in the early nineties during a period of high cocoa prices. As with rubber,. the crop-has been introduced on a minimum ;nv&tment ba& using seedling cocoa grown from local trees and with little or no selection or attempt at crop management (pruning, grafting, regular harvest and removal of disease affected pods). In some areas, it was viewed as a replacement crop for Patchouli Oil or Nilam which experienced a steep price fall from Rp800,OOO per liter to Rp125,OOO per liter after the discovery of contamination in the oil produced in this island. Sustained period of high cocoa prices since 2001 arising from disruption in supply from West Africa have further given a boast for cocoa cultivation and new planting has accelerated in the last 3 years both as a result of a new spike in cocoa prices and assistance provided by UN agencies, BRR and NGO’s after the damage cause by the recent Tsunami and earthquake.

19. Cocoa is regarded as a supplementary crop and grown in scattered areas where there is vacant land. It is also grown on the roadside and in small gardens and regarded as similar to fruit tress by many households. It is not regarded as a main source of farm income and hence it is generally neglected and not fertilized. The total area appears to be uncertain and estimates can range from 5,000 to 10,000 ha. Figures obtained from traders indicate that production from Nias and Nias Selatan is in the region of 3,000 to 4,000 tons of dry beans. From field observations, it appears that the existing average yield is 500 kg/ha/year of semi-dried bean which suggests 6,000 to 8,000 ha of crop. The average size of cocoa holding can range from 0.1 to 1 .O ha and the total number of cocoa farmers will be in the range of 20,000 to 30,000 farmers. A “typical” farm probably has about 150-200 trees in all stages of growth and productivity, mainly recent (last 5 years) planting, seldom pruned or fertilized and based on seedling cocoa.

24

20. The main cocoa producing regions at present are Tuhemerua, Mandrehe, and Gungungsitoli. Gomo sub-district is also becoming a major cocoa growing centre. Many of these trees are severely affected by cocoa pot borer, and, due to the lack of knowledge, farmers are not taking any preventive measures. These preventive measures include: (i) regular pruning to allow more sunlight to reach the fruits; (ii) fertilization or manuring to strengthen the tree resistance to disease; (iii) burying or composting of cocoa pods after harvesting the beans to eliminate its use as a breeding ground for insect pest; (iv) use of plastic bags to cover the cocoa fruits; (v) introducing large red ants to feed on the pest; and (vi) spraying beneficial fungus to prevent growth of larvae.

21. An appropriate strategy would be to make grafted or clonal cocoa (from the Indonesian Cocoa and Coconut Research Institute) widely available through nurseries open to the public, train farmers in crop management (pruning, post harvest quality control, (drying, grading and fermentation) and finally to introduce livestock for manure to the farming system whilst demonstrating how balanced fertilization with NPK and micronutrients can improve yield and insectldisease resistance

- Rice 22. Rice (both lowland rain-fed and irrigated paddy and upland rice) is grown in some 28,000 ha. Double cropping is carried out in most of these areas relying primarily on rainfall resulting in an average crop intensity of 130% (Total production is estimated at 80,000 ton paddy or 48,000 ton rice is only sufficient to meet 50% of the island’s requirements. Farmers claim that they only grow paddy to meet their own household needs. They are not keen to plant new hybrid high yielding varieties since they do not like its taste. Moreover, hybrids have been shown to have inadequate disease and insect resistance under Indonesian conditions and in fact to increase risk of rice blast disease.

23. Paddy production has declined substantially in the last 5 years as farmers focus more of their time on growing rubber and cocoa that can provide them with a daily source of farm income. The net income from growing a hectare of paddy is less than Rp0.5 milliodhdmonth as compared with over Rpl.0 milliodhdmonth from tree crops such as rubber and cocoa. Most farmers use self propagated seed which has not been replaced with new seed for up to 15 generations when a replacement cycle of 3-4 years is desirable to maintain yields. However, Halcrow (2008) have demonstrated that yields of over 7tiha are possible in a wide selection of irrigated areas in Nias with the use of fresh seed of improved varieties combined with fertilizer.

24. The simplest strategy for this crop would be 0

0

to make fresh seed of high yield potential varieties widely available by village level multiplication of seed of improved varieties in year 1 and to demonstrate the benefits available from fertilizer at low rates as a means of boosting yields to about 3.3 tiha and thus achieving self sufficiency. The simplest means of demonstrating benefits would be a onetime grant in kind in the form of one 50kg sack of NPK 16:16:16 and one 50kg sack of urea to every farmer in a project rice village in year 2 once fertilizer responsive varieties are available. to support post harvest mechanization of threshing and winnowing by farmer groups, possibly women’s groups.

0

25. No large training program would be involved because of the basic familiarity of farmers with the crop and the lack of any fundamental change in production practices as would be involved by attempting to introduce the System of Rice Intensification (SRI), for example. It

25

should also be remembered that any strategy must account for weak extension service training, incentives and coverage. The emphasis would be on developing good quality extension seed in the village by a core of Kelompok Tani seed producers using imported foundation seed purchased in Sumatra or Java.

CroD and Livestock Diversification 26. Apart from the major tree crops and rice, there is a growing trend among lead farmers to diversify into crops such as chilis, heavy vegetables, and fruit plus small livestock based on intensive housing. The process requires support with new inputs such as balanced fertilizer mixes, plastic sheeting for weed control, small irrigation systems, fungicides and packaging materials. Livestock require veterinary medicines and technical support, housing and specialized feed rations. These types of activities can be profitable but require capital investment for startup and agricultural support services for sustainability.

27. Women are interested in activities which can be supported close to the home and are particularly interested in value adding to livestock and garden produce through retailing. They do, however, require better knowledge of market opportunities and the means to transport to markets, avoiding losses in the value chain through intermediaries.

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Annex 2: Major Related Projects Financed by the Bank, MDF and/or other Agencies Indonesia: Nias Islands Livelihoods and Economic Development Program

Source of funding ADB

Aus Aid

GO1 / WB and MDF

Table A2.1. Externally Assisted Relevant Projects in Nias

The Earthquake and Tsunami Emergency Support Project (ETESP) in Aceh and Nias initially focused on helping to rebuild the regions affected by the tsunami and earthquakes. Under ETESP 24, executed in 2 phases, 16 Kecamatan Spatial Frameworks and Action Plans for Nias were prepared. The activities undertaken include field surveys, mapping and planning. ETESP 39, is a follow-up of 24 and will cover an additional 16 sub-districts in Nias, including one on Pulau Pulau Batu. Despite the problems of lack of reliable data, difficulties with ground truthing due to the un-accessibility of terrain, the information derived and presented in maps and action plans is a valuable basis for development planning. ETESP data and maps were used in the preparation of LEDP to identify potential development clusters that require access improvement.

The Nias Reconstruction Program (NRP) in South Nias is funded by AusAID. The NRP had two components: 1) to help rehabilitate communities in Nias Selatan by rebuilding critical community infrastructure and restoring livelihoods’, and 2) government capacity building. NRP livelihoodagriculture activities didn’t take off, The Aus$2.1 road construction program included the construction of 37 km footpaths, including culverts, bridges, and retaining walls, all with community participation, no contractors involved. Further sub-district offices were constructed and assistance was provided to villages in the development of legislation on operation and maintenance of infrastructure. At district level training was given to government staff. NRP is due to end in April 2009, but proposals have been made to extend the activities to cover Pulau Pulau Batu and Hibala.

The Kecamatan Development Program (KDP) is implemented by the Ministry of Home Affairs, Community Development Office. It is aimed at alleviating poverty, strengthening local government and community institutions, and improving local governance. KDP began in 1998 and is expected to run until 2009. It also covers Nias. The program is funded through government budget allocations, donor grants (MDF), and loans from the World Bank. It provides Community Support grants of approximately US$50,000 to US$150,000 to sub-districts, depending upon population size. Villagers engage in a participatory planning and decision-making process to allocate those resources for their self-defined development needs and priorities. From 1998 to 2006, KDP covered 49% of the poorest villages in Indonesia. Since inception in 1998, KDP disbursed a total of amount U$ 1.6 billion from loan, grant and government financing.

The Infrastructure Reconstruction Financing Facility (IRFF) Project is financed through US$ 100 million from the MDF trust hnd aiming economic recovery of Aceh, North Sumatra and Nias through the reconstruction of the impacted infrastructure in the targeted areas. In parallel, US$ 42 million Infrastructure Reconstruction Enabling Project (IREP) has been funded from the MDF to enable

27

Source of funding

ILO/ MDF

UNDP and UNDPMDF

Description

the implementation of the IRFF. Both projects started in 2007 and are still ongoing. About 56 infrastructure sub-proj ects including water resources development, water supply, roads, bridges and flood control have been constructed.

Kecamatan Based Reconstruction and Rehabilitation Planning Project (KRRP) is funded by the MDF (US$25.75 million) and the World Bank is its Partner Agency. The project aims at the development and reconstruction of houses and community infrastructure in Nias. project has started in November 2006 and is expected to close in June2011.

ILO started the implementation of Capacity Building for Local-based Resources Rural Roads program in Aceh and Nias in January 2006. The project is funded by the MDF and the UNDP is the partner agency while ILO is the implementing agency. The project provides short-term employment opportunities for the local workforce in rehabilitation of roads and longer-term in maintenance of roads. The program is expected to be completed in December 2009 with 33 km of the total 169 km district roads rebuilt and 70 of the total 161 maintained in Nias and Nias Selatan. As much as US$ 11.8 million is given as grant to this program, with US$6.4 million disbursements. The objective of this project is to strengthen the capacity of district government and small-scale contractors to adopt and undertake local resource-based work by giving them intensive consultation in addition to intensive training. As per 30 Sept 2008, 12 engineers and supervisors from district government staff have been trained for contract management and construction supervision - in excess of the original target (15 for Aceh and Nias). The project has conducted intensive consultation with district and provincial government.

UNDP financed a large number of livelihood and infrastructure development projects, of which the Acemias Livelihoods Recovery Project - Round I1 (NLRP) concerning the development and rehabilitation of the rice and irrigation infrastructure in Nias is relevant to LEDP. The main features of the project, carried out with foreign consultants between November 2006 and November 2007, were the identification and rehabilitation of 20 irrigation schemes through a participatory approach, engaging local community organizers; Most of the selected schemes are situated in Nias district. In 26 schemes eventually Water Users’ Associations were established. Apart from rehabilitation and institutional strengthening, the project concerned the improvement of crop husbandry practices. The project provided seed (hybrid Ciherang), fertilizer, pesticides and herbicides, as well as power tillers. Eventually, some 2,340 ha were rehabilitated and in over 5,000 ha improved technology was applied. The rehabilitation works concerned mostly construction of lined canals, division boxes as well as intake structures and weirs. Efforts were also made to grow vegetables (palawija) as a third crop, though the response of the farmers, organized in groups (kelompok tani) was in this respect limited due to their engagement in other activities and their limited consumption of vegetables. Rice yields did increase significantly under the new practices (from 2.3 to 6.9 tha). After the completion of the project the production could not be sustained, as the farmers could not reproduce the hybrid variety, nor did they have credit facilities to buy sufficient inputs. The engagement of the local government service, Dinas Pertanian, was minimal as they lacked capacity.

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Source of funding

World Food Programme (WFP)I MDF

Red Cross

Caritas

Descrip

The UNDP and Ministry of Home Affairs is implementing a new program, Nias Island Transition Program (NITP). The project is funded by the h4DF (US$ 3.89 million) to support local government capacity building for the Nias post BRR transition. The program will more focus on governance, while Nias-LEDP on technical capacity building of district governments.

Tsunami Recovery Waste Management Project (TRWMP) is financed by the MDF (US$39.4 million) and the UNDP as the Partner Agency. The project has a strong livelihoods component addressing waste management and recycling. project has started in September 2005 and is expected to close in December 2010

Support to Strengthen the Role and Capacities of Civil Society Organizations (CSO). The project is funded by the MDF (US$ 6.0 million) and the UNDP is the Partner Agency. The project objective is to build technical and organizational capacities of NGOs and CSOs. The project is at its final stages. The LEDP can benefit from the developed expertise in complaints handling where CSOs would participate in monitoring complaints handling during its implementation. project has started in December 2005 and is expected to close in June 2010

Sea Delivery and Logistics Programme (SDLP). The project is funded by the h4DF (US$ 25.03 million) and the World Food Programme is the Partner Agency. The project provided logistical support, reconstruction and training to build capacity of port staff in Nias. The project has started in March 2006 and is expected to close in September 2010. The Singaporean Red Cross established a Farmers Training Centre near Gunung Sitoli in 2006. Five hectares land was bought on which organic farming is practiced and taught to farmers and farmer groups. The centre is hlly equipped for training purposes and has dormitories catering for up to 160 persons. The centre, managed by the NGO Yayasan Anugrah Hidup, has tailor-made training programs on organic farming and other subjects. The centre also produces and sells cocoa seedlings, using seed from Medan. The NGO will continue after the Red Cross ceases its operations in 2009 and hopes to exploit the centre on cost-recovery base.

Caritas started its operations after the tsunami in Nias in 2005. Caritas works with local NGOs (Yayasan Pembangunan Kesejahteraan Masyarakat or YPKM). The activities undertaken concerned mainly housing, empowerment of local communities, disaster risk reduction, books for schools, construction of kindergartens and a nutrition program. The locations where Caritas is active are in the western part of Nias island. Under the livelihood empowerment activities locally recruited and trained facilitators asked communities to identify, formulate and if possible execute their own projects. For the 2008 - 2009 period € 1.6 m has been allocated for the construction of some 13 km 2-3 m wide Telford road in the Moro’o and Tugale Oyo sub-districts. The works are implemented through the NGO ACTED and L O monitors quality and progress. Planned is further the sstablishment of a service centre in Mandrehe sub-district, where tools and fertilizer md other chemicals will be sold to farmers. The organization and management of the service centre will be in the hands of the diocese of Sibolga. Caritas considers the lack of capacity of local government one the major problems in executing problems. It is the intention to cease operations in Nias by the end of 2009.

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Source of funding Save the Children

Oxfam

n

Save the Children is operational in Nias since 2005. The projects implemented over the years concerned- education, disaster risk reduction, child protection and livelihood development. The livelihood project concerned a multi-agency household economy study conducted in November - December 2005 to inform relief agencies on the degree of recovery following the earthquake and the more general constraints to livelihood security. The ultimate goal was to determine appropriate measuredinterventions to support recovery, strengthen livelihoods, increase access to basic services and contribute to contingency planning. The studies resulted in a number of recommendations to support the agricultural sector, and a follow up project with the local churches of YKPM on capacity building (training on cooperative development and management) and establishment of some nurseries at household level. Presently Save the Children has one project, concerning education, health and nutrition, implemented in 6 districts (in 264 schools with some 40,000 children). The project is to be completed by 2009. Oxfam active in Nias since June 2005, covers the north and east of the island and initially focused on provision of sanitation. In 2008, Oxfam moved to longer-term development focusing on livelihood. The Livelihoods Team selected eight villages to work with on rubber and cocoa in the sub-districts of Tuhemberua, Sawti, Gidti, Idantigawo and Bawtilato. There were a total of 1,400 beneficiary households in rubber and cocoa activities. Training was given on the establishment of farmer cooperatives and women vegetables growers associations. Gender training has been also conducted. Over 940 households received inputs and tools for farming, while 790 Farmer Field School training sessions were provided to improve cocoa, vegetable and rubber cultivation; 35 demo-plots and nurseries for cocoa, rubber and vegetables were established: over 40 groups of cocoa and rubber farmers were mobilized and organized.

30

Table A2.2. Externally Assisted Relevant Tree Crop Development Projects 1969 to 2007 in Indonesia.

