ASIAN DEVELOPMENT BANK PCR: INO 22044

..• ••••

PROJECT COMPLETION REPORT

ON THE

WATER POLLUTION CONTROL PROJECT(Loan No. 1158-INO)

IN

INDONESIA

August 1999

CURRENCY EQUIVALENTS

Currency Unit - Rupiah (Rp)

At Appraisal At Project Completion(October 1991) (December 1996)

$1.00 = Rpl,973 Rp2338

Rpl.00 = $0.0005068 $0.0004277

ABBREVIATIONS

ARDBAPEDALBAPEDALDABODCODCWCTSFIRRKabupatenO&MPDAMRIWRDWTP

Agency for Research and DevelopmentEnvironmental Impact Management AgencyRegional Environmental Impact Management Agencybiochemical oxygen demandchemical oxygen demandcentralized wastewater collection and treatment schemeFinancial Internal Rate of Returndistrict or regencyoperation and maintenancewater and sewerage enterprise (Perusahaan Daerah Air Minum)Research Institute for Water Resources Developmentwastewater treatment plant

NOTES

(i) The fiscal year (FY) of the Government ends on 31 March. FY before acalendar year denotes the year in which the fiscal year ends. For example,FYi 999 begins on 1 April 1998 and ends on 31 March 1999.

(ii) In this report, "$" refers to US dollars.

CONTENTS

Page

BASIC DATA

MAPS

PROJECT DESCRIPTION

EVALUATION OF IMPLEMENTATION

A. Project ComponentsB. Implementation ArrangementsC. Project CostsD. Project ScheduleE. Engagement of Consultants and Procurement of Goods

and ServicesF. Performance of Consultants, Contractors, and SuppliersG. Conditions and CovenantsH. Disbursements

Environmental and Social ImpactJ. Performance of the Borrower and the Executing AgencyK. Performance of the Bank

III. EVALUATION OF INITIAL PERFORMANCE AND BENEFITS

A. Financial PerformanceB. Economic PerformanceC. Attainment of BenefitsD. Legal FrameworkE. Institutional Arrangements

Iv. CONCLUSIONS AND RECOMMENDATIONS

A. ConclusionsB. Lessons LearnedC. Recommendations

I

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1223

4556666

7

7889

10

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111314

APPENDIXES 16

Ftl

BASIC DATAA. Loan Identification

1. Country

Indonesia

2. Loan Number

1158-INO

3. Project Title

Water Pollution Control Project

4. Borrower

Republic of Indonesia

5. Executing Agency

Agency for Research and DevelopmentMinistry of Public Works

6. Implementing Agency Research Institute for Water Resources Development

7. Loan Amount $8,400,000Actual $7,380,960

8. PCR Number 537

B. Loan Data

1. Appraisal- Date Started 5 Aug 1991- Date Completed 15 Aug 1991

2. Loan Negotiations- Date Started 25 Nov 1991- Date Completed 26 Nov 1991

3. Date of Board Approval 4 Feb 1992

4. Date of Loan Agreement 26 Feb 1992

5. Date of Loan Effectiveness- In Loan Agreement 10 Apr 1992- Actual 10 Apr 1992- Number of Extensions None

6. Closing Date- In Loan Agreement 30 Jun 1995-Actual 31 Dec1996- Number of Extensions Two

7. Terms of Loans- Interest Rate variable- Maturity 24 years (including grace period)- Grace Period 4 years

8. Disbursements

a. Dates

Initial Disbursement Final Disbursement Time Interval12 Aug 1992 15 Jul 1997 5 years

Effective Date Original Closing Date Time Interval10Apr1992 3OJun 1995 3years2 months

b. Amount($)

Original 1 Last Amount Undisbursed

Reallocation RevisedaCategory Allocation Disbursed BalanceA. Foreign Exchange

1. Civil Works 1026,000 676,000 1717,000Collection System 354,000 254,000 588,000 468,950 119,050Treatment Plant 672,000 422,000 1,129,000 980,366 148,634

