Indonesia - Third National Program for Community Empowerment in Urban Areas Project

Document o f The World Bank FOR OFFICIAL USE ONLY Report No: 52915-ID PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF US$149.98 MILLION TO THE REPUBLIC OF INDONESIA FOR THE THIRD NATIONAL PROGRAM FOR COMMUNITY EMPOWERMENT N I URBAN AREAS March 4,2010 Indonesia Sustainable Development Department 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. I t s contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (Exchange Rate Effective as o f March 1,2010) Currency Unit = Indonesian Rupiah IDR 1,000 = US$0.10799 U S $1' = Rp. 9,260 *All $ in this document refer to U currency unless otherwise noted. S GO1 FISCAL YEAR January 1 - December 31 ACRONYMS AND BAHASSA TERMS ADB Asian Development Bank AF Additional Financing BAPPENAS National Development Planning Board Bawasda Badan Pengawas Daerah (District-level Auditor General Office) BGAP Better Governance Action Plan BI Bank Indonesia BKh4 Badan Keswadayan Masyarakat or LKM (Lembaga KeswadayaanMasyarakat or Community Boards o f Trustees . BNPB Badan Nasional PengendalianBencana (national disaster management authority) BPBD Badan PengendalianBencana Daerah (local disaster management authority) BPK Badan Pemeriksa Keuangan (Supreme Audit Agency) BPKF' Badan Pengawas Keuangan Pembangunan (Development Finance Controller) Bupati District Head CAS Country Assistance Strategy CCT Conditional Cash Transfer Program CDD Community-driven development CDP Community Development Plan CFAA Country Financial Accountability Assessment COSU Central Operational Services Unit CPS Country Partnership Strategy cso Civil Society Organization DA Designated Account DALA Damage and Loss Assessment Desa Rural village DG Directorate General DIPA Dafter Isian Proyek Pusat (Approved Central Government Detailed Project Budget) DRM Disaster Risk Management DRR Disaster Risk Reduction EC Evaluation Consultant FMR FinancialMonitoring Report FY Fiscal Year GFDRR Global Facility for Disaster Reduction and Recovery I GO1 Government o f Indonesia HCU Handling Complaints Unit . IBRD InternationalBank for Reconstruction and Development ICR Implementation Completion Report IDA InternationalDevelopment Association IDB Islamic Development Bank IFR Interim Financial Reports IPSAS InternationalPublic Sector Accounting Standards .. 11  FOR OFFICIAL USE ONLY IP Indigenous People IVP Isolated Vulnerable People JBIC Japan Bank for International Cooperation JMC Joint Management Committee KDP Kecamatan Development Project Kelurahan Urban ward KPPN Kantor Pelayanan PerbendahaanNegara (Treasury Offices) KSM Kelompok Swadaya Masyarakat (Community Group) LG Local Government LIBOR London Interbank Offered Rate LKM Lembaga Keswadayaan Masyarakat or BKM (Badan Keswadayaan Masyarakat) or Community Board o f Trustees M&E Monitoring and Evaluation Menko Kesra Ministry o f People's Welfare MIS Management Information System MOF Ministry o f Finance MOHA Ministry o f Home Affairs MPW Ministry o f Public Works NCEP National Community Empowerment Program NMC National Management Consultant N S U Neighborhood Upgrading Scheme oc Oversight Consultant PAD Project Appraisal Document PAPG Poverty Alleviation Partnership Grant PDO Project Development Objectives PIU Project Implementation Unit PJM Perencanaan Jangka Menengah (Community Development Plan) PJOK Penanggung-Jawab Operasional Kegiatan (Project Manager at Kecamatan Level) PMU Project Management Unit PNPM Program Nasional Pemberdayaan Masyarakat (National Program for Community Empowerment) PNPM-Urban National Program for Community Empowerment in Urban Areas PNPM-IUS I1 PNPM-Rural Infrastructure Support Program I1 PNPM-RISE PNPM-Rural Infrastructure for Socio-Economic Development PPIP Integrated Infrastructure Project in Rural Area POM Project Operational Manual PSF PNPM Support Facility QS Quick Status RLF Revolving Loan Fund SPADA The Support for Poor and DisadvantagedAreas SPZD Surat Perintah Pencairan Dana (remittance order) SPP Surat Permintaan Pembayaran (payment request) SUSENAS Survey Sosial Ekonomi Nasional (National Social Economy Survey) TA Technical Assistance Tim Pengendali Oversight Body o f PNPM UPK Unit Pengelola Keuangan (Financial Management Unit) UPP Urban Poverty Project VSL Variable Spread Loan Vice President: James Adams, EAPVP Country Director: Joachim von Amsberg, EACIF Sector Director: John Roome, EASSD Sector Manager: Sonia Hammam, EASIS Task Team Leader: George Soraya, EASIS Co-Task Team Leader: Fatima Shah, EASIN This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. I t s contents may not be otherwise disclosed without W o r l d Bank authorization.  INDONESIA Third National Program for Community Empowerment in Urban Areas (PNPM-Urban 111) CONTENTS Page I. STRATEGIC CONTEXT AND RATIONALE .................................................................. 2 A. Country and Sector Issues ................................................................................................... 2 B. Rationale for Bank Involvement .......................................................................................... 4 C. Higher Level Objectives to Which the Project Contributes ................................................ 5 I1 . PROJECT DESCRIPTION .................................................................................................. 6 A . Lending Instrument.............................................................................................................. 6 B. Program Objective and Phases ............................................................................................ 6 C. Project Development Objective and Key Indicators ........................................................... 7 D. Project Components............................................................................................................. 8 E. Lessons Learned and Reflected in the Project Design ...................................................... 10 F. Alternatives Considered and Reasons for Rejection ......................................................... 11 . I11 . IMPLEMENTATION ..................................................................................................... 11 A . Partnership Arrangements ................................................................................................. 11 B. Institutional and Implementation Arrangements ............................................................... 11 C. Monitoring and Evaluation o f Outcomes/Results ............................................................. 12 D. Sustainability ..................................................................................................................... 13 E. Critical Risks and Possible Controversial Aspects., .......................................................... 14 F. Loadcredit Conditions and Covenants............................................................................. 17 IV . APPRAISAL SUMMARY .............................................................................................. 17 A . Economic and Financial Analyses ..................................................................................... 17 B. Technical ........................................................................................................................... 18 C. Fiduciary ............................................................................................................................ 18 D. Social ................................................................................................................................. 20 E. Environment ...................................................................................................................... 20 F. Safeguard policies .............................................................................................................. 21 G. Policy Exceptions and Readiness ...................................................................................... 22 iv Annex 1 Country and Sector o r Program Background : .......................................................... 23 Annex 2: M a j o r Related Projects Financed by the B a n k and/or other Agencies .................. 27 Annex 3: Results Framework and M o n i t o r i n g ......................................................................... 30 Annex 4: Detailed Project Description ...................................................................................... 54 Annex 5: Project Costs ................................................................................................................ 68 Annex 6: Implementation Arrangements .................................................................................. 69 Annex 7: Financial Management and Disbursement Arrangements ..................................... 72 Annex 8: Procurement Arrangements ....................................................................................... 83 Annex 9: Economic and Financial Analysis .............................................................................. 88 Annex 10: Safeguard Policy Issues............................................................................................. 90 Annex 11: PNPM-Urban Progress on Commitments ............................................................ 115 Annex 12: Better Governance Action Plan ............................................................................. 117 Annex 13: Strategy to Ensure Gender Mainstreaming a n d Equality................................... 129 Annex 14: Project Processing ................................................................................................... 132 Annex 15: Documents in t h e Project File ................................................................................ 133 Annex 16: Statement o f Loans and Credits ............................................................................. 134 Annex 17: C o u n t r y at a Glance ................................................................................................ 137 Annex 18: M a p s IBRD 33420R2 .............................................................................................. 140 V  INDONESIA Third National Program for Community Empowerment in Urban Areas (PNPM-Urban 111)' PROJECT DOCUMENT APPRAISAL East Asia and Pacific Region Indonesia Sustainable DevelopmentUnit Participation and civic engagement (25%); Municipal Project Financing Data [ XI Loan [ 3 Credit [ ] Grant For Loans/Credits/Grants: Total Bank financing (US$ m.): 149.98 S Proposed terms: U dollar-denominated, LIBOR-based, commitment-linked, Variable Spread Loan with annuity based repayment of principal. Elected maturity o f 24.5 years, including a grace period of 9 years Front end fee o f 0.25% to be paid up front out o f the Government o f Indonesia (GOI) own resources. Premium for currency and interest rate conversion options, and interest rate cap and collar options to be paid out o f GO1 own resources. Source Local 1 Foreign I Total 149.98 Others (Global Facility for Disaster Reduction and Recovery/GFDRR) Borrower: Republic o f Indonesia Responsible agency: Ministry of Public Works (MPW) Address: J1. Patimura 20, Jakarta Selatan, Indonesia Tel: 6221 72796155/58Fax: 6221 72796155 Contact Person: Budi Yuwono Estimated disbursements (Bank FY/US$m) I n the Bank's system, the proposed project had earlier been referred to as the "Second National Program for Community Empowerment in Urban Areas - PNPM-Urban 11" because the PNPM-Urban I Additional Financing that was approved in 2009 was considered follow-on financing and not a free standing "Second" project. However, at negotiations GO1 requested that the name of the current project be changed to the Third National Program for Community Empowerment in Urban Areas (PNPM-Urban 111) to match terminology used by GOI, wherein the 2009 Additional Financing was considered the "Second" project. vi Project development objective: The overall objective i s to assist GO1to ensure that the urban poor benefi from improved socio-economic and local governance conditions. This objective will be achieved through (a) the formation and institutionalization o f elected representative organizations that are accountable to communities; (b) the provision o f grants to communities directly and transparently to finance poverty alleviation activities, especially infrastructure services; (c) enhancing the capacity o f central and local governments to partner with community organizations in service provision; and (d) increasing awareness o f disaster risk mitigation and mainstreaming o f measures for resilience. Project description: The project consists o f four components: Component 1 : Community and Local Government Capacity Building: Support for social intermediation activities, training, workshops, meetings, focus group discussions, production o f socialization materials, and Technical Assistance for Disaster Risk Reduction. Component 2: Kelurahan Grants: Block grants for kelurahans to support sub-projects included in the community development plans. Component 3: .Implementation and Technical Assistance: Support for project management and oversight through provision o f consultants and technical assistance and monitoring and evaluation (M&E). Component 4: Contingency for Disaster Risk Response: This component will allow for rapid reallocatior o f finances during a disaster. Which safeguard policies are triggered, if any? The project triggers three safeguard policies: Environment Assessment (OP/BP 4.01), Involuntary Resettlement (OP/BP 4.12), and Indigenous Peoples (OPBP 4.10). Significant, non-standard conditions, if any: None Board presentation: None Loan/ credit effectiveness: June 1. 2010 vii Covenants applicable to project implementation: The financing agreement and loan agreement contain other implementation covenants standard for this type of project and used in past PNPM-Urban projects. EffectivenessConditions: the Borrower shall adopt a Project Manual acceptable to the Bank. The loan agreement contains implementationcovenants standard for this type of project and used in past PNPM projects. Covenants include: (a) audit to be carried out in accordance with terms o f reference agreed with the Bank; (b) the Borrower will ensure that each participating kelurahan implements the agreed Project Manual, Environmental Guidelines, Land Acquisition and Resettlement Policy Framework; Isolated Vulnerable Peoples' Framework and Better Governance Action Plan; (c) before undertakingactivities under component 4, the Borrower must have declared a disaster, emergency or catastrophic event through the relevant national, provincial, local or other authority and the Bank and the Borrower must have entered into a written arrangement and/or the Borrower will adopt a supplement to the Project Manual, satisfactory to the Bank which defines the scope of such activities, and their implementation and disbursement arrangements; and (d) with respect to sub-project sub-projects financed from sources other than the Loan, including sub-projects for which facilitators are financed by the Project but the sub-projects are themselves financed from such other sources, the Borrower.shall undertake such sub-projects in accordance with the Project Manual, and retain responsibility for the design, construction, fiduciary controls and implementation of-suchsub-projects. ... Vlll I. STRATEGIC CONTEXT AND RATIONALE A. Country and Sector Issues Decreasing poverty but large "near-poor" segment. Indonesia has shown solid progress in economic growth and poverty reduction since the Asian financial crisis 12 years ago, and has demonstrated sustained resilience and robustness during the recent global economic downturn. Poverty rates have fallen from 17.4 percent o f the population in 2004 to 14.2 percent in 2009. Despite these gains, 32.5 million Indonesians currently live below the poverty line and 40 percent of all households live just above the national poverty line of US$21 per month and remain vulnerable to falling into poverty. Non-income poverty remains a serious problem in terms of indicators related to health, access to safe water and sanitation, and education outcomes. Inequality i s increasing as evidenced by the increase in the Gini coefficient from 3 1.7 percent in 1999 to 35 percent in 2009, and 37.2 for urban areas. 2. A national program on poverty reduction: PNPM (Program Nasional Pemberdayaan Masyarakai) or NCEP (National Community Empowerment Program). In August 2006, the President of Indonesia announced the launch o f a national program for poverty reduction. A pillar o f this program i s the PNPM / NCEP. PNPM i s the Government of Indonesia's (GOI) operational umbrella for a l l poverty programs which use a community empowerment approach. The objective o f PNPM i s to ensure that the poor benefit from improved socioeconomic and governance conditions. The program aims to consolidate community-based programs of various ministries and institutionalize Indonesia's experience in bottom-up planning and decision-making into a single community-based poverty reduction program, in both rural and urban areas. PNPM i s one o f the largest poverty reduction programs in the world, with a documented record of community engagement, participation, and service delivery. Today PNPM has nationwide coverage in all rural villages and urban wards in Indonesia. The program's participatory and transparent framework has helped improve local governance by directly involving communities in decision-making and has been successful in increasing the poor's (including women and vulnerable community members) access to tertiary socio- economic infrastructureand other basic services. 3. The urban poverty reduction program. PNPM has a rural and urban arm and builds primarily upon the successful experience with the Bank-funded Kecamatan Development Program (KDP1, KDP2, KDP3, KDP3b and the Community Recovery through KDP in Aceh and Nias) and the Urban Poverty Program (UPPI, UPP2, UPP2 Additional Financing, and UPP3), which began in 1999. Since the first KDP/ UPP projects in 1999, each successive project has built on the lessons learned from previous projects. Although PNPM i s designed as a consolidated poverty reduction program, GO1 maintains separate rural and urban windows for implementation. The implementing agency for the urban arm o f PNPM i s the Ministry of Public Works (MPW), while the implementing agency for the rural arm of PNPM i s the Ministry o f Home Affairs (MOHA). This i s due to the scale and scope of the PNPM, the oversight of different ministries, and the operational differences tailored to the rural and urban contexts. UPP, the urban arm o f the PNPM, i s designed to promote the development of community organizations (Badan Keswadayaan Masyarakat or BKh4) at the ward (kelurahan) level to receive block grants to manage through an open menu of activities related to infrastructure, social, and economic objectives. Under the existing framework for PNPM- , Urban I BKMs can receive block grants (ranging from US$15,000 to US$45,000, based on population size) per kelurahan up to three times for continued activities to help meet the goals o f the community development plans (CDP) or PJM (Perencanaan Jangka Menengah). The kelurahan grant i s expected to be complimented by the Poverty Alleviation Partnership Grant (PAPG) in years three to five o f the project, which finances activities jointly proposed by the 2  local government and the community on a cost-shared basis. The objective of the PAPG i s to promote greater cooperation between the community and local government and to increase the scale of possible interventions through matching funds. The PAPG i s an on-going program under UPP3 up to 201 1 and i s not included under the current project. 4. Continued Bank support to a successful GOI program. The Bank has provided critical financial and technical support to UPP/ KDP/ PNPM. Since the first UPP project that was operational from 1999-2004, several successor projects have been approved by the Board and are under implementation (see Table 1). In 2008, the Bank approved the first PNPM-Urban project and subsequently Additional Financing (AF) in 2009. The program has reached almost 13,000 wards and 20.5 million beneficiaries. The majority of funds have supported small-scale infrastructure construction and maintenance. As of November 2009, the program has financed over 22,000 km of small roads, 6,500 km o f drainage, rehabilitation of 85,000 houses of the poorest, 166,000 units o f solid waste and sanitation facilities, and 13,600 community health facilities. I t also financed 144,000 economic activities through the revolving funds. With the proposed project, total IBRD (International Bank for Reconstruction and Development)/IDA (International Development Association) financing for these operations would increase to approximately US$915 million. Project Phase UPP I I Period 1999-2004 I # o f New Kelurahans 2,621 I # o f Existing Kelurahans 0 II YRD'IDA 1I US$ml) 100 Closing Date Jun 30,2004 1I Balance ~US$ml)* - I UPP 2 + UPP2 AF 2002-2010 4,920. I 2,636 23 5 Dec 31,2010 5.1 UPP 3 2005-201 1 1,726 0 138 Mar31,2011 15 PNPM-Urban I+ 2008-201 1 3,665 7,46 1 292 Dec 31,2011 115 PNPM-Urban AF PNPM-Urban 1 1 1 2010-2013 0 5,130 149.98 Dec 31,2013 TOTAL 12,982" 914.98 5. Disbursement schedule. While it would appear that significant resources from the most recent World Bank financing remain undisbursed, these figures can be misleading. The Bank has approved a combination of loans and credits for PNPM-Urban I (including Additional Financing) in the amount of $292.68 million, out o f which $1 15 million remains undisbursed. This i s due to (i) most recent tranche of Additional Financing only becoming effective in the July 2009; (ii) program runs on bulky annual allocations which will be made by mid-2010 - the these will use up most o f the remaining funds. The disbursement profile of PNPM-Urban I (including Additional Financing) i s presented below. - Table 2: Disbursement Profile PNPM-Urban I (including Additional Financing) 1 2008 I 2009 I 2010 I 2011 I 2012 I Total I Annual 16.00 115.00 110.00 51.68 0.00 292.68 Cumulative 16.00 13 1.OO 241 $00 292.68 292.68 ~ ~~ k u a l ( 2 0 0 8 - 0 9 ) & Planned (2010-12) Disbursement Annual Cumulative 1 16.00 16.00 1 124.46 140.46 1 83.43 223.89 1 5 1.OO 274.89 1 17.79 292.68 1 292.68 1 3 B. Rationale for Bank Involvement 6. Building on a successful partnership between the Bank and GOI. There are multiple reasons for continued Bank involvement in PNPM-Urban: (i) successful track record working with the government to manage and execute the UPP projects and ongoing PNPM-Urban operations; (ii) readiness and ability to provide necessary technical expertise and global knowledge in required areas, especially CDD (Community-driven development) and DRM (Disaster Risk Management); (iii) strong mechanisms in place to facilitate project supervision, results monitoring and evaluation, quality control, and beneficiary targeting; (iv) opportunity to continue working with GO1 to institutionalize the PNPM framework and to support the development o f the overall long-term poverty reduction program (to 2015) through the role on the PSF (PNPM Support Facility ) (see Annex 6). 7. An effective program to reach the urban poor. The results from various evaluations o f the program provide evidence that the UPP approach has proven an effective mechanism for empoweringand improvingthe lives o f the poor in urban communities (Annex 3 provides more information on the various studies/ evaluations). Specific rationale for continued involvement in PNPM-Urbanare the achievements made through UPP and PNPM-Urban projects: (a) Infiastructure projects bring added value to the community. Infrastructure activities have had a significant impact on beneficiary communities by improvements in the provision of water, sanitation and small works. UPP infrastructure i s 66% cheaper than the average cost of contractors and results in maintenance as the community has a vested interest through i t s 35% community contribution. In addition, the quality o f infrastructure built has been rated as adequate. (b) Increased poverty awareness at the community level. UPP activities such as the social mapping exercises have provided sufficient information for both volunteers and the community to recognize social and poverty conditions in their communities. This i s expected to affect the kelurahan grant allocation to poverty reduction activities. (c) The election process o BKMs has improved community representation and project f accountability and transparency. About 14.5 million people participated in the election o f the Board of Trustees. A total o f 8,800 elected BKMs (community organizations) have been established. (d) PrornotiBg community participation and women 's empowerment. UPP has led to increased community participation in general, and also increased women's participation in community governance (BKM) as well as access to credit (revolving loan funds). (e) Effective platform for community disaster recovery program. The program has been effectively used for two major housing reconstruction programs in the aftermath of the tsunami in Aceh and the Yogyakarta earthquake. 8. Opportunities for further improving effectiveness. Based on some of the evaluations, strategies for design improvements to increase program effectiveness have been developed, piloted, and mainstreamed into UPP/ PNPM-Urban over time (see Annex 3 for evolution o f the program, and findings of various evaluations). The draft of the mid-term quantitative impact evaluation o f UPP2 (project implementation period 2002-2010; impact evaluation undertaken 2004-2007), which focused primarily on the RLF component, has only recently become available to the team and raised some concerns about the program which may need to be further explored. Among the key mid-term findings of the study are an overall improvement in welfare in urban areas but no statistically significant impact in UPP2 treatment communities 4  (relative to control communities); a shift o f KSM (Kelompok Swadaya Masyarakat) or community group-economy members with previous access to non-UPP2 loans to UPP2 loans which carry lower interest rates (average drop from 4.3 to 2.2 percent/month); more educated, affluent and officially connected males are more likely to get elected into BKMs; KSM- economy members are more likely to be women, less affluent, and connected than BKM members but more so than the general population; a strong increase in participation in community organizations in both treatment and control communities; and significant increases in the percentage o f individuals with access to adequate sources of clean water and sanitation systems for both treatment and control communities. 9. Many of the concerns raised in the mid-term quantitative study have been addressed in the current PNPM-Urban I11 project, which incorporates several significant design changes since UPP2. The changes include greater emphasis on infrastructure investments, an increase in the amount available for such investments, and modification to the Community Development Plan (CDP) to follow the MDG frameworks and linking the CDP to city and the local government. In addition, changes have been introduced to the election processes for BKM members, and more stringent processes for access to IUF, as well as limiting allocation to RLF. 10. While there are some clear methodological limitations in the evaluation design related to timing, measurement o f impact of infrastructure financed by the project, scope and sample frame, the study does raise a number o f questions that merit further exploration. These relate to the impacts o f the CDD approach, the BKM electoral process, and what was happening in the control communities vis-a-vis the UPP communities in terms o f other poverty reduction and CDD programs being implemented by GOI. Therefore, the Bank will undertake (i) further analysis o f the data to the extent possible; (ii)exploration of what may have been happening in the control communities during this time frame to better understand the counterfactual conditions (e.g, other programs); and (iii) more comprehensive approach to project evaluation going forward. a 1 1, Under the design o f the new PNPM-Urban 1 1 project, a comprehensive evaluation i s planned 1 which would include both quantitative and qualitative methods, drawing on the rich monitoring data that exists. The planned evaluation would aim to understand how the CDD approach has evolved and how it i s addressing the needs of the urban poor, the PNPM Urban Program in the context o f other urban poverty programs in Indonesia, institutional issues, implementation issues, the role o f local government, approaches to capacity building, and other relevant issues that would provide input to future project design. The study would attempt to identify strengths and weaknesses of the program, document good practice, and distill lessons learned. This evaluation would be carried out within a shorter time period, approximately one year, to ensure that results can be incorporated into future project design and implementation. As new approaches within the project are rolled out in the future, rigorous impact evaluations using experimental design will be useful for assessing project impact. It i s recommended, however, that such study design allow for measuring both short and longer term impacts. See Annex 3A for further details on the proposed evaluation. C. Higher Level Objectives to Which the Project Contributes 12. Community empowerment and access to services. PNPM has the overall development objective of reducing poverty and improving local-level governance and service delivery in rural and urban areas in Indonesia. The project i s consistent with the Bank's FY (Fiscal Year) 2009-20 12 Country Partnership Strategy (CPS) for Indonesia, Investing in Indonesia s Institutions for Inclusive and Sustainable Development, which emphasizes engagement with government co'unterparts, including'at the sub-national level, and other stakeholders to address 5  critical governance and institutional challenges. The project's CDD approach aims to improve existing government programs, strengthen institutions and improve the links between different levels o f government. In addition to i t s cross-cutting engagements to strengthen central and sub-national government institutions and systems, the CPS identifies five thematic areas, which form the core of the Bank's engagement: (i) Private Sector Development; (ii) Infrastructure; (iii) Community Development and Social Protection; (iv) Education; and (v) Environmental Sustainability and Disaster Mitigation. The proposed project supports both the approach suggested in the CPS as well as i t s thematic areas o f engagement in Infrastructure, Community Development and Social Protection, and Environmental Sustainability and Disaster Mitigation. 11. PROJECT DESCRIPTION A. Lending Instrument 13. IBRD investment loan. The lending instrument for this project will be a Specific Investment Loan (SIL) with an implementationperiod o f three years. 14. Terms o the loan. The amount o f the loan i s $149.98 million and will be a U dollar- f S denominated, LIBOR (London Interbank Offered Rate) - based, commitment-linked, Variable Spread Loan (VSL) with annuity based repayment o f the principal. The loan will have a maturity o f 24.5 years, including a grace period o f 9 years. A front-end fee o f 0.25% will be applied and paid up-front out of GOI's own sources. In addition, currency and interest rate conversions options and interest rate cap and interest rate collar options will be maintained by GO1 in exchange for a premium to be paid out o f GOI's own sources rather than the loan proceeds, which are reflected in Schedule 3 to the negotiateddraft o f the Loan Agreement. B. Program Objective and Phases 15. I n support o a GOIprogram This project supports GOI's nationwide program for poverty f empowerment, PNPM, which i s the operational umbrella for a l l poverty programs using a community empowerment approach. While Bank financing has been instrumental to the program in the last 10 years, the national and local governments finance approximately two- thirds of PNPM-Urban through their own resources. At this time the Government envisages that the overall urban and rural program will cost a minimum o f $1.7 billion per year until 2015 which will primarily be funded by national and local government budgets and community contributions, complemented by support from development partners. 16. Progress on the roadmap to 2015. The 2007-2010 PNPM phase consisted of scale-up to full national coverage; the program now operates in 99.9% of a l l urban sub-districts. PNPM i s now shifting into a more sustaining mode in the second phase, 2010-2015, whereby local governments and sectoral programs (other CDD programs run by line ministries) will take on greater responsibility for implementation financing and PNPM will provide more of a coordination framework. Over time, other CDD-driven poverty reduction initiatives (e.g. housing improvement project, food subsidy program, etc) will be folded into the PNPM umbrella in order to make programming at the community level more streamlined, coordinated, and responsive to beneficiaries' needs. The Bank has been discussing with the Government its roadmap for the next five years in order to ensure that the goal o f providing an umbrella framework for CDD through PNPM i s realized. Progress against the current roadmap has included: (a) Nationwide coverage o f PNPM and a clear commitment for support for the next five years; 6  (b) Progress on the formulation o f ward and sub-district level multi-year development plans in many locations which are merged with normal government programming and budgeting; (c) Issuance of Presidential Decree 13/2009 formalizing the National Government Poverty Reduction Coordination Committee, and the management structure for PNPM, and which may be amended from time to time; (d) Establishmentof integrated Management o f Instrument System for the overall PNPM; and (e) Integration o f MPW community based projects and others sectoral program into PNPM. 17. Additional issuesfor discussion on roadmap. Despite this progress and clear commitment, the Bank would like and has asked for more clarity on GOI's longer term plan for PNPM through 2015, including government financing. As part of its update, the Bank will work with GO1 on some key benchmarks or targets for future financing and pro-poor targeting and integrated local development programming and budgeting. Some of the key issues in the current roadmap, which the Bank i s working with GO1 to strengthen and update, include: (a) Linking PNPM participatory planning and development efforts to district programming and budgeting/ annual development planning process; (b) Improving village governance/ accountability and the role and responsibilities o f local institutions; (c) Increasing block grant funding for PNPM community investments, especially for the poorest areas where significant impact i s expected for such community based program; (d) Strengthening the national management o f PNPM, including establishment of clear implementing regulations for the Presidential Directive 13/2009 already in place; (e) Issuing new regulations providing flexibility and higher limits for community procurement; and (f) Synergizing various sectoral programs with PNPM. C. Project Development Objective and K e y Indicators 18. A communify empowerment program. The overall project's objectives and components are based on the predecessor project, PNPM-Urban I(and Additional Financing), and innovations to deepen the effectiveness of the program will be pursued. The project development objective i s to assist GO1 to ensure that the urban poor benefit from improved socio-economic and local governance conditions. 19. Key monitoring indicators. This objective will be achieved through: (a) the formation and institutionalization of elected representativeorganizations that are accountable to communities; (b) the provision of grants to communities directly and transparently to finance poverty alleviation activities, especially infrastructure services; (c) enhancing the capacity of central and local governments to partner with community organizations in service provision; and (d) increasing awareness of disaster risk mitigation and mainstreaming of measures for resilience. Annex 3 includes a detailed description of monitoring indicators and systems and describes the evaluation process. 7 D. Project Components 20. Component 1: Community and Local Government Capacity Building ($28.72million, including $3 million GFDRR co-financin&). The locally elected BKMs have been successful in carrying out their role o f assisting and guiding community members with (i) project awareness building; (ii)developing Community Development Plans; and (iii) channeling kelurahan grant funds for local infrastructure investments, training, and micro-financedincome generating activities. This component will primarily carry out two activities: (i)finance the cost o f facilitators to carry out social intermediation activities and community training and in supporting BKMs; and (ii) finance training and capacity building o f local government (lurah and Bappeda) to strengthen their support to PNPM. Refer to Annex 4 for more detail. 1A: Facilitation assistance to BKMs that have received PNPMgrants less than three times. This sub-activity will provide facilitation assistance for PNPM "Core" Grants under the existing PNPM framework to BKMs in kelurahans that have not yet received all three grant allocations (the maximum under the PNPM program). In addition, facilitators will be given training to improve performance in the areas o f (i) disaster risk reduction and preparedness; and (ii) sustainability of existing revolving funds. Special attention will continue to be devoted to increasing capacity o f facilitators and rotating experienced facilitators between communities to ensure an exchange o f learning and experience. 1B: Facilitation assistance to `grladuated" BKM - supporting pilots in MPW. One of the key goals o f GOI's PNPM program i s to consolidate various poverty alleviation and CDD programs under one umbrella in order to streamline processes and increase impact on the ground. The proposed project will finance the BKM consolidation process, and initiate a dialogue with different sectoral agencies and development partners to institute the B K M as a coordinating body at the local ward/kelurahan level to assist in coordinating various sectoral programs within MPW. Based on the learning from these pilots, discussions on fine-tuning and scaling up to other sectoral programs will be considered in future engagements. IC: Capacity building o local government. Specialized training programs will be f developed for the lurah in each kelurahan (ward) as well government officials at the kecamatan (sub-district), kabupaten (district), and kota (city) levels. At the kota level, deeper engagement with the mayors will be exploited and learning exchange between cities will be facilitated through a mayors' dialogue on PNPM-Urban. 1D: Disaster Risk Reduction (DRR). The Global Facility for Disaster Reduction and Recovery (GFDRR) i s providing a $5 million grant to the Ministry o f Public Works in support of raising community awareness for disaster risk reduction and mainstreaming resilience into investments financed under the project. This program will support PNPM- Urban I11 by focusing on activities related to preparedness and risk mitigation, including: (i) development and delivery of an in-depth training module for facilitators on mainstreaming DRM (Disaster Risk Management) into CDPs; (ii) recruitment and The Consultative Group o f GFDRR approved a $15.05 million disaster risk management program for Indonesia o f which $5 million was programmed for building disaster resilience at the community level within the PNPM Urban- 111. The approved program document can be seen http://gfdrr.org/ctrydrmnotes/Indonesia.pdf. The resources are expected to be received in phases depending on availability of donor funds. The first tranche for Indonesia o f $2 million has been received in February 2010 and the allocation for PNPM Urban-111 will be confumed shortly after approval by the GFDRR Steering Committee for Indonesia. 8  financing o f engineers to oversee project preparation and implementation to ensure appropriate standards; (iii)public awareness-raising campaigns; and (iv) training activities for local government (lurah and Bappeda) in cooperation with BPBD (Badan Pengendalian Bencana Daerah) or Disaster Management Authority at the local level. These funds will support activities related to capacity building as well as implementation assistance (Component 3A). A special project manual will be developed for the implementationo f the DRR subcomponents. I t i s expected that GFDRR funding through a grant agreement will be developed in parallel with the use o f Component 4 of the loan, but the loan financing i s not conditional on the grant financing. 21. Component 2: Kelurahan Grants ($170.26 million). This component supports block grants to kelurahans - the value of which depends on the size of the population and disbursements. Typical activities for this component fall into three categories: (a) tertiary infrastructure investments pre-identified by the community in the CDP; (b) BKM managed revolving loan funds provided to the poor for income generating activities and who typically do not have access to other lending sources; and (c) provision o f social assistance, including training, to the poorest and most vulnerable in the community. Specific infrastructure investments are pre- identified by communities and include bridges, roads, public toilets, drainage, health facility repair, etc. In terms o f the revolving loan funds (RLF), as in the past, up to 30% of block grants can be allocated towards the RLFs for kelurahans receiving grants for the first time, and only up to 20% for existing RLFs that have a repayment rate o f at least 90%. In aggregate, around 5% o f total loan i s expected to be allocated toward RLFs. 22. Component 3 Implementation and Technical Assistance ($1 million, including $2 million : 8.4 GFDRR eo-financing). This component will finance the following activities: 3A: Project Management and Technical Assistance. The PMU will hire consultants to assist in project implementation. This arrangement would be evaluated and expanded to 1, deal with the scaling up and new features of the PNPM-Urban 1 1 including special attention to ensuring that disaster-resilient infrastructure standards are enforced. In addition, the GFDRR grant will finance hiring o f consultants who will support the PMU and facilitators in implementation, particularly in terms o f infrastructure design standards, and provide oversight on DRR capacity building efforts at the community level. 