ASIAN DEVELOPMENT BANK Sumatra Rubber and Oil Palm Project Nucleus Estate and Smallholder CocodCoconut Project Tree Crop Smallholder Sector Project Smallholder Tree Crop Processing Project Estate Crop Dev in Critical Watershed Project Marginal Farmer Community Development Project

Tree Crop Smallholder Sector Project I1 Upland Farmer Development Project Sustainable Agriculture Development Project Sulawesi Rain fed Agriculture Development Project National Estate Crop Protection IPM Project

Sub-Total WORLD BANK North Sumatra Smallholder Development Project NES I NES I1 NES I11 NES IV Smallholder Rubber Development

NES V NES VI NES VI1 Smallholder Rubber Development I1 Tree Crops Sector Development Project Famer Empowerment Through Agriculture Technology and Information Project

Sub-Total RELATED WORLD BANK PROJECTS Agricultural Estates Project I Agricultural Estates Project I1 Agricultural estates Project IV

Smallholder and Private Estates Project Tree Crops Processing Project

TOTAL Sub-Total

- Date

1971

1988 1991 1992 1992

1992

1993 1993 1994

1995 1997

1973 1977 1978' 1979 1980 1980

1981 1982 1983 1985 1992

2007

1969 1970 1972

1973 1988

Loan (US% milli on)

7.4

47.5 113.7 64.3 50.0

50.0

150.0 28.3 21.6

26.3 40.2 599.3

5 .O 65.0 65.0 99.0 42.0 45.0

161.0 68.1

154.6 131.0 87.6

39.9 963.3

16.0 17.0 11.0

7.8 118.2 266.3

1.828.9

Crops

Rubber, oil palm

Cocoa, coconut Rubber, tea, cashew

Rubber

Rubber, Rubber and Oil Palm Mills

Rubber, cashew Coffee, cacao, cashew

Coffee, coconut, cashew, cocoa

Rubber, oil palm, rice Rubber, oil palm, coconut

Rubber Rubber, oil palm

Oil palm, food crops Rubber

Rubber, oil palm, coconut, food

Rubber, coconut, food crops Rubber, oil palm, food crops

Rubber Rubber, coconut

Rubber, oil palm; SH study Rubber, oil palm Rubber, oil palm

Estate rehabilitation; SH extension

Factory capacity for NES I

31

Annex 3: Results framework and monitoring Indonesia: Nias Islands Livelihoods and Economic Development Program

Project Outcome Indicators Use of Outcome Development Information

i Objective

intermediate Results Component 1 Community

To facilitate post-disaster economic recovery by improving the ability of the Government to work with poor rural households in Nias to identify, develop and sustain livelihood opportunities.

use. Intermediate Outcome Use of Outcome Indicators Monitoring

At least 5 KabupatedKota staff (per district) trained in with program management and monitoring and evaluation skills to be able to assist communities At least 25% of livelihood groups retain group technical and organizational skills, and are accessing information, finance, and markets resulting in improved livelihoods

At least 5 KabupatedKota Dinas Pertanian staff (per district) have acquired specific technical skills in tree crops nursery management and fertilizer handling and distribution

0

and Institutional Empowerment Outcome : Livelihood Improvement At least five KabupatedKota

At least 3 KabupatedKota seedling nurseries are established, introducing improved rubber and cocoa varieties, with sustainable operating models

Year 1 Develop methods for

Increased rice yields to 3.3 tons per hectare in targeted producing groups through introduction of improved seeds of high-yielding varieties seeds and fertilizer

Groups in selected villages are supported by local

Year 1 Assess training needs of KabupatedKota staff and beneficiaries

impact on KabupatedKota staff and community groups Year 2 Assess the impact of participatory methods for livelihood development as a means of using National and KabupatedKota funding more efficiently for poverty reduction Year 2 Develop greater self reliance in livelihood development among communities through social, technical and financial skills

Year 2 Assess training

0

staff (per district) trained in a diverse range of group

group formatidn and skill development suited to

32

governments with technical, administrative, and financial skills, and enable access to relevant information and prioritize opportunities.

Intermediate Results

Component 2 Agricultural and Other Livelihoods Improvement Outcome: Livelihood groups in adopting an agreed package of technical, social, and marketing skills for improvement of cocoa, rubber, rice, vegetable, livestock and other livelihood activities.

Outcome : A system of management, monitoring and evaluation established within the PMU for project implementation and longer term support to livelihood development

livelihoods activities Methodologies for group selection, formation and strengthening available and documented 75% satisfaction with group and village selection process Improved diversity of livelihoods as indicated in monitoring survevs

Y

Intermediate Results Indicators

At least 20% of livelihood groups are fully functional at mid-term and are being supported by functional nursery and other supply systems At least 40% of livelihood groups adopt project recommendations by project conclusion relative to baseline

Intermediate Resutts Indicators

Project management team established, staff trained and using systems and procedures aligned with World Bank procurement and safeguards methodologies Baseline survey, benchmark monitoring surveys and evaluation in proposed project areas completed on time Annual and final audit, procurement and financial management reports available on time

KabupatenKota staff skills after training Identify proven opportunities for women to improve household livelihoods in support of general poverty reduction

Use of Results Monitoring

Year 1. Design Group

Year 2 Livelihood empowerment programs

improvement packages refined and available for use in particular geographic and ethnic situations

Use of Results Monitoring

Year 1 Design procedures and equip the project management team at KabupaterdKota level to carry on work after project conclusion Year 2 Refine management, monitoring and evaluation techniques and procedures in support of ongoing initiatives by Kabupateaota Government through APBN or other funding

These outcomes would be measured using a combination of baseline and monitoring surveys conducted by both the field consultants on a routine basis, using family and village books, and for financial aspects by an M&E team leader supported by four M&E field staff.

33

Monitoring arrangements

Key indicators

1. The project development objective (PDO) is to facilitate post-disaster economic recovery by improving the ability of the Government to work with poor rural households in Nias to identify, develop and sustain livelihood opportunities.

2. This objective will be achieved by: i. Identifying and addressing health, community organization, knowledge, input and

marketing constraints to livelihood development in selected Kecamatans of Nias Island. The project would train and empower both smallholders and government staff to support village group activities developed under project supervision. It would emphasize successful small business development rather than widespread agricultural development so that initiatives were sustainable in the longer term under individual initiative. Training to support this aim would thus emphasize the organizational, finance and marketing aspects of small business.

ii. Implementing agricultural and other livelihood improvement activities. iii. Raising the capacity of KabupatenKota government to manage, monitor and evaluate

finance programs and personnel in support of smallholders.

Component 1 Community and Institutional

3. This component would empower beneficiaries and local government staff to acquire the management, financial and technical skills to promote and sustain group livelihood activities.

4. Outcomes are: Livelihood Improvement Groups in selected villages supported by local governments with administrative, social and financial skills and access to relevant information to prioritize opportunities

5. The key indicators are: i. At least five KabupatenKota staff (per district) trained and implementing a diverse range

of group livelihoods activities. ii. Methodologies for group selection, formation and strengthening available and

documented. iii. At least 75% satisfaction with group and village selection process. iv. Improved diversity of livelihoods as indicated in monitoring surveys.

Component 2 Livelihoods Improvement

6. The component would function through small group and village level grants and through assistance to KabupatenKota government in agricultural support services.

7. The objective of this component is to address the issue of low productivity and poor post harvest processing and market prices (for rubber, cocoa, rice, and livestock). This component is focused on livelihood improvement goals, rather than area targets for replanting or rehabilitation. The component will also support marketing for livelihood groups.

8. For women’s and farmer group activities, the component would function through group grants of US$2,500 depending on the level of procurement of other inputs and the size of the group. In particular cases, the PMU may choose to establish demonstration households where

34

such demonstrations influence a wider community. Grants would allow farmers to choose a menu of activities in cocoa, rubber and livestock improvement and to decide for themselves, the levels of funding of activities in each of these enterprises. The aim would be to promote ownership of the activities and also the use of farming systems approaches to facilitate sustainable agriculture through mixed crop/livestock systems.

9. Outcomes are: Livelihood Groups in selected priority Kecamatans adopting an agreed package of social and technical skills for improvement of cocoa, rubber, rice, livestock production and other activities.

10. The key indicators are: i. At least 20% of the livelihood groups are fully functional at mid-term and supported

by functional nursery and other supply systems ii. At least 40% of livelihood communities adopt all or part of project recommendations

by project conclusion relative to baseline

Component 3 Management, Monitoring and Evaluation

1 1. This component responds to the need for development of management and technical capacity for implementation of livelihoods investments in Nias within the KabupatenKota and Kecamatan administrations. The component would provide the necessary project and financial management, procurement and monitoring and evaluation support through a consultant package with core competencies in (i.) program management (financial management, procurement, monitoring and evaluation, safeguards, etc) and (ii.) technical support for implementation (technical assistance and group strengthening). The Monitoring and Evaluation team for Component 3 would be responsible for the elaboration of the baseline survey, monitoring surveys, and impact evaluation as a project completion report.

12. Outcomes are: A system of management, monitoring and evaluation established within the PMU for project implementation and longer term support to livelihood development.

13. Key Indicators are: i. Project management team established, staff trained and using systems and procedures

aligned with World Bank procurement and safeguards methodologies. ii. Baseline survey, benchmark monitoring surveys and evaluation in proposed project areas

completed on time. iii. Annual and final audit, procurement and financial management reports available on time.

Monitoring and Evaluation (M&E) Staffing Strategy

14. An M&E team consisting of a National specialist (M&E Design Coordination) and three regional M&E/Quality Assurance coordinators would work with the agricultural extension teams in both upland (cocoa, rubber, cocoa, livestock) and lowland (rice and most women’s activities). The team would be responsible for assistance to field extension staff for the preparation of sample baseline surveys of farmer groups, and the benchmark surveys of those groups conducted after 12 months. They would also be responsible for midterm and final evaluation reports. Data from their work would guide and modify the implementation process.

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15. Selection criteria for the Consultant facilitators would include:

i. Professional staff with significant experience in working with the participating ethnic groups, including relevant language skills, and willingness to work at the village level for extended periods.

ii. Ability to KabupatenKota staff in monitoring farmer and women’s producer groups, and in baseline survey techniques.

iii. Familiarity with the social background of Nias. Facilitators from Nias would be specifically excluded from work in their own communities.

16. Reporting A general baseline survey report conducted initially to determine conditions before formation of farmer groups in any area. A smaller baseline would be conducted as a new set of groups was formed. The surveys would establish current income and expenditure patterns, crop/livestock data (yields, prices, input costs and labor, crop/livestock losses and market destinations) and to note particular household or social problems in any area which might affect implementation. The data would be used to establish outline value chains to ultimate markets.

17. A benchmark survey monitoring report for a sample set of producer groups would be formed. The benchmark survey would be conducted after 12 months and serve as a midterm report on the groups. It would be used to modify and extend or contract activities and suggest additional training of Dinas’ staff, consultants and farmer leaders.

18. Agriculture Extension Consultants would be supported by three experienced senior consultants as coordinators and by KabupatenKota PPK extension staff with support from LEDP.

19. The women’s groups would consist of a National women’s livelihood specialist managing a team of consultant staff in developing and coordinating the women’s program. They would use the same set of surveys as for the agriculture group, and supported by the same consultant M&E/Quality Assurance team.

20. The Rice program would develop as an input supply system rather than as group activities, since the program would involve mainly existing Desa level Kelompok Tani known to the Kepala Desa, whose cooperation in identifying individuals for rice seed production and households for expanded paddy production in year 2, would be essential. Most of the implementation and monitoring would be conducted by the Rice program Logistics manager and a team under her consisting of four coordinators and Dinas Pertanian staff.

2 1. The Program Steering Committee at the central level, and the Local Steering Committee at the sub-national level, will monitor and oversee that the program is implemented according to design, objectives, and schedule.

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Annex 4: Detailed project description Indonesia: Nias Islands Livelihoods and Economic Development Program

Overview of Program Activities and Technical Approach

1. Nias has historically lagged other districts in the Province of North Sumatra and the nation in terms of economic and social development. The Nias LEDP will address these issues in a short timeframe by the use of intensive consultancy inputs to develop focused livelihood activities around well-trained community groups, and support to improve local government capacity.

2. Providing food security is seen as a basic platform of livelihood development. In the rice sector, the aim of the project would be to largely replace local low yielding varieties with high yielding varieties shown to have local taste preference and to demonstrate the favorable cost benefit ratio available from use of balanced fertilizer inputs. The project would not aim at developing exports but rather at reducing import dependence because of the uncertainties of transport during bad weather and the variability of world markets. Reduction of women’s labor by mechanization of processing should also help to develop wider opportunities for livelihood development by women.

3. The women’s program established under Component 1 and implemented under Component 2 would support a wide variety of both agricultural and off farm activities using the initial training to assist women in identifying local opportunities. As in the agricultural groups, an aim would be strengthening existing groups formed under programs by Oxfam, Dinas Pertanian and bilateral partners wherever possible.

4. The proposed project design is largely based on similar earlier interventions undertaken under the OXFAM livelihoods project (2008) and the work of the Kabupateflota Development Project in Nias and elsewhere in Indonesia. In OXFAM work improved seed and fertilizer inputs had a major impact on rice productivity, proving that yields of up to 7tlha are possible. Demonstration areas of cocoa showed that yield increases of 0.4t/ha are possible and that farmers are keen to acquire new knowledge on crop improvement. Twenty functioning women’s groups are present and have organized finance and administration systems. They are eager to participate in the project.

5. The proposed project also addresses the problem of poverty among farmers as this affects their ability to pay for inputs in the medium term after project completion. By starting with simple interventions such as better rice seed, pruning and grafting in cocoa or using benefits from improving quality and price in rubber, the project allows a gradual improvement process to be developed, suited to a longer term process financed by farmers themselves from yield and price improvement.

6. A strategy to move from emergency response to a capacity building or development phase is inherent in the design of the intervention. The LEDP has been prepared with due consideration of the on-going technical assistance projects and programs targeting capacity building and institutional strengthening in Nias.

7. The Nias LEDP will reduce food shortages and provide a demonstration of how a combination of standard operating procedures can be used to develop a workable outreach system to farmer groups with minimum public funding. For farmers, it will demonstrate not only how to

37

increase output but how to make a successful business out of agricultural and off-farm activities in addition to meeting food security needs.

8. Nias is prone to frequent earthquakes, and the poor logistics network and high levels of poverty make the residents particularly vulnerable to natural disasters. Nias LEDP will address food security (through increased supply and diversification) as well as introduce new sources of livelihood incomes. These expected program results, together with pragmatic training and awareness initiatives integrated into the project (through the consultants working with local government and directly with communities) will increase disaster resilience on the island.

9. The program is augmented by the LO implemented Nias Rural Access and Capacity Building program (Nias-RACB). Nias-RACB will improve the rural road network by upgrading and expanding the existing farmer to market road network to an all weather access standard, working in the same economic clusters as Nias-LEDP. Both projects are operationally independent, but share the same steering committees at the national and local levels to facilitate improved coordination and maximize program impacts.

10. Nias LEDP has three components, focused on (i) empowerment, (ii.) implementation, and (iii) program management and monitoring. The components are described in more detail below.

Component 1: Livelihoods Group and Institutional Empowerment (US$1.95 million)

11. The objective of this component is to empower beneficiaries (livelihood groups and district government) to improve their capacity to acquire the social, management, financial and technical skills for livelihoods activities. Most of the activities involve technical training and group facilitation, and include:

12. Training for Agriculture Livelihoods Groups: in social, technical, marketing, and financial aspects of livelihood development for up to 50 mixed gender groups (up to 40 households per group) for agricultural development. These groups would be located mainly in the poorer and more isolated villages (although to accelerate project implementation, groups in less remote areas will also be targeted), and would participate in farming systems development involving rubber improvement cocoa rehabilitation and replanting, plus livestock breeding activities for income improvement and manure supply.

13. About 25 consultants (agriculture extension technical experts) would be fielded, with each consultant assigned to a cluster of 2 groups. They would also provide both training and physical and financial monitoring for Component 3. Individual consultants-facilitators specialized in group formatiodorganization may be employed at the start to accelerate program socialization and group formation before the mobilization of the primary consultant firm. The actual livelihood activities, to be implemented in Component 2, could be commodity oriented or a mix of activities. The field-based agriculture extension technical experts will also support monitoring and evaluation, and be an initial point of contacts for communities to lodge and resolve complaints.

14. Training for Women’s Livelihoods Groups: in social, technical, marketing, and financial aspects of livelihood development for up to 50 mixed gender groups (up to 40 households per group). Women’s groups are specifically included because they offer an opportunity to develop a wider range of livelihood opportunities in addition to primary production (retail, processing, marketing, business skills transfer). A wider diversity of opportunities will in turn enhance resilience of incomes against economic and disaster related stress.