2. Equipment Materials 1,996,000 3,046,000 3,372,000Collection System 94,000 544,000 604,000 556,910 47,090Treatment Plant 1,902000 2,502,000 2,768,000 2,737,598 30,402

3. Consulting Services 913,000 1 113,000 1,546,000 1,639,136 (93,136)

B. Local Cost1. Civil Works 1988,000 1,041,000

Collection System 684,000 334,000Treatment Plant 1.304,000 707,000

2. Equipment Materials 279,000 326,000Collection System 13,000 60,000Treatment Plant 266,000 266,000

3. Consulting Services 433,000 433.000 998000 998,000 0

C. Interest During 998,000 998.000Construction

0D. Unallocated 767,000 0 0 0

282,040Total 8,400,000 7,833,000 7,633,000 7,380,960a

The foreign exchange and local currency for the same component were merged in conformity with the presentation of budgetcategories of Bank projects.

C. Project Data

Project Cost ($ million)

a. Foreign Exchange Costb. Local Currency Costc. Total Cost

2. Financing Plan ($ million)

Source AprForeig

a. The Bank 5.70b. Government 0.00

Total 6.70

Appraisal

Actual

5.70

5.96

8.30

3.99

14.00

9.95

5.60 5.60 40 0.00 2.57 2.57 25.8

8.30 14.0 100 5.96 3.99 9.98 100

Sep 1992

Feb 1994Jan 1993

Dec 1993

Sep 1994

July 1997

Sep 1994

Mar 2000(Scheduled)

Name of Mission Date

No. ofPersons

Fact Finding

7-18 May 1991

I

Appraisal

5-15 Aug 1991

4

Inception Mission

Review Mission

Special LoanAdministrationMission

24-27 Aug 1992 1

12-l3Aug 1993 2

19 Nov 1993 1

iv

3. Cost Breakdown by Project Component ($ million)

Component Appraisal Estimate ActualForeign Local Total Foreign Local Total

A. Base Cost1. Civil Works 1.00 4.10 5.10 0.58 2.34 2.922. Equipment 2.00 0.50 2.50 3.18 0.74 3.923. Consulting Services 0.90 0.80 1.70 1.20 0.69 1.894. Land Acquisition 0.00 0.00 0.00 0.00 0.00 0.005. Taxes and Duties 0.00 1.00 1.00 0.00 0.22 0.22

Subtotal (A) 3.90 6.40 10.30 4.96 8.95B. Contingency 3.99

1. Physical 0.40 0.60 1.00 0.00 0.002. Price 0.40 1.30 1.70 0.00 0.00 0.00

Subtotal (B) 0.80 1.90 2.70 0.00 0.00 0.00Total Before IDC 4.70 8.30 13.00 4.96 0.00 8. 95

3.99Interest During Construction 1.00 0.00 1.00 1.00 0.00 1.00

Total 5.70 8.30 14.00 5.96 3.99 9.95

4. Project Schedule

Item Appraisal Estimate ActualFielding of Consultant Sep 1991 Jun 1992

Civil Work ContractsTreatment PlantCollection System

Equipment/Material ContractsTreatment PlantCollection System

Commissioning

Institutional Development

Jul 1992

Dec 1993Sep 1992

Dec 1993

D. Data on Bank Missions

No. of SpecializationPerson-Days Of Members

11 Sr. Project Engineer (ML)1

21 Sr. Project Engineer (ML)Financial AnalystCouncilProgram Officer

3 Sr. Project Engineer (ML)

4 Sr. Project Engineer (ML)Technical Assistant

1 Sr. Proj. ImpI. Officer (ML)

1 2

Sr. Project Engineer (ML)

1 2

Sr. Project Engineer (ML)

2 4

Sr. Project Engineer (ML)

1 1

Sr. Project Engineer (ML)

