Indonesia - Jakarta Urgent Flood Mitigation Project

 OFFICIAL USE ONLY R2011-0276/1 December 27, 2011 For meeting of Board: Tuesday, January 17, 2012 FROM: The Acting Corporate Secretary Indonesia - Jakarta Urgent Flood Mitigation Project (Jakarta Emergency Dredging Initiative) Project Appraisal Document Attached is the Project Appraisal Document regarding a proposed loan to the Republic of Indonesia for a Jakarta Urgent Flood Mitigation Project (Jakarta Emergency Dredging Initiative) (R2011-0276). This project will be discussed at a meeting of the Executive Directors on Tuesday, January 17, 2012. Distribution: Executive Directors and Alternates President Bank Group Senior Management Vice Presidents, Bank, IFC and MIGA Directors and Department Heads, Bank, IFC and MIGA This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank Group authorization.  Document of The World Bank FOR OFFICIAL USE ONLY Report No: 65973-ID PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF US$ 139.64 MILLION TO THE REPUBLIC OF INDONESIA FOR THE JAKARTA URGENT FLOOD MITIGATION PROJECT (Jakarta Emergency Dredging Initiative) December 22, 2011 Indonesia Sustainable Development Unit 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. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (Exchange Rate Effective December 22, 2011) Currency Unit = Indonesian Rupiah (IDR) IDR1,000 = US$0.1103 US$1 = IDR9,070 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS AMDAL Analisa Mengenai Dampak Lingkungan-environmental impact assessments required by Indonesian law ANDAL Analisa Dampak Lingkungan–environmental impact assessment to formulate AMDAL Bappenas National Planning Agency BBWSCC Balai Besar Wilayah Sungai (Ciliwung Cisadane) – River basin management agency for Ciliwung and Cisadane Basins (under DGWR) BPLHD Local Level of Environmental Management Agency (including Provincial and Municipal Level) CDF Confined Disposal Facility CPMU Central Project Management Unit CPIU Central Project Implementation Unit, the successor to the PMU CPS The World Bank’s Country Partnership Strategy for Indonesia DGCK or DGHS Directorate General for Human Settlements, or Cipta Karya (MoPW) DGWR Directorate General for Water Resources (MoPW) Dir. PLP Directorate of Environmental Sanitation Development (Penyehatan Lingkungan Permukiman) DKI The Special Capital District of Jakarta DKI Jakarta Provincial Government of DKI Jakarta DPRD Dewan Perwakilan Rakyat Daerah (local parliament) DPU–DKI Jakarta Public Works office (Provincial) EIA Environmental Impact Assessment EMP Environmental Management Plan ESMF Environmental and Social Management Framework ESWG Environmental and Social Working Group FMIS Flood Management Information System GOI Government of Indonesia GRS Grievance Redress System Jabodetabek Greater Jakarta metropolitan area, comprising Jakarta, Bogor, Depok, Tangerang, and Bekasi JFM Dutch-funded Jakarta Flood Management project for Non- Structural Measures ii JICA Japan International Cooperation Agency JUFMP Jakarta Urgent Flood Mitigation Project MoF Ministry of Finance MoPW Ministry of Public Works (Departemen Pekerjaan Umum) O&M Operations and Maintenance PAP Project Affected Person PIU Project Implementation Unit PMK Peraturan Menteri Keuangan (MoF regulation) PMU Project Management Unit, which prepared the Project POE Panel of Experts RP Resettlement Plan RPF Resettlement Policy Framework RKL/RPL Environmental management and monitoring plans SLA Subsidiary Loan Agreement TF Trust Fund WASAP Water and Sanitation Program Trust Fund WJEMP Western Java Environmental Management Project Regional Vice President: James W. Adams Country Director: Stefan G. Koeberle Sector Director: John A. Roome Sector Manager: Franz R. Drees-Gross Task Team Leader: Fook Chuan Eng iii   Table of Contents I. Strategic Context..................................................................................................................... 1 A. Country Context ............................................................................................................... 1 B. Sectoral and Institutional Context .................................................................................... 2 C. Higher Level Objectives to which the Project Contributes .............................................. 4 II. Project Development Objectives............................................................................................. 5 A. PDO .................................................................................................................................. 5 B. Project Beneficiaries ........................................................................................................ 6 C. PDO Level Results Indicators .......................................................................................... 6 III. Project Description............................................................................................................... 6 A. Project Components ......................................................................................................... 6 B. Project Financing.............................................................................................................. 8 C. Lessons Learned and Reflected in the Project Design ..................................................... 9 IV. Implementation .................................................................................................................. 11 A. Institutional and Implementation Arrangements ....................................................... 11 B. Results Monitoring and Evaluation ............................................................................ 11 C. Sustainability .............................................................................................................. 12 V. Key Risks and Mitigation Measures ..................................................................................... 12 VI. Appraisal Summary ........................................................................................................... 13 A. Economic and Financial Analysis .............................................................................. 13 B. Technical .................................................................................................................... 14 C. Financial Management ............................................................................................... 15 D. Procurement ................................................................................................................ 16 E. Social (including safeguards) ..................................................................................... 17 F. Environment (including safeguards) .......................................................................... 18 Annex 1: Results Framework and Monitoring.............................................................................. 20 Annex 2: Detailed Project Description ........................................................................................ 21 Annex 3: Implementation Arrangements ..................................................................................... 30 Annex 4 Operational Risk Assessment Framework (ORAF) ....................................................... 47 Annex 5: Implementation Support Plan........................................................................................ 52 Annex 6: Team Composition ........................................................................................................ 56 Annex 7: Environmental and Social Safeguards, Consultations and Communications ............... 57 Annex 8: Anti-Corruption Action Plan ......................................................................................... 85 Annex 9: Map ............................................................................................................................... 94 iv    PAD DATA SHEET REPUBLIC OF INDONESIA JAKARTA URGENT FLOOD MITIGATION PROJECT (Jakarta Emergency Dredging Initiative) PROJECT APPRAISAL DOCUMENT EAST ASIA PACIFIC REGION Indonesia Sustainable Development Unit Sustainable Development Department Date: December 22, 2011 Sector(s): Flood protection Country Director: Stefan G. Koeberle Theme(s): Natural disaster management; Other urban Sector Director: John A. Roome development Sector Manager: Franz R. Drees-Gross EA Category: A Team Leader: Fook Chuan Eng Project ID: P111034 Lending Instrument: Specific Investment Loan Project Financing Data: Proposed terms: IBRD loan with a variable spread and a final maturity of 24.5 years including a grace period of 9 years. [ x ] Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other: Source Total Amount (US$M) Total Project Cost: 189.85 Counterpart Financing 49.71 Bilateral Grant: 0.50 Total Bank Financing (IBRD): 139.64 v Borrower: Government of Indonesia Responsible Agency: Ministry of Public Works; Provincial Government of DKI Jakarta MoPW Contact Person: Mr. Pitoyo Subandrio Director for River and Coast Telephone No.: + 62-21-726 2366 Fax No.: + 62-21-726 1292 Email: suryaningsih25@hotmail.com DKI Jakarta Contact Person: Mr. Tauchid Tjakra Amidjaja Assistant Secretary for Development and Environment Telephone No.: +62-21-382 2305 Fax No.: +62-21-381 2854 Email: dki@jakarta.go.id Estimated Disbursements (Bank FY/US$ m) FY FY12 FY13 FY14 FY15 FY16 FY17 Annual 0 20.0 35.0 35.0 35.0 14.64 Cumulative 0 20.0 55.0 90.0 125.0 139.64 Project Implementation Period: 5 years Expected effectiveness date: May 15, 2012 Expected closing date: March 31, 2017 Does the project depart from the CAS in content or other significant No respects? Does the project require any exceptions from Bank policies? No Does the project meet the Regional criteria for readiness for Yes implementation? Project Development objective The Project Development Objective (PDO) is to contribute to the improvement of the operation and maintenance of priority sections of Jakarta’s flood management system. vi Project description: Component 1. Dredging and rehabilitation of selected key floodways, canals and retention basins. This component will support the dredging and rehabilitation of 11 floodways / canals and four retention basins which have been identified as priority sections of the Jakarta flood management system in need of urgent rehabilitation and improvement in flow capacities. The dredge material will be transported and disposed into proper disposal sites. The 11 floodways / canals are estimated to have