3B: M&E (Monitoring and Evaluation) Capacity Building. A comprehensive M&E sub- component will be designed under the new project to ensure careful monitoring of ongoing implementation, as well as process evaluation to assess implementation issues in a timely manner with feedback mechanisms to the project team. In addition, under the program targeted training activities will be developed on monitoring and evaluation to strengthen Government capacity in this area. 3C: Program Evaluation. To continue with the learning and piloting approach of the program, two types o f evaluations are planned. The first i s a comprehensive process evaluation to be carried out by the World Bank. This evaluation will take a strategic look at the PNPM-Urban program in the context of urban poverty in Indonesia today, how it links to other urban poverty programs and policies, institutional and governance issues, and a number o f key design and implementation issues that have been identified. The second evaluation component to be carried out under the project i s a rigorous impact evaluation o f two program design changes that will be piloted by the GOI. These include the Neighborhood Upgrading Schemes and Coordination Grants. 3 0 : Accountability and Transparency. I n order to institute greater transparency in community decision-making and accountability with regard to flow of funds, the following 9  measures have been implemented since PNPM-Urban I was introduced in 2008: (i) randomized audits; (ii)severe penalties for misuse of funds; and (iii)rewards for well performing BKMs and KSMs; (iv) establishment of an accountability matrix for all operations, and (v) launch o f a publicly accessible website based on information gathered from the MIS (Management Information System). GO1 i s committed to increasing fiduciary controls in PNPM and the project will support these efforts. Among other initiatives, the team will develop and implement a segmented capacity building strategy tailored to three groups o f communities according to their capacities and fiduciary risks present (high, medium, low). 23. Component 4: Contingency for Disaster Risk Response ($0). Due to the high risk of catastrophic events in Indonesia, a provisional zero dollar component will be added under this project that will allow for rapid reallocation o f the loan during an emergency, under streamlined procurement and disbursement procedures, and are expected to be designed in coordination with the multi-donor Callable Fund under GFDRR's Track 3. The loan financing i s not conditional on the grant financing. E. Lessons Learned and Reflected in the Project Design 24. - Project design evolution based on learning. Lessons learned from the ongoing UPP and PNPM-Urban programs have been regularly incorporated into new generation UPP project designs including PNPM-Urban. Several studies have been initiated and conducted by the Government, the World Bank and independent agencies during the course of UPP implementation and the evolutionary process o f the UPP program has been nimble and quick to respond. Relying mainly on a constant flow o f information and feedback from the ground through the MIS and recommendations from these evaluations. A key lesson learned from the UPP program has been that urban poverty alleviation programs and interventions are complicated and difficult to tailor to local conditions at the onset and require time to develop and show even a slight impact on the ground. Hence, it i s essential that poverty programs and projects such as the UPP/ PNPM-Urban have inbuilt monitoring and evaluation processes in place that capture lessons quickly and are nimble enough to incorporate design changes. 25. 1 Key lessons learned that have contributed to the current design of PNPM-Urban 1 1 are the following (see Annex 4C for details): (a) Active involvement >om the local government is necessary to ensure greater impact. A broader communications strategy and training program targeting local governments will be included in the project to build capacity as well as awareness on how LGs (Local Governments) can support PNPM programs. (b) Accountability o BKMS is very important. Awareness raising and structured involvement f o f communities ensures that both the communities and the BKMs are aware of their rights and responsibilities.Also project monitoring has been separated from the project evaluation function to maintain independence and objectivity o f the consultants. (c) Inpastructure services have the biggest payoff Going forward it i s necessary that the project focus on a shorter menu o f possible community investments rather that continuing with the Open Menu system. (d) Few BKMs are already coordinating other sectoral poverty programs. Lessons from BKMs and local governments, where such coordination has been successfully implemented, will be incorporated in the design o f the project and shared with other local governments under the PNPM. 10  Linking R L F (Revolving Loan Fund) to market based training is necessary. A new initiative under PSF for developing sustainable support for the RLF under UPP and KDP has just been approved. This will help the government to devise and implement a strategy linking the RLF to market based systems. Experienced facilitators lead to better impact. Experienced facilitators tend to produce significantly better results. Rotation o f facilitators ensures that knowhow i s disseminated, In addition, working within the team o f facilitators (including experienced facilitators), rather than individual facilitators, will ensure the experience i s effectively applied. Effective mechanism for disaster mitigation and response. I n the past, UPP has proven to be an effective mechanism for emergency response. This project explicitly includes provisions to also (a) raise awareness of existing hazard risks; and (b) engage communities in ex-ante risk reduction.and preparedness activities. F. Alternatives Considered and Reasons for Rejection 26. Considering the evolving nature o f the PNPM, different lending options were considered for the proposed project. One alternative proposed was to combine the KDP and UPP projects into one consolidated Specific Investment Loan with two jumbo components, each having i t s own implementation systems. This option was rejected because the two branches have different executing agencies. Until GO1 confirms an overall management structure with coordinating authority, simpler designs will work better than a consolidated approach that would have to address the challenges of different executing agencies. 27. Another option would have.been to decentralize project management and operation to sub- national units such as provinces. However, Indonesia's decentralization program i s still consolidated from the 2001 "big bang" and not a l l provinces have the systems in place to manage PNPM successfully. The Government has instead proposed a more gradualist approach in which the PNPM devolves functions based on performance and local government capacity assessments. 111. IMPLEMENTATION A. Partnership Arrangements 28. PNPM-Urban i s primarily supported by funding from the World Bank and Islamic Development Bank (IDB). IDB finances the program in 14 provinces in the Western Region o f Indonesia, and the remaining provinces are supported by the World Bank. The same PMU manages the overall PNPM-Urban. The same implementation guidelines apply for both IDB and World Bank financed areas. To cater to specific requirements o f other source o f funding, special supplemental guidelines will be issued within the overall framework of PNPM-Urban's general guidelines. B. Institutional and Implementation Arrangements 29. Government counterparts. The Ministry of Public Works will be the executing agency for this project. GO1 has appointed the Coordinating Ministry for Social Welfare (Menko Kesra) to chair a ministerial level working group on the development and oversight o f the program. I t includes the Ministers for Bappenas (National Development Planning Board), Finance, Home Affairs, Public Works, and Social Development. The PNPM Support Facility has been set up to harmonize and coordinate efforts of various development partners, including planning and targeting financial assistance as well as monitoring and evaluation. The PSF i s managed by a 11  Joint Management Committee (JMC) comprising GO1 non-executing agencies and development partners contributing more than $1 million to PNPM. The Bank serves as co- chair of the JMC and administers the PSF Trust Fund into which funding from development partners i s channeled. 30. PMU (Project Management Unii). A PMU already exists at the central level that i s currently managing active UPP operations. The same PMU will manage this project, including project monitoring and reporting. In consolidating its vision of the PNPM as a national program, the administrative status o f the PMU has been raised to report directly to the Director General o f Human Settlements, and arrangements have been made to allow decentralization of routine works to the provincial level. The PMU will be supported as in PNPM-Urban I(and Additional Financing) by a combination o f Management Consultants, Oversight Consultants, Regional Level Consultants and field based facilitators (see Annex 6 for more details on the composition o f consultants). 31. Better Governance Action Plan (BGAP). A comprehensive Better Governance Action Plan has been put in place for PNPM-Urban building upon the several good governance features already being implemented, including the UPP website, which i s often cited as a best practice example o f information disclosure as well as a quick, low-cost way o f gathering feedback from the field. Key features o f the BGAP include: improved transparency and disclosure provisions; civil society oversight; mitigation o f fraud, collusion and nepotism; an efficient complaint handling mechanism; and, sanctions and remedies. Additionally, special measures for disclosure o f consultant payment will be strengthened, including dissemination of payment records to all project operators. The same BGAP under PNPM-Urban Iwill be applied under this project (see Annex 12). 32. Local government participation. GO1 recognizes that for community empowerment initiatives such as the PNPM to be effective and sustainable, communities and local governments need to work in partnership. GO1 plans to evaluate the effectiveness o f current efforts to support pro- poor participatory planning and budgeting at the local government level for future input into the PNPM-Urban. This includes, inter alia, the Poverty Alleviation Partnership Grant (PAPG) component of UPP2 and 3, as well as other programs, such as the Asian Development Bank (ADB) supported pro-poor planning and budgeting program. The findings o f this review will feed into the PNPM's design, with the objective to empower local governments to implement pro-poor participatory planning and budgeting programs as part o f i t s regular planning and budgeting processes. C. Monitoring and Evaluation of Outcomes/Results 33. A comprehensive monitoring system has been set up for the implementation o f the PNPM- Urban, as a program, under UPP2, UPP2 Additional Financing, UPP3, PNPM-Urban I and , PNPM-Urban I Additional Financing. The proposed project will use a similar system with some improvements. I t also refers to the Operational Guidelines for Monitoring and Evaluation o f the PNPM developed by the Government. Monitoring has been done through a web-based management information system (MIS), Quick Status (QS), and Complaints Handling Mechanism. Monitoring i s also conducted through spot checks by the National Management Consultant (NMC) and Oversight Consultants (OCs). Details available in Annex 3. 34. Performance indicators. Monitoring and evaluation activities will ensure that the key performance indicators are tracked over time. Specific performance indicators were developed for the project based on the project objectives, key outputs, and outcomes. These indicators have been aligned with the generic indicators listed in the National Guidelines for Monitoring 12  and Evaluation of PNPM, and other indicators that are specifically required by the project. The results monitoring framework i s presented in Annex 3. 35. Management Information System (MIS)).There i s an integrated MIS under the umbrella of PNPM that also manages information collected under the on-going UPP, KDP and SPADA (The Support for Poor and Disadvantaged Areas) projects. The proposed project will continue to share the common data with other CDD projects as a reference for all departments/ministries in Indonesia to identify active projects, search for locations, and develop their budget for poverty alleviation programs. 36. Learning-by-doing. As under previous projects, PNPM-Urban I11 will continue to support GO1 in adopting and implementing strategic directions for the program and in addressing specific challenges to i t s effectiveness through a learning-by-doingapproach. The project i s expected to support the piloting of design changes (e.g. increasing cycle o f block grants from 1 to 3 years; penalties for non-repayment to RLF; channeling sectoral programs under MPW; linking the CDP to the city's capital investment plans) as part o f implementation in some communities, which i s expected to be evaluated at mid-year review meetings hosted by Tim Pengendali (the Inter-ministerial Oversight Committee of the PNPM). At these semi-annual meetings, senior government officials and key stakeholders would reach agreement, on which pilots will be undertaken, the geographic areas for conducting them, and appropriate monitoring and evaluation metrics and methods. In addition, results from existing pilots would be reviewed and decisions made on whether to scale-up the pilots, make adjustments and continue testing, or discontinue. 37. Evaluation. In addition to the studies conducted under UPP2 and UPP3 and a major impact evaluation, the project will benefit from several ongoing evaluations on specific aspects of the 1, program that will be completed in 2010. Under PNPM-Urban 1 1 an impact evaluation will be carried out for selected pilot components. The World Bank will also carry out a comprehensive evaluation to address some of the strategic issues related to the program design. Details on the studies are given in Annex 3A. D. Sustainability 38. The sustainability o f the KDP and UPP programs has been broadly demonstrated: strong community participation ensures buy-in and demand; local government participation ensures additional support and institutionalization of the process as well as increasing scale; and investments have been proven to be of good quality and more economical using a community- driven approach vis-a-vis traditional contracting. 39. In addition, these programs have been scaled-up through successive operations that have built upon the successes and expanded the geographic scope of the previous operations. The scale-up of the projects took place in the context of institutional collapse, major economic crisis, and implementation of one of the world's largest decentralization programs; the success of these programs in spite o f the socio-political challenges faced highlights the long-term sustainability and flexibility to adapt to a changing environment. 40. The Government i s strongly committed to the program, having scaled up the program to the national level, committing to the program through 2014 as part of the five-year Medium-Term Development Plan, elevating the administration o f the program to the Vice President's office, financing the bulk of the program through own funds, and absorbing initial costs of the Bank- funded parts o f the program for later reimbursement. 13  E. Critical Risks and Possible Controversial Aspects 4 1. Sectoral programs do not compensate. Coordinating the delivery o f various sectoral poverty alleviation programs - "channeling" - though PNPM BKMs could be a politically, sensitive issue and may be at risk of not receiving much support from key line ministrieddepartmentsin order to operationalize it under PNPM-Urban 1 1 The project intends to mitigate this risk by 1. piloting the concept to poverty programs managed and implemented by the Ministry o f Public Works, since it i s the implementing agency under the project. This will help ensure that funds from programs managed by MPW compensate for communities that graduate from PNPM (after receiving 3 tranches). 42. Isolatedprograms. There i s a risk that the capacity of local government i s not sufficient to support PNPM programs at the Kelurahan level and to ensure that they are aligned with broader city investment and physical planning. Under the proposed project funds will be available to provide capacity building to local governments. 43. Scale prevented by lack o implementation funds. There i s a risk that community f infrastructureprojects may not be practical due to lack o f implementation funds and/or limited support from the local government. Under the proposed project, block grants to advanced wards (those receiving the third tranche) will be directed towards community infrastructure programs funded by PNPM -Urban I11 that link to city masterplans and capital improvement . plans. 44. Budget delays. Delay in budget authorization and disbursement at the Ministry o f Finance (MoF). Delays in the authorization o f the budget documents could affect flow of funds to communities. However, this risk has been mitigated based on agreement with MOF to incur the expenses up front and for the project to disburse on the basis o f reimbursement. 45. Delays in procurement. The recruitment strategy for facilitators and consultants may not meet the timing requirements of the project. Because the current team o f NMC and OCs are operating in the same areas for PNPM-Urban Iuntil 2012, it i s neither practical nor efficient to have another set o f consultants. GO1 will adopt a strategy for rapid recruitment and training of new facilitators and consultants through extension of existing consultants' contracts, phased recruitment, and enhanced training programs. 46. Fiduciary stress. The ability to transfer resources directly to communities across the country in a diligent and transparent fashion i s one o f the main strengths o f the PNPM program. Over the eleven years of development and gradual scale up o f the program, fiduciary systems have been developed that (a) install downward and upward accountability for the use o f resources; (b) provide voice to beneficiaries to easily f i l e complaints in case o f (perceived) fraud; (c) provide decision makers with data on the number and status of fraud cases; and (d) ensure that issues identified through supervision, audits, or complaint handling are diligently addressed. These systems are robust and well tested. Nevertheless, there are two risks that require attention: (a) the strains that are put on the system due to the national scale up of the program; and (b) complacency. With regard to the former, the doubling o f the number o f kecamatans over the last two years creates an understandable challenge to ensure that the systems that have proven their effectiveness in the previous phases o f the program remain robust when operating at a larger scale. This requires careful managerial attention on the system as a whole, and on the areas that pose the greatest fiduciary risks in particular; deployment and training o f staff with the appropriate skill mix; and ongoing "learning by doing" to continuously upgrade the existing systems and strengthen their implementation. GO1 and the Bank are taking a number of specific steps to address both risks. Among others, these include: 14 (a) The deployment o f additional specialized staff in areas that have a weaker track record with regard to the robustness o f the fiduciary systems; (b) The tasking o f the District level Auditor General Office or Bawasda (Badan Pengawas Daerah) with the systematic auditing o f PNPM funds in partnership with the National Auditor Office so that at least 20% o f kecamatans are audited; (c) The Application of revised criteria that trigger the escalation o f fraud issues in those cases where appropriate action i s lacking and the consequences and sanctions when fraud issues are not adequately addressed; (d) The publication in the local press and on the project website o f the main fraud cases and their follow up; and (e) The semi-annual review by the Tim Pengandali o f the status and degree o f resolution o f fraud cases. 15  Table 3: Risks and Mitigation Measures Rating of Description of Risk Mitigation measures residual risk Sustainability: Lack o f clarity on the overall Intensive consultations are taking place between the Bank Moderate design and long term financing and GO1 on the Roadmap for PNPM, including the levels plan for the PNPM. and sources of medium- and long-term financing. Enhance participation of local governments through a future Local government engagement to PNPM project component and ongoing collaboration with Moderate ensure program sustainability. LGs. Giving more operational roles to LGs. Targeting strategy for project areas (1) Ensure that for any new/additional funding that becomes Moderate does not reach the poorest. available, priority be given to allocating these funds to the poorest areas. (2) Discussions with GO1 on the block grant funding for 201 1 include sizeable increase for the Doorest areas. Inadequate fiduciary controls Adoption of the COSU review's main recommendations, Moderate enable corruption and a failure to Highlights include: meet development objectives. Develop further a risk-based control framework Increase o f audit sample and train local auditors and involve them in audit assignment Budget increased for financial management training; Increase social controls; Strengthen systems for respondingto corruption, including through escalation mechanisms for issues that cannot be (or are not) addressed at local levels. Improve transparency o f use o f funds e.g., promote dissemination o f audit findings and follow up on audit findings and the handling o f corruption problems. Increase complaint handling training for facilitators. Increased awareness and engagement o f senior GO1 officials. Revolving funds are not Use of revolving funds will be limited to 30 percent o f block Moderate sustainable with low repayment grants for new areas, and 20 percent for existing UPP areas rates. that have repayment rates higher than 90 percent, and with a total o f about 5% o f aggregate loan; the findings of the joint UPP/KDP study on revolving funds have been incorporated in the project's revolving fund scheme. The strategy adopted in 2008 will continue tobe monitored and enforced. lmplementation Capacity: - - GO1 i s discussing whether to institutionalize the oversight Moderate (a) lack o f long-term management committees or to find an alternative solution. The plan for PNPM and Management Government has also developed a capacity building strategy zapacity of the executing agency for the PNPM Project Management Unit (PMU). The WB [PMU) for the maintaining the team will appraise actions taken to improve project quality o f the program management. [b) Capacity of the communities to Hiring Financial Management (FM) consultant to support Moderate manage and account the block BKMs in each kota (city). More extensive involvement o f grants, in particular revolving Local Government Inspector in the audit oversight functions, funds activity; including provision for their training. This will add sample I f audit. The existing F M Staff will receive more training. Delays in the authorization o f the Some o f the budget issues will be eliminated on account o f Substantial mdget documents that could affect ?NPM Urban 2 disbursing on the basis of reimbursement. flow of funds to the communities. Recruitment strategy for 301 will adopt a strategy for rapid recruitment o f NMC and Moderate facilitators and consultants 3Cs through extension o f existing consultants' contracts, md training of new facilitators 3verall risk Moderate 16  F. Loadcredit Conditions and Covenants 47. Effectiveness Conditions: the Borrower shall adopt a Project Manual acceptable to the Bank. 48. The loan agreement contains implementation covenants standard for this type o f project and used in past PNPM projects. Covenants include: (a) audit to be carried out in accordance with terms o f reference agreed with the Bank; (b) the Borrower will ensure that each participating kelurahan implements the agreed Project Manual, Environmental Guidelines, Land Acquisition and Resettlement Policy Framework; Isolated Vulnerable Peoples' Framework and Better Governance Action Plan; (c) before undertaking activities under component 4, the Borrower must have declared a disaster, emergency or catastrophic event through the relevant national, provincial, local or other authority and the Bank and the Borrower must have entered into a written arrangement and/or the Borrower will adopt a supplement to the Project Manual, , satisfactory to the Bank which defines the scope of such activities, and their implementation and disbursement arrangements; and (d) with respect to sub-projects financed from sources other than the Loan, including sub-projects for which facilitators are financed by the Project but the sub-projects are themselves financed from such other sources, the Borrower shall undertake such sub-projects in accordance with the Project Manual, and retain responsibility for the design, construction, fiduciary controls and implementationof such sub-projects. IV. APPRAISAL SUMMARY A. Economic and Financial Analyses 49. Since subprojects are not pre-identified, this project i s considered a framework-type of project, and no specific cost-benefit or cost-effectivenessanalysis can be carried out a priori, However, UPP has funded 250,000 poverty alleviation activity proposals, resulting in the improvement of over 22,000 km o f community roads, creation of over 166,000 sanitation units, and disbursement of over 144,000 community-administeredsmall loans (see Annex 1). GO1 also estimates that infrastructure financed through UPPl , using a participatory approach, produced savings of more than 60 percent versus the total cost o f using contractors and government managed infrastructure (study dated October 2005). 50. Kelurahan grants. Kelurahan grants mainly used to finance small infrastructure works or environmental improvements generally have positive economic returns. As proven by UPPl and 2, a community approach for infrastructure provision generally yields lower costs and better quality than the conventional contractor approach. Grant funding i s justified for public goods because of the externalities involved and because o f the expected higher number of beneficiaries than for private economic activities. Grants provided to kelurahans to create RLFs have been less successful in terms of client repayment. Changes have been identified, strategy has been developed in PNPM-Urban I and MIS shows there has been some improvement. This , initiative will continue in this project. If kelurahan grants are used to finance economic activities through RLFs, it i s mandatory that the RLFs' performance i s satisfactory and the interest rate used i s at least i s the prevailing commercial interest rates (based on those charged by a commercial microfinance provider Bank Rakyat Indonesia). 5 1, Financial soundness o the project and main institution. The kelurahan grants are provided to f BKMs as a grant from the central government, with matching grants provided from the local 17  governments based on the fiscal strength o f respective local governments. When the grants are used to finance infrastructure or other services that are not RLF loans, they will be passed on from the BKM to the community as grants. In past UPP operations, communities have consistently demonstrated their willingness to share the cost of maintenance of small works. The fiscal impact on local government budgets for the kelurahan grants i s therefore expected to be minimal. Total contribution from the local governments i s expected to be a maximum o f 30 percent o f the total project cost. B. Technical 52. The technical design and approach of this project has already been tested in UPP1, 2, and 3, and similar approaches have been tested under KDP (six Bank loans/credits). The positive results of these experiences thus far attest to the technical soundness of the approach. The detailed economic and technical analysis i s presented in Annex 9. . 53. With regard to specific technical issues: InJFastructure; Lessons from projects with substantial experience in community-based infrastructure provision have been taken into account. In addition, MPW recently issued special technical guidelines for UPP to further improve the overall quality o f infrastructure, which are being applied to the UPP2 Additional Financing and PNPM-Urban I . 0 Revolving Funds: RLFs will be limited to those kelurahans which have already benefited under the component and which have demonstrated satisfactory financial performance based on meeting minimum targets on several internationally accepted indicators. In addition since 2008 a new RLF strategy has been adopted to improve quality and targeting. Local government capacity development: local government capacity will be further strengthened under this project and programs such the Poverty Alleviation Partnership Grant will continue to support PNPM. 0 Strengthen M&E. Further improvement will be made to the M&E efforts under this project based on the findings and recommendations o f the joint GOI-World Bank led UPP2 Impact Evaluation Study that was recently submitted. C. Fiduciary 54. The project has several significant risks. First, there i s a risk posed by the use o f community block grants, particularly with respect to how effectively beneficiaries and communities ( L K W P W K S M ) use and account for the funds. The second risk i s the uneven capacity o f the field consultant to assist the community groups (LKWUPWKSM) on the financial management aspects. The third risk i s the weak financial management capacity of PMU/PIUs (Project ImplementationUnits), especially to supervise and monitor the sub-project activities. 55. Balanced against the potential risks i s PNPM's successful record of mitigating these risks through internal controls and an oversight system. Over the past year, PNPM has also taken several steps to strengthen its financial controls, including facilitators' counter signed, transparency and complain handling mechanism. The external audit has expanded the audit scope and i s being audited using a more risk-based approach, i.e. focusing on high risk areas that were found in internal as well as external reports and visited areas. I n addition, the project 18  auditor has agreed to increase the audit sample size and, following a successful trial in five provinces, to involve the local auditor (local inspector) on future PNPM audit assignments. A plan for strengthening and involving the local auditor i s being developed. Additional F M consultants have been recruited at the central as well as local levels. 56. Previous PNPM-Urban audit reports have been submitted in a timely manner by the external auditors (by 30 June 2009) with unqualified (clean) opinions, including UPP2 and 3 audit reports. The PMU i s responsible for preparing general purpose financial statements in accordance with International Public Sector Accounting Standards (IPSASs). The audits of these statements are carried out by government auditors or Badan Pengawas Keuangan Pembangunan (BPKP) 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 auditors take into account specific audit methodologies, that are needed to audit widely dispersed community-based activities, as has been established under other on-going PNPM programs around the country. 57. Financial management. Overall, the financial management risk i s assessed as being substantial. This assessment has concluded that with the implementation of the recommendations proposed, the risks will be substantially mitigated, and the residual financial management risk i s assessed as moderate. Proposed financial management arrangements will satisfy the Bank's minimum requirements under OPE3PlO.02. Detailed financial management arrangements are given in Annex 7. 58. Procurement. The overall project risk for procurement i s moderate, in consideration that this i s a repeater project and most if not a l l high-value contracts for management services will be signed through extending the existing contracts under the on-going PNPM project. This was expected in the previous projects. Procurement under the community grants will follow community participation, using forms and procedures as defined in the existing Project Operational Manual of previous UPPRNPM projects, with minor revisions to include the additional kelurahans. Procurement arrangements are attached as Annex 8. 59. Disbursement. The applicable disbursement method i s "Reimbursement" for the block grants, and "Advance", "Reimbursement~y "Direct Payment" for other expenditures. Payments for or block grants will be paid from GO1 sources and to be reimbursed by the Bank to MOF treasury S account. For other components, a Designated Account (DA) denominated in U dollars will be opened by Directorate General (DG) Treasury of MOF in Bank Indonesia (central bank). The D A will be solely used to finance eligible expenditures other than for block grants. 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. The reporting of use o f the DA funds and expenditures for block grants would be based on the quarterly IFR (Interim Financial Report). Applications for reimbursement of block grants and the advance to the D A shall be submitted together with the IFR. The loan will provide retroactive financing in an aggregate amount not to exceed $29,500,000 equivalent for payments made prior to the date o f the loan signing but after February 10,20 10. 60. DG Treasury will authorize its relevant Treasury Offices or Kantor Pelayanan Perbendahaan Negara (KPPNs) located near the implementation units to authorize payments of eligible project expenditures by issuance of a remittance order or Surat Perintah Pencairan Dana (SP2D) charging the DA. For this purpose, DG Treasury shall issue a circular letter to the 19  relevant KPPN offices providing guidelines and criteria for eligible project expenditures in accordance with the credit agreements. When expenditures are due for payment, the PIU will prepare a payment request (SPP) to the payment officer within the satker. After document verification, the payment officer will issue a payment order (SPM) together with the supporting documentation for submission to the relevant KPPN. The KPPN will check the budget eligibility and issue SP2D to the KPPN's operational bank, which will transfer the funds directly to the payee's account and arrange for debit for the loan portion to the DA. D. Social 61. Land acquisition. PNPM-Urban I11 will cover nearly 5,130 urban wards in 154 urban local governments in 19 provinces, which includes those under PNPM-Urban I PNPM-Urban , Additional Financing (AF) and UPP2 Additional Financing. Salient physical characteristics relevant to safeguard analysis are activities financed under kelurahan block grants. Typical activities for this component fall into three categories: (a) small scale infrastructure investments pre-identified by the community; (b) B K M managed revolving loan funds provided to the poor who typically do not have access to other lending sources for income generating activities; and (c) provision o f social assistance, including training, to the poorest and most vulnerable in the community. Experiences from the UPP series and ongoing PNPM-Urban I (and Additional Financing) confirm that activities financed by the block grants are mostly small-scale physical infrastructure, such as community sanitation, toilet and water supply, tertiary drainage, and tertiary roads, which serve a limited area (neighborhoods) within the kelurahan. I t i s very likely that there will be insignificant amount of land acquisition for investments of these types of community infrastructure. Similar to the previous UPP series and ongoing PNPM-Urban I(and Additional Financing), most of the land needed to build small-scale infrastructure financed by the project will be contributed by beneficiaries with full participatory consultation process at the community level. Past experiences showed only one village engaged in a willing buyer/seller approach for a community water reservoir sub-project. I n this case the beneficiaries mobilized funds to pay for the land. 62. Furthermore, as experienced in all UPPs and ongoing PNPM-Urban Iand AF, and as a l l sub- projects financed by the kelurahan block grants are located in the urbanized areas, there will be no Indigeneous People (IP) involved. Although it i s unlikely, in the case that the project involves land acquisition and resettlement and affects IP, it will adopt the Land Acquisition and Resettlement Policy Framework and IP of Isolated Vulnerable People (IVP) Framework that have been adopted by the UPPs and the PNPM-Urban Iand AF. These frameworks have been elaborated in the project operation manual and technical guidelines. The project operation manual and technical guidelines will be updated as necessary to accommodate lessons learned in land acquisition during project implementation. 63. Documentationo f the consultationprocess and supporting information from the UPP series and ongoing PNPM-Urban Iand AF are available at the BKM, OC and PMU levels, but will have to be improved in this project. E. Environment 64. Similar to past UPP operations, PNPM-Urban will finance small-scale sub-projects Kelurahan Block Grants that are likely to have insignificant, reversible, and highly localized environmental impacts. Experience from the UPP series and ongoing PNPM-Urban Iand AF 20  confirm that activities financed by the block grants are mostly small-scale physical infrastructure, such as community sanitation, toilet and water supply, tertiary drainage, and tertiary roads, that has limited service area (neighborhoods) within the kelurahan. The project will likely have similar characteristics o f environmental impacts and land needed for sub- projects with those o f in UPPs and PNPM-Urban Iand AF. These types o f sub-projects are not likely to have any large scale, significant or irreversible environmental impacts. Potential impacts are likely to be site specific, not significant and can be managed locally by the community by adopting good engineering design and construction practices. Observations in some projects under previous UPPs and ongoing PNPM-Urban I and AF suggest that environmental related-issues mainly occur due to inadequate guidance, monitoring and supervision by the facilitators and OCs (Oversight Consultants) during the planning and implementation stages. The proper mitigation and prevention methods proposed are proper training (on specific technical environmental impact mitigation measures) and monitoring o f the supervising field engineers, especially on site selection for water and sanitation projects, use of tested water quality from wells, and maintenance of the facilities. The project will adopt the Environmental Guidelines that has been adopted by the UPPs and the PNPM-Urban Iand AF, and elaborated in the project operation manual and technical guidelines. The project environmental category remains B. F. Safeguard policies 65. The project triggers three safeguard policies: environment assessment, involuntary resettlement, and indigenous peoples. The project will adopt the Environmental Guidelines, Land Acquisition and Resettlement Framework, and Indigenous Peoples or IVP (IP) Policy Framework o f the UPP 3 that has been adopted by the UPPs and PNPM-UrbanIand AF. These guidelines and frameworks will ensure that the potential environmental and social impacts are addressed as an integral part of project design, appraisal and implementation. The proposed project will not finance subprojects that use items listed in the negative l i s t (including the linkage case which item i s purchased by the participants as own contribution), that will have potential negative impacts on cultural property and, that will have potential large-scale land acquisition/ resettlement. 66. The Borrower i s familiar and has the capacity to implement the environmental guidelines, land acquisition and resettlement frameworks as well as IP or IVP framework, as they have managed the implementation o f UPPs and PNPM-Urban Iand AF over the last 10 years. The National Consultant Team (NMC) who i s currently assisting the PMU o f the ExecutingAgency By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas 21  will have experts who have sufficient experiences in environmental management and social issues to oversee social and environmental issues, including land acquisition and environmental aspects, and carry out project monitoring, training and performance. Monitoring and supervision o f sub-project planning and implementation will be strengthened. The current project documentation on environmental, land acquisition and social issues at all project management levels (national, regional and community levels) will be continuously improved. 67. The NMC will carry out training programs for the OCs and city/district coordinators on the environmental/land acquisition/IP o f IVP policy frameworks and their implementation. Kelurahan facilitators and other project staff will be trained in the understanding and application o f the guidelines and assist in the preparation o f subproject proposals. The BKMs will be trained in how to apply the safeguards in the sub-project selection process. Communities will be in charge o f deciding all implementation arrangements; the follow-up on guidelines and approved proposals will be monitored by the project facilitators and OCs. The safeguards policy framework i s given in Annex 10. 68. The Environmental Guidelines, Land Acquisition and Resettlement Framework as well as the IP Framework and the project operation manual/technical guidelines are uploaded in the project website ww.p2kp.org (www.Dnum-uerkotaan.org/). The project operation manual and technical guidelines are distributed to a l l project management staff, consultants, facilitators, and the BKMs. The project operation manual and technical guidelines are updated continuously to reflect the lessons learned from project implementation, including environmental and social safeguards aspects. 69. Women's participation. The proposed project will build on actions taken by UPP 3, which provides support to increase the quality of women's participation in the project. Actions to be taken under the project include: (a) the quota requirement o f 30 percent of women facilitators; (b) maternity leave for women facilitators; and (c) inclusion o f gender details in the MIS. At the community level, activities to enhance women's participation would include conducting focus group discussions for women in project cycle activities; support women as members o f RLF groups; and conducting training on gender awareness. A strategy to ensure gender mainstreamingand equality i s contained in Annex 13. 70. , Poverty targeting. As PNPM-Urban I11 i s a continuation o f PNPM-Urban I this project will operate in approximately 5131 kelurahans in 458 kecamatans classified as urban in 19 provinces in Indonesia. The kecamatans will be selected based on those that have more than 10% population classified as poor based on Podes Data 2008. To determine poor beneficiaries, an extensive community self survey will be carried out in each selected kelurahan during the project implementation period. Further, only those kelurahans that have received less than three kelurahan grants will be considered under the project. G. Policy Exceptions and Readiness 71. N o policy exceptions are requested, and the project i s deemed as ready for approval. 