Document o f The World Bank

FOR OFFICIAL USE ONLY

Report No: 38148 - ID

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED MULTI-DONOR TRUST FUND FOR ACEH AND NORTH SUMATRA

IN THE AMOUNT OF US$22.47 MILLION

TO THE

REPUBLIC OF INDONESIA

FOR A

SUPPORT FOR POOR AND DISADVANTAGED AREAS PROJECT IN ACEH AND NIAS

December 2 1,2006

Environment and Social Development Unit East Asia and Pacific Region

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

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CURRENCY EQUIVALENTS

(Exchange Rate Effective July 3 1,2006)

Currency Unit = Rupiah Rps9,OOO = US$l

US$lOO = Rps. 900,000.00

APBD APBN Bappeda

Bappenas BPKP BPS BRR Bupati CAS CPAR

DAU DPRD DSMC

FAD Go1 Kabupaten KDP Kecamatan KPDT

FISCAL YEAR January 1 -- December 31

ABBREVIATIONS AND ACRONYMS

District Development Budget National Development Budget Provincial and District Development Boards Ministry o f Planning National Development Audit Agency National Statistics Bureau

District Head Country Assistance Strategy Country Procurement Assessment Review General Block Grant to Districts Provincial and District Parliaments District and Sub-district Management Consultant Firms Inter-village forums Government o f Indonesia District Kecamatan Development Project Sub-District Ministry for Development o f Disadvantaged Areas

KPKN LGSP M&E MIS MoF MOHA NGO PAD PEKKA

PjOK PMD

PMU Susenas TPK UPK UPP VIP WSSLIC

Provincial Office o f the National Treasury Local Governance Support Program Monitoring and Evaluation Management Information System Ministry o f Finance Ministry o f Home Affairs Non-Government Organization Project Appraisal Documents Women Headed Household Empowerment Program Local Project Manager Village Development Agency (Ministry o f Home Affairs) Project Management Unit National Expenditure Survey Activity Implementation Team Sub-district Financial Management Unit Urban Poverty Project Village Infrastructure Project Water Supply and Sanitation for Low Income Communities

........................................................................................................................................... .................................................................................. ” ............................................................................................................................................................................................... , .................................................................. .............................................................................................................................. * ......................................................................................................................................................................... ,

s i ice President: j !James W. Adams ................................................................. Cyprian Fisiy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11

CONTENTS FOR OFFICIAL USE ONLY

The Project ........................................................................................................ - 1

Donor Coordination., ........................................................................................... ..3

Project Components.. ............................................................................................ -3

Institutional and Implementation Arrangements.. ................................................... - 6

Project Appraisal Process ...................................................................................... . .9

Risk Assessment., ................................................................................................ 10

Annex 1 : Procurement Arrangements.. ....................................................................... -13 Annex 2: Financial Management.. ............................................................................ .18 Annex 3: Monitoring and Evaluation .......................................................................... 25 Annex 4: Anti Corruption Action Plan ........................................................................ 39 Annex 5: Environment and Social Safeguards ............................................................... 46

Table 1 : Draft Design o f Household Survey Table 2: SPADA Training Interventions Table 3 : Infrastructure in Year Three o f KDP Table 4: Summary o f Compensation

Figure 1 : Primary Implementation Group Figure 2: Private Sector Proposal Process Figure 3: Implementation Design for Education and Health Figure 4: Measuring Training Impact

This document has a restricted distribution and may be used by recipients only in the performance o f their off icial duties. I t s contents may not be otherwise disclosed without Wor ld Bank authorization.

... 111

INDONESIA

Source Borrower Multi-Donor Fund Total

SUPPORT FOR POOR AND DISADVANTAGED AREAS PROJECT IN ACEH AND NIAS

Local Foreign Total 14.60 0.0 14.60 22.47 0.0 22.47 37.07 0.0 37.07

EAST ASIA AND PACIFIC REGION ENVIRONMENT AND SOCIAL DEVELOPMENT UNIT

SY 2007 2008 4nnual 5.70 9.90 Sumulative 5.70 15.60

Date: December 18,2006 Country Director: Andrew D. Steer Sector Director/Sector Manager: Maria Teresa SerrdCyprian Fisiy Project ID: PO97605 Lending Instrument: Multi-Donor Fund development

Team Leader : Scott E. Guggenheim Sectors: Other social services; Health; General education sector Themes: Other social development (P); infrastructure service for private sector

Environmental Screening Category: B Safeguard Screening Category: Limited Impact

[ 3 Loan [ ] Credit [ X 3 Grant [ ] Guarantee [ ] Other: Total Project Cost: $37.07 million MDTFANS Grant Amount: US$22.47 million Other Contributions: N/A

2009 2010 5.70 1.17

21.30 22.47

Financing Plan (US$m)

Responsible Agency: Ministry of Finance Address: c/o Directorate General of Debt Management, J1. Lapangan Banteng Timur 2-4, P.O. Box 1 139, Jakarta 107 10, Indonesia

~~

Does the project depart from the CAS in content or other significant respects? [ ]Yes [XI N o Does the project require any exceptions from Bank policies? [ ]Yes [XINO Have these been approved by Bank management? [ ]Yes [XINO I s approval for any policy exception sought from the Board? [ ]Yes [XINO Does the project include any critical risks rated “substantial” or “high”? [XIYes [ ] N o Does the project meet the Regional criteria for readiness for implementation? [XIYes [ ] N o Re$ PAD

iv

Project development objective Ref; PAD: The-objectives bf the project are tostrengthen governance, promote growth and improve service delivery in participating provinces and participating districts, and support the recovery o f affected areas through (a) strengthening o f local participation in development planning; (b) promotion of private investment and job creation; and (c) an increase in the utilization o f effective education health and dispute resolution services.

Project description [one-sentence summary of each component] Re$ PAD: The proposed US22.47 million MDTFANS-financed project will be 100 percent grant financing to support BRR’s reconstruction plan for the tsunami areas of Aceh, and to build on the participatory processes put in place through the national Kecamatan Development project and other successful community development projects. Component A: District Grants (US$l2.76 million) Component B: Capacity DevelopmentPlanning Grants (US$l. 16 million) Component C: Implementation Support (US$& 14 million) Component D: Monitoring and Evaluation and Studies (US$0.41 million) Which safeguard policies are triggered, if any? Re$ PAD: Environmental Assessment (OP/BP/GP 4.01) Involuntary Resettlement (OP/BP/GP 4.12) Indigenous Peoples (OD 4.20) Significant, non-standard conditions, if any, for: Re$ PAD:

V

Support for Poor and Disadvantaged Areas Project (SPADA) In Aceh and Nias

I. The Project

1. The earthquakes and tsunamis which struck Indonesia and several other countries in the Indian Ocean region on December 26, 2004, resulted in one o f the worst natural disasters in recorded human history. Across Indonesia, Aceh and Nias bore the major brunt o f the disasters. In addition, another earthquake struck Nias on March 28,2005, killed more than 700 people, leveled or badly damaged some 10,000-1 2,000 houses, and significantly changed the very physical layout o f the island.

2. Community-based recovery planning has been at the core o f the AcehMias reconstruction planning process virtually since the disaster struck on December 26, 2004. It i s not difficult to understand why. Global as well as Indonesian experience show that community-based recovery strategies are under most circumstances quicker, involve more affected people in their own recovery, and are more likely to lead to sustainable solutions than top-down strategies can achieve.

3. Community driven and other participatory approaches to development planning are also likely to promote local solutions to problems o f social conflict, which i s extremely common in reconstruction situations where differential damages translate into different entitlements. Studies elsewhere in Indonesia document that community-level negotiations can overcome the most common sources o f conflict, and conflict-sensitive reconstruction planning can help ensure that in most cases, other, incipient sources o f conflicts are monitored and mitigated.

4. However, community-based approaches also have their limitations. For conflict affected regions o f Indonesia, the role o f district authorities in arbitrating disputes and deploying authority i s critical. Following Indonesia’s “big bang” decentralization over 2002-2005, the role o f district line agencies and planning bodies i s fundamental for development service delivery. How, then, to link up the positive lessons o f community-based planning with the technical and administrative regime o f decentralized district government?

5. The purpose o f the proposed Support for Poor and Disadvantaged Areas Project In Aceh and Nias (SPADA Aceh) project i s to provide a mechanism by which participatory planning procedures can be incorporated into district government-decision making. The project wi l l deliver significant quantities o f economic infrastructure and improved social services to recovering areas, and i t wi l l allow for an extended public discussion o f long-term recovery planning across Aceh. The objectives o f the project are to strengthen governance, promote growth and improve service delivery in participating provinces and participating districts, and support the recovery o f affected areas through (a) strengthening o f local participation in development planning; (b) promotion o f private investment and job creation; and (c) an increase in the utilization o f effective education health and dispute resolution services.

6. areas o f Aceh, the project i s also closely linked to a large program o f World Bank support to Indonesia’s 100 poorest kabupaten that was prepared in 2004 and negotiated in May 2005. The objective o f this project i s to build on the participatory processes put in place through the national Kecamatan Development Project and other successful community development projects to align bottom-up planning procedures with the newly empowered district governments o f Indonesia.

Although SPADA Aceh i s intended to support the BRR’s reconstruction plan for the tsunami

1

7. development management. First, while community development projects such as KDP work for building small-scale infrastructure such as farm roads, primary schools, and simple irrigation systems, they are not suitable for projects that require more technical input or long-term network planning, such as larger, secondary infrastructure, teacher training, or health diagnostics. Second, for local projects to be sustainable, they must fit into local government planning and budget support. Aceh’s reconstruction for the moment i s benefiting from the large-scale donor presence, but for the longer term development wil l be planned and managed by district governments empowered by Indonesia’s decentralization laws. Third, while community development projects have a good track record o f delivering high quality infrastructure and services to villages, al l too often the economic environment that they work in remains highly distorted in ways that block local trade and growth among the poor.

The project’s design solves three particularly challenging problems for supporters o f local level

8. The design, therefore, i s intended to eventually supersede KDP by anchoring bottom-up planning in local government institutions. The project design addresses al l three problems identified above. It provides a link so that community and kecamatan proposals that are too large or complex for KDP have a mechanism so that they can feed into kabupaten decision making. The project also provides a strong role for local government agencies both by making local governments chair the decision-making body that reviews proposals and by providing incentives for technical agencies to collaborate with kecamatan representatives. Third, SPADA provides both analytical work on local trade distortions and a large investment component to help local governments rehabilitate or upgrade basic productive infrastructure.

9. Because virtually al l o f the poor kabupaten where SPADA works in Indonesia are also characterized by high levels o f local conflict, SPADA’s design includes a number o f activities intended to promote peace-building, reconciliation, and local re-development. The appraisal included close attention to developing a program o f post conflict activities that would support the government’s efforts to provide a post-MOU re-development program for the areas o f Aceh affected not just by the tsunami, but by conflict.

10. Even before the tsunami, SPADA was already programmed to launch preparation in five o f the poorest districts. Following the tsunami and the establishment o f the BRR, the government accelerated SPADA’s launch preparation. Indonesia’s national parliament (DPR) reviewed the overall SPADA project in early September 2005, and proposed that the project be expanded to cover all 17 kabupaten including two kabupaten in Nias. The Government has also asked that SPADA’s programs for post- conflict reintegration and development be substantially strengthened for Aceh. These include damage and vulnerability assessments, support for local justice sector reform, and practical training to help local governments mediate conflict successfully.

1 1. The BRR’s medium-term strategy for the reconstruction and rehabilitation o f Aceh Nias i s based on four main priorities: (a) strengthen local government; (b) institutionalize participatory planning; (c) promote MDG achievement in Aceh and Nias; and (d) support institutions for social justice and community rebuilding. Funds will require closer integration and co-financing, where feasible, between the MDTF, local governments and the BRR.

12. 2009. BRR’s 2005 assessment o f the current status o f reconstruction showed that:

SPADA’s design fits with the BRR reconstruction strategy and supports BRR’s exit strategy in

Remaining resources should be predominantly used for the reconstruction and development broadly defined, at the community level and at the districtlprovincial level. The reconstruction and development should be closely matched with capacity-building efforts for local governments (through a “learning by doing” approach) and community participation for enhanced governance to prepare for the BRR’s exit in 2009.

2

0 Though the initial focus will be on the areas most heavily damaged by the tsunami and earthquake (with a particular focus on Nias), infrastructure support and related capacity-building should be gradually extended to other districts o f Aceh with less severe tsunami-related damage but where years o f conflict and associated poverty have also damaged basic infrastructure or prevented adequate development o f infrastructure conducive to the further economic development necessary for a sustainable peace.

Donor coordination

13. or contradict similar programs supported by other donors i s key. SPADA i s using a number o f mechanisms to minimize overlap, maximize coordination with donors and government agencies, and identify opportunities to work cooperatively with other programs that are contributing to Aceh and Nias recovery. The following sections summarize the general strategy.

In a large, comprehensive project such as this one, ensuring that project activities do not replicate

14. The appraisal involved participants from several donor agencies. They included USAID, AusAid, DFID, and UNDP. A primary purpose o f their participation was to provide the donors with a hands-on overview o f the entire project so that they can assess where convergence or overlap would be most likely to occur. But an equally important purpose was for them to identify existing successful donor funded projects that could be extended to SPADA-Aceh/Nias. The project appraisal team included representatives from the major donor agencies.

15. The second major mechanism to support donor coordination i s the proposed planning process that defines the project. Because SPADA i s based in the Bappeda, it sits at the center o f where donor coordination should happen. SPADA contracting and activities are nearly al l located within the kabupaten itself, which means that project activities do not face the normal problems o f higher level contract commitments that cannot be changed. If a different donor already has an operating program in place, the kabupaten can re-allocate SPADA funds to other priority activities.

16. The third major mechanism lies in the domain ofthe project’s transparency policy. Donor duplication and double dipping often takes place because information i s missing, whether deliberately or simply because information i s not easy to come by. SPADA Aceh builds on KDP’s experience to promote broad-based information sharing. Because SPADA i s coordinated through each district’s planning board, proposals coming to the district forum can be discussed in a multistakeholder forum before final decisions are made by the representatives.

Project Components

17. come through an MDTF grant, and the remaining $14.6 million will be provided by Go1 from its national funding, all o f which will be used to fill out the block grants. The MDF grant consists o f the following components and activities:

The total proposed project costs for SPADA i s US$37.07 million. Funding o f US$22.47 will

Component A: District Grants (US$ 12.76 million). The purpose o f the district grants i s to support larger or more technical proposals emerging from the subdistrict planning process that also contribute to reconstruction, cooperation, and development. Projects are selected by the district development forum on a quarterly basis using criteria that include demonstrable broad- based benefits, cost and local contribution, and their technical and financial feasibility. Projects that benefit more than one subdistrict are favored by the scoring system, but there i s no absolute rule requiring this. For the first two years o f the project, the maximum size o f an individual proposal i s US$50,000 (a procedure was developed for i ts operational manual to allow exceptions

3

in special cases). Subdistricts are encouraged to partner their proposals with line agency or NGO funding. Thirty percent of the district grant i s reserved to support quality improvements in health and education. Both sectors have developed pre-defined positive lists o f eligible activities. Results from the quarterly meetings are published in local newspapers.

The project i s budgeted to cover al l 17 kabupatens in Aceh and, after detailed assessment during the appraisal the government proposed to add the two kabupatens in Nias. District grant amounts begin at an aggregate o f Rps. 3.0 billion (approx. US$300,000) in the project's first year. Each year an independent audit commissioned by the national management unit under TORS acceptable to BRR, reviews the physical and financial performance of the grants. Satisfactory performance allows the size of the district grant to increase by an additional billion rupiah, up to a maximum o f 8.0 billion rupiah in the project's final year. Districts receiving a qualified audit are demoted to Rps. 1 billion until the qualifications have been lifted. Districts that do not fix the problems after a reasonable period will be dropped from the program. Final appraisal for this proposal will verify the budget amounts and also explore options for counterpart fund contributions in the project's later years.

Proposals that are approved by the forum are passed over to the Project Implementing Unit. This management unit i s supported by the financial management and procurement specialist as well as relevant members of the district l ine agencies. Project proponents must form a three-person project implementation team per approved proposal to supervise project implementation and to provide accountability reports to the PMU and the sponsoring forum. These teams are made up of representatives of the project's proponent and a technical specialist. The PMU reviews the detailed project proposal, cost estimate, implementation procedures, and implementation team before tendering the contract. Project implementation i s independently monitored by a monitoring unit attached to the district forum, and by local NGOs that are contracted for that purpose.