a total length of 67.5 km, while the four retention basins are estimated to cover a total area of 65.1 hectares. About 42.2 km of embankments are expected to be rehabilitated or constructed within these floodways, canals and retention basins. Where necessary, mechanical equipment (pumps, gates, etc) will be replaced or repaired. Component 2. Technical assistance for project management, social safeguards, and capacity building. This component will support contract management, engineering design reviews, construction supervision engineers for the dredging and rehabilitation works and technical assistance for implementation of the project, including the Resettlement Policy Framework, Resettlement Plans and the Grievance Redress System. Technical assistance includes support to improve institutional coordination for operations and maintenance of Jakarta’s flood management system as well as the establishment of a Flood Management Information System (FMIS). Provision has been made for the cost of implementing required Resettlement Plans, as well as the establishment and operations of a project Grievance Redress System and a Panel of Experts (POE). Safeguard policies triggered? Environmental Assessment (OP/BP 4.01) Yes Natural Habitats (OP/BP 4.04) No Forests (OP/BP 4.36) No Pest Management (OP 4.09) No Physical Cultural Resources (OP/BP 4.11) No Indigenous Peoples (OP/BP 4.10) No Involuntary Resettlement (OP/BP 4.12) Yes Safety of Dams (OP/BP 4.37) No Projects on International Waters (OP/BP 7.50) No Projects in Disputed Areas (OP/BP 7.60) No vii  Conditions and Legal Covenants: Financing Description of Condition/Covenant Date Due Agreement Reference Loan Effectiveness: Prior to the Agreement The Additional Conditions of Effectiveness consist of the following: (a) the Effectiveness Section 5.01 Borrower has: (i) established the CPMU, CPIU and each PIU; and (ii) each Date of the CMPU, the CPIU and each PIU at each of DGWR, DGHS and DKI has each adopted the Project Operations Manual; and (b) the Subsidiary Loan Agreement has been executed on behalf of the Borrower and DKI, as the Project Implementing Entity for the DKI Parts of the Project. Loan Confined Disposal Facility: Prior to Agreement, The Borrower, acting through the CPIU, shall ensure that each PIU shall entering into Schedule 2, ensure that before each Works Contract is signed for each Project Site: (i) each Works Section I.C, construction of the Ancol CDF has been completed and is being maintained Contract paragraph 4(a) in a manner fully consistent with the Ancol Environmental Safeguards and (c); and Instruments; (ii) the Ancol CDF is completely and properly confined on all Project sides and intact; (iii) the Bank has received evidence satisfactory to it that Agreement the Jakarta Provincial Environmental Management Agency has determined Schedule, that PJA is in compliance with the Ancol Environmental Safeguards Section I.B Instruments; and (iv) each of the Bank and the Supervision Consultant has paragraph 3 had an opportunity to visit, review and test the site and design of the Ancol (a) and (c) CDF and found it satisfactory; the Borrower, acting through the CPIU, shall ensure that, and shall cause DKI to exercise its rights as a shareholder of PJA and under the Cooperation Agreement to ensure that, following deposit of Dredged Materials and all Sand and Laterite in the Ancol CDF: (i) DKI Following shall obtain from PJA and shall provide to the Borrower and to the Bank a deposit of copy of a written confirmation from PJA that filling of the Ancol CDF has Dredged been completed in accordance with the Ancol Environmental Safeguards Materials and Documents; and (ii) the Borrower and DKI shall ensure that all all Sand and development on and use of the site of the Ancol CDF, whether industrial, Laterite in the commercial, residential or recreational or otherwise, shall be in accordance Ancol CDF with a duly approved AMDAL and all other applicable legal and regulatory requirements of the Borrower and include, as necessary, land use restrictions and specific guidelines and covenants to protect the integrity of the site, provide proper foundations for buildings, guide installation of underground utilities, and to limit exposure of residents and site users to any adverse effects that may arise as a consequence of the use of the Dredged Material. viii Loan Testing and Dredging of Materials: Prior to Agreement, The Borrower, acting through the CPIU, shall ensure that each PIU shall commencing Schedule 2, ensure that, prior to the commencement of any dredging or rehabilitation or dredging or Section I.C, related activities at any Project Site that is its respective responsibility, the rehabilitation paragraph 6; Works Contractor, under the supervision of the Supervision Consultant, or related and Project shall carry out testing, using mapped and identified Sections as required by activities at Agreement the Project Operations Manual, to determine the quality of materials to be each Project Schedule dredged and to identify any Hazardous Materials in each such section. Site Section I.B, paragraph 5 Hazardous Materials: Any identified Hazardous Materials shall be handled solely in accordance with paragraph 6(c) of Section I.B of this Schedule 2, paragraph 9 of this Section I.C and the provisions of Section I.D, including paragraphs 8-9 of Section I.D of this Schedule 2. Loan Grievance Redress System: No later than Agreement, The Borrower, acting through the CPIU, shall, and shall cause DKI to,…(b) 90 days after Schedule 2, establish by no later than ninety (90) days after the Effective Date and in the Effective Section I.C, any event prior to the commencement of the first Works Contract and Date and paragraph thereafter maintain until completion of the Project, the independent Project prior to 12(b) and (c); Grievance Redress System acceptable to the Borrower, acting through the commencing and Project CPIU, and the Bank…; (c) ensure that any complaints made through DKI’s the first Agreement, existing complaints handling systems are transferred to, reported as part of, Works Schedule, and may be brought at any time to the Grievance Redress System. Contract Section I.B, paragraph 11 Loan Panel of Experts: Prior to the Agreement, The Borrower, acting through the CPIU, shall (a) establish, prior to the commence- Schedule 2, commencement of any activities under the first Works Contract, and the ment of any Section I.C, and thereafter maintain until completion of the Project, the Panel of Experts activities paragraph to advise on all aspects of the Project, including, but not limited to the under the first 14(a) and environmental and social safeguards requirements set out in Section I.D of Works Project this Schedule 2, comprising at least three experts, including an Contract Agreement, environmental expert, an engineer experienced in dredging and dredge Schedule, disposal and an urban resettlement expert, in each case with expertise and Section I.B, under terms of reference acceptable to the Bank; paragraph 13 Loan Environmental Safeguards Documents: Preparation of Agreement, The Borrower, acting through the CPIU, shall ensure that each of DGWR all such Schedule 2, and DGHS, with respect to the MPW Parts of the Project, and DKI, with documents Section I.D respect to the DKI Parts of the Project shall: (a) for each Phase 1 Project applicable to each Project paragraph 5(a) Site …(ii) thereafter undertake dredging, rehabilitation and related activities Site completed and (b); and in each Phase 1 Project Site in accordance with: the Phase 1 Environmental prior to Project Impact Assessment, Management Plan and Monitoring Plan, the commencing Agreement, Environmental Impact Assessment Supplementary Report, the any activities Schedule, Environmental and Social Safeguards Management Framework, the under any Section I.C, Environmental and Social Safeguards Management Plan for each Project Works paragraph 2 Site and the Traffic Management Plan for each Project Site; and implement Contract or all actions required to be taken by the Borrower, the CPIU or the respective otherwise PIU with respect to the foregoing until completion of the Project in a timely carrying out manner satisfactory to the Bank; and… any activities in any such (b) The same covenant is included for each Phase 2 Project Site. Project Site ix Loan Resettlement Plans: Prior to Agreement, The Borrower shall ensure that DGWR and DGHS shall cooperate with commencing Schedule 2, DKI to, and shall cause DKI to… (d) with respect to each Project Site at any land Section I.D, which Project Affected Persons have been identified in accordance with the acquisition or paragraph Resettlement Policy Framework, before commencing any land acquisition resettlement 16(d) for or resettlement or beginning any works or any preparation for works on any or beginning Project Sites such Project Site which is a DKI Project Site, or before the Borrower shall any works or and paragraph permit DGWR or DGHS to begin any works or any preparation activities any 17(d) for for works on any Project Site which is a DGWR Project Site or a DGHS preparation Linked Sites; Project Site, respectively: (i) prepare in accordance with the Resettlement for works at and Project Policy Framework, a draft Resettlement Plan with a timetable and budget, each Project Agreement including adequate and timely provision of counterpart funds; (ii) carry out Site and any Schedule, consultations on such draft Resettlement Plan in accordance with the such Linked Section I.C Resettlement Policy Framework and take such consultations into Site, as paragraph 7(d) consideration in finalizing such Resettlement Plan; (iii) submit such applicable in for Project Resettlement Plan to the Bank for no-objection and receive from the Bank accordance Sites and its written no-objection on such Resettlement Plan; (iv) provide a copy of with the paragraph 8(d) such Resettlement Plan to the Supervision Consultant; (v) publicize such Resettlement for Linked Resettlement Plan at the POSKO for the relevant Project Site and on the Policy Sites Project Website and the DKI Website; (vi) ensure that all Project Affected Framework Persons shall have been fully compensated and provided with all applicable resettlement and rehabilitation benefits and other assistance in accordance with the provisions of such Resettlement Plan and the Resettlement Policy Framework and provide documentation thereof in each monthly and quarterly report on Resettlement Plans and each Project Report; and The same covenant (except for sub-paragraph (iv) is included with respect to any Linked Site with Project Affected Persons during Project implementation. x I. Strategic Context A. Country Context 1. Macroeconomic Context. Since the political, environmental and economic shocks that shook the nation during the Asian Financial Crisis of 1997/8, political and institutional reforms over the last decade have led to a stable and vibrant democracy in Indonesia. Political power is now broadly shared among the several branches of government, and widely decentralized to the levels of provincial and local governments under the 2001 regional autonomy laws. Indonesia’s economy has also performed well, averaging five to six percent growth annually over the past decade despite the slowing world economy. Projections expect 6.4% growth in 2011, increasing to around 6.7% in 2012 1. 