V

2

1

1

2

1

2

Review Mission 27-30 Apr 1994

Special Loan 9 July 1994AdministrationMission

Special Loan 16-17 Nov 1994AdministrationMission

Special Loan 9-10 Mar 1995AdministrationMission

Special Loan 29-30 Jun 1995AdministrationMission

Special Loan 31 Oct-2 NovAdministration 1995Mission

Special Loan 13 Nov 1995AdministrationMission

Special Loan 4 Dec 1995AdministrationMission

Review Mission 14-15 May1996

Special Loan 18-19 Dec 1996AdministrationMission

Special Loan 25 Jan 1997AdministrationMission

6 Sr. Proj. lmpl. Officer (ML)Project Officer

1 Sr. Proj. Impi. Officer (ML)

2 Sr. Proj. Impi. Officer (ML)

1

Sr. Project Engineer (ML)

4 Project Impi. Officer (ML)Project Officer

2 Project lmpl. Officer (ML)

2 Project ImpI. Officer (ML)Sr. Environment Specialist

Project Completion 17-22 Mar 1999 3 15 Sr. Proj. Impi. Officer (ML)Sr. Project OfficerStaff Consultant

This report was prepared by a Bank Mission comprising T. Kanazawa, Sr. Project Implementation Officer, IRM (MissionLeader); Soewartono H.S., Sr. Project Officer, and a staff consultant/financial analyst.

Cirebon

0Garut

>

Map 21O6°E 108°E

- 6°NJ

*

Jakarta

WEST JAVA Bandung

/-.

\7oN

INDONESIA

CITARUM RIVER CATCHMENT AREA

0 5 10 15 20I -J

Kilometers

7°OOS

7°OOS

® National Capital

o City/Town• Project Area

L ] Catchment Area

River

Community

L Industrial Area

Li Agricultural Area- - - Provincial Boundary

Boundaries are not necessarily authoritative. 107°30E

99-2002 AM

I. PROJECT DESCRIPTION

1. The Government has given high priority to water pollution control to reduceenvironmental problems. As part of its effort, in June 1990 the Government launched a rivercleanup program (PROKASIH) 1 that focused on the control of industrial wastewaterdischarge in 11 provinces covering 24 major rivers in Java. Bank technical assistance 2 (TA)identified 22 centralized wastewater collection and treatment schemes (CWCTSs) foreffective management of industrial wastewater from the clusters of existing industries inJava. The Government considered it prudent to implement a prototype CWCTS to establishthe groundwork for implementation of CWCTS projects before embarking on a majorinvestment program. The Project was to support this effort. It was also to help reduceCitarum River pollution by introducing industrial wastewater treatment in South Bandungdistrict. The primary objectives of the Project are to

(i) test and evaluate the viability of the centralized approach in managingwastewater from clusters of existing industries, using the South BandungCWCTS as a prototype case; and

(ii) recommend policy guidelines and institutional arrangements at the nationaland provincial levels, and prepare a comprehensive planning methodologyand guidelines for the development of the South Bandung and other CWCTSprojects.

2. The Project scope comprised: (i) construction of new interceptor sewers and apumping station for the collection system; (ii) rehabilitation and upgrading of the existingSouth Bandung wastewater treatment plant; (iii) commissioning and evaluation of thetreatment plant; (iv) provision of implementation and institutional support; and (v) facilitationof policy and institutional development of the CWCTS.

U!

EVALUATION OF IMPLEMENTATION

A. Project Components

3. A chronology of the milestone events during Project implementation and a listing ofthe project components as appraised and actually completed are presented in Appendix 1and Appendix 2. The project scope as implemented differs only slightly from that atappraisal. Additional works included (i) preparation of detailed design for a wastewatertreatment plant (WIP) 2; and (ii) construction of a dyke and elevation of some structures ofthe WTP1 to minimize the risk from flooding. The South Bandung CWCTS was constructedin 1989 and expanded in 1992. The Project was to upgrade the existing wastewatercollection and treatment system by rehabilitating and improving existing facilities. WTP Iwas upgraded by adding primary treatment facilities and sludge thickeners and equipment.The existing collection system was also improved by installing lift pumps and new interceptorsewers to replace defective pipes.