'

Component B: Capacity DevelopmentPlanning Grants (US% 1.16 million). SPADA i s working in districts and subdistricts o f extremely low capacity. They require a substantial investment in improving the capacity o f local stakeholders. SPADA tackles capacity questions through a combination o f training, practical exercises, professional technical support, and by developing learning networks. It i s expected that, as defined below, SPADA will partner with pre-existing donor programs such as USAID's Local Government Support Project. Additional technical capacity support provided to local governments and the communities through SPADA include health and education diagnostics, support for the private sector forums, and training district legislators in public expenditure analysis and formulation. At the local level, SPADA will work closely with the AusAid program to provide support to kecamatan governments. The project will also fund support to the provincial government, particularly for monitoring progress on improving local investment climates.

Project appraisal has identified a potential mechanism by which local governments can screen capacity programs already underway in Aceh that are funded by other donors. Rather than launch and develop entirely new programs, SPADA could then approach a donor to amend its program to cover SPADA areas. The technical mechanisms for such an approach are relatively simple; the challenge i s finding the appropriate fiscal transfer system, which would have,to be ready prior to negotiation. However, such a system would be very desirable, I t would make capacity work entirely demand-driven, and it would be an excellent way to coordinate the many donor capacity programs already operating in Aceh.

This component also includes several activities specifically related to post-conflict reintegration. The two key features o f the law and alternative dispute resolution program are a program of

4

facilitated mediation and court referrals so that disputes can be resolved peacefully; and a provincial and district working group that involves representatives from the police, the Attorney General's office, the Ministry o f Home Affairs, and legal NGOs. Smaller pilot programs that work to develop community-based reconciliation activities, youth employment and other incentives to promote nonviolent dialogue, and pilot work on community-based land mapping for dispute resolution wi l l be launched in the project's second and third operational year.

Component C: Implementation Support ($8.14 million) -- SPADA includes three major types o f implementation support. The different levels o f government are backed by a technical assistance structure that includes a national management team, an oversight and monitoring unit in each province, and a multi sectoral support team in each participating district. Linked to this management structure i s a recruited procurement consultant, who wil l work with the procurement committee to manage procurement during the project's startup period and gradually hand over procurement functions to local counterparts who complete a certification and internship program. The second consists o f the technically specialized services needed to carry out baseline inventories, investment climate surveys, and needs assessments, deliver the educational and health services, and to provide training and operational support for an alternative dispute resolution program. The third type o f implementation support covers programs for information dissemination, including radio and public awareness programs that address issues related to reconciliation.

Component D: Monitoring, Evaluation, and Studies ($0.41 million). SPADA requires a sophisticated system for monitoring and evaluation (see Annex 2 for more detail). Project managers need to know in more than casual ways whether the project i s on course and whether interventions are having their desired effect. But more than in most project designs, policy makers also need to know more about how to deal effectively with conflict and recovery. The core o f this component i s a package of quantitative and qualitative baseline and intermediate surveys and case analyses that can track impacts due to project interventions. This category also includes programs for conflict resolution that show promise but should be piloted on a two or three province scale before expanding across the conflict regions, such as community land mapping or options for community based trauma recovery. $0.2 million i s budgeted for independent audits that wi l l begin in the project's second year.

Summary of SPADA M&E Activities ,. ..................................................... ....................................................................................................................................................................................................................... p?onitoring.!?cti ................................................................................................... ..........................................................................................................................................

! * j. ....................................................................................................... Community participatory moni ,a!!!!. ?w!!!i!?!!.. .................................................................................................................... : ....................................................................................... Regular field supervision and ~

progress reporting by project staff, MIS,, . . . . . . . . . . . . . . . . . . . . . . ' ................................................................................................................ Independent monitoring by civil society groups including public expenditure reviews by NGOs

I Case Studies

............................................................................................................................... .............................................................................................................................................................................................. ;.. ............ Hea!!h..and ..education...mon.itsr ................................................................................................................................................................................

I , .............................................................................................................. Evaluation Activities

, .......................................... ................................................................................................................................................................................................................................................................�� Griev s resolution process

Impact study - qualitative and quantitative HH survey

.................................................................................................... ........................................................................................................................... ,.... ................................. ................................... :

: ,

, ivate sector development assess

j. vu1 impact assessments : * Tra assessments

..................................................................................... ................................................................................................................................................................................................................................................ chnical/sectoral studies (EIRR, facility and user surveys, ................................................................................................................................................................................................................................................................1�

......................................................................................................................................................... s..ca!:!?,..!?! .... monitoring ..P!!P,o:es) ................................................................ ./

................................................................................ . . ! i. , ,Conflict...inc.idence .... maPP.ing .......... .............................................................................................. ,. .............................. ................................................................................................................................................................................................................................................................� ). .............................. ............................................................................. ............................................................................................................................................................................

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5

Institutional and Implementation Arrangements

18. Al l components o f SPADA support the same bottom-up facilitated planning process to identify and prioritize perceived reconstruction needs. Subdistrict and district decision forums will identify these in the form o f results (Le. children vaccinated, bridges rebuilt, etc). There are, however, different ways to respond to these needs once they are identified. For simple infrastructure, grants given directly to communities are sufficient for small works and simple services. For health and education services, communities may be clear about the results they want, but specialized advice and oversight will be needed to help identify the activities which would bring about those results. For bigger subprojects that benefit larger groups, proposals must receive a technical verification before they are contracted out to qualified contractors.

19. planning process. That is, all o f the planning and decision making units -- village councils, inter-village fora, district planning boards etc -- are part o f Indonesia's formal administration. However, under SPADA, each level is enriched with various mechanisms intended to provide additional participation and technical support to planning and implementation. These are explained below.

SPADA's planning and implementation framework are built around Indonesia's formal bottom-up

20. National Government. Bappenas i s the overall project managing unit. BRR wil l be the executing agency for SPADA's block grants and will receive the overall budget, but implementation will be through the Ministry o f Disadvantaged Areas, which i s the executing agency for al l o f the technical assistance and implementation support provided through the project. The Ministry will issue the General Guideline (Pedoman Umum) and an Operational Manual (Juklak) for the project. Both have been reviewed by IDA and will be issued before effectiveness. To provide policy advice, solve implementation bottlenecks, and ensure that results from SPADA are monitored and fed back into policy, the Ministry o f Disadvantaged Areas will also chair a coordinating committee that includes the Ministries o f Home Affairs, Bappenas, and Finance.

21. supervision, technical oversight, and evaluation. This function will eventually move to the provincial planning board (Bappeda). Al l SPADA funds are recorded in the provincial books, but they do not enter provincial accounts, proceeding directly to the districts or subdistricts.

22. District. The policy and decision-making body for SPADA at the district level i s the district planning committee. This body i s made o f representatives selected from each subdistrict forum, and i s chaired by the head o f the district planning board. Nonvoting representatives from NGOs, the private sector, and citizen groups are invited. Each planning committee i s supported by a project secretariat that synthesizes the technical inputs provided by the sectoral assessments, and also manages detailed designs and contracting (Figure 1 provides an overview o f the overall implementation design ). Once designs are finished, subprojects are contracted out through project implementation teams made o f the relevant executing agency and the project proponent, supported by the procurement specialist

Province. BRR will form a coordination committee that i s responsible for overall project

6

Figure 1: Primary Implementation Group

G O V E R N M E N T G O V E R M E N T

K A B U P A T E N

Project Proposals

Project Project Project

P r i m a r y I m p l e m e n t a t i o n G r o u p

23. representatives from each village council, plus a number o f respected leaders who are selected in the beginning o f the planning cycle. In Aceh, KDP now covers every kecamatan in the province; along with a number of NGOs, kecamatans are receiving an intensive program in capacity development. For KDP, each subdistrict i s supported by an experienced consultant who disseminates project rules, provides basic training in book-keeping and financial management, and helps implement the referral system that passes proposals from the subdistrict to the district. KDP will collaborate with the SPADA team to transparently select the kabupaten representatives and to ensure that proposals too large for KDP are referred upwards to the kabupaten board.

Subdistrict Fora (FAD) also known as Forum Antar Desa, or FAD, are made o f the elected

24. into the planning cycle, SPADA facilitators will form subdistrict and district business focus groups using a methodology developed and tested during project appraisal. Based on focus group discussions, business fora propose public economic activities, goods and regulatory reforms that would remove constraints on investment. Proposals are submitted to the subdistrict fora (“FAD’ in the diagram), where they are evaluated using the same criteria as everyone else’s proposal (contribution to rebuilding and reconciliation, poverty benefits etc) Proposals likely to be too large for subdistricts are passed up to the district business fora for approval and prioritization. (Regulatory reforms proposed by the business forum go to the district parliament and Bupati). Figure 2 describes this process. The selected projects are then verified by the district technical verification team, which i s supported by experienced private sector engineers and procurement specialists.

Private sector involvement. To provide a mechanism for introducing private sector priorities

25. forwarded to other funding sources available in the district or province. All contracting and cost information i s shared with the business forum, which must form its own project oversight team as part o f project implementation for its proposals which are approved.

Finalized proposals can then be cosponsored through a subdistrict fora SPADA grant, or else

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Figure 2: Private Sector Proposal Process

I SPADA District Forum

approved large projects to be competed a1 D F

large projecis io be compeied at BusForum

F m

proposed small projects io be compered ai FAD

26. Education. Sub-(

proposed small projecis to be competed a1 FAD

istrict education ant. ..salth working groups wil be established or strengthened if already existing). The role o f these bodies i s toprioritize the needs and provide technical recommendations to the decision-making forums at the respective levels. Sub-district and district decision-making forums are shared with other SPADA components. These decision-making forums wil l receive recommendations and technical support from the sub-district education working group and district school board during their deliberations over which proposals to fund.

27. The sub-district education and health working groups wi l l compile proposals and prioritize them based on needs. This working group wi l l also create sub-district education and health proposals that addresses issues proposed by multiple schools or clinics and which could be combined as one proposal to achieve economies o f scale and resource pooling (e.g. teacher or midwife training, etc). Prior to the decision-making subdistrict meeting, verification teams wil l review all proposals. District verification teams wil l verify sub-district proposals, and a team from the province wil l verify proposals going to the district (see Figure 3).

28. NGOs, private professionals, etc. The implementation team wi l l include at least one local government sectoral official. Contracts wi l l be signed by the implementation team and held by the procurement unit at the respective levels. Grants can also be used to provide incentive payments to government providers, but government agencies cannot be contracted to provide services for which they are already paid. The sub- district education and health working groups and the district education and health committees wil l serve as an advisory body when the implementation teams need technical advice.

Most health proposals wi l l require technical support. In these cases contracts wil l be awarded to

8

Figure 3: Implementation Design for Education and Health

Health Working Grou

t r I

Province

Education Working Group

t

Heanh Technical Team

District

I I I Inter -Village Forum 1 I Kecamatan

I Needs Identification team I Village

Project Appraisal Process

29. Documents that were reviewed by the appraisal team include:

a) Project fund flow mechanism b) Operational Manuals c) TOR and tender documents for technical assistance d) TOR for procurement and financial management advisers e) Procurement plan f ) Summary budgets g) Anti-corruption action plan h) Monitoring and Evaluation framework i) j)

Environmental and Social Impact mitigation framework Financial management risk assessment and mitigation plan

30. SPADA preparation in Aceh began in June, 2005. Preparation activities included mapping o f social economic situation, social tensiodconflict, resources ( material, human capacity, CSOs , NGOs etc. .) and local government capacity assessments. Preparation also mapped out donor funded district governance support programs.

3 1. fiduciary design, evaluated the readiness o f local government and other stakeholders, and completed economic analysis. Five areas proposed by MDTF for appraisal review were:

Project appraisal conducted on May 22 - 27,2006 verified the project’s institutional and

(a) SPADA coverage areas - Appraisal confirmed BRR’s request for SPADA coverage o f all Aceh and Nias kabupaten. MDTF subsequently confirmed that based on BRRs policy decision o f June, 2006 that a l l o f Aceh qualified as affected areas, the appraised scope of the project was acceptable.

(b) Governance capacity programs - Rather than design and tender an entirely new program for local government capacity work, SPADA wil l collaborate with the already active,

9

successful Local Governance Support Program (LGSP), which i s managed by USAID. LGSP will expand their coverage to SPADA districts and sectors. The fund flow option for doing this i s through a free-standing grant to the USAID.

Institutional management - Appraisal confirmed that BRR will be the executing agency for SPADA AcehMias. For disbursing block grants, BRR wil l release funds to the districts directly from the “KPKN khusus”, the special treasury branch set up to support Aceh reconstruction. For technical assistance contracts, BRR wil l transfer funds to the Ministry o f Disadvantaged Areas, which holds the TA contracts for the national SPADA program. Oversight will be through a national coordinating committee chaired by BRR and including al l agencies participating in SPADA. Appraisal also confirmed that these arrangements are acceptable to Bappenas, MOF, and Ministry o f Disadvantaged Areas.

Vulnerable groups - Appraisal confirmed the gender action program, which will work in tandem with other Acehnese gender programs supported by BRR and DSF. DFID i s co- financing SPADA with an approximately $1 1 million grant to support post conflict and livelihood activities, o f which some 60% support vulnerable groups.

Financing plan - Appraisal confirmed the detailed budget structure and financing plan for the project. MDTF will provide $22.47 million and BRR $14.6 million. MDTF support i s frontloaded. Local government funds are expected to become increasingly available in the project’s outer years as sources such as special autonomy funds, revenue sharing funds, DAU, and emergency funds provided from the national budget.

Risk Assessment

32. SPADA wil l not be an easy project to implement While a full-scale risk assessment was carried out during the appraisal o f the national project and i s available on file, three particular risks associated with the SPADA Acemias project should be flagged for management review and long term monitoring:

a. Institutional weaknesses - The Ministry o f Disadvantaged Areas i s a newly restructured mandate. I t has a special mandate to develop programs such as SPADA. However, the ministry lacks experience and it i s also vulnerable to internal capture. Furthermore, the parliament’s decision to transfer al l Aceh budgets to BRR rather than their executing agency, which then requires an extra step to transfer budget over to them, introduces an extra level of complexity. The project team and Bappenas have discussed this risk. Should performance not be satisfactory, the project will be moved to Home Affairs, which i s already the home o f KDP.

b. Post-conflict - Aceh i s benefiting from a truce between the Government and the Free Aceh movement (GAM), which brought to an end 30 years o f armed conflict. However, the peace agreement i s fragile and the reintegration agency created by the government to supervise i ts implementation i s exceedingly weak. As a result, expectations for a peace dividend are high while the government’s ability to deliver one i s low. Complicating this landscape still further are the upcoming local elections required by the peace agreement. GAM will field candidates, and it i s likely that they will win a substantial share o f the vote. To address this risk, DFID i s providing SPADA with a parallel grant specifically to support post conflict reintegration and development. The Bank will provide technical support to the BRA (the reintegration agency) and provide hands-on help to the overall M&E effort that assesses progress on reintegration.

10

c. Corruption and the breakdown of local governance - Overall corruption risks in Aceh are very high. They are being compounded by the sudden influx o f both former combatants who have the means and interest in capturing development funds, and also by the dramatic increase in local revenues introduced through the decentralization and local autonomy program. As documented by the Bank’s 2006 Aceh and Nias public expenditure review, large sums o f money are pooling in local government budgets, which lack the capacity to disburse them. Donor programs for capacity strengthening are already underway, but the risks remain high. SPADA will include extra Bank oversight from its Aceh office to ensure that the anti corruption action plan i s fully implemented.

d. Procurement Implementation Arrangements - Procurement arrangements for the Support for Poor and Disadvantaged Areas Project in Aceh and Nias consist o f selection o f consultants, and procurement o f simple goods and works under the district grants. The selection o f a l l consultant services for the project i s the responsibility o f KPDT. The channeling o f the district grants and assisting the district governments on project implementation matters (including procurement support) i s the responsibility o f the BRR. The district governments will be responsible for carrying out procurement under the district grants, with assistance and guidance from BRR. BRR i s also responsible for assuring for upgrading the capacity o f district governments in carrying out procurement.

e. Financial Management and Disbursement Arrangement. The project has a major risk on district grants implementation, particularly on how effectively grant beneficiaries use and account for the funds that have been used for intended purposes. There i s another risk with the capacity o f local government (PIU) to manage the project implementation. Some risk mitigation steps have been proposed, as follows:

e e

e 0

To provide technical assistances to the PMU and PIU; To provide technical assistance to local implementation teams (TPK) who execute sub- project activity; To provide independent monitoring by a monitoring unit attached to the district forum by local NGOs and journalist that are contracted for that purpose; To link external audit results to further allocation o f the sub-grants ; To conduct internal and performance audit to the project implementation; and Annual financial statement will be audited by auditor acceptable to the Bank. In this case, BPKP would be considered acceptable.