2. Low infrastructure investments and poor maintenance. A collapse in investments sparked by the 1997/98 financial crisis has led to a long backlog in infrastructure development. Furthermore, poor maintenance of existing infrastructure continues to deteriorate the capacity for providing sufficient public services. In recent years however, infrastructure investment has begun to recover, reaching 3.95% of GDP by 2008. This is not yet at pre-crisis levels and is inadequate to reverse the investment backlog and to meet the growing demand from existing infrastructure users, let alone satisfy the large population who lack access to basic services. Investments planned and underway also tend to prioritize new infrastructure development while operation and maintenance (O&M) is still neglected. 3. Reversing lagging infrastructure development. Inadequate infrastructure is a significant constraint to Indonesia’s growth potential. The Government of Indonesia (GOI) has adopted an ambitious plan to rebuild and develop infrastructure. In the period from 2010-14, budget expenditure is expected to increase by more than thirty percent compared with the previous five year period. It is essential for Indonesia’s infrastructure institutions to translate these resources into better development outcomes. However, they face significant constraints and challenges. The coordination amongst, and clarity of roles and responsibilities between, the various levels of government needs to be improved. The capacity of provincial and local governments charged with the responsibility of basic service delivery is still weak. Effective procedures and regulations for financial transfers from central to provincial and local governments have not been fully established. 4. The need for improved social policies and better environmental oversight. Land acquisition for public purposes is a frequent source of delay in infrastructure projects. Indonesia’s standards of compensation for land acquisition, especially involuntary resettlement of informal communities does not yet meet international standards. In Jakarta, eviction has been a long-standing policy and practice for repossessing government land for the development of projects in the public interest. The implementation of evictions has evolved over time with a positive trend towards more equitable approaches. There have been recent efforts to improve and streamline social safeguards measures, including the recent enactment of a law on Land Acquisition for Public Interest Infrastructure Development 2 and the issuance of the Guidelines 1 Indonesia Economic Quarterly, World Bank Working Paper Report No. 60152, March 1, 2011. 2 Passed by the Parliament on December 16, 2011. 1 for Providing Compensation to Users of State Land by the Governor of DKI Jakarta 3. The efforts to improve public sector governance, land acquisition, and environmental management which have in the past mired effective provision of infrastructure services need to be redoubled. On environmental oversight, while the policy framework for oversight appears sufficient, the implementation of environmental management and monitoring plans requires improvement. B. Sectoral and Institutional Context 5. The primacy of Jakarta. Jakarta is the preeminent urban center of Indonesia. It is the main commercial hub of Indonesia and contributes about 25% of Indonesia’s non-oil GDP (the non-oil GDP is estimated at about US$571 billion in current terms in 2009). Regional urbanization has contributed to making Jakarta one of the largest metropolitan areas in the world. The Special Capital District of Jakarta (DKI) 4 covers an area of approximately 650 km2 with a population of about 9.6 million in 2010, while the population of Greater Jakarta 5 (covering about 7,300 km2) stood at 27.9 million 6. Population growth rates are far above the national average and are projected to exceed 35 million people by 2020. Up to 250,000 rural-urban migrants are estimated to move to Jakarta every year, contributing to the increase in informal settlements where people live without the benefit of public services (e.g., transportation, water supply, sanitation and waste management). Due to rapid growth and inadequate development of public services, the city has become known for a host of problems the most severe of which are manifested in disastrous perennial flooding. Any effort to improve and increase the access to basic public services and adequate flood mitigation for the population of Indonesia needs to include Jakarta as a focus area. 6. Flood management infrastructure in Jakarta. Greater Jakarta is surrounded by several dormant volcanoes whose slopes form the upstream catchment areas of the 13 major rivers that flow through DKI to the Java Sea. The rainy season begins in late November and ends in early April. DKI sits in the lowest lying areas of the basin. Forty percent of DKI lies below sea level, including most of North Jakarta, which is being severely threatened by acute land subsidence. The basic principle of flood management in Jakarta is to divert peak flows from upstream areas around the core of the city, directing flows to the East and West of Jakarta via two major flood canals emptying into Jakarta Bay. Within the city, the macro drainage system of DKI consists of 13 rivers and a large number of drainage channels 7. The macro drainage system can be divided into several subsystems that are separated by floodgates. In low-lying areas there are polders, which are protective systems that utilize retention reservoirs at the lowest point and regulate excess water levels by pumping out of the system. However, the originally planned flood management system remains incomplete and does not function as a fully integrated system. The East flood (banjir) canal was recently completed but is not yet fully functional. Furthermore, the east-west canals are not yet connected into an integrated diversion system, which would allow better stormwater management and control. Poor condition of the system, severe under- 3 On November 12, 2010. 4 Jakarta is officially designated a province with special status as the capital of Indonesia i.e., DKI Jakarta (or ‘Special Capital City District of Jakarta’). 5 The area including DKI, and the urban region surrounding Jakarta consisting of the municipalities and regencies of Bogor, Depok, Tangerang and Bekasi (commonly abbreviated as ‘Jabodetabek’). 6 More than double the population of 11.9 million in 1980. 7 There are currently 49 channels considered to be major urban drainage channels (including natural and man-made channels), 16 retention basins of various sizes and innumerable micro drainage channels. 2 implementation of operations and maintenance (O&M), and inadequate local drainage management result in rapidly occurring inundations during rainfall conditions. Interventions are often introduced at the local level utilizing private funds, which result in flood water being transferred to and experienced most acutely by the poorest populations. 7. Incidences of flooding in Jakarta. Flood incidences are perennial occurrences and have been increasing in severity during the past decade. Flood incidences in January 1996, February 2002, and February 2007 were especially devastating. The February 2007 event inundated 235 km2 (about 36%) of the city 8, by up to seven meters in some areas. This event affected more than 2.6 million people and forced 340,000 people to flee their homes. Over 70 people died and outbreaks of disease affected over 200,000 people. The estimated financial and economic losses from this event amounted to US$900 million 9. Inundations continue to occur under any sustained rainfall conditions. In 2008 a flood event closed the airport toll road, cancelling over 1,000 flights and causing serious disruptions for the city. Flood incidences in 2009 also occurred at high intensity and have continued into 2010, which became the year without a dry season due to the La Niña effect. 8. Causes of flood in Jakarta. The overall urbanization trends are central to the causes of Jakarta flooding. This has led to the deterioration of several critical factors. The encroachment and/or development of critical catchment areas have resulted in both increased rainwater runoff and lack of natural stormwater retention areas both within the city and in upstream areas of the catchment. Increased generation and inadequate management of solid waste have contributed to waste choked canals and floodways, exacerbated by insufficient maintenance resulting in weakening structures and sediment build-up. Some canals are operating at less than a third of their original capacity. Land subsidence continues at increasingly alarming rates, principally caused by intensive deep groundwater abstraction. Recent studies have found typical subsidence rates of 7.5 - 10 cm a year. In localized areas of north Jakarta subsidence in the range 15 - 25 cm a year is occurring which, if sustained, would result in them sinking to 4 - 5 m below sea level by 2025. Land subsidence results in increased vulnerability to flooding due to the reduced gravitational capacity to channel storm flows to the sea and an increased risk of tidal flooding. The foregoing factors could be further combined with climate change effects of a rise in sea levels and an increase in both the frequency and intensity of rainfall resulting in even worse flood scenarios. Flood events in Jakarta are expected to become more frequent in coming years, with a shift from previously slow natural processes with low frequency to a high frequency process resulting in severe socio-economic damage. 