22  Annex 1: Country and Sector o r Program Background INDONESIA: Third National Program for Community Empowerment in Urban Areas (PNPM-Urban 111) In August 2006, the President of Indonesia announced the launch of a national program for poverty reduction. A pillar o f this program i s the National Community EmpowermentProgram, or Program Nasional Pemberdayaan Masyarakat (PNPM). PNPM i s the Government o f Indonesia's (GOI) operational umbrella for all poverty programs which use a community empowerment approach. The objective o f PNPM i s to ensure that the poor benefit from improved socio-economic and governance conditions through a community-driven development (CDD) process. The program aims to consolidate different community-based activities o f various ministries and institutionalize Indonesia's experience in bottom-up planning and decision-making into a single community-based poverty reduction program, in both rural and urban areas. PNPM i s one of the largest poverty reduction programs in the world, with an established, well-documented record of community engagement, participation, and service delivery. Today, PNPM has nationwide coverage in every rural village (over 71,000) and urban ward (over 8,000) in Indonesia. The program's participatory and transparent framework has helped improve local level governance by directly involving communities, and has been successful in increasing the poor's (including women and vulnerable community members) access to tertiary socio-economic infrastructure and other basic social services. 2. The GO1 has strategically embraced PNPM as a comprehensive operational framework under which a l l CDD projects will be placed. Through this approach, the GO1 aims to streamline and coordinate the implementation of more than 60 CDD programs currently active in Indonesia, managed by over 18 government agencies. The GO1 envisions that this operational consolidation o f efforts will lead to a reduction in the duplication of assistance, an increase in the efficiency o f public spending, and a standardization in the methodology used to monitor program outputs, outcomes and impact. 3. PNPM program coordination. GO1 has appointed the Coordinating Ministry for Social Welfare (Menko Kesru) to chair a ministerial-level working group on the development and oversight of the PNPM. I t includes the Ministers for National Development and Planning (Bappenas), Finance, Home Affairs, Public Works, and Social Development. Menko Kesru also chairs a policy-level working group for the PNPM (Tim Pengenduli), which i s a Deputy-level Steering Committee that includes representatives from seven ministries and i s similar in composition to the ministerial working group. Representatives from development partners contributing to Indonesia's poverty reduction efforts also participate in i t s meetings. 4. Bappenas i s responsible for the technical preparation of the program and has formed seven working groups to produce the overall technical guidelines, budget, timeframe, and implementing regulations, which must be approved by the Tim Pengenduli and subsequently carried out by the MPW or MOHA. The working groups also discuss relevant technical issues and lessons learned from evaluations of community development programs in Indonesia to identify means to strengthen poverty reduction initiatives. 5. Strategic Framework for PNPM. GO1 has produced a clear and convincing strategic framework for PNPM, as shown in Figure 1.1 below. The five focal areas for the 2008 poverty reduction action plan are: 23  (i)Stabilizing prices for basic commodities used by the poor; (ii)Promoting pro-poor growth, with a special focus on small and medium enterprises; (iii)Increasing access o f the poor to basic services such as health, education, water and sanitation; (iv) Developing safety nets, primarily through the conditional cash transfer system(househo1d and community-based); and (v) Consolidatingand expanding the community development programs. Figure 1.1: GOI's Framework for Poverty Reduction I Source: Bappenas, July 2007 6. At present PNPM includes five programs, three o f which receive World Bank support: PNPM- Rural (formerly the Kecamatan Development Project - KDP); PNPM-Urban (formerly the Urban Poverty Project- UPP); Support for Poor and Disadvantaged Areas (SPADA). Two other 1 programs, PNPM Rural Infrastructure Support Program I1 (MS-PNPM 1 ) or PPIP (Program Pembangunan Infrastruktur Perdesaan)-PNPM I1 and PNPM-Infrastructure for Socio- Economic Development (RISE), are funded by the Asian Development Bank and JBIC, respectively. These programs form the core of PNPM, and the intention i s that eventually they will be merged into a common operational policy. Linked to these projects are an increasing number o f sectoral programs that provide specialized inputs to improve the delivery of poverty services. Over time, local governments will be expected to integrate education, health, and agricultural service provision into PNPM. 7. PNPM differs from many other conditional cash transfer and social safety net programs because it creates large quantities o f economically productive assets. By providing funding to 24  construct and/or rehabilitate roads, irrigation and drainage works, and water supply and sanitation works, PNPM supports a sustainable approach to increasing employment and income. The resulting increased purchasing power also helps to stimulate economies at the village and kelurahan levels. 8. Within this overall framework, GO1 has identified a number of critical areas in its community development programs that the PNPM's more strategic approach can help redress. These include: (i)Consolidating the many project-specific versions of community development distributed among different ministries; (ii)Aligning basic principles for community coverage across all GO1 community development programs; (iii)Ensuring targeting concentrates investment funds on the poorest communities, now that PNPM has achieved national coverage; (iv) Using rigorous evaluations to assess best practices for operational procedures and mechanisms such as financing, disbursement, planning, technical quality, fiduciary over sight, etc; (v) Clarifying and strengthening the roles for local government in demand-driven programming; and (vi) Providing a strategic way to develop community governance and managerial capacities. 9. K e y challenges. GO1 recognizes that translating these principles into operational program- ming will require a sustained, high-level drive. Three challenges are particularly prominent and have been the subject of a great deal of internal discussion: The consolidation o programs challenges organizational autonomy - The GOI's f commitment to consolidating its CDD operations i s long overdue. However, potential resistance to this effort from different agencies, and even development partners, should not be underestimated. Recent high-level dialogue within the government made an important advance by clarifying that PNPM consolidation involves two separate, distinct activities. One stream of policy work will evaluate the existing portfolio, particularly loan funded projects, to identify best practices and discontinue inefficient or ineffective management systems. A second stream will provide a way for technical agencies to work with communities through standardized procedures on sub-district and village consultation, planning, transparency and record keeping, procurement, etc.; but it will not interfere with the formation and operation o f village-level technical groups such as water user associations, school boards, and health committees, etc. Full funding for PNPM will be expensive - Reaping the benefits of PNPM depends on full funding at an average of IDR. 3.0 billion per sub-district, with even more investment funding going to those sub-districts indicative of higher rates of poverty. Employment and poverty reduction benefits from PNPM are sensitive to, and will be noticeably affected by, reductions in funding. The Indonesian Cabinet has already approved in principle full funding for PNPM. However, the Indonesian Parliament has s t i l l not approved sufficient funds, and the Tim Pengendali continues to provide significant funds for "near poor" areas thus reducing the actual amount of block grant funding available for those sub-districts truly classified as impoverished. 25  Managing the scaled-up national program effectively requires a permanent management pamework - Finding a sustainable, effective management framework for the scaled-up program will not be easy. PerPres 13/2009, a Presidential Regulation in-lieu-of-law, was promulgated vesting oversight in a multi-sectoral team headed by Kesra and linking PNPM management with the coordination of all poverty alleviation efforts. Recently a high-level post in the Vice President's office for Poverty was created and the incumbent becoming more involved in PNPM oversight. A new PerPres i s being drafted to formalize oversight from the Vice President's office while leaving day-to-day coordination with Tim Pengendali. 10. Government Policy on the PNPM and Road M a p . The Presidential Regulation, PerPres 13/2009, issued for the period from 2008 through 2015 defines PNPM as a national policy framework that covers all village-level empowerment and poverty alleviation programs and assigns them to be managed by one national coordinating structure, the same structure used to coordinate all poverty alleviation efforts. The regulation makes all planning, budgeting, implementation, management and funding mechanisms subject to a single set o f operational guidelines aimed at synchronizingand harmonizingthe implementationof the programs carried out under the PNPM umbrella. 1 1. The Government has indicated in a "roadmap" for the future o f PNPM that it plans to continue PNPM at least until 2015, in two phases. The first phase, which spanned from 2007 through 2009 and has already been achieved, scales-up PNPM to full national coverage, reaching each of Indonesia's 79,000 villages and urban wards. The second phase, which this project will directly support, will begin in 201 1 and entails shifting PNPM into a more sustaining mode, whereby local governments will take on greater responsibility for financing and sectoral agencies will participate more actively. The plan i s that over time, other CDD poverty reduction initiatives will be folded into PNPM in order to make programming at the community level more streamlined, coordinated, and responsive to beneficiaries' needs. The plan to continue PNPM until 2015 includes support from the World Bank and other development partners through additional financinghepeater loans and contributions to the PNPM Support Facility (PSF) - a mechanism established by the GO1 and development partners to provide support to PNPM through new modalities and institutional arrangements. At this time, the GO1 envisages that PNPM will cost a minimum of US$1.7 billion per year and will continue to be funded by national and local government budgets and community contributions, with supplemental financing provided by development partners. The long term-financing arrangements of PNPM s t i l l need to be further developed by the GOI. 26  Annex 2: M a j o r Related Projects Financed by the Bank and/or other Agencies INDONESIA: Third National Program for Community Empowerment in Urban Areas (PNPM-Urban 111) 1. PNPM i s part of the Government of Indonesia's (GOI) larger efforts to better coordinate its poverty alleviation programs. The GO1 strategy contains three clusters: Cluster 1 includes individual social welfare programs, Cluster 2 comprises community-based programs such as PNPM, while Cluster 3 will contain programs for supporting small and medium enterprise development. At present, PNPM includes five programs, three o f which receive Bank support: PNPM-Rural (formerly the Kecamatan Development Project - KDP); PNPM-Urban (formerly - the Urban Poverty Project UPP); Support for Poor and Disadvantaged Areas (SPADA). Two other programs, PNPM Rural Infrastructure Support Program I1 (PPIP/RIS-PNPM 1 ) and 1 PNPM-Infrastructure for Socio-Economic Development (RISE), are funded by the Asian Development Bank and the Japan Bank for International Cooperation (JBIC), respectively. 2. Best practices and lessons learned from the KDP, PNPM-Rural and UPP series/PNPM-Urban will continue to be used in common by both projects such as training materials, technical manuals, fiduciary procedures and monitoring and evaluation (M&E) systems. Examples of shared inputs include: (i)Improved and integratedprogram website; (ii)Facilitator training activities; (iii)Leadership development activities; (iv) Guidance in community participatory planning; and (v) Strengthen anti-corruptionand fiduciary procedures. 3. Other related projects financed by the Bank and/ or other agencies include: 27  Table 2.1: M a j o r Related Projects Financin Sector I s s Comment US$ mil Indonesia: Water Supply and 135 mill O&M for water supply, Sanitation for Low Income methodologies to reach Communities the very poor Indonesia: Support for Poor and DisadvantagedAreas Project Indonesia: Initiatives in Local Government Reform $60 $30 District government planning linkages District government reform program P Part o f PNPM Indonesia: 200 Triggers on CDD Development Policy Loan I V Rice Assistance for the Poor (Raskin) 1.25Billion Social protection Cluster Io f GOI's Poverty - GOI's own funds equiv. (GOI) Reduction program School Operational Assistance (BOS) 1.5 Billion access to basic education for Cluster I& I1 o f GOI's - GOI's own funds all. Based on US$4O/SD Poverty Reduction program studentfyear and US$57.5/SMP studenvyear PKH (Conditional Cash Transfer) - 1-1.5 Billion Social protection Cluster Io f GOI's Poverty GOI's own funds Reduction program Health Assurance for the Poor 1.5 Billion Social protection Cluster Io f GOI's Poverty - (Jamkesmas) GOI's own funds equiv. Reduction program Credit for Community Micro Business 10 Billion Promote small and micro 1 Cluster 1 1 o f GOI's Poverty - (KURK) GOI's own funds equiv. businesses Reduction program Rural Infrastructure Support to 84.2 Rural infrastructure gap Cluster I1 o f GOI's Poverty the PNPM Project I1 Reduction program ADB financing National Program for Community 407.7 Community Empowerment, PNPM core program, cluster Empowerment - Urban Good governance and I1 o f GOI's Poverty Poverty Reduction in urban Alleviation area National Program for Community 53 1.2 Community Empowerment, PNPM core program, cluster Empowerment - Rural Good governance and I 1 o f GOI's Poverty Poverty Reduction in rural Alleviation area KDP Nias 25.8 Community based post On-going, KDP platform disaster reconstruction based recovery project Early Childhood Education and 67.5 Human development Potential collaboration with Development Project PNPM-Rural/ Generasi BERMUTU-Better Education through 86 Improving quality o f public Support to GOI's cluster I& Reformed Management and Universal service providers I 1 o f poverty reduction Teacher Upgrading BOS-KITA Project 600 access to basic education for Support to GOI's cluster Io f all poverty reduction Basic Education Capacity 40.4 Working with technical Support to GOI's cluster Io f agencies to implement community projects poverty reduction I 28 Project service providers 2nd Eastern Indonesia Region 199 Infrastructure development Matching well with tertiary Transport to support economic growth infrastructures built through PNPM Strategic Road Infrastructure Project 206.5 Infrastructure development Matching well with tertiary to support economic growth infrastructures built through PNPM Community-based Settlement 85 Community based Community based Reconstruction and Rehabilitation reconstruction reconstruction build on KDP Project for N A D and NIAS I approach and Central Java reconstruction reconstruction build on UPP approach Support for Poor and Disadvantaged 173 District government can provide link between Areas Project (SPADA) planning linkages community and district planning SPADA in Aceh and Nias 25.6 District government can provide link between planning linkages community and district planning Third WSSLIC (PAMSIMAS) 137.5 O&M for water supply, Collaboration with PNPM- methodologies to reach the Rural at village level very poor Public Expenditures Supp. Facility 2,000 Anticipating the Impact o f GO1 i s looking towards (DPL-DDO) the Global Economic Crisis PNPM-Rural and other national poverty programs to provide possible channels to disburse quickly critical spending to the poor if needed. Sixth Development Policy Loan 750.0 Budget Support Triggers on PNPM budgets (DPL6) 29  Annex 3: Results Framework and Monitoring INDONESIA: Third National Program for Community Empowerment in Urban Areas (PNPM-Urban 111) 1. In June 2008, the Government developed i t s own "Operational Guidelines for Monitoring and Evaluation o f PNPM" with technical assistance from the Bank. These Guidelines have been shared with the national parliament and government agencies to ensure that there i s coherence in the approach for those projects included under the umbrella of PNPM. The Guidelines outline the objectives o f PNPM monitoring and evaluation (M&E), who i s responsible, what will be monitored, and the overall M&E framework. Both PNPM-Rural and PNPM-Urban follow the Government's Guidelines and share similar performance indicators in most cases. The two programs undertake several joint evaluations and studies. Where there are differences in indicators and M&E approaches, those differences are primarily due to urban versus rural differences as well as management issues relevant only to the specific implementing agency. 2. In addition to the Guidelines, the Government has established two M&E.working groups. There i s a working group for Management Information Systems (MIS) and one for reviewing and finalizing performance indicators for PNPM. For the MIS, the National PNPM Steering Committee and the various projects falling under the PNPM umbrella have agreed to operate an integrated, shared MIS and website, with a set of common performance indicators to be reported upon by all projects. 3. The importance o f M&E, as described in the Operational Guidelines for M&E of the PNPM, i s the following: Monitoring allows project stakeholders (community members, government officials, consultants, etc.) to know what progress has been made on the project. A project monitoring system enables continuous feedback on the status of implementation, ' identifying specific problems and issues as they arise. Findings from monitoring exercises l e t stakeholders know if activities have been completed as planned or not. Monitoring i s a useful management tool. The information generated from monitoring can inform management decisions and ensure that corrective action i s taken if necessary. 6 Evaluation allows managers to assess if the project i s meeting i t s overall objectives and stated project outcomes. M&E are important because they document the program experience and lessons learned from PNPM. M&E allows project actors and others to learn from what i s occurring in the field. From the PNPM experience, project stakeholders will learn what works and what does not in certain situations in relation to community-led development processes and poverty reduction. 4. What will be monitored and evaluated? Based upon the project objective and key outputs, certain performance indicators are developed for the project and tracked over time. Some of the outcome and output performance indicators, such as access to infrastructure, satisfaction level o f beneficiaries, percentage of the population that participated in meetings, quality o f infrastructure, and repayment rate o f revolving loan funds, are also key indicators for the overall PNPM program. So, these indicators will be also included in the national M&E system. 30  The project MIS plays a critical role in capturing and recording important information regarding PNPM-Urban results and impacts. 5. As in previous UPP and PNPM-Urban operations, for the PNPM-Urban 1 1the M&E tasks will 1 be separated, with monitoring made the responsibility o f National Management Consultants (NMC), while evaluation tasks will be contracted out to separate consultants on a task-by-task basis. A. Monitoring 6. The PNPM-Urban monitoring system has undergone significant modifications and improvements, based on lessons collected during ten years of operations. The project has developed an advanced web-based MIS that i s open to the public, providing updates and reliable information on project progress. The system won an innovation award in 2009 at the World Bank. I t was been selected from some forty Bank's funded projects in Asia Pacific. The monitoring of targeted kelurahans has been done through several tools, such as a MIS, quick status for the completion status o f the activities, and complaint handling management. However, utilization o f those sources of information by all project stakeholders s t i l l needs to be improved, and the consultants must maintain the quality and timeliness o f data and information presented in the website. 7. These mechanisms will remain the backbone o f the monitoring system o f the project at multiple levels. At the same time, monitoring for PNPM-Urban has been adjusted based on the national monitoring framework for the PNPM, as described in the PNPM Operational Guidelines for M&E. 8. PNPM-Urban 111 will use the following forms of monitoring: a. Community Participatory Monitoring - Community participatory monitoring involves community groups or members to monitor and oversee program activities. For community monitoring to be effective, certain activities are needed: 0 Information Accessibility and Transparency - Project information must be available and accessible for community members to check and verify. Transparency o f information i s critical. Information regarding the project activities and budgets should be posted on information boards and project sites. 0 Open Public Meetings - As a principle of community participation and transparency and accountability, all project meetings should be open to the public and community members should be allowed to participate and monitor proceedings. During project implementation, the projects should also hold accountability meetings to report upon project progress and finances. 0 Complaints Handling and Grievance Procedures - PNPM-Urban includes a complaints handling process whereby community members and the general public can channel complaints or inquiries. Contact information for complaints handling via PO Box, SMS or communication with local government officials and facilitators should be publicized. The record of complaints i s publicized through the project website. Until December 2009, the complaints recorded in UPP2, UPP3, and PNPM-Urban in totaled about 16,629. Almost all 31  For 1, recorded cases were re~olved.~ PNPM-Urban 1 1 the same complaints handling management system will be used with community awareness strengthening about their rights and the project's Short Message Service (SMS)-based complaints handling mechanisms, since cellphones reach most urban areas. The project will also develop exit strategy o f complaint handling management to ensure i t s sustainability at kelurahan and kotakabupatenlevel. b. Government Monitoring-PNPM-Urban i s a Government o f Indonesia program. PNPM funds are public funds, and government authorities have a responsibility to ensure that the program i s proceeding according to i t s principles and procedures and that the funds are being used appropriately. Government officials at the national, regional, provincial, district/kota, kecamatan and village/keluruhan levels are responsible for monitoring the program and ensuring that its objectives and principles are being met. There will be more structured regular supervision missions and field visits of government officials to project sites with strong support from the consultants. c. Monitoring by Consultants and Facilitators-Project monitoring activities are also the shared responsibility of project consultants and facilitators at the national, provincial, district, and village levels. Consultants will regularly visit project sites throughout the project cycle and report monthly, quarterly and annually regarding performance. The NMC will conduct spot-checks to a minimum of 1% kelurahans during each stage of activities (eg. s e l f survey mapping, community development plan preparation, etc). At the same time, the Provincial Consultant will visit at least 5% o f kelurahans in their regions. The result o f spot-checked will be timely informed to facilitators for improvements and published in the project's website. Teleconferences will be also conducted by the NMC to OCs, BKMs, and beneficiaries to strengthen field supervision. d. Management Information Systems (MIS) and Website-Project MIS provides information related to process, outputs and outcomes. It will contain basic project information (e.g., project locations, status o f project activity, investment information), project staff, financial information, and complaints. It will be accessible to the public through the project's website (www.p2kp,org). Some improvements will be made to the MIS, such as standard operating procedures for data collection, verification, and validation to improve timeliness and data accuracy, and strengthening the utilization of MIS for analysis of progress and performance by a l l stakeholders. As the PNPM-Urban I11 becomes part of the national PNPM, the MIS will also maintain and report a core set o f indicators that are applied for a l l PNPM projects, instead of a set o f indicators specific to the requirements of the PNPM-Urban I11 project. The project MIS will be integrated into the national PNPM's MIS, website and GIS (Geographical Information System). The definition o f "resolved" cases i s given in the UPP operational manual for Complaint Handling Management. On misuse of funds, a case is considered "resolved" if: (1) hnds are returned, or (2) communities handle complaints through the court systems. The same definition will be applied for PNPM-Urban, as reflected in the Draft Operational Manual for Complaint Handling for the National PNPM program. 32  The website will be maintained as a powerful source of information, communication, and lessons about the project. The role o f the UPPRNPM-Urban website will be strengthened in some areas, such as on database o f consultants, facilitators, BKMs and local governments, updating o f the data/information/news, publication of best practices, user- friendliness, and linkages between local government websites and the UPP website. e. 1 NGO Monitoring-PNPM-Urban 1 1 invites c i v i l society groups to independently monitor the program. Civil society groups, such as associations or NGOs, play an important citizens' "watchdog" function in ensuring that the project i s proceeding according to its principles and objectives and that funds are being used for stated purposes. Civil society groups can also play a critical role in ensuring that communities, especially marginalized groups, the poor, and women have the opportunity to participate in PNPM-Urbanactivities. f. Financial Audits-Government official auditors, such as BPKP, are responsible for annually auditing PNPM-Urban's finances. Other private audit firms may also be requested to audit the program's finances, especially in relation to financing from specific development partners. g. World Bank Supervision Missions-The World Bank, together with related Central Government Agencies (Ministry of Public Works, Ministry of Finance, Bappenas, Ministry o f Home Affairs, etc) and the NMC, conducts full supervision missions at least twice a year, complemented by several thematic field supervisions. These missions aim to review project progress, performance, and management issues and provide feedback to improve the overall performance of the project. In addition, the teleconference supervision mechanism applied under UPP 2 Additional Financing and PNPM-Urban will be further strengthened in PNPM-Urban 1 11. B. Evaluation 9. A number o f evaluations, studies, and reviews o f the UPP program have been carried out since 2001. The studies have been carried out and financed by Go1 (MPW and Bappenas), the World Bank, ASEM grant, and DSF (Decentralization Support Facilities). These studies have brought significant improvement to the quality o f project design and implementation over time. Further M&E efforts will continue to be important to future operations. Due to the lag time in carrying out evaluation work,.results from the more recent UPP3 and PNPM-Urbanprojects are not yet available. The following studies are being carried out by the GO1 and anticipated to be complete in 2010. A summary o f lessons learned from the evaluations carried out to date i s found below (Section C.) 0 Evaluation o f technical quality and impact o f infrastructure 0 Evaluation o f quality and impact social activities by community 0 Evaluation o f gender issues in UPP PNPM 0 Evaluation of participatory planning for PJM Pronangkis (community planning) 0 Evaluation o f community complaint handling as a social control 0 Evaluation study on volunteers in UPP PNPM 0 Assessment o f national and local governments' role in UPP PNPM and required capacity building 33  Assessment o f requirements and formulation o f curriculum and modules for facilitation of community empowerment Governance spill over - in a select number of districts, impacts o f PNPM on governance practices at the village, kecamatan, district, and provincial levels. PNPM-Urban I11evaluation 10. To ensure continued learning and improvements in project design, new evaluation work will be undertaken during the project. The CDD approach to addressing urban poverty has been underway for over ten years now in Indonesia. Much has changed in the country and in the original project design. During project preparationthe team has determined that this would be an appropriate time to take a broad look at the program in the context of key issues for the urban poor in Indonesia today as well as evaluate impact o f two pilots which will be implementedbeginning in 20 10. Both evaluation components would be launched immediately following project effectiveness to ensure that some results would be available in 201 1. Below the two evaluation components are described and the proposed evaluation design i s described in Annex 3A. a. Comprehensive Process EvaluationAJrban Poverty Analysis (to be carried out by the World Bank): The comprehensive evaluation would aim to understand how the CDD approach addresses the needs of the urban poor, the PNPM-Urban program in the context of other urban poverty programs in Indonesia, institutional issues, implementation issues, the role o f local government, approaches to capacity building, and other relevant issues that would provide input to future project design. The study would attempt to identify strengths and weaknesses of the program, document good practice, and distill lessons learned. The evaluation would draw on the rich monitoring data that exists through the MIS, as well as new qualitative data which would specifically be designed and collected for the purposes of the study. Further details on the design of the study will be developed before project effectiveness. b. Impact Evaluation: There are several new design features that are being rolled out only in some communities by the Government (only some are being funded by the Bank under current project) and would provide an excellent opportunity for assessing impact through an impact evaluation. These include the Neighborhood Upgrading Schemes, Coordination Grants, and Sectoral Grants. Evaluating these will be helpful for the future design o f PNPM. The impact evaluations would be based on a before and after survey of treatment and control groups, as well as a qualitative component to explore perspectives of beneficiaries, community context, and underlying factors affecting project impact. The design of the impact evaluation will draw on existing survey instruments, selection of treatment and control communities (ideally randomized), and plan for a baseline, follow up one year after implementation, and final round o f survey implementation after 5 years. The survey will include both household and community level questionnaires. The household and community surveys will be complemented by focus groups in both treatment and control communities. At the time o f the baseline, the focus groups will include specific areas, such as characterization o f conditions, decision making processes, 34  and identification of priorities. In the follow up survey year(s), the focus groups will focus on changes over time to understand project impact. C. Lessons learned from past evaluations 1 1. The main evaluation studies are listed below. They have mostly focused on a particular aspect o f the program. Nine additional studies are currently underway with expected results in 2010. The table below summarizes some o f the main lessons learned and current progress Studies of UPPl (1 999-2004):Impact Study on Post UPP 1 Phase 2 (ASEM Grant, April 2005) - (la) 0 Local Democracy Matters: Leadership, Accountability, and Community Development in Indonesia, UPPl (World Bank, December 2004) - (lb) 0 Final Report o f UPPl phase 1 , 1999-2002 (MPW, Dec 2002) - (IC) 12. Studies of UPP2 (2004-2010): 0 Impact Qualitative Study (Baseline-Midterm1) UPP2 (ASEM Grant, June 2003-June 2008) - (2a) 0 Finding of Post ConstructionEconomic Impact Analysis Study for CDD Programs, UPP2 (Bappenas, Oct 2005) - (2b) 0 UPP2 Quantitative evaluation report (Draft World Bank, 2009) - (2c) 0 Gender in Community Development Project : Implication for PNPM Strategy (DSF, December 2006) - (2d) 0 Microcredit Strategy Formulation Mission (DSF, 2008) - (2e) 35  8 C CF L a 3 v) 0 s" UJ f m  m c I l.. I T a c m ( 0 r I 3 6 a c m  8 I s' s I a v1 V m Y v) P d !k v) 8 x V m . n v) h P o g d v) Y 0 Tt  v) a W - B w 4 E L D c s 0 v1 a Q) 3 c v) E e a D P v,  N" e 5 - s: 5 c 0 v) a Y a m c) E e a - ; i P. 3 c 0 B 6 a v) c) E e a  m d- v) B 0 a cn CI 0 B 6 a c v1 E e Lr I V s 9) cn  P S t= 0 0 CJ a v) x 0 v) - a v) x 0 v) E 5 L 0 3 z 3 m c) E e a m v1 8 V 3 cn E 5 L 0 m a Q) 3 m c) E e a m B V 3 cn  1 Table 3.2 Results Framework and Monitoring PNPM-Urban 1 1 PDO Outcome Indicators Use o f Outcome Information Assist GO1 to ensure Improved access to infrastructure, economic and social Determine if PNPM i s having its poor benefit from services in at least 80% o f kelurahans (wards) in 2013 desired effects on socio-economic improved socio- welfare economic and local Number o f people in urban areas provided with access to governance all-season roads within a 500 meter range under the World Bank Core Sector conditions project Indicators Minimum 80% satisfaction levels from beneficiaries regarding improved services and local level governance Infrastructurebuilt i s at least 20% less expensive than that built by non-community based approaches in at least 80% o f participating kelurahans Minimum 90% o f complaints are resolved Intermediate ~ Results Indicators Use of Results Monitoring Results Component One: Component One: Component One: a. Organized Minimum 40% participationrate o f the poorest and Assess whether the design o f community groups vulnerable community members in planning and decision BKM formation and CDP have process for making meetings arrangements need raising concerns and adjustment developing CDPs. Minimum 40% participation rate of women in planning Determine whether the and decision-making meetings socialization and election processes need to be Minimum 30% o f the adult population voting in BKM improved elections at the neighborhood level BKMs formed in minimum o f 90% o f kelurahans Minimum 90% o f kelurahans with Community Development Plans (CDPs) completed and ratified b. Local governments Minimum 80% o f local governments provide cost-sharing deliver improved with a minimum o f 20% cost-sharing services to the urban poor Component Two: Communities receive improved access to Component Two: Number o f each type o f infrastructure, economic, and social activities completed in at least 80% kelurahans . Component Two: Determine if additional technical assistance i s infrastructurebased (wards) required in specific areas on CDP Minimum70%o f infrastructure works evaluated as o f good quality Minimum70% o f kelurahans with revolving loan funds (RLFs) having a loans at risk (LAR) ratio L 3 months o f < 10% Minimum 90% o f kelurahans with RLFs have a cost :overage ratio o f > 125% 47  PDO Outcome Indicators Use of Outcome Information Min. 90% o f kelurahans with RLFs have annualized return on investment of > 10% Min30% participation rate of women as member o f community groups (KSMs) Component Three: Consultants provide technical assistance Component Three: 90% of OCs providing timely & accurate data through MIS . Component Three: Gauge whether technical assistance and and implementation implementation support support to the project 70% of BKMs with completed annual financial audits needs to be improved or . increased Provide timely & accurate data to inform management decisions 48 T x z 2 I 2 g 8 s 0 0 Do 0 Q\ d AI AI AI AI AI AI AI AI g g -r d m C n m Do AI AI AI AI AI AI AI I g Q\ AI & -ee $ 3 m g g r n b AI AI AI AI s F ` AI  Annex 3A: Proposed Evaluation Design INDONESIA: Third National Program for Community Empowerment in Urban Areas (PNPM-Urban 111) 13. Under the design of the new PNPM-Urban I11 project, a comprehensive evaluation i s planned which would include both quantitative and qualitative methods, drawing on the rich monitoring data that exists. The planned evaluation would aim to understand how the CDD approach has evolved and how it i s addressing the needs o f the urban poor, the PNPM Urban Program in the context of other urban poverty programs in Indonesia, institutional issues, implementation issues, the role of local government, approaches to capacity building, and other relevant issues that would provide input to future project design. The study would attempt to identify strengths and weaknesses of the program, document good practice, and distill lessons learned. This evaluation would be carried out within a relatively short time period, approximately one year, to ensure that results can be incorporated into future project design and implementation. As new approaches within the project are rolled out such as the Neighborhood Upgrading Scheme (NUS), Coordination Grants, and Sectoral Approach, rigorous impact evaluations will be useful for assessing project impact. I t i s recommended, however, that such study design allow for measuring both short and longer term impacts. Below are the proposed plans for the evaluation work under PNPM-Urban 111. 1. Comprehensive Process EvaluationKJrban Poverty Analysis 14. A comprehensive process evaluation i s proposed to look at the bigger policy questions related to the program (above) within the context o f urban poverty in Indonesia, and to drill down on specific implementation issues that have been raised during using qualitative methods and monitoring data. The primary audience for this study i s the GO1 and the World Bank. I t i s proposed that this study be led by the World Bank and would be carried out between April 2010-201 1. The following analysis would be explored: a. Urban Poverty: Trends, characteristics (based on existing Household (HH) survey data (e.g. Social Economic National Survey or Survei Sosial Ekonomi Nasional (SUSENAS), and micro level quantitative/qualitative studies). This would include information on employment, access to infrastructure, basic social services, housing, mobility, and social capital disaggregated to the extent possible. This analysis would provide the foundation for understandingurban poverty in Indonesia today. b. Existing Policies and Programs on Urban Poverty: What i s Government policy on urban poverty, basic services, and what programs are in place at the national, province and local level? How are they designed and who spends what? How effectively are they targeted? What does service delivery look like at the various levels? (based on policy documents, institutional mapping, budget documents). How do these programs compare to PNPM Urban? Are they linked? This analysis would provide context on Government policy on urban poverty programs and combined with part (a) would provide the analysis in section (d) be1ow. c. PNPM Urban: Assess what the program i s doing, how it i s working, targeting, what works well and what doesn't (nalysis based on monitoring data and new qualitative/institutional/economic analysis to be collected including a beneficiary ' 51  assessment). This section would attempt to drill down and gain a further understanding on specific design issues that have been raised. The study would also aim to identify "good practice" communities to understand what have been key elements to their `success' and how it can be replicatedthrough project design. Key issues to be explored (part c): i. Block grants (adequacy, number o f cycles) ii. Infrastructure improvements (what, where, how cost effective, design and engineering issues, sustainability, future demand) iii. Local Government (role of, links to PNPM, service delivery, etc.) iv. Facilitators (cost effectiveness, quality) v. CDD approach (qualitative study) vi. BKM electoral process vii. Gender (participation in the decision making process) viii. Control mechanisms/governance ix. Link with sectoral agencies x. Capacity building d. Lessons learned and options ahead This section would pull together the chapters above to understand the PNPM Urban approach in the context o f urban poverty in Indonesia today, assess other programs, look at specific design issues, and present the pros and cons o f options going forward. It i s anticipatedthat these would be explored in a consultative way. 2. Impact Evaluation 15. An impact evaluation i s the most effective way to determine whether the program had the desired effects on individuals, households and institutions and whether those effects are attributable to the program intervention. To carry such an evaluation out, it i s necessary to estimate the counterfactual, that is, what would have happened had the project never taken place or what otherwise would have been true. In practice, this can be very complex. In the case of the PNPM-Urban I11 program, a l l urban villages in Indonesia now participate in the core elements o f the program, the kelurahan grants, thus there are no control areas making it impossible to evaluate this alone. That being said, there are several new design features that are being rolled out only in some communities by the Government (only some are being funded by the Bank under current project) and would provide an excellent opportunity for assessing impact through an impact evaluation. The impact evaluations would all include cost effectiveness analysis though details would need to be developed through consultation. Evaluation o f the following program design changes i s proposed: a. Neighborhood Upgrading Schemes (NUS): The NUS begins with the preparation. a detailed Community Settlement Plan (CSP) and i s followed by implementation o f priority investments (which requires funding from the city government). The program initially started with 18 pilots, and the Government i s now keen on expanding the NUS to 200 additional kelurahans that demonstrate good performance under the PNPM Program. The impact evaluation would explore impacts o f the infrastructure investments on improved services, and if possible, health outcomes. 