Indonesia - Local Government and Decentralization Project

Page 1 INTEGRATED SAFEGUARDS DATA SHEET CONCEPT STAGE Report No.: AC5246 Date ISDS Prepared/Updated: 04/01/2010 I. BASIC INFORMATION A. Basic Project Data Country: Indonesia Project ID: P111577 Project Name: Local Government and Decentralization Project Task Team Leader: Peter D. Ellis Estimated Appraisal Date: March 1, 2010 Estimated Board Date: May 25, 2010 Managing Unit: EASIS Lending Instrument: Specific Investment Loan Sector: Sub-national government administration (100%) Theme: Municipal governance and institution building (67%);Decentralization (33%) IBRD Amount (US$m.): 200.00 IDA Amount (US$m.): 0.00 GEF Amount (US$m.): 0.00 PCF Amount (US$m.): 0.00 Other financing amounts by source: Borrower 0.00 0.00 B. Project Objectives [from section 2 of PCN] The objective of the project is to improve the accountability and effectiveness of the specific Central Government Capital (DAK) Grants for the infrastructure sectors within pilot local governments (LGs). This will be done through improved financial and technical reporting, and verification of outputs delivered by LGs with the DAK grants. Under the proposed OBD approach, the project will reimburse a slice of the existing DAK for Infrastructure (roads, water and sanitation, and irrigation) based on delivery of verified physical outputs by selected LGs. Technical assistance will finance activities in support of the institutional strengthening both at the central government and LG levels. The project will work with the existing mechanisms for transfer of DAK grants.Existing GOI and LG systems of monitoring and reporting will provide baseline information and criteria for evaluating project performance. However, physical outputs and reporting on use of DAK funds are the benchmarks to measure project achievement. The Project will be a pilot in five Provinces covering 81 LGs to reimburse a portion of the DAK transfers, focusing on infrastructure, and provide technical assistance (TA) to support Page 2 institutional strengthening within LGs. The project is expected to have a positive impact beyond the infrastructure sector investments proposed for DAK reimbursement, since the improvements in LG capacity will also translate into improved usage of DAK resources and investments in other sectors. C. Project Description [from section 3 of PCN] Lending Instrument. The Project will be designed as a Specific Investment Loan and the proposed mechanism will be Output-Based Disbursement (OBD), with a focus on reimbursing a slice of the existing DAK for Infrastructure (roads, water, and irrigation), based on the delivery of physical outputs at the LG level. The Project will be a pilot in three Provinces, with a proposed size of US$ 231 million over three years. C1. Project Components The project consists of three components: Component 1: DAK-Reimbursement and Incentive/Reward Scheme; Component 2: Institutional Strengthening to Central and Local Governments; and Component 3: Project Management Support. Component 1: DAK Reimbursement and Reward Grant (US$ 220 million) This component will be implemented applying an Output-Based Disbursement (OBD) financing approach. Under the proposed OBD approach, the project will reimburse a slice of the existing DAK for Infrastructure (roads, water, sanitation, and irrigation) based on reported and verified physical outputs delivered by participating LGs. The role and functions of the verification of outputs (VO) will be performed by Indonesia#s independent Financial and Development State Auditor (Badan Pemeriksa Keuangan dan Pembangunan, BPKP). Component 1 funds reimbursement MOF for a slice of the DAK transfers to the pilot LGs on the basis of reported and verified outputs. A portion of the reimbursement (10%) finance a reward to LGs for improved reporting and verification of the DAK grant utilization. This reward will be equal to the 10% of the DAK expenditure, which is also equal to the amount of LG counterpart funding for the DAK. Component 2: Institutional Strengthening to Central and Local Governments (US$ 8 million) This component will support the strengthening of the basic institutional functioning of the project. It will be split into four sub-components: (i) Sub-component 2.1: Developing a Monitoring and Evaluation System; (ii) Subcomponent 2.2: Verification of Outputs; (iii) Subcomponent 2.3: Web Based Monitoring and Reporting System; and (iv) Subcomponent 2.4: Technical Assistance for Central and Local Governments. Component 3: Project Management Support (US$ 3 million) This component will finance the operating costs of the Project Implementing Unit (PIU) at MOF to implement and monitor the project. D. Project location (if known) Page 3 In general, DAK is given to LGs as a stimulus and to accelerate the DAK finances for maintenance, rehabilitation, and improving/upgrading existing selected infrastructure, i.e. roads, water, sanitation, and irrigation. As the Project will only finance maintenance, rehabilitation, and improving/upgrading existing infrastructure, and the scale of investment is relatively small, i.e. range from $50,000 to $250,000, it is very unlikely that significant environmental impacts and land acquisition and/or resettlement will take place. In fact, the Project will improve the service capacity of such infrastructure and thus, will generate positive environmental and social impacts on the beneficiaries or users. The Project anticipates that to a certain extent, rehabilitation and improving/upgrading roads, water, sanitation and irrigation networks may need re-alignment and/or widening of the existing alignment, which may lead to the need of acquiring private land and/or assets. The Project also anticipates that small-scale and site-specific environmental impacts may take place in some subprojects. DAK has been and will be allocated to almost all LGs in the country. The Project will cover some LGs in remote islands/areas where indigenous people (IP) are living and could be part of the beneficiaries. The project will cover 81 Districts in five provinces, namely: Jambi, East Java, Central Kalimantan, West Sulawesi, and North Maluku. As the project will cover all districts in these provinces, it is possible that investments take place in villages where Indigenous Peoples (IPs) or Isolated and Vulnerable Peoples (IVPs) are living. IPs who are living in these provinces are Suku Anak Dalam (Jambi), suku Tobaru and Galela (North Maluku), Dayak (Kalimantan), and Binggi (West Sulawesi). In addition, there are also ethnic minority in East Java province, namely Osing and Tengger. Given the above, the Bank Environmental Policy (OP/BP 4.01), Resettlement Policy (OP/BP 4.12) and IP (OP/BP 4.10) will be triggered. E. Borrower