9. Flood management institutions in Jakarta. Until recently, the institutional framework for the development and management of flood management infrastructure in Jakarta has been in a state of flux as it evolved during the country’s transition towards regional autonomy. After a period of changing responsibilities between various agencies, the framework has settled into one where responsibility is shared between two central government agencies and the Provincial Government of DKI Jakarta (DKI Jakarta). The Balai Besar Wilayah Sungai Ciliwung - Cisadane (BBWSCC) 10 under the Directorate General of Water Resource (DGWR) of the 8 Flood extent map, DKI Jakarta (Dinas-PU). 9 Estimated by Bappenas (or Badan Perencanaan dan Pembangunan Nasional), the National Development Planning Agency. 10 River basin management agency for the Ciliwung and Cisadane rivers, which is a Central Government institution designed to function as a river basin organization. 3 Ministry of Public Works (MoPW) is responsible for the major floodways of Jakarta. The Directorate General of Human Settlements (DGCK) of the MoPW is responsible for a set of canals considered of national importance i.e., with major impacts on critical national institutions. DKI Jakarta, through its provincial public works office (DPU-DKI) 11, is responsible for the remaining drains, floodways and retention basins. The DPU-DKI and MoPW agencies were very much oriented towards infrastructure development 12 and not operations and maintenance (O&M). The agencies have technical experience in the construction and maintenance of the infrastructure, however inter-agency coordination needs to be further improved especially for the operations and maintenance of the flood canals. Capacity, personnel and funding are still inadequate for regular maintenance. However, realizing the need for continual maintenance, both DKI Jakarta and MoPW in recent years have formed dedicated O&M divisions responsible for drainage and increased funding. The opportunity exists for the Bank and GOI’s development partners to support and assist with improving the O&M of Jakarta’s flood management system. 10. The challenge of flood mitigation and management in Jakarta. Jakarta’s existing flood management system requires considerable rehabilitation, complemented by improved planning in flood management and appropriate routine maintenance to ensure optimum capacity. Given the worsening flooding situation affecting such large numbers of people in the primary political and economic center of Indonesia, the maintenance of the status quo is unacceptable. Yet the foregoing sections clearly show the enormity of the challenges. Any efforts to improve flood mitigation and management in Jakarta is mired simultaneously with the challenges of, and risks inherent in, (i) improving O&M, (ii) ramping up investments after a decade long investment backlog in a decentralized institutional structure that has yet to be fully functional, (iii) rehabilitating infrastructure amongst informal settlements with histories of controversial evictions and resettlement practices, and (iv) operating in an atmosphere of weak environmental management and monitoring. Added to these operational challenges are the urban planning and coordination challenges amongst the multiple local governments in the catchment area, and continuing land subsidence which effects on flood are expected to be made worse by climate change. A major intervention focused on maintenance could be a catalyst to develop the momentum for instituting the appropriate coordination arrangements, and increase the capacity to begin addressing the development challenges in a holistic manner. C. Higher Level Objectives to which the Project Contributes 11. Consistency with and support to the CPS. The project is fully consistent with the Country Partnership Strategy 13 (CPS). It will contribute towards the cross-cutting engagement areas identified in the CPS i.e., strengthening both central government and sub-national governments’ institutions and systems. More specifically, the project will support (i) the CPS Core Engagement 2 – Infrastructure, by helping to increase the quantity and efficiency of national and sub-national governments spending on infrastructure, and (ii) the CPS Core Engagement 5 – Environmental Sustainability and Disaster Mitigation, by helping to improve the 11 And further supported by its sub-dinases (or sub-departments at the municipal level). Administratively, DKI Jakarta is divided into five municipalities (i.e, North Jakarta, South Jakarta, West Jakarta, East Jakarta and Central Jakarta municipalities) and one regency (i.e., Kepulauan Seribu, a group of small islands located on the Java Sea). 12 The BBWSCC recently completed the East Flood (Banjir) Canal. 13 Country Partnership Strategy for Indonesia FY2009-2012: Investing in Indonesia’s Institutions for Inclusive and Sustainable Development. 4 flood management system in Jakarta, as well as establishing and demonstrating sound environmental and equitable resettlement processes and standards modeled on international good practices. 12. Support to decentralization. The key hindrance to the efforts at reviving infrastructure spending and reversing Indonesia’s decade-long infrastructure backlog is the lack of effective procedures and processes for financial transfers, as well as the lack of support from central to provincial and local governments. This project is expected to help address this issue, being amongst the first to utilize the new revisions of two Government Regulations 14 that provides for central government financial support to local governments for economically beneficial projects. By helping to operationalize this system (which would allow for future borrowing from local governments for economically beneficial projects that are not directly revenue generating), the project is contributing towards Indonesia’s decentralization and regional empowerment efforts as enshrined in the 2001 regional autonomy laws. II. Project Development Objectives A. PDO Project Development Objective. 13. The Project Development Objective (PDO) is to contribute to the improvement of the operation and maintenance of priority sections of Jakarta’s flood management system. The PDO will be achieved through: a) Dredging sections of selected key floodways, canals and retention basins to improve their flow capacities, and disposing the dredge material in proper facilities; b) Rehabilitating and constructing embankment in sections of, and repairing or replacing mechanical equipment in, the same selected key floodways, canals and retention basins to sustain and improve their operations; c) Establishing institutional coordination between the three responsible agencies to encourage coordinated development, and operations and maintenance (O&M) of Jakarta's flood management system, and d) Strengthening the capability of the responsible agencies to improve the operations, maintenance and management of Jakarta's flood management system. 14. Key Project Activities. The project’s aim is to support the dredging of the key floodways, canals and retention basins of Jakarta's flood management system and dispose the dredged material in a proper facility, using sustainable best practices (focusing on institutional coordination, and environmental and social sustainability). 15. Principles and Premises. It is clear that resolving the challenges of flood mitigation and management in Jakarta is a highly complex and ambitious undertaking (see para. 10). It requires efforts to resolve difficult issues on many fronts, each of which may be under the institutional responsibility of different stakeholders. The challenges cannot be surmounted within a limited 14 Regulation PP2/2006 concerning the procedure for the procurement of foreign loan and grant acceptance, which is now replaced by regulation PP10/2011; and regulation PP54/2005 concerning regional loans, which is now replaced by regulation PP30/2011. 5 short term effort. Yet a single overambitious, large and complex effort will also likely lead to implementation failure and seriously affect the long term will to address the problem. Thus, the proposed project objective is modest in scope and aims especially to support DKI Jakarta to begin addressing immediate flood management priorities. At the same time, its focus on supporting improvements in the four key areas of dredging, environmental, social and institutional practices by demonstrating sustainable mechanisms could help to strengthen critical operational, maintenance and institutional cooperation and coordination arrangements. This in turn could form the foundation towards larger and more ambitious undertakings in the future. B. Project Beneficiaries 16. Population in selected drainage subsystems. Comprehensive simulations of the 2007 event predicted that effects on more than 1 million people, or 40% of the flood impact, could have been avoided if the existing system was operating at the original intended capacity. The project will provide relief to the population particularly within the project scope area by reducing flood events and their intensity within the relevant drainage subsystems. The project sites are located in 57 kelurahans (urban villages) as part of 19 kecamatans (sub-districts) in four municipalities, i.e. North Jakarta, East Jakarta, Central Jakarta, and West Jakarta. About 1.8 million people live in these 57 kelurahans. 17. Institutional Stakeholders. A range of institutional stakeholders, from central government agencies to local government departments, will benefit from the demonstration of sound and sustainable institutional, funding, operations and maintenance arrangements for the flood management systems in Jakarta. The coordination structures between the BBWSCC / DGWR, DGCK and DKI Jakarta to implement the project would form the basis for longer term coordinated routine operations and maintenance. C. PDO Level Results Indicators 18. Key Performance Indicators. Progress towards achieving the PDO will be monitored through a set of indicators linked to the PDO: (a) water level of inundated areas; (b) the number of hours of water logging in inundated areas; and (c) the extent of inundated areas; III. Project Description A. Project Components 19. The Project components are summarized as follows (see Annex 2 for details): (a) Component 1. Dredging and rehabilitation of selected key floodways, canals and retention basins (US$176.1m, including contingencies). This component will support the dredging and rehabilitation of 11 floodways / canals and four retention basins 15 which have been identified as priority sections of the Jakarta flood 15 See Annex 2 for the full list of floodways / canals and retentions basins, and a summary of their characteristics. 