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15. About 10 consultant technical coordinators would be hired to work with women’s groups (under similar terms of reference to mixed groups), each assigned to organize and train a cluster of 5 groups. The consultant technical coordinators will have skills in organization and livelihoods development, with an emphasis on agriculture. A menu of options for livelihood activities will be provided to the groups - the technical consultant coordinators may draw on the expertise and pooled resources from the consultant team to address selected activities where they as individuals may not be subject matter specialist. The field-based technical coordinators will also support monitoring and evaluation, and be an initial point of contacts for communities for lodging and resolving complaints.

16. Training and Eauiument for Local Government Amiculture Services staff to facilitate further involvement for activities beyond the project life. The component will provide assistance to KabupatenKota Governments in the implementation of an agricultural support services program to the rice, livestock, and tree crops sub-sectors under Component 2. The assistance will involve training in public expenditure planning, selection of target areas, balancing activities to improve gender equity, and coordination of supply of foundation and commercial rice seed and appropriate fertilizer. It may also assist with other services, such as livestock vaccination.

17. The consultants conducting the trainings for local government and community groups (for Components 1 and 2) will include pragmatic measures to educate and integrate disaster resilience interventions into the program. The consultants will also support local government by coordinating with other organizations in Nias (such as the UN) who have more focused programs in this area.

Component 2: Agricultural and Other Livelihoods Improvement (US4.60 million)

18. Component 2 supports implementation of program activities (set-up though Component 1) utilizing small group Community Support-grants and technical support services. This component has three sub-components implementing: (i.) agriculture and women’s livelihoods groups activities, (ii.) priority community agriculture and livelihood facilities, and (iii.) support to local government agriculture services.

19. Sub-component 1. Imulementation of Agriculture and Women’s Livelihoods Group Activities. This sub-component will implement activities in (i.) 50 agriculture livelihoods groups and (ii.) 50 women’s livelihoods groups - each group composed of roughly 40 households. This component addresses the issue of low productivity and poor post harvest processing and market prices (for rubber, cocoa, rice, and livestock), and is focused on livelihood improvement goals, rather than area targets for replanting. The component will also provide support to f k e r groups for marketing.

20. Both women’s groups and mixed gender agricultural groups would be encouraged to engage in some form of breeding livestock production. Grants would be disbursed in two tranches to ensure animal welfare by requiring construction of housing and provision of feed and medical care (disease prevention for hog cholera, Newcastle disease in chickens and internal parasite control) prior to acquisition of livestock. A typical group would acquire about 8 breeding sows, or day old chicks to develop about 100 laying hens and their progeny. They would be trained in the production of compost for tree crops based on the manure from livestock production.

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Use of Communitv Support Grants

21. Each livelihood group (agriculture or women’s groups) would apply for a small grant (up to US$2,500: disbursed in two tranches, the second tranche pending satisfactory use of the first) used against of menu of activities in value added cocoa, rubber, and livestock improvements (other livelihoods are included). The aim is to promote ownership of the activities and the use of farming systems approaches to facilitate sustainable agriculture practices through mixed crop/livestock systems. Small livelihood groups would also be used to address both the low social status of women in Nias and their ability to develop innovative income generation activities involving both production and value added.

22. The emphasis and use of the Community Support grant is on training and increasing knowledge and practices; and not as focused on the process of group formation, community governance, and administration of the Community Support-grant compared to many CDD projects. Modeled after the Oxfam livelihoods program (successfully implemented in Nias) - the project uses a ‘farmer-field school approach’ with Community Support grants primarily to supplement training activities. Trainings are implemented within a 10 to 12 month period following group formation - but facilitators will continue to return to the field after the training period to provide follow-up support, check on results of demonstration plots, and continue to advise communities on livelihoods initiatives.

23. Technical trainers will be field-based, with intensive interaction and presence in the communities they are assigned. In addition, trainers will be an ad hoc resource available to greater community, outside their groups.

24. The formation of livelihood groups through the project is expected to increase the exchange of knowledge and ideas within the community, improve social networks (for growers, sellers, and buyers), increase economies of scale for input purchases and post-harvest handling - as well as have spillover demonstration affects to individuals outside of the established groups. The formation of the groups is also a means for organizing training activities based on the ‘field- school’ methodology.

25. Meeting the development objectives does not require the long-term sustainability of the farmer or women’s groups. Project beneficiaries may choose to adopt and continue with the benefits acquired from group activities (and are expected to), but the training will also ensure beneficiaries develop appropriate skills to improve individual livelihoods. However, it is anticipated that participants will realize the benefits of working in groups, and will continue carrying-out many activities collectively after the program.

26. Training activities are not dependent on the Community Support-grant to commence. After groups are formed and an initial assessment of the demand and preferences for livelihood activities is made - consultant trainers (together with KabupatenKota extension services) will start implementation of a core demand-based curriculum. Consultants will have training materials and basic provision of supplies to start actives (simple tools/equipment, seeds for demonstration plots, training manuals, etc) to begin trainings. Consultants will have an improved understanding of the group capacity and demands through initial interventions, which will benefit later work to develop their plans for use of Community Support-grant funds.

27. Unlike other CDD block-grant models, allocation of block-grant resources is not based on competition for limited funds between competing groups. For Nias-LEDP, once groups are established and satisfactorily demonstrate their commitment to participate in (and adopt) training

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practices, and show sufficient organization and capacity - the field-based technical trainer will support the groups to develop and implement their proposals for demonstration livelihood activities supported by the Community Support-grant. Further, the field-based consultants will help organize the groups and facilitate training for basic skills required for the groups to administer the Community Support-grant. This approach is appropriate for Nias, given the social dynamics, limited capacity, and time to implement the program.

28. Sub-component 2. Support to Local Government Agriculture Services. This sub-component will strengthen agricultural support services from the KabupatenKota Government to; (is) develop improved rice food security, (ii.) develop skills in nursery management for tree crops, (iii.) improve agriculture diversification, and (iv.) strengthen support service (e.g. veterinary medicine supply via small cold chains, marketing linkages, etc). All activities will be supported by Nias-LEDP consultants.

29. Major activities for local government supported rice improvement include support to Kelompok Tani (lead farmers) with foundation seed of high-yield varieties and fertilizer inputs. The fresh seed developed in the first year would be distributed to rice-producing households in the second year, along with a ‘trial bag’ of NPK 15: 15: 15 and urea fertilizer to expose farmers to the benefits available from fertilizer. A total of 10,000 ha, and approximately 10,000 farmers in 50 villages would benefit from improved seed over 2 years. The emphasis would be on selecting poorer farmers who would not otherwise have access to the benefits of soil amelioration, which the inputs would provide.

30. Other sub-component activities would be used to develop opportunities to support livestock and crop activities where there was no private sector supplier, or where village level services could be developed (e.g. village vets, community tree crop nurseries) to improve timeliness of supply. Given the growth in participatory extension, support would also be provided to Dinas’ staff to provide information on sources of advice and services outside government as in the Farmer Empowerment through Agricultural Technology and information (FEATI) (ongoing to 2012).

3 1. The sub-component will also establish tree crops nurseries managed by KabupatenKota government. The nurseries will introduce better yielding varieties of rubber and cocoa trees, more appropriate for Nias. KabupateniKota extension staff will also learn nursery management through a participatory learning by doing approach - which they can later transfer these skills to communities. The seedlings will be distributed to livelihood groups in component 1, and made available to poor farmers not covered in component 1. The project would support provision of an incremental 250,000 budded rubber rootstocks and 250,000 grafted or clonal cocoa rootstocks in plastic sleeves from nurseries in Medan (Rubber Research Institute) or Java (Cocoa and Coconut Research Institute) as the basis of further propagation by trained smallholders at village and KabupatenKota nurseries set up under the project. In addition, promising material from the best performing trees in terms of yield and disease and insect resistance would be used as scion material in the nurseries so that grafted or budded planting materials rather than unselected seedlings become widely available The project would provide the necessary farm level tools for grafting, thinning and pruning. A particular emphasis would be placed on understanding local value chains and discounts for poor quality in an effort to improve the competitive position of smallholders.

32. The logistics to bring improved plant materials and seed and fertilizer to the beneficiaries would be developed by the consultants and wherever possible (e.g. KabupatenKota nurseries) handed over to local government on completion. The project would recognize the low capacity to

41

manage technically complex operations such as plant breeding in Nias and would not develop research stations or seed farms. Instead it would import foundation seed and purchase fertilizer for distribution.

33. Sub-component 3 includes budget (US$l50,000) for the PMU to support special studies, trainings, activities, etc (each activity limited to US$50,000). These activities will address ad-hoc program needs (for activities supporting livelihoods not addressed through other components) arising during program implementation.

Component 3: Management, Monitoring and Evaluation (US%1.65 million)

34. The objective of this component is to develop management and technical capacity for implementation of livelihoods programs in Nias within the KabupatenKota and Kecamatans, as well as with KPDT. A consultant team will provide the necessary project and financial management, procurement, and monitoring and evaluation support. Services include:

35. Promam Management to support the Program Management Unit (PMU) and Program Steering Committees (PSCs). The majority of consultant resources will be field-based with core expertise supporting i.) monitoring and evaluation, ii.) financial management, iii.) safeguards, iv.) quality assurance, v.) procurement, vi.) adherence to the governance and accountability framework, and vii.) program reporting.

36. Livelihoods Support will provide the necessary technical consultants at district and village levels, with dual roles in group strengthening through technical assistance under components 1 and 2. The Monitoring and Evaluation team would be responsible for the elaboration of the baseline survey, monitoring surveys and impact evaluation as a project completion report, prior to project closure.

37. Consultants will work under a Project Management Unit (PMU), which is considered appropriate due to the low capacity of existing local government management, technical and financial systems

38. Because the preferences of communities cannot be understood in advance, the budget for each of the three components would be reviewed regularly to allow flexibility in disbursement. The allocations are thus indicative rather than fixed.

Background for the Group Approach

39. A key challenge in livelihood development in Nias is to facilitate change in household income and expenditure whilst having minimum impact on existing incomes, the environment or village level institutions. Thus specialized industrial style development with large scale clearing of existing smallholder tree crops is not acceptable. Development must make gradual changes recognizing existing farming systems which have evolved to minimize risk in an environment of social tension, climatic variability, poor access to markets, and low capacity. The project also has to consider the special requirements of women as entrepreneurs as well as sources of labor. It will work in some very isolated areas involving rubber and cocoa development in a short time frame. To address these challenges among individual households given the area targets proposed would be challenging in a short period.

40. A further challenge in implementing this type of work is to link farmers to markets and to develop economies of scale in production and input supply. Doing so requires an approach based

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on the supply of goods, technical information, and services resulting in collective action - all which benefits substantially from the formation of groups.

41. Nias-LEDP would support the development of capacity at village level through development of village level responsibility systems agreed with Desa level government. In this approach, a Desa development committee would take responsibility for facilitating activity selection at either village or group level. It would facilitate farmer group formation and self-monitoring.

42. The project may, when appropriate, coordinate with PNPM to utilize village and sub district institutions for planning and implementation. Farmer leaders would be trained at the PMU, enabling them to guide their fellow group members in proposal development. The incentives provided to farmers to follow project conditions for input supply would be the value of technical guidance and input supply. The disincentive for poor performance would thus be withdrawal of assistance from LEDP after the first season and the penalty thus imposed on that group and village as the project moved on to another village in the same village cluster. Monitoring indicators would include satisfaction with the selection process for group and village level grants.

Group Formation and Scheduling

43. Group formation is a specialized social process. An experienced locally based international consultant firm would be contracted by LEDP to develop a group formation methodology, undertake the formation of the 50 producer groups in the uplands and the 50 women’s groups in uplands and lowlands, and the baseline survey among 25 upland groups and 15 women’s groups. The groups would then receive technical support from the Consultant’s management, contracted stafflconsultants and some Kabupatemota staff. The schedule for group formation will be accelerated (by increasing facilitator resources through the firm, and by using individual experts hired under the program before the firm is mobilized).

Monitoring and Evaluation (M&E) Staffing Strategy

44. An M&E team consisting of a coordinator and three regional M&E field monitors would work with the agricultural extension teams in both upland (cocoa, rubber, cocoa, livestock) and lowland (rice and most women’s activities owing to access constraints). The team would be responsible for assistance to field extension staff in preparation of baseline surveys of each set of farmer groups formed and the bench mark surveys of those groups conducted after 12 months. They would also be responsible for midterm and final evaluation reports. Data from their work would guide and modify the implementation process. (details on M&E framework and staffing are in Annex 3).

Outreach Approach

45. Conventional practice in support of GO1 programs supports travel and per diem costs for Government employees. Although this project supports the GOI’s policy of village group formation and development, extension services at the village level has not, in many cases, commenced in the project area and thus cannot be fully supported in the conventional manner. Instead the project would adopt the following approach to technical assistance.

46. Rice Improvement Sub-component: would be the responsibility of the Dinas Pertanian in Nias (supported by consultants) given their familiarity with the crop and the producers. For the first year activities, each selected Kelompok Tani (lead farmer) in every rice-growing village would be provided with both foundation (second generation) seed of high yield varieties to be

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selected in cooperation with rice breeding stations and a package of fertilizer inputs. These lead farmers would also be assured of a market for their outputs by the project so that free seed for about 0.5 ha (approximately 30 kg) could be distributed to every rice-producing household in year 2.

47. For rice seed multiplication groups allowance is also made for purchase of post harvest processing units based around a thresher, winnower, tractor and trailer, which could be developed by either mixed or women’s groups as a mobile post harvest handling business among villages or within several larger village. The size of the inputs involved (about US$5,000) is justified by the smaller number of groups in this activity and their potential wider impact. The activity would be supported by the training under Component 1

48. The second year of the work would utilize the fertilizer responsive varieties and fresh seed developed in year 1, and provide ‘trial bags’ of NPK 15:15:15 and urea fertilizer to expose farmers to the benefits available from fertilizer or to demonstrate the value of additional balanced fertilizer in recognition of the fact that many farmers use urea (nitrogen fertilizer) only. A total of 10,000 ha, and approximately 10,000 farmers would be involved. The emphasis would be on selecting poorer farmers who would not otherwise have access to the benefits of soil amelioration, which the inputs would provide. Technical assistance would focus on key times such as plantinghasal fertilizer application, mid season topdressing and rouging (removal of types) in rice to ensure separation of varieties.

49. Women’s and Farmer Group Activities: The activities in rubber, cocoa livestock, and other; as farming systems or in women’s groups would involve a systematic collection of data to support, monitor and evaluate the achievement of indicators by consultant staff supported as possible by Dinas staff. The senior consultant staff, and KabupatenKotaKecamatan staff would conduct monthly visits to a selection of groups. Field-based technical consultants would live either in or close to the target villages.

Consultant Support

50. The PMU will be supported by one firm for program management and implementation technical support. Before the firm is mobilized, individual consultants (national and international) will support the PMU with key tasks to carry-out upstream work to facilitate the transition to the consulting firm and to start implementation. Tasks include, preparation of the project manual, project coordination and socialization of with Nias communities and local government, procurement support, financial management, and general operations advisory services.

Relationship with Nias Rural Access and Capacity Building Program (Nias-RACB)

51. The LO implemented Nias RACB (funded through the MDF) will increase rural access through improvements (to an all weather and low-maintenance design standard) and expansion of the rural road network in Nias. The majority of roads improved through the program will be existing foot trails, dirt paths, and KabupatenKota road. All work will improve access to markets and social services. Further, the ILO investments will be implemented in the same economic clusters as Nias-LEDP. Given the RACB’s focus on improving and targeting the overall network and maximizing population served, RACB will have positive impacts on the same communities where LEDP is implemented, and improve overall economic development in Nias.

52. Both programs are operationally independent -- neither program is dependent on the other to achieve its development objectives. While both funded by the MDF, LEDP is implemented on-

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budget through KPDT, and RACB ‘off-budget’ through the LO. The two projects share the same national level steering committee (composed of Bappenas and KPDT) to improve higher-level coordination. At the local level, both coordinate though the same Local Steering Committee. There are no safe-guard linkages between the programs (see Annex 10). The balance between operational independence, with coordination at the national and local steering committees will help maximize impacts for both programs, while ensuring there are no significant reputational risks with these arrangements.

Identification of Economic Clusters and Project Areas

53. Nias-LEDP and Nias RACB will operate in the same economic clusters in Nias.

54. The primary criteria used to identify the economic clusters were i.) population and ii.) intensity of rubber6 and/or rice cultivation’. Additional factors were used to refine the initial screening, including: avoidance of environmentally sensitive/protected areas, social considerations ’, proximity to adjacent clusters, connectivity to the strategic road network, exclusion of urban areas, and verification of data through field trips and consultation with local government and BRR.’In total, 20 out of 40 sub-districts in the Nias islands are selected as eligible areas for the Nias-LEDP.