52  b. PNPM-Coordination Grants: For the KelurahansBKMs that have already received block grants three times, they will graduate from receiving any further investment grants but will be provided with maintenance and coordination grants. These Grants are smaller in volume, but sufficient for scaling up and strengthening the facilitation capacity o f the BKMs and the Lurah to effectively manage and coordinate various sectoral programs ("channeling"). The fund could be used for capacity building, workshops, and various training for the community. A key element of this support would be helping the kelurahan access funds through the formal Musrenbang (Planning and Development Consultation) process. This will be part o f the sustainability and exit strategy of the program. The impact evaluation would seek to measure impacts of these Grants on some type o f sustainability measure (this will have to be defined). c. PNPM-Sectoral Grants: Over time it i s envisaged that the PNPM "Core" grants that provide funding to support infrastructure, social, and economic investments in the kelurahans will decline giving way to more sector specific interventions at the community level. The notion i s that other sectoral poverty alleviation programs (e.g. water supply, drainage, transportation, health, food subsidy, scholarships, microfinance) through support grants from the central government, local governments and the even the private sector (as it i s currently taking place) will be increased to compensate for the needs o f the community. Examples o f sectoral grants under the Ministry of Public Works include the Housing for the Poor Project and Neighborhood Upgrading Scheme (NUS). The impact evaluation will seek to measure impacts of these grants on community infrastructure improvements and other impacts to the extent possible (tbd). 16. Proposed Schedule and Budget - Design o f Impact Evaluation March-May 20 10 - TORS June 20 10 - Launch Baseline Survey September-December 2010 - Mid-term survey September - December 201 1 (tbc) - Final survey September-December 20 15 Task Time Cost (including Travel) Survey Design 4 SW (international) 32,000 SamDle Frame 4 SW (local) 16.000 Field work - baseline (depends on sample size) 100,000 Field work - midterm 9, 75,OO Field work - final 9, 100,000 Data Analysis 3 SW international, 8 local for 70,000 each survey round Total Cost 3 83,000 53  Annex 4: Detailed Project Description INDONESIA: Third National Program for Community Empowerment in Urban Areas 1) (PNPM-Urban 1 1 1. The project size i s about $217 million, of which $149.98 million will be financed under the loan and $5 million will b'e co-financed by a GFDRR grant to support Disaster Risk Reduction measures under the project. The loan financing i s not conditional on grant financing. The . program's core design follows closely its predecessor PNPM-Urban I However, because the recent evaluation shows that some indicators of impact were more conservative than expected - and the impact on house hold consumption, after two years o f the UPP2 program, while showing overall improvement was insignificant compared to control groups - the team i s proposing evolution in the project design (presented below), with the aim of better meeting its objectives o f poverty reduction, sustainability, and consolidation. The proposed project will continue to support community and local government capacity building; kelurahan block grants, and implementation support. Within this framework, the following improved design principles are being proposed to the community block grants: 0 Scaling up for impact. In terms o f further deepening the areas of intervention, urban wards will continue to receive block grants. For advanced wards, community development plans should be linked to city investment plans. In addition, BKMs will be encouraged to concentrate on fewer priorities to achieve scale o f infrastructureprojects. Consolidation for channeling. In an effort to operationalize the concept o f "channeling" sectoral funds/ programs through the PNPM BKM, the capacity o f BKMs will be strengthened so that they can provide a platform for coordination. Support to the existing revolving funds. Revolving loan funds (RLF) provide an important source o f credit for microenterprise to the poor, but strengthening the systems to ensure repayment and graduation to the formal credit systems i s needed. Disaster risk management. Greater emphasis on disaster risk reduction in community planning and infrastructuredesign will be accorded so as to reduce vulnerability of the poor to catastrophic events. Scaling uu for imuact 2. The project design will evolve to acknowledge that there are different stages o f PNPM-Urban support that can be offered to kelurahans depending on how advanced they are in the program. There are two categories o f kelurahan grants that the project will support: (a) PNPM-"Core" Grants. This category under the proposed project will include both new kelurahans - those that have never received a grant before - and existing kelurahans - those that have received block grants once or twice and are still eligible for additional block grants under the existing program. Kelurahans programming investments under the third tranche will be encouraged to undertake fewer activities, but at a larger scale, so as to increase impact; in addition, the feasibility o f requiring CDPs to be linked to the city's investment plans, as a prerequisite for the release o f the third tranche, will be explored. 54 Consolidation for channeling (b) PNPM-"Coordination" Grants. KelurahansEIKMs that have already received block grants three times will graduate from receiving any further investment grants, except for the poorer areas. However, they will continue to be provided with maintenance and coordination grants, which will be smaller in volume, but sufficient for scaling up and strengthening the facilitation capacity of the BKMs and the Lurah to effectively manage and coordinate various sectoral programs ("channeling"). The fund could be used for capacity building, workshops, and various training for the community. A key element of this support would be helping the kelurahan access ns d if through the formal Musrembang (Planning and Development Consultation) process. This will be part of the sustainability and exit strategy of the program. 3. It i s expected that other sectoral programs will compensate for the elimination of investment grants to the kelurahans that will only be receiving coordination funds under the project. These sectoral grants form a third category of kelurahan grants - these will not be funded from the project, but will be funded through other projects. (c) PNPM-"Sectoral" Grants. Over time it i s envisaged that the PNPM "Core" grants that provide funding to support infrastructure, social, and economic investments in the kelurahans will decline giving way' to more sector specific interventions at the community level. The notion i s that other sectoral poverty alleviation programs (e.g. water supply, drainage, transportation, health, food subsidy, scholarships, microfinance) through support grants from the central government, local governments and even the private sector (as i s currently taking place) will be increased to compensate for the needs of the community. Example of sectoral grants under the Ministry of Public Works include the Housing for the Poor Project and NeighborhoodUpgrading Scheme (NUS). Support to Revolvina Loan Funds (RLF) 4. PNPM-Urban I11 will ensure that the existing RLFs develop into strong operationally independent RLFs and that the RLF beneficiaries can graduate into using the formal credit market. To this end, the PNPM intends to take steps to increase repayment and, where necessary, to shut down non-performing RLFs. The proposed project will continue with the strategy laid out in PNPM-Urban to improve RLF performance (see Table 2 in Annex 4A). Strenathenina Disaster Risk Manaaement (DRM) 5. Although DRM was a key sub-activity under PNPM-Urban, it has yet to be mainstreamed into the regular programs managed by the BKMs. The project will ensure small scale works and infrastructure activities included in the CDP should contribute to risk reduction, where possible, and at a minimum be built according to disaster-resilient design and construction standards. Community projects may be divided into: (i) building resilience into ongoing and planned community investments (e.g. housing reconstruction); and (ii) targeted investments to minimize the impacts of disasters (e.g. flood barriers), including emergency preparedness and response efforts. 6. This will require development of operational guidelines on DRM; additional training for facilitators and communities; information and hazard risk mapping; and mainstreaming into the 55  CDP. The following activities will be necessary: establishing and enforcing design standards for new infrastructure constructed; development o f emergency plans; evacuation drills; and training of community first responders. Project Components 7. Component I: Community and Local Government Capacity Building ($28.72million, including $3 million GFDRR co-financing). The locally elected BKMs have been successful in carrying out their role of assisting and guiding community members with (i) project awareness building; (ii) developing Community Development Plans (CDPs); and (iii) channeling kelurahan grant funds for local infrastructure investments, training, and micro- financed income generating activities. This component will primarily carry out two activities: (i) finance the cost o f facilitators to carry out social intermediation activities and community training and in supporting BKMs; and (ii)finance training and capacity building o f local government (lurah and Bappeda) to strengthen their support to PNPM. 1A: Facilitation assistance to BKMs that have received PNPM grants less than three times. This sub-activity will provide facilitation assistance or PNPM "Core" Grants under the existing PNPM framework to BKMs in kelurahans that have not yet received a l l three grant allocations (the maximum under the PNPM program). For "new" kelurahans receiving grants for the f i r s t time, the focus will be on setting up BKMs, familiarization with the program, and development o f the CDP. For already existing "advanced" BKMs that are receiving grants for the second or third time, the focus will be on forging links to other sectoral programs and on creating coordination capacity. As previously, these "advanced" kelurahans will also be eligible for PAPG. In addition, facilitators will be given training to improve performance in the areas of (i) disaster risk reduction and preparedness; and (ii) revolving funds. 1B: Facilitation assistance to "graduated" BKMs. One o f the key goals o f GOI's PNPM program i s to consolidate various poverty alleviation and CDD programs under one umbrella in order to streamline processes and increase impact on the ground. The proposed project will finance the BKM consolidation process, and initiate a dialogue with different sectoral agencies and development partners to institute the B K M as a coordinating body at the local ward/kelurahan level to assist in coordinating various sectoral programs. BKMs that will benefit are those that have received and disbursed a l l three grant allocations and that demonstrate good performance (defined by the following criteria- BKM member i s elected by min 30% adult voters, RLF performance i s good with RR>90%,BKM bookkeeping i s audited annually by independent auditor with qualified opinion, BKM carry out annual accountability report, B K M member carry out bimonthly routine meeting). The component will finance facilitation to BKMs that have "graduated" and assumed the role o f a coordinating and channeling body for all CDD-based poverty alleviation programs. 1C: Capacity building o local government. Specialized training programs will be developed f for the lurah in each kelurahan (ward) as well government officials at the kecamatan (sub- district), kabupaten (district), and kota (city) levels. At the kota level, deeper engagement with the mayors will be exploited and learning exchange between cities will be facilitated through a mayors' dialogue on PNPM-urban. In addition, incentive schemes will be developed - e.g. awards for the best performing cities (those with the highest aggregate kelurahan performance. Facilitation will also be provided to Bappeda with the goal o f coordinating CDPs with the city's development plans to promote greater scale of infrastructure (i.e. links to networks rather 56  than isolated works). A pre-condition for "advanced" kelurahans to receive block grants would be that the CDP i s included in Bappeda's investment plans. At the kecamatan and kabupaten . levels, facilitation would be provided to local government leaders to stimulate discussion on pooling funds (or at least coordinating activities) across kelurahans to increase the scale o f impact. Finally, the lurah will be provided with intensive facilitation on his role in providing two-way communication between the government and the community (so that the CDP reflects measures that can leverage planned city investments). H e will also be provided with intensive training related to enforcing building codes to ensure that community infrastructure i s resilient to disasters. ID:. Disaster Risk Reduction (DRR). The Global Facility for Disaster Reduction and Recovery (GFDRR) i s providing a $5 million grant to the Ministry o f Public Works in support o f raising community awareness for disaster risk reduction and mainstreaming resilience into investments financed under the project. Indonesia i s vulnerable to multiple natural hazards and, based on the 2007 Disaster Management Law, the Government has set up BNPB as the National Disaster Management Authority and BPBD at the local levels to provide some institutional governance on disaster reduction and recovery. While these institutions provide the policy framework, many of the risk reduction as well as response activities need to be carried out at the community and local levels. This program will support PNPM-Urban and focus on activities related to physical and non physical measures that would increase preparedness and resilience (including evacuation plans, drills, equipment for response, capacity building o f community first responders) and risk mitigation (including community hazard mapping in CSPs, ensuring that building codes and infrastructure design parameters are appropriate to local risks and are enforced, and links between BKM, lurah, Bappeda, and BPBD are forged). The grant funds under this program will support the following activities: (i)development and delivery o f an in- depth training module for facilitators on mainstreaming DRM into CDPs; (ii) recruitment and financing o f engineers to oversee project preparation and implementationto ensure appropriate standards; (iii) public awareness-raising campaigns; and (iv) training activities for local government (lurah and Bappeda) in cooperation with BPBD. Therq are several ongoing DRM activities in Indonesia, including the GFDRR-supported Climate Resilient Cities program, and coordination activities will be pursued. 8. Component 2: Kelurahan Grants ($170.26 million).This component supports block grants to kelurahans - the value of which depends on the size of the population and disbursements. Typical activities for this component fall into three categories: (a) tertiary infrastructure investments pre-identified by the community in the CDP; (b) B K M managed revolving loan funds provided to the poor for income generating activities and who typically do not have access to other lending sources; and (c) provision o f social assistance, including training, to the poorest and most vulnerable in the community. Specific infrastructure investments are pre- identified by communities and consist of bridges, roads, public toilets, drainage, health facility repair, etc. Most of these sub-projects focus on the improvements or repair of existing infrastructure based two previous PNPM projects about 80% of investment i s spent on infrastructure. Under this activity the project will continue to provide funds to existing kelurahans that have only received one or two grant allocations thus far. Rather than an open menu of activities, the grants will only be disbursed against an eligible set o f activities, focused primarily on infrastructure services. I n term of the revolving loan funds (RLF), as in the past, up to 30% of block grants can be allocated towards the RLF for kelurahans receiving grants for the first time, and only up to 20% for existing RLFs that have a repayment rate of at least 90%. For "advanced" BKMs, at least 20% of block grants will have to be used toward programs that 57  leverage funding from other sectoral programs, to promote channeling; in addition, these BKMs will need to identify activities in coordination with the city's investment plans (rather than in isolation or these broader plans) 9. Component 3: Implementation and Technical Assistance ($18.4 million, including $2 million GFDRR co-financing).. This component will finance the following activities: 3A: Project Management and Technical Assistance. The PMU will hire consultants to assist in project implementation. This arrangement would be evaluated and expanded to deal with the 1. scaling up and new features o f the PNPM-Urban1 1 Technical assistance would continue to be provided through an NMC at the central level, and OC teams at the provincial level, with offices in the participating districts. An MIS, project website, and complaints handling mechanism have also been established; This arrangement would be evaluated and expanded to deal with the new features of the program. In addition, the GFDRR grant will finance hiring o f consultants who will support the PMU and facilitators in implementing and provide oversight on DRR capacity building efforts at the community level. 3B: M&E Capacity Building. A comprehensive M&E sub-component will be designed under the new project to ensure careful monitoring of ongoing implementation, as well as process evaluation to assess implementation issues in a timely manner with feedback mechanisms to the project team. In addition, under the program targeted training activities will be developed on monitoring and evaluation to strengthen Government capacity in this area. 3C: Program Evaluation. To continue with the learning and piloting approach of the program, two types of evaluations are planned. The first is a comprehensive process evaluation to be carried out by the World Bank. This evaluation will take a strategic look at the PNPM-Urbanprogram in the context of urban poverty in Indonesia today, how it links to other urban poverty programs and policies, institutional and governance issues, and a number o f key design and implementation issues that have been identified. The second evaluation component to be carried out under the project, i s a rigorous impact evaluation of two program design changes that will be piloted by the GOI. These include the Neighborhood Upgrading Schemes, PNPM Coordination Grants and PNPM Sectoral Grants. 3 0 : New measures for accountability and transparency. I n order to institute greater transparency in community decision-making and accountability with regard to flow o f funds, the following measures have been implemented since PNPM-Urban was introduced in 2007: (i) randomized audits; (ii)severe penalties for misuse o f funds; and (iii)rewards for well performing BKMs and KSMs; establishment o f accountability matrix for all operations, and launch of a publicly accessible website based information gathered from the Management Information System (MIS). 10. Component 4: Contingency for Disaster Risk Response ($0). Due to the high risk of catastrophic events in Indonesia, a provisional zero dollar component will be added under this project that will allow for rapid reallocation o f the loan during an emergency, under streamlined procurement and disbursement procedures. In the event o f an emergency, the contingent component would be implemented following the rapid response procedures governed by OP/BP 8.00. Once triggered, OPBP 8.00 facilitates rapid utilization o f loan proceeds by minimizing the number of processing steps and modifying fiduciary and safeguard requirements so as to support rapid implementation. Disbursements are expected to be made 58  against a positive list of goods, works, and consultant services. The final arrangements will be part o f the written agreement between GO1 and the Bank that i s a condition for disbursement o f this loan component. In addition to reallocation o f funds from other components in this project, the contingent component may also serve as a conduit for additional financing from IBRD in the event of an emergency. I n addition, other sources of funding are expected to be mobilized in coordination with PNPM Urban I11loan. On December 30,2009, an MOU was signed between GOI, the UN, and the World Bank on setting up the Indonesian Multi Donor Fund Facility for Disaster Recovery for financing disaster reconstruction for the Western Sumatra earthquake o f 2009 as well as all future disasters in Indonesia for which the Government requests international assistance. Projects funded under the Facility would be aligned to the Damage and Loss Assessment (DALA) and post-disaster recovery action plans. The World Bank window under this Facility may be linked to the multi-donor Callable Fund under GFDRR's Track 3, with management decisions delegated to the Steering Committee of the Facility, chaired by Bappenas and BNPB. Funds received through the Callable Fund would then be steered to activities that are developed in coordination with the use of Component 4 under PNPM-Urban 1. 1 1 The loan financing i s not conditional on the grant financing. 11. Other Supplemental Poverty Alleviation Programs (on-going;). In addition to the core PNPM- Urban- projects, the overall PNPM program of the Government include various supplemental programs in urban areas that evolved based on the platform o f the UPP process with the intention of furthering the impact o f poverty alleviation intervention efforts under the PNPM Framework. These supplemental programs, but are not included in the project, include the following : (a) PAPG. The Poverty Alleviation Partnership Grant fund (PAPG) encourages partnerships between local governments and communities and attempt to institutionalize a consultative process between the two for future activities undertaken by local governments using their own funds. I t finances poverty alleviation activities that are too big to be financed by the kelurahan grants, or that require local government involvement (e.g. networked infrastructure); and that cover more than one kelurahan. About 100 Local Governments have been selected to participate in the PAPG. Selected cities will be eligible to receive amounts ranging from a total o f US$450,000 to 750,000 over three years. PAPG implementation begins on third year in order to give cities a chance to familiarize themselves with the BKMs and to develop the W A S (Regional Poverty Alleviation Strategy). Financing of PAPG comes from UPP2, UPP3, Local Government, and community contribution. (b) NUS: Neighborhood Upgrading Schemes (NUS) were initiated on a pilot basis in UPP3 and in the Java ReconstructionFund housing project to improve the living conditions in the U poorest communities. N S starts with the preparation a detailed Community Settlement Plan (CSP) and i s followed by implementation of priority investments (which requires funding from the city government). The program initially started with 18 pilots, and the Government i s now keen on expanding the NUS to 200 additional kelurahans that demonstrate good performance under the PNPM Program. Financing for the additional NUS projects i s expected to come from savings from various on-going UPP/PNPM-Urban programs. Neighborhood Upgrading Schemes (NUS) were initiated on a pilot basis in UPP3, Aceh housing project, and in the Java Reconstruction Fund community based settlement housing project to improve the living conditions in the poorest communities U within the framework of the Community Development Plans. N S differs from traditional 59  community investments (that are more dispersed) in its focus on a geographic area o f the ward, in which a combination of improvements are undertaken - similar to block redevelopment. NUS starts with the preparation a detailed Community Settlement Plan (CSP) and i s followed by implementation of priority investments (which requires funding from the city government) to upgrade the living conditions of the area. The program initially started with 18 pilots, and the Government i s now keen on expanding the N S to U 200 additional kelurahans that demonstrate good performance under the PNPM Program. Financing for the additional NUS projects i s expected to come from savings from various on-going PNPM programs (including the on-going World Bank financed PNPM-Urban project), ADB projects and government financing. (c) Housing Projects: For areas affected by natural disaster, supplemental settlement recovery program has been added, although i s based on UPP design, has specific purpose and objective. So far the program has operated in Aceh, Yogiakarta, and now West Sumatra. I n most cases the supports are aimed at the poorest victims. 60  Annex 4A: Phasing Out the Revolving Loan Funds INDONESIA: Third National Program for Community Empowerment in Urban Areas (PNPM-Urban 111) It i s estimated that 40 million people in Indonesiahave no access to reliable credit. Commercial banks do not serve the poor and are hesitant to lend to microfinance institutions (MFIs). While there are more than 20,000 MFIs in existence, the majority are not poverty-focused and are savings-based; there are also large gaps in geographic coverage of the MFIs. The revolving loan funds (RLFs) were designed in UPPPNPM-Urban Ito provide access to credit to the poor that may not otherwise have access to formal sources of finance. The loans were intended to help grow mico-businesses and increase long-termwelfare o f recipients. As o f June 2008, IDR 650 billion was disbursed for microcredit to over 250,000 KSMs. The evaluation of the RLFs, as documented in the DSF-supported draft report from the Micro Credit Strategy Formulation Mission (March 2008), shows that the funds exhibited good performance in poverty targeting, willingness o f beneficiaries to provide start-up capital, continued demand from beneficiaries due to limited borrowing alternatives, reports from beneficiaries of positive impacts on enterprise growth, and a sense of community empowerment. A total of 98.2% of UPP beneficiaries reported use o f their loans to finance their micro-businesses. Around 79% o f UPK beneficiaries said that their household income increased based on program participation; based on the study survey, the increase in income has been confirmed as a consequence of higher production scale by 67% o f UPP beneficiaries. The program allowed beneficiaries ease o f access through affordable interest rates and no collateral requirements. The study found that the majority o f the beneficiaries did not have prior access to formal financial institutions, with only 3.5% of UPP respondents previously receiving a loan from other formal financial institutions. About 30% of respondents had previously accessed informal loans outside UPP, mostly from relatives and neighbors. This i s also consistent with the recently released draft report on the quantitative impact evaluation o f UPP2 (from 2004-2007), which finds that UPP2-financed loans often replaced credit from other sources which were mostly informal, the use of formal credit from banks decreased slightly, and there was an overall decrease in the interest rates paid. In the early stages of UPP, there were problems in design and implementation, leading subsequent projects to cut back on new infusions o f funds for micro-credit. The RLFs were not set up as free-standing micro-credit programs, and mixing the features o f participation, granting, and targeting the poor, were deemed inconsistent with the running o f a proper micro- credit component. Because the same entity providing grants for infrastructure and social activities was also providing loans, the concept o f "repayment" was not very well defined. This resulted in high allocation o f kelurahan grants toward the RLFs - 92% in UPP1. Over time, with improvements to the design of the program, repayment rates have improved and the allocation to RLFs has steadily decreased, with less than 2% of kelurahan grants in 2009 going toward this activity. Table 1 below shows the transition o f kelurahan grants, from primarily supporting FUFs under UPP1 to primarily supporting infrastructure investments today. 61  Table 4.1: Changes to Allocation of Kelurahan Grants I 1999-2004 UPPI UPP2 I 8% (Roads & bridges 64%; Drainage 21.6%; Public toilet 10.2%: Sanitation 9.1%) 38.7% 0.0% 92% (Roads 42.2%; Drainage 15.9%; Clean water units 24.7% 36.6% 2002-2008 11%; Public toilets 11.6%, etc) 48.7% UPP3 (Roads 44.6%; Drainage 20.4%; Clean water units 24.7% 26.6% 2005-201 1 10.7%; Public toilets 7.8%, etc) 77.6% UPP2 AF 1 I (Roads 47.2%; Drainage 17.9% House rehabilitation 10.7% 11.7% 2007-2008 12.3%; Public toilets 9.5%, etc) 88.5% PNPM-Urban I (Roads 59.3%; Drainage 15.9%; 9.6% 2% 2008-20 12*) public toilets 10.3%, etc) * Data o f November 2009, ongoing progress. 15. Several measures are being taken to improve the performance o f the RLFs. Under PNPM Urban 1 an in-depth review was carried out for RLF in UPP and a new strategy was adopted (detail strategy i s provided in Annex 19 o f PAD PNPM Urban 1). As o f 2007, the allocation toward the RLF can only be up to 30% o f kelurahan grants for new RLFs, and only 20% for existing RLF with repayment rates exceeding 90%. 100% of beneficiaries now have to be poor households, as identified by the poverty mapping exercise. Rather than increasing proliferation o f RLFs to new kelurahans, the focus i s now on increasing the institutional sustainability of existing RLFs. Monthly reporting on RLF activity through the online MIS allows for identification o f problems early on. Economic facilitators have been trained and RLF guidelines have been improved. PNPM-Urban I11 will ensure that the existing RLFs develop into strong operationally independent RLFs and that the RLF beneficiaries can graduate into using the formal credit market. To this end, the PNPM intends to take steps to increase repayment and, where necessary, to shut down non-performing RLFs. The proposed project will continue with the strategy laid out in PNPM-UrbanI improve RLF performance. to 62 Table 4.2: Status of RLF Improvement Strategy under PNPM-Urban recommendationsfrom completedieviews 2 Creation of new RLFs under UPP3 & PNPM-Urban) until Completed new policies are in place 3 Development o f a streamlined grading system to identify Completed 63  Annex 4B: Evolution of Program Based on Learning INDONESIA: Third National Program for Community Empowerment in Urban Areas (PNPM-Urban 111) 16. Evolution based on learning. Lessons learned from the ongoing UPP and PNPM-Urban program have been incorporated into current project design. Bypassing local governments does little to foster a productive or sustainable relationship with communities. To ensure participation and ownership, local government funding i s required. Coordinating committees for the PNPM will be established at the local level, responsible for oversight o f program implementation. Under PNPM-Urban I11 these committees will help avoid duplication o f service delivery and ensure linkages of small-scale community works to existing municipal services, such as primary road and water supply networks. In addition, the local governments will be involved in the process o f payment and monitoring. They will actively participate by providing counterpart funds. 17. Active involvement from the local government is necessary to ensure greater impact. To ensure sustainable development impact at the community level, greater coordination with broader local government development objectives and plans i s needed. All future financing consideration for community sub-projects will depend on whether they are aligned with broader City Planning objectives and investments. To ensure greater participation and ownership, local government funding and active involvement is required. Currently most local governments have limited knowledge to fully understand the importance o f activities implemented under the PNPM and UPP projects; hence budget allocations towards supporting PNPM programs have not been forthcoming. Added to this i s their limited capacity to undertake additional responsibilitiesto sustainably supervise and contribute to PNPM efforts at the community level. A broader communications strategy and training program targeting local governments will be included in the project. 18. Accountability and Transparency o BKMS is very important. Another important lesson i s the f building of trust and accountability between the community members and Community Board of Trustees, or BKMs. A longer awareness raising process and structured involvement of communities ensures both the communities and the BKMs are aware of their rights and responsibilities. And, project monitoring has been separated from the project evaluation function to maintain independence and objectivity of the consultants. A new performance indicators has been established for B K M in 2007 and it has been used as basis for allocation of and utilization o f funds. The performance of B K M are measured on monthly basis and made available to public through websites. 19. Infrastructure services have the biggest payof$ BKMs find that prioritizing PNPM grants on fewer activities, particularly infrastructure, rather than on all needs listed by the community in the Community Development Plan i s having a better impact on poverty alleviation. Going forward it i s necessary that the project focus on a shorter menu o f possible community investments rather that continuing with the Open Menu system. The Short Menu o f interventions should be determined based on broader city investment. plans and a pre- determined l i s t of results indicators aimed to be achieved under the project. selection and funding of a l l community investments will be use the Short menu as a guideline. 64 20. Few BKMs are already coordinating other sectoral poverty programs. Some BKMs currently coordinate poverty alleviation programs from other agencies and advocate for instituting this role in all BKMs on a broader basis. For such a model to work, the support o f the Mayor i s essential to provide additional funding over and above the PNPM grants and to provide legitimacy to the PNPM and community poverty alleviation program as a whole. Lessons from successful BKMs and local governments will be incorporated in the design of the project and shared with other local governments in the country under the PNPM-Urban 2 1, Linking RLF to market based training is necessary. Moving forward BKMs plan to carry out market studies and link vocational training and RLF allocations to market demand under the project, Requiring efforts to collect delinquent loans and making a l l future grant payments contingent upon adequate collection; shutting down poor performing RLFs; reorientingthe role of the NMC toward capacity building; and, building sustainable oversight and monitoring functions at the community level. A new initiative under PSF for developing a sustainable support for the I U F under UPP and KDP has just been approved. This will help the government to devise and implement strategy linking the RLF to the market. 22. Experienced facilitators lead to better impact. The best facilitators tend to produce better results. Rotation of facilitators ensures that knowhow i s disseminated. In addition, strengthening the facilitator training program i s important. Also, a large number o f consultant contracts results in weaker performance o f consultants and increases the risk of procuring unqualified firms. It also overloads project management. To address this issue, the number o f consultant contract packages has been significantly reduced since PNPM-Urban Iand will be maintained under the proposed project. 23. Effective mechanism for .emergency response. Although not designed as an emergency response project, KDP and UPP have proven themselves able to respond to crises rapidly and efficiently, This i s due to their wide geographical coverage and extensive management infrastructure consisting o f local government officials, consultants, and facilitators. This project includes provisions to (a) raise awareness of existing hazard risks; and (b) engage communities in ex ante risk reduction and preparedness activities. 24. Figures 4.1 and 4.2 below indicate the evolutionary the process o f the UPP Program design based on lessons captured and recommendations from various studies carried out at regular intervals since the program started. 65 i U s 3 c oi s E 8 P c 0 M , U e - c I  Annex 5: Project Costs INDONESIA: Third National Program for Community Empowerment in Urban Areas (PNPM-Urban 111) Evaluation Consultant 0.60 0.28 0.40 0.00 0.00 0.00 0.00 0.00 0.00 0.60 0.28 Overhead o f central, 0.00 0.00 0.00 7.90 3.63 0.00 0.00 0.00 0.00 7.90 3.63 provincial, and local Gov't TOTAL 149.98 68.99 100.00 36.90 16.97 25.50 11.73 5.00 2.30 217.38 100.00 68  Annex 6: ImplementationArrangements INDONESIA: Third National Program for Community Empowerment in Urban Areas (PNPM-Urban 111) 1. Government counterparts. The Ministry o f Public Works will be the executing agency for this project. As previously indicated, GO1 has appointed the Coordinating Ministry for Social Welfare (Menko Kesra) to chair a ministerial level working group on the development and oversight o f the program (Tim Pengendali PNPM Mandiri). I t includes the Ministers for Bappenas, Finance, Home Affairs, Public Works, and Social Development. 2. A. PMU. A Project Management Unit (PMU) already exists at the central level that i s currently managing active UPP operations. The same P M U will manage this project, including project monitoring and reporting. In consolidating its vision o f the PNPM as a national program, the administrative status o f the P M U has been raised to report directly to the Director General o f Human Settlements, and arrangements have been made to allow decentralization o f routine works to the provincial level. 3, Management o Consultants. The management o f UPP-PNPM-Urban has been streamlined. f The key change i s the integration o f all UPP National Management Consultants (NMCs) into one N M C under the PMU. Similar streamlining for the Oversight Consultants (OCs) was done reducing the total number o f packages to 9 from 33.There are 33 provincial satkers in charge o f overseeing project implementation as well as management o f about 4,000 kelurahan facilitators. This approach was found to be more decentralized than in the past and will give greater project oversight and management responsibility to the provincial and local governments. Details o f the scheme for consultant teams are provided in Annex 6. 4. Regional Level Consultant Composition. In some cases, several provincial teams can be managed by one OC. Each OC will assign a Provincial Team Leader and each city will have a City Coordinator, supported by assistants that will ensure all fiduciary responsibilities are properly managed. There will be financial, infrastructure, community development and management data assistants. At the kelurahan level, a team o f kelurahan facilitators will facilitate communities directly. In addition, a training and socialization specialist will be merged into one capacity building team at the provincial level. 5. Facilitator composition. Based on field assessments and past experience, modifications are required to expand the coverage and scope o f work o f facilitators. For areas where BKMs have already been formed, there i s less need for intensive facilitation. Thus, the facilitator to kelurahan ratio for facilitators handling existing kelurahans, or a mix o f new and existing kelurahans, the ratio will be 5:9. This ratio will also apply for kecamatans new to PNPM- Urban, but that are reasonably close to already active kelurahans. Geography permitting, new kelurahans will be handled by existing facilitator teams in nearby kecamatans. The facilitator to kelurahan ratio in new kelurahans will remain 5:7. 69  Table 6.1: Project Management Structure PMU Program Dev;t and RBD +I Nat Cons Evaluation + Program Manager I I 1 NMC I b I oc I TL v City Coordinator - L 7 ss cc financial RLF Ass CC Infrastructure Ass CC Man Data Ass CC Social I I lth I I Facilitator Team I Economic Social Facilitator Faulitator I 70  Table 6.2: Organizational Structure Ministry of Pubiic Works OG Human Settlements t National National - Steering Provincial Coordinatingand Sleering Team 71  Annex 7: Financial Management and Disbursement Arrangements INDONESIA: Third National Program for Community Empowerment in Urban Areas (PNPM-Urban 111) Executive Summary and Conclusion 1. The Government o f Indonesia (GOI) has submitted a request for project financing to continue the national program for poverty reduction (PNPM), which covers both rural and urban areas o f Indonesia. PNPM has been built by scaling up two World Bank-financed community driven development projects, the Urban Poverty Project (UPP) and the Kecamatan Development Project (KDP). The government has requested financing of USD 149.98 million to fund the urban program for FY 2010. Number o f participated kelurahan (ward) i s similar to the existing program. There are no structural changes to the core design o f the existing project. 2. This report documents an updated assessment and validation of the existing PNPM. The purpose o f this assessment and validation i s to determine whether the financial management system of the implementing agency, DG Cipta Karya, MPW, has the capacity to produce timely, relevant and reliable financial information to cover the continuation and the national programs with respect to PNPM; and if the financial management arrangement for the project expenditures and underlying internal controls are adequate to meet fiduciary objectives, to satisfy the Bank's OP/BP 10.02 with regards to the existing and proposed PNPM and allow the Bank to monitor compliance with agreed implementation procedures and appraise progress towards its objectives. 3. The project has several significant risks. First, there i s a risk posed by the use o f community block grants, particularly with respect to how effectively beneficiaries and community groups (LWUPK) use and account for the funds. The second risk i s the uneven capacity o f the field consultant to assist the community groups (LKMAJPK) on the financial management aspects. The third risk i s the weak financial management capacity of PMU/PIUs, especially to supervise and monitor the sub-project activities. 