6  management system in need of urgent rehabilitation and improvement in flow capacities. The dredge material will be transported and disposed into proper disposal sites. The 11 floodways / canals are estimated to have a total length of 67.5 km, while the four retention basins estimated to cover a total area of 65.1 hectares. About 42.2 km of embankments are expected to be rehabilitated or constructed within these floodways, canals and retention basins 16. Where necessary, mechanical equipment (pumps, gates, etc) will be replaced or repaired. (b) Component 2. Technical assistance for project management, social safeguards, and capacity building (US$13.4, including contingencies). This component will support contracts management, engineering design reviews, construction supervision engineers for the dredging and rehabilitation works and technical assistance for implementation of the project, including the Resettlement Policy Framework, Resettlement Plans and the Grievance Redress System. Technical assistance includes support to improve institutional coordination for operations and maintenance of Jakarta’s flood management system as well as the establishment of a Flood Management Information System (FMIS) 17. Provision has been made for the cost of implementing required Resettlement Plans, as well as the establishment and operations of a project Grievance Redress System (GRS) and a Panel of Experts (POE). 20. Disposal Sites. All sections of project floodways / canals and retention basins will be tested for hazardous material prior to dredging 18. Separate disposal sites have been identified for the disposal of non-hazardous material, solid waste material and hazardous material (if any) dredged from the project sites. The disposal sites are not financed by the project, however, they are considered an integral part of the project. Approximately 3.4 million m3 of sediment material and the approximately 95,000 m3 of solid waste will be removed from the project dredging works. Non-hazardous sediment material will be disposed of at the Ancol confined disposal facility (CDF) 19. Hazardous sediment material (if any are found) will be disposed of at the PPLi Hazardous Waste Facility in Bogor, West Java 20. Solid waste will be disposed of at the Bantar Gebang Landfill in Bekasi, West Java. 21. Sequenced project implementation. A sequenced implementation design has been adopted as a key implementation risk management mechanism for the project. The major works funded by the project will be implemented in two sequenced batches. Phase 1 works (proposed 4 sites / 3 works contracts) are expected to commence during the first year of the project. Phase 2 works (proposed 11 sites / 5 contracts) are expected to begin from around 12 to 18 months after project approval. Details of Phase 1 and Phase 2 sites are described in Annex 2. This sequencing will avoid the implementing agencies and the supervision consultant from being overburdened during the first year when detailed actual implementation processes, procedures and routines are established and operationalized. The sequencing will also allow time for DKI 16 Consisting of corrugated pre-stressed concrete piles, bank protection, and collector drain works. 17 Expected to be financed under the WASAP-J Trust Funds. 18 The sediment material is unlikely to contain hazardous material (based on extensive sample tests during project preparation). Nevertheless, prior dredging tests will be done to mitigate against inadequate treatment of any hazardous material. 19 Part of an ongoing sea reclamation works at Ancol situated off the north coast of Jakarta. 20 Note that specific proposed method to treat/dispose of any hazardous waste will follow national regulations on hazardous waste treatment and disposal and subject to the approval of the Ministry of Environment (MoE). 7 Jakarta to complete the necessary resettlement instruments and supporting arrangements for Phase 2 sites 21, including the establishment of a project Grievance Redress System (GRS) and the appointment of a Panel of Experts (POE). B. Project Financing 1. Lending Instrument 22. A self-standing Specific Investment Loan (SIL) has been identified as the appropriate lending instrument. The loan amounting to US$139.64 million from the International Bank for Reconstruction and Development (IBRD) will be provided to the Government of Indonesia (GOI) as a variable spread loan 22, with a total maturity of 24.5 years including a grace period of 9 years. Of the loan proceeds, GOI will (i) allocated US$70.30 million to MoPW (DGWR and DGCK), and (ii) on-lend US$69.34 million to DKI Jakarta through a Subsidiary Loan Agreement (SLA) 23. GOI will bear the foreign exchange risks of the on-lending to DKI Jakarta. The SLA will bear the same terms and conditions of the IBRD loan to GOI, except (i) the on- lending will be denominated in the local currency (Indonesia Rupiah), and (ii) the interest rates on outstanding loan will be equal to the IBRD loan interest rate, plus a maximum of 5.02% 24. 2. Project Cost and Financing 23. The total cost of the project is estimated at US$189.85 million. Total counterparts funding of US$49.71 million will be provided by DKI Jakarta, DGWR, DGCK and central government. A grant facility 25 from the Government of Netherlands will contribute in parallel US$0.5 million towards the costs to establish the Flood Management Information System (FMIS). The breakdown of project costs by component and the project financing plan by sources of funding are summarized in Table 1 below. 21 Phase 1 sites do not involve involuntary resettlement. 22 Through a Loan Agreement between the IBRD and the Republic of Indonesia. 23 This is one of the first examples of the on-lending arrangements for projects that do not provide direct revenue benefits. See discussions on this in para. 12. 24 In accordance with the Regulation of the Minister of Finance No. PMK83/05 on Additional Interest on SLA to Regional Governments. 25 The Water and Sanitation Sector Program (WASAP) Trust Fund, administered by the Bank. 8  Table 1 – Project Financing by Component and Sources of Funding Counterpart Bilateral Total IBRD Item Funding Grant (US$ million) COMPONENT 1 Dredging and rehabilitation of selected key floodways, 1. canals and retention basins. a. DGWR 53.20 10.80 42.40 b. DGCK 22.40 4.60 17.80 c. DKI Jakarta 100.50 31.16 69.34 Subtotal Component 1 176.10 46.56 129.54 COMPONENT 2 Supervision Consultant (contracts management, 2. engineering design reviews and construction supervision, 9.60 9.60 support to project GRS and implementation of RPs) 3. Flood Management Information System (FMIS) 0.50 0.50 4. Panel of Experts 0.50 0.50 5. Resettlement Costs (DKI Jakarta) 2.80 2.80 Subtotal Component 2 13.40 2.80 10.10 0.50 Total Project Cost 189.50 49.36 139.64 0.50 Front End Fee (0.25%) 0.35 0.35 Total Financing Required 189.85 49.71 139.64 0.50 24. A substantial portion of the upfront cost associated with project preparation, including detailed engineering design, environmental and social impact assessments and the preparation of related documents, project preparation institutional coordination, training and capacity building was supported by grant facilities 26 from the Government of Netherlands in the amount of about €6.15 million 27. C. Lessons Learned and Reflected in the Project Design 25. The key lessons learned and taken into account in the design of the project are drawn from a pilot dredging project carried out through a Government of Netherlands bilateral program 28, the Bank’s experience in Indonesia in projects involving multiple government agencies including local governments, as well as experience in complex urban development projects: i) Sectors with simultaneous challenges stemming from their sheer scale, long-term or multi-institutional nature of physical and institutional problems, are best addressed through a gradual and sustained effort. The project will adhere to the principle of 26 The Water and Sanitation Sector Program (WASAP) Trust Fund, administered by the Bank. 27 Netherlands has been a key partner supporting DKI Jakarta on issues of flood management. Technical assessments under the Jakarta Flood Management 2 Project (JFM2) were key in DKI Jakarta arriving at the decision to focus on restoring its existing flood management infrastructure. Currently, the Dutch-financed Jakarta Coastal Defense Strategy (JCDS) project is helping to formulate a strategic plan to improve the coastal defense of Java and in particular the northern coast of Jakarta. Rotterdam is a sister city of Jakarta cooperating on various issues including flood prevention. Another key development partner is the Japan International Cooperation Agency (JICA) which had previously financed various flood infrastructure in Jakarta. Currently, JICA has an ongoing Capacity Development of Jakarta Comprehensive Flood Management (JCFM) project and is supporting the development of sewerage infrastructure in Jakarta. 28 The Pilot Dredging Project, initiated in November 2008 as a component of the Government of Netherlands supported Jakarta Flood Management 2 Project (JFM2). 