55. The methodology and selection of economic clusters was conducted in consultation with the BRR, provincial and local governments (Bappeda and Dinas Agriculture), KPDT, and ILO - all parties reached consensus on preliminary list at a workshop in Medan in August 2008 which was revised later to respond to the evolvement of new local authority jurisdiction areas at another meeting in Medan in April 13, 2010. At the start of the project, and periodically throughout, the program areas may be adjusted to accommodate field conditions or for other reasons to support meeting the project objectives.

56. The final process for selecting project areas, and group selection agreed and presented in the project operations manual. Geographic coverage area for the program may need to be adjusted to accommodate further considerations for logistics, implementation issues and capacity, balancing resources between newly formed districts and communities, and the need accelerate implementation by working in more accessible areas. The preliminary clusters and targeted sub- districts are highlighted below.

District

I Tuhembarua I Tuhembarua

I Saw0 I Saw0 I I Sitolu Ori I Sitolu Ori I I Alasa I Alasa I

There is no accurate cacao production data, so rubber was used as a proxy since cacao is grown in all 6

rubber areas. ’ Population and agriculture cultivation data were weighted evenly for the initial selection criteria. Palau Palau Batu, was selected because of its isolation, and high incidence of poverty Official BPS statistics for Nias are often unreliable. Data used to identify the clusters was field checked

to ensure consistency with empirical findings, and other sources such as the ADB’s ETSP program.

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Kota Gunungsitoli 1 I Idanoi

Proposed Implementation Schedule

57. KPDT will start advertising for consultants before negotiations, with a target for mobilization of the main consultant package by July 2010. Before mobilization of the firm, individual consultants will be hired to support the PMU in key enabling tasks to minimize the ‘upstream’ preparation work required by the primary consultants. Tasks will include selection of economic clusters and beneficiary groups, program socialization with local government and communities, finalization of the project operations manual (POM), etc. Some individual consultants will continue with the project following mobilization of the firm to support in keys areas such as financial management, procurement, and program management/administration.

58. Consultants will start working with the selected groups upon mobilization. The staffing strategy is to provide sufficient resources up-front for an initial ‘push’ (versus a phased roll-out approach) to launch the project and facilitate expedient delivery of training activities. Consultants will initially focus on organizing and training livelihood groups and local government (Component 1 activities) to prepare for implementing activities under Component 2 (estimated to commence in late 2010). This will provide sufficient time to complete the major training programs for group livelihoods (requiring 10-12 months), formation and training of district and community nurseries, and for rice intensification program interventions.

59. To help maintain the proposed implementation schedule, KPDT will: i. Use individual consultants for preparation of ‘upstream’ work in preparation for

mobilization of the firm, thus reducing tasks and start up time for the prime consultant fm once mobilized.

ii. Utilize procurement advisors to expedite and improve quality of deliverables and reduce the risk of procurement delays (for QCBS and subsequent goods packages).

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... 111.

iv.

V.

"Front-load" the staffing plan, so more consultant resources (with an emphasis on field- based facilitators) are available at the start, versus a phased role-out approach. Employ sufficient consultant resources to expedite implementation, given the challenging field conditions (logistics, communications, capacity, etc). Recognize field facilitators are key for successful implementation of the project, and will ensure compensation is sufficient to avoid the high attrition rates experienced under other CDD projects in Nias.

Table 2. Indicative Implementation Schedule

. .. . . . . . . . . . -.

. .. . . . . .

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Annex 5: Project Costs Indonesia: Nias Islands Livelihoods and Economic Development Program

Table 1. Project Cost by Category (US$)

Category 2010 201 1 2012 Total Community Support Grants 50,000 210,000 80,000 340,000

Goods and non-consultants' 2,160,000 3,360,000 1,7 10,000 7,230,000 Services; Training and Consultants' Services

Incremental Operating Costs 190,000 315,000 125,000 630,000

Base Cost 2,400,000 3,885,000 1,915,000 8,200,000

Table 2. Project Cost by Component (US$) Consultant Study Tours, Govenunent

Consultant Operating Training, and Operating Goods Grants Services Costs Studies costs Total

Go1 IOC (travel, per dKm, a d s , etc) 0 0 0 0 0 300,000 300,000 consultmg Operakg costs 0 0 0 650,000 0 650,000

Sub-Total 0 0 1,000,000 650,000 0 300,000 1,950,000 Consultmg Sewices 0 0 1,000,000 0 0 1,000,000

Agriculture Inputs 2,100,000 0 0 0 0 0 2,100,000 FarmEquipment 160,000 0 0 0 0 0 160,000 Processing Machinery 240,000 0 0 0 0 0 240,000 Consulting Operating Costs 0 0 0 340,000 0 0 340,000

S M y Tours, Training, & Special Studies and suppties 190,000 0 0 0 330,000 0 520,000 Grards (vinage aIKI goup) 0 340,000 0 0 0 0 340,000 Sub-Total 2,690,000 340,000 900,000 340,000 330,000 0 4,600,000

Sub-Total (contingency for Block Grants) 0 4,600,000

Consultant Senices 0 0 900,000 0 0 0 900,000

Consuitant Senices 0 0 1,300,000 0 0 0 1,300,000 Consultard Operating Costs 0 0 0 350,000 0 0 350,000

S M y Tours, Training & Special Studies 0 0 0 0 0 0 0 Sub-Total 0 0 1,300,000 350,000 0 0 1,650,000

Total 2,690,000 340,000 3,200,000 1,340,000 330,000 300,000 8,200,000

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Annex 6: Implementation Arrangements Indonesia: Nias Islands Livelihoods and Economic Development Program

1. The project will be implemented at the central, provincial, distinct, and sub-district level in the five districts of Nias Islands, expected to cover 18 sub-districts.

Project Implementation

2. Bappenas coordinates all Aceh and Nias reconstruction work following the BRR's exit, and is the executing agency for Nias-LEDP. The Ministry of Disadvantaged Areas (KPDT) is the implementing agency, and head of the Project Management Unit (PMU) and Secretariat. The Local Steering Committee (LSC), based in Nias, is composed of the North Sumatra Provincial Government and all districts in Nias. The World Bank, as partner agency with KPDT, will oversee and supervise the program.

Central Government Level

3. Bauuenas, as the GoI's executing agency, will be responsible for Nias-LEDP's overall planning and evaluation consistent with the grant agreement between the World Bank and the GOI. Bappenas will also coordinate with the Ministry of Finance (MOF), KPDT and other central government agencies.

4. KPDT is responsible for project implementation and budget execution, including making the annual budget application to the MOF and setting up a project satker (Satuan Kerja) responsible for management of the annual budget (DIPA). The budget application will be allocated in the following manner: (i) payment to the consultants and firms supporting KPDT, and (ii) operating costs of KPDT. Both KPDT and Bappenas are responsible for counterpart financing (government staff honoraria, taxes and other operational expenses).

5 . Program Steering Committee (PSC). The PSC is composed of Bappenas (Head) and KPDT. The role of the PSC is to coordinate with the MDF and World Bank. The PSC is responsible for setting program policies and intergovernmental coordination.

I

6 . Promam Management Unit (PMU) KPDT is the head of the PMU and PMU Secretariat, with representative office in Jakarta and a larger field office in Nias. The PMU is responsible for project coordination and implementation - including procurement, monitoring and evaluation, quality assurance, safeguards, and implementation of the anti-corruption action plan. PMU resources and activities will be concentrated in the Nias-based PMU office to improve program delivery and coordination with local government. Consultant services will support program management of the PMU and project secretariat. All consultants are managed by the PMU.

Provincial and District Government Level

7. Local Steering Committee (LSC). The LSC comprises local and provincial government, and functions as the coordinating body to represent local development and program priorities, support operations, and coordinate with the PMU. The North Sumatra Provincial government will lead the LSC, and Bappeda Nias and Nias Selatan will represent the local government dinas (agriculture, estate crops, public works, etc) involved in the project. KPDT, as head of the PMU and secretariat of LSC, will implement with the general priorities of the LSC as guidance.

8. District Government Amiculture AgenciesDinas The departments of agriculture and estate crops, agriculture extension services (Ketahanan Pangan, Informasi Penyuluhan Pertanian dan Kehutanan - KPIPPK), and sub-district agriculture extension services (BPP) will coordinate at the program level through the LSC (represented by Bappeda), and support the PMU and consultants to implement the project.

9. Camat’s Office. Program activities will be coordinated at the kecamatan level between the PMU and the Camat’s office. The Camat will support the project to facilitate consultation, planning, and group identificatiodorganization with communities.

Community Livelihood Groups (Women and Agriculture)

10. The locations of the community groups will be decided by the PMU, LSC, and in consultation with the local Camat offices. The PMU, supported by consultants, will conduct field verification to ensure proposed communities meet required beneficiary criteria per the Project Manual. The PMU, with the support of consultants, will also coordinate with the Camat offices to (i.) identify and establish livelihood groups, (ii.) provide technical support and training for livelihood activities, and (iii) help review group proposals for fbnding suitability. Community grants are not ‘competitive’ proposals, rather, once community groups are established, the technical facilitators (consultants) provide training and guidance for implementation of group livelihood activities. The consultants will evaluate community proposals for suitability and feasibility before the PMU approves financing.

Consultant Services

11. Individual consultants will be hired to support the PMU during start-up stages for: preparation of the project manual, program socialization, group formation with livelihoods groups, independent FM verification, and follow-up procurement of consultant package. Nias-LEDP has one consultant package supporting the PMU in Program Management and Implementation of Livelihood activities.

12. Promam Management: This will include sufficient resources to support the PMU to carrying out all financial management, safeguards, quality assurance, monitoring and evaluation, reporting, and procurement functions. The majority of consulting resources will be field-based,

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with some necessary tasks (FM, etc) in Jakarta to expedite program administration. The consultant deputy team leader for program management would have international experience managingladministration similar Bawdonor funded project.

13. Livelihoods Implementation Technical Assistance. Will include sufficient staff to support the PMU to carry-out all technical and field activities. The majority of work will be based in Nias. Consultants will have appropriate staff of agriculture and extension technical experts (rice, cacao, rubber, etc) to support trainings to livelihood groups (farmer, women's, and community) and local government, provide logistics support, nursery management, etc. The consultant team leader will have international experience on development programs.

Indicative Consultant Staffing Plan for Program Management Tasks

Indicative Consultant Staffing Plan Implementation Technical Assistance

Annex 7: Financial Management and Disbursement Indonesia: Nias Islands Livelihoods and Economic Development Program

Summary

1. Total budget estimate is US$8.2 million and will be implemented in three years. This grant will be funded by the Multi-Donor Trust Fund for Aceh and Nias (MDTF). This project will be executed by BAPPENAS and implemented by Ministry of Disadvantaged Areas (KPDT).

2. The purpose of the project?s financial management assessment is to determine whether the financial management system of the grant implementing agency, KPDT, has capacity to produce timely, relevant and reliable financial information on the project activities, and if the accounting systems for the project expenditures and underlying internal controls are adequate to meet fiduciary objectives and allow the Bank to monitor compliance with agreed implementation procedures and appraise progress towards its objectives.

3. Risks will arise from some factors: (1) high fiduciary risk due to weak control environment in remote area, particularly in Nias, (2) KPDT? weak capacity in project management which has been noted in implementation of SPAD (3) budget delays, and (4) community groups? capability in managing Community Support grants.

4. Some measures have been proposed to mitigate the risks arising from these factors. KPDT will hire a consultant firm to strengthen KPDT management capacity. The PMU has been advised it will need to work together with MoF and ensure that budget documents could be issued timely. Individual FM consultant will be hired to assist PMU during start up stages and for independent FM verification throughout the project. The individual consultant will support the PMU management in supporting overall coordination of financial management for the project including but not limited to, FM monitoring and oversight, payment verification, collating and preparing Interim Financial Reports and withdrawal applications. A Community Support grantloperations manual will be developed (utilizing standard operating procedures practiced by PNPM urban and rural) and should be agreed by the Bank prior disbursement of Community Support grants. Training will be provided to the community groups to ensure that they understand their responsibility related to fund accountability. Consultant firm will provide support in Nias. It will include a FM consultant, who, besides providing FM support to the expenditure at central level, would support communities in maintaining books of accounts, provide training and review and verify the reports that the communities prepare on utilization of Community Support grants.

5 . In addition to the above measures, an independent financial audit will be carried out annually. Public exit conference will be conducted to inform audit findings to communities and local government. The auditor will work with local auditor (Bawasda) as far as possible to have more coverage areas. Sufficient segregation of duties between technical and financialladministration aspects will be applied.

6 . Taking into account the risk mitigation measures proposed, overall, the financial management risks for this financing are assessed as ??High? which can be reduced to ?Substantial? after the mitigation measures are implemented and have shown results. This assessment has concluded that with the implementation of the action plan, the proposed financial management arrangements will satisfy the Bank?s minimum requirements under OPh3P10.02 and are adequate to provide, with reasonable assurance, accurate and timely information on the status of the grant required by the Bank. More details of the financial management assessment are given below.

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7. Country Issues. The recently conducted PEFA (Public Expenditures and Financial Accountability) assessment for Indonesia reflected a mixed picture. The key strength pertains to transparency and comprehensive budget documentation, and a well defined budget process and classification which comply with international standards and a strengthened external audit function. Key weaknesses were identified across various dimensions of the budget execution such as financial reporting and internal controls. In almost all area of PFM a sound regulatory framework is now in place. The remaining challenge will be to implement the framework with the ongoing support from the World Bank and other donors, namely the Government Financial Management and Revenue Administration Project (GFMRAP) financed by the Bank, and State Audit Reform Project finance by the Asian Development Bank.

8. This project will employ the government system in respect of the flow of funds from MOF to KPDT. A Separate manual will be developed for flow of funds arrangements to community groups.

Project Objectives

9. The higher-level objectives of this project are to facilitate post-disaster economic recovery by creating an enabling environment for improved livelihoods and human development in the Nias islands. The development objective is to facilitate post-disaster economic recovery by improving the ability of the Government to work with poor rural households in Nias to identify, develop and sustain livelihood opportunities.

10. The project consists of the following components:

Component 1. Livelihoods Group and Institutional Empowerment (US$1.95 million) The objective of this component is to empower beneficiaries (livelihood groups and district government) to improve their capacity to acquire the social, management, financial and technical skills for livelihoods activities. Most of the activities will involve training and group facilitation.

Component 2. Amicultural and Other Livelihoods Improvement (US$4.60 million) This component supports implementation of program activities (set up through Component 1) utilizing small group Community Support grants and technical support services.

Component 3. Management. Monitoring and Evaluation (US$1.65 million) The objective of this component is to develop management and technical capacity for implementation of livelihoods programs in Nias within KabupatenKota and Kecamatans, as well as with KPDT. A consultant team will provide the necessary project and financial management, procurement, and monitoring and evaluation support.

Strengths and Weaknesses

11. The project has strengths and weaknesses in several areas. The project design has the following strengths:

The project will only have one PMU. This will simplify coordination and process during project implementation; Following government regulations, the implementing agency will have a sufficient segregation of duties between technical and financial/administration aspects.

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12. The main weaknesses noted during the assessment are as follows: 0 In SPADA implementation, KPDT showed weaknesses in project management capacity.

The FM rating of SPADA was Moderately Unsatisfactory during last supervision mission in February 2009. This was due to, among others, frequent delays of budget availability, delays on Community Support grant disbursement, and delays on consultants? selection process. During the mission, full time financial management consultant had not been hired, although the project has been implemented for some time; Community groups may not have adequate capacity to manage Community Support grants.

13. The project?s weaknesses may create some risks for project financial management. However, the project includes, among others, the following several mechanisms to mitigate these risks:

PMC will be hired to strengthen KPDT management capacity. It will include a FM consultant, who, besides providing FM support to the expenditure at provincial level, would support communities in maintaining books of accounts, provide training and review and verify the reports that the communities prepare on utilization of Community Support grants. An individual FM consultant also will be hired to support PMU in payment verification, reporting, replenishment process and other FM arrangements. Community Support Grant manual will be developed and training will be provided to the community groups to ensure they have adequate knowledge to manage the fund and understand their responsibility.