Overall, the project financial management risk i s assessed as being High risk. This assessment has concluded that with the implementation o f the action plan, the risks wil l be substantially mitigated, and 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 o f the grant required by the Bank. More details o f the financial management assessment are given below.

f. Internal Controls and Internal Audit. The internal audit department o f BRR will be responsible for reviewing internal controls at PIU and TPK at local level. The internal audit manager agreed to include the project activities in the annual audit work plan. The internal auditor should conduct a review on internal control system in the implementing unit, including payment validation. Copies o f these reports should be made available to the Bank upon request. The term o f reference for such audit will include a check on the substance o f transaction and direct confirmation that funds disbursed have reached beneficiaries.

11

g. External Audit Arrangement. The audit for the financial statement will be carried out by an independent auditor acceptable to the Bank. The annual audit report will be furnished to the Bank no later than six months after the end o f the government’s fiscal year. The audit assignment will be in accordance with the agreed Terms o f Reference. The TOR will basically include an assertion on the reliability o f the project financial statements, and wil l also include a verification o f accounting information at TPK level on a sample basis. The annual audited financial statement will include a review and reconciliation o f Special Account transactions and quarterly IFR. The audit reports will be made accessible to the public.

h. Disbursement Arrangement. The applicable disbursement methods include: 1) Advance, and 2) Reimbursement. The DA will be solely used to finance eligible project expenditures. Although management o f the DA will be under the responsibility o f DG Treasury MOF, the PMU at KPDT will be the one responsible to reconcile the DA and to prepare the application for withdrawal for advances and reporting the use o f the DA, duly approved by DG Treasury before their submissions to the Bank. Copies o f the DA’s bank statement wil l be provided to the PMU by DG Treasury, MOF.

The ceiling o f the advance to DA will be variable, and the advance(s) wil l be made on the basis o f the six month projected expenditures. At early stage o f project implementation an initial advance o f the DA at $ 4 million would suffice. Applications for reporting o f use o f the DA funds would be supported by: (i) list payments for contracts under Bank’s prior- review and records evidencing such expenditures, or (ii) statement o f expenditures (SOEs) for al l other expenses. Applications for the advance to the DA will consist o f (a) projected expenditures for six months; and (b) DA reconciliation statement. Reporting o f use o f DA funds and application for an advance to DA may be submitted in a single application. When the PMU has capable producing the quarterly Interim Financial Report (IFR) timely, reporting the use o f funds would be based on the IFR.

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.

1. Supervision Plan. Supervision o f 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 sub-grant expenditures, accounting, reporting and internal control. The financial management supervision wil l be conducted by financial management specialist and Bank consultants.

12

Annex 1: Procurement Arrangements Indonesia: Support for Poor and Disadvantaged Areas Project (SPADA)

I n Aceh and Nias

33. accordance with the World Bank’s “Guidelines: Procurement Under IBRD Loans and IDA Credits” dated May 2004; and “Guidelines: Selection and Employment o f Consultants by World Bank Borrowers” dated May 2004, and the provisions stipulated in the MDTF Agreement. The general description o f various items under different expenditure category i s described below. For each contract to be financed by the Grant, the different procurement methods or consultant selection methods, estimated costs, prior review requirements, and time frame are agreed between the Recipient and the Bank project team in the Procurement Plan. The Procurement Plan wi l l be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. At time o f this Appraisal, the detail implementation plan under the district grants has not been identified yet, and therefore, the activities under the district grants are not included yet in the procurement plan. The updated procurement plan wil l include these activities once they become available.

Procurement arrangements. Procurement for the proposed project would be carried out in

34. procedures.

Special procurement provisions. None. The Project wi l l follow the normal procurement

35. materials by KPDT, and goods and works that wi l l be procured by district governments as part o f the district grants’. Individual proposals to be considered under the district grants would be limited to a maximum amount o f US$ 50,000 equivalent. The district grants per district may be up to US$ 300,000 for the first year, and may be added the following years up to a maximum amount o f US$ 800,000 equivalent at the final year. Works would include rehabilitation and reconstruction works o f public facilities and simple infrastructure. Goods would include any purchase o f goods under the district grants.

Procurement of goods and works: Goods and works under this project wi l l include printing o f

36. and National SBD agreed with (or satisfactory to) the Bank. The thresholds for procurement methods applicable for goods and works, as well as the prior review thresholds for goods and works wi l l be determined in the Procurement Plan. However, in the meantime, the following thresholds are established for the initial stage o f implementation.

The procurement wi l l be done using the Bank’s Standard Bidding Documents (SBD) for all ICB

Goods: ICB for contracts above US$200,000 equivalent NCB for contracts between US$ 50,000 and US$200,000 equivalent Shopping for contracts below US$ 50,000 equivalent Prior review for contracts above U S $ 100,000 equivalent

Works: ICB for contracts above US$3,000,000 equivalent NCB for contracts between US$ 50,000 and US$3,000,000 equivalent Shopping for contracts below U S $ 50,000 equivalent Prior review for contracts above U S $ 500,000 equivalent

37. Selection of consultants. The project wi l l require consultant services for the following:

’ More description on the district grants i s found under Component A o f the Technical Structure o f SPADA Aceh o f this Technical Overview.

13

A Provincial and Distr ict Management Consultant (PMC, estimated contract amount o f US$ 3.2 million equivalent), to assist the coordination at provincial level as well as acting as the District Management Consultant in 8 districts in Aceh; A District Management Consultant (DMC - US$3.4 million equivalent), to provide management services in 8 districts in Aceh and 2 districts in Nias); A Procurement and Financial Management Consultant (US$0.53 million equivalent) to assist the PMU and BRR in the day to day project implementation and operation; Three consultant firms for the following: training consultant, impact study, and identification for health and education programs, for contracts between US$200,000 up to US$450,000 each); Four NGO contracts for the following activities: private sector development, conflict resolution, provincial based monitoring, and independent journalist monitoring, with individual contract amount from US$ 100,000 up to US$985,000 equivalent.

38. USD 200,000, which the selection may follow CQS. A l l agreed selection method wil l be defined in the approved procurement plan.

The selection process for all consultancy contracts wi l l follow QCBS, except for contracts below

39. Assessment of the agency’s capacity to implement procurement. The selection o f consultants and the procurement o f printing o f materials wil l be carried out by KPDT, who has prior experience in carrying out procurement and implementation o f the Bank financed SPADA Project (LN 52800). District governments wil l be responsible for carrying our procurement under district grants. The BRR2 will ensure that capacity exists within the district governments to carry out procurement, and wi l l provide the necessary guidance and assistance to expedite procurement process. In day to day work, BRR wil l be supported by a Procurement and Financial Management Consultant (financed by this Grant). On providing procurement training, the BRR wi l l be supported by Crown Agent (not financed by this Grant). Procurement training materials have been developed by Crown Agent, with several minor improvements needed which wil l be completed by the grant effectiveness.

40. district governments in carrying out procurement, coupled with the BRR’s overloaded capacity in effectively exercising i ts role in supervising procurement under the district governments, the following risks have been identified for the project:

Based on prior experience in interactions with KPDT, and considering the low capacity o f the

Corruption and collusive practices: This i s a national and systemic issue. This risk i s more evident in the process for the selection o f consultants (where subjectivity o f the procurement committee i s apparent) compared to the one on the procurement o f goods and works. Procurement delays: As currently shown for the implementation o f SPADA Project, significant procurement delays occur due to (i) non availability o f qualified procurement committee, and (ii) non availability o f adequately independent procurement committee who wil l be able to lead as “effective drivers” for the procurement process. Implementation risk: At the moment, the implementation under the district grants has not been identified as such it i s very difficult to develop a more strategic and targeted capacity building program for the district governments. In addition, the effectiveness o f BRR in supervising and providing support for capacity building for district governments i s not apparent.

Based on the current assessment, none o f the district governments i s familiar with procedures under Bank financed projects, and no capacity in carrying out procurement. With the assistance from the procurement consultant, as well as the DFID financed Crown Agent, BRR i s expected to exercise its role in upgrading the capacity o f district governments.

14

41. following actions have been included as part o f the project design:

With the above description, the procurement risk remains at HIGH. To mitigate this, the

0 Enhanced disclosure & monitoring system: a l l information related to the consultant contracts (including their amount and corresponding detail progress payments, as well as sanctions) will be put on the web-site (www.brr.go.id). Strengthened complaint handling resolution i s also developed within the BRR office. Monitoring by civil society i s also included in the project design, including the independent journalist monitoring. This kind o f system has been successfully implemented under KDP (Kecamatan Development Projects).

0 Enhanced capacity: A procurement consultant (firm) will be hired at the provincial level, and which will have staff in each district, to assist BRR in supervising and providing hands on assistance to the district governments. In addition, Crown Agent will be hired by DFID3 to continue providing assistance to this project, particularly in assisting BRR in conducting the procurement training for district governments.

0 Enhanced capacity of staff involved in procurement: Capacity building program and materials have been developed for staff involved in procurement, and regular procurement training will be implemented to particularly staff of district governments.

To safeguard the capacity and independence o f members o f procurement committee, it i s agreed that the qualification of members of procurement committee i s established as follows:

a. General: At least 75% o f members are familiar with Keppres 80/2003 as demonstrated by their involvement in the procurement of at least three contract packages in the last two years. Experience on NCB acceptable to the Bank and on procurement under Bank financed projects is an advantage.

b. For the committee for the selection o f consultants, the chairman and 50% o f other members have satisfactory prior experience in dealing with the competitive selection of consultants following Bank Guidelines (Le. selection methods other than CQS and SSS) for at least two contract packages in the last three years.

c. At least one member i s familiar with the GO1 budgeting and payment systems, and can play a role for facilitating the closure of issues related to these matters, including, if necessary, obtaining clarification from other relevant agencies such as KPPN officesMOF, BAPPENAS, and auditors.

d. At least 60% o f members are experts on the technical matters, who have the knowledge on the goods/services being acquired (for the selection o f consultants, these people are ones who have the integrity and expertise on the areas of: technical expertise for services being contracted), or in the case of procurement o f goods, who have the knowledge on the substance o f the technical specification. More detailed guidance on this will be defined in the Project Operation Manual

42. Procurement plan. The Grant Recipient has developed a Procurement Plan for project implementation. This plan was agreed upon between the Grant Recipient and the Project Team. The plan

The Crown Agent wil l not be financed by the proceeds o f this MDF Grant. However, in principle, i t s TOR has 3

been shared and agreed with the Bank. More detailed TOR will be developed during implementation and subject to the Bank’s agreement.

15

wil l be available at www.brr.go.id, in the projects database and on the Bank’s external website. The Procurement Plan wil l be updated annually, or as required, in agreement with the Bank’s task team to reflect the actual project implementation needs and improvements in institutional capacity.

Provincial & District Management Consultant (8 District-NAD) District Management Consultant (8 district in NAD & 2 district in NIAS)

43. Prior review. Prior review thresholds wil l be determined in the Procurement Plan,

I post) Date

1 QCBS Prior 2006

1 QCBS Prior 2006

3,243,120, I 4

3,43 1,741.57

44. by the Bank offices, the capacity assessment o f the Implementing Agency recommends an annual supervision mission to carry out post review o f procurement actions.

Frequency of procurement supervision. In addition to the prior review supervision carried out

45, Details o f the Procurement Arrangements Involving International Competition

A. Goods, Works, and Non Consulting Services

0

List o f contract packages to be procured following ICB and direct contracting: NONE (b) ICB contracts estimated to cost above US$ 200,000 (Goods) and US$ 3,000,000 (Works) per contract and al l direct contracting wi l l be subject to prior review by the Bank.

I Review I Expected I Proposals

Sub mission NO. o f Selection by Estimated Cost (us$) Contract Methode 1 1 1 gybz ~ Date 1 Description o f Assignment

B. Consulting Services

L is t o f consulting assignments with short-list o f international firms.

0 Consultancy services estimated to cost above US$ 100,000 per contract and single source selection o f consultants (f i rms) wi l l be subject to prior review by the Bank.

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

16

Ref No.

NO. o f Contract Description o f Assignment

Expected Review Proposals

selection by Sub Methode (Prior Bank mission

Date

4

Provincial & District Management Consultant (8 District-NAD) District Management Consultant (8 district in NAD & 2 district in NIAS) Implementing Agency for Private Sector Development (LPKPSS)

Financial and Procurement Management.

Training refreshing

Implementing Agency for Identification Health &

Impact study

6

Estimated Cost (US$)

Specialist Conflict Resolution

Province Base Monitoring

3,243,120.14

3,431,741.57

~~

1

984,056.34

530,234.98

216,076.06

321,193.82

444,470.84

2 16,076.06

205,272.26 QCBS Prior 2008

I post) Date

I I I

; 1 QCBS ~ Prior 1 ;;;I QCBS Prior

1 I QCBS I Prior I 2007

1 I QCBS I Prior I 2007

17

Annex 2: Financial Management Assessment Indonesia: Support for Poor and Disadvantaged Areas Project (SPADA)

I n Aceh and Nias

Executive Summary and Conclusion

46. The Support for Poor and Disadvantaged Areas Project (SPADA) i s a national project that was signed on August 4,2005 and became effective on December 1,2005. Even before tsunami, SPADA was already programmed to launch preparation in five of the poorest district in Aceh. Following the tsunami and establishment o f BRR, the government accelerated SPADA launch preparation. Indonesia national parliament (DPR) reviewed the overall SPADA project in early September 2005 and proposed that the project be expanded to cover al l 17 districts, including two districts in Nias. The government has also asked that SPADA program for post conflict reintegration and development be substantially strengthened for Aceh. In Aceh and Nias, these additional areas to be covered under this grant will replace the ones planned under the approved SPADA national project. This grant will be financed by the Multi Donor Fund (MDF).

47. The project will have three years o f implementation. The project management arrangements are somewhat different from the national SPADA. The project executing agency will be BRR. However, the project implementation will be through Project Management Unit (PMU) in Ministry o f Disadvantage Areas (KPDT) which will manage the national SPADA. PMU will issue the general guidelines and operational manual for the project. At the central level, PMU will be responsible for managing project activities and also preparing the project financial reports. However, the implementation design and nature o f funded activities and project accountability arrangements are the same as for the national SPADA. These factors have been considered in completing this assessment.

48. The purpose of the project’s financial management assessment i s to determine whether the financial management system o f the implementing agency, has the 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 i ts objectives.

49. The project has a major risk on district grants implementation, particularly on how effectively grant beneficiaries use and account for the funds that have been used for intended purposes. There i s another risk with the capacity of local government (PIU) to manage the project implementation. Some risk mitigation steps have been proposed, as follows:

0

0

0

0

0

To provide technical assistances to the PMU and PIU; To provide technical assistance to local implementation teams (TPK) who execute sub-project activity; To provide independent monitoring by a monitoring unit attached to the district forum by local NGOs and journalist that are contracted for that purpose; To link external audit results to further allocation o f the sub-grants ; To conduct internal and performance audit to the project implementation; and Annual financial statement will be audited by auditor acceptable to the Bank. In this case, BPKP would be considered acceptable.

18

50. Overall, the project financial management risk i s assessed as being High risk. This assessment has concluded that with the implementation o f the action plan, the risks will be substantially mitigated, and the proposed financial management arrangements will satisfy the Bank’s minimum requirements under OPlBP10.02 and are adequate to provide, with reasonable assurance, accurate and timely information on the status o f the grant required by the Bank. More details o f the financial management assessment are given below.

Summary of Project Description

51. The total proposed grants will be finance by MDF amounted to USD25million. The Project covers 17 kabupaten, including two kabupaten in Nias. The project will consist o f the following components and activities:

0 Component A: District Grants (US$ 12.76 million). The purpose o f the district grants i s to support larger or more technical proposals emerging from the sub-district planning process that also contribute to reconstruction, rehabilitation and development. Sub-projects are selected by the district development forum on a quarterly basis using criteria that include demonstrable broad- based benefits, cost and local contribution, and their technical and financial feasibility.

0 Component B: Capacity Development (US$ 2.93 million). The project will provide substantial investment in improving the capacity o f local stakeholders through a combination o f training, practical exercises, professional technical support, and by developing learning networks. The project wil l also fund support to the provincial government, particularly for monitoring progress on improving local investment climates.

0 Component C: Implementation Support ($ 8.14 million). SPADA includes three major types of implementation support. The different levels o f government are backed by a technical assistance structure that includes a national management team, an oversight and monitoring unit in each province, and a multi sector support team in each participating district.

0 Component D: Monitoring, Evaluation, and Studies ($0.41 million). The core o f this component i s a package o f quantitative and qualitative baseline and intermediate surveys and case analyses that can track impacts due to project interventions. This category also includes programs for conflict resolution that show promise but should be piloted on a two or three province scale before expanding across the conflict regions, such as community land mapping or options for community based trauma recovery. $0.2 million i s budgeted for independent audits that wil l begin in the project’s second year.