9  addressing issues in realistic scopes and timeframes to encourage the maintenance of sustained efforts and long term partnership towards the resolution of Jakarta’s flood management challenges. A key aim is to support GOI and DKI Jakarta to begin addressing immediate priorities and to demonstrate sustainable and sound mechanisms for the development, and operations and maintenance, of the flood management system in Jakarta. ii) Early successes are critical to maintain the commitment to, and the momentum of, long term institutional strengthening and reform processes. The implementation of various aspects of the project will be sequenced, undertaking a modest magnitude of activities at the implementation startup stage and addressing less complex activities 29 first. The importance of early successes will also be considered to mitigate the risk of loss of support and institutional reform momentum that can result from any early setbacks. iii) Early engagement to obtain long term commitment and support from institutional stakeholders from all levels of government is critical. The ultimate success of an efficient flood management system in Jakarta depends on the readiness of all the relevant responsible institutions to work together on a long term and sustained basis. Early engagement of relevant institutions from all levels of government, including the Ministry of Finance (MOF), Bappenas, MoPW and DKI Jakarta, has been a hallmark of project preparation. Active dissemination of information and discussions related to Jakarta’s flood problems and flood management 30 were undertaken from prior to project identification, culminating in a joint decision to proceed with project preparation and the use of the National Steering Committee for Water Resources (NSCWR), with DKI Jakarta’s participation, to guide preparation and implementation. The scope of the project was also confirmed to include floodways, canals and retention basins that encompass the jurisdictions of DKI Jakarta, DGWR and DGCK enabling the use of project preparation and implementation arrangements to form a platform to create long term coordination in operations and maintenance. iv) The lack of adequate laws and operational regulations governing project funding mechanisms between central and local governments can delay or stop project implementation. An agreed pre-requisite for the project was the revisions of key on- granting and on-lending regulations 31 to enable the on-lending of funds from MOF to DKI Jakarta for the purposes of carrying out JUFMP activities. v) Slow procurement process can significantly contribute to implementation delays. Experience has been gained during project preparation for the procurement of consultants. The pooling of scarce experienced procurement staffing resources into coordinated procurement committees has been agreed between the three Project Implementing Units (PIUs). Designs and draft bidding documents for major works have been prepared, in readiness for sequenced implementation. 29 For example, proceeding with works in floodways, canals and retention basins without Project Affected Persons (PAPs), or sequencing implementation of Resettlement Plans (RPs) to begin in less complex settings. 30 Including a study visit to observe flood management arrangements in the Netherlands. 31 See discussions on this in para. 12. 10 IV. Implementation A. Institutional and Implementation Arrangements (see Annex 3 for details) 26. Project Financed Activities. The project will be implemented through the appropriate existing institutions in line with the institutional structure for flood management in Jakarta. There are three Project Implementing Units (PIUs) at both central and local government levels: (i) the Directorate General for Water Resources (DGWR), (ii) the Directorate General for Human Settlements (DGCK), and (iii) the Provincial Government of DKI Jakarta (DKI Jakarta). Each will be responsible for carrying out the dredging and rehabilitation works in the selected key floodways, canals and retention basins that come under their respective institutional and legal responsibilities. In line with its responsibility mandate for social issues in the Jakarta municipalities 32, DKI Jakarta will be responsible for all project social safeguards arrangements. Overall coordination is provided by DGWR. A Project Management Unit (PMU) established by DGWR oversaw and coordinated the overall preparation of the project. For the project implementation phase 33, the DGWR will establish a Central Project Management Unit (CPMU) to oversee and coordinate the overall implementation reporting, planning and oversight functions. The PMU will be redesignated with the same composition as the Central Project Implementation Unit (CPIU) to implement and manage common project activities, including (i) the Supervision Consultant (SC), (ii) the Panel of Experts (POE), (iii) the Flood Management Information Systems (FMIS), and (iv) support to DKI Jakarta related to involuntary resettlement and the project’s Grievance Redress System (GRS). Beyond the sector institutions, the National Steering Committee for Water Resources (NSCWR), a high level advisory committee led by Bappenas 34 will provide coordination and advisory support at the policy level. 27. Project Material Disposal Activities. The three JUFMP dredge material disposal locations are operated by separate entities independent of the JUFMP. Ancol CDF is operated by the concessionaire and operator of the reclamation project, PT. Pembangunan Jaya Ancol (PT. PJA). The Bantar Gebang landfill is managed by the sanitary service department of DKI Jakarta through a private operator, while PPLi secure landfill is a private commercial provider (i.e. PT. PPLi) of hazardous waste disposal services. B. Results Monitoring and Evaluation 28. Monitoring and evaluation (M&E) of project outcomes. The DGWR will be responsible for the overall monitoring of the project implementation. The Supervision Consultant (SC) will play a key role in assisting the CPIU and PIUs to supervise, monitor, evaluate and report on the achievement of project outcomes, including project construction and disposal activities, environmental and social safeguards activities. The SC will provide monthly as well as quarterly progress reports. The PIU DKI Jakarta, with the support of the walikotas 32 Jakarta is officially designated a province with special status as the capital of Indonesia i.e., DKI Jakarta ( or ‘Special Capital City District of Jakarta’). Administratively, DKI Jakarta is divided into five municipalities (i.e, North Jakarta, South Jakarta, West Jakarta, East Jakarta and Central Jakarta municipalities) and one regency (i.e., Kepulauan Seribu, a group of small islands located on the Java Sea). 33 The establishment of the CPMU, the redesignation of the PMU to CPIU and the updated reestablishment of the PIUs to align with the overall revised arrangements will be done prior to project effectiveness. 34 For the purposes of JUFMP, committee meetings will at least include representatives from Ministry of Finance, MoPW, Ministry of Home Affairs (MOHA) and DKI Jakarta. 11 (mayors) of the relevant municipalities, will be responsible for monitoring and evaluating the implementation of the Resettlement Plans. C. Sustainability 29. Consistency with GOI and DKI Jakarta priorities. Flood events have increased in intensity and frequency in Jakarta over the last decade. The major flood events of 1996, 2002 and 2007 caused huge economic and social losses. Shorter but more frequent flood events that severely disrupt daily life are common issues faced by the citizens of Jakarta especially during the annual rainy seasons from November to April. These have generated lively debates and calls for swift actions. Flood mitigation and management is now a critical economic, social and political issue of the highest priority in Jakarta. The normalization of rivers and channels forms a key plank of DKI Jakarta’s medium term flood management program 35 (see Annex 3 for further descriptions of DKI Jakarta’s long term flood management strategy). Consequently, the commitment of both the central government and the local government - both to the project and its longer term sustainability - is assured. 30. Core institutional issue. The sustainability of project investments and improvement in flood management in Jakarta in the longer run is dependent on the ability and efficiency of the responsible institutions to operate and maintain the flood system infrastructure – including putting in place fiscal arrangements for operations and financing – that will allow DPU-DKI to manage and operate the city’s flood control system in a sustainable manner. At present, coordination between these institutions is largely related to construction projects rather than operations and maintenance (O&M). The coordination structures between the BBWSCC / DGWR, DGCK and DKI Jakarta to implement the project would form the basis for longer term coordinated routine O&M. Insufficient data and ability to analyze the available data hampers the development of clear programs of action for operations and maintenance 36. The FMIS will begin to remedy these data and analytical shortcomings. DPU-DKI is also being proactive in creating a specific unit for managing IT and databases. 31. Environmental and social sustainability. The continued internalization and implementation by DKI Jakarta and GOI of the environmental and social management practices introduced by the project would help to establish and strengthen good practices for environmental and social safeguards, such as consultations and participation from different stakeholders. Careful sequencing of implementation activities i.e., beginning dredging works in project sites with the least potential environmental and social impact and showing success before proceeding to more complicated sites will allow for continuous reviews and feedback, enhancing the chances of success at every part of the sequence and reducing the risk of unsustainable investments. V. Key Risks and Mitigation Measures 32. The key risks of the project and their associated mitigation measures are assessed and discussed in the Operational Risk Assessment Framework (ORAF) in Annex 4. At the project level, the main risks identified are related to social and environmental risks; the inter-agency 35 Per DKI Jakarta’s Medium Term Development Plans 2007-2012. 36 Reducing operations to reactive activities in response to specific incidences. 12 coordination challenges; procurement and financial management risks; and the risks related to fraud and corruption. An INT investigation in 2010 substantiated allegations of systematic fraud in a contract under a project executed by the Directorate General of Water Resources of the Ministry of Public Works, one of the implementing agencies of this project. The investigation resulted in negotiated settlements debarring an international firm and six of its local joint venture partners, and restitution payment by the international firm. Significantly, the Government has also taken action with investigations and ongoing prosecutions by the Attorney-General’s Office. 33. Key social and environmental risks include involuntary resettlement to be carried out in a dense urban setting, the supervision and enforcement arrangements at the main dredge material disposal site (Ancol CDF), as well as the possibility from the inadvertent association of the project by the public to any substandard practices or problems in unrelated projects at or near the JUFMP sites, or in unrelated reclamation activities. Social and environmental risk management measures are discussed further in Annex 7. 