Summary of Risks and Proposed Mitigating Arrangements

14. The project?s overall risk assessment and summary of mitigating measures is as follows:

A. Inherent Risks 1 . Country Level Risks

2. Entity specific risks Implementing Entity Organization

Substantial

High

able 1. Risk Assessment and Mitigation Measures Summary Comments & Risk Mtigaiion Measures

This operation will rely on government financial management systems. Fiduciary risks normally associated with use of Government systems will therefore apply, especially the wide prevalence of corruption which may impact on the control environment to some degree. The Bank is assisting GO1 to improve its financial management systems through the Government Financial Management and Revenue Administration Project.

The implementing agency, KPDT, has experienced in managing the Bank?s project (SPADA and EDFF). KPDT will have a representative PMU office in Jakarta and a field office in Nias. The Bank noted KPDT weaknesses in implementing SPADA, such as frequent budget delays,

Substantial N

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B. Control Risks 1. Budgeting

An agreement (Surat Perjanjian) will be signed between KPDT and the community group before the groups can

2. Internal Controls

Substantial

3 . Accounting

4. Flowof Fund

High

High

Substantial

Substantial

delays on Community Support grant disbursement and I consultants’ selection process. For this project, PMC will be hired to strengthen KPDT management capacity. Community Support grant will be managed by community groups. These groups will be trained prior to receive the grants. The PMU will be supported by PMC, which includes FM consultant, field-based technical consultants and, facilitators to ensure proper use of project funds.

Substantial

~

Activities will be financed 100% by the donor funds and budgeted at the central level (KPDT). The risk of timely availability of budget funds may arise due to possible delays in APBN issuance and revision to budget documents. The Bank has experienced in other projects with KPDT as implementing agency (SPADA and EDFF), where the budget (or the revision) was delayed causing delays in implementation. PMU should work together with MOF and ensure that budget documents could be issued timely. At PMU level, payment verification will rely on the government system. Although the implementing agency will have a sufficient segregation of duties between technical and financial/ administration aspects, the project will still face the risk of insufficient payment verification. Satker arrangement should ensure sufficient segregation of duties between technical and financialfadministration aspects. This will be emphasized in the project manual.

Community Support grant manual will be developed that includes (but not limited to) community group selection method, disbursement and fund flows arrangement, financial records, filing system and financial reporting. Consulting services to the PMU will include FM experts for community training, FM oversight and verSfications of Community Support-grant activities. Further, the PMli will have an independent FM consultant to veri3 the claims of the larger consultingfirm.

Substantial

Substantial

Government accounting software is used to record all transactions. IFR will be prepared on a quarterly basis and should be received by the Bank not later than 45 days.

N

Y

Community Support grant manual should be agreed with the Bank prior to disbursement of Community Support grant

N

N

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5 . External Audit

Overall project specific Risk

Substantial

High

receive the Community Support grant money. The community group will receive 50% of the amount. Next tranche will be paid after the advance were reported and accounted. Further detail of flow of find mechanism will be described in the Community Support grant manual.

The project will be audited by an auditor acceptable to the Bank. Annual audit TORS for the project must be acceptable to the Bank. The auditor of the project will have access to financial records and reports of community group. Involvement of local auditors (Bawasda) as far as possible to have more coverage area. Public exit conference by auditors should be included in the audit TOR. Audit of the project’s Financial Statements will be submitted to the Bank not later than 6 months afrer the end of fiscal vear.

Moderate

Substantial

N

Project Financial Management & Disbursement Arrangement

15. Based on the project design features and the risk analysis summarized above, the following arrangements are proposed for financial management and disbursements. These include measures to mitigate risks identified above.

Institutional and Staffing Arrangements

16. KPDT is the implementing agency and head of the Project Management Unit (PMU) and Secretariat. The ministry is responsible for project implementation and budget execution, including preparing the annual budget application to the MoF and setting up a project Satker (Satuan Kerja, project managers) that will be responsible for management of the annual budget (DIPA) and submission of withdrawal application. The budget application will be allocated in the following manner: (i) payment to the consultants and firms supporting KPDT, (ii) incremental operating costs of KPDT, (iii) Community Support grants to community groups, (iv.) payment for goods and equipment to support project implementation, and (v.) payment for trainings activities. BAPPENAS as the executing agency will be responsible for the grant’s overall planning and evaluation.

17. The Program Steering Committee (PSC) consists of BAPPENAS and KPDT, and is responsible for setting program policies and intergovernmental coordination.

18. KPDT as head of the PMU and Secretariat will have a representative office in Jakarta and a field office in Nias. The PMU is responsible for project coordination and implementation - including procurement, financial management, monitoring and evaluation, quality assurance, safeguards and implementation of the anti-corruption action plan. PMU will conduct field visit to monitor project implementation at least twice a year.

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19. During the assessment, KPDT has assigned a Satker. KPDT has applied the new finance law No. 17/2003, hence segregation of duty between payment verification function, procurement and project management will be in place. KPDT will assign sufficient and qualified staff to the PMU in Jakarta and Nias. Both KPDT and BAPPENAS will be responsible for counterpart financing (government staff honoraria, taxes and other operational expenses), excluding the budget for incremental operating costs to support the PMU.

20. Individual FM consultants will be hired to support the PMU during start-up stages and for independent FM verification throughout the project. This individual FM consultant will be located in Jakarta will support the PMU management in supporting overall coordination of financial management for the project including, but not limited to, FM monitoring and oversight, payment verification, collating and preparing Interim Financial Reports and withdrawal application. This consultant should be hired not later than one month after effectiveness to ensure that he/she will assist the project on preparing the sub-grant manual.

21. A consultant firm will be hired by the PMU under the project to support program management (and technical operations) of the PMU and Secretariat in Nias. It will include a FM consultant, who, besides providing FM support to the expenditure at provincial level, would support communities in maintaining books of accounts, provide training and review and verify the reports that the communities prepare on utilization of Community Support grants. This FM consultant should be located in the field prior to disbursement of Community Support grant.

22. Community Support grants will be implemented by community groups (farmer groups and women groups) who will responsible for management and accountability of the funds. A sub- grant agreement (Surat Perjanjian) will be signed by each community groups and KPDT representative (Satker) before the groups received the grants. Trainings will be provided to the community groups and facilitators will be hired to assist them, in terms of technical and financial accountability aspects. Methods of community groups? selection will be developed and included in the Community Support grantlproject manual.

Accounting and Reporting

23. The accounting policies and procedures of this project will substantially follow government financial management procedures, with strengthened procedures where appropriate. These government procedures include, for instance, government budgeting procedures, accounting standards (PP no. 24, 2005) and government accounting systems (PerMenKeu no. 59/PMK.o6/2005), which have all been issued following the enactment of the Finance and Treasury Laws. All project activities and expenditures will be included in the respective KPA (Budget Holder) budget and administrative and accountability procedures for approving expenditures and disbursing funds to beneficiaries will follow government procedures. 24. To improve project financial information and reporting, grant expenditures and activities will be separately reported to the Bank on a quarterly basis through Interim Financial Reports (IFRs). This would include information on procurement progress, physical progress of budgeted activities, and financial source and use of funds. A reconciliation of the special account transactions with the financial statements will also be prepared. Formats for these would be agreed at appraisal and confirmed during negotiation. Quarterly project financial report should be received at the Bank no later than 45 days after the end of each quarter. The quarterly reports will be collated annually for annual financial audit purposes. The KPDT PMU will be responsible to ensure that IFRs will be submitted to the Bank on timely basis. Details of these procedures will be included in the Project Manual. FM consultant will be hired to assist the PMU in preparing the IFRs.

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25. All financial transaction should be recorded properly and supported with adequate evidence that the recipient is as intended according to the Grant objectives, and the record should be publicly available to ensure transparency.

26. The small-scale civil works and some goods procurement (for perishable items such as rubber or cacao seedlingdgrafts) under this project are designed to be procured by consultant firm. Larger portion of goods totaling approximately USD 2 million will be procured by Satker at central level.

Internal Control

27. Payment verification at the PMU level will rely on the government system. Segregation of duties between technical and financial aspects will be applied to ensure adequate internal control. The Project Manual will document the financial management systems and procedures to be followed to ensure that the project has sound financial management practices. The Project Manual will include: Organization structure, job descriptions, budgeting, procurement, record management for finance unit, asset management (if applicable), flow of funds, payment verification, accounting (including use of government chart of account for the project), reporting (IFR format, IFR preparation and time line), annual audit arrangements, supervision plans, monitoring and evaluation mechanisms for project implementation, and inspectorate review of project implementation (internal audit).

28. For community level Community Support grants, the project will adopt similar and existing financial management arrangement implemented by existing Bank and Go1 CDD projects. The project will develop Community Support a grant manual that includes (but not limited to): community group selection method, disbursement and flow of fund, financial records and supporting documents filing and financial reporting. Community Support grant disbursement is subject to approval of Community Support grant manual by the Bank. Community groups will be trained prior to Community Support grant disbursement.

Disbursement Arrangement

29. The disbursement methods will be Advance, Direct Payment and Reimbursement. In order to facilitate the disbursement, a Designated (Special) Account (DA) denominated in US dollars will be opened by DG Treasury in the Central Bank (BI) or a commercial bank acceptable to the Bank under the name of the Ministry of Finance. DG Treasury will authorize its relevant Treasury Office (KPPN) located in Jakarta to authorize payments of eligible project expenditures by issuance of SP2D (remittance orders) charging the DA. For this purpose, DG Treasury shall issue a circular letter to the relevant KPPN Offices providing guidelines and criteria for eligible project expenditures in accordance with the Grant Agreement.

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Figure 1. Flow of Funds

I I I I I I

30. The ceiling of the advance provided to the DA is US$1.6 million. Applications for reporting of the use of DA funds will be supported by: (i) list of payments together with records evidencing such expenditures, against contracts for goods, consultants that are subject to the Bank's prior-review; or (ii) statement of expenditures (SOEs) for all other expenses. In addition, a DA reconciliation statement is required for applications for reporting of use of the DA funds. Reporting of use of DA funds and application for an advance to DA may be submitted in a single application on monthly basis. Withdrawal application under reimbursement or direct payment is subject to a minimum amount of us$loo,ooo.

Communiw Community Community

iroup i w group Bank account Bank account Bankaccount

World Bank T

Category Description (1) Community Support grants

Amount of Grant (US$ equivalent.) be financed

% of expenditures to

340,000 100%

I I I I

I I I

31. The DA will be finance eligible project expenditures. Although management of the DA will be under the responsibility of DG - - - - - - - - - -+ Document flows

responsible for reconciling the DA and , Fundflow preparing applications for withdrawal of advances and reporting the use of the DA, duly approved by DG Treasury before their submissions to the Bank. 32. All documentation for expenditures submitted for disbursement will be retained at the implementing unit and shall be made available to the auditors for the annual audit and to the Bank and its representatives if requested.

solely used to (Phase 11) _ _ _ _ _ - _ - _ - _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ (

Treasury MOF, KPDT will be -.- .- .- .- .- .- b Authorization

(2) Goods and non-consultants' Services;

(3) Incremental operating cost Training and Consultants' Services

7,230,000 100%

630,000 100% I I 8,200,000 I I

33. Community groups will be formed based on selection criteria determined. Groups will be formed and selected through village meeting facilitated by village development committee. This

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also applies for selection of activities to be funded by Community Support grants. The activities would be subject to a negative and positive list that will be included in the Community Support Grant Manual. For selected Community Support grant proposals, a sub-grant agreement (Surat Perjanjian) will be signed between the Satker (KPDT) and the community group. The document will include activities plan. After signing the agreement, the community group will receive an advance equals to 50% of the Community Support grant amount. The community group will report the use of advance when requesting the rest of the Community Support grant amount. Financial reports from these community groups will be verified by FM consultant in the field and later by individual FM consultant in Jakarta before PMU can process the next tranche. The Community Support grant manual will clearly define outputs and documents to be submitted for verification purposes. Further detail of flow of fund mechanism will be described in the Community Support grant manual.

Remedies

34. If ineligible expenditures are found to have been made from the special account, or if expenditures are made from the Special Account without adequate supporting documentation to validate these, the Recipient will be obligated to refund the same to the Bank. If special account remains inactive for more than six months, the Bank may reduce the amount advanced.

35. The Bank will have the right to suspend disbursement of the funds if significant terms of the Grant agreements, including reporting requirements, are not complied with. This will be reflected in the Grant agreement.

Audit Arrangements

36. The project financial statements prepared by the project executing agency will be based on the compiled project Interim Un-audited Financial Reports (IFR). The annual IFR will be subject to a financial audit by an auditor acceptable to the Bank. The Terms of Reference (TOR) for the project audit should be agreed by the Bank. A copy of the project audited financial statements, along with the management letters issued by the auditors, if any, will be submitted to the Bank no later than 6 months after the end of each fiscal year. The audit will cover sample of Community Support grant recipients. The audit will include separate opinion on the effectiveness of internal control, compliance with the operational manual, including sub-grants operations manual, and the grant agreement. Public exit conference will be conducted by the auditor to communities and local government after completion of field audit. The auditor will work together with Bawasda (local auditor) as far as possible to have more coverage areas. Bawasda will follow the same audit TOR and submit the report to BPKP for consolidation. This model is starting being implemented for PNPM project where BPKP agreed to provide training for trainers and audit procedures modules.

Supervision Plan

37. Supervision of project financial management will be performed on a risk-based approach at least twice a year. The supervision will review the project’s financial management system, including but not limited to accounting, reporting and internal control. Supervision will also cover sub- projects on random sample basis. As part of supervision, the Bank will also review all FM assessment done by the project’s FM consultant to prospective sub grantees and consultants. The financial management supervision will be conducted by financial management specialist and Bank consultants.

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Table 3. FM Action Plan and Conditionalities Action Responsibility Due Date

1. Sub-project operational manual that PMU Prior to disbursement of will include payment verification Community Support grant for subprojects. The manual should be agreed with the Bank.

2. Hiring FM consultant with the PMU PMU qualifications and skills acceptable to the Bank.

1. For Individual FM consultants not later than one month after effectiveness.

2. For FM consultant(s) hired under PMC prior to disbursement of Community Support Grant.

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Annex 8: Procurement Indonesia: Nias Islands Livelihoods and Economic Development Program

General

1. Procurement for the proposed project would be carried out in accordance with the World Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits” dated May 2004 and updated October 2006 and May 2010; and “Guidelines: Selection and Employment of Consultants by World Bank Borrowers” dated May 2004 and updated October 2006 and May 2010, and the provisions stipulated in the Legal Agreement. The general descriptions of various items under different expenditure category are described below. For each contract to be financed by the Loadcredit, the different procurement methods or consultant selection methods, the need for prequalification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank project team in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

2. Procurement of Goods. Goods procured under this project are fertilizers for the rice intensification component (US$1,000,000 equivalent in aggregate), fertilizer for the rubber and cocoa activities (US$90,000 equivalent), seeds for the rice intensification program (US$400,000 equivalent), rubber and cocoa seedlingshootstock and vegetable seeds (US$384,000 equivalent), farming equipment (tractor, thresher, US$400,000 in aggregate), gardeninghand tools (US$62,500), and office equipment (US$60,000 equivalent). Fertilizer and seeds will be procured in tranches each year with specific delivery dates and destinations. Each tranche is expected to be below US$200,000 and may be procured through National Competitive Bidding (NCB) method using bidding documents acceptable to the Bank. Procurement of agricultural equipment will be procured through ICB method using the Bank’s standard bidding documents. Small-valued farming and office equipment for up to US$lO,OOO equivalent per contract may be procured through Shopping using procurement documents satisfactory to the Bank.

.

3. Selection of Consultants. Consulting firm will be recruited for program management supports and implementation (US$ 4.20 million equivalent). Since this is the critical assignment for the Project, KPDT will carry out advance procurement for its selection so that contract could be awarded at effectiveness of the Grant. The assignment will include setting up nursery facilities, i.e. small structures, with waterlshade access, and fences in several areas totaling US$lOO,OOO. Procurement of items in the provisional sums will follow the consultant’s own procedures and will be part of technical evaluation criteria. Selection of the consultant will be done through a Quality and Cost Based Selection (QCBS) method using Bank’s standard request for proposal (RFP) documents. Although not foreseen at the time of preparation, Selection Based on Consultants’ Qualifications (CQS) will be included for selection of consultant for services estimated to cost US$200,000 or less. Short lists of consultant firm for services estimated to cost less than US$400,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. The project will use utilize individual consultants (about US$340,000 in aggregate) to support the KPDT for key tasks, not limited to, procurement support, financial management, finalization of the Project Management Manual (PMM), and project socialization and group formation. Individual consultants would be selected in accordance with provisions in Section V of the Bank’s Consultant Guidelines.