Strengths and Weaknesses

52. follows:

The project has strengths and weaknesses in several areas. The project design has strengths as

Community and other stakeholders (local government agency/Dinas and CSO) participate in sub- project preparation and implementation which creates transparency, ownership and public control. Local Project Implementation Team (TPK) will receive the funds directly from central treasury (KPPN), instead o f local government treasury. This wil l facilitate flow o f fund. Local NGOs and journalist are to be assigned as external oversight unit. These will hired by PMU to provide oversight over sub-projects.

0

0

19

53. 0

0

0

0

54.

Some weaknesses noted in the project financial management arrangement are as follows: Capacity o f PMU to manage and implement the project may be weak. Capacity o f PKJ to supervise and assist TPK may be weak. Capacity o f TPK to implement the sub-project may be weak The sub-project activities and location may overlap with other sub-projects funded by the Bank or other donors which may create a risk o f double counting, e.g. forthcoming KDP Nias. KPDT as PMU does not have a direct link with local government agencies. Weak verification o f financial evidence on sub-project implementation. The eligible expenditure for sub-project i s not clearly defined at this stage. A negative l i s t will be finalized and include in the project manual. Individual eligible sub-project will be approved by kabupaten development forum.

The project’s weaknesses may create some financial management risks in the project implementation. The project includes several mechanisms to mitigate the risks. The PMU will:

Provide technical support to the national and local project management teams, including financial management consultants. The consultants will assist PMU/PIUs as well as TPK on financial accounting and reporting; Coordinate with other agencies with BRR as a coordinator agency and Bapeda at local level to ensure that there i s no duplication o f sub-project activity. I t will be through kabupaten development forum where al l proposal will be approved; Conduct external and internal audits; Contract local NGOs and journalists to be independent oversight units Issue the project operational manual, including establishment o f kabupaten development forums, eligibility criteria o f sub-projects and requirement o f financial management accountability; and Provide additional verification o f the sub-project implementation by technical and financial management consultants.

Risk Assessment Summary

55. A detailed analysis o f financial management risks arising from the country situation, the proposed project entities and specific project features and related internal controls has been completed during the assessment, and i s summarized below. These risks have been rated on a scale from High, Substantid, Moderate and Low.

Implementing Entity

56. Due to the GOI’s requirements that the budget for rehabilitations and reconstructions in AcehMias should be recorded through BRR’s budget, BRR wil l be the executing agency. BRR will play a role as coordinator in rehabilitation and reconstruction project in Nias and Aceh. However, BRR will delegate the project implementation to PMU in KPDT. BRR will be involved in monitoring and supervision o f the project implementation. While PMU will be responsible for accounting the project at the central level, while PKJ (Bapeda) in kabupaten level and TPK will be responsible for sub-project implementation. Fiduciary accountability will be with KPDT who will be subject o f annual audit.

20

Risk I Risk I Risk Mitigating Measures Incorporated into I Condition of Rating

- - Project Design Negotiations, o f Board,

of Effectiveness (Y/N?)

Reliability o f financial reports

Capacity o f PMU, PIU and TPK staff

H

Compliance with the project operation manual

Segregation o f duties and supervision by independent monitoring unit. Internal control system and procedures wil l be included in the operation manual.

S

S

S

S

S

I H

Provision o f F M consultants to assist PMUPIU and TPK on project administration. Accounting evidence wil l be specified in the project manual

The fund wil l transfer directly from KPPN to the TPK and third party’s account based on TPK and consultant’s verification. Use o f SAK and interim financial report (IFRs); and provision o f TA to assist the PMUPIWTPK to prepare the project financial reports

-External auditor arrangement to be completed no later than 6 months after signing of the Grant Agreement.

statements wil l be made available to the public and disclosed in BRR website.

-Summary o f Audit reports and audited financial

Control Risk Budgeting Delay on budget documents approval Accounting Weak accounting staff capacity at PMU and PIU level Internal Control Payment verification and cashhank management

Sub-grant implementation

Obtaining adequate accounting evidence Flow of Fund TPK and other third party do not received the fund timely Financial Reporting Reliability of financial report and delay on producing the reports Auditing Capacity and integrity o f the auditor

Use o f government accounting system (SAK)

Provision o f technical assistance for central and local level, included to the sub-project implementation team Training on project operation manual

Provision o f technical assistance and independent monitoring unit, including local NGO and journalist

prepared and discussed earlier with MoF by BRR

during project implementation

S BRR internal audit will conduct internal control review periodically. Performance audit to review control and sub-project implementation wil l linkage with further allocation o f the sub-grant

Y, Draft operation manual i s ready before negotiation.

Staff training right after project effective

N

N

N.

Y, confirmation letter prior to negotiation

N

Before negotiation, agreed with IFR format

Y, Six months after project implementation

21

Project Financial Management Staffs

57. PMU in KPDT and Local government units do not have staffs that have adequate experience in the Bank finance project. The project will provide technical assistance to PMU, PIU and TPK. SPADA national will conduct financial management training program to SPADA Aceh team prior to project effectiveness. The project consultants will provide technical assistance and training in project screening, financial management, procurement including budget document preparation, disbursement mechanism, accounting and reporting. The project also provides technical assistance for oversight and monitoring at the local level.

Accounting and Reporting

58. All financial transaction for the project will be recorded in the government accounting system and included in the government accountability reports. However, the project will prepare a separate set o f quarterly project financial reports which suitable for project monitoring purposes. The specific accounting procedures for the project financial reports will be included in the Project Manual. PMU and PIU will maintain separate accounting records, on cash basis. TPK i s also required to have simple accounting and financial reports.

59. TPK will report to PIU for sub-project implementation. PIU report to PMU for local level activities. PMU will be responsible for preparing a consolidated report, included interim financial reports (IFR). The report will be submitted to the Bank on quarterly basis, in formats to be agreed with the bank. Special purpose financial statements for this project will be prepared annually for audit purposes. Project consultants will assist a l l implementing agencies on financial administration.

Project Operation Manual

60. PMU will issue the project operation manual prior to project effectiveness. The manual will include but not limited the following arrangement: project organization structure; role and function o f the implementing agencies, flow o f fund mechanism, financial accounting & reporting and audit arrangement. The manual will also include establishment of kabupaten development forum, sub-project eligibility criteria, proposal’s preparation and verification mechanism.

Internal Controls and Internal Audit

61. The internal audit department o f BRR will be responsible for reviewing internal controls at PIU and TPK at local level. The internal audit manager agreed to include the project activities in the annual audit work plan. The internal auditor should conduct a review on internal control system in the implementing unit, including payment validation. Copies of these reports should be made available to the Bank upon request. The term o f reference for such audit will include a check on the substance of transaction and direct confirmation that funds disbursed have reached beneficiaries. External Audit Arrangement

62. The audit for the financial statement will be carried out by an independent auditor acceptable to the Bank. The annual audit report will be furnished to the Bank no later than six months after the end of the government’s fiscal year, The audit assignment will be in accordance with the agreed Terms o f Reference. The TOR will basically include an assertion on the reliability of the project financial statements, and will also include a verification o f accounting information at TPK level on a sample basis. The annual audited financial statement will include a review and reconciliation of Special Account transactions and quarterly IFR. The audit reports will be made accessible to the public.

22

Disbursement Arrangement

63. In order to facilitate disbursements, 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 o f Ministry of Finance. DG Treasury will authorize i t s relevant Treasury Offices (KPPNs) to authorize payments o f eligible project expenditures by issuance of SP2D (remittance order) 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.

64. When expenditures are due for payment, PMUPIU will prepare SPP (payment request) to the payment officer within the agency (Satker). After documents verification, the payment officer will issue SPM (payment order) together with the supporting documentation for submission to the relevant KPPN. The KPPN will check the budget eligibility and issue SP2D to the operational bank. The operational bank will transfer the fund directly to the TPK or third party, i.e. consultant account and debit for the MDF’s portion to the DA. Payment to TPK will be in accordance with an agreed schedule.

65. The applicable disbursement methods include: 1) Advance, and 2) Reimbursement. The DA will be solely used to finance eligible project expenditures. Although management o f the DA will be under the responsibility of DG Treasury MOF, the PMU at KPDT will be the one responsible to reconcile the DA and to prepare the application for withdrawal for advances and reporting the use o f the DA, duly approved by DG Treasury before their submissions to the Bank. Copies o f the DA’s bank statement will be provided to the PMU by DG Treasury, MOF.

66. The ceiling of the advance to DA will be variable, and the advance(s) will be made on the basis of the six month projected expenditures. At early stage o f project implementation an initial advance o f the DA at $ 4 million would suffice. Applications for reporting of use of the DA funds would be supported by: (i) l i s t payments for contracts under Bank’s prior-review and records evidencing such expenditures, or (ii) statement o f expenditures (SOEs) for all other expenses. Applications for the advance to the DA will consist of (a) projected expenditures for six months; and (b) DA reconciliation statement. Reporting o f use of DA funds and application for an advance to DA may be submitted in a single application.

67. reporting the use o f funds would be based on the IFR.

When the PMU has capable producing the quarterly Interim Financial Report (IFR) timely,

68. 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.

Supervision Plan

69. 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 sub-grant expenditures, accounting, reporting and internal control. The financial management supervision will be conducted by financial management specialist and Bank consultants.

Action Plan & Conditionality

70. To be completed before negotiations:

23

Draft Project Operation Manual 0 IFR format to be agreed between BRR and the Bank

Written confirmation from BRR that review o f the project expenditures would be included in the internal audit work plan, and ensure that performance audit wi l l be conducted by BPKP. The reports wil l be made available to the Bank.

7 1. Actions to be followed up during implementation (To be reflected as Other Covenants in the Grant Agreement):

0 PMU wil l complete the external auditor arrangement no later than 6 months after signing o f the Grant Agreement. The project audit wi l l be submitted to the Bank not later than six months after end o f each financial year. Summary o f audit report and audited financial statements wi l l be publicly disclosed on BRR website. Consultant and facilitator team should be in place in the project location prior to sub-grant disbursement.

0 KPDT should issue the final Project Operation Manual formally before project implementation.

24

Annex 3: Monitoring and Evaluation Indonesia: Support for Poor and Disadvantaged Areas Project (SPADA)

I n Aceh and Nias

Introduction

72. A solid monitoring and evaluation (M&E) system i s vital to allow project managers and others to assess whether a project i s being implemented as planned and to evaluate project outcomes and impact. SPADA works in diverse poverty and post-conflict situations ranging from large-scale natural disasters to areas o f ethnic and religious strife. The context poses unique challenges not only to capture and document local dynamics but also to monitor and evaluate the effects o f SPADA interventions on them. A more informed understanding o f what affects the root causes and levels o f socially caused poverty, as well as what works in post-conflict restoration - based upon solid M&E data - can help ensure that project interventions build community resilience.

73. In Aceh and Nias , a larger and comprehensive project such SPADA challenged i s not just to ensure that project activities do not replicate or contradict similar programs supported by other donors but also how to have a single comprehensive M & E frame work that can be use .

74. frame work that can be used overall SPADA activities co-financing by donors.

During the project appraisal the donors agreed that SPADA have a single comprehensive M & E

SPADA Monitoring and Evaluation Framework

75. The SPADA M&E system will serve several purposes:

0 Monitoring activities will allow a range o f stakeholders, including project managers, participating communities and leaders, to track progress and assess whether the Project i s being implemented as planned and take corrective action as necessary. The evaluation component will assess the outcomes and impact o f the project. Did the project reach its stated objectives? Information collected during the course o f the Project will attempt to answer several research questions and hypotheses related to Project interventions and its objectives. The project tests some important and fundamental hypotheses related to the nexus o f conflict and reconciliation, poverty reduction, and empowerment o f the poor.

76. The development o f the SPADA M&E framework i s premised on several important lessons learned from community-driven development and post-conflict projects around the world:

Using a mix of methodologies can improve the robustness and credibility o f findings. Findings can then be cross-checked or triangulated to compare results. The SPADA M&E system will use both quantitative and qualitative methods for collecting data. In addition, the Project wil l gather information from a variety o f sources. Project implementers as well as independent, external parties such as NGOs will conduct monitoring. M & E findings must feed into management decisions and the redesign or adjustment o f project interventions. To do so, the information gathered must be timely and reliable. The Project must make a substantial commitment and time investment to ensure that reporting systems work effectively and that Project managers and stakeholders use the findings constructively. For

25

example, the Indonesian Kecamatan Development Program (KDP) had to counter a mindset among field consultants that reporting problems would reflect badly upon their individual performance and there was little incentive to act as “whistle-blowers”, In order for the M&E system to work, managers must send a clear message regarding the importance o f and expectations for reporting. The Project Management Information System (MIS) must strike a balance between methodological rigor and the practicalities of project implementation and local capabilities. Field consultants and government officials are often busy with project implementation and pay less attention to regular reporting. Project reporting formats must be kept simple yet also capture key project performance information that will be useful for M&E purposes. In addition, local capabilities are often limited in terms o f reporting skills and data analysis, so these skills must be enhanced over time. This i s especially true o f post-conflict areas where statistical data collection may not have occurred recently due to the insecurity and data management capabilities may range from low to non-existent. Impact evaluations using experimental or quasi-experimental designs require substantial external technical and specialized assistance.

Key Hypotheses and Research Questions for SPADA

77. Will SPADA interventions lead to its intended outcomes? The only way o f answering this question i s to collect data and evidence on SPADA implementation and i t s effects in the field. The appropriateness and effectiveness of project interventions must be tested, not just asserted. Credible and objective data will provide sound evidence to influence project decisions and eventually policy formulation.

78. SPADA will explore several key research questions:

0 How effective are SPADA interventions at improving welfare and reaching poor and

How can local governments build effective mechanisms for interaction between district marginalized groups?

level planning for service delivery and community demand, especially for health and education services? What can be learned from the SPADA pilots regarding new ways o f providing and managing service provision and involving beneficiaries in health and education?

stronger enabling environment for private sector development?

between the communities and government institutions?

in recovering post-conflict areas?

0

0 How can government, the business community and NGOs work together to create a

Do SPADA activities contribute to building greater trust within the communities and

What strategies are the most effective to support a transition to longer term development 0

Key Performance Indicators

79. The key outcome performance indicators for SPADA are:

0 Improved access to cost-effective, quality infrastructure (EIRR>20%) through

Quality and level of community participation in various project activities throughout the

Increased use of alternative dispute resolution and legal mechanisms to resolve disputes

participatory planning processes in the 17 project kabupaten

planning, decision-making and implementation cycle

peacefully

0

0

26

SPADA M&E

% increase in new business registrations Improvements in health outcomes: Improvements in education outcomes: Increase in people’s sense o f security in their areas Creation or reform o f government and local level institutions for handling conflict.

Activities

80. including:

The SPADA system builds upon several effective M&E mechanisms developed for KDP1 and 2

e

e

e

e

e

e

e

81.

Community participatory monitoring and evaluation - In each project site, communities wil l form committees to monitor and evaluate project activities. Communities become the “question- makers” and end users o f the information, rather than just the respondents and subjects of household surveys. For the community development grants, communities will monitor the process o f community planning, decision-making, contracting, procurement, and implementation. For the education and health components, village-level committees will be formed specifically to monitor the education and health activities. These committees could be parents-teachers associations, school committees, community boards, health unit management committees or other elected organizations who will monitor project activities, provide feedback on service delivery, and act as liaisons with the broader community. Regular field supervision and monthly progress reporting conducted by field staff and government officials. SPADA staff will report on project progress at monthly coordination meetings at the district level (see separate section on SPADA reporting). Establishment o f a management information system to capture key quantitative information and indicators related to the monitoring o f outputs and performance, as well as personnel, financial and program information. Independent monitoring by civil society groups such as provincial NGOs and journalists. These civil society groups will report upon project performance as well as conduct local budget expenditure reviews. Grievance/complaints resolution process - The Project will establish complaints/suggestion boxes at the village, kecamatan, district and national levels. Complaints will also be collected from field reports and supervision missions. Government staff and consultants at the district level will first discuss the complaints during the monthly meetings and agree upon a course o f action. Project staff then follow up on each individual case and national and district level staff monitor case resolution. Technical and sectoral studies - The Project will undertake several studies to measure economic internal rates o f return and cost benefit. For infrastructure projects, the Project wil l hire independent auditors and evaluators to conduct a facilities quality check. The quality o f environmental management and mitigation will also be monitored through free-standing reviews. Study findings will be widely circulated through publications and workshops, and they will feed into Project decisions regarding potential redesigns, procedures, operations, and management. Financial review and audits by an internal project financial team as well as the World Bank and the government audit agency, BPKP. In KDP1, these parties audited 30 percent o f a l l kecamatan accounts. In SPADA, al l district and kecamatan level funds will be audited along with a representative sample o f villages.