4. To explore and establish the most appropriate technologies, low-cost and yeteffective, for processing industrial wastewater, a mini pilot plant was constructed. The pilotplant was designed to test and evaluate its performance in various environments, using

Issued by the State Ministry for Population and Environment and Governors in June 1990.2 TA 1083-INO: Water Quality Management Sector, for $590000, approved on 8 December 1988 and

completed in December 1990.

different chemicals for different types of industrial wastewater from various industries in thecountry.

B. Implementation Arrangements

5. The Agency for Research and Development (ARD), Ministry of Public Works was theExecuting Agency of the Project and the Research Institute for Water ResourcesDevelopment (RIWRD), Bandung implemented the Project. RIWRD set up a projectmanagement team with adequately qualified staff (Appendix 3). The director of RIWRD wasthe project director, and assumed responsibility for the overall management of Projectimplementation. A qualified sanitary engineer, appointed as the project manager, wasassisted by 11 technical and 6 administrative personnel including an environmentalengineer, a civil engineer, a chemist, a financial analyst, an economist, and an accountant tomanage project implementation as envisaged at appraisal.

6. The Government established the interagency Steering Committee and interagencyAdvisory Technical Committee to ensure interagency coordination and to provide overallpolicy guidance and direction for project implementation. During implementation, twomeetings were convened for the Steering Committee and eight for the Advisory Committee.

C. Project Costs

1. Costs

7. The actual project cost was $9.95 million equivalent comprising $5.96 million inforeign exchange cost and $3.99 million equivalent in local currency cost. These arecompared with $5.7 million and $8.3 million equivalent estimated at appraisal. The interestduring construction on the Bank loan amounted to $1.0 million, which was also financed fromthe loan proceeds. The cost for additional works amounted to $749,000 equivalent, 7.3percent of the original base cost. The cost of the Project as estimated at appraisal and asactually incurred is presented in Appendix 4 and summarized in Table 1.

Table 1: Total Project Cost as Appraised and Actual($ million)

Component Appraisal ActualForeign Local Total Foreign Local Total

Exchange Currenc - Exchange Currenc

1. Base Cost 3.90 6.40 10.30 4.96 3.99 8.952. Contingency 0.80 1.90 2.70 0.00 0.00 0.003. Interest during 1.00 0.00 1.00 1.00 0.00 1.00

constructionTotal 5.70 8.30 14.00 5.96 3.99 9.95

8. The actual base cost was lower than that estimated at appraisal. This was attributedto savings from lower contract prices of civil works, in particular, construction of the collectorsystem where the design was changed from in-site concrete box culverts to precast concretepipe. About $1.6 million were savings from civil work components, while procurement ofcollector pipes, treatment plant equipment, and consulting services resulted in a total costincrease of about $1.3 million, compared with appraisal estimates. Gradual appreciation ofthe dollar against the rupiah from Rpl,937 per dollar to Rp2,370 during projectimplementation was partly responsible for loan savings. To meet these changes loan

3

proceeds were reallocated and $767,000 of unallocated loan proceeds were cancelled inJune 1995.

9. The actual project base cost in 1992 constant prices was $7.35 million, a decrease of$2.96 million or 28.7 percent from the appraisal cost estimate of $10.3 million (Table 2 andAppendix 5). With the contingencies at appraisal totaling $2.7 million, the actual project costin real terms decreased by $5.7 million or 40.7 percent of the project cost estimated atappraisal. These savings are attributed mainly to lower than estimated contract prices andunused contingencies.

Table 2: Comparison of Appraisal and Actual Base Costs in 1992 Prices($ million)

Item Appraisal Actual Base Cost in Changes from1992 Appraisal Estimate

_______________________ Constant Prices ____________________FX LC Total FX LC Total FX LC Total

Total Cost 3.90 6.40 10.30 4.06 3.28 7.35 0.16 (3.12) (2.96)Ratio (%) 37.9 62.1 100 55.2 44.8 100 4.1 (48.8) (28.7)

FX = foreign exchange; LC = local currency.