4. Farmer Managed Extension Activities. Grants (US$ .250 million in aggregate) will be provided to each Farmer Group to execute self-managed extension activities with sufficient

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technical and administration support from the consultants. Each participating Farmer Group shall be registered at its respective location and meets the minimum requirements defined in PMM in order to be eligible to receive the grant (up to US$2,500 per group, depending on the activity). Procurement under the grants will follow Community Participation in accordance with Paragraph 3.17 of the Procurement Guidelines and shall be specifically described in the PMM. The activities involve procurement of agricultural inputs through local shopping procedure. The PMM will use best practice in CDD approach in similar type projects in Indonesia, such as the use of ‘peer control’, in order to enhance internal control procedure and meet the fiduciary requirement.

5. Capacity Building, Training, and Studies. These activities consist of training and study tours to domestic agriculture institutions (rice, rubber, cocoa research centers, etc), and special studies for ad-hoc livelihoods needs (limited to US$50,000 per activity). Trainings or studies (US$330,000 in aggregate) will be procured using the implementing agency’s administrative procedures which were reviewed and found acceptable to the Bank.

6. Operational Costs. Activities under this category (about US$26 1,000 equivalent) which would be financed by the project would be procured using the implementing agency’s administrative procedures which were reviewed and found acceptable to the Bank. Additional IOC cost include study tours, travel, and training (US$330,000)

Assessment of the Agency’s Capacity to Implement Procurement

7. Procurement activities will be carried out by State Ministry of Disadvantaged Area Development (“Kementerian Pembangunan Daerah Tertinggal” or KPDT). KPDT is currently managing “Support for Poor and Disadvantaged Areas Project in Aceh and Nias (SPADA)” project, which is the first Bank financed project in the ministry (US$104 million in total).

8. An assessment of the capacity of the Implementing Agency to implement procurement actions for the project has been carried out by EAPPR. The assessment reviewed the organizational structure for implementing the project and the interaction between the project’s staff responsible for procurement Officer and the Ministry’s relevant central unit for administration and finance.

9. Most of the issues/ risks concerning the procurement component for implementation of the project have been identified and rated as ‘HIGH’. These issues as well as the corrective measures which have been agreed are as follows:

10. KPDT has weak capacity in carrying out Bank’s procurement which may cause delay in selection of implementation consultant, which is the critical contract for the Project. Such delays have significantly affected SPADA lo Project. To mitigate this risk KPDT is receiving procurement support from an international procurement consulting firm. The procurement consultant is mainly assisting KPDT to carry out advance procurement for selecting program management supports and implementation consultant firm. To ensure timely selection process, the draft RFP for this contract should be ready at the time of negotiation.

11. To address the procurement capacity issue, KPDT will assign members of the procurement committee who have hands-on experience in procurement. The Procurement Consultant has delivered procurement training during the preparation phase of the Project to a pool of qualified

l o “Supports for the Poor and Disadvantaged Area” (SPADA, US$104 millions) is an ongoing Bank’s financed project executed by KPDT.

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staff who will be engaged for this program. Replacement of committee’s members, which commonly occurs in the government, should consistently conform to specific qualification requirement. To further strengthen the procurement committee, KPDT shall retain procurement consulting services throughout the project period for the remaining goods and consulting contracts by drawing on qualified individual procurement consultants on ad-hoc basis or extended period. The TOR, budget and timing for these services shall be ready at the time of negotiation. To address the technical issue, for procurement of agricultural input, the procurement committee shall be assisted by experts who have specific knowledge on the substance of the technical specification, including staffs from Ministry of Agriculture. Terms of reference of the technical experts in form satisfactory to the Bank shall be ready at the time of negotiation.

12. Delays in budget preparation and contract payment have, in the past, caused considerable delays in procurement. To mitigate these risks, the PMU shall have at least one senior member who has hands-on experience with the GO1 budgeting and payment systems, and could play a role for facilitating the closure of issues related to these matters, including, if necessary, obtaining clarification from other relevant agencies such KPPN offices at MOF, BAPPENAS, and auditors.

13. Corruption and collusion cases continue to be a common issue in project implementation in Indonesia. To mitigate this risk, KPDT should include the established measures to address corruption issues in the PMh4, such as steps to report and investigate any cases of collusion, fraudulent, corrupt and coercive practices, as well as remedial actions. This will include automatic referrals to BPKP (government auditor) and KPK (the national Corruption Eradication Commission) at the central level and to the community representatives at the district or sub- district level. A strengthened complaint handling resolution should also be developed within KPDT. KPDT should establish an enhanced disclosure and monitoring system in which all information related to the consultant and goods contracts (including their amount and corresponding detail progress payments, as well as sanctions) will be submitted to the Bank on a quarterly basis. Further, the use of third-party procurement advisors is viewed as a positive step by KPDT to increase transparency of the process.

Prior Review Thresholds

14. Goods & Works: During the initial 18 months of the project, the Bank will carry out prior review of first contract for goods/works by implementing agency regardless of value, and thereafter contracts estimated to cost US$ 100,000 equivalent or more, irrespective of the procedures. The above thresholds will be reviewed and revised as necessary during Bank’s supervision mission. Procurement by community will be subject to a yearly ex-post review on a sample basis.

15. Consultants Services: Bank’s prior review will be required for consultants’ services contracts estimated to cost US$ 100,000 equivalent or more for firms. All single-source contracts will be subject to prior agreement by the Bank. All TORS of the consultants are subject to the Bank’s review.

16. Residual Project’s Risk. Since KPDT is receiving procurement support from an international procurement consulting firm from the preparation stage of the Project for procurement capacity building and for advance procurement of the critical consultant contract (implementation and management consultant services), KPDT will retain supports from procurement consultant throughout the project’s implementation period, and most of the

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remaining contracts will be straightforward and mostly will be subject to prior review by the Bank, it is anticipated that the residual project risk for procurement under the Project will be reduced to ‘SUBSTANTIAL’.

5 Pre- qualifica tion (yesho) No

Procurement Plan

6 7 8 9 Domestic Review Expected Comments Preferenc by Bid- e Bank Opening (yesho) Date No Prior Year 1

17. KPDT, at appraisal, developed a Procurement Plan l 1 for project implementation which provides the basis for the procurement methods. Upon approval by the Bank, the Procurement Plan document will be available with KPDT in the Project’s database and in the Bank‘s external website. The Procurement Plan will be updated in agreement with the Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

1

Frequency of Procurement Supervision

2 3 4 15 6 7

18. In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment of the Implementing Agency has recommended that a procurement supervision mission to visit the field is conducted six months after the implementation consultant is on-board, and annually thereafter. A post review mission will be conducted on an annual basis to get a minimum sample of 20% of total post review contract. Since most of the contracts will be subject to prior review by the Bank, the number of post review contracts is expected to be minimal.

1

19. Details of the procurement arrangement involving international competition 1. Goods and Works and non consulting services.

lion Date Program Management 4.2 QCBS Prior Advance support & Procurement Implementation

2. Consulting Services.

Description of Assignment

Est. Selection Review Expected Comments I Cost 1 Method 1 znk I Proposals 1 US$ mil Submission

To be finalized prior to negotiation

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(b) Consultancy services estimated to cost above US$lOO,OOO per contract and Single Source selection of consultants (firms) will be subject to prior review by the Bank.

(c) Short lists composed entirely of national consultants: Short lists of consultants for services estimated to cost less than US$400,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines.

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Annex 9: Financial Analysis Indonesia: Nias Islands Livelihoods and Economic Development Program

Financial Assessment

1. In a project of this nature, assumptions about the mix of activities that may be adopted by a particular group or groups are inappropriate given the wide variety of social backgrounds, access constraints, technical knowledge and training challenges among target groups. It is thus impossible to develop a group level benefit stream and financial analysis. Instead typical benefit streams for individual activities were developed to determine their investment costs, financial rates of return, net present value, and the comparative returns in terms of returns per labor day. These enterprise benefit streams are, however, only examples and the Consultant would identify additional enterprises and the enterprise mix to suit local circumstances. A women’s group may, for example, spend a typical US$2,500 grant on a single breeding sow unit, a 200 broiler unit and a retail activity or cocoa improvement. An upland rubber group may add livestock to the mix depending on skills.

2. The resources available did not permit collection of data on environmental and social costs and benefits and full border prices necessary for an economic analysis. However, assessment of the likely overall benefits to participants on a financial basis shows that the project will lead to improved livelihoods and that the grant investment will provide positive returns in the long term.

3. In the cocoa industry, existing yields are among the lowest in Indonesia while opportunities to rapidly improve the crop and even to obtain benefits from new plantings within the project period are readily available and simple to adopt. Farmers are already practicing some form of crude pruning but existing practices risk spreading disease. The combination of fertilizer and pruning of existing rootstocks plus top grafting of better material has been shown to increase yields from 0.6 to 1.0 tons /ha under more difficult conditions in Sulawesi (PRIMA project under PT Effem 200 1-08>. Moreover, training in post harvest handling has increased prices for quality production by at least 10% as buyers recognize the need to mix good quality beans with average quality pod borer affected beans in order to meet Indonesian export standards. Cocoa is a minor crop in most households and a complete replacement strategy with no return until year 4 is feasible given income from other sources and large returns available during years 4-15. In this case, conservative benefits of 0.6 t/ha at a farm-gate price of US$2,300 (International price US$2,700), give a gross margin of US$1,409 per ha after year 4, and moreover, the investment will result in a sustainable cocoa industry because the yield improving measures also deter cocoa pod borer, (a major pest threatening the future of cocoa in Indonesia). Cocoa is the most attractive crop in terms of gross margidha and return per labor day. (Table below)

4. Benefits from rubber improvement are possible when rubber jungles are replaced over a 10 year period using benefits gained from quality improvement, market discovery and improved product presentation to pay for annual replacement of about 10% of trees with a smallholder plantation style structure. Returns to investment are immediately available with this strategy compared to waiting until, year 7 under a full replacement regime. Benefit calculations assume a conservative improvement of 5% from improvement in tapping practice and 15% in price at no cost by improving latex presentation and value chain understanding. A modest gross margin of US$175/ha is available for an investment of US$43/ha. Over a 15-year period, with gradual replacement of the whole jungle with high yield trees and eventual yields of 1.5 t/ha the NPV of rubber rehabilitation is US$3.56million or US$712/ha. A gradual replacement of rubber with cocoa may nevertheless continue given higher returns from cocoa in suitable climatic zones of the island.

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5. Incremental production of 1.5tha from the seed and fertilizer packages applied to only 500ha (150 lead farmers) of rice in the first year would generate seed for a further 10,000 ha in the following wet season. At project completion in year 4, assuming farmers maintain the packages and obtain incremental yields of only 0.8 t/ha, benefit would amount to US$5.87 million over 10,000 ha or US$587/ha. Over a 15-year period, the NPV at a discount rate of 10% is US$6.47 million.

Enterprise Cocoa Rubber lOha lOha

6. Returns to individual groups from breeding pig production are reasonably attractive, with an NPV after 15 years of US$6,800 from an initial investment of US$2,700 and a FIRR of 50%. At a discount rate of lo%, the combined net present value of activities at year 15 is approximately US$11.08 million, demonstrating that the investment is robust at reasonable discount rates. Gross margins of three activities, viz: rice (10,500 ha), rubber (5,000 ha) and cocoa (2,000 ha) provide annual benefits of US$9.78 million or almost all of project cost after project completion in year 4. The majority of returns come from the rapid improvement available from rice with better seed and fertilizer. Rice improvement logistics are, however, one of the most challenging activities of the project given the short timeframe and may need to be undertaken over two seasons (5,000 households per season) rather than one as modeled here.

Rice Paddy Pigs 3 200 Mean seed rice sows Chicken

Investment cost lOha lOha broilers

2,843 425 4,483 2,703 2,730 1,339 2,420.5

Daily wage rate I 4 FIRR% 15 I 28 I 116 I 136 I 51 I 124 I 78.33

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Sample Gross Margin Budgets Rke krprowmSnt .asd f N- Rlcekrprwsnart gaefslfu-

C0.t. cost. coat. Cost. 20ha 20 ha

d h wokd 5 n4thoUtWoiect 0 Mproiect 0 without proied S -+e; fe-e seed 60 kglha fertiherNPK urea harvest M o r 300 days Deprsclation pesticide arb tda l

4.0tharrice tractor H e 60 days gross m wgin M o r days returnlabbw day

ImeDtm0nt 0 O d

Hand tractor Motorized Thresher' Winnower' fertllzer NP K+ urea arb tatel

. . 100 480 seed 60 kg

3750 fertilizer NPK 1200 urea

800 harvest labor 480 (15 days 014) 450 psstlclde

7260 rubtctal

I 00 water fa; 288 seed 60 kg

0 fetilber NPK 0 urea

1200 harvest labor DeprecWIon

450 pesticide 2038 sub Ida1

100 480 seed 60 kg 760 fettlkmr NPK 660 urea 800 harvest labw 320 ( I O dayslha at5) 450 pestiade

3570 sublotai

18400 2.5tharlce 11500 3.3tharlce 1 5 1 8 0 2 5 t h t i w 600 grossmargin 9462 gross mar* 11610 gossmargh

11 740 labor days 1300 labor days 1100 Iabw days 1000 rstunlebor day 7.28 rsturnkbw day 10.55 rstwnllabor day 1 1.74

1200 1 800

600 4950 6550

Cost.

Inputs Sow replacement lyr (5 p a r breedhg life) Vaccbtionesow Vecchetions piglets Parasite control arpplementery feed Housing R 8M forage c W g Labor 50 days 0 5 4 arbtotal

Income 18 bsconers 75kg gossmergin famSylabor days retunlabor day liveweight end av. of 30kg Iwt for 180 days at SO.31kg feed cracked grah. Balance by sown legune Fcfagemaintensnce bassdonlkgdylo Labor 3 hrslday for 180 days

Investment costslgroup H w h g sows water suPPw forage estsblkhm ent 2he , 20 kg seed, 500 sub total

lnvatmnt coat

Thresher* 1800 ,

Whnower' 600 fertilizer NPK+uec 1188

3588

100 288

0 0

I 200

450 2038

11 500 9462 1 300 7.28

t 300 Day d d chidis

20 Vaccination-Newcastle Disease 63 FoM Chders treatment 25 D khfedlon , slpplem snts

1956feed-FCR 3.5av.Lwtl.Okgfeedprice$O.41kg 100 ti oushp R8M 2.W of capitel cost &de 200 chick mwtallty ( 25%)

2864 sub total

4050 300 brolers I .75 kg @$2kg 1386 gross m wgln

6.79 raturnlabor day 204

5 00 1500 1 50 580

27 30

22 40 20 10

560 12.5

25 689.5

1050 360.5

50 7.21

500

150

650

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Annex 10: Safeguard Policy Framework Indonesia: Nias Islands Livelihoods and Economic Development Program

A. Introduction

1. The objective of Nias LEDP is to facilitate post-disaster economic recovery by improving the ability of the Government to work with poor rural households in Nias to identify, develop and sustain livelihood opportunities by: 0 Identifying and addressing community organization, knowledge, inputs, and marketing

constraints to livelihoods in selected kecamatans in Nias. 0 Training and empowering small-holder farmers and government staff to support village

group-led activities. 0 Implementing agriculture and other livelihood improvement activities. 0 Raising the capacity of district government for public expenditure planning, program

management, and monitoring and evaluation.

B. Objectives of the Safeguard Framework

2. The social and environmental management framework provides general policies and guidelines to serve the following objectives:

Protect human health; Prevent environmental degradation as a result of either individual investments or their cumulative effects; Enhance positive environmental outcomes;

0 Protect community members from worse-off living condition due to the taking of land and/or reduced access to natural resources

0 Protect community members from degradation of cultural life and value; Avoid conflict among community members and strengthen community social cohesiveness. It is the responsibility of PMU team and consultants to support the Go1 (Bappenas and KPDT) in developing detailed social and environmental management procedures for this framework as part of the operations manual.