These M&E activities are ongoing for KDP and they will be extended and adapted for SPADA sites. In addition, the SPADA M&E system builds upon research work and several methodologies developed and pilot-tested during the project preparation phase:

27

Situation Analysis

82. A comprehensive situation analysis wil l be completed for each project district during the SPADA preparation phase. The first 12 kabupaten are already completed and have been provided to BRR, HIC, and to IOM. The situation analysis proceeds in two stages: first, SPADA field consultants undertake consultations and data collection at the province and district levels. The second phase involves interviews and data collection at the kecamatan and village levels. During both stages the consultants use techniques such as key informant interviews, focus group discussions, direct observation and document review, including local media reports o f violence.

83. This information provides a useful picture o f the situation in each district as well as some baseline aggregate information about the project areas. Some o f these variables wi l l be tracked through project implementation and used to triangulate information from other data collection efforts.

Project Impact Study - Quantitative Household Survey and Qualitative Research

84. Findings from the situation analysis wil l feed into more in-depth qualitative research and the development o f a household survey to measure impact across several variables. The qualitative aspect o f this impact study work wi l l capitalize upon many o f the instruments and methodologies developed extensively under the KDP and Community Conflict Negotiation Study. The qualitative research wil l also feed into the design o f the quantitative survey. The survey design wi l l employ a double-difference methodology (before-after, treatment and control). At the beginning o f the project, the Project wil l commission a baseline household survey in treatment and control areas. A separate study wil l be undertaken to examine the feasibility o f identifying suitable control/comparison areas in the conflict zones as well as the sample size. The impact study - both qualitative research and quantitative survey - wil l be repeated at mid-tern and project completion to measure project impact.

85.

e 0

e e

0

0

e

0

e

The household questionnaire wi l l examine several variables:

Household welfare/poverty targeting Access to, satisfaction with, and utilization o f basic services including education and health Community participation, voice, representation Social capital issues: group dynamics, trust and solidarity, collective action, social cohesion and inclusion, etc. Private sector development and obstacles faced Development priorities and common problems at the village level Village governance and accountability (includes issues o f transparency, relations with government and elected authorities, etc.) Legal assistance, alternative dispute resolution, and conflict management Attitudes towards peace and violence

28

Table 1: Draft Design of Household Survey The survey topics and questions w i l l be finalized after results from the situation analysis and qualitative research phases are analyzed. .................................................. ......................................................................................................................................................................... ........,.... ............................................................................... I ..... Topics.. ....................................................... I j Research Questions to be Addressed , Poverty targeting : Has SPADA been effective at poverty I HH characteristics

j Survey Modules ........................................................................................................................................................................... ~ ................................................................................. .,

I targeting (reaching the poorest and I Consumption modules j marginalized groups such as (Susenas)

................................................................................................................................................................................................................................................................�� ................................................................................................... /.. i womeniwidows)?

/

, Access to and quality of I I s there improved delivery and utilization i Use of services health and education I of health and education services in project ~ Satisfaction levels ~ services j areas? I Indicators on health and

education outcomes (for I health, the modules will be : ! the same or comparable to

the quant. HH survey tool), , .................................................................................................................................................... ...........,.... ............................................................................. hat are the obstacles to private sector ~ Obstacles to business

i development? Has SPADA activities ~ Solutions for improving ,..... ~ improved the business environment? business climate Common problems at ~ What are the common problems at the I Village development

' village level I village level? What are the , ....................................................................................................... r community's development priorities? I Village level governance I How are decisions made at the village i Leadership

............................................................................................. " ........................................................................................................................................................................... ..,.............. .............................................................................................. ,

priorities and problems .................................................................................................... ............................................................................................................................................................ ............................... <

I level? How are leaders chosen? How are Decision-making ! they held accountable? What i s the role of I Accountability and

' officials? ' Role o f elected bodies and BPDs? Contacts with government transparency

,...... ..................................................... ; .................................................................................................................................. ..: . . . . . . . . . . . . . . . . . . . gove!!?ve!! officia's Building reconciliation and I s the Project able to help communities , , Groupsinetworks social capital j manage conflict more constructively? Trust and Solidarity

~ Which interventions work best and under i what sets o f conditions and types of ~ conflict? ~ Information and , Do SPADA activities build greater trust j communications ~ within the community and between the ~ Social cohesion and ' community and government institutions

Collective action and cooperation

i

inclusion ! / /.. ...................................................................................................... (. ! ........................................................ (including poli ............................................ ................................................................................................................. ,

Dispute and conflict ~ What mechan ly exist I Dispute & conflict ' resolution ~ at the village level to settle disputes? resolution mechanisms

~ How effective are they? i Access to legal assistance , Do the forums and civic mechanisms ~ developed under SPADA increase the i chances of non-violent resolution o f I roblems?

1 experiences with violence, crime, conflict

!

I

i ......................................................................................................... $ ................................... : .................................................................................................................................................. : .................................................................................................................... , : Attitudes towards peace, ; What are villagers' attitudes and i Attitudes, practices -

conflict and violence violence, peace, conflict, Peace? ..j. discrimination, etc. ..................................................... ... .......................................................................................................................................... .........................................................................................

29

Case Studies

86. M&E system will capture not only the “tangibles” o f the project, Le., kilometers o f road built, peace forums held, etc. but perhaps more importantly in post-conflict environments, qualitative methodologies will be used to capture more fully the “intangibles” related to process, building trust, prejudice, beliefs and other less quantifiable characteristics.

SPADA provides a rich backdrop for case studies and in-depth qualitative research. The Project’s

87. Using qualitative research and case study techniques i s particularly suitable for capturing community perspectives and the questions of “how” and “why” o f particular events and processes related to the conflict. Perspectives on prejudice, violence, trust, security and other potentially sensitive topics are best discussed through less structured interview techniques. Conflicts generally have long histories and intricate pathways, and these stories are more fully captured through in-depth, informal interviews and open-ended questions. This methodology allows people to describe their experiences in their own words. Interviewers also have the flexibility to pursue unanticipated lines o f inquiry and probe deeper into specific issues. Furthermore, in cases o f incremental change and capacity building such as SPADA activities with female-headed households, these gradual, sometimes nuanced changes in confidence, attitude and skills are best explored through open dialogue and observation. Case studies and qualitative research will be able to capture and document these processes more effectively.

88. allows for triangulation and will improve the robustness o f M&E findings. Results can then be compared among a variety of sources.

In addition, using a mix of quantitative and qualitative methodologies from different sources

89. Examples o f potential case studies and research topics include:

Assessments and research for private sector development - The Project plans several studies to examine aspects of private sector and economic development. These include: assessments of the local regulatory environment, with annual updates; transport costs and road taxes; the local structure o f credit availability, the size and structure o f the informal economy, and various infrastructure sector reviews. The formulation of some of these assessments will be participatory and involve government and private sector representatives to formulate the themes and discussion questions. Alternative dispute resolution mechanisms - What mechanisms are effective at resolving disputes at the community level? How do mechanisms which involve government officials compare to more traditional leader type o f interventions? How participatory are these interventions and what are the advantages and limitations to such mechanisms? These studies will be carried out in tandem with the legal assistance/alternative dispute resolution pilot program. Role of women in post-conflict environments - There has been l i t t le research on the role of women in conflict and post-conflict situations in Indonesia. What has been the impact o f the conflict on women’s roles and responsibilities in the household and society in general? What roles if any have women played in peace building? These could be preventing as well as provoking conflict. Researchers will also undertake separate, but related panel case studies focusing on female headed households in three provinces and what impact, if any, have SPADA activities made in their lives. Forums for cooperation and reconciliation - SPADA will convene community members and local officials to work together through the community grants component. What types o f activities are successful in building linkages and cooperation? What i s the role of religious and adapt organizations? How should these forums be organized and who should be represented at these forums?

0

0

30

0 Best practice case studies - Lessons learned and successful practices will be documented so that project stakeholders in other areas will benefit from the experience. For example, cases where utilization or coverage for health and education has improved markedly, or where there i s effective community involvement in managing schools or health services, will be documented. Innovative channels for communicating peace messages or socializing SPADA wil l also be recorded. The Project provides fert i le ground for several research activities. Implications for HD policy analysis - Based upon the Project’s experiments in health and education assistance, one can examine what type o f local policy options will foster innovation and accountability in the delivery o f essential services. What policies will support equal access to services, and improved attention to results in the form o f human development?

0

Private Sector Development Assessment Tools

90. The SPADA private sector team has developed a private sector and investment climate assessment tool, adapted from the standard survey instrument o f World Bank’s Investment Climate Unit. The assessment tool covers topics such as investment constraints, infrastructure and services, financing, labor and workforce issues, business - government relations, conflict resolution and legal environment, crime, and capacity and innovation.

9 1. Assessments will be repeated every year to measure progress in improving the business environment and increases in private sector investment and development. Key performance indicators are: the number and type o f business regulations improved; barriers removed; and increase in new business registrations. Using a participatory approach, stakeholders will help to formulate questions for inclusion in the periodic assessments to ensure relevance o f the topics. The Private Sector Forums involving government, business and NGOs, will be held regularly to obtain feedback from the different parties.

92. updates, as well as special thematic studies as mentioned earlier. The Forum will serve as a useful venue to present study findings and design appropriate follow up action.

This component includes several studies to assess the local regulatory environment, with annual

Health and Education Monitoring and Evaluation

93. Kotarawaringin District, Central Kalimantan. This pilot survey tested a combined quantitative and qualitative methodology aimed at identifying the level o f services people receive, felt needs by the villagers, and gaps in services. The methodology consisted o f four components: (1) a district-wide health facility review to estimate the level o f services they provide; (2) application o f the participatory hygiene and sanitation transformation tools (as used by the Bank water and sanitation group); (3) a simple household survey at the village level in three sub-districts; and (4) village analyses and consultations. The responses to the household questionnaire were summarized by the field workers in the villages, and discussed with villagers in a focus group format, using visual tools. The purpose o f this third component was to identify the underlining causes o f the health indicators found through the first two components and discuss villagers’ views and their understandings o f the problems. One o f the lessons learned about the methodology during the pilot phase was that the instruments need to be kept extremely simple plus technical assistance will be needed to analyze the data and improve skills. During SPADA implementation, the health survey findings will be presented, along with other relevant health information, to the kecamatan and district forums to enable them to make informed decisions in deciding the use o f the SPADA funds. These component activities will be repeated as part o f the monitoring exercise.

During SPADA’s preparation, a pilot community-based health survey was conducted in

31

94. Community-based groups such as school management committees, community boards, and health center management committees w i l l assist with monitoring o f the health and education activities and their results during implementation.

95. services, increases in immunization rates and professionally-assisted birth deliveries, and improvements in school attendance and competency level rates w i l l be measured through various means, within treatment and comparison areas. For health, the project w i l l commission facility, user, and household surveys as well as special studies (similar to the methodology described above). To measure education outcomes, the project w i l l use school examination and attendance reports, facility and household surveys. Of particular importance w i l l be to track outcome differences resulting from experiments in contracting mechanisms (e.g., supporting government service delivery, contracting NGOs and the private sector).

The measurement o f health and education outcomes such as increased use o f publidprivate

Mapping Conflict Incidence

96. conflict. Secondary data sources such as BPS statistics and police reports are generally incomplete and unreliable. SPADA w i l l use a methodology tested in the World Bank Indonesia conflict research study based upon collecting and collating local newspaper articles to map incidence and impact o f conflict over time and area. Information regarding conflict types, impact, and groups involved i s collected, entered into a database, and analyzed for trends. With technical assistance, the Project w i l l attempt to develop the sk i l ls o f local governments to collect data and statistics on conflict in order to build a simple type o f early warning system. Assistance w i l l be needed to help local governments develop the methodology, categorize the information in ways that make it useful, and analyze conflict trends within the data.

One o f the most difficult variables to measure will be the incidence and impacts o f violent

Measuring SPADA Training and Capacity Building Interventions

97. train village councils, community project teams, women's groups, local NGOs, village paralegals and government and community groups in alternative dispute resolution. The table below illustrates some o f the major training interventions.

The Project includes training activities to build the capacity o f various stakeholders. SPADA w i l l

Table ..................................................................... 2: SPADA Training ..." Interventions ..................................................................... ......, .................. ....................................................................................................................................

; ..... !lo~,ec.t. C9,rnpo?!?!t ............. ; ...... : ......................... devel?pment..grants .................... ; .................................................................................................

.................................................... ' Community ~ Female Heads-of- Hous

............................................................................. 1 Village councils and

! Provincial NGOs

~ Village paralegals &

t, project supervision, , / community project teams .......................................................................... .................... ..................................................................................................

..................................................................... ................................. ..................................................................................................... ~ Legal assistance / ................................................................................................... , s .................................................... i ............................................................................................................................................................................ ,

ts involved I Court procedures , g ................................................... !. ......................................................................................................................................................................................... , . . ..........................................................

I Village forums, leaders, local conflict mediation and dispute resolution ~ government officials I techniques I District department staff I District and kecamatan level health planning and

I budgeting, MCH in-service training,, . . . . . . . . . . . . . . . . . . . . . . . I Health workers, teachers, j Community service planning, management and I community i monitoring, Puskesmas team training on facility

: Local government staff .Newspaper analysis and data management . . .

/ .......................................................................................................... . . . . . . . I ~ Education and Health /.... ....................................................................................... / ........................................................................................................................................................................................................................................................

;... .............................................................. ~ .................................................................................................................... i.manage.!?K!?t .................................................................................... i. ... .Con?ict maPPi?g.. .......................................................................................................... : ................................................................................. <

32

98. Too often, development projects only measure the inputs and outputs o f training, despite investing considerable human and financial resources for capacity building. Typically, projects only track the number o f workshops held, number o f people trained, popularity o f the training, etc. However there i s l i t t le information as to whether or not the training made any medium or long-term difference in job performance or services provided by the organization. To assess the effectiveness and impact o f the SPADA training interventions, the Project wi l l use special “tracer” methodologies to monitor over time a sample o f the trainee groups from training intervention to future changes in behavior and performance. The project wi l l use pre- and post-training questionnaires and follow-up surveys to assess changes in knowledge, attitude and performance at periodic intervals.

b Training intervention provided

1

Figure 4: Measuring Training Impact

Direct Observation of training Training reports. #/type trainee, topics covered

How lo mursure? 1 Assumptions re: drmges due to training interwntions I

Changes in knowledge. skills & anitudes What did they learnfrom the training7 Did their amnrdes change because of the naming? Do they think they can

‘ * i raf iertmining

I m W l e W S with trainee, 1 qu~ationnaue B

organiiahon improved7 -1 supervisor, clients. thud p m i w

Regular Field Reporting and M I S

99. depending upon field position but wi l l generally include information on:

SPADA field staff wil l report monthly to the district and central levels. The reports wil l vary

0

Activities completed during the past month and plans for the following month Status o f activities in the project cycle according to project component Description o f infrastructure, economic and social activities (by component) Financial information Level o f community participation in activities (broken down by gender, ethnic and religious groups) Information dissemination and transparency Training and activities with village councils and other local institutions Coordination work with Government Coordination Teams, Parliaments and any other government agencies Coordination with NGOs, journalists or other civil society groups

33

0 Status o f complaints/grievance resolution

0 Any other issues 0 Problems encountered and proposed solutions

Attachments - reporting forms, photos, complaints received, etc. 0

100. All data will be gender-disaggregated and give an ethnidreligious breakdown o f beneficiaries when relevant. Key indicators will be tracked through field reporting formats and entered into the project MIS at the district and national levels.

101. A critical element o f SPADA reporting and project management will be monthly coordination meetings at the local level. SPADA staff will hold regular meetings with the district and provincial level crises committees as well as the district parliaments to review progress to date and address management issues. These coordination meetings at the local levels ensure that monitoring information i s fed into the management and decision-making loop.

, ......................................... Summary of SPADA M&E Activities . . . . . .

~ 0

8 0

~ Monitorin ...................................... ................................................................................................................................................................................................................................................................�� .,

Community participatory monitoring and evaluation Regular field supervision and monthly progress reporting by project staff, MIS Independent monitoring by civil society groups including public expenditure reviews by

, ................................................................................................................................................................................................................................................................L�

j.... ................................................................................................................................................................................................................................................................B� .,

io Health and education monitoring , ................................................................................................................................................................................................................................................................M� <

, ................................................................................................................................................................................................................................................................�� ............................................................. Case Studies ~ , ........................................................................................................................................... 0 Grievance/Complaints resolution proces .................................................................................................................................................. ..,I

, Evaluation ..................................................... Activities ............................................................................................................................................................................................................................................ ,

' 0 ................................................................. Private sector de en!. .asse!?.!e!!!.!?o!s .(a!??... g..Purposes), .........................................

0 Impact study - qua e and quantitative HH survey 0 Technical/sectoral studies (EIRR, facility and user ......................................................................... .<

~ / 0

10 Training tracer impact assessments ....................................................................................................................................................................................