4. Balanced against the potential risks i s PNPM's successful record of mitigating these risks through internal controls and an oversight system. Over the past year, PNPM has also taken several steps to strengthen its financial controls, including facilitators' counter signature, transparency and complain handling mechanism. The external audit has expanded the audit scope and i s being audited using a more risk-based approach, i.e. focused on high risk areas identified in internal as well as external reports and yet visited areas. I n addition, the project auditor has agreed to increase the audit sample size and, following a successful trial in five provinces, to involve the local auditor (local inspector) on future PNPM audit assignments. A plan for the strengthening and involving the local auditor i s being developed. Additional FM consultants have been recruited at the central as well as local levels. Project Description 5. Refer to Project Description in PAD. 72 Country Issues 6. Based on Country Financial Management Assessment (CFAA), Public Expenditures and Financial Accountability (PEFA) and other assessments/reports, there are major deficiencies in the Public Financial Management (PFM) area that are acknowledged by the government. These are: Inefficient budget formulation process; Unreliable accounting and reporting systems; Lack of capacity in audit institutions, especially in local government auditor; Lack of incentive and sanctions in the civil services. 7. Recent PFM reforms in Indonesia have been part o f a broader reform agenda o f macroeconomic stability set out in the Government White Paper o f 2003. The Government's target i s to have a sound PFM system in place by 2012. The Indonesia PFM reform agenda i s led by the Government, with technical support being provided by many development partners, including the World Bank. Major progress in laying the foundations for PFM reform has been achieved to date, including a new State Finances Law, Treasury Law and Audit Law. The government continues to prioritize several PFM areas of improvement, including budget and treasury management, monitoring and evaluation of public expenditures, public procurement system and government accounting and public function. As of to date, inefficiency budget formulation i s still remain and has an impact to government program, including delay o f the project implementation. Strengths and Weaknesses 8. The existing project has strengths and weakness in several areas. The project design has strengths that derive from using a CDD mechanism to work with communities, which are as follows: Community Groups receive the funds directly in their bank account from MOF's Treasury Office (KPPN), based on joint approval by community representatives and certification by a registered government officer; 0 The community has strong ownership, which creates incentives for community control over funds. An external monitoring and evaluation unit i s established through the PMU. 0 An internal financial management team provides hands-on training and oversight to provincial groups. Adoption o f proven CDD management tools and systems has been used successfully under the existing program, such as the flow of funds mechanism, independent reporting and monitoring. 9. Based on supervision missions and review of audit reports from the existing projects, we note the following weaknesses in a number o f locations: The capacity o f community groups to manage and implement the grant i s weak. The capacity o f local governments to supervise and monitor project implementation i s not strong. 0 The capacity o f facilitators to provide financial management assistance i s uneven and weak. 0 Implementations o f internal controls in the PMU and community groups are inadequate, especially on payment verification. 73  0 Complaint tracking and reporting i s not web-based and cannot provide up-to-date information on the progress of case resolution. Audit reports are not accessible by the public so that public scrutiny i s not optimum. 10. The project's weaknesses create a number o f risks for project implementation. The following measures have been taken to mitigate these risks: 0 At least one senior Financial Management Consultant (FMC) has been or i s in the process of being recruited in each region. One region can cover a few provinces. In addition at least one Financial Management Consultant (Askot) has been or i s in the process o f being recruited in each district to supervise fiduciary controls, book-keeping, financial accounts, revolving funds and to train facilitator economic (Fasek) and community group (LKM and UPK). 0 At least one dedicated monitoring consultant that includes complaints handling task, has been or i s in the process of being recruited in each province, working closely with the regional FMC and following up on audit findings; report on actions taken and results achieved. 0 Revolving Funds are being accounted for separately to other investment funds since FY 2008. District FMC and facilitator economic (Fasek) have minimal levels o f field supervision to 50% and 100% respectively. 0 Consultant TORShave included supervision o f community financial books. 0 Substantially strengthening training programs to improve FM supervision by local governments, kelurahan facilitators (Faskel). Continued strengthening of financial management teams and financial controls at the central and local. Formal criteria to assess consultant FM oversight as a mandatory part o f their quarterly Performance Evaluations. 0 Increasing transparency and accountability through mandating updated village information boards. It i s measured as a performance indicator for village facilitators. 0 An independent study into the effectiveness o f the UPK Supervisory Board - Badan Pengawas (BP-UPK), with a view to identify opportunities to strengthen the structure and capacity o f these boards. Discussions are currently being held with development partners to seek funding for this activity. Ongoing discussions are taking place to formalize the involvement o f local government auditors (local inspector) in external audits, including training these local government auditors and include them in the audit assignments. The local auditor involvement will help expand the project audit coverage; and 0 The existing text message and web-based complaints handling system will remain, and audit findings will continue to be published online for public review. Risk Assessment Summary 11. A detailed analysis of financial management risks arising from the country situation, the existing project entities, additional project features and related internal controls has been completed during this additional assessment. The analysis i s summarized below. These risks have been rated on a scale o f High, Substantial, Moderate to Low. The overall F M risk i s assessed as substantial before mitigation and moderate after mitigation provided that all mitigating measures are effectively implemented and the project i s effectively supervised 74  Condition of Summary Comments Negotiatiodof issues And Risk Mitigation Effectiveness (YM?) A . Inherent Risks Country Level 1. Government Financial H Government recognizes existing weaknesses in S N Reporting PFM, but making progress has been challenging. The Bank assists the government through several nroiectq Entity Level 1. Implementing M DG Cipta Karya comes under Ministry o f Public M Entityiorganization Works. DG CK has long experience managing Status o entity f all PNPM-Urban programs. Technical assistances are provided to DG CK managing the nrniect Project Level 1. Project Complexity S Project scope i s nationwide and decentralized, M with large number of small transactions involved. Specific CDD mechanisms are in place, inc. community planning, execution, accountability mechanisms 2. F M capacity o f S The project provides technical assistance to M N governments, project PMUiPIUs and community groups and improves consultants and recruitment performance to minimize empty I.Budget S Budget preparation i s well defined, but there are S N Delay in issuing budget frequent delays in execution. Other decrees on documents budget execution should be issued right after budget documents issued. Financing Block grants through Reimbursements method should improve disbursements performance in 20 10. The GO1 will finance the block grant component through pre-financing without waiting loan signing. 2. Accounting S Government accounting standards are followed. M N Reliability o accounting f However, there will be separate reporting system procedures for project purposes. The risk i s substantial due to inadequate capacity, especially on community level. The project provides technical assistance to UPK. 3 , Internal Control S Weak payment verification. Internal controls are M N Inadequate paymenl documented in the project operation manual but verification level o f compliance i s uneven. Field consultants will be better trained and local auditors will review and verify the LKM reports. 4. Flow of Funds M Community receives the block grant directly in M N Communities do not their account in commercial bank. receive the grants in a timely manner 5. Financial Reporting S PMU prepares a separate financial monitoring M N Reliability and timeliness report in which it will be assisted by financial ofjnancial reports consultant. In the community level, LKMs prepare simple financial reports, assisted by 75  1 Audits are now risk-based and focused on M Integrity o auditor and f systemic issues. Audit manual has been revised poor follow-up on audit and training provided to BPKP. The Bank has jndings requested BPKP to further increase number o f audit samples in 2010. The project will train local auditors (local inspector) and will involve Institutional Arrangements 12. A central project management unit (PMU) i s continued through the Ministry o f Public Works (MPW), Director General o f Cipta Karya (DG `CK), which manages a l l PNPM-Urban activities. At each administrative level o f the project, DG C K works with the local government to form a coordination working group (Tim Kordinasi Pengelolaan Program) whose functions are to provide information to villagers about planned development programs, t o provide technical support as requested and/or required by project technical criteria, and to solve administrative bottlenecks and problems. 13. Within villages, communities carry out planning through locally elected community trusty board (LKM). Every village board forms a small team for project administration and sub- project implementation team. A financial management unit i s established for accounting and record keeping. The sub-project implementation team (KSM) is set up in sub-village (RW). The block grant includes funds to finance overhead costs, such as transportation, stationary expenses. The project uses a variety o f specialized consultants t o develop local capacities through training in project management, legal aid, dispute resolution, and grassroots advocacy on behalf o f villages. Facilitators also assist the community groups to prepare the financial reports on sub-grant implementation. The facilitator should control and monitor any risk o f overlap between different projects operating in the same village. Accounting and Reporting 14. Similar to the existing program, all financial transactions are recorded in the government accounting system and included in government accountability reports. The PMU prepares a separate set o f project financial reports that are suitable for project monitoring purposes. The specific accounting procedures are set out in the Project Operation Manual. The PMU and Local Project Unit (PIU) at the kabupaten level will maintain separate accounting records for all payment requests (SPM) and remittance orders (SP2D), on a cash basis. LKMs are also required to prepare simple accounting and financial reports for the block grants they received. In order to minimize the accounting risk, facilitators assist the LKMs in administering the whole block grants and assist UPK for revolving fund administration. Each UPK prepares a separate balance sheet and income statement for revolving funds. 76 15. The PMU i s responsible for preparing aggregate Interim Financial Reports (IFR) and submit these to the Bank on a quarterly basis in formats to be agreed with the bank. These reports cover a l l consultant contracts and block grant payments to the LKMs. A Special Purpose Financial Statement for this project i s prepared annually for audit. Staffing 16. Since the PMU has adequate experience from previous and existing program, it also has recently recruited additional financial management (FM) staff, specifically one specialist in each district. The project provides technical assistance to local PIUs and community groups during the course of project implementation. Internal Control 17. The majority o f the project activities are conducted by communities in the villages (kelurahan) where the communities themselves monitor and verify project progress. In addition, field consultants (facilitators) countersign LKM reports. LKM will not be able to withdraw funds without a countersignature from the facilitator. These procedures have been working in the existing program. In order to obtain the approval o f the facilitator, the sub-village implementation team (KSM) has to produce an acceptable funds utilization plan or utilization report and bank account balance (for the second and remaining payment). The frequency o f withdrawals will depend in part on physical proximity to the bank from the village, but in principle the amount o f cash kept in the village should be as small as possible. 18. The KSMs submit their project report to the LKM. These reports are made public at annual community meeting and public arena. Internal controls at the village level are as set out in the project operational manual, includes sub-project implementation reports, FK signatures, and public information. These control mechanisms are expected to create community controls over project implementation. Overall, internal controls satisfy minimum standard requirements. Although there may be some questions about the effectiveness o f government internal controls, the likely impacts of any weaknesses are limited as the government i s only be responsible for very narrowly defined administrative activities. This i s because all of the sub-grants are directly transferred from the treasury office (KPPN) directly to community group accounts. 19. Routine internal controls at the local and national levels involve verification and reconciliation. There are three reconciliations. The first reconciliation i s carried out in the PIU and Treasury Office. This reconciliation i s based on remittance orders (SP2D) issued by the Treasury Office. The second reconciliation i s carried out at the LKM level, which reconcile the LKM books and its bank statement. The third reconciliation for the Technical Assistance and Training components take place at the PMU level and reconcile all SP2D and SA statements. The facilitators assist the PPIU and LKM to conduct reconciliations at the local level, while the central management consultants assist the PMU with D A reconciliation at the central. Complaints Handling 20. PMU maintains the project web and continues to improve complaints handling, with both text messaging (SMS) and a web-based system in place. The website has proved to increase transparency into progress in following up complaints and cases and follow up to audit findings. With devolution o f responsibility for dealing with complaints and cases from central 77  to local governments, clarification i s needed as to the process, roles and responsibilities in the complaints escalation process. Audit Arrangements 21. The last PNPM-Urban audit reports have been submitted in a timely manner by the external auditors (by 30 June 2009) with unqualified (clean) opinions, including UPP 2 and 3 audit reports. The PMU i s responsible for preparing general purpose financial statements in accordance with IPSASs. The audits o f these statements are carried out by government auditors (BPKP) 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 auditors take into account specific audit methodologies that are needed to audit widely dispersed community-based activities, as has been established under other on-going PNPM programs around the country. 22. The audit assignment i s in accordance with the agreed Terms of Reference (TOR). Under the PNPM, the auditors go beyond merely providing and opinion on the accounts and include opinions on internal control framework and compliance with the project operational manual. The BPKP audit manual for CDD has been upgraded to be more risk-based and focused on internal controls. In addition the auditors have and will continue to assess and report on the achievement o f the performance indicators that relate to the areas o f governance and financial management. 23. The audits have also included an assessment o f the reliability of project financial statements, and the verification of accounting information at community level on the sample basis. The annual audited financial statement has included a review and reconciliation o f Special Account transactions and quarterly interim financial reports. The PMU has included the audit reports accessible to the public, particularly through the project website. 24. The audit sampling coverage has been determined based on kecamatan number. A pilot project involving local government auditors (local inspector) has been completed in 5 provinces. Based on the success o f this BPKP plans to train local government auditors (local inspector) in all provinces through this program. It has been proposed that local auditors will be included and serve as partner in the auditing o f the UPKs. These discussions are in progress, with the National Secretariat for Poverty Reduction (The Coordinating Ministry for Social Affairs - MenKoKesra) taking the lead. It i s intended that the participation o f local auditor in the audit process will help expand project audit coverage from 16% to 20% in 201 1. 25. Another key expected outcome will be improved local governance resulting from increased capacity o f local government auditors. Since the majority o f project activities will be conducted by communities in the villages, the communities themselves will also play a role in monitoring and verifying project progress. The process of Audit Exit meetings at the kelurahan level has been introduced and will be expanded further in 2010.The role of internal auditor o f the executing agency is limited; the internal auditor (IG) will be involved in organizing and coordinating local auditor assignments. 78 DisbursementArrangements 26. The applicable disbursement method i s "Reimbursement" for the block grants, and "Advance", "Reimbursement" or "Direct Payment" for other expenditures. Payments for block grants will be paid from GO1 sources and to be reimbursed by the Bank to MOF treasury S account. For other components, a Designated Account (DA) denominated in U dollars will be opened by DG Treasury (MOF) in Bank Indonesia (central bank) or a commercial bank acceptable to the Bank. The DA will be solely used to finance eligible expenditures other than for block grants. The ceiling o f the advance to DA will be variable, and the advance(s) will be made on the basis of the six month projected expenditures. The reporting o f use of the DA funds and expenditures for block grants would be based on the quarterly IFR (Interim Financial Report). Applications for reimbursement of block grants and the advance to the DA shall be submitted together with the reporting on use of DA funds which will consist of: (a) Interim Financial Reports, and l i s t payments for contracts under the Bank's prior-review, covering both block grants and others; (b) projected expenditures for consultants and technical assistances for six months; and (c) the D A reconciliation statement. 27. DG Treasury authorizes its relevant Treasury Offices (KPPNs) located near the implementation units to authorize payments o f eligible project expenditures by issuance of SP2D (remittance order) charging the GO1 account or the DA as appropriate. 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 loan agreements. When expenditures are due for payment, PIUs prepare SPP (payment request) to the payment officer within the Sutker. After documents verification, the payment officer issues SPM (payment order) together with the supporting documentation for submission to the relevant KPPN. The KPPN checks the budget eligibility and issue the SP2D to the KPPN's operational bank which transfers the funds directly to the payee's account and arrange for debit for the loan portion to the DA. The flow o f funds and reporting mechanism are as shown in diagram 1. 28. Although the DA i s in the name of DG Treasury MOF, the PMU at DG CK level i s responsible for reconciling the D A and preparing separate applications for the withdrawal o f reimbursements and advances, duly approved by DG Treasury, before their submission to the Bank. Copies of D A bank statements will be provided to the PMU by DG Treasury, MOF. 29. Under PNPM-Urban, the National DIPA budget documents are as follows: (i) Budget DIPA at district level to be executed by the district Sutker (work unit responsible for project execution), covering Block Grants, Planning and Training Grants; (ii) Budget DIPA at province level to be executed by the provincial Sutker, covering district consultants' and facilitators' salaries and allowances; and (iii)Budget DIPA at central level to be executed by Central Sutker, covering NMC, provincial consultants and other consultant services at central level. In addition, each local government (LG) will also provide fund contributions to the block grant from their APBD (local budget). The Provincial Sutker will execute payments, administer and report on project activities in the respective province and districts. These provincial reports are submitted to the PMU and used as the basis for preparing the consolidated IFR (interim financial report) for the project. The submission of IFRs under PNPM has been satisfactory. The same PMU currently working for PNPM at the DG CK, MPW will be responsible for consolidating and preparing the IFR for this project. 79 Flow of Funds to Community Groups 30. After a LKM i s formed and opens a bank account, it signs a standard form grant agreement with the district's project manager (PIU), which i s then certified by the district consultant and facilitator, and approved by the district project manager (PPK). 31. Facilitators are required to fill out standard form payment request to be signed o f f by the districts PIU, certified by the district consultant and submitted to the district PPK. The PPK assembles request from the various LKMs for which he/she i s responsible and then issues a payment order (SPM) to the Treasury Office (KPPN), attaching a l i s t o f LKM payee. The K P P N then issues remittance orders (SP2D) t o the operational bank or Bank Indonesia branch office, which arranges for a remittance o f funds from the DA to the respective LKM's accounts. The district Satker conducts monitoring to ensure that the funds are remitted to the LKMs in a timely fashion. 32. The release o f funds to the LKM i s carried out in three tranches (30%, 50% and 20%). The f i r s t payment i s made upon signing o f the block grant agreement, and the subsequent payments made based upon satisfactory progress reports, as certified by the facilitator. 33. The block grants comprise two sources o f financing: (a) funds DIPA budget o f central government made available from loan or from GO1 o w n source; and (b) funds from the local government contribution, being at 20% or 40% o f the block grant, depending o n their poverty level. The standard mechanism for releasing block grants i s stipulated in the Project Manual, sub grant agreements, and the DG Treasury's circular providing guidelines for payments. Payment of Facilitator and Individual Consultant Salaries 34. The management o f facilitators and district consultants i s handled by the provincial Sutkers, following the standards set by the PMU. Their performances are monitored and evaluated by the regional/district consultant who then reports to the national Satker. At the beginning o f each month, the regional/district Satker calculates the salaries, allowances and fixed operational costs to be paid to each facilitator and district consultant, and will issue payment orders (SPM) attaching a list o f the payees for submission to the K P P N office. The K P P N then issue remittance orders (SP2D) to i t s operational bank or Bank ,Indonesia branch office, which will arrange for remittance o f the funds from the DA t o the respective consultants' accounts. The provincial Satker conduct monitoring to ensure that the funds are remitted to the consultants' accounts on a timely basis. 35. The allocation o f loan proceeds, and the percentage o f expenditures financed are shown in the table below. 80  Table 7.1: Allocation o f the Loan Proceeds I Amount o f the Loan Allocated I % of Category (Expressed in USD Million) Expenditures to be Financed (1) Block Grants 115.76 100 (reimbursement) (2) Technical Assistance 34.22 100 (3) Kelurahan Grants; goods, 0 consultants' services, training and workshops and incremental operating costs under Part 4 o f the Project TOTAL 149.98 Diagram 1 Flow of Fund & Reporting Mechanism IFR & W/A > DGTreasury MOF 1' 5)DM 3)SPZD 1 Operational Bank Transfer Consultants > LKMs Operations Manual 36. The PMU has issued operations manual for the existing project which includes financial management and administration procedures. The manual been agreed with the Bank. Based on a review conducted by the Bank, the manual was revised to take into account further improvements in project procedures and implementation. 81 Supervision Plan 37. Risk-based supervision o f project financial management i s being conducted. These missions involves a review whether the project financial management system work effectively. The review includes sub-grant expenditures, accounting, and reporting and internal control framework. These reviews take into account projects' management report, supervision mission and audit reports. The project monitoring system i s continued to be strengthened that could be reliance for supervision purposes. Financial management supervisions are conducted by financial management specialists and Bank consultants. The Bank's sector set up financial management team to work together with the project FMS on supervising the project implementation. Table 7.2: Action Plan Status of December 15,2009 - 1 - 2 or economic (Fasek) in each cluster (one cluster - 3 4 - 5 - 6 7 - in revised consultant TORS 8 9 Supervisory Board - Badan Pengawas I Independent study. - UPK (BPUPK). 10 - Training for LKM/UPK and BP-UPK I Training for LKM/UPK has done in 72% location: I trainingfor BP-UPK in 82% location 11 Village Information Boards. 1 Information board is one o f indicator that Facilitator - should look into 12 BPKP will work together with local Discussions are underway to involve local auditor in all auditors (local inspector) provinces in 2010. Sample size for PNPM F Y 2010 = 16% and will increase in FY 201 1 when local auditor - involved in audit assignment 13 Web-based complaints information System in place and include sms and audit information - 82  Annex 8: Procurement Arrangements INDONESIA: Third National Program for Community Empowerment in Urban Areas (PNPM-Urban 111) A. General Procurement for the proposed project would, be carried out in accordance with the World Bank's "Guidelines: Procurement under IBRD Loans and IDA Credits," dated May 2004 (revised October 2006), and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers," dated May 2004 (revised October 2006), and the provisions stipulated in the Legal Agreement. The general description of various items under different expenditure categories i s below. For each contract to be financed by the LoanKredit, the different procurement methods or consultant selection methods, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank project team in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs, improvements in institutional capacity and Executing Agency policy. Any change and modifications to the approved Procurement Plan requires prior World Bank approval. 2. This project i s basically repeating the going-on National Community Empowerment Project- Urban (NCEP-Urban or PNPM-Urban), which will be implemented in a l l provinces during FY2011 and 2012. The Bank has previously financed UPP 1-3, UPP 2 Additional Financing, PNPM-Urban and PNPM-Urban Additional Financing to cover similar operations, The existing PMU will remain the executing agency for this Project. 3. Procurement will mainly consist o f employment of National Management Consultant (NMC), Oversight Consultants (OC), and Evaluation Consultant; procurement of printing materials, hiring of individuals (including city coordinators and facilitators), and procurement under community grants. Because the proposed project i s in the same location as the on-going PNPM-Urban and there will be at least one year o f overlapping in implementation, the NMC and OCs will be employed by extending the on-going contracts under the on-going PNPM- Urban. Four out o f the nine OC contracts are financed by the Islamic Development Bank (IDB). I t was not confirmed that IDB would finance the extended services under these four contracts at the time of project preparation. If IDB cannot finance, the Bank will support these contracts, and the related contracts will be procured either as non-consultant services or by extending the contracts subject to assessment o f the selection process and contract details which should comply with the World Bank Guidelines as well as satisfactory performance o f the consultants. The hiring o f city coordinators and facilitators will be done through extending the on-going contracts or selection of individual contracts by the Provincial Satkers, and the respective contracts will be managed by the Provincial Satkers, while procurement under community grants will be done by respective communities following the agreed procedures as described in the Project Operations Manual (POM). The rest of the procurement will be done by the PMU at the central level. 4. Overview of Contract Management: The same as the on-going PNPM-Urban, there will be one single NMC, nine OCs (four out o f nine are financed by IDB), and one evaluation consultant. There will be 19 provincial satkers in charge of overseeing project implementation as well as management o f the around 4,000 kelurahan facilitators. 83 5. With regard to the facilitator composition, based on past experience, some minor modifications are required to expand scope of works of facilitators. Movement of facilitators or village rotation will be minimized, as this will have adverse impact on sustainability and accountability. 6. Kelurahan Grants: The kelurahan grants (US$115.76 million equivalent) will be disbursed in various Kelurahans in all provinces. Procurement under community grants will follow community participation, using modified forms and simplified procedures as defined in the existing Project Operation Manual of PNPM-Urban. 7. Consulting Services: The contract arrangements will include selection of firms and individual consultants. The Research & Development (R&D) and NMC will be under one firm (estimated at US$ 1.7 million equivalent), and nine Oversight Consultant (OC) f i r m s (for the five OC contracts to be financed under this project, the amounts are estimated between US$800,000 to US$1.6 million equivalent per contract) will be selected through extending the existing contracts under PNPM to provide oversight implementation in 19 provinces (four o f the nine will be financed by IDB). 8. The majority of the consulting services will be procured by extending the existing contracts under the on-going projects. Due to budget restrictions, the contracts will be extended annually. 9. In addition to the above, there will be a number of individual experts hired as the project's advisory consultants. An international project management advisor has been working on the on-going project to assist the PMU on Project management and procurement on part-time basis and this advisor will be retained for the proposed project. These experts will be employed by individual consultants. This arrangement i s expected to expedite implementation. 10. There will also be an evaluation consultant firm (a total amount of US$600,000 equivalent) to be hired following QBS procedures due to special expertise needed for this assignment. 1 1. The city coordinators (korkots), assistant city coordinators (assistant korkots), and additional facilitators will be hired and individually contracted directly by the provincial satkers. At the local level, to retain the capacity that has been invested in previous UPP and PNPM projects, to the extent possible the existing facilitators will be retained. Qualification requirement will be advertised and the selection will be made based on the CVs in response to the advertisement. The individual contracts will be less than US$lO,OOO equivalent each. These facilitators will supplement the existing 4,000 facilitators working in UPP 1, 2 and 3 as well as PNPM-Urban areas. 12. The Bank standard RFP and contract documents will be used where applicable for firms and standard contracts, as acceptable to the Bank, in the case of individual consultants and facilitators. When new consulting service contracts are procured, the following procurement methods can be considered by the implementation agency subject to approval by the World Bank: QCBS, QBS, Fixed Budget, CQS, Least Cost, and Single Source Selection. 13. Non-consulting services: As stated above, some o f the OC contracts may be procured as non- consultant services. Should there be any need, the contract (s) will be procured as non- consulting services using the sample bidding documents which was used for similar projects in Indonesia for the bidding process. 84 14. Goods: All printing and socialization materials under this project will be procured under 4 packages of printing & delivery contracts (with the total of US$858,000 and each contract i s estimated fromUS$O.O5 too. 55 million equivalent). The procurement will follow shopping, NCB, or ICB procedures with multiple lots and opportunity for bidders to offer discounts for being awarded multiple contracts. The Bank standard ICB and sample NCB documents will be used. B. Assessment o f the agency's capacity to implement procurement 15. Procurement activities will be carried out by the Ministry of Public Works through the Directorate General of Human Settlement (DGHS). The existing staff, organization structure, and system that are running the UPP, UPP 2 Additional Financing, PNPM-Urban and PNPM- Urban Additional Financing projects will be used to run this proposed project. 16. The procurement committee at PMU will consist o f staff experienced with UPP and PNPM procurement. The provincial satker will be supported by an administrative staff member to handle the selectiodextension process and contract management for individual city coordinators and facilitators. The POM will have an explicit description o f the system required to be in place to support HR issues related to these individual contracts (for example: salaries, leave, replacement o f individuals) which will be applicable to provincially contracted individuals. 17. Based on the current assessment as well as lessons from the past UPP and PNPM-Urban implementation, the PMU's weak capacity i s a major issue that results in procurement delays and deviation from specified procedures. This i s mainly due to the fact that the staff are not full-time for these projects and are unable to focus on procurement and contract management works, To address this, it was requested that the Government should appoint at least one full- time staff who i s experienced with Bank's procurement to work on procurement related matters for the project. I t was also suggested that the international project management advisor who i s working on the PNPM projects should be retained for this project. 18. For transparency purposes, similar to UPP and PNPM-Urban, information related to contract management and payment against contracts will continue to be published to the program website (www.p2kp.org). The POM will include specific indicators and tables to measure the performance of consultants, as well as the respective sanction mechanisms for poor performance. Corruption will be followed up through the Ministry o f Public Works' internal system, as acceptable to the Bank, and will be detailed in the POM. 19. The overall project risk for procurement i s rated as Moderate, in consideration that this i s a repeating project and most if not a l l high-value contracts for management services will be signed through extending the existing contracts under the on-going PNPM project, or if new contracts are needed, the contracts will be procured as non-consultingservices. 85 C. Procurement Plan 20. The Borrower, at appraisal, developed a draft procurement plan for project implementation which provides the basis for the procurement methods. This draft plan has been agreed in principle between the Borrower and the project team on February 25, 2010 and the final one will be made available at the UPP/PNPM's website [www.p2kp.org/ www.pnpm- perkotaan.org/] after approval by the Bank project team. The final one will also be made available in the Bank's projects database and on the Bank's external website. The procurement plan will be updated in agreement with the project team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. 21. Prior Review: The thresholds for prior review as well as revised procurement method will be determined in the procurement plan, taking into account inputs from the Bank's supervision missions. D. Frequency o f Procurement Supervision 22. In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment of the ImplementingAgency has recommended annual supervision missions to visit the field to spot-check implementation o f procurement actions. The ex post procurement review will mainly rely on BPKP's audit, which will cover the community grants and individual facilitators' contracts. The Bank and GO1 will need to finalize this arrangement by appraisal and ensure that BPKP i s budgeted to carry out this task. The Bank team will carry out quality control and sample spot checking to enhance the outcome o f BPKB's post review. Procurement requiring international competition: 86  Table 8.1: Procurement of Goods, Works and Non Consulting Services Ref. Contract Estimated Procure- Prequali- Domestic Review Expected No. (Description) cost ment fication Preferenc by Bank Bid- (US%) Method (yedno) e (Prior I Opening (yeslno) Post) Date 1 2 3 4 5 6 7 8 Capacity Building (Training and Socialization) 1 Audio Visual Media 55,000 NCB No NA Prior Oct-10 2 Banners, Pennants and Miscellaneous items 550,000 ICB No NA Prior Oct-10 3 Books, Manuals and Bound Documents for Facilitator Training 2009 154,000 NCB No No Post Sep-10 4 Posters, Flipcharts, Stickers, Leaflets etc for Facilitator Training 2009 99,000 NCB No No Post Sep- 10 Table 8.2: Selection of Consultants: Expected Ref. Description o f Assignment Original Estimated Original Extended Date of No. Contract Price Contract Contract Extension Price Increase Period Period 1 2 3 4 5 6 1 NMC (National Management Consultant) 2,636,000 1,700,000 2 1 Months 12 Months Aug 2010 Not yet OC-5 Regional Management contracted - Consultant Central Java, DIY (2 (estimate 12 prov., 40 kotdkab, 2,049 KelDs) 1,400,000 months) 12 Months Jan 2012 7 OC-6 Regional Management - Consultant East Java (4 prov., 44 kotakab, 1,208 KelDs) 2,890,000 1,600,000 24 Months 12 Months Oct 2010 8 OC-7 Regional Management - Consultant Bali, NTT, NTB (3 ~ 1,3 13,000 800,000 24 Months 12 Months Oct 2010 9 OC-8 Regional Management Consultant - North Sulawesi, South SUI, Central SUI, South East SUI, West SUI, Gorontalo (6 prov., 30 kotakab, 773 Kel/Ds) 2,147,000 1,200,000 24 Months 12 Months Dec 2010 4 10 OC-9 Regional Management - Consultant Maluku, North Maluku, Papua, West Irian (4 prov., 8 kotdkab, 193 K e l D s ) 1,592,000 800,000 24 Months 12 Months Ma 2011 11 Advisory Consultant + Procurement Advisory (International Expert) 164,500 400,000 12 Months 12 Months 12 Evaluation Consultant 875,000 600,O 00 87  Annex 9: Economic and Financial Analysis INDONESIA: Third National Program for Community Empowerment in Urban Areas (PNPM 111) 1. The objectives of the project will be achieved through three components. First, the project will support . the development o f community organizations in each kelurahan (Community Development and Local Government Capacity Building). Second, these community organizations will receive block grants that they will use to provide services to the members o f the community according to the community's needs (Kelurahan Grants). Community needs will be assessed and identified during the process of preparing Community DevelopmentPlans. Third, these community organizations will partner with local governments to develop and deliver secondary level public services (with additional support from the Poverty Alleviation Partnership Grant). All three steps will be supported by project investments. Traditional, ex ante economic analysis for a l l three investments i s either not possible or their credibility i s no more than the assumptions made. However, an analysis o f the possible outcomes does provide an opportunity to carry out an indicative analysis regarding the economic benefits of the investments. Community Develoument and Local Government Cauacit?,Building 2. The first component o f the project helps build capable and resilient community organizations. The essential goal i s to build capacity for collective action in communities that empowering them to adopt and proceed with collective action, allowing them to aggregate and prioritize their demands. Improved community capacity fostering collective action i s a positive outcome in and of itself. The stream o f benefits that flow from collective action goes much beyond project investments. For example, an organized community i s able to pressure lacal government to respond to their needs or be accountable to them or help in conflict resolution. The overall benefits of increasing community capacity for collective action are not possible to capture through a cost-benefit analysis. 