34. The arrangements for financial management and procurement include risk mitigation actions that provide for specific control systems for financial management and procurement during project implementation. Financial management and procurement risks management measures are discussed further in Annex 3. In addition, a project Anti-Corruption Action Plan (ACAP) has been developed to identify risks of corruption and mitigation measures beyond these standard control systems. The ACAP is discussed further in Annex 8. 35. Notwithstanding risk minimization measures adopted and mitigation measures designed, various uncertainties remain, in particular stemming from (i) untested implementation institutional arrangements, (ii) the introduction of new involuntary resettlement and environmental safeguards practices, and (iii) the uncertainties with respect to the sustainability of project outcomes. Considering these uncertainties, risk during implementation is rated High at this time. The management of risks during implementation and careful sequencing of project activities to demonstrate success at each step will be critical. As the new approaches and arrangements are demonstrated, implementation risks should reduce over time. VI. Appraisal Summary A. Economic and Financial Analysis 36. Economic Analysis. The impact of the project is estimated based on socio-economic losses resulting from the 2007 flood disaster, adjusted for the project scope area. The main benefits accrue from avoided damages to infrastructure and disruption in economic activities. Direct benefits accrue to the local government budget either by the avoidance of allocation for flood rehabilitation or the avoidance of losses from business taxes and other income. Indirect benefits accrue from the avoidance of other economic costs to the society, e.g., health costs, economic opportunity losses, labor and school days lost. The Economic Rate of Return (EIRR) for the project is very high at about 381%, and the net present value (NPV) of incremental benefit is positive at about Rp29.7 trillion at an 8% discount rate. 37. Financial Analysis. The improvement to the drainage systems is not an endeavor linked to direct financial returns; instead large economic and social benefits are expected from the 13 project investments. Nevertheless, the operational sustainability of DKI Jakarta as a whole is important to ensure that it remains capable of operating and maintaining the infrastructure and providing adequate services in the longer term. The financial performance of DKI Jakarta has been assessed and financial projections made by GOI, including its recent financial status, its continuing financial viability during the loan period, and its ability to service its financing obligations. In the last three years (2008 – 2010), DKI Jakarta has maintained significant operating surpluses (ranging from Rp3.7 to Rp4.9 trillion, or about US$417m to US$545m). Projections taking into account the expected project loan and DKI Jakarta counterpart funding obligations show continuing significant positive surpluses. DKI Jakarta’s debt service coverage ratio (DSCR) is high and projected to remain healthy throughout the period. B. Technical 38. Choice of floodways, canals and retention basins. Hydraulic simulation studies have recommended the rehabilitation of the city’s flood management system to its original design capacity and a routine maintenance system as the most beneficial first step for flood mitigation in Jakarta. The sections of the Jakarta flood management system included in the project have been identified by GOI as in priority need of urgent rehabilitation and improvement in flow capacities (see Annex 2 for the full list of floodways / canals and retentions basins, and a summary of their characteristics). Other considerations affecting the choice of project scope are discussed in more detail in the Analysis of Alternatives section of Annex 7. 39. Design for dredging and rehabilitation. Dredging will increase the water carrying capacity of the floodways and drains, as well as increase the retention capacity of the floodways, drains and retention basins. Engineering design focused on minimum designs required to restore the sections to appropriate operational levels, and methodologies that can dredge around existing structures, minimize the required construction space. Various mechanical dredging options and methodologies to reduce impacts associated with these types of activities were considered. Floating pontoon-based dredging has been identified as the preferred technology as the majority of construction activity can be restricted to the waterway itself, rather than having to disturb a wide strip along the length of the waterway. Annex 2 provides more details of the dredging and transportation methods. Engineering specifications and designs have been prepared. Draft bidding documents for all packages have been prepared. 40. Choice of disposal facilities for dredge material. Various options were considered for the disposal of non-hazardous dredge material from the project, considering sediment test results, past experiences, technical and financial reasons and opportunistic project development works. These are discussed in more detail in the Analysis of Alternatives section of Annex 7. 41. Design for Ancol CDF disposal facilities. The proposed design and specifications of the Ancol Confined Disposal Facility (CDF) has been assessed as satisfactory during appraisal. This CDF design consists of a confining dyke roughly 2 km long and 800 m wide formed by (i) on the east side, an existing reclaimed land mass, (ii) on the south and west sides, a dyke construction of soil with slope protection of rocks to protect the dyke against waves and currents, and (iii) on the north side, a sand dune structure with a gentle slope that dampens the waves to 14 prevent breaching of the confinement 37. This confining structure acts to isolate and retain material solids and allow the discharge of clean process water from the confined area. The material solids to fill the CDF will consist of non-hazardous dredge material from JUFMP. This will be augmented with sand and finally an approximate 40 cm cap of laterite (red clay). This design has been reviewed and approved by BPLHD. The Ancol CDF facility has a capacity to receive about 12 million m3 of fill material. This is more than adequate to receive the estimated 3.4 million m3 dredge material from JUFMP sites. At the time of appraisal, the east, south and west confinements have been constructed. It was assessed that the northern confinement will be completed, and the CDF area physically enclosed during the first quarter of calendar year 2012. This timeline suits the expected procurement of the Phase 1 works contracts under JUFMP. (The Bank’s ‘no objection’ to the award of any given JUFMP dredging contract is subject to satisfactory completion of the confined facility and its compliance with all environmental requirements – see para. 55). 42. Bantar Gebang Landfill. A site visit conducted by the Bank team 38 showed that the Bantar Gebang landfill has the capacity to receive the solid wastes expected from the project and that the site has a valid operating permit 39 and is in compliance with local regulations. The facility was designed to handle 19 million m3 of waste and since its opening approximately 10 million m3 of waste had been disposed of at Banter Gebang. Current disposal is about 5,000t/day (about 20,000 m3) 40. The total amount of solid waste estimated from project is about 95,000 m3. Over a four year project period, this amounts to less about 0.3% of the normal average existing solid waste receipt. 43. PPLi Hazardous Waste Facility. The PPLi secure landfill in Bogor is a 50 hectare landfill with a total capacity of over 3 million tons and capacity to process 22,000 tons of waste annually. A site visit conducted by the Bank team 41 showed that only 2 hectare of the landfill had been utilized. A double composite liner, constructed of bentonite clay and high-density polyethylene (HDPE), lines the landfill's base, which prevents any leachate from contaminating the surrounding environment. New waste is covered with soil or a synthetic material on a daily basis. Once an area of the landfill fills to capacity, it is capped with clay and a HDPE liner to prevent water from seeping into the closed landfill cell. The facility meets the national and sub- national regulation, and is adequate provision to accommodate any reasonable amount of hazardous material which may be found at JUFMP sites. C. Financial Management 44. The purpose of the project’s financial management assessment is to determine whether the financial management systems of the executing agencies, the DGWR, DGCK within MoPW and DKI Jakarta are capable of producing timely, relevant and reliable financial information on project activities, and whether the accounting systems for the project expenditures and underlying internal controls are adequate to meet fiduciary objectives, satisfy the Bank’s OP/BP 37 This northern side design is a change from the original design of soil with slope protection. The proposed change was also reviewed by the World Bank, whose recommendations was acknowledged and adopted prior to the approval of BPLHD. 38 In December 2010. 39 West Java Governor Number 593.82/SK/282.P/AGK/DA/86 dated on 25 January 1986 jo. 593.82/ SK.116.P /AGK/DA/26- 1987. 40 Calculated using typical weight of household wastes. 41 In December 2010. 15 10.02 and allow the Bank to monitor compliance with agreed implementation procedures, and evaluate progress towards its objectives. 