! 0 Supervision missions 80 Financial audits

................................................................................................................................................................................................................................................................��

:. .......................................................................................................................................................................................

Conflict incidence mapping ............................................................................................................................................................................................................................ .............................................................................................. <

......................................................................................................................................................................

, ................................................................................................................................................................................................................................................................U�

............................................................................. .........................................................................................................................................................................................................................................................

34

LOGICAL FRAMEWORK

Project: SUPPORT FOR POOR AND DISADVANTAGED AREAS IN ACEH AND NIAS (SPADA Aceh-Nias)

1. Goals I .... " ............................. " ........................................................................................................................................................... To improve the social and , % increase in HH I Susenas, economic, health Security in the areas

~ economic welfare of the i expenditures/ welfare ~ and education data for Aceh ' remains stable. I people living in Aceh and i ... ~ andNias , Nias. j %increase in GDP growth ~

.......................... ...................................................................................................................................................... ................................................................................ . i ........................................... Private sector investments

, Y

in Aceh province ~ are forthcoming in the , i ............................................................................................................................ / .......................................................................... i % increase in literacy rates, I : infant mortality rates and 1 I

~ maternal mortality rates. * , , 1 impact survey completed j

.......... i .... Province. . . . . . . . . . . . . . . . . . .

................................................................................................................ , ..............................................................................................................................................

2. , Purposes

To strengthen governance, ; promote growth, and ! effective, high quality rural improve service delivery

Improved access to cost-

infrastructure (EIRR>20%) in ,

in the provinces o f Aceh and Nias. I districts in Nias.

, 17 districts o f Aceh and 2

I i I Service delivery improved ; in the areas o f health and : education: ! o % decrease in children

........................................................................................... i ................................................................................................

3. ' outputs

............................................................................................ ................................. ............................................. SPADA progress reports, MIS. suuervision missions.

Conflict does not erupt in ! these areas again which

I .

economic analyses, GDS2 survey, statistics on private sector investments, case studies, health and education sectoral studies

Susenas, BRR, SPAN ................................................................................................

' 0

i o

aged 7-12 not in primary ~

school, 5% in Aceh, !

11% in Nias in 2005. ~

% decrease in children aged 13-15 not attending i

jr. secondary, 13% in Aceh, 29% in Nias in ~

2005. %birth delivery by medical personnel increases * % immunization coverage increases. * :

i

.................................................................................................. .....,...... ........................................................................................... I

- would prevent or delay project implementation.

Effective coordination takes place amongst the multiple development players in these various

I sectors.

Component A: District Grants ................................................................................................................................................................................................................................................................W� .......................................................

~ A. 1 Infrastructure, #/type/dimensions o f j Project MIS, financial dat Local governments are , economic, health, , subprojects proposed and I willing to support the ~ education, and social program, including the

eventual hiring of local ' activities related to

workers. reconciliation and

i , funded in all 19 districts

I teachers and health ............................ development are funded at : ............................................................................................................................... : ....................................................................... .............................................................................

: the district level. ! >75% o f district grants ! disbursed for each project

Technical audit '

............................................................................................................................................. ........................................................................................................................ :....:E!?.: .......................................................................................... '

35

I >70% district infrastructure ~

i classified as "satisfactory" to i ~ "excellent".

,

: ........... ............................................................................ i .......................................................................................................................... .j ................................................................................................................ : ...................................................................

Component B: Capacity DevelopmenVPlanning Grants j There i s adequate

technical capacity at the ................................................................................................................................ ," ......................................................................................................................................................................................................................................... . . . . . . . . . .

B. 1. Education and health ~ #/type of educationhealth : Project MIS. GDS2 activities are implemented activities implemented. I

which focus upon improving the overall

1 quality of services and are I demand-responsive to the ~

needs o f Acehnese.

, , !

! I , ........................................................................................ ........................................................

, ................. .;. ............................................................................... ...+ ........................................................................................................................ / ............................................................................................................. 4 , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , ! >65% of respondents satisfied i ' with the health and education , ! services provided through ~

1 SPADA.

1 >30 % primary schools in the I I ' districts adopting school based I

I >40% of villages with active ~

j participation school 1

: management committees ~ 3 0 % of rural districts using ; j participatory planning

financing development

I , .............. ......................................................................... ................................................................................... i....'...... ....................................................................................................................................

/... ' management ........................................................................................................................................................................................................................................................... ' ..........................................................................................................................................................................

............................................................................................................................................................................................................................................... ............................................................... 1 ..................................................................

, ' processes for budgeting and j

............... ........................................................................................ ......................................................................................................................................................................................................... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . " ~ activities / , B.2. Private sector growth j 19 district business forums are ' j Government demonstrates i s supported. established and functioning. , a strong commitment to

addressing obstacles to ~ private sector !

.................... /.. ............................................................................. i ............................................................................................................. .................................... ....................................................... 1.. deve~?.Pme?t . . . . . I

5% increase in new business / registrations.

~ Investment promotion for x ' large-scale agriculture or other 1 projects.

B.3. Formal and informal j >3 districts whe ~ legal advisers, kecarnatan

level dispute resolution facilitators and village paralegals are appointed,

strengthened j trained and providing legal I

>70 NGO staff and formal , justice officials (judges, police I and prosecutors) trained to , undertake judicial services and ; legal education.

!

.................... ............................................................................. ,. ................................................................................................................................. ......................................................................... a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

! .................... .,... .............................................................................................. ~ ........................................................................................ ., .............................................................. ,

: mechanisms for local-

I are established and/or

,. ............... ,,... ...................................................................................... * ~ .................................................................................................................... assistance to communities. / ........................................................ ........................ 1" ................................................... ,

36

/.. .................................................................................................................. " ............................................................................................................................ !. ................................................................. ..................................................................................... : >500 persons benefiting from ~ legal aid assistance through ~ SPADA

! ~

................................................ , : ...................... /... ........................................................................................................................................................................................................... ........................ ............................................................................................................ B.4. Needs o f vulnerable , 300 SPADA facilitators, NGO 1 groups affected by the

: tsunami and conflict are ~

addressed. ; conflict mediation, leadership I

' staff, local government officials I and youth are trained in

i and civic education I

:... .................... .~ ................................................ ...................................................................................... I ............ " ..................................................................................................... ; ................................................................................ , >2.000 vulnerable women.

,

B.5. Districts strengthen their financial management and

IDPs, and ex-combatants provided technical assistance I and financial support to rebuild I their lives.

19 districts receive training in proper financial management and procurement. I

..................................................................................................... .............................................................................. ~ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I

I procurement skills

13 districts adopting at least three recommendations for improvements in their

' regulatory environment I

Component C: Implementation Support ! ........................................................................................................................... ". .......................................................... .......... ' ............................................................................................................................................... ..,

> 80 % o f Gov

are recruited and functioning.

Project reports, contracts Procurement contracts are

Project i s able to hire

C. 1, Government implementation structure, : consultant teams at all levels ; ' not delayed. procurement and technical assistance for the project 1 qualified staff from Aceh. are established and functioning.

. / ........................... , ......................................................................................................... n .................................................................................................................................................................................. ..................................................................................................

Component D: Monitoring, Evaluation, and Studies ....................................................................................................................... ~ ................................................................................ ....................................................................................................................................................................... .. /

D. 1 M&E and complaints , >60% complaints reso system i s established, ~

~

improve project

D.2 Studies are conducted i. > 80% of M&E and study and findings used to inform the policy and implementation o f the !

~ Project MIS, studies

: functioning, and used to

I ................... j.. ,P!:foy,m.?ce,: ........................................... ;.. .................................................................................................................. ............................................................................................................................. ,

' findings are used in the project ; decision-making process

'

....................................................................................... ..+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .I ................. ;....project:. ..................................................... : .................................................................................................. 4. Activities , ............... , ...................................................................... .,.: .............................................................................. ........................... , ......................................................................................................................... s

, 4.1 Recruit provincial and district teams, companies and NGOs '

I

4.3 Begin socialization at '

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ' 4.2 Provide training to

. . . . . . . . , i... .................. ...,.... staff., ........................................................................... i ............................................................................................................................... I ................................ ..................................................................................................

...................................................................................................... ........................ .......................................................................................................... ...............................................

37

Annex 4: Anti-Corruption Action Plan Indonesia: Support for Poor and Disadvantaged Areas Project (SPADA)

I n Aceh and Nias

Explanation of the Anti Corruption Plan

Overview

102. Indonesian corruption, and the general diagnostic i s widely shared across the development community. Lack o f effective sanctions combined with weakly developed procedures for public accountability, have created a culture of impunity where the temptations are great and the risks are few.

The Bank and other donors have carried out a great deal of analytical work on the subject o f

103. unique opportunities for rent-seeking, such as the emergence o f black markets, local scarcities, threats of violence, and very poor book-keeping. As with disaster relief, waves of poorly designed and badly supervised ‘emergency assistance’ can create further opportunities for abuse.

Working in disadvantaged areas carries with it high even higher fiduciary risks. There can be

104. Corruption can waste large amounts o f resources, undermine the credibility o f the government and its development partners, and contribute to widespread social unrest - one o f the key problems that SPADA trying to solve. Preventing corruption in SPADA i s therefore a difficult but important element.

SPADA and anti-corruption

105. The tsunami and disadvantaged areas covered by this project pose a particular challenge to anti- corruption programming. The formal mechanisms for combating corruption often do not operate in many o f these areas. Audit controls may be moribund. Even mechanisms such as computerized book-keeping may be difficult to maintain.

106. A brief review o f the SPADA AC Plan follows.

What are the key elements of the Anti Corruption Plan?

107. Some of the most important aspects o f the anti corruption action plan can be summarized into the six key elements that follow. Underpinning each o f these elements i s the careful consultative process that ensures participation and empowerment.

A) Enhanced Disclosure Provisions and Transparency. The program will adopt a formal disclosure policy and set o f procedures, simplify disclosed materials and make them readily available, particularly at the district level and below. Salient information will be made publicly accessible by a range of means, including public meetings and notice boards. Specific disclosure measures will include, but not be limited to:

Public disclosure of al l grant awards, annual procurement plans and schedules (and their updates), bidding documents and requests for proposals. Disclosure to al l bidders of the summary o f the evaluation and comparison o f bids, proposals, offers, and quotations, after the successful bidder i s notified. Disclosure o f all annual audit reports. Stakeholdedend-user oversight, with representatives involved in planning and implementation, and frequent accountability meetings that are open to the general public.

39

Monitoring by NGOs, the press, and university student networks funded through the project.

B) Civil Society Oversight. The program recognizes that greater oversight by civil society i s likely to reduce the risk o f corruption and misuse of power. The program involves a high degree o f formal participation by community groups, the private sector, and traditionalladat and religious leaders, through the monitoring of the projectdend results, witnessing the results from tender committee, and the evaluation of the quality o f delivery procured services/products.

Multi-stakeholder forums, and vested interest groups such as business forums and school committees will be directly involved in the decision making and monitoring processes. At the same time, there i s also an inherent danger of conflict o f interests, since (in effect) these local entities will often be beneficiaries to contracts awarded to local businesses or contractors. Therefore special care will have to be taken to ensure broad, open participation of al l interested parties in decision-making, planning and monitoring of implementation.

Existing NGOs and other civil society organizations will be involved in a variety of ways, inter alia: i) through participation in workshops and planning/accountability meetings; ii) as key resource persons for the development of plans where possible; iii) as witnesses o f tender committees; iv) as evaluators on an ad-hoc basis; and v) as training providers in particular skill areas.

Routine national and district level accountability meetings, widely publicized and open to the general public, will be held to ensure that salient information will be made public. Attendance of key civil society groups will be requested at these meetings. The minutes of the meetings will be sent to the nearest NGO forum (usually at the province level) as well as to the heads o f the '

government and Bank supervision teams. Routine information concerning expenditures, progress, problems and solutions will be provided on a monthly basis to the local press.

C) Mitigating Collusion, Fraud & Nepotism. Opportunity for collusion and fraud exist in any project. However, many of the possible risks can be mitigated as a result o f the SPADA project design. Transparent and well-advertised procurement under the project, combined with appropriate oversight, should reduce corruption opportunities in procurement practices. Additional auditing and procurement procedures are proposed, such as strengthened oversight and capacity building. Technical Assistance in the areas o f procurement (e.g. procurement consultants) and financial management will be provided to each location.

At the central level, there will be a committee to regularly evaluate the performance o f the consultants who are hired under the Project. This committee will make their results available to the relevant technical parties, including the BRR and IDA.

Cases o f collusion, .fraud and nepotism will be reported directly to the attorney general office, as the authorized agency mandated under the Indonesian law. In the case o f collusion, fraud and nepotism within the community, the cases will first be reported, discussed, and decided at the community meeting prior to their submission to the attorney general office. Experience in similar projects indicates that many risks can be mitigated by the threat and use o f appropriate, community-based sanctions such as those used under KDP I and 11. SPADA aims to adopt many of these approaches to problem solving and dispute resolution. Substantiated allegations involving corruption will be reported to the appropriate authorities.

40

District level procurement capacity i s often lacking. SPADA’s fast launch will be supported by a procurement consultant provided through a grant from DFID whose purpose i s to provide short- term procurement training and oversight. Though SPADA will provide training and other forms o f capacity development to strengthen procurement practices, - in each case assisted by the project’s procurement consultant. Final review o f bids remains the responsibility o f the government agencies, though SPADA will insist on the process being witnessed by at least two independent members o f civil society and two representatives o f the affected communities. The procurement consultants and the PMU wil l ensure that the results o f al l tenders are published.

In the past, district level contract management has often been o f very poor quality. Works often go uninspected, and failure to deliver the quantities or quality contracted for i s widespread. Experience from KDP, however, shows that local level implementation and monitoring committees can produce significant changes. Involving more entities in the process will make

’ collusion more difficult. In SPADA, members o f the related forum will be part of districthubdistrict project implementation oversight teams whose job i s to record al l deliveries and make monthly reports to the forums and to the PMU. Performance based contracts wil l be used wherever possible.

The project will also provide assistance to participating schools and clinics by making price l i s t s available and creating direct linkages to a wider list o f suppliers o f generic supplies and training. This assistance, combined with procedural help from procurement consultants, should widen the purchasing scope and capacity o f schools. This i s particularly important in SPADA areas, where there i s a distinct shortage o f well-stocked retail outlets and information i s often difficult to obtain. Clustering to allow bulk purchasing i s an option that health and education committees may need to consider.

D) Mitigation o f fraud and forgery risks. BRR and IDA will be provided with drafts o f al l key documents such as budget information, the project manual, budget circular letter, and l i s t of project management staff prior to negotiations. During implementation, transparency o f the project processes will make fraud more difficult to hide than in many previous projects. Groups using funds at al l levels will have to hold accountability meetings where members o f the general public wil l have a right to pose questions concerning al l transactions. The project seeks to strengthen governance, accountability and transparency through support for the national (BPKP) and regional auditor (Bawasda). Audit reports will be made public. Inspections o f the end results o f activities will include physical audits and special evaluations o f training outcomes to ensure that funds are being used effectively. Members o f the district level forum, including non- government members, and members o f the local parliament, will have a right to inspect al l documents. To avoid key, original documents and receipts from being lost, these must not be removed from the relevant offices during the lifespan o f the project.

E) Complaints Handling Mechanism. Complaint handling procedures as currently defined in the Keppres 80/2003 will be strictly followed by also assigning authorized officials to be responsible for maintaining a database o f complaints and the follow up actions. While the program i s designed to encourage local complaint resolution through formal channels as well as public pressure, in some cases local elites might misuse power and program activities. For these cases, an alternative system will be established through a feedback mechanism at the national level. Pilot programs will also be designed to train local paralegals and NGOs who can act on some of the complaints made by villagers. A special unit designated for handling o f complaints wil l be made available at each level. The complaint handling unit wi l l investigate and facilitate the resolution o f complaints and problems. The database o f complaints, follow-up actions being taken, and sanctions applied will be publicized to increase participants’ involvement and increase

41

the likelihood of their lodging protests, thereby raising the social costs of misuse o f funds. Complaints will be acted upon in a professional and timely fashion, and without risk o f reprisal to 'whistleblowers'. The complaint handling mechanism will provide wider access for the communities so that they can easily raise and monitor complaints. For example, the project will establish national and province level addresses for mail complaints, and these and other contact details will be posted in the project information boards.