2. Financing Plan

10. It was envisaged at appraisal that the Bank would finance $8.4 million equivalent tocover 60 percent of the total project cost. The actual Bank financing covered the entireforeign exchange cost of $5.96 million, and part of local currency cost of $1.42 millionequivalent or about 36 percent of the total local currency cost. Total Bank funding thereforeamounted to $7.38 million or 74.2 percent of the total project cost, and the balance of $2.57million or 25.8 percent was provided by the Government as counterpart funding. Theincreased Bank financing ratio is mainly due to the extension of consulting services andprocurement of pipe materials through international competitive bidding/internationalshopping where higher Bank financing (100 percent of the ex-factory price or foreignexchange component) was made, compared with that envisaged at appraisal (88 percent netof duties and taxes). The financing plans for the Project as proposed during appraisal andactual are shown in Table 3 and details are given in Appendix 6 and loan allocation bycategory envisaged at appraisal and actual is in Appendix 7.

Table 3: Project Financing($ million)

Appraisal Actual Change from AppraisalSource FX LC Total FX LC Total FX LC TotalBank 5.70 2.70 8.40 5.96 1.42 7.38 0.26 (1.28) (1.02)% 60 74 5 (47) (38)

Borrower 0.00 5.60 5.60 0.00 2.57 2.57 0.00 (3.03) (3.03)% 40 26 0 (54) (54)

Total 5.70 8.30 14.0 5.96 3.99 9.95 0.26 (4.31) (4.05)100 100 5 (52) (29)

FX = foreign exchange; LC = local currency.

D. Project Schedule

II. Appendix 8 shows the project implementation schedule at appraisal and actual. Theloan was approved on 4 February 1992 and was to be closed on 30 June 1995. The Project

4

had a smooth start with the commencement of services by the consultant for detailed designand construction supervision in June 1992. The loan was, however, extended by 18 monthsin total, first 12 months from 30 June 1995 to 30 June 1996, and then to 31 December 1996because of significant delays in the completion of WTP1.

12. The upgrading work of WTPI, a major project component, started only in December1993 as prequalification, bidding, and awarding took about one year. It was expected to becompleted in August 1995, followed by test running and commissioning of the entire SouthBandung CWCTS including an evaluation period of six months. The construction of the WTPwas however completed only in December 1996. Delays were basically due to the poorperformance of both the civil works and equipment contractors although their work activitieswere also interrupted by two heavy floods. In December 1995 and March 1996 torrentialrains hit the district causing serious floods and suspending works for about six months. Theperformance of the equipment contractor was particularly discouraging; the contract wasextended three times totaling 14 months from 12 August 1995 to 31 October 1996. The workwas substantially completed only on 21 December 1996, while minor repair and adjustmentworks followed until June 1997.

13. The CWCTS was completed in December 1996 and became ready for testing andtrial operation in June 1997 when the minor repair and adjustments of defective works werecompleted. Since that time, the CWCTS has never reached full capacity commercialoperation as institutional arrangements for operation and maintenance (O&M) including tariffrates are yet to be finalized. It has been maintained on a test operation basis with a limitedcapacity of 60 to 120 liters/second (Its). In May 1998, heavy rain and floods again hit thedistrict. This damaged the inlet canal to WTP1. While the damaged inlet channel wall isunder reconstruction, the CWCTS including WIP1 is being operated and maintainedproperly by RIWRD at their own expense.