3. All livelihood activities that will be financed by the Nias LEDP project have to be in compliance with GO1 environmental rules and regulations, as well as with environmental policies of the World Bank. The project has to follow the Bank’s Policy for Resettlement (OPBP 4.12) and Indigenous Peoples (OPBP 4.10). The project requires environmental screening and environmental assessment reports (if necessary) of sub-projects to help ensure that the sub- projects are environmentally sound and sustainable, and thus improve decision making. During the environmental screening, the proposed sub-project will also have to be screened in terms of the potential land acquisition needs and potential impacts to the Indigenous Peoples (IP). The environmental and social assessment run in parallel with the process of designing a sub-project and implementing it, and the type and its detail depend on nature, scale and any potential environmental risks. It is the responsibility of the Government of Indonesia as the recipient of the Grants to ensure that these policies are not violated.

C. Potential Positive and Adverse Environmental and Social Impacts from the Project

4. The project will not lead to land conversion, destruction of environmentally sensitive areas, historically significant sites or other cultural resources. The project will benefit the people of Nias including the IPS.

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5. A number of potential environmental risks have been listed from a study conducted (ERM, Aug 2008) to examine the possible impacts and mitigation measures from Nias-LEDP on the environment and habitat that may occur as follows:

Increased use of pesticides and fertilizers Currently, very little pesticide or fertilizer is used in Nias, especially ‘for rubber or cacao production. Use of fertilizers such as urea, SP-36, TSP and KCL are likely to increase, although there are alternatives, while biological control methods will be promoted for pest control. Increased use of pesticides and fertilizers will have risks for health and safety during storage and application, pollution of drinking water sources, and ecological impacts. An integrated pest management will be introduced. Potential environmental benefits of the livelihoods component There are potential positive environmental impacts if livelihoods programs include environmental programs, for example tree planting for watershed management. Indirect impacts due to improved livelihoods Increased incomes due to improving livelihoods in Nias will, as planned, result in increased consumption and investment on the island. As yet, however, there are few, ineffective means of preserving natural or cultural assets on the island (e.g., watersheds, ecologically important areas etc). Therefore, measures will be required to improve measures for the preservation of critical assets.

Consequently, the consultant teams that will be engaged under the project will need to have a good understanding of related environmental and social impacts and how such impacts can mitigated via appropriate planning, design, and implementation measures.

7. Social Issues. The program activities may entail financing of activities which could involve social issues associated with agriculture, and other economic development and job creation projects. In general, the program activities that will be designed and implemented are likely to be of small scale. As a result, the level of associated social risks is likely to be limited. However, it is important for planning processes, including prioritization of economic development needs, to reflect community needs and specifically those of vulnerable groups (such as women and the poorest in the society).

D. Environmental Framework

8. The Nias LEDP will make use of the large body of technical and operational manuals developed by Nias KRRP and PNPM RuralKDP. A range of environmental and engineering specialists have reviewed these manuals, and they meet all WJ3 standards. One of the guidelines is the Environmental Assessment Form from the Technical Operation Manual-PNPM Rural (or Formulir Petunjuk Teknis Operasional PPK (Environmental Assessment Form)

Environmental safeguards policies will be addressed in the following manner: Nias LEDP technical and field staff will receive environmental awareness instruction as part of their skills-training courses, and will make use of existing PNPM/KDP social and environmental checklists, manuals and mitigation techniques. The checklist provides a readily-available and easy-to-use form on which data can be recorded, and ensures that all items are covered during the village interviews. During discussions with target communities on their priorities, and the planning of LEDP assistance, LEDP extension officers will include environmental considerations amongst the technical constraints and considerations that they will discuss with communities, including

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the zoning restrictions. Extension officers will also promote livelihood projects with environmental benefits at this stage; On submission of an application for financing, as part of the approval process for sub-projects, adherence to the zoning restrictions and technical guidelines will be verified by the LEDP PMU; Environmental screening of villages will take place as part of the Needs Assessment. The environmental screening will make note of such aspects of the village as topography (steep, flat, susceptible to landslides, etc.), local water bodies, waste handling practices, sanitation, potable water supply, etc. The environmental screening will allow Nias LEDP senior personnel to quickly identify hazards or concerns, bring them to the attention of field personnel for further investigation, or highlight items for consideration during sub-project design. Periodic checks on project activities will be carried out by the LEDP PMU, to verify zoning compliance,

Zone

Livelihood Development Zone

Flooding and Landslide Sensitive Zones

Ecological protection zones

Consists of

All areas outside of the zones below

Secondary forests, slope greater than 40% and slopes greater than 15% with sensitive soils (backshore, river bank, lake and dam- side and around springs)

Peat swamp areas, areas of primary forest, length of coasts with coral reefs. Gazzetted protected areas.

Restricted Activities

None. LEDP activities are actively promoted

Conversion of mixed forest to pure stands of rubber or cacao

All LEDP activities

Objectives

To focus livelihoods and economic development, and government services in population ‘clusters’

To avoid rubber/cacao cultivation leading to increased incidence of flooding and landslides

Complete avoidance of any impacts on remaining areas of natural habitats, areas of greatest species diversity, and areas where threatened species remain.

10. The completion of the environmental form is an obligatory part of the planning process. Each type of sub-project is checked for the various treatments that must be performed on it to avoid or repair environmental problems. At any point during activities, the same form is brought out to the field and reviewed, at a time when it is still feasible to easily repair deficiencies. At the end of activities, the form is reviewed again.

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Additional Screening Criteria (Negative List)

The following comprises a negative list of goods and expenditures and practices that cannot be procured ore exercised under the project:

(a) Goods or services supplied under a contract which any national or international financing institution or agency other than the Bank or the Association has financed or agreed to finance, or which the Bank or the Association has financed or agreed to finance under another loan, credit, or grant

(b) Goods included in the following groups or sub-groups of the Standard International Trade Classification, Revision 3 (SITC, Rev.3), published by the United Nations in Statistical Papers, Series My No. 34Rev.3 (1986) (the SITC), or any successor groups or subgroups under hture revisions to the SITC, as designated by the Bank by notice to the Borrower:

(c) Goods intended for a military or paramilitary purpose or for luxury consumption;

(d) Environmentally hazardous goods, the manufacture, use or import of which is prohibited under the laws of the Borrower or international agreements to which the Borrower is a party;

(e) No expenditure on account of any payment prohibited by a decision of the United Nations Security Council taken under Chapter VI1 of the Charter of the United Nations; and

(f) No expenditure with respect to which the Bank determines that corrupt, fraudulent, collusive or coercive practices were engaged in by representatives of the Borrower or other recipient of the Grant proceeds, without the Borrower (or other such recipient) having taken timely and appropriate action satisfactory to the Bank to address such practices when they occur.

(g) Pesticides. The project will not finance the procurement or application of pesticides.

(h) Development in protected areas. No sub-project will be financed that would be located in a protected area or might change the purpose andor designation of a protected area. Protected areas are identified in The Decree or the Minister of the State for the Environment of the Republic of Indonesia Number KEP-ll/MENLI-I/2006, entitled Concerning the Types of

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Businesses Activities Required Completing an Environmental Impact Assessment. The list includes notably: forest protection area; marine/fieshwater conservation areas; nature tourism park; areas surrounding lakes and reservoirs; coastal mangrove areas; national parks; coastal edges; forest parks; cultural reserves; areas surrounding springs; scientific research areas; and nature conservation areas.

Monitoring Efforts.

1 1. The third mitigation measure tool is developing and implementing monitoring efforts both on environment and social issues. The results of this monitoring effort will be integrated into the overall project M&E reporting. The project will also conduct a social and environmental review and assessment after one year of field implementation.

E. Cultural Property

12. The highly participatory nature of the project will ensure that the farmers/women groups can identify any proposed activities that may have an impact on cultural property. Given the nature of the project, it is very unlikely that the project will support activities affecting cultural property. However, the village-based consultants (Extension Technical Experts/Coordinators) will screen any sub-proj ect proposal and verify that no cultural property will be affected in the farming areas or in the women groups’ working areas. In cases where a sub-project affects cultural property, the project will not finance it.

F. Land Acquisition and Resettlement

13. Land requirement for any sub-proj ect with significantly large land requirement causing displacement and/or significant social adverse impacts on large number of households will not be acceptable. In the case a sub-project needs land acquisition or other assets attached to it, any affected people have the right to receive compensation and be informed about their right. The farmers/women groups will decide the method for acquiring land for program activities, which will follow these principles:

14. Project activities will avoid land acquisition, and if land acquisition is unavoidable, it will be minimized through design;

Land acquisition should be carried out in full consultation with or among the project affected persons/land owners, participatory and transparent to all involved;

0 Project affected persons have been clearly informed of their right on compensation at the public meeting regardless of land acquisition schemes that they choose; Project affected persons (PAP) will not be socially and economically worse-off due to the taking of the land by activity; Selection of scheme and level of compensation (if any) will have to be agreed by the project affected persons and by the farmers/women groups who need the land; Process and agreement on the scheme of land acquisition must be documented, and be made available to public at any point of time.

15. An activity that needs to acquire land will have to include a Land Acquisition and Resettlement Action Plan (LARAP) in its sub-project proposal. As the project is unlikely to involve large scale land acquisition and will involve full participation of the community groups during sub-project preparation and implementation, a simple format of LARAP would be

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appropriate. Requirements and format of the LARAP will be provided in the Operation Manuals. Experiences from similar projects like PNPM Rural and Urban, required land for the sub-projects would be obtained through any one of the following options:

16. Direct Purchase. Where possible the required land will be acquired through direct purchase based on ‘willing buyer willing seller’ principle, as the first option. Negotiations for direct purchase would be carried-out in a public place and in transparent manner. All proceedings will be documented and final agreement would be signed by the negotiating parties in the presence of NGOs or civil society and countersigned by the village head. The negotiated amount will be paid the latest within three months from the date of final agreement of the negotiated settlement by the negotiating parties. Timing of the payment will be agreed during the negotiation.

17. Voluntarv Donation. Voluntary contribution of land and/or other assets is quite common in Indonesian villages, assuming that an individual loses insignificant amounts of land. Land donation is acceptable only if: (i.) the land donator receives direct benefit from the project and they are not poor people, or becoming worse-off after the land taking; (ii.) project affected peoples have been informed clearly of their right on compensation (as stated in the guidelines) at a public meeting, but nevertheless they are still willing to donate without any pressure.

18. Land owners should be informed that they are entitled to getting compensation prior to the decision of contributing the land voluntarily. Voluntary donation of land for a sub-project would be an acceptable option where:

0

The land is identified by the beneficiary communities and confirmed by technical staff to be suitable for the sub-project and free from any environmental or health risks; the impacts on the land owners are marginal and do not result in displacement of households or cause loss of household’s incomes and livelihood; the households making voluntary donations are direct beneficiary of the sub-project; land thus donated is free from any dispute on ownership or any other encumbrances; consultations with the affected households is conducted in a free and transparent manner; land transactions are supported by transfer of titles; and documentation of consultation meetings, grievances and actions taken to address such grievances are properly documented.

19. In the case that the local government is planning to acquire private land or community land for the purpose that is related to the project (e.g. for nursery, drying field, etc), it can be done through willing buyer willing seller approach if it involves land less than 1 Ha, or, if more than 1 Ha the Bank’s Policy OPBP 4.12 on Involuntary Resettlement will apply.

20. A protocol for direct purchase and voluntary donation of land for sub-projects would be included in the Operations Manual. Sub-projects sponsors will be required to submit appropriate documents together with the sub-projects proposals to show the process to be used for obtaining the required land. Any sub-project without any of the above two options for land acquisition will not be accepted.

G. Indigenous Peoples’ or Isolated and Vulnerable Peoples’ (IV) Planning Framework.

2 1. The main issues related to indigenous peoples (IPS) or isolated and vulnerable groups in Nias are:

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The local elite, though they come from the same ethnic group, often dominate and exploit the vulnerable and marginal groups. Land conflicts relate to customary land. The common conflict can be divided into three categories: Conflict over boundaries between sub-clans; Sub-clan family land that is located outside the village has been taken over by the government (Le. for public areas) or by other villages where the land is located (claim owned by other sub-clan land) Cases where sub-clan land was used by outsiders under customary agreement but was then claimed as government land or which become disputed land (mostly in the south of Nias) Women have very weak positions in the society; have a very limited role in public decision making and have no right to land ownership. Special processes have to be built to make sure that women would get equal benefit from the project. The project includes creation of livelihood groups exclusive for women only.

The principles

0

Vulnerable groups, including indigenous peoples, women and low level sub-clan families should get equal benefit from the project Family from low level sub-clans should not be worse off because of this project IPS and vulnerable groups should be fully consulted in all decision making process, from the planning stage, implementation and maintenance stage.

The process for impact mitigation

22. Community decision making should include the processes summarized below: Consultants ensure that planning fully and appropriately engage vulnerable groups, including the IPS, women and low level sub-clan; Consultants should consult vulnerable individuals and groups in the appropriate forum or meeting place. Results of these discussions should be reported through the monthly report and included in the project monitoring reports; Special meetings with women and marginalized groups on their view of the proposed sub- project have to be carried out. The minutes should be reported to the environmental and social management officer in the PMU; Any mitigation agreed by the IPS and vulnerable groups should be incorporated in the sub- project design and its implementation is well monitored by the PMU and village-based consultants.

Strengthened facilitation

There should be an environmental and social management officer experienced in assisting IPS, women and other vulnerable groups in village level in the PMU in Nias to analyze the report of the field consultants and provide field guidance and training. There should be a special session and syllabus in the consultants’ training curricula on how to facilitate vulnerable groups; There should be a special chapter and process in the consultants’ manual; There should be a standard feedback mechanism

0

76

IP or I W Plan and Documentation

23. An IP Plan or IVP Plan for a sub-project will cover activities of (i) identifying the beneficiaries or the affected IP or IVP and their social economic characteristics, (ii) carrying out consultations, (iii) identifying measures to avoid, minimize and address potential negative impacts, (iv) incorporating measures and agreements with the IP or IVP in the sub-project design and implementation, (v) estimating cost estimates and financing plan for implementing the IP Plan or IVP Plan, (vi) specifying the grievance procedures, and (vii) putting the appropriate mechanisms and benchmarks for monitoring and evaluating the implementation of the IP Plan or IVP Plan. The IP Plan or IVP Plan will be part of the sub-project proposal. The implementation of the plan will be incorporated in the project progress report. The IP Plan or IVP Plan’s requirements and format will be included in the Operation Manuals.

H. Institutional Arrangements

LEDP Implementation Arrangements

24. The implementation of the environmental and social management frameworks (ESMF) will mainly the responsibility of the Nias-based Project Management Unit (PMU) together with the local Steering Committee comprising of Bappeda of North Sumatera and Bappedas of Nias and Nias Selatan. In the daily operation, the PMU will be assisted by a consultant team contracted under the Technical Assistance component of the project. An environmental and social safeguard specialist will be part of the consultant team members.

Responsibilities for Environmental and Social Management

25. The following responsibilities are proposed within the LEDP implementation arrangements: At the national level, a member within the steering committee will be assigned to oversee environmental and social issues; He or she will be assisted by the environmentalhocial expert of the Central Management Consultant; In the PMU, the appointment of an officer (supported by consultant resources) to provide technical backstopping on all aspects of environmental and social issues, including for mitigation of impacts and monitoring. The title for this officer is proposed as ‘environmental and social management officer’, and they can be provided through the Technical Assistance contract; The Environmental and Social Management Officer will prepare and update the detailed environmental and social management plan and their implementatiodprogress, and the extension consultants will be assigned to oversee the livelihoods component to integrate zoning and environmentally-beneficial projects into their approach; Livelihoods extension consultants will have to integrate zoning and environmentally- beneficial activities into their approach.

26. A number of BAPPEDA staff (3 from Nias district and 4 from Nias Selatan) has received intensive training on environmental management in Medan. Nias Selatan District has recently established an environmental management division, but at present they have very little capacity to undertake any work, owing to a lack of experience and equipment, despite their enthusiasm.