F) Sanctions & Remedies. Clear sanctions and remedies are important final steps in the effort to fight corruption. Communities are encouraged to impose reasonable sanctions on citizens who abuse the power that has been entrusted to them. There i s an increasing wealth o f anecdotal evidence suggesting that such sanctions can be more easily applied and more effective than protracted legal proceedings, especially in smaller cases of corruption. The project does not endorse vigilantism or extreme community sanctions, but in many cases the communities will be able to reach amicable resolutions without resorting to the slow and over-burdened legal system. That said, formal sanctions may also be applied were allegations involving corruption can be substantiated. For example, any official (government, non-government, etc.), community members, or private sector entity participating in the project can be prosecuted if sufficient evidence i s available, and such cases will be referred to the appropriate authorities. In al l procurement 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.) in accordance with Bank and Government regulations. Transfer o f funds from the project Special Account will be suspended in cases where significant misuse of funds i s suspected. At a larger scale, entire districts may be excluded from participation if misuse of funds i s suspected to occur widely. Information regarding successful cases, where lessons are learned and funds are retrieved, will be widely disseminated.

The need for intensive supervision and appropriate reactions to reports.

108. There are many inherent dangers in working in disadvantaged areas. Supervision must be frequent and intensive, with an action-orientated approach designed to reduce dangers and improve project design as much as possible. Project staff may be under extreme pressure to abuse their positions o f power, so it i s important that missions are seen to be consistently comprehensive, fair and robust. Whistleblowers may face greater risks in such areas than elsewhere, and supervision teams must be careful to not to compromise informants, Joint Governmentmank supervision missions should be held as often as possible, but BRR and the Bank should also field smaller, more ad hoc missions to cover specific areas o f concern. All incoming reposts of corruption must be appropriately investigated.

11. Corruption Mapping Matrix

109. Limiting the occurrence o f corruption in this Project starts with identifying potential risk areas - this i s called corruption mapping. This mapping will be repeated at least every six months as the project progress and lessons are learned.

42

’ MhageriSatker an i ’ TenderEvahation

Committee

Proposal evaluation

Award of Contract

I -

(Central) I consultan; evaluation process. The j decisions tend to bias towards , consultants as “instructed” by the ~ higher level officials or other parties.

~

; included as pa; of the consultants’ proposal

’ - Capacity building for all actors involved in : procurement, including certification of staff in

~ - Civil Society Representatives oversee the process : - Development o f Project Management Manual to

evaluation team

accordance with Keppres 8012003 !

! , ~ streamline all procedures and sanctionicomplaint ... 1. ................................................... j ....................................................................................................................................................... I .... ~!!~!!!.~..!?E~??~v? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

~ MEDIUM i -Delay in evaluation process that ~ - The Procurement P with detailed timeline, will ~ would benefit exclusive consultants ’ be binding in the Legal Agreement, and will set as the I - Proposals are rejected due to reasons , basis for any procurement actions. j unrelated to the capacity o f consultants ’ - The Bank would declare misprocurement for any

j - Significantly high technical scores ~ - QCBS procedures with budget ceiling will be j allocated to the “preferred” consultants I followed ~ such that no other consultants can ! - The estimated budget for each contract package will ’ effectively beat their proposals : be based on actual experience ~ regardless o f the prices, which could ~

~ result to significantly high prices j I information provided by the

i -The TOR will be designed to be quite rigid, with i clear deliverables wherever possible

in carrying out o f the contracts/services ~ unjustified extension of validity o f proposals

I - False information about the

..I I consultants ............................. MEDIUM - The committee may call the

contract amount - Collusion and nepotism in awarding

~ prospective winner and negotiate the - Mandatory disclosure o f contract awards

Quality of delivered ‘ MEDIUM services

the contract - The delivered services are o f lower -Involvement of civil society oversight and quality than the ones specified in the TOR, and the officials may take kickback through the difference - Significant changes o f key staff or

supervisory consultants in the inspection o f the delivered services

! - Enhanced complaint handling mechanism , - Involvement o f community groups in monitoring the

: - Enforce reward punishment system as defined in , consultants j - Intentionally low quality o f

quality o f the consultants’ deliverables

. . -c ^^_._^^ AI - - A I.L,.L --,. v ------ on/-inn.) b U p G r V l b l U l l U I C U l l l I d L l b , dllU NlLNLJdLB r \CpplCS O U I L U U J

from the consultants Risk of kickback, and budget markup Procurement Planning, MEDIUM Mandatory review by the Bank o f Procurement -

including the one for the sub projects

Overall Procurement

,

: Planning, and disclosure o f Procurement Plan in ~ public domain, including disclosing the contract

I Risk o f kickback, collusive practices to I - Enhanced disclosure, complaint handling, and ’ “award” the contract to “preferred” sanctions as defined in Keppres 8012003 ’ consultants, and lower quality o f - Enhanced capacity for the officials involved in I services ’ procurement decision, including hiring o f consultants

i - Enhanced control system (internal and external) ~ - Development of Proiect Manuals

......................................... /. ......................................................................................................................................... .amo .... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . MEDIUM

~

. . . . . . . . . . . . . . . ” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - Tighte? Bank supenision , , . . i.PR.o~.cT.M.ANACE’PT ^...._ .. ____. _ _ ................. __. _ _ ^ _ _ _ _ _ _ _ _ _ ... _ _ _ _ _ __. _ _ ... _ _ _ _ _ .... _ ^ _ _ ^ . _ _ _ _ ___.__ __. ........................... .--.

The final l ist staff with MEDIUM - Risk o f insufficient staff capacity. - The criteria and performance indicators o f Project . . their (i) experiences in ~ I Manager, Treasurer, planning staff, procurement handling donor financing project and ~

~ (ii) history o f project management and or

I staff, financial staff etc.. Staffing requirements ’ agreed by the Bank have been incorporated in the : Operations Manual and wil l be used as the basis o f

the annual performance review of the relevant staff I

. . . . . ~ .... treasuv, !fa!?/% taken .......... I .......................................................... ~ ...............................................................................................................................

43

. . . . ...................................................... ...................................................................................................................................................................................... ............................................................................................... ~ I implementation. ,

I - Requirement o f Government Project Management,

I The imolementing agency will (and the World Bank .................................................................................... :.. ...................................................... : ................................................................................................................................................... " ...... : ........... TEeasury.and,,staff,traini?g .agreed..by the Bank.. . . . . . . . . . . .: , AuditReDort MEDIUM . Risk o f unavailabilitv o f information : Publication

I - . , on the progress and &It o f project : implementation (including misuse, I collusive and nepotism practice if any)

I can) make publicly available promptly after receipt o f i final audit reports prepared in accordance with the

loadcredit agreement, and all formal response of the ... ........................................................................................ I ................................................................................................................................................. bility 8 MEDIUM . Lack o f local experience may result in

I communities missing cases o f abuse.

j

Mechanisms

~

government The project design includes oversight and supervision to minimize risks, especially at the kecamatan level and below, including, inter alia:

Community groups wil l meet regularly to make collective decisions on strategic issues, and to review the UPK's accounts regarding the use o f funds The groups wil l also hold annual meetings with the community to account for activities.

' Financial reports and records will be audited each ~ year by local accountants. Audit results will be ' reported to the community at the end-of-year ~ accountability meetings. Ideally, each group should ' be visited at least twice per annum by supervisory ' team.

I n order to enhance the quality o f consultants' supervision under the project, facilitators are required

' to regularly check the community groups and UPK j books. They wil l also need to sign and f i le a I "representation statement" regularly, confirming that ' they have checked the books and found them ' satisfactory. Random checks will be made on the

facilitators' statements. A mechanism for checking : and applying sanctions wil l be developed for those

filing false statements (sanctions may include job

I i

Limited dissemination LOW Information i s kept limited to certain Socialization wil l be through meetings, workshops o f information related ' to the Program

~ circulation or group of people only , such that non qualified proposals could ' include a campaign through newspapers and radio

, and focus group discussions at each level. I t will

~ be expected

I 1 j

.................................................................................................. ....................................................... ........................................................................................................................................... Selection o f community LOW ~ Non transparent process o f selecting . group repsimembers ~ representativedgroup members which

i result to low integrity ~

programs The strategy i s geared towards making communities aware o f the project's goals, its rules and regulations These are aimed to ensure that stakeholders know what their roles and responsibilities are, and how to hold each other accountable for their actions The selection process o f group members will be conducted through a transparent and fair election process, with full participation from the members o f the community

Channeling o f funds MEDIUM Kick backs for the government ' Most o f the project funds either go directly to - ' officials

. - ' communities, (Le. to the inter-village accounts) or ' through the collective district forum accounts. Highly , transparent processes are controlled by

communityicivil society representatives assisted by project staff.

a The procedures, size and criteria for defining grants,

' ensure that stakeholders can understand them easily.

i eligibility criteria for beneficiaries, and conditions for ,

~ drawdown are all simplified and defined upfront to '

, In some cases the drawdown o f funds wil l be linked, , , ~ ...................................................................................... ~ ................................................ /.,. ............................... & .........................................................................................................................

44

to performance rather than other inputs. Since

should be harder for officials to engage in rent ' communities know what they should be receiving, it

, .. . ...,......., .. ... ... .. .... ... .. .. ... ... .. ... ,.. ... . .. ...................... .... .. ............................ ............ , .......... ............ ..... ................. .. .................................. .. ..... .................... ... ... ... ...,... ...... .. ,.... .. ...., ... ... .. ... ... .. .. ...... . . ... . ... . .. . . .. .. .. Implementation o f the MEDIUM Misuse o f funds by the commu sub project investments ; ~ sector committees or fora.

Groups receiving funds are required to prepare and submit reports on progress and their use o f project resources.

All financial information i s made public and displayed at the village, subdistrict and.district levels. Minutes of meetings, monthly financial status, bad debtors, and names and amounts o f funded proposals are posted on signboards that are displayed in public places. Discretion o f actors i s limited by setting rules that all financial transactions require at least three signatures, two from the elected representatives (e.g. UPK head and community representative) and one from the project staff. For most purchases the project requires the communities/committees to conduct a limited bid procedure whereby quotations must be read out in public. For smaller purchases, shopping must be carried out by two persons who will endeavor to seek quotations from at least three local suppliers.

Finances will be audited each year by local accountants. Audit results wil l be reported to the community at the end-of-year public accountability meetings at each level

45

Annex 5: Environmental and Social Safeguards Indonesia: Support for Poor and Disadvantaged Areas Project (SPADA)

I n Aceh and Nias

Environment

110. significance i s largely proportional to the scale of the construction activity. Environmental impacts from SPADA are not expected to be large. Physical investments in the CDD or investment climate forum are either small-scale or limited to rehabilitation. Investments in the health and education component are confined to "software" (teacher training, books, midwife support, etc) and do not raise issues such as the disposal o f medical waste.

Any construction activity will have some impact on the environment although the

1 1 1. This Annex: 0

0

0

0

describes procedures for environmental impact analysis in Indonesia summarizes the general approach to environmental management that was taken on the first and second KDP projects summarizes the results o f a review o f investments and impacts implemented during the third year of KDPl , and, describes the proposals for incorporating the results o f the review into the design o f KDP3.

Environmental Impact Analysis in Indonesia

1 12. government has paid significant attention to the problems o f environmental impact. Ministerial Decree No. 17/2001 (May 22, 2001) established the required methodologies for environmental impact analyses. This regulation was superseded by Government Regulation 51 of 1993, which was intended as deregulation and simplification. This regulation can also be seen as an attempt to improve the quality o f existing planning. Planned development activities were divided into two classes. The first class included those activities that clearly have a large potential impact, which require a formal impact analysis. The second class included those activities with relatively minor potential impacts, and for these an explicit impact analysis was not required. According to the later Decree o f the Minister for Settlements and Regional Infrastructure No. 17/KPTS/2003, dated February 2003, the types and sizes of activities undertaken by the SPADA are exempted from formal impact analyses due to the very small scale of investments and construction activities supported.

1 13. The Bank i s working with the Ministry o f Environment to develop environmental screening procedures that are more appropriate for the smaller projects typical of district level investment programs. The exercise includes significantly enhanced disclosure and popular participation. Trial results are expected in 2005, after which they would be brought into the SPADA operational manuals.

1 14. consider environmental effects. Environmental effects are defined as those changes that arise directly as a result o f development activities, both positive and negative. The types o f problems encountered are determined based on the experience o f experts, the field experience o f the planner , interviews, literature, simulations and the like. Analyses of SPADA proposals concern both effects occurring during construction and those occurring during operations.

1 15. types o f impact:

SPADA follows off icial Indonesian government policy in regards to environmental impacts. The

Even though exempt from formal studies, planners o f SPADA infrastructure are required to

An example of environmental effects for a rural road can be seen in the table below, according to

46

................................................................................................................................................................................................................................................................N� j Category 1: Serious but localproblems ' Category 2: Serous negative impact on

Water flow concentration ' environment Landslides i 0 Sale o f land to outsiders Loss o f productive land due to landslides ~ 0 Deforestation

i o

i j effects, positive or I negative ~

Increased sediment load due to road erosion,, ; ....................................................................................................................................................................... ............................................................. ................................................................................................................... I Category 3: Negative effects of slightprobability or ' less important impact

4: Unclear

Air pollution from vehicles Flooding due to improper siting o f bridge , Increase in use o f chemical fertilizers

Establishment o f small industries that

Increased intensity in farming or livestock Residents seek employment outside the village Moving houses to roadside

! Increase in airborne dust ! and pesticides !

Increase in criminal activity in the village Noise pollution pollute

j 1

:. ........................................................................................................................................................................................... i,outs!deys..move..into.the vi!!age ................................................ j Category 5: Clearly positive impact j Category 6: Negative impact, but

' clearly acceptable to the local Reduction in erosion from agricultural land due to I community application o f improved technologies Availability o f construction materials in village Increase in communication, including access

Traffic accidents j Loss o f land required for road widening

~

! / ............................................................................. to health and ............................................................................ * ................................................................................................................................................................................

116. One includes problems o f short-term impact even though the effects might be widespread. These are handled through the application o f standardized design and operational procedures which are implemented right across the project. This i s also the case with deforestation and increased sediment from Category 2.

From the above table it can be seen that categories 1,2, and 4 require special attention. Category

Approach to Controlling Environmental Impacts in SPADA

117. The principle behind controlling environmental impacts in SPADA i s to limit possible negative effects and to develop the positive effects o f any infrastructure construction activity. Although SPADA does not prescribe a positive list o f possible investments, preparation identified a relatively limited number o f priorities that are restoration o f electricity, rebuilding o f ports and shipyards, and reconstruction o f warehousing. Financial thresholds for subproject types are approximately $30,000 for the subdistrict grants and $50,000 for subprojects built from district hnding during the project's first two years. (Larger district projects can be proposed in the project's outer years when environmental capacities have improved, but these wil l require individual verification).

1 18. completed, which i s then followed up during and after implementation by the village and technical facilitator. These include al l o f the relevant items covered by the Bank's safeguard policies. The checklists have been reviewed several times during project preparation; they are also the same as those used for KDP, which have been reviewed by qualified specialists in the field.

to be chosen. Typical examples are: road and bridge rehabilitation,

As part o f the planning process, a checklist o f potential environmental and social problems i s

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1 19. various existing manuals. Negative environmental effects for roads and bridges, for example, arise especially from the disturbances of unstable soils that are sensitive to landslides or from changes in the flow of water. Excavation and embankment frequently result in landslides or erosion. Landslides bring with them four kinds of negative impact:

The determination o f negative effects requires experience, coupled with the use o f input from the

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disturbing traffic (not an environmental problem, per se) endangering agricultural land or housing increasing erosion because the soils are not compact diverting the flow o f rain water

120. or if the soil i s carried in suspension to a reservoir, as this will reduce its storage capacity. At the same time, both landslides and serious erosion will result in unsightly scars near the road. Changes in water courses can destroy productive lands or irrigation canals, as well as disturb the road itself. There are four steps in the process of reducing environmental damage.

Erosion of road sides can have large negative impact if the soil i s transported to productive land

0 identifying potential dangers 0

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selecting an alignment that reduces environmental disturbances utilizing civil works and vegetative treatments to limit negative impacts undertaking maintenance and repairs in a timely fashion

121. The first two are the most efficient, and they are the responsibility o f the surveyor and designer. A good survey can truly reduce or eliminate many environmental problems. This i s emphasized in pre- service training.

122. types and climate combine to multiply risks. The designer must consider a variety o f treatments to build infrastructure that will not harm the environment while still bringing sustainable benefits. To analyze the environmental effects one needs to record information about three things, as follows:

Treatments necessary to overcome environmental problems, including: 0

0 Moving houses

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Negative environmental effects that might still exist after construction: . . . . . . . . Socioeconomic problems that may arise as the result o f constructing a bridge or road

Roads are often located in critical lands that are sensitive to erosion and landslides, where soil

Changing the alignment to reduce steep grades

Building civil works to stabilize side slopes Using vegetative treatments to stabilize side slopes or prevent erosion Using special treatments to overcome the problem of ground water, such as drains

Side slopes that are unstable and endanger housing or agricultural land Excavation that results in the stockpiling of unstable soil Side slopes that are left bare, without any vegetative cover The muddying of rivers as a result o f construction Changes in the course o f a stream, which could cause flooding, erosion, or sedimentation Changes in water flow that damage productive land An increase in erosion and sediment as the result o f uncontrolled discharge from ditches or culverts The cutting down of the forest

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123. problems arise, it i s necessary to record any information that need to be considered about the type and extent o f the problem.