45. The main risks associated with the project arise from the disclaimer audit opinions on the FY 2010 financial statements of both DOISP 42 and WASAP-J 43 projects. Both projects are implemented by DGWR. The auditor issued disclaimer opinions due to the unavailability of sufficient documentation to enable the auditor to conduct an examination of project expenditures. Furthermore, there was a case of substantiated INT investigation involving a DGWR-executed project in 2010. Another risk is the limited experience of DKI Jakarta in implementing Bank- financed projects. On the other hand, DGCK has extensive experience in implementing Bank- financed projects. The auditor has lifted the disclaimer opinions (after an in-depth audit was completed) and an action plan has been agreed on the audit findings. To help mitigate FM risks, the following arrangements will be implemented: (i) the Project Operations Manual (POM) for JUFMP implementation should cover strengthened internal control through (a) inclusion of internal audit of the project activities by the MoPW Inspector General (IG) and DKI Jakarta Inspectorate, and (b) improvement in the project recordkeeping policy, including responsibility and facilities for recordkeeping; (ii) training on payment verification should be provided to all PIUs; and (iii) financial management specialists should be hired as part of the Supervision Consultant, which will help augment financial management capacity. D. Procurement 46. Procurement capacity. A procurement assessment was carried out on the PMU, which will be re-designated, as the CPIU (per para. 26), and three PIUs that will implement the project. The assessment concluded that the PMU has the capacity to carry out procurement activities under its responsibilities. The PMU has already demonstrated successful and timely procurement of two large project preparation consultancies and it is expected that the same team will carry out PMU procurement during project implementation. The assessments of the three PIUs however point to limited capacity and experience of the PIUs in carrying out large works contracts under International Competitive Bidding (ICB) procedures. It has been agreed that the three agencies will pool their resources of qualified staff selected from within the three PIUs. Each PIU will nominate three qualified staff members to serve on a common Procurement Committee 44. The common Procurement Committee will consist of seven members – for any given contract, the contracting PIU will have three members on the committee while the other two PIU will contribute two members. The Procurement Committee will be assisted by experienced consultants. The draft Procurement Plan for the project has been prepared. The agreed Procurement Plan will be disclosed on the MoPW website and on the Bank’s external website. The Procurement Plan will be updated at least annually (or as required) to reflect the actual project implementation needs. A summary of the procurement capacity assessment and the procurement arrangements is provided in Annex 3. The complete procurement capacity assessment is available in the project files. 47. Procurement strategy. The selection of the construction supervision consultancy, which is instrumental in the project implementation setup process, is in progress. This consultancy is 42 Dam Operational Improvement/Safety Project (FY09). 43 Water and Sanitation Program (J) Trust Funds 44 Procurement training will be provided to this pool of nine nominated members of the Procurement Committee. 16 expected to be mobilized soon after project effectiveness. The main project activities for the dredging and rehabilitation of selected key floodways, canals and retention basins have been divided into eight works packages. Three of the packages include project sites that are not expected to have project affected persons (PAPs) and are expected to begin implementation during the first year of the project. Advance procurement for these contracts is expected to begin prior to project approval. Draft bidding documents for the other works packages have been prepared. In line with the sequencing of implementation (see para. 21), these contract packages will begin at a later stage. These include several contracts that encompass sites where construction works will occur only after the relevant Resettlement Plans (RPs) have been satisfactorily implemented. 48. Procurement risks. Procurement risks identified include uncertain and slow budget mechanisms that delay procurement; inexperience in procuring, administering and monitoring large complex contracts; and dependence on the resolution of social safeguards issues at some project sites leading to uncertainties in contract packaging and supervision requirements. Corrective measures agreed include: (a) review of project design and defined Anti-Corruption Action Plan; (b) code of conduct for the Procurement Committee members addressing conflicts of interest; (c) experienced consultant to support the procurement committee; and (d) use of MoPW website to publicize procurement information. The agreed mitigation measures are expected to minimize procurement risks. However, considering the fact that limited numbers of experienced contractors have worked on large dredging projects in Indonesia, and the implementing agencies also may not have the experience in dealing with ICB procedures, the overall project risk for procurement remains High. E. Social (including safeguards) 49. Social impacts of the project. The project is expected to have significant positive social impacts. In particular, the reduction of flood events will reduce the disruptions to communities in project areas, as well as reduce public health issues caused by overflowing and stagnant flood waters. Beneficiaries will be predominantly poor communities living in flood-prone areas within the project scope. However, there are potential adverse impacts including resettlement-related and non-resettlement related impacts. Involuntary resettlement has been identified as required in six of the 15 project sites. Significant efforts have been made to minimize the number of cases of involuntary resettlement (see Annex 7 for details). Non-resettlement related impacts include potential disturbances to the living environment during construction, such as damage on local roads, dusts, bad odors, spilled dredged materials, increased traffic congestion and noise from the equipments and trucks. Construction works could also temporarily affect about 19 operators / owners of canal crossing boats. 50. Safeguards policies triggered. For the reasons above, the project triggers the Involuntary Resettlement (OP 4.12) policy. The provisions of OP 4.12 will also apply to any linked activities if they are carried out in 10 linked sites, which have been identified on the basis of their hydraulic connections to the project sites (see Annex 2 for details of linked sites). 51. Social safeguards. Project works contractors will be required to consult with the community periodically to inform the community of works plans and discuss ways to minimize unavoidable impacts, such as the temporary impact from traffic disruptions, reduction in air 17 quality and construction noise. Contractors will also enter into discussions with boat crossing operators to arrive at mutually agreeable arrangements for the dredging schedule to avoid as much as possible disturbance to the operators’ activities. In order to address involuntary resettlement issues and to ensure that implementation of project activities (including linked activities) will be carried out in a socially sustainable manner, DKI Jakarta has prepared a Resettlement Policy Framework (RPF) which will govern the preparation of Resettlement Plans (RPs). The policy framework addresses the entitlements of Project Affected Persons (PAPs) who are occupants of state or government land as well as entitlements of PAPs affected by the acquisition of privately owned land, the rationale for compensation for lost assets at replacement cost, specific measures to address vulnerable groups, and assistance for livelihood restoration. During project implementation a project grievance redress system that is open, approachable, and also provides timely feedback to concerns, as well as mediation options for disputes will be in place to address any complaints that arise from the project. A Panel of Experts (POE) consisting of independent and internationally recognized experts will be mobilized to advise on technical issues (dredging and disposal), environmental and social management monitoring, and resettlement practices. Annex 7 provides more details of the social safeguards issues, baseline information, assessments and impact management measures adopted for the project (including the rationale for the disclosure arrangements adopted). 52. Disclosure arrangements. The completed RPF has been disclosed by GOI in-country and the Bank at the Bank’s Information Center in Washington D.C. No involuntary resettlement is expected at Phase 1 sites. RPs will be completed during project implementation. Given the sequencing of project implementation, the various Phase 2 works are only expected to begin approximately 12 to 18 months after project approval. All RPs will be approved by the Bank, publicly disclosed and will be implemented (except elements in the RPs related to post- resettlement activities) prior to any works commencing at the associated site. F. Environment (including safeguards) 53. Environmental Impacts of the Project. The project is expected to yield positive environmental outcomes for the following reasons; (i) alleviating seasonal flooding in the densely populated area of Jakarta will reduce the environmental impact and public health issues caused by overflowing and stagnant flood waters, (ii) removal of solid waste and sediments from the selected drains would also prevent these materials from being flushed uncontrolled into the estuary and bay area and out into the open sea, and (iii) over the longer term the flood information management system that is being introduced by the project would provide DKI Jakarta with the information based planning tool needed to sustainably manage the network and to continue to reduce the incidence of flooding in the area. These environmental benefits are in addition to the socio-economic benefits that would also be realized from alleviating seasonal flood. Notwithstanding, negative environmental impacts are likely from the dredging and embankment works and the handling, storing, stockpiling, sorting, transportation and disposal of the sediment material and solid waste generated. These include potential adverse impacts from the dredge sediment, traffic disruption, reduction in air quality due to dust and foul odor emissions, increased noise levels, and reduction in water quality during ongoing works. Hazardous material (if any are found) also poses potential environmental and health hazards if 18 improperly handled 45. At the Ancol CDF disposal site, potential impact may stem from changes in sea current patterns, sedimentation, reduction in water quality during ongoing works, and disturbances to sea life. There is also the potential for adverse off site impact at the source locations and transport route of sand and laterite required for the construction of the CDF 46. 54. Safeguards Policies Triggered. For the reasons above, the project triggers Environmental Assessment OP 4.01 and has been assigned an EA category of “A