3. However, community involvement in design and delivery of public services has two other direct economic benefits. First, public investments that systematically respond to aggregated community demands are more effective. Top-down, supply-driven service provision often over-supplies services that people do not want, and under-supplies services that people really want, causing a waste of public resources. Furthermore, when communities are able to aggregate and articulate their collective priorities, it becomes possible for local governments to develop more efficient and focused plans to address the concerns at a city level. Second, public investment in urban services that involve community involvement in design and delivery are more efficient. Services delivered in this fashion are not only able to stretch every dollar invested by substantial community contribution, but are also more sustainable. This process of service provision and community contribution increases ownership of the services delivered. This in turn creates incentives for communities to manage and maintain infrastructure created for the services appropriately. Such local management o f infrastructure allows the services to be available during the true design l i f e of the investment. In the Indonesian context, where operations and maintenance o f even primary infrastructure i s minimal at best, premature failure o f infrastructure i s widespread. Sustainable infrastructure, in relative terms, i s a highly effective public investment. Thus, economic benefits accrued through investments using the above process generally have higher economic benefit compared to traditional practices of 88  service provision. The specific investments and their respective economic benefits are discussed below. Kelurahan Grants 4. The second component o f the project provides block grants to communities to finance sub- projects for service provision at the community level. The project initially followed an open- menu policy for decisions regarding use of these grants, meaning that communities could choose how they wanted to use the funds. In the current design of this project, a shorter menu o f select interventions will be provided that meet specific outcome indicators and impact targets. Nevertheless, actual investment choices are impossible to predict accurately at this time. However, experience from UPPl and KDPl suggest that most communities choose a package of services that includes small infrastructure improvements (roads, drains, water, sanitation, etc.) and RLFs for providing microcredit to community members. Under previous PNPM-Urban infrastructure accounted for 80% of the spending. 5. There i s extensive experience in Indonesia regarding investments in small community level infrastructure improvements. The World Bank supported these investments under the Kampung Improvement,Programs (KIP). KIP delivered a package of basic infrastructure to neighborhoods as required. A simplified approach of measuring land values was used to quantify the economic benefits. Land values in kampungs which were improved, and those of similar kampungs which were not improved, were compared. Appraisal and completion reports o f these projects indicated 20% to 70% economic internal rate of return (Implementation Completion Report, Ln.3246-IND). OED's KIP Impact Evaluation Report (June 1995) confirmed this by re-evaluating the impact o f KIP in various Bank projects. OED found that the EIRRs under these projects ranged from 26% to 3 1% over a useful l i f e of 15 years. Recent studies on efficiency gained under CDD projects (UPP and also Community- based Settlement projects for Aceh and Jogja confirms further that infrastructure build under the project. 6. If communities choose to invest in a RLF, it i s expected that these would provide loans for productive economic activities to community members. The assumption i s that access to credit with lower transaction costs and no physical collateral requirement will allow petty traders and small manufacturers to be more productive or encourage the unemployed or underemployed to start profitable small enterprise. The requirement of repayment o f credit with prevailing commercial interest rate for one year loans (currently between 1146%) should avoid any distortion of the market. The project assumes a 6 month to one year loan period, often for small loans, and shorter cycles are common. The assumptions have proven mostly true in UPP1. The project so far has about 700,000 loans out o f which mostly are for small trade, 15% for services and about 10% for manufacturing. A survey o f sample businesses shows in UPPl that most borrowers (72%) experienced an increase in income and repaid their loans from income from their enterprise (92%). However under the UPP 2 economic impact study repayment increases, targeting and use o f the loan remains an issue. In 2008 a new RLF strategy was developed and adopted, to improve the performance of non-performingBKMs with respect to RLF repayment rates. As a result, the overall repayment rate for PNPM-urban in the last one year has been improving. 89  Annex 10: Safeguard Policy Issues INDONESIA: Third National Program for Community Empowerment in Urban Areas (PNPM-Urban 111) Introduction 1. This project i s an expansion o f all UPPs as well as PNPM-Urban-I and AF activities within previously covered kelurahans and into newly activated kelurahans, respectively. The project triggers the Bank's policies of Environmental Assessment (OP/BP 4.01), Involuntary Resettlement (OP/BP 4.12) and Indigenous Peoples (OPBP 4.10). Although unlikely, the latter policy was triggered to anticipate should there be IP affected by the project in Kalimantan and Papua. The project will use safeguards policies which have been adopted by the UPP projects and PNPM-Urban Iand AF. With regards to environmental issues, the project remains as a Category B. Implementation was completed for UP 1, while the remaining series o f UPPs (UPP2, UPP2 AF, and UPP3) and PNPM-Urban I and AF are under implementation, with mostly small-scale subprojects (i.e. public toilets, local roads, drainage and sanitation, water facilities, housing improvements, etc.) currently being implemented by community groups. The safeguard measures put in place have so far been adequate to mitigate any safeguards issues. 2. The project will adopt the Environmental Guidelines, Land Acquisition and Resettlement Policy Framework and IVP Framework that have been adopted by the UPPs and the PNPM- Urban Iand AF. The Environmental Guidelines, the Land Acquisition and Resettlement Policy Framework, and the Framework for the Treatment of Indigenous or Isolated Vulnerable People (IVP) are attached as Annexes 1OA, 1O and 1OC, respectively. B 3. These frameworks have been elaborated in the project manual and technical guidelines. The project manual and technical guidelines will be continuously updated to accommodate lessons learned pertaining safeguards. The following summarizes the experience under UPP2 and UPP3 with regard to safeguard policy issues, mainly for small-scale sub-project investments: Environmental Issues 4. The UPP/ PNPM-Urban programs have financed about 49,100 infrastructure subprojects, at a total cost of US$22.6 million, indicating an average size of subproject of US$460 (Rp.4.2 million). These consisted mainly o f tertiary roads and bridges improvement (40%), drainage activities (16%), public toilets (1 l%), sanitation activities (1 S%) and water supply (1 1.6%). The table below provides a breakdown for subprojects in UPP2 .and UPP3. 5. The small size and nature of these activities meant that there were no adverse environmental impacts, and standard operating procedures for environmental mitigation (as per PNPM-Urban ) I proved to be adequate. No Type of Activities Number of Volume Unit Cost (IDR) Community BKMs Contribution undertaking Activities Improvement o f local 2430 5,913,788 meter 82,485,413,256 98,691,900,892 1 roads 2 Drainage 1765 2,059,240 meter 32,356,036,299 15,533,499,656 90  No Type of Activities Number of Volume Unit Cost (IDR) Community BKMs Contribution undertaking Activities 3 Water Supply 1455 109,585 units 24,189,840,191 4 I Public Toilets 1575 I 19,523 I units I 23,274,980,037 23,923,141,230 5 1 Solid Waste 54 1 1 13,672 I units 1 2,978,125,441 6 Others 756 28,621 8,205,745,919 3,548,529,9 14 TOTAL 8522 173,490,141,143 141,697,071,692 Land Acquisition and Involuntary Resettlement 6. An insignificant number of involuntary resettlement, triggering OP 4.12, occurred under UPPs and PNPM-Urban-I and AF. For infrastructureprojects there has been a high level o f voluntary contributions from communities in the form o f cash (towards investment costs), in the form o f labor, and in the form of land. In these cases, contributions have been recorded in the project proposals, which have been reviewed by the OCs and ratified by the BKMs. Since the average cost of subprojects i s so low (US$460, the ceiling for individual subprojects per group i s Rp.50 million or US$5,050), voluntary land contributions for each subproject have also been minor, mainly for alignment of roads and water and sanitation facilities. Thus far, there have been no land related complaints or grievances. Indigenous Peoples o r Isolated Vulnerable People (IVP) 7. There were no IVPs involved or affected in UPP 2 and UPP 3. Neither in the PNPM-Urban I and AF. 8. Because PNPM-Urban i s implemented in urban areas, it i s unlikely that the project will affect IVPs. However, the project anticipates that IVPs like native Papuans and Dayaks in Papua and Kalimantan may be affected. To date, UPP3 in urban areas in both Papua and Kalimantan have not involved nor affected IVPs. The nature o f the project, with its emphasis on community development, empowerment and participation, and i t s use o f local facilitators and volunteers for implementation, i s such that there i s unlikely to be a negative impact on IVPs due to project activities or a deprivation o f IVPs' benefits. In the case that JVP i s affected, they will be part of the beneficiaries who will involve in the participatory consultation during the preparation of the sub-project proposals and implementation. Therefore, a specific Indigenous People's Development Plan was not considered necessary for PNPM-Urban. 9. Due to socio-political sensitivity and the history of conflict in these islands, IVPs may need special attention to ensure that their voices are heard and that they are included in decision making. As a result, the Framework for the Treatment of IVPs developed for UPP2 and used in UPP3 will also be used in PNPM-Urban. Because the dynamics of the sensitivity will be different and specific to local circumstances, a "situational analysis" will be carried out prior to implementation of the project in Papua particularly, to determine whether any design changes may be necessary. Any required changes will be incorporated in the Project Manual. Feedback will also be sought from the PNPM Rural operating in the same areas to determine the most effective way o f ensuring the full participation o f IVPs in the project. 91  Annex 10A: Environmental Guidelines for PNPM-Urban INDONESIA: Third National Program for Community Empowerment in Urban Areas (PNPM-Urban 111) Introduction 10. As a highly decentralized project, PNPM-Urban will support a large number o f small subproject investments in urban areas. I t i s expected to provide microloans for income generating activities, and finance small scale infrastructure and other services (the ceiling for individual subprojects per group i s Rp.50 million or US$5,050), through the kelurahan grants. The low ceiling for individual activities, combined with the types of activities expected to be financed (road/bridge improvements, tertiary drainage, water supply to individual households, garbage collection through handcarts) indicate that none o f these investments i s expected to have any large scale, significant or irreversible impacts. Environmental impacts would come mostly from poor site management during project construction activity; it i s therefore, good housekeeping will be highly promoted. 11. The project has been classified as a Bank environmental category B. This annex outlines the environmental screening procedures and guidelines to identify, to review, and "red-flag" procedures to ensure that problems are corrected. Indonesia's environmental review procedures are generally consistent with the Bank's and will form the framework of PNPM-Urban's approach to environmental management. Basic Principles 12. The basic environmental principles are: 1. Proposals should avoid or minimize negative environmental impacts, and they should have explored viable alternative designs to minimize any negative environmental impact; 2. Proposals should fit into the General Spatial Plan (RUTR, Rencana Umum Tata Ruang) and avoid protected areas so designated by the Ministry o f the Environment (see below). 3. Any proposal entailing a negative environmental impact shall be complemented by an environmental plan to mitigate the impact. Environmental Screening Criteria 13. Subprojects will be checked against Government of Indonesia (GOI) screening criteria to ensure that no project would necessitate a full environmental assessment. In an initial screening, the project type, scale, location, sensitivity, and the nature and magnitude of potential impacts, will be identified to classify the proposal in one o f four categories: 1. Those that require ANDAL (full Environmental Assessments) for which the Ministry of , Environment has set criteria (see below). These will be eliminated from consideration for PNPM-Urban financing. 2. Those that require environmental management and monitoring plans (UKL and UPL) based on limited but site specific studies. The Ministry of Public Works has set criteria to 92  determine the need for UKL/UPL (see below). I t i s expected that none of the proposals submitted under either the PAPG or kelurahan grants would fall under this criteria. However, this would apply for sub-projectsto be financed under the KBG NUS. 3. Those for which standard operating procedures (SOP) suffice, where generic good practice would protect the environment adequately. The DG Human Settlements has SOP guidelines for some types of projects (including measures to control dust, noise and traffic at construction sites; specifications for backfilling and revegetating disturbed areas to prevent erosion; and procedures to control negative impacts at solid waste transfer stations; etc.). It i s expected that some subprojects may fall under this category. 4. Those that require no environmental study, where no construction, disturbance of land or water or discharge o f pollutants are involved. I t i s expected that some subprojects may fall under this category. Sectors and Projects Units I ANDAL I UKLAJPL Water Supply Raw water intake LIS 2250 50 - <250 Transmission (large towns) km 2 10 2 - 10 Distribution (large towns) ha 2 500 - 100 <500 New construction: Transfer station tonlday 2 1,000 < 1,000 Drainage & flood control a. In large towns km 25 1-<5 b. In medium towns km > - 10 - 3 <10 c. In small towns km - 5 <15 Kampung Improvement Large Towns ha 21 Medium Towns ha 22 Upgrading ha 21 93 14. Special screening will be applied on the following cases ( "Negative List"): e Fisheries: Standards from the Fishery Service Agency (Dinas Perikanan) will be applied to all fishery subproject proposals. e Pesticide or herbicides:N o subprojects using or producing these materials will be financed. e Tobacco or tobacco products: production, processing, handling, storage or sale of tobacco or products containing tobacco will not be financed by the project. e Ozone-depleting substance: N o subprojects using or producing these materials will be financed. e Asbestos. No asbestos-containing materials will be financed. Special mitigation measures to address any issues with existing asbestos in any proposed subproject (e.g. renovation of school buildings that may have used asbestos) will be applied. Linkage: no asbestos allowed in the subprojects although purchased as own/parties contributions. e Subprojects that produce liquid or gaseous effluents or emissions. N o manufacturing or processing operations will be financed that would produce pollutant-bearing effluents or emissions unless: (a) the operations are small-scale; and (b) the cognizant Bapedalda reviews the design and certifies that it meets applicable water and air pollution control standards. e Hazardous materials and wastes. No subproject will be financed that uses, produces, stores or transports hazardous materials (toxic, corrosive or explosive) or generates "B3" (hazardous/Bahan Beracun dan Berbahaya) wastes. e Logging. Subprojects involving logging operations or procurement o f logging equipment will not be financed. e Mining or excavation o f live coral or coral reef. e Development on protected areas. The Decree or the Minister o f the State for the Environment o f the Republic of Indonesia Number KEP-1lhlENLW2006, entitled Concerning the Types o f Businesses Activities Required to Complete an Environmental Impact Assessment, prescribes that any business or activity that i s located in a protected area or that may change the purpose and/or designation of a protected area shall be required to prepare an ANDAL (see above). This includes: forest protection area; river edges; marine/freshwater conservation areas; nature tourism park; peat areas; areas surrounding lakes and reservoirs; coastal mangrove areas; water catchment areas; national parks; coastal edges; forest parks; cultural reserves; areas surrounding springs; scientific research areas; nature conservation areas; and areas susceptible to natural hazards. e N o new settlement or expansion o f settlements will be supported in protected areas under the project. Where settlements already exist, and if it i s the policy of the local government to allo'w the settlement to remain, proposals for funding under PNPM-Urban may be used by the existing residents using standard UPP 2 and UPP 3 procedures and in compliance with any local regulations on land management which are defined by the protected area management plan. e N o road construction or rehabilitation o f any kind will be allowed inside delimited or proposed protected areas. 15. Design specifications including environment management consideration for water supply, public toilets, urban roads, TPS, markets and bridges will be applied to PNPM-Urban in the form of SOP. Since these types of activities are most likely to be financed under the PAPG, the SOP used by the participating local government will be applied. 94 Environmental Screening Process 16. Community groups (KSMs) will prepare a subproject proposal on a standard format provided by the kelurahan facilitator, signed by the group members. The standard format will include all items identified above that are not eligible for financing as part of the negative list. The proposals will include a description of the activities proposed and compliance with any applicable guidelines on environmental impacts (as well as land/asset aquisition and impact on indigenous people). All proposals will be reviewed by project staff for their feasibility, technical soundness, and compliance with guidelines, before they are considered by the kelurahan organization (BKM). Project staff will specifically screen proposals for any environmental impacts based on the guidelines above which will be included in the project manuals. These will include special screening for a l l subprojects involving land and water use changes (i.e. reclamation, irrigation); economic projects with environmental impacts to be sure those alignments, effluent, etc. meet best practice standards. BKMs with the assistance o f facilitators will ensure that adequate mitigation measures are taken. The selection of proposals by the BKM for the kelurahan grant shall be made in a meeting publicized in advahce and open to the public. Reporting 17. Facilitators and OC staff will aggregate and review environmental reports and flag them in their quarterly reports. The project manual will include a matrix o f likely environmental impacts and steps with which to address them. An experienced environmental consultant will be hired to summarize progress and monitor and measure the impact o f the project on the environment as part o f the project performance evaluation. Review of Experience to Date 18. All construction activities will have some impact on the environment, although the significance i s largely proportional to the scale. PNPM-Urban i s concerned about preserving the environment and ensuring that any negative effects from PNPM-Urban activities are avoided or at least mitigated. PNPM-Urban subprojects will be planned and implemented through an intensive participatory process at the KSM (Kelompok Swadaya Masyarakat/Community Groups) and B K M (Badan Keswadayan Masyarakat/CommunityBoards o f Trustees) levels. 19. Observations in some subprojects under previous UPPs suggest that environmental related- issues mainly occur due to inadequate guidance, monitoring and supervision by facilitators and OCs (Oversight Committee) during the planning and implementation stages. Furthermore, experience under previous UPPs points to two groups of activities that contribute to environmental risk: (a) tertiary roads, bridges and drainages activities; and (b) public toilets, sanitation and water supply: a. Environmental risks related to tertiary roads, bridges, drainages activities: 20. The major direct environmental impact associated with roads, bridges and drainage activities i s erosion, especially from disturbance of unstable soils that are sensitive to landslides and/or from changes in the flow o f water. Activities in the rainy season, or improper construction methods that leave soils unnecessarily exposed, can also cause erosion. Improper drainage from roads in areas of high precipitation can ruin roads and have impacts on adjacent lands. In addition, health issues (e.g. water related vector-borne disease) can emerge when there i s lack 95  o f planning for the overall drainage setting to keep the drainage system connected either with subsurface drainage or surface drainage canal outlets. There i s a close link between the presence of excess water (due to lack o f adequate drainage/blocked drainage) and the transmission o f water related vector-borne diseases. Improper design (contributing to low and irregular flow velocities, low embankment slopes, high seepage, and uncontrolledwater access) and lack o f maintenance are the two main reasons why drainage structures are often associated with environmental health problems. b. Environmental risks related to public toilets, sanitation and water supply activities: 21. Water supply and sanitation projects (public MCK - Mandi/Bath, Cuci/Wash and Kakus/Toilet) are two o f the main sources o f public health issues. In previous UPPs, it was found that some communities built MCK without septic tanks or near to water sources. These types o f projects carry the possibility of increasing contamination (For example, contamination o f a water source by surface water entering from outside, or contamination o f groundwater by a poorly designed or constructed waste control system). Communities must consider the formation o f an operations and maintenance committee for water or sanitation projects. For this type o f environmental malfeasance on community projects, the proposed mitigation and prevention methods are proper training (on specific technical measures) and monitoring of the supervising field engineers, especially on site selection for water and sanitation projects, use of tested water quality from wells, and maintenance of the facilities. 22. Furthermore, although water supply provision i s one o f the main infrastructures proposed by communities, to date most provisions have been built without water quality readings. Water quality tests should be taken once water supply provision i s complete, especially for bore/well water. BKMs and Lurahs (heads o f Kelurahadurban ward) should get assistance from the Dinas Kesehatan (local health agency) in getting water quality readings and applying recommendations from the Dinas, as necessary. Approach to Controlling Environmental Impacts in PNPM-Urban 23. The principle behind controlling environmental impacts in PNPM-Urban i s to limit possible negative effects and to enhance the positive impacts o f any infrastructure construction activity. As part o f the planning process, a checklist o f potential environmental problems i s introduced (see table below), which then i s followed up during and after implementationby the village and the technical facilitator. Each type of project i s checked by kelurahan facilitator (infrastructure/engineering) for the various treatments that must be performed to avoid or repair environmental problems. At the midpoint o f 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. The environmental specialist (hired at NMC level) updates the list on a regular basis to reflect environmental issues and proposed mitigation measures accordingly. 24. For each type o f subproject, a technical standard i s included in project manuals. For example: drainage for roads must be installed together with culverts to discharge water safely; leeching fields from latrines have to be located at least ten meters away from any water supply, and located downstream as groundwater flows; and water supplies cannot be located near any potential source o f contamination. 96 25. Based on experiences under previous UPPs, below i s the checklist o f environmental issues and mitigation measures to be applied in PNPM-Urban: Potential Negative Impacts Mitigation Measures rainage subprojects Erosion from fresh road cuts and f i l l s and temporary - Limit earth moving to dry periods sedimentation o f natural drainage ways - Protection o f most susceptible soil surfaces with mulch - Protection of drainage channels with berms, or fabric barriers - Installation of sedimentation basins, seeding or planting o f erodible surfaces as soon as possible - Selecting an alignment that reduces environmental disturbances - Undertaking maintenance and repairs in a timely fashion Creation o f stagnant water bodies in borrow pits, Employ measures to avoid creating habitats (e.g. quarries, etc. suited to mosquito breeding and other improved landscaping, filing or drainage) disease vectors Roaddbridges located in critical lands that are - Changing the alignment to reduce steep grades sensitive to erosion and landslides - Building civil works to stabilize side slopes - Using vegetative treatments to stabilize side slopes or prevent erosion - Using special treatments to overcome ground water problems, such as drains Blocked drains (due to design and maintenance) stop - O&M work must clean the block drains periodically the flow o f water and impact public health - Stone masonry or concrete ditch are preferred as water i s quickly transported away (earth ditches drain but they need much more space and are less stable, earth ditches also need a lot more maintenance) -Use o f natural slope as it holds up well against erosion Public Toilets, Sanitation, and Water Sup1 - Health Risks on the following activities: Water level o f the well almost the same as the soak - Check the direction o f groundwater flow; the well away, well too close to the toilets and septic tank should be placed upstream - Build the soak away as far as possible away from the well (minimum 10 m) A well in the toilet: this is not acceptable due to high - Build a basin in each toilet room and fill them from risk of contamination the well by pipe channel or container - Keep the toilets clean and separate from the well The sewer pipe laid on the ground surface may become - Burry the sewer pipe all the way to the septic tank brittle from the sun's U V rays and could also be - Install a ventilation pipe and a manhole access in the damaged by people stepping on it or other impact septic tank. Incomplete septic tank structures Minimum equipment for a septic tank consists of: 1. Access manhole with a lockable cover 2. Inlet pipe 3. Dividing wall o f baffle 4. Overflow pipe 5. Ventilation pipe [ncomplete public MCK structures (Mandihath, All essential elements o f an MCK need to be included: Zudwash, Kakudtoilets) 1. Toilet (s) 97  Potential Negative Impacts Mitigation Measures 2. Toilet ventilation 3. Water basin with faucet and bottom outlet 4. Slab with raised edge for public washing area 5. Faucets to fill buckets 6. Notch to ditch for surplus water and flow directly to the existing ditch/drains Sewage which contains human waste carries pathogens - A sewer carrying human waste should discharge to a and must be treated before discharge into the ground or treatment plant or a septic tank an open water course - A septic tank or other type o f settling tank will also partially treat sewage 98  Annex 10B: Land Acquisition and Resettlement Policy Framework INDONESIA: Third National Program for Community Empowerment in Urban Areas (PNPM- Urban 111) I. Project Characteristics 26. As a highly decentralized project, PNPM-Urban will support a large number o f small subproject investments, mainly in urban areas. Through the kelurahan grants component, the project i s expected to provide microloans for income generating activities, and to finance small scale infrastructure and other services (the ceiling for individual subprojects i s US$5,050 or Rp.50 million). None o f the subprojects i s expected have a significant impact due to land acquisition and/or resettlement. 27. PNPM-Urban i s also a community-based demand-driven project. Subprojects will not be identified in advance. The identification of the number of people affected by a subproject can thus only be defined once subproject proposals are evaluated by the community organization (BKM) for the kelurahan grants. 28. Since participatory planning and decision making form the basis for the project, the entire project approach should guarantee that people affected by the project will be involved in the decision making process. 11. Lessons Learned and Land Acquisition Process in UPP 2, UPP 3 and UPPs 29. As all subprojects are small scale, they are expected to have an insignificant amount o f land acquisition. The screening will drop any sub project if significant involuntary resettlement takes place. In UPP 2, for instance, only 14% o f the subprojects involved land acquisition or needed land. The average size of land acquired was about 6 m2, involving 1-5 landowners. The largest land acquisition was 200 m2. Subprojects requiring land are mostly public toilets, water supply reservoirs and related distribution, wells, drainage, and footpaths. The two tables below present the situation of land acquisition in the on-going UPP 2. For subprojects requiring land, there are three land acquisition schemes. Summarv of Extent o f Land Acauisition in the 13 OCs*) Scheme o f Sanitation Public Land Road and Housing and Others Total bridge Facility Acquisition drainage Note : *)Not include OCs 2,9, 14. * * ) I t is believed that this categoly comprises mainly land contribution from individuals who benefit from the investment o f the subprojects. Data from KMWs and field supervisions suggests that only a small number o f subprojects have acquired land through cash compensation. 99  Land acquisition in the localkommunity infrastructures financed by on-going UPP 2 I n Kota Makassar Number that Type of Number of Nature and infensity Scheme o f land has land IY0 subprojects subprojects of land acquisition acquisition acquisition Note *)estimation based on field observation UPP 2 In Makasar compnses 26 Kelurahans, the data above covers 24 Kelurahans 30. The most common land acquisition scheme i s land contribution from subproject beneficiaries. This constitutes about 56% o f subprojects that need land. I t i s also believed that the other 40% o f subprojects that need land also obtain land from voluntary community contribution, despite unclear identification in the consolidated report. Field visits to selected kelurahans and reports from visited OCs confirm that, for this category, land i s obtained through community contribution. 31. The second scheme for land acquisition i s through compensation. In a very few cases, land i s obtained through cash compensation with full consultation with landowners and funded by cash contribution from beneficiaries of the subprojects. Recent field visits to selected UPP3 sites suggest that only one subproject acquired land through compensation, involving one landowner and about 100 m2 of land. The funds for compensation were contributions from the beneficiaries. This land was obtained through full consultationhegotiation between the landowner and the beneficiaries. Most subprojects in UPP2, UPP3, and UPP2 AF obtain land through voluntary contribution from beneficiaries. 32. The third scheme for land acquisition i s land provided by the local government, which has taken place in very few cases in the project. In one case encountered during UPP3 supervision, the local government provided land for the development of a facility that was co-financed by them and by the community grants. A. Land contribution from the community 33. As mentioned above, the UPPs have three schemes for obtaining land needed for subprojects: contribution from the community members, cash compensation, and contribution from the local government. Field visits to selected sites show that there have been no negative social impacts to the community members as a result of voluntary land contribution. This i s because decisions on land contribution were made voluntarily on landowners' initiatives with good consultation among community members and a relatively small-amount of land area involved in each subproject. In fact, voluntary land contribution has provided positive impacts on beneficiaries. 100  Facilities are located closer to the beneficiaries and construction after subproject proposal approval i s implementedrelatively fast as land i s easily available. The process of obtaining land through land contribution i s as follows: (a) the KSM submits a proposal to the B K M for review and approval. One item included in the proposal, in some cases, i s identification of land needed and how the land will be obtained. In the case that the proposed subproject requires land, the proposal already identifies that land i s available through contribution from member(s) of the community. (b) the BKM and the project staff (facilitators) verify in the field and ensure that the land contributors have voluntarily agreed to donate his/her/their land for the proposed subproject. They also ensure that land contribution i s made through participatory mechanisms. I n many cases, the B K M and facilitators participate in the community meetings discussing the land contribution for a particular subproject. The B K M and project staff obtain a statement letter (attached to the proposal) signed by the community member(s) who donate the land and witnessed by the chairperson of the community ("kepala dusun") or head of village, and by other witnesses. The letter contains, among others, name and address o f land contributor(s); location and land area donated; the purpose o f land donation. (c) once the subproject proposal i s approved by the BKM, the land owner who contributes the land points out the site on the ground where to build the facility. Land acquired through compensation In the case that land i s obtained through compensation, the process i s as follows: (a) the KSM submits a proposal to the B K M for review and approval. The proposal already mentions that the land will be obtained through cash compensation. Usually land obtained through this scheme i s an area that i s irreplaceable by another area because o f specific needs and the landowner most likely does not get a direct benefit from the facility. The Bank observed this as the case for a water reservoir facility that located close to a water spring. Beneficiaries discussed and negotiated with the landowner, and agreed with the compensation level. (b) community members then discuss and agree upon how the compensation will be shared among them. (c) community pays the compensation to the land owners; (d) the B K M and the facilitators verify the process and land availability prior to approval of the proposal. (e) the B K M obtains the transaction letter for the land from the community and it i s attached to the proposal. Land provided by the local government In a few cases land i s provided by the local government. The Bank noted that the local government provided state land for a public facility financed jointly between the local government and the project grants. The subproject proposal was prepared together between the B K M and the local government and submitted to a selection committee at the local government level. The OC and the selection committee (consisting of representatives of relevant local agencies and of BKMs) verify the availability o f land. Documentation o f land acquisition process at subproject proposal stage 37. Despite the small amount o f land acquired and good consultationhegotiation during most of the land acquisition process, documentation needs to be improved. At the KSM and B K M levels: (a) subproject proposals that need land should include a more detailed plan to acquire land; (b) documentation of the consultationhegotiationprocess and o f the agreement on land contribution/transaction needs to be improved. At the BKM and City Coordinator ("korkot") 101  and OC levels, a more systematic consolidated report on land acquisition needs to be prepared quarterly. 38. Learning from the UPPs' experiences, as PNPM-Urban i s a repeater project o f the UPPs, it i s expected that PNPM-Urbanwill have similar situation whereby most subprojects that need land will obtain it through community contribution. I n the case that community and local government voluntarily contribute land, OP 4.12 i s not triggered. However, documentation of the process will have to be prepared. 39. This documentation will be prepared with reference to the checklist attached to the subproject proposal, which includes information on (a) type and size of investment; (b) site/location; (c) area o f land required/acquired; (d) number o f land owners affected; (e) scheme of land acquisition; (f) process o f land acquisition; (g) financing/source o f funds if cash compensation; (h) availability o f sufficient agreement on land contribution; (i) certification, if cash compensation; (j)availability o f supporting documents (minutes of meeting, attendance sheet, photographs, etc.). 40. In the case involuntary land acquisition takes place, the project will use the land acquisition and resettlement policy framework o f UPP 3, which was adopted in the UPP2 AF and PNPM- Urban I and AF. Should any subproject involve any land acquisition or resettlement that triggers OP 4.12, this policy framework provides procedures and guidelines for agreeing on compensation for those persons who are affected by the subproject in order to ensure that they *are not unfairly treated by being given low compensation, or benefit unfairly by being given compensation that i s significantly higher per square meter than other owners who sell similar nearby land on the free market. 11. Definitions 41. The definitions used in this Policy Framework are: a. "Census" means the head count of those persons under a proposed Subproject that qualify as Displaced Persons. The date o f the Census i s the latest cut-off point to record the persons in the Subproject area that will receive compensation, resettlement and/or removal and rehabilitationassistance. b. "Compensation" means the compensation at replacement cost as determined in Section V o f this Framework given in exchange for the taking of land and building, in whole or in part, and all fixed assets on the land and buildings and crops and trees. c. "Land acquisition" means an activity that requires obtaining land, buildings or other assets from Displaced Persons for purposes of the subproject against provision o f compensation and assistance. d."Displaced Person" means a person who, on account o f the execution o f the Project, has experienced or would experience direct economic and social impacts caused by: (i) the involuntary taking o f land, resulting in: (A) relocation or loss of shelter; (B) loss of assets or access to assets; or (C) loss o f income sources or means o f livelihood,' whether or not such person must move to another location; or (ii) involuntary restriction o f access to the legally designated parks and protected areas, resulting in adverse impacts on the livelihood o f such person, and "Displaced Persons" means, collectively, all such Displaced Persons. 102  e. "Physically Displaced Persons" means persons who are forced to move from their previous location because (i) or a significant portion (50% or more) o f their land or buildings are all affected by the subproject; or (ii)less than 50% o f their land or buildings are affected by the subproject if the remainingportion i s not economically viable or habitable. f. "Rehabilitation Assistance" means the provision of cash or assets or other forms of support to enable Displaced Persons without legal rights to the assets taken by the Project to at least equal or improve their standard of living, income levels and production capacity to the level prior to the project. g."Resettlement" means an effort /activity to relocate the Displaced Persons into a good new settlement as mentioned in section Vb so that they can develop a better life. h."Involuntary Displacement" means any o f the following actions, when they occur without the Displaced Person's informed consent or power of choice; (a) the taking o f land resulting in: (i)relocation or loss of shelter; (ii)lost assets or access to assets; or (iii)loss of income sources or means o f livelihood, whether or not the Displaced Person must move to another location; or (b) the involuntary restriction of access to legally designated parks and protected areas resulting in adverse impacts on the livelihoods of the displaced. i."Subproject" means a specific infrastructure investment project carried out with funds from the Kelurahan Grant component of the project. 1. 11 Basic Principles 42. Involuntary resettlement may cause severe long-term hardship, impoverishment, and environmental damage unless appropriate measures are carefully planned and carried out. For these reasons, the overall principles for this Framework are the following: a. Subproject proposals should minimize land and asset acquisition and involuntary displacement. Groups proposing subprojects should have explored viable alternative designs to minimize displacement. b. The group proposing the subproject will use a transparent and participatory process to ensure that a l l Displaced Persons agree on any proposed subproject that involves land acquisition or resettlement c. The group proposing the subproject will have to agree to incorporate the costs for land acquisition and/or any involuntary resettlement in their subproject proposals as part of subproject costs. The compensation costs will be covered through the communities'. own funds or government funds (World Bank Loan proceeds shall not be used to finance compensation). d. In accordance with traditional practice, community members may elect to voluntarily contribute land or assets and/or relocate temporarily or permanently from their land without compensation. Voluntary in this context will mean the donation or granting o f land and other assets with the full knowledge of the purposes for which the asset i s being made available and the economic, social and legal consequences that such an act would have on 103  the person providing the asset and which act i s exercised freely and voluntarily, without any type of cohesion. e. Displaced Persons should be assisted in their efforts to improve their livelihoods and standards of the living or at least to restore them, in real terms, to pre-displacementlevels or to the levels prevailing prior to the beginning o f the project implementation, whichever i s higher. IV. Framework 43. I n the event that a subproject proposal requires any land acquisition, buildings, crops, trees, and/or resettlement, the subproject proposals have to indicate the need for land acquisition, the number and names of persons affected, and the estimated budget required for compensation. 