124. For water supply projects or sanitation projects, there is always the possibility o f increasing contamination, for example a water source contaminated by surface water entering from outside, or ground water contaminated by a poorly designed or constructed waste control system. One also must consider the formation o f an operations and maintenance committee for water or sanitation projects.

These problems include the sacrifice o f productive lands or other land holdings. If other

Environment Impact Control Strategy

125. combination o f standard checklists and a special checklist for the environment.

The method used to ensure that proper attention i s paid to environmental problems i s a

126. considerations of environmental effects. For example, the magnitude o f the grade o f a road and the steepness o f the cross-slope perpendicular to the road are limited. Drainage for the road must be installed, together with culverts to discharge water safely, Leeching fields from latrines have to located at least ten meters from any water supply, and located downstream as groundwater flows. Water supplies cannot be located near any potential source o f contamination.

For each type o f subproject, a technical standard i s included in project manuals, and these include

127. The completion of the special checklist for the environment i s an obligatory part o f the planning process. Each type of project i s checked for the various treatments that must be performed on it to avoid or repair environmental problems. At the midpoint of construction, the same form i s brought out to the field and inspected again, at a time when it i s still feasible to easily repair deficiencies. At the end o f construction, the form i s checked one more time against the original plan.

128. SPADA projects in the district. H e or she will reject any design not accompanied by a completed checklist, and may also request clarification for any feature where a problem i s anticipated. Training for the engineers includes modules on environmental risk assessment and management that have been reviewed by Bank environmental specialists.

The district engineering consultant i s responsible for reviewing al l infrastructure designs on

129. One other element o f handling environmental problems i s the use of technical inspection forms, which exist for many types o f subprojects. Among the items inspected are those dealing with aspects o f environmental impact, such as for roads where the forms include slope protection, drainage ditches, and shoulders. These forms are filled out incidentally by anyone who inspects the infrastructure.

Review o f Experience in the Kecamatan Development Project

130. for the same range o f infrastructure, reviewing KDP's environmental performance will provide a good guide to how well SPADA's procedures are likely to do. A total o f 14,175 small scale infrastructure projects were financed during the third year of the first KDP project (2002-2003). These were considered to be representative o f investments in al l years and al l of them have been classified into one o f ten infrastructure development types and the investment costs tabulated. The summary data are shown in the table, from which the following conclusions can be drawn:

o f the ten categories of development, only five are of a type which would raise any potential concern from an environmental point o f view, namely; roads, irrigation, bridges, water supply and wharves.

Because SPADA's subdistrict grants are the same size as those o f KDP and are likely to be used

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the average scale of construction was extremely small. For example, the average road investment financed development of only 1.2 kilometers of new road at a cost o f about 36.6 million rupiah (US$4,100) per kilometer. Most o f the irrigation development involved rehabilitation of small schemes although there was some new construction as well. To provide some perspective, for new construction, the average investment of around 25.3 million rupiah (US$2,850) would finance only five or six hectares o f new, low-technology irrigation command. The other forms of development were similar: bridges include small scale steel girder bridges with wooden decks, concrete bridges, wooden bridges, and suspension bridges; water supplies come from a variety o f sources, but mostly come from springs and dug wells. Most distribution systems are gravity fed, but some utilize electrical or diesel pumps.

...................... Table 3: Infrastructure in Year Three of KDP ................................................................................................................................................................................................... ....................................................................................................... " ............................................................................ Number o f j Average Cost Projects

! Type / .................................................................................................... ~ ................................................................................................................................................................................................................................................................��

Rupiah us $ ........................ ..: ...................................................................................................................... i. ..................................... .................................................................... I 6714 45.154.535 $5,083

Irrigation 2753 i 25.315.656 $2,850 Roads

Bridges 1604 29.597.880 $3,332 Water Supply 35.926.777 $4,044

769 17.871.261 $2,012 Schools 412 75 184.466 $8,463 Latrines

$4,786 I , $5,610

Village Markets 212 42.5 18.868 Electrical 198

24.606.061 $2,770 62.092.593 $6,989

Buildings 66 Wharfs 54

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13 1. Nevertheless, some environmental issues were reported to the KDP complaints unit and some typical examples are set out in the following table along with comments, where appropriate, on possible control strategies that could be used to avoid similar problems in the future.

Field oversight reviews have not identified significant or recurrent environmental impacts.

132. be due to one or a combination of three reasons:

In general, the number of complaints formally recorded in the system was quite small. This may

A lack o f importance associated with environmental problems. There i s not yet a widespread appreciation for environmental dangers, such as dynamiting reefs to free coral for use as a road building material or building access roads into protected forests. An inability to identify environmental problems. A reluctance to report problems upwards 0

Proposed Improvements for SPADA

133. The review illustrated several key facts:

the basic environmental impact potential o f investments supported through the project i s low so the general strategy followed under KDP remains relevant; nevertheless, the desk review suggested that a small number of environmental issues were encountered. Most o f the issues had their origin in apparent failures to follow best civil engineering practice and it i s likely that these can be addressed through continued training and supervision of engineering staff providing technical advice to participating kabupatens; and

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0 the small number o f environmental complaints made to the KDP complaints unit may be a reflection of the very low adverse impact potentials of investments supported under the project but it also could be a reflection o f lack of interest in environmental issues on the part o f beneficiaries or a reluctance to report problems upwards.

134. national government, the donor, and the national consultants place high importance on attention to the environment. Causing environmental damage i s enough to cancel an activity. Not paying attention to the environment i s enough to have the facilitator replaced, This attention to the environment i s equally important at the district level, where the district consultants and especially the district engineering consultant must enforce environmental standards. In addition, the following items have been added to the project's negative list:

These three items have been addressed in the design o f SPADA. It has been made clear that the

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procurement o f any products containing asbestos procurement o f pesticides or herbicides production, processing, handling, storage or sale o f tobacco or products containing tobacco any activities within a nature reserve or any other area designated by the Government o f Indonesia for the management and/or protection o f biodiversity except with the prior explicit and written approval of the government agency responsible for the management and/or protection of that area mining or excavation of live coral water resources developments on rivers which flow into or out o f other countries alterations to river courses land reclamation larger than 50 ha. new irrigation larger than 50 ha. construction of water retaining or storage structures o f capacity greater than 10,000 cubic meters

135. has been provided with training to help them identify and avoid potential environmental problems. Pre- service training will emphasize the ability to anticipate problems, including environmental problems.

In SPADA, each kabupaten and each kecamatan i s served by a graduate consultant engineer, who

136. faithfully only if several conditions are met:

Reluctance to report problems i s widespread in most projects. Problems will be reported

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There are no negative effects from reporting problems There are positive results from reporting problems, i.e. help i s given There are negative effects from not reporting problems

137. The design of SPADA attempts to address all three o f these conditions. Reporting o f problems i s a major point in the performance evaluation system. Problems that are reported are discussed and handled at monthly meetings, and doing this i s a major point in the performance evaluation of kabupaten consultants. The first item i s connected with the attitude o f senior consultants, government officials, and donor representatives when confronted with reported problems. They should perceive these reports as evidence that the system i s working and as opportunities to improve performance in the field.

138. Success in the field depends upon the discipline o f project actors meeting these three conditions, which i s a task for senior management. A review o f the effectiveness of these measures will be included in the first-year evaluation and measures for correction will be agreed with the Bank prior to the approval of the second year program.

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Guidelines and Principles for Land Acquisition in SPADA

139. SPADA's land acquisition guidelines are the same as those for the Kecamatan Development Project (KDP). Standardized guidelines are advisable because (i) ex post reviews document that they are sufficient to achieve the policy objectives o f the World Bank; (ii) SPADA and KDP sites overlap in approximately 45% o f the locations, so standardizing guidelines minimizes confusion and promotes mainstreaming.

140. acquisition in village subprojects. The objective o f these guidelines i s to ensure that no family affected by land acquisition experiences a material reduction in their income, living standards, or livelihoods. Implementation o f these guidelines i s built into the project oversight and facilitator terms o f reference, and the project provides both internal and independent monitoring o f their implementation. A special issue likely to arise in the conflict area concerns internally displaced people. Although lacking legal or traditional claims to the land they occupy, displacing traumatized communities would detract from the achievement of SPADA's development objectives. Because Indonesia does not have standardized procedures and institutions for dealing with the claims o f internally displaced people, SPADA will not support involuntary land acquisition in the conflict areas. Any land acquisition must come through voluntary negotiation.

SPADA has a simple policy framework and set of operational procedures to guide cases o f land

Minimizing acquisition

141, and are tracked through the MIS. The overarching objective of the guidelines i s to ensure that the acquisition of lands i s minimized and does not result in persons losing their home or suffering any decline in income, livelihood, or living standards as a result of the project. Al l proposals must be reviewed and their location, alignment, or specifications changed as necessary. Proposals to widen road right-of-ways must also be reviewed carefully.

SPADA's guidelines and reporting formats are incorporated into the project operating manual

142. for acquiring assets through the following two methods:

As it will not be possible in many cases to eliminate the need for acquisition, the guidelines allow

0 Voluntarily. In accordance with local custom, community members have the right to donate their land or other assets or to move their homes temporarily or permanently without seeking or being given compensation; Donated with compensation. Persons who donate their land or other assets have the right to seek and receive compensation.

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143. that no individual loses too significant a portion o f their land. Losing a meter or two of land on the side of the road i s quite attractive to farmers, who will then have an all-weather road directly abutting their fields. Voluntary contribution for other purposes besides SPADA i s not unusual. Paying compensation for land i s also beyond the financial capacity o f the village.

Voluntary contribution of land and other assets i s quite common in Indonesian villages, assuming

Providing appropriate compensation

144. that all these persons improve or at least hold steady their quality of life, income, and production capacity compared to pre-project conditions.

Guidelines have been established to manage compensation for persons in the second category so

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145. used in timely fashion to compensate the persons who were affected by the project (but project funds absolutely cannot be used for compensation):

land was replaced with other land o f equal productivity, or with other productive assets o f equal value; materials and labor were given to replace permanent structures that were removed plants destroyed or missing or damaged were compensated in accordance with their value; other acceptable compensation was given

Principle of Compensation -- The village must guarantee that one o f the following methods was

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146. project are consulted at a public meeting in the village. During this meeting, their right to compensation must be explained, as well as such alternatives as found in the guidelines. Formal minutes o f the meeting are made and must include the main points o f discussion as well as any decisions reached, including:

Principle of Consultation -- The village must ensure that all the people affected by the

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for voluntary contributions, the name o f the donor and details o f the donation; for compensated assets, the names o f the persons receiving compensation, and details o f the type and amount o f compensation, such as seen in the table below

147. chief. There will be notes about complaints made by the affected persons. And there will be a map showing the location o f the affected assets.

In addition, the minutes will contain the signatures o f the affected persons and the village

................................................................................................................................................................................................................................................................I� Table 4: Summary of Compensation , Affected ' Compensation :Additional

Assets I Promised I Agreements . . . . . . . . . . . . . . . . . . . . . . . . . ., ................................................................................................................................ .,. ......................................................... / ...................................................... ,.... ................................................................................................................................ 1. Agricultural land (mZ)

2. Other lands Area affected (mZ)

.............,..... .................................................................... /.... .............................................................................................................. ,

' !... Houses or buildings (units/m2) ! ............................................................................. ........................................................................................................................................ / ................................................................................................. .......... 3 . Plants affected by the project ................................................................................................................................................................................................................ : ................................................................................... " ...............................................

148. affected by the project, to determine directly their wishes in regards to compensation, their perception o f whatever agreements had been reached, and their complaints (if any).

The kecamatan facilitator will deliver a copy o f the above notes to al l those people who are

Project approval

149. facilitator has no decision-making power, the kecamatan facilitator i s bound to do the following:

As the process o f determining compensation i s the responsibility o f the village, wherein the

0 H e or she must delay final approval until all persons affected by the project are satisfied with the compensation they are to receive, even if this causes utter stalemate, the changing o f designs, and interminable negotiations. Outsiders must not intervene to impose a solution. H e or she must delay implementation until compensation i s realized. Whenever a project has reached the implementation stage, the senior consultants, government officials, and donor should assume that compensation has been successfully delivered. In principle, if more than 200 persons are affected and require compensation, a compensation plan must produced and then agreed to by the Secretariat o f the National Coordination Team prior

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to project approval. (In the six years of the VIP and seven years of KDP -- more than 75,000 completed subprojects -- this has never occurred.)

Right to voice complaints and take legal action

150. cannot be solved in the subdistrict forum, complaints and legal action against these guidelines, the implementation of agreements found in the minutes, or other grievances can be filed by the person affected or his or her representative to the kecamatan. If still not solved, it can be further submitted for a decision by the Bupati. Complaints also can be sent to the Complaints Handling Unit o f SPADA at the regional or national level, where they will be analyzed and an investigation organized.

A l l complaints should be handled and solved at the village or subdistrict level. If the problem

Verification

15 1. At any time, all records regarding compensation, including minutes of the meeting and proof o f receiving compensation must be available for inspection by the kecamatan facilitator, kabupaten management consultants, auditors, and persons assigned to monitor aspects o f the project by the project Secretariat or National Management Consultants. The Village Minutes and evidence o f compensation having been made shall be provided to the kecamatan empowerment facilitator assisting the village, to supervising engineers, auditors and socioeconomic monitors when they undertake reviews under the project.

Experience from KDP

152. Supervision by the World Bank has never reported any case o f families being forcibly displaced by KDP, but, as noted above, there are a small number o f cases both of facilitators not following the rules and also cases o f the rules being followed but families nevertheless dissatisfied with their outcome. Tightening up training and oversight produced greater awareness and better field performance. In general, the Bank's field reviews suggest that lack o f government involvement in KDP whether by national or local agencies seems to limit land acquisition to a bare minimum, and where it does happen, direct negotiations by villagers with the community councils produces outcomes that meet the Bank's policy objectives of safeguarding against adverse impacts.

Land Acquisition in the Private Sector Development Component o f SPADA

153. Because no new construction i s envisaged under this component, land acquisition should also be minimal in the rehabilitation activities funded by SPADA. However, there i s a possibility that adjusting alignments or strengthening foundations might involve small land takings. N o first year investments have been identified yet, so empirical assessment o f whether any land i s required must assume that some may be. Should that prove be the case, the guiding principles described below apply:

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land acquisition will be avoided or minimized through design adjustments or alternative site selection wherever possible; all land acquisition will be voluntary and agreed through public negotiations. N o subproject that displaces more than 5 families can be submitted for funding.

154. documentation are followed rests with the project verification team. TOR for the independent monitors specify that site visits will review any cases o f land acquisition.

Responsibility for ensuring that these principles are followed and that principles o f

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Indigenous People

155. As noted in the general social analysis overview section of this PAD, section 6.1, appraisal reviewed the situation analyses prepared for each participating province, which included a review o f indigenous people's issues. None o f the situational analyses showed a need for an IPDP. Summary reasons extracted from these 8 studies follow:

0 For the 2 Kalimantan provinces which are the main area o f ethnic conflict (between Dayaks and Madurese), there were originally no Madurese left. Some Madurese have returned to Kalimantan under their own volition. But the project (or the government) i s not proposing any kind o f sponsored return. In NTT and NTB, the indigenous communities occupy full villages and will thus be the main beneficiaries o f their proposals. While NTT has many localized land conflicts, the primary concern vis a vis both vulnerability and susceptibility to adverse impacts l ies with the East Timorese refugee population, not with local indigenous groups. Central Sulawesi, Maluku, and North Maluku conflict i s between two religions (Christian and Muslim). No ethnic issues are involved and the conflicts do not involve vulnerable groups (except to each other); Aceh does not have indigenous communities.

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156. assurance that vulnerable groups not identified through the preparation studies will not be affected. Possible risks in this design are (i) elite capture o f the decision-making process; (ii) ethnic prejudice in resource allocation that adversely affects vulnerable ethnic groups; and (iii) violent dispossession from traditional land claims

If the situational analyses do not show the need for IPDPs, the project design provides additional

157. bottom-up planning system. Even the largest proposals require a subdistrict sponsor, where community assent i s essential. Preparation studies, Bank assessments o f these identified risks during preparation and pre-appraisal, and a preparation review o f community based land mapping options did not suggest that the risks to any indigenous group specifically linked to project activities i s significant. Providing continual on-site review o f indigenous peoples issues will be included in the TOR for the independent NGOs monitoring the project.

Risk mitigation measures are explained elsewhere in the text. Al l proposals come from the

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