E. Engagement of Consultants, and Procurement of Goods and Services

1. Consultants

14. As provided for in the Loan Agreement, the consultant who prepared the feasibilitystudy and preliminary design of the South Bandung CWCTS under TA 1083INO wasengaged through direct appointment procedures. Consulting services were provided for (i)project implementation support including detailed design, construction supervision, and on-the-job training; (ii) institutional support including training of plant operational personnel andpreparation of a postcompletion administrative/management plan; (iii) commissioning andevaluation of the project facilities; and (iv) preparation of comprehensive multilevel CWCTSpolicy and institutional arrangement proposals for the Government. The consultantcommenced services on 1 June 1992 for 36 months until 31 May 1995. The consultingservices were, however, extended to November 1995 for (i) construction supervision andevaluation of WTP1; (ii) design and construction supervision of the wastewater collectormains to WTP2; and (iii) detailed design of WTP2. No extension of the consultant servicesbeyond 31 November 1996 was made although the CWCTS could not be completed.

2. Procurement

15. Procurement of civil works, materials, and equipment by package is given inAppendix 9. Procurement was made in accordance with procurement modes stipulated inthe Loan Agreement. A total of 15 contract packages, 5 for civil works and 10 for supplyand/or installation of equipment and materials were awarded, while only 4 were envisaged atappraisal. Of the total, 2 were procured under international competitive bidding, 7 underinternational shopping, 3 under local competitive bidding, and 3 under direct purchase. Forsupply and installation of treatment equipment and materials, the lowest bid price was about

5

20 percent lower than the second lowest price or 25 percent lower than the engineer'sestimates. This low price stemmed from a lack of experience and basic understanding oftechnical specifications by the bidder. After clarifications and negotiations, the contract wasnevertheless awarded to this particular bidder who was committed to carrying out the workaccording to specifications and with the price offered.

F. Performance of Consultants, Contractors, and Suppliers

16. Performance of the consultant for detailed design and construction supervision wasgenerally satisfactory. The consultant fulfilled all requirements stated in the terms ofreference, except those related to commissioning and evaluation of the CWCTS as theywere released before the commissioning started. The domestic consultants were not wellqualified as their knowledge and experience in wastewater processing were limited. A totalof 15 contractors were engaged for upgrading of WTPI and installation of the collectormains under the Project. Of these, the performance of the civil work and equipmentcontractors for upgrading WTP1 was very discouraging. Poor performance of both thecontractors resulted in delays in completion of the WTP by more than one year. Theequipment contractor did not possess sufficient management expertise, skills, andequipment to execute works according to technical specifications and time schedules asrequired. Delays in preparing shop drawings according to the schedule caused the initialdelays in implementation. The submission of shop drawings took almost 12 monthscompared with 3 months originally scheduled. To minimize costs, the equipment contractorprocured materials and equipment from nine different manufacturers/countries. This wouldcause problems for the operating agency to provide adequate O&M of WTP1 in the future.Supply and installation of the collector mains were completed satisfactorily with minimaldelay, although the installation work was affected by heavy traffic, rains, and floods.

G. Conditions and Covenants

17. Compliance with covenants is described in Appendix 10. Several covenants have yetto be complied with. They include (i) full capacity commercial operation of the projectfacilities; (ii) promulgation of rules and regulations to support the operation of the SouthBandung CWCTS, including tariff setting; and (iii) institutional setup for operationalmanagement of the CWCTS. About 100 square meters (m 2) of land needed for theconstruction of an intermediate lift station in the collection system were acquired, andpermits and land-use rights necessary for the construction of the collection system underroads were issued by the provincial government in a timely manner. Land needed for WTP2has not been acquired yet, although negotiations are under way with landowners.

18. ARD was required to prepare and submit various reports to the Bank during and afterProject implementation. They include (i) a postcompletion plan that would provide (a) asuitable tariff structure and mechanism; (b) future organization, administration, andownership options including industry participation; and (c) financial performance objectives;(ii) an operational plan for the CWCTS; (iii) monthly reports on the operation of the projectfacilities during the first six months of commissioning and evaluation, and thereafter annualperformance reports on the O&M of the project facilities, including a summary of waterquality monitoring for the Citarum River; (iv) a water quality monitoring program of theCitarum River