27. Nias District has not established any environmental management department. It will be the responsibility of the PMU Environmental and Social Management Officer to develop the Environmental and Social Management Plan in further detail, as part of the development of the

77

Operations Manual, as their initial task on appointment. All activities concerning environmental and social management will be carried out in close co-operation with relevant departments of local government, including the Environmental Dinas, BAPPEDA and Dinas that handles IP and vulnerable groups

Capacity Building and Training Requirements

28. In order to ensure full implementation of the ESMF measures, LEDP will provide a program of environmental and social safeguards training and institutional capacity building. Training on the provision of ESMF and potential impacts of proposed livelihood activities will be required for the PMU. Detailed training on the ESMF will be required for Extension Consultant Teams. A key responsibility of the Environmental and Social Management Officer will be to deliver a range of technical training on environmental and social safeguards issues to PMU and the extension consultant teams.

29. For each group, training will be provided to bring them to a different level of expertise in different areas:

In -depth training to a level that allows trainees to go on to train others, including technical procedures where relevant; Awareness building, in which the trainees become familiar with the issues to a sufficient extent that it allows them to demand their precise requirements for further technical assistance; and Awareness-raising in which the participants acknowledge the significance or relevance of the issues, but are not required to have technical or in-depth knowledge of the issues.

Potential Linkage with the Nias Island Rural Access and Capacity Building Program (Nias- RACBP)

30. The L O is implementing a separate stand-alone project (funded by the MDF) to improve rural access in the key economic clusters in Nias, where Nias-LEDP will be implemented. ILO’s Rural Access and Capacity Building Program (Nias-RACBP) sub-proj ects have strong potential to increase the impacts of Nias-LEDP livelihood activities.

3 1. The Fiscal Agency Agreement (FAA) with the MDF allows the L O to access MDF funds and implement according to its own operations policies. The ILO has its own environmental and social safeguards policy framework that is assessed to be in-line with those of the Bank and GoI.

32. Given the likelihood that some Nias LEDP and RACB activities may work with the same communities or beneficiary groups, the Nias-based PMUs of both programs should coordinate their activities in the planning and implementation stage (when feasible) to increase efficiency and impacts. In cases where there is an overlap or complementary activities, it is imperative that the safeguards framework is applied consistent with the LEDP safeguards framework. This may require the LEDP PMU to conduct review of the application of the LO’S safeguards policies for its sub-projects (at the planning stage, or carrying out due diligence during sub-project implementation, or post-review).

33. The project envisions that if the ILO satisfactorily and consistently implements its approved environmental and social safeguards policy framework, there will be no discrepancy with the safeguards principals of Nias-LEDP. In the event that there are gaps for a particular RACB sub-

78

project (overlapping with Nias-LEDP activities) the Nias-based PMU will request the ILO to carry out remedial actions to mitigate the social and environmental impacts.

Consultation and Disclosure

34. The project will document the process of acquiring land including consultation process and agreement reached between the PAPS or land owners and the farmers/women groups. The document will include names of the PAPS, size and location of the acquired land (including map), size of remaining land, use of land, scheme of land acquisition (voluntary donation, utilization permit, cash compensation, swaps, etc. as agreed by both parties), signatures of the project affected persondland owners, witnesses and the village chief. If it is a donated land, it should be clear in the document that it is given for the sub-project use without time limitation. If it is utilization permit, the time-frame should be clear in the document. Details of the format of documentation at the community level and at the project level will be presented in the project manual. The PMU will be supported by qualified consultants to facilitate the process.

35. The above-said document will be included in the sub-project proposal of the farmers/women groups. The village-based consultants (including Extension Technical Experts/Coordinators, M&E and QA monitors) will verify the document in the field as part of the sub-project screening and approval process. The Nias-based PMU will consolidate information from these documents and include it in the monthly project reports. Activities will be approved if the process of land acquisition conforms with the approved environmental and social safeguard framework and the project manual. Land acquisition must be completed prior to the implementation or program activities.

36. World Bank policies require disclosure of sub-projects information, as part of the environmental (including social) assessment process. LEDP will hlfill these and Indonesian requirements for disclosure through the following: 0 Provision of the quarterly environmental report, in Indonesian to the steering committee, and

the placing of this report for public access in a suitable location in Gunung Sitoli and Teluk Dalam; The project will ensure that the framework is published in Info shop and the Indonesia Public Information Center, as well as in the KPDT website; The project manuals will be published and be made available to the community organizations (kecamatan and village level) preparing proposals, as well as in the KPDT website

0

0

37. In addition, all sub-projects will be based on participatory planning and appraisal of proposed projects, thereby providing for a significant, local amount of disclosure. All reports will be uploaded in the KPDT website.

J. Reporting

0 Extension consultant teams will work closely with communities to provide guidance and advice on environmental and social risks of sub-projects, potential environmental sub- projects, and appropriate mitigation measures; In turn, the extension consultant teams will receive advice and support from the LEDP Environmental Management and Social Officer including technical advice and guidelines, as well as day-to-day guidance; The Environmental and Social Management Officer will provide a quarterly report on the key performance indicators, to the head of the PMU, who will convey it to the LEDP steering

0

79

committee, including local government and local environmental agency and relevant local agencies handling social issues; A review of performance in relation to environment and social safeguards issues will be carried out ones per year by World Bank staff. Supervision on these aspects will be done at least twice a year.

0

80

Annex 11: Project Processing Indonesia: Nias Islands Livelihoods and Economic Development Program

Activity Planned Actual PCN Review 1211 212007 12/12/2007 Initial PID to PIC 0511 7/20 10 Initial ISDS to PIC 04/22/2010 Appraisal 11/09/2009 Negotiations 06/03/20 10 061 1 8/20 10 RVP approval Planned date of effectiveness 08/30/20 10 Planned date of mid-term review 09/30/20 1 1 Planned closing date 06/30/20 12

Key Institutions responsible for the preparation of the project: Bappenas and KPDT, Go1

Bank Staff and consultants who worked on the project Include: Name Title Unit Khairy Al-Jamal Sr Infrastructure Specialist EASIS Andre Bald Sr Infrastructure Specialist EASVS Shobha Shetty Sr. Rural Economist EASRD Lilik Hidayat Operations Specialist Consultant Melinda Good Sr. Counsel LEGES Richard Chisholm Sr. Agriculture Economist EASRD Indira Dharmapatni Sr. Operations Officer EASIS Andrew Sembel Environmental Specialist EASIS Yogana Prasta Operations Advisor EACIF Raj at Narula Sr. Financial Management Specialist EAPFM Unggul Suprayitno Sr. Financial Management Specialist EAPFM Christina I. Donna Financial Management Analyst EAPFM Bisma Husen Sr. Procurement Specialist EAPPR Amien Sunaryadi Sr. Operations Officer EACIF Dayu N. Amunvanti operations Analyst EACIF Rebekka Hutabarat Team Assistant EACIF Isabel Junior Program Assistant EASIN Ira Marina Team Assistant EACIF

81

Annex 12: Documents in the Project File Indonesia: Nias Islands Livelihoods and Economic Development Program

1. Analysis of the Rubber and Cacao Industry: Nias and Nias Selatan. Report Prepared for the World Bank by Tan Bock Thiam. July 2008.

2. Review of Ecological and Habitat Aspects of Project Proposals: Nias Livelihoods and Economic Development Program. Prepared by ERM, June 2008.

3. Disaster Risk Management Strategy: Nias Livelihoods and Economic Development Program. Prepared by ERM. April 2009.

4. LivelihoodAgriculture Assessment of Nias Selatan: Nias Reconstruction Program. Prepared by Consultants for the Australian Government (AUSAID). October 2006.

5. Briefing Paper on Market Access Considerations for Nias Cacao Farmers. Prepared by Oxfam. September 2007.

6. Health Assessment Report: Nias Island. Prepared by the International federation of Red Cross and Red Crescent Societies.

7. Minutes of Meeting. Presentation of Implementation Arrangements and Technical Approach for Nias LEDP. August 26,2008; Medan

8. Aide Memoire, World Bank Project Identification Mission, February 3-18,2008.

9. Analysis of Pavement Options with Life-cycle Cost for Nias RACB. International Labor Organization.

Prepared by the

10. Aceh Cacao: Value Chain Analysis. International Finance Corporation: Private Enterprise Partnership for Aceh and Nias. August 2006.

82

Annex 13: Statement of Loans and Credits Indonesia: Nias Islands Livelihoods and Economic Development Program

a.mm OM

6oL1.00 0.00 100.00 O"00

50.00 0.00

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INDONESIA STATEMENT OF IFC’s

Held and Disbursed Portfolio US$ million

2 w 2006 2006 2004 2002 1989 1997 1989 1994 2003

2005 2000 2002 2004 1997 1993 1996 2004 2005

1991 199s 1999 2001 2004 1992 1996 1995 1997

2006

1.00 5.00 45.00 1.75 1 1 .05 0.00 2.73 0.00 0.00 000 0.00 24.00 000 0.00 35.00 000 0.05 0.00 30.00 25.00 0.00 0.00 0.00 0.00 20.00 48.00 0.23 1.65 4.50 9.38 16.45 20.00 0.00

000 000 0.00 000 000 000 220 000 0 20 0 19 0 12 0 70 000 2 85 204 000 3 35 000 0 00 000 000 000 3 82 157 0 81 000 000 000 000 000 000 000 000 234

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2.86 0.00 0.00 0.00 0.00 2.58 0.00 0.00 3.75 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 3.49 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 4.81 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 2.00 53.49 49.50 0.00 3.56 0.00 0.00

0.00 1.00 0.00 0.00 0.00 4.90 OM) 2.73 0.00 0.00 000 0.00 24.00 0.00 0.00 35.00 000 0.05 0.00 30 00 20 00 000 0 .00 0.00 0.00 033 41.00 0.23 I .65 450 9.38 16.45 0.00 000

0.00 0.00 0.00 0.00 0.00 0.00 2.20 0.00 0.20 0.19 0.12 0.70 0.00 2.85 2.04 0.00 0.00 0.00 0.00 0.00 0.00 0.00 3.82 1.57 081 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2.34

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2.83 0.00 0.00 0.00 0.00 2f8 0.00 0.00 3.75 0.00 0.00 0.00 0.00 0.00 0 .00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 3.49 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 4.81 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2.00 53.49 49.50 0.00 3.56 0.00 0.00

84

2000 2006 1998 1993 2004 1997 2001 2006 1995 2004 1997 2001 2005 2006 2001

0.00 0.00 0.00 0.00 15.36 0.83 0.00 7.00 7.81 8.31 0.n 11.62 0.00 10.00 33.33

121 0.66 2.50 0.00 0.00 0.00 1 03 0.00 0.00 0.00 0.00 0.00

15 82 0.00 0.00

000 000 000 000 000 000

1016 790 000 310 000 000 000 000 000 000 000 000 000 000 000 000 000 735 ow 000 000 000 000 000

0.00 0.00 0.00 0.00

15 36 0.83 000 0.00 7.81 831 0.72

11.62 0.00 0.00

33.33

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15.74 0.00 0.00

0.00 0.00 0.00 0.00 000 0.00

10.16 7.90 0.00 3.20 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 735 0.00 0.00 0.00 0.00 0.00 0.00

Toblpmtfako: 560.77 41.41 19.35 135.30 269.20 37.48 1932 135.30

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T o t L L ~ ~ c ~ ~ 011 000 000 000

85

Annex 14: Country at a Glance Indonesia: Nias Islands Livelihoods and Economic Development Program

POVEPIY mdSOCIA1

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0 2 rU2 370 J*o

198797 )OW-07 1906

78 31 66 61 25 4.3

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86 a3 ZSt. 263

2006 Zoo?

54 36 66 h7 iLd 47 74 89 6 . 7 8 6 9b 39

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86

P P ICE 5 md W V E R NY6 MI FINANCE _ _ (087 1097 loa6 2007

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A: 7423

87

Annex 15: Governance and Accountability Framework Indonesia: Nias Islands Livelihoods and Economic Development Program

Introduction

60. The objective of Nias-LEDP Governance and Accountability Framework is to identify corruption risks and mitigation measures beyond the standard control systems employed by the Bank. While more detailed program specific control systems are outlined in Annex 7: Procurement Arrangements and Annex 8: Financial Management & Disbursement Arrangements, this Action Plan (i) maps potential risks of corruption; and (ii) presents program activities to address these risks in the form of an Action Plan.

61. Corruption Risk Mapping. The corruption risk-mapping matrix used as the basis to develop this Action Plan identifies potential risks of corruption and specifies appropriate mitigation measures agreed to by the Executing Agency of the Government of Indonesia. The corruption risk-mapping matrix will be included in the Project Operation Manual (POM).

62. Action Plan. Specific mitigation actions are presented in the Corruption Risk Mapping Matrix. The following provides a summary of the action plan:

1. Enhanced Disclosure Provisions and Transparency. The Project PMU assisted by the consultant will prepare a PMU website regarding this project. The website will disseminate general information of Nias-LEDP. Progress of the project in the form of figures, narative, pictures, reports, and maps etc. also will be presented on the website. Appropriate access control to the website will be established to assure that all project officers, consultants and facilitators have proper access to the information they need for their jobs and to assure that the project properly transparent to the public. Posters and brochures on certain project information will be disseminated to relevant stakeholders, summary project information will be published through mass media and several press releases will be delivered by the PMU quarterly.

ii. Civil Society Participation in Oversight. The Nias-LEDP's Enhanced Disclosure Provisions and Transparency component will serve as a catalyst to bring the Nias-LEDP closer to their internal and external stakeholders, communities and interest groups for mutual understanding, day-to-day communication and cooperation. Communication to Nias DPRD and invitation to stakeholders including universities and NGOs to oversee the project, at least virtually through the project website will increase participation. By providing complete project information on the website, the project will be able to invite broader civil society to oversee the projec. At the Nias and village levels, the use of facilitators, posters and brochures will encourage village people to participate to the project as well as encourage them to report or to complaint when the find irregularities.

iii. Complaints Handling Mechanism. As part of the control system, complaints handling mechanism will be established integrated with transparency mechanism at the PMU. Complaint handling procedures will be strictly followed by also assigning authorized officials under the PMU control, assisted by consultant, to be responsible for maintaining the database and the follow up actions. These complaints will be acted upon in a professional and timely fashion, and without risk of reprisal to 'whistleblowers' in the public. The complaints handling procedures also will be connected to the Inspectorate General of the KPDT. The complaints and its follow up actions will be presented on the

88

project website. The project will develop appropriate measures in the Nias context to ensure transparent and easily access by local communities for lodging complaints.

iv. Sanctions & Remedies. Clear sanctions and remedies are an important final step in the effort to fight against corruption. This Project has a low tolerance for corruption. Any person (government, non-government, consultant, facilitator, contractor etc.) can be sanctioned if sufficient evidence is available. In all procurement and consultant contracts, evidence of corruption, collusion or nepotism will result in termination of the relevant contract, possibly with additional penalties imposed (such as fines, blacklisting, etc.) and in accordance with Bank and Government regulations. In addition, some requirements on the contract would provide the PMU strong power to terminate consulants or facilitator when not perform in accordance to the job requirements.

v. Mitigating Collusion, Fraud & Nepotism. Opportunity for collusion and fraud exist in any project. Transparent and well-advertised procurement, consultant selection and facilitator recruitment under this project with appropriate oversight will reduce this form of corruption. Transparent and clear progress of project activities delivered under this project with appropriate oversight also will reduce this form of corruption. Additional virtual oversight are proposed, such as requiring the facilitators to take pictures of the activity processes then to upload the pictures to the website on a regular basis, at least weekly. Additional fiduciary resources in the form of a professional financial management specialist to assist the PMU to review every invoice and other document submitted by the consultant to the PMU before the PMU make any decision also will reduce the possibility of corruption.

Corruption Risk Mapping Matrix 63. Limiting the occurrence of corruption in this Project starts with identifying potential corruption areas - this is called corruption mapping. For every area of corruption, the potential opportunities for corruption to be identified. An assessment of the level of risk then to be made on every opportunity of corruption identified. Based on the identified opportunity for corruption and its risk level, then, a set of mitigation actions is formulated. The corruption risk-mapping matrix is included in the Project Operation Manual (POM), and will be cleared by the bank.

64. This corruption mapping, opportunities for corruption and its level of risk might change during the progress of the project. Those changes might require some changes in mitigation action. Therefore, the corruption risk mapping matrix formulation will be repeated every six months as the project progresses and lessons are learned.

89

Annex 16: Map of the Project Area

1 Source: ILO oflce, Nias Island, Indonesia

90