44. Proposals that would affect 200 persons or more would normally entail long lead times, and are expected to be beyond the scope of the project. In the highly unlikely event that more than 200 persons will be affected and require compensation, the Oversight Consultant will ensure that the proposal i s complemented with a full Land Acquisition and Resettlement Action Plan (LAMP). The LARAP will include (a) a survey to identify the socio-economic characteristics o f the Displaced Persons.including a census; (b) a comprehensive plan for the acquisition of land and/or resettlement; and (c) a compensation package in accordance with the compensation guidelines set out in Section V and acceptable to the Displaced Persons and the groups proposing the subproject. The subproject proposal will also indicate the budget source for the required compensation (Bank funds cannot be used for compensation). The OC/NMC shall seek the Bank's approval of the LARAP and budget, and seek modifications in case the Bank finds they are needed. Further details on the LARAP are provided in the attachment to this annex. 45. For any subproject that requires resettlement of less than 200 persons, the BKM, supported by the OC staff assisting with proposal preparation, will ensure that the following steps are followed: a. The group proposing the subproject carries out a Census o f the persons that would be affected by the proposed subproject and that would qualify as DisplacedPersons b. The Displaced Persons agree on the subproject proposal, and have negotiatedagreement on either voluntary or compensated contribution with the group proposing the subproject c. The agreement i s made through a participatory and transparent process d. Displaced Persons are made aware that they have the right to compensation and/or other assistance according to the compensation guidelines provided in Section V e. In cases where voluntary contributions o f land or assets are indicated, these are clearly agreed with all Displaced Persons; the name(s) o f the contributor(s) and details of the contribution(s) are included in the agreement; and these are verified by the Oversight Consultants. f. A simple format on the agreement i s incorporated in the subproject proposal. This agreement should clearly indicate individual land plots needed for land acquisition and/or 104  resettlement, the number and names o f the affected persons, scheme o f compensation and/or resettlement, and estimated cost for land acquisition and/or resettlement compensation. In the case o f voluntary contribution, the agreement should state the rationale for it and the fact that the person had the choice o f not providing the asset, and in the case o f involuntary contribution, the manner followed for valuation o f the assets which must be in compliance with Section V below. g. The agreement should indicate that any compensation will come from the community's or government's contribution to the subproject. It would be possible to use World Bank Loan proceeds to construct small works and initiate employment opportunities for the group members who are to be resettled. This has to be agreed by the group proposing the subproject and put in the agreement (see assistance guidelines in Section V). However World Bank Loan proceeds cannot be used to finance payment o f cash compensation or land acquisition. h. The details o f the agreement will be verified by the OC/facilitator in charge o f the affected communities prior to consideration by the BKM for financing. In the event that no consensus has been reached on the form and amount o f compensation, the subproject will not be considered for financing. i. N o Displaced Persons shall have their land or other assets taken before they have received the compensation and provided the resettlement site, if that i s the case, as agreed upon and detailed in the subproject proposal. j. Payment o f compensation, displacement o f people, or preparation o f a resettlement site as agreed upon should be completed before the construction o f the respective subproject i s started. k. A monitoring and evaluation system for compensation will be introduced to ensure that Displaced Persons have received their compensation as agreed upon. The monitoring will be undertaken by the Oversight Consultant and will be a full survey or sample survey depending on the number of households affected. A report on the results and recommendations will be published by the OC and disseminated to the community and the NMC. V. Guidelines for Compensation, Resettlement and Other Assistance 46. Based on agreements reached during the negotiation, Displaced Persons can choose to receive cash compensation, resettlement, or other options. Other options include serviced sites, land [swap] o f equal size or equal productive capacity, low cost housing, apartments, real-estate housing with credit facilities,, or other schemes. Among those options, Displaced Persons will be provided the opportunity o f having a resettlement site where they do not have to pay more than their present routine expenditure. In all cases, the amount o f compensation, resettlement or other options must be sufficient to achieve the objectives o f improving or at least maintaining the pre-project level o f standard o f living, income generation and production capacity o f the Displaced Person. A. Compensation 105 47. Displaced Persons have the right to receive real replacement cost compensation. Real replacement cost means: a. For land in urban areas, the pre-displacement market value o f land o f equal size and use, with similar or improved public infrastructure facilities and services and located in the vicinity of the affected land, plus the cost o f any registration and transfer taxes; b. For agricultural land, the pre-subproject or pre-displacement, whichever i s higher, market value o f land of equal productive potential or use located in the vicinity of the affected land, plus the cost o f land preparation to levels similar to those o f affected land, plus the cost o f any registration and transfer taxes; c. For houses and other structures, the market cost o f the materials to build a replacement structure, or to repair a partially affected structure, plus the cost of transporting building materials to the construction site, plus the cost o f any labor and contractors' fees, plus the cost o f any registration and transfer taxes. In determining the replacement cost, depreciation o f the asset and the value o f salvage materials are not taken into account, nor the value of benefits to be derived from the subproject deducted from the valuation of an affected asset. Compensation for trees, crops and other assets will be based on the replacement value using existing market prices per tree prepared by relevant agencies. 48. The extent o f the compensation will depend on the tenure situation of the Displaced Person as set out in Section VI. 49. Displaced Persons whose: (a) remaining land and building cannot be used for housing or workplace; or (b) whose remaining land i s less than 60 sq meters; or (c) whose remaining agricultural land i s less than 50% of its initial size or i s not economically viable; or (d) whose remaining building i s less than 21 sq meters; have the option o f being included as Physically Displaced Persons and compensated for the taking o f the affected asset. Displaced Persons whose remaining land i s less than 60 sq meters and remaining building i s less than 21 sq meters, will have an option to move to a new lot o f 60 sq meters and building of 21 sq meters. They will be provided with compensation for the difference in area between what they lost and what i s being provided to them. B. Resettlement Sites 50. The resettlement site provided for the Displaced Persons will include infrastructure and public facilities so that it i s good for living and enables the development o f a good social and economic life, including: (a) road or footpath as necessary; (b) drainage system; (c) water supply (if a piped water distribution network i s not available, there should be shallow wells that comply with health standards); (d) electricity; (e) health facility, education facility, work places, religious services, and sport facilities, in accordance with the size o f the new community; and (0 public transport facility to perform a good life. 51. The Displaced Persons will move to the new site after the infrastructure and facilities at the resettlement site are completed and feasible to live in as confirmed by the OC and the BKM. The Displaced Persons will be informed o f the completion o f the resettlement site at least one month before displacement, and they will be invited to survey the new site. The resettlement site would be available prior to the start-up o f works under the relevant subproject. 106 52. The location reserved for resettlement will be widely publicized so that the general public will be informed. C. Other Assistance 53. Displaced Persons who lose their income sources or means o f livelihood as a result of the subproject will receive assistance to restore it. The types of assistance will be defined by the BKM and confirmed by the OC. Training and assistance that can be provided include: motivation development; skill and vocational training; assistance to start and develop small businesses; small scale credit; marketing development; assistance during transition period; and strengthening o f community based organization and services. In implementing the assistance, care should be taken to harmonize the newly resettled people and the host community in the resettlement area through assistance and integration efforts. The assistance can be linked to existing programs and resources. VI. Eligibility Criteria of Displaced Persons 54. Displaced Persons can be grouped into the following categories: (a) those who have legal land certificate, girik, or adat title; (b) those who, under domestic law, have a right to occupy land in a residential, commercial, or industrial zone in the Project area, or occupy land on infrastructure or public facility sites such as rivers, roads, parks or other public facilities in the Project area, but do not hold a certificate or legal title; (c) those who have no right to occupy land in a residential, commercial or industrial zone in the project area or publicly owned land and publicly owned facility sites but who were occupying such land at the time of the Census undertaken or at the time of the pre-feasibility study of the subproject; (d) those who are renters; (e) those whose jobs are lost because of the taking of land; and (0 those who have no right to occupy land in a residential, commercial or industrial zone in the project area, or publicly owned land and publicly owned facility sites and whose occupancy of such land begins after the Census. Compensation will differ according to these groupings. a. Persons with Land Certificate, Girik or Adat Title 0 Displaced Persons who have land certificate, girik, or adat title will receive compensation for the land, building, and fixed assets. 0 Displaced Persons who are displaced by the Project can choose to receive cash compensation or the other options as described in paragraph 21. 0 The lots at the resettlement site will have land title o f the same level or higher than they previously had, and the certificate will be issued within 1 year after displacement of the Displaced Persons. 0 Displaced Persons will receive transport allowance to move their belongings. 0 Displaced Persons will also receive assistance and training as provided in paragraph 28. b. Persons who under domestic law have recognized rights to occupy land in a residential, commercial or industrial zone in the Project area but who do not hold a Land Certificate or legal documents, as well as those who occupy publicly owned land and publicly owned facility sites under customary rights at the time of the Census: 0 Displaced Persons will receive compensation for their land, building and fixed assets, as well as for crops and trees at market value 107  Displaced Persons can choose to receive cash compensation or the other options as described in paragraph 2 1. 0 The lots at the new site will have Hak Pakai or a higher land title, and the certificate will be issued within 1 year after the displacement. Displaced Persons will receive transport allowance to move their belongings. 0 Displaced Persons will also receive assistance and training as provided in paragraph 23. c. Persons who have no right to occupy land in a residential, commercial or industrial zone in the project area or publicly owned land and publicly owned facility sites in the project area, but who were occupying such land at the time of the Census undertaken or at the time o f the pre-feasibility study of the subproject: Displaced Persons will receive rehabilitation assistance in any o f the forms provided for in paragraph 21 instead o f compensation for the land occupied in an amount sufficient to achieve the objectives of this Framework, and compensation at real replacement cost for the building, and fixed assets as well as for crops and trees at market value Displaced Persons can choose to receive cash compensation or the other options as described in paragraph 2 1. 0 The lots at the new site will have Hak Pakai or a higher land title, and the certificate will be issued within 1 year after the displacement. Displaced Persons will receive transport allowance to move their belongings. Displaced Persons will also receive assistance and training as provided in paragraph 2 1. d. Persons who are renters: 0 Displaced Persons who are renters will be assisted with an allowance of six months' rent calculated on the basis of average rent levels for similar houses or agricultural land within the same area. 0 Displaced Persons who are renters will also receive assistance and training and transport allowance to move their belongings e. Persons whose jobs are lost because o f the taking of land where they work and gained their income will be assisted with the forms of assistance described in paragraph 2 f. Persons who have no right to occupy land in a residential, commercial or industrial zone in the project area or publicly owned land and publicly owned facility sites and whose occupancy of such land begins after the Census will receive no compensation or rehabilitation assistance for the land or for the structures built and crops planted therein. ' VII. Consultation and Complaint Resolution 55. This general framework will be included in the Project manuals and guidelines, and OC staff and facilitators trained in i t s implementation. The overall project approach in enabling transparency and consultation should allow solutions to local problems locally, quickly, and effectively. If any Displaced Persons or other community members have a complaint regarding the framework or its application in practice, the project has an established system o f complaint handling at the kelurahan and kota/kabupaten as well as provincial and national levels, with dedicated staff in charge o f handling and following up on complaints. Complaints which cannot be solved locally through the BKM complaint system will be referred to the OC, and, if 108  necessary to the NMC and the PMU. However, in the event that the deliberations have been repeatedly conducted over a long period o f time, but not exceeding one year, to reach a consensus but no consensus has been reached on the form and amount of compensation, dispute resolution will follow Presidential Decree No. 36/2005 and No. 65/2006 as well as the BPN regulation No. 3/2007. 56. The progress of implementation o f any required land acquisition, resettlement, and assistance will be reported to the Bank regularly by the OC/NMC. If required, an independent reviewer may be retained to carry out external monitoring and evaluation of the implementation o f specific LARAPs. Such an agency or agencies will have qualified and experienced staff and terms of reference acceptable to the Bank. 109  Annex 10B: Attachment 1 INDONESIA: Third National Program for Community Empowerment in Urban Areas (PNPM-Urban 111) Requirements for a Land Acquisition and Resettlement Action Plan (LARAP) for subprojects under the Poverty Alleviation Partnership Grant affecting more than 200 persons 57. If a subproject proposal indicates that more than 200 persons will be affected by the subproject, the groups proposing the subproject (BKMs), assisted by the Oversight Consultant, will be required to conduct a Census and socio-economic survey to: (i)determine the number of persons involved; (ii) collect data about the social and economic condition of the people, and to the physical condition o f the Project area; and (iii)to determine the potential impact of the subproject. 58. The date o f this SurveyKensus will be the latest cut-off point to record the persons in the subproject area that will receive compensation, resettlement andor removal 'and rehabilitation assistance. 59. The detailed census and socio-economic survey (hereafter referred to as the socio-economic survey) will cover among others: the size, condition, legal status o f land and buildings (listed in impact groups o f 0-25%, 25- 50%, 50-75%, 75100% affected); 0 the number of Displaced Persons and households; relevant social characteristics o f the Displaced Persons (age, gender, education, etc) relevant economic characteristics of the Displaced Persons such as livelihoods (including, as relevant, production levels and income derived from both formal and informal economic activities); standards of living (including health status) the magnitude o f the expected loss - total or partial - of assets, and the extent of displacement, physical or economic; and information on vulnerable groups or persons for whom special provisions may have to be made 60. Based on the results o f this socio-economic survey, the Oversight Consultant will assist the BKMs to prepare a comprehensive plan on the taking of assets for purposes o f the subproject, and the provision o f compensation, resettlement, and rehabilitation assistance for the Displaced Persons in accordance with the principles of this Policy Framework. This will be described in a Land Acquisition and Resettlement Action Plan (LARAP) to be furnished to the Bank for approval. 61. The scope and level of detail o f the LARAP will vary with the magnitude and complexity o f the resettlement. The plan will be based on up-to-date and reliable information about: (a) the proposed resettlement and i t s impacts on the Displaced Persons and other adversely affected groups; and (b) the legal issues involved in resettlement. The following list defines the matters that should normally be included LARAP and it should be regarded as general guidance in the preparation o f a LARAP. When any matter listed i s not relevant to Project circumstances, it should be noted in the resettlement plan: 110  Description o f Suburo-iect Impact and Analvses Description o f the subproject and identificationof the subproject area. Identification of: (i)the subproject component or activities that give rise to resettlement; (ii) zone o f impact o f such component or activities; (iii) alternatives considered to the the avoid or minimize resettlement; and (iv) the mechanisms established to minimize resettlement, to the extent possible, during implementation. The main objectives o f the resettlement program The findings of the socioeconomic studies The findings of an analysis of the legal framework The findings o f an analysis of the institutional framework The definition of Displaced Persons and criteria for determining their eligibility for compensation and other resettlement assistance, including relevant cut-off dates Methodologies and Procedures The methodology to be used in valuing losses to determine their replacement cost; a description o f the proposed types and levels o f compensation under local law and such supplementary measures as are necessary to achieve the real replacement cost for lost assets A description of the strategy for consultation and participation o f resettlers and hosts in the design and implementationof the resettlement activities including; A summary of the views expressed and how these views were taken into account in preparing the resettlement plan; A review o f the resettlement alternatives presented and the choices made by Displaced Persons regarding options available to them, including choices related to forms o f compensation and resettlement assistance, to relocating as individuals families or as parts of preexisting communities or kinship groups, to sustaining existing patterns of group organization, and to retaining access to cultural property; Institutionalizedarrangements by which displaced people can communicate their concerns to Project authorities throughout planning and implementation, and Measures to ensure that groups such as isolated vulnerable people, the landless, and women are adequately represented. Comuensation Package Description of the packages o f compensation and other resettlement measures that will assist each category of eligible Displaced Persons to achieve the objectives o f , the Policy Framework. Compensation will be calculated based on Section V. d) Alternative Relocation Institutional and technical arrangements for identifying and preparing relocation sites, whether rural or urban, for which a combination o f productive potential, locational advantages, and other factors i s at least comparable to the advantages o f the old sites; Estimated time needed to acquire and transfer land and ancillary resources; 0 Any measures necessary to prevent land speculation or influx of ineligible persons at the selected sites; Procedures for physical relocation .under the subproject, including timetables for site preparation and transfer; 111  Legal arrangements for regularizing tenure and transferringtitles to resettlers; Plans to provide, or to finance resettlers' provision of housing, infrastructure and social services (which ensure comparable services to host populations); and any necessary site development, engineering, and architectural designs for these facilities A description o f the boundaries of the relocation area; and assessment o f the environmental impacts o f the proposed resettlement and measures to mitigate and manage these impacts (coordinated as appropriate with the environmental assessment' of the main investment requiring the resettlement). Measures to mitigate the impact o f resettlement on any host communities. Implementationof resettlement The organizational framework for implementing resettlement, including identification o f agencies responsible for delivery o f resettlement measures and provision o f services. An implementation schedule covering a l l resettlement activities from preparation through implementation, including target dates for the achievement o f expected benefits to resettlers and hosts and terminating the various forms of assistance. Detailed .cost of the full compensation package, resettlement costs and all associated implementation costs Identification o f sources o f financing (Bank funds cannot be used to finance cash compensation or land acquisition.) Monitoring and grievance urocedures Arrangements for monitoring o f resettlement activities by the implementing agency, supplemented by independent monitors as considered appropriate by the Bank. Description of grievance procedures 62. There will be regular consultations with a l l Displaced Persons, and a l l other stakeholders including non-governmental organizations throughout the design and implementation o f the LARAP. 63. The LARAP described above will be prepared by the BKM(s) proposing the subproject, with the assistance o f the Oversight Consultants and will thereafter be provided to the Bank through the OC/NMC for approval. Once Bank approval i s obtained, it will be issued as a Decree o f the head o f the district level local government (the Bupati or Walikota). Once the Decree has been issued, it will be disseminated by the OC and relevant government offices to the Project Affect Persons. 64. Issuance o f approval for contract signing for a subproject that requires a LARAP will be considered by the Bank after receipt o f a progress report from the OC/NMC that indicates substantial implementation of the LARAP, including acquisition of a l l land in critical locations. 65. The LARAP, including a l l its maps and annexes, will be publicly displayed at the NMC and relevant OC office, the office of the relevant kelurahan(s), and the office of the relevant BKM(s). 112  Annex 1OC: Framework for Treatment o f Indigenous o r Isolated Vulnerable Peoples INDONESIA: Third National Program for Community Empowerment in Urban Areas (PNPM-Urban 111) Experiences from UPPs 66. As in the case o f environmental and land acquisition/resettlement impacts, potential impacts or involvement of IVP i s identified in the subproject proposal submitted by the community groups ' (KSM). Screening i s carried out at the subproject proposal by the BKM and facilitators. To date, in all UPPs, there i s no report on the involvement or impacts on the IVP, as all subprojects are located in the urbanized areas. All supervision missions have confirmed that no IVPs are involved or affected by the project. However, as the PNPM will cover more kelurahans in the eastern islands, although it i s very unlikely, in the case that the Project involves IVP, it will use the IVP policy framework of the UPP 3, which was adopted in the UPP 2 AF. 0 bjectives 67. The design of this project i s structured to ensure the participation and inclusion o f various groups within communities in local level decision making over resource allocation. However, the project recognizes that Indigenous People form a particular group that merits a different approach and specific support. Therefore, in accordance with OD 4.20, the following framework for addressing indigenous people will be adopted for the project. 68. The objectives o f this framework are to: 0 Ensure that indigenous people participate in and benefit from the project; and Avoid or minimize potentially adverse effects o f the project on indigenous people. Definition 69. "Isolated vulnerable peoples" i s the term used officially by the Indonesian Government to describe groups that have the characteristics o f "indigenous peoples" as used in OD 4.20. This document will hereafter use the term "isolated vulnerable peoples". 70. For the purposes o f this project, isolated vulnerable peoples are defined as those that present varying degrees of the following characteristics: 0 A close attachment to ancestral territories and to the natural resources in these areas; 0 Self-identificationand identificationby others as members of a distinct cultural group; 0 An indigenous language, different from the common regional language (e.g. Javanese); 0 The presence of customary social and political institutions; and 0 Primarily subsistence-orientedproduction 113 Framework 71. Isolated vulnerable people are not prevalent in a l l the project sites-they are likely to be found in particular kota/kabupaten o f particular provinces. The following steps will be taken to ensure that, where isolated vulnerable groups exist, the project caters to their specific needs. During the facilitator training, facilitators will be trained in the identification o f isolated vulnerable people. Through the Community S e l f Survey exercise and poverty reflections, facilitators will identify the presence and numbers of isolated vulnerable groups in the community and report this to the OCs. For the areas where isolated vulnerable groups are identified, OCs will organize an orientation training for relevant facilitators in how to work with isolated vulnerable groups in a useful way to identify mechanisms for effective participation, and address specific challenges in working with such groups, for example, how to deal with groups that may be in conflict with the larger community, etc. Since facilitators will be hired locally to the extent possible, they are expected to be familiar with such groups. They will also be rotated as necessary to ensure that those that have been trained in working with isolated vulnerable groups, or have specific skills that would be beneficial in working with such groups, are made available in the right places. Management o f facilitators will be handled by the OCs. Where isolated vulnerable groups are identified, efforts will be made to ensure that at least one Community Cadre i s from the group and able to communicate easily with the group. Where the isolated vulnerable group speaks a language different from Bahasa Indonesia, relevant brochures and documents will be translated in the appropriate language. Provision has been made in the project budget to allow for additional translations o f relevant project documents. 72. These steps will be aimed at ensuring that isolated vulnerable people participate fully in the project, are aware o f their rights and responsibilities, and are able to voice their needs during the Community S e l f Survey exercise and in the formulation o f the Community Development Plan. In addition, they will be encouraged to submit subproject proposals that cater to their group's needs. Monitoring and Grievance Procedures 73. The Terms o f References for the OC and NMC include the responsibility for monitoring the treatment o f isolated vulnerable people in the project. Where isolated vulnerable people are identified, the OCs will be required to report on their participation in the project. Provisions will be made in the MIS system to monitor the involvement of isolated vulnerable people. This will be followed by the NMC as well as monitored during supervision missions. 74. The project has a complaint system that allows community members to raise issues or complaints at various levels-at the kelurahan level, at the OC level (either at kotakabupaten or province level), and at the national level. There are designated staff members at the OC and NMC responsible for following up on complaints and ensuring that they are handled adequately. Where isolated vulnerable people are concerned, the facilitator/OC will ensure that grievance redress mechanisms are developed in culturally appropriate ways in close collaboration with the relevant group. Project evaluation studies will include monitoring and evaluation o the impact o the project on f f isolated vulnerable people. 114  Annex 11: PNPM-Urban Progress on Commitments INDONESIA: Third National Program for Community Empowerment in Urban Areas (PNPM-Urban 111) 1. The project team was asked during the project concept review for PNPM-Urban I11 to review the progress on decisions and commitments made with GO1 under PNPM-Urban and the Additional Financing (AF) package. All o f the areas deemed to lack sufficient progress were discussed with GO1 during project preparation and are addressed in the new project. Table 11.1: Progress on Commitments and Decision under PNPM-Urban and AF Action Progress Capacity Building Strengthen capacity building o f facilitators and The provision o f capacity building materials was delayed due communities by providing training and socialization Government's budget revision. For 20 10, the required budget materials that i s timely delivered has been included in the DIPA (budget Authorization). The Government will ensure that the required training and socialization materials will be timely delivered To improve effectiveness the socialization and training Capacity building unit first established in 2009 with the new will be merged into capacity building unit NMC Sustained training throughout the l i f e o f the project To ensure training throughout the project period local government officials have been trained to act as national trainers since 2009 and allowing them to provide training to new BKM members Fiduciary Mobilize Monitoring expert for complaint handling In general the required number o f monitoring and F M and F M consultant in each province consultants can be met. However, as o f December 2009 3% and 11% o f the current positions remained temporarily vacant for both the monitoring and F M consultants respectively. They are expected to be filled by January 2010. Mobilize FM consultant at the district level and The required number o f economic facilitators have been met per economic facilitator in each kelurahan cluster kelurahan cluster, however, as o f December 15, 2009 there remains a 2% shortage o f F M consultants at the district level. Separate report for revolving funds from investment This has been instituted since 2008 funds F M consultant at district level and economic facilitator The minimum supervision levels for the F M consultants and the meet minimum supervision performance levels beconomic facilitators have been met, which i s 50% and 100% per month respectively. The quality and timeliness o f supervision s t i l l needs improvement Include supervision of financial books in the revised Done consultant TORS Formal criteria for consultant performance evaluation F M performance indicators exist and reviewed on monthly basis Study on effectiveness o f UPK supervisory board - This i s under discussions with development partners for Badan Pengawas (BP) UPK independent study F M training for L W P K and BP/UPK Refresher training for LKWUPK was completed in 72% locations, while training for BP-UPK was completed in 82% locations. BPKP will work together with local auditors (local Discussions are underway to involve local auditor in all inspector) provinces in 2010. Sample size for PNPM FY 2010 i s 16% and will increase in FY 2011 when local auditor involved in audit assignment Ensure the availability o f Local Government In 2009, about 25% o f the required counterpart funds was not Counterpart funds met because o f lack o f legal clarity or delay o f budget process in KotdKab. For 2010, the Ministry o f Finance issued a decree 115  Action Progress that strengthen the legal basis of kotakab to allocate funding. The Central Government will intensively monitor the progress of LG counterpart funds and ensure that LGs can speed up the budget process The follow up actions on finding by State Auditor (BPKP) has report on actions taken and result achieved. been uploaded in the UPP website since October 2009 and as part o f PPM (Complaint Handling) application since January Project ManagemenVSupervision National and regional consultants (OCs) are expected to meet minimum level o f field supervision. The result teleconferences, yet the required levels have not yet been met of spot-checked will be timely published in the project and has not regularly been publishedhpdated in the website. For I website. Teleconferences will be also conducted. PNPM 2010, t h i s will be significantly improved. Improvements of SOP for data collection, verification, The SOP i s available and has been trained to data management and validation to improve timeliness and data assistant at kotdkabupaten level. However, the tools for-MIS I utilization and analysis have not been completed, but this has I January 2009 and the other 2 OCs contract in April or under IDB funding. OC 5 i s expected to be mobilized soon. May 2009 The Project MIS will maintain and report a core set o f The MIS i s already integrated for all PNPM - Urban projects, indicators that are applied for all PNPM projects, and and has been integrated into the national PNPM'MIS since will be integrated into the national PNPM's MIS August 2009. Evaluation Several thematic studies conducted by UPP and joint Most thematic studies are on-going. The baseline study o f 2008 UPP-KDP will need to be implemented during the i s cancelled due to missing o f controlled area. Baseline 2009 period 2008 and 2009. will be conducted in mid September 2010. 116  Annex 12: Better Governance Action Plan INDONESIA: Third National Program for Community Empowerment in Urban Areas (PNPM-Urban 111) 1. In 2003, the World Bank introduced additional measures intended to improve project-level governance, enhance transparency and reduce opportunities for corruption and fraud within projects. These "Better Governance Action Plans" are the result o f collaborative efforts between the World Bank and the relative GO1 implementing agency to map corruption risks and identify specific measures to mitigate such risks. In the case of the PNPM, efforts have been made to ensure a high degree of consistency between the Rural and Urban versions of this project, both in terms o f the principles that govern the Action Plans as well as many of the specific mechanisms used to comply with the measures included therein. Because the Rural and Urban PNPM projects are implemented by different GO1 counterparts, there are some variations in the manner in which these Action Plans will be applied operationally. 2. The objective of this Better Governance Action Plan for PNPM-Urban I11 i s to identify corruption risks and mitigation measures beyond the standard control systems employed by the Bank. Detailed, program-specific control systems are outlined in Annex 7 on Financial management and Annex 8 on procurement. 3. This action plan also builds upon the many good governance features already being implemented, including the UPP website. The project follows a learning approach and implementation experiences will be incorporated continually into implementation processes. The Better Governance Action Plan should therefore be seen as a starting point and not an all- inclusive list o f mitigation measures. A. Corruption Mapping 4. The matrix included in this action plan identifies some potential risks of corruption and specifies some appropriate mitigation measures that have been agreed to by the Ministry of Public Works (MPW) (see table below: Corruption Mapping Matrix). The mapping exercise i s repeated during the lifetime o f the project to incorporate innovations and lessons learned. B. The Action Plan 5. The Better Governance Action Plan has been developed for use with regard to project activities that take place both at the central level (with MPW as the executing agency) and at the community level (focused on project beneficiaries as well as implementing units o f the sub- projects). Community level participation and empowerment are crucial to the success of the project. Together, these factors will encourage greater accountability and better governance. 6. This project empowers the community to manage the sub-projects and be responsible for the technical quality of deliveries and outputs at the kelurahan level. The design of the project incorporates careful socialization and transparent management techniques to enable necessary participation and empowerment. Active participation from members of the community i s required in planning and developing sub-projects. I n addition, the program provides funds channeled directly to the community, Le. to the BKM account. Once the beneficiaries fulfill the drawdown conditions, the funds are remitted from the special account within a few days. 117  Simple, standard formats are used for recording and reporting the use o f funds. This simplification reduces the need for special skills whilst making the system more transparent and accountable. Through active participation there i s a greater likelihood for communities to demand services of the urban local governments and ensure transparent accounting of resources earmarked for effective management and livelihood improvement. 7; Some o f the most important aspects o f the Better Governance Action Plan can be summarized in the five key elements that follow. Underpinning each o f these elements i s the consultative process that ensures participation and empowerment. Enhanced Disclosure Provisions and Transparency 8. The program will involve the Bank's new disclosure provisions, further simplifying disclosed materials and making them readily available through public information centers and on the project website. Salient information will be made available to communities by a range o f means, including public meetings and notice boards. Specific disclosure measures will include, but not be limited to: Public disclosure o f 'annual procurement plans and schedules (and their updates), bidding documents and requests for proposals. Disclosure to all bidders o f the summary of the evaluation and comparison of bids, proposals, offers, and quotations, after the successful bidder i s notified. Disclosure of audit reports. Civil Society Oversight 9. The program recognizes that greater oversight by civil society i s likely to reduce the risk o f corruption and misuse o f power. The program involves a high degree o f formal participation by community groups, such as beneficiaries, the private sector, and traditional and religious leaders, through mechanisms such as the monitoring o f the projectdend results, memberships o f the tender committee, and the evaluation of the quality of delivery procured services/products. Existing NGOs and other civil society organizations will be involved in a variety o f ways, inter alia: a) through participation in the regional workshops; b) as key resource persons for the development of Community Development Plans (CDPs) where possible; c) as evaluators on an ad-hoc basis; and d) as training providers in particular skill areas. 118 Mitigating Collusion, Fraud & Nepotism 10. Opportunities for collusion and fraud exist in any project. However, since the central theme o f this project i s improved and more responsive governance, many o f the possible risks are mitigated through project design. Collusion, fraud and nepotism will be reduced through transparent and well-advertised procurement activities. Additional auditing and procurement procedures are proposed, such as oversight by technical assistance (TA) and capacity building, with TA procurement and financial management specialists mapped to each region. At the central level, a committee will be formed to regularly evaluate the performance of the consultants who are hired under the project. This committee will circulate results to relevant technical parties. Cases o f collusion, fraud and nepotism will be reported directly to the attorney general office, as mandated by Indonesian law. In the instance o f intra-community collusion, fraud and nepotism, cases will be reported and deliberated at the community meeting (Rembug Warga) prior to their submission to the attorney general office. Experience in other CDD projects indicates that many risks can be mitigated by the threat and use of community- based sanctions (such as those used under PNPM Urban). Complaints Handling Mechanism 1 1. Complaint handling procedures, as currently defined in the Keppres 80/2003, will be strictly followed by assigning authorized officials to be responsible for maintaining a database o f complaints and follow-up actions. This 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 has been established through a feedback mechanism at the national-level. A special unit designated for handling of complaints will be made available in the NMC and OCs. The complaint-handling unit will investigate and facilitate the resolution o f complaints and problems. The database of complaints, follow-up actions, and applied sanctions will be publicized through project web- site to increase participants' involvement and likelihood to lodge protests. This mechanism also increases the social cost of misuse o f funds. Complaints will be acted upon in a professional and timely fashion, and without risk o f reprisal to `whistleblowers' in the public. Wider access for community input i s provided through the establishment of an address to mail complaints, and S M S based mechanism, since all areas are covered under cell phone networks. This address will be posted to the kelurahan's signboards. Sanctions & Remedies 12. Clear sanctions and remedies are important final steps in the effort to fight corruption. As already demonstrated in PNPM Urban 1 UPP 1 and 2, this program has a low tolerance for corruption. Communities are encouraged to impose reasonable community-based and locally appropriate sanctions on citizens who abuse the power that has been entrusted to them. There i s an increasing wealth of anecdotal evidence suggesting that such sanctions can be more easily and effectively applied 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 can reach amicable resolutions without resorting to the slow and over-burdened legal system. That said, formal sanctions may also be applied. For example, any official (government, non-government, etc.), community member, or private sector entity participating in the project can be prosecuted if sufficient evidence i s available. In all procurement contracts, evidence o f corruption, collusion or nepotism will result in termination 119  o f the relevant contract, with additional penalties potentially imposed (such as fines, blacklisting, etc.) in accordance with Bank and Government regulations. Drawdown o f funds from the project special account to BKMs will be suspended in cases where significant misuse o f funds i s suspected. At a larger scale, entire kota(s) may be excluded from participation in the subsequent phase if misuse o f funds i s widespread. Information regarding successful cases, where lessons are learned and funds are retrieved, will be widely disseminated. 13. B e l o w i s progress on PNPM Urban action plan: Table 16.1: Progress in Better Governance Action Plan of PNPM-Urban I(adopted 2008) and Additional Financing Action Plan * Enhanced Disclosure Make salient information available to - Various meeting has been carried Provisions & communities by a range of means, including out to disseminate project Transparency public meetings and notice boards. information at kelurahan level. - Min 5 notice boards i s available in each kelurahan. - Monthly bookkeeping report of BKM should be put in the notice board. Disclose annual procurement plans and Partly. The procurement plan for 20 10 schedules (and their updates), bidding will be uploaded in project website documents and requests for proposals. (www. p2kp.org) Disclose to all bidders of the summary o f the Partly. Done in GPN. Tender evaluation and comparison o f bids, committee has sent letter to all proposals, offers, and quotations, after the bidders. successful bidder i s notified. Disclose audit reports Annual audit report o f the project uploads in BPKP website. Response of audit report uploads in PNPM Urban's web-site annually. Civil Society Oversight Involve NGOs and other civil society organizations in a variety of ways, inter alia: through participation in the regional NGO has been involved as participant workshops; in various workshops of PNPM Urban at provincial and district level. as key resource persons for the Not yet development o f Community Development Plans (CDPs) where possible; as evaluators on an ad-hoc basis; and Not vet as training providers in particular skill Done partially areas. Mitigating Collusion, Assign procurement and financial Financial management specialists are Fraud & Nepotism management specialists to each region. assigned at NMC and OCs level. More than 1000 F M facilitator has been mobilized. Procurement specialist i s assigned at national level. Form a committee at the central level to Committee has not yet established. regularly evaluate the performance o f the consultants who are hired under the project. 120  Actionplan . - , This committee will circulate results to relevant technical parties. Report cases of collusion, fraud and Done where i t happens necessary, but nepotism directly to the attorney general mainly to police. office, as mandated by Indonesian law. Report and deliberate at the community Done where it happens meeting (Rembug Warga) prior to their submission to the attorney general office in the instance o f intra-communitycollusion, fraud and nepotism. Complaint Handling Assign a special unit for complaint handling Special unit for complaint handling Mechanism in the NMC and OCs to investigate and has been assign to facilitate the facilitate the resolutiono f complaints and complaints resolution. At OCs level, problems. handling complaints i s facilitated by monitoring and evaluation experts. Publish database o f complaints, follow-up Database o f complaints, follow-up actions, and applied sanctions through actions, and applied sanctions through project web-site. project web-site has been available in www.p2kp.org (in Bahasa). Establish o f an address to mail complaints, Below are address for complaint and SMS based mechanism. This address handling: will be posted to the kelurahan's signboards. SMS number: +62 817 148 048. Email address: ppm@,mpm- - p 0 Online complaint: www.p2kp.org Sanction & Remedies Terminate procurement contracts, evidence No case so far. o f corruption, collusion or nepotism, with additional penalties potentially imposed (such as fines, blacklisting, etc.) in accordance with Bank and Government regulations. Suspend drawdown of funds from the project Based on MIS, since March 2009, special account to BKMs in cases wh&e there are 9 misused funds cases for significant misuse o f funds i s suspected. total USD 27,198. Four o f them have been resolved. Remain cases are still facilitating by & consultant. Exclude entire kota(s) from participation in N o case so far. It i s only applied to the subsequent phase if misuse o f funds i s few kelurahans widespread. Disseminate information regarding Article has uploaded in project web- successful cases, where lessons are learned (in site www.~2k~.org Bahasa). and funds are retrieved. 121 C. Corruption Mapping Matrix 14. Limiting the occurrence o f corruption in this project starts with identifying pptential risk areas - this i s called corruption mapping. This corruption incentive mapping and identification o f opportunities for corruption will be repeated annually as the project progresses and lessons are learned. The corruption matrix presumes there i s an intent for corrupt practices and then tries to identify where that may occur, and what to do about it. 15. Following i s corruption matrix area and its implantation progress in PNPM-Urban I(including Additional Financing): Table 16.2: Corruption Matrix Area and its Implementation Progress in PNPM-Urban I (and Additional Financing) Progress in Corruption Level of Opportunity for Mitigation Action PNPM-Urban Mapping Area Risk Corruption I (and AF) PROCUREMENT i f Consultanf Short list MEDIUM Manipulation of the Evaluation criteria for Done preparation shortlisting process to shortlisting should be as exclude firms that may objective and numeric as compete with a possible -taking out predeterminedwinner, and subjectivity in the include firms known not to evaluation. bid low to buffer the preferred bid [for contract firm above US$200,000]. Capacity o f the MEDIUM The Capacity o f the A procurement adviser Done Project Manager (Central) Consultant Selection funded by the loan to and Committee [SC] to make free provide oversight o f the Tender/Evaluation and independent decisions i s procurement process. Committee still limited. There i s opportunity for influence by Bank makes the summary other parties within or Evaluation Report public - outside the Ex.A. especially this allows the other bidders influential superiors. and other interested parties to make their own judgment. Risk o f exposing poor evaluation may curb potential collusion within or between the Evaluation Committees and bidders. Capacity building for all Done actors involved in procurement, including certification of staff in accordance with Keppres 80/2003. Development o f project Done management manual to streamline all procedures and sanctiodcomplaint handling mechanisms. Proposal evaluation MEDIUM Prolonged evaluation process The procurement plan, with Done to ensure the desired detailed timeline, will be evaluation result and hence bindine in the leeal 122  Progress in Corruption Level of Opportunity for Mitigation Action PNPM-Urban Mapping Area Risk Corruption I (and AF) the manipulation of the bid agreement, and will be used outcome. as the basis for any Proposals are rejected due to procurement actions. The reasons unrelated to the Bank would declare mis- capacity o f consultants in procurement for any carrying out of the unjustified extension o f contracts/services. validity o f proposals. Large [unjustified] disparity RFP should state that Done in assigning final scores with incomplete documentation large differences between the and other minor ranked bids, thereby administrative discrepancies manipulating the QCBS shall not be used as a basis process. for rejection o f the Bids. False information provided Procedures for contract firm Done by the consultants, and not above US$200,000. The challenged by the SC. estimated budget for each contract package will be based on actual experience determined through the extensive survey o f similar packages that are currently underway in UPP 1 and 2. Public posting o f the Done summary evaluation scores. Apply or threaten to apply Done severe punitive action. Consultant can be blacklisted for deliberately misleading information. SCEA should be reprimanded for not checking. 4ward o f Contract MEDIUM For contract firm above US$ Security of the cost Done 200,000, the committee may proposals through a trusted manipulate the final bid price intermediary. by tampering with the cost Mandatory disclosure of Done proposal in collusion with the contract awards. bidder. 2uality of delivered MEDIUM The services provided are o f Enforce punishment as services lower quality than specified defined in Keppres 80/2003, in the TOR, and no punitive and report lack o f response action taken against the o f supervising authority. consultant. Withhold payments for Done Significant changes of key unauthorized staff changes. staff o f consultants at the Only allow staff changes early stage o f the assignment tdough amendments to the Intentionally low quality o f contract requiring Bank supervision of contracts, and NOL. kickback from the Involvement o f supervisory Done consultants consultants (for example: NMC in the case of OC, and EC in the case o f NMC) in the inspection of the delivered services. 123  Progress in Corruption Level of Opportunity for Mitigation Action PNPM-Urban Mapping Area Risk Corruption I(and AF) Enhanced complaint Done handling mechanism. Involvement o f civil society Partially done or community groups in monitoring the quality o f the consultants' deliverables. Oversight of MEDIUM Overstating of reimbursable Conduct spot checks on the Done material Inputs expenses. validity o f receipts. Air fares to be claimed with Done ticket and boarding pass. More frequent spot checks Done to verify large cost items such as rented vehicles. Utilize recipient community Done groups to verify Faskel inputs. To publicize the update Done invoices of consultants on the UPP website and the information board at each korkot office. Procurement MEDIUM Risk o f budget markup to Mandatory review by the Done Planning, including allow opportunity for bid Bank of procurement sub-projects manipulation. planning and disclosure o f procurement plan in public domain, including disclosing the contract amount. Overall MEDIUM Risk of collusive practices to Disclosure of summary Done Procurement "award" the contract to technical evaluation of bids. "preferred" consultants, and May extend that to accept lower quality of disclosure o f shortlist services at higher prices. evaluation. Enhanced disclosure, Done complaint handling, and sanctions as defined in KeDDres 8012003. Enhanced capacity for the Done officials involved in procurement decision, including hiring o f consultants. Enhanced control system Not yet (internal and external) including involvement o f professional members of civil society in the procurement decision actions. Development o f Project Done Manuals. Tighten Bank supervision Done 124  Progress in Corruption Level of Opportunity for Mitigation Action PNPM-Urban Mapping Area Risk Corruption I(and AF) PROJECT MANAi The final list of Insufficient experience and The criteria and Partially Done CPMU, PMU and capacity of CPMU, PMU and performance indicators o f PIU staff with their PIU staff to resist or identify Project Manager, Treasurer, (a) experiences in collusive practice by planning staff, procurement handling colleagues. staff, financial staff and development Insufficient capacity and monev. Staff o f CPMU, partner financing experience o f CPMU, PMU PMU and PIU agreed by the project and (b) and PIU staff to identify and Bank have been history o f project respond to corrupt practice incorporated in the P M M management and or by contractors. and will be used as the basis treasury training of the annual performance taken review o f the relevant staff. Requirement o f POM as a Done guideline for project imdementation. Requirement o f Not yet Government Project Management, Treasury and POM training for CPMU, PMU and PIU staff. Annual Training agreed by partially done the Bank on CPMU, PMU and PIU staff. Audit Report MEDIUM Collusion between the EA The implementing agency Done Publication and the Audit Agency on will (and the Bank can) what i s reported. Risk o f make final audit reports nondisclosure of sensitive publicly available, along information on the result o f with formal government project implementation, use response, promptly after o f funds (including misuse, receipt. collusion and nepotism, if any). Local MEDIUM Lack o f local experience may The project design includes Done Accountability result in communities oversight and supervision to Mechanisms missing cases of abuse. minimize risks. BKMs will meet regularly Done to make collective decisions on strategic issues, and to review the UPK's accounts regarding the use o f finds. The BKM will also hold annual meetings with the general community to account for i t s activities during the year. BKM finances will be Done, mostly audited each year by local accountants. Audit results will be reported to the community at the end-of- year BKM accountability meeting. Ideally, each BKM should be visited at 125  Progress in Corruption Level of Opportunity for Mitigation Action PNPM-Urban Mapping Area Risk Corruption I (and AF) least twice per annum by the NMC. In order to enhance the Done, mostly quality o f consultants' supervision under the project, facilitators are required to regularly check the BKM and UPK books. They will also need to sign and file a "representation statement" regularly, confirming that they have checked the books and found them satisfactory. The OCs at higher level would randomly check the facilitators' statements and will also be required to sign and f i l e similar representation statements. A mechanism for checking and applying sanctions will be developed for those filing false statements (sanctions may include job separation). C O M M U N I T Y PA1 H C I P A T I O N Limited LOW Information i s kept limited to Socialization will be carried Done, dissemination of certain circulation or group out through meetings, partially. information related o f people only such that non- workshops and focus group Socialization to the Program qualified proposals could be discussions at the activities for expected kelurahan, kecamatan, kota 2008 mostly and provincial levels. It have been will also include a carried out campaign through well. newspaper spots and radio However, for programs. The socialization 2009 there was strategy i s geared towards delayed making communities aware deliverable for o f the project's goals, and socialization its rules and regulations. printing These are aimed to ensure material that that stakeholders know affected to the what their respective roles activities. and responsibilities are, and how to hold each other accountable for their ~~~ ~ actions. Selection of B K M LOW Non-transparentprocess of The selection process of Done, mostly. members BKM members selection BKM members will be resulting in low integrity conducted through a transparent and fair election process, with significant participation from the 126  Progress in Corruption Level of Opportunity for Mitigation Action PNPM-Urban Mapping Area Risk Corruption I(and AF) members o f the community. Channeling o f MEDIUM Kickbacks for [local PNPM-Urban funds go Done. funds government] officials directly to communities, i.e. to the B K M account. Once the beneficiaries fulfill the drawdown conditions, following a request from the PJOK (after verification by the Oversight Consultants), the funds are remitted from the Special Account within a few days. The procedures, size and Done, mostly criteria for defming grants, The condition eligibility criteria for performance beneficiaries, and for drawdown conditions for drawdown that was stated are all simplified and in guidelines defined upfront to ensure has been easy understanding for revised. stakeholders. For the Kelurahan Grants, conditions for drawdown o f funds to B K M are linked to performance rather than inputs, with the f i r s t drawdown o f 20% based on satisfactory completion o f the BKM's Community Development Plan; the second 50% based on indicators of satisfactory utilization o f funds and financial management, and the third 30% based on indicators o f BKM sustainability. Since communities know how much they should be receiving, i t should be harder for officials to engage in rent seeking behavior. implementation o f MEDIUM Misuse o f funds by the BKM KSMs are required to Done :he sub-project and KSM prepare and submit reports investments on progress and their use o f project funds to the BKMs. All financial information i s Done, partially made public and displayed in the kelurahans. Minutes o f meetings, BKMs' monthly financial status, and names and amounts for funded proposals are posted 127  Progress in Corruption Level of Opportunity for Mitigation Action PNPM-Urban Mapping Area Risk Corruption I(and AF) on signboards that are displayed around the kelurahan. Discretion o f actors i s limited by setting rules that all financial transactions require at least three signatures, two from the elected BKM members and one from the project's OC. For purchases above Rp. 15 million each, the project requires the BKM to conduct a limited bid whereby quotations must be read out in public. For smaller purchases, local shopping must be carried out by two persons seeking quotations from local suppliers. B K M finances will be Done, mostly. audited each year by local accountants. Audit results will be reported to the community at the end-of- year BKM accountability meeting. 128  Annex 13: Strategy to Ensure Gender Mainstreaming and Equality INDONESIA: Third National Program for Community Empowerment in Urban Areas (PNPM-Urban 111) 1. Women's participation in the community development process i s a key factor in establishing organizations that truly represent all people in the community. It i s also important for providing services that respond not only to the community at large, but also to specific needs that women may have. The following gender strategy was developed for UPP 3 and PNPM- Urban I(and Additional Financing). The strategy has been updated for PNPM-Urban I11 to more systematically address gender mainstreaming and equality. 2. Below i s implementation progress o f the strategy in PNPM Urban : Activities Measureio Ensure ~ Progress in P N P M Urban Gender Mainstreaming and Equality jocialization and Explain and discuss how important women's Done. Iissemination at each participation i s for poverty reduction Gender training modules has eve1 (national through been trained to stakeholders. :elurahan) Explain gender goals of project within i t s Done. poverty strategy Gender training modules has been trained to stakeholders. The communications strategist i s responsible jone for determining the best ways for ensuring that women at all levels receive the same information as the men, using whatever media and language i s appropriate, for example; posters, plays, radio, leaflets Regular rapid evaluations by facilitators Done, partially in should identify the effectiveness o f the preliminary socialization materials used and also identify those that are activities at community not receiving information in the kelurahans level. so that new initiatives can be introduced :onsultants and Advertisements for all new project staff Done. acilitators should state that `women are strongly encouraged to apply' If there are both male and female eligible Done. candidates for positions, females should get priority I t i s expected that a minimum of one third of Mostly exceeded consultants and facilitators per province would be women Maternity leave will be according to the laws Done partially in force at the current time. Additional costs Women facilitator get basic of providing maternity benefits should be remuneration while she on included in the social costs o f the contracts maternity leave. with consultants and facilitators should clarify the provisions. At least 30% o f selected facilitators should Done. be women. Women facilitator i s 37% All contracts should include maternity leave Done. Maternity leave i s 3 months for women facilitator to deliver her baby. 129  Activities Measures to Ensure Progress in P N P M Urban Gender Mainstreaming and Equality 3 Training o f consultants Include gender-related issues (meeting Done. and facilitators techniques, timing, facilitation, specific Gender training modules has culture local women identification, etc) been trained to stakeholders. Simple gender manual Identify local specific and acceptable ways tc Streamlining in various (a) ensure women can participate in all manual. aspects o f the program; and (b) to disseminate information to women. Meeting for selection of At least 30% of participants should be community cadre women Equal opportunity for women in cadres' Done selection At least 30% o f selected community cadres Done. should be women Women volunteer i s 39.62%. Community cadre Include gender-related issues (meeting Done. training techniques, timing, facilitation, specific cultural issues, local women identification, etc) Focus Group Discussion Hold special focus group discussions for Done, partially. specially on poverty women (separately from men) There i s separate meeting for identification and local women at community level institutions analysis on various topics. Ensure that gender sensitive Done, partially approachesimethods are used that match local conditions (place, timing, facilitation techniques, etc) Participants selection for Try and ensure during socialization that 50% 46,42% women attended the :omunity self survey o f participants are women socialization meeting. :Survey Swadaya) and At least one third of the Survey Swadaya Done, 46.50% member o f ?articipatoryplanning members should be women survey swadaya team i s saining women. Developing Lembaga Try and ensure that 40% of the meeting Done, 44.86% voter o f BKM Masyarakat (BKM) participants are women election i s women. xocess from Ensure through socialization that Done, by series o f FGDs for RTiRWDusun to communities are aware that women have BKM election. rtelurahan equal opportunity to be elected as BKM members Selecting the UPK If there are both male and female candidates Done, mostly. eligible, females should get priority KSM proposal writing Ensure that women KSM proposals are self- Done, partially. written (with assistance from community cadre/facilitator if needed) 3efining proposals Ensure women KSMs who propose can come Done. iriorities by `rembuk . to meetings (Le. be careful with place and nasyarakat' meeting timing of meetings to allow women to Women as RLF KSM participate given their local conditions) member are 63.35%, and as non-RLF member are 30.23%. Give priority to women's proposals if they Done, mostly. meet the criteria according to the verification team 3 aonitoring and Ensure formats for monitoring and done. :valuation formats evaluations collect information on women's participation in all aspects o f the project, 130 Activities ._ Measures to Ensure Progress in PNPM Urban I Gender Mainstreaming and Equality including meetings, women beneficiaries, 1 etc. to imnrove Derformance if needed Done ensure that women have easy access to the Partly done. I information and that they understandtheir responsibilities for monitoring the use o f the funds. U s e participatory methods for monitoring at village level 131  Annex 14: Project Processing INDONESIA: Third National Program for Community Empowerment in Urban Areas (PNPM-Urban 111) 1. The project i s being processed according to the following schedule: Planned Actual PCN review 11/18/2009 Initial PID to PIC 12/08/2009 Initial ISDS to PIC 02/25/2010 Appraisal 02/26/20 10 02/24/2010 Negotiations 02/26/2010 0310 1/2010 Board/RVP approval 03/30/2010 Planned date o f effectiveness 0610 112010 Planned date o f mid-term review 09/30/2011 Planned closing date 1213 1/2013 2. Key institutions responsible for preparation o f the project: Ministry o f Public Works (Directorate General o f Human Settlements) 3. Bank staff and consultants who worked on the project included: Name Role/ Title Unit George Soraya TTL, Lead Municipal Engineer EASIS Fatima Shah Co-TTL, Urban Economist EASIN Evi Hermirasari Project Management and Monitoring Specialist EASIS Yarissa Sommer Consultant, Urban Specialist EASIN Kumala Sari Community Development and Training Specialist EASIS Parwoto Sugianto Community Development Specialist EASIS Dayu Indira Dharmapatni Sr. Safeguard Specialist (social) EASIS Virza Sasmitawidjaja Environment Specialist EASIS Unggul Suprayitno Financial Management Specialist EAPFM Zhentu Liu Senior Procurement Specialist EAPPR Melinda Good Senior Counsel LEGES Judy Baker CDD Monitoring and Evaluation Economist FEUUR Yogana Prasta Operations Adviser, Disbursement Officer EACIF Saiiad A l i Shah Senior Ooerations Officer COSU Ben Fisher Consultant OPCS Yuli Safitri Widyawati Management Information System Consultant EASIS Patricia Sonata Consultant EASIS Diumadi Achmad Consultant EASIS 4. Bank funds expended to date on project preparation: 1. Bank resources: US$200,000 2. Trust funds:US$O 3. Total:US$200,000 5. Remaining costs to approval:US$lOO,OOO 6. EstimatedApproval and Supervision costs:US$400,000 7. Estimated annual supervision cost:US$80,000 132  Annex 15: Documents in the Project File INDONESIA: Third National Program for Community Empowerment in Urban Areas (PNPM-Urban 111) Project-related documents 1. Project Concept Note (PCN) 2. Integrated Safeguard Data Sheet (ISDS) 3. Project PreparationAide Memoire 4. Letter of Intention 5. Letter o f Approval 6. Overview o f Local Government Engagement Issues 7. Project Implementation Plan (PIP) 8. Draft Operational Guidelines 9. Project Appraisal Aide Memoire 10. Draft Presidential Regulationon PNPM 11. Draft UPP2 Impact Evaluation Report Background o r linked studies 0 Mid Term Evaluation o f UPP 1 phase 1 (MPW, March 2001) 0 Evaluation Study on Post Project UPP 1 phase 1 (MPW, Dec 2002) 0 Impact Study on Post UPP 1 phase 2 (ASEM Grant, April 2005) 0 Impact Qualitative Study -Baseline, Midterm 1 & 2, Impact (ASEM Grant, June 2003 -June 2008) 0 Impact Quantitative Study - Baseline, Midterm 1 & 2, Impact (MPW, January 2004 - February 2008) 0 Finding o f Post Construction Economic Impact Analysis Study for CDD Programs (Bappenas, October 2005) 0 Local Development & Elite Capture: Community Based Poverty Alleviation in Indonesia (World Bank, September 2003) 0 Local Democracy Matters: Leadership, Accountability and Community Development in Indonesia (World Bank, December 2004) 0 Designing the System to Find the Right People: the Integrity Strategy of the Second Urban Poverty Project, A Case Study (World Bank, September 2005) 0 Assessment of capacity and role of local government (MPW-nationalbudget, 2006) 0 Assessment of Local Community Institution (MPW-national budget, 2006?) 0 Gender in Community Driven Development Project: Implication for PNPM strategy (DSF, December 2006) 0 Community Driven Development and Elite Capture: Micro credit and Community Board Participation in Indonesia (World Bank, August 2007) 0 Microcredit Strategy Formulation Mission (DSF, 2008) 0 UPP2 Quantitative Impact Evaluation (Draft WB, 2009) 133  Annex 16: Statement of Loans and Credits INDONESIA: Third National Program for Community Empowerment in Urban Areas (PNPM-Urban 111) Difference between . expected and actual Original Amount in US$ Millions disbursements Project 1D FY Puruose lBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev'd P113341 2010 ID-Health Professional Education Quality 77.82 0.00 0.00 0.00 0.00 77.82 0.00 0.00 PO90991 2010 ID-URBAN WATER SUPPLY 23.56 0.00 0.00 0.00 0.00 23.56 0.00 0.00 P115199 2009 Public Expend. Supp. Facility (DPL- 2,000.00 0.00 0.00 0.00 0.00 1,995.00 0.00 0.00 DDO) PO92218 2009 ID- lndo Infrastructure Finance Facility 100.00 0.00 0.00 0.00 0.00 100.00 0,OO 0.00 PO96532 2009 ID: Dam Operational lmprovement 50.00 0.00 0.00 0.00 0.00 50.00 0.00 0.00 (DOlSP) P100740 2009 PINTAR 110.00 0.00 0.00 0.00 0.00 109.73 0.00 0.00 PO9692 1 2008 ID -National UPP (PNPM UPP) 167.68 125.00 0.00 0.00 0.00 115.01 -31.51 13.49 PO97 104 2008 ID-BERh4UTU 24.50 61.50 0.00 0.00 0.00 64.40 13.06 0.00 P105002 2008 National Program for Community 341.19 190.00 0.00 0.00 0.00 79.11 -231.91 -88.74 Empower PO79906 2007 ID-Strategic Roads Infrastructure 414.46 0.00 0.00 0.00 174.98 150.76 89.90 24.30 PO83742 2007 ID-Farmer Empower. Agric.Tech.&lnfo 32.80 60.00 0.00 0.00 0.00 56.34 14.05 0.00 PO89479 2006 ID-Early Childhood Education and Dev 0.00 67.50 0.00 0.00 0.00 50.99 4.05 0.00 PO85375 2006 ID-WSSLlC I11 (PAMSIMAS) 0.00 137.50 0.00 0.00 0.00 93.10 19.01 0.00 PO77175 2006 ID-Domestic Gas Market Development 80.00 0.00 0.00 0.00 0.00 32.31 22.31 0.00 Proj. PO71296 2005 ID-USDRP 45.00 0.00 0.00 0.00 0.00 30.94 23.64 0.00 PO76174 2005 ID-Initiatives for Local Govern. Reform 14.50 15.00 0.00 0.00 0.00 14.17 13.93 0.00 PO78070 2005 ID-Support for Poor and Disadvant Areas 138.00 35.00 0.00 0.00 0.00 31.29 24.17 0.00 PO84583 2005 ID-UPP3 67.30 71.40 0.00 0.00 0.00 17.53 -23.76 0.00 PO85133 2005 Govt Fin1 Mgt & Revenue Admin Project 55.00 5.00 0.00 0.00 0.00 48.90 47.93 -1.45 PO85374 2005 ID-HIGHER EDUCATION 50.00 30.00 0.00 0.00 0.00 51.71 42.21 0.61 PO74290 2004 ID-Eastern lndonesia Region Transp. 2 200:oo 0.00 0.00 0.00 1.00 56.34 57.34 0.00 PO713 16 2004 1 - Coral Reef Rehab and Mgmt Prog I1 D 33.20 23.00 0.00 0.00 0.17 21.47 20.72 0.00 PO59931 2003 ID-Water Resources & 1rr.Sector Mgt 45.00 25.00 0.00 0.00 0.00 22.88 20.40 -1.17 Prog PO63913 2003 ID-Java-Bali Pwr Sector & Strength 273.72 0.00 0.00 0.00 0.00 22.44 22.44 -8.56 PO72852 2002 ID-UPP2 56.52 206.00 0.00 0.00 0.00 3.95 -146.62 -11.12 PO59477 2000 ID-WSSLlC I1 0.00 77.40 0.00 0.00 3.95 3.47 -0.39 0.00 Total: 4,400.25 1,129.30 0.00 0.00 180.10 3,323.22 0.97 - 72.64 134  INDONESIA STATEMENT OF IFC's Held and Disbursed Portfolio In Millions o f U Dollars S Com mitted Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 2006 Bank Danamon 155.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 BonaVista School 1.oo 0.00 0.00 0.00 1.oo 0.00 0.00 0.00 2006 Buana Bank 5.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2006 Centralpertiwi 45.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 Medan NP School 1.75 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2002 P.T. Gawi 11.05 0.00 0.00 3.49 4.90 0.00 0.00 3.49 1989 PT Agro Muko 0.00 2.20 0.00 0.00 0.00 2.20 0.00 0.00 1997 PT Alumindo 2.73 0.00 0.00 0.00 2.73 0.00 0.00 0.00 1989 PT Astra 0.00 0.20 0.00 0.00 0.00 0.20 0.00 0.00 1994 PT Astra 0.00 0.19 0.00 0.00 0.00 0.19 0.00 0.00 2003 PT Astra 0.00 0.12 0.00 0.00 0.00 0.12 0.00 0.00 PT Astra Otopart 0.00 0.70 0.00 0.00 0.00 0.70 0.00 0.00 2005 PT Astra Otopart 24.00 0.00 0.00 0.00 24.00 0.00 0.00 0.00 2000 PT Bank NlSP 0.00 2.85 2.86 0.00 0.00 2.85 2.83 0.00 2002 PT Bank NlSP 0.00 2.04 0.00 0.00 0.00 2.04 0.00 0.00 2004 PT Bank NlSP 35.00 0.00 0.00 0.00 35.00 0.00 0.00 0.00 1997 PT Berlian 0.00 3.35 0.00 0.00 0.00 0.00 0.00 0.00 1993 PT Bina Danatama 0.05 0.00 0.00 0.00 0.05 0.00 0.00 0.00 1996 PT Bina Danatama 0.00 0.00 2.58 4.81 0.00 0.00 2.58 4.81 2004 PT Ecogreen 30.00 0.00 0.00 0.00 30.00 0.00 0.00 0.00 2005 PT Ecogreen 25.00 0.00 0.00 0.00 20.00 0.00 0.00 0.00 PT Grahawita 0.00 0.00 3.75 0.00 0.00 0.00 3.75 0.00 1991 PT Indo-Rama 0.00 3.82 0.00 0.00 0.00 3.82 0.00 0.00 1995 PT Indo-Rarna 0.00 1.57 0.00 0.00 0.00 1.57 0.00 0.00 1999 PT lndo-Rarna 0.00 0.81 0.00 0.00 0.00 0.81 0.00 0.00 2001 PT Indo-Rama 20.00 0.00 0.00 0.00 0.33 0.00 0.00 0.00 2004 PT Indo-Rarna 48.00 0.00 0.00 0.00 41.00 0.00 0.00 0.00 1992 PT KIA Keramik 0.23 0.00 0.00 2.00 0.23 0.00 0.00 2.00 1996 PT KIA Kerarnik 1.65 0.00 0.00 53.49 1.65 0.00 0.00 53.49 1995 PT KIA Serpih 4.50 0.00 0.00 49.50 4.50 0.00 0.00 49.50 1997 PT Kalirnantan 9.38 0.00 0.00 0.00 9.38 0.00 0.00 0.00 PT Karunia ( U S ) 16.45 0.00 0.00 3.56 16.45 0.00 0.00 3.56 2006 PT Karunia ( U S ) 20.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 PT Makro 0.00 2.34 0.00 0.00 0.00 2.34 0.00 0.00 2000 PT Makro 0.00 1.21 0.00 0.00 0.00 0.71 0.00 0.00 2006 PT Makro 0.00 0.66 0.00 0.00 0.00 0.66 0.00 0.00 1998 PT Megaplast 0.00 2.50 0.00 0.00 0.00 2.50 0.00 0.00 1993 PT Nusantara 0.00 0.00 10.16 7.90 0.00 0.00 10.16 7.90 135 2004 PT Prakars (PAS) 15.36 0.00 0.00 3.20 15.36 0.00 0.00 3.20 1997 PT Sayap 0.83 0.00 0.00 0.00 0.83 0.00 0.00 0.00 2001 PT Sigma 0.00 1.03 0.00 0.00 0.00 1.03 0.00 0.00 2006 PT TAS 7.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1995 PT Viscose 7.81 0.00 0.00 0.00 7.81 0.00 0.00 0.00 2004 PT Viscose 8.3 1 0.00 0.00 0.00 8.31 0.00 0.00 0.00 1997 PT Wings 0.72 0.00 0.00 0.00 0 72 0.00 0.00 0.00 200 1 Sunson 1 1.62 0.00 0.00 7.35 11.62 0.00 0.00 7.35 2005 WOM 0.00 15.82 0.00 0.00 0.00 15.74 0.00 0.00 2006 WOM 20.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 Wilmar 33.33 0.00 0.00 0.00 33.33 0.00 0.00 0.00 Total pbrtfolio: 560.77 41.41 19.35 135.30 269.20 37.48 19.32 135.30 Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic. 2005 Bank NISP SELF 0.03 0.00 0.00 0.00 2006 BankNISP Swap 0.00 0.00 0.00 0.00 2006 Orix Indonesia 0.08 0.00 0.00 0.00 Total pending commitment: 0.1 1 0.00 0.00 0.00 136  Annex 17: Country at a Glance . INDONESIA: Third National Program for Community Empowerment in Urban Areas 7 ---(PNPM-Urban IL I -- - 'Indonesia a t a glance m m East Lmer Key Development Indicators Asia 8 middle Age distribution, 2007 Indonesia Pacific income 'i2008) Male Female Population mid-year (millions) 228.2 1.9P 3.435 Surlace area (thousand sq krn) 1905 8,299 35,510 Population growth (%) 12 0.8 10 Urban population (%of total population) 50 43 42 GNI (Atlas rneIhod US$ billions) 427 7 4.l73 6.543 GNI per capita (Atlas method US$) 1,870 2.I82 1.905 i GNI per capita (PPP internabonal $) 3,570 4.969 4.585 GDP growth(%) 6.1 114 m.2 1 GDP per capita Qranrth(36) 4.8 a.5 9.1 1 (most recent estimate, 2003-2008) Poverty headcount rabo at $125 a day (PPP, %) l7 Under4 mortalityrate (per 1,000) Poverty headcount rabo at $2 00 a day (PPP %) 39 Life expectancy at birth (years) 71 72 69 ,m > Infant mortality (per 1wO live births) 25 22 38 Child malnutnbon ( % o f children under5) 24 U 25 Adult literacy male ( O h of ages Is and older) 95 96 88 Adult literacy female ( % o f ages t5 and older) 89 90 77 Gross pnmary enrollment male ( O h of age group) 16 1 11 IT2 Gross pnrnary enrollment female ( X of age group) 1-2 D9 x)9 Access to an improved nrater source (% of populabon) 60 87 88 Access to improved sanitation facilibes ( O h of population) 52 6 55 Net A i d Flows 1980 1990 2000 2008 4 (USS millions) Net ODA and official aid 941 1.78 1,654 796 GrowthofGDP andGDPpercaplta (*A) Top 3donon (in 2007) Australia 48 77 72 335 5 United States ll7 31 I74 1V 10 United Kingdom I8 22 34 70 5 0 Aid (%of GNI) 1.3 1.6 1.1 02 5 'Aid per capita (US$) 6 a 8 4 .IO -15 Long-Term Economic T r e n d s -a 95 0 Consumer pnces (annual Y change) o 9.5 7.5 3.7 98 GDP implicit deflator (annual %change) 31.0 7.7 20.4 I83 Exchange rate (annual average. local per US$) 627.0 1,842.8 8,421.8 96309 I Terms of trade index (2wO = W) 31 W 56 1980-90 1990-2000 2000-08 (averageannual gmvth %) I Population, mid-year (millions) 148 3 T78.2 206.3 228 2 18 15 13 I GDP (US$ millions) 78.08 114.426 85.021 5% 389 61 42 52 (% of GDP) Agnculture 24.0 8 4 156 w4 36 20 33 ,Industry 41.7 39 1 45 9 481 73 52 42 Manufactunng 0.0 20 7 27 7 27 9 P 8 67 49 Services 34.3 415 412 361 65 40 81 Household final consumphon expenditure 514 56 9 607 62 6 52 66 48 General Qov'tfinal consurnpbon expenditure 1)s 88 65 84 46 01 78 Gross capital forrnabon 24.1 307 22 2 27 8 77 -0 6 60 Exports of goods and services 34.2 25 3 410 29 8 27 59 87 Imports of goods and services 20.2 23 7 305 28 6 12 57 DO Grass savings - Note Figures in italics are for years other than those specified 2006data are preliminary indicates data are not available a Aid data are for 2007 137  , ~ - - ~ r Indonesia Balance of Payments a n d T r a d e 1 (us$mi//ions) 2000 2008 I Governance lndicators,2000 and2007 'Total merchandise exports (fob) 62.t24 139,605 'Total merchandise imports (cif) 44,593 '28,907 Voice and acccunlabilily Net trade in goals and services 29,862 x), 138 Pdilical slabiiily Current account balance 13,613 300 Regulatory quality ~ a s a o h o f ~ ~ ~ $31 01 IWwkers' remittances and Rule of law I compensation of employees (receipts) I80 6.774 Cantmi of mmplion I 1 Reserves including g d d 27,257 53.854 I Central Government Finance (%of GDP) Current revenue (including grants) 8.7 8 4 Tax revenue 11 % 2 8 Cument expenditure 15.6 533 Technology a n d I n f r a s t r u c t u r e 2000 2007 Overall surplusMeficit -18 -0.1 Paved roads (%of total) 57 1 554 c Highest marginal tax rate (%) Fixed line and mobile phone Individual 35 35 subscribers (per 'KIO people) 5 44 Corporate 30 30 High technolcgy exports (%of manufactured exports) 132 -a8 External Debt a n d Resource Flows Envlronment JS$ millions) otal debt wtstandina and disbursed 144266 MO.783 Agricultural land ( O h of land area) 25 26 otal debt service 6b.2 14,647 Forest area ( O h of land area) 540 48 8 ebt relief (HIPC, MDRI) - - Nabonally protected areas ( O h of land area) 112 Otal debt (Yo of GDP) 87.4 32 6 Freshwater resources per capita (cu meters) t3.398 P 578 otal debt service ( O h of exports) 11.2 n0 Freshwater unthdrawal (billion cubic meters) 82 8 >reign direct investment (net inflows) -4,550 6,928 CO2 emissions p w capita (mt) 14 19 m d i o equity (net inflows) -1,021 3,559 GDP per unit of energy use (2005 PPP $per kg of oil equivalent) 37 42 'ompositlonof total externaldeM.2007 Energy use per capita (kg of 011 equivalent) 734 803 IBRD Other 34 943 World B a n k Group portfolio 2000 2007 10 240 (US%millions) 38 720 IBRD Total debt outstanding and disbursed 11.715 6 821 Piivale Disbursements 1,051 767 48 509 Principal repayments 761 1,269 Interest payments 950 435 US$ millions IDA Total debt outstanding and disbursed 714 I550 Disbursements 59 28 rivate Sector Development 2000 2008 Total debt service 31 38 me required to start a business (days) - 76 IFC (fiscal year) x t to start a business (%of GNI per capita) - 77.9 Total disbursed and outstanding patfolio me required to register property (days) - 39 of which IFC own a w n t 880 480 657 527 Disbursements for IFC own account 20 225 ' Ranked as a major constraint to business 2000 2007 Portfolio sales, prepayments and 1 of managers surveyed whoagreed) (a/. repayments for IFC own account 43 38 Economic and regulatory policy uncertainty 48 2 , Corruption 415 MlGA Grass exposure 56 50 I Stock market capitalization (% of GDP) 133 49.0 New guarantees 0 0 I Bank capital to asset ratio ( O h ) 60 'KI.0 Note Figures in italics are f w years other than those specified 2008 data are preliminary 8RN9 indicates data are not available -indicates observabon is not applicable E20EEt Economics oevel?p~~tDa~-~~~~~~c-D~~-- ~ _ _ _ _ _ ~ x I - 1 _1 138  --- -____ -___- ' i I Millennium Development Goals Indonesia ' With selected targets to achieve between 1990 and 2015 (esbmafe ClOEiesf to date shown, +A 2 years) Indonesia I D 4 ~ Goal 1 halve the rates for extreme poverty and malnutr1tIon : 1990 1996 2000 2007 ' 1 Poverty headcount ratio at $125 a day (PPP, % of population) Poverty headcount ratio at national poverty line (% of population) ff6 27 1 157 ! Shareof income or consumption tothepmrest qunitile(%) Prevalence of malnutntlon ( % o f children under 5) 310 27.4 24 8 : 2: I goal 2: ensure that chlldren are able to complete primary schooling Pnmary schdd enrdlment (net %) 96 93 95 Pnmary completlon rate ( % d rdevant age group) 84 66 95 99 I Secondary schdd enrollment (gross. %) j Youth literacy rate (YOof people ages 15.24) 47 ffi 48 55 66 97 I I 11 [ G o a l 3: eliminate ponder disparity in education and empower women Ratio of girls to boys In primary and secondary education (%) Women employed in the nonagncultural sector ( % of nonagricultural employment) Prwonion of seats held by women in national parliament (%) 93 29 P 29 W 96 32 8 98 29 11 i 1 : I Goal 4: reduce under-6 mortality by two-thirds 1 L : Under-9 mortality rate (per 1000) 91 68 48 31 Infant mortdity rate (per ZOO0 live births) 60 48 36 I Measles (mmun!zatdon (proportion of oneyear d d s immunized %) 58 63 72 I 1 Goal 6 : reduce maternal mortality by three-Tourths ! Maternal mortality ratio (modeled estimate per ' D O 000 live births) 420 Births atended by skilled h d t h staff ( % o f total) 32 37 64 72 I Contraceptiveprevalence ( % of women ages S 4 9 ) 50 55 61 ~ L G ~ a : h a l t and begin to reverse the spread of HIVIAIDS and other major diseases 6l ' Prevalence of HIV ( ~ of popuiation ages 15-49) 0 01 02 ! Incidence of tuberculosis (per 'DO.0W people) Tuberculosis cases detected under DOTS (%) 343 304 1 270 20 228 68 Goal 7 : halve the Proportion of people without sustainable access to basic needs Access to an improved water source ( O h of population) 72 74 TI 80 Access to improved sanitation fFilities (%of population) 51 51 52 52 Fofest area (% of total land area) 643 59 2 540 488 Nationally protected areas (% of total land area) 112 1 c02 emissions (metnc tons per capita) 08 12 14 19 I GDP per unit of energy use (constant 2005 PPP $per kg of MI equivalent) 36 41 37 42 I ' G o a l 8 : develop a plobal partnership for development Tdeohone msnlines (Der 'DO oeoole) 06 17 32 79 Mobile phone subscrlbers (per 0 0 people) 00 01 18 383 Internet users (per 'DO people) 00 00 09 58 Personal computers (per 'DO people) 01 05 10 20 Education indicators (YO) Measles immunization ( X o f ?-year olds) ICTindicators (per900 people) 1 y1 40 1 Note: Figures In italics are for years other than those specified. .. indicates data are not available. 8R5109 I _I Dev*ment ^""~ _ - I - ,,., ,.^.,~____" Economics, Cevelopent Data Gry-LgE-ClDG) I _ " ~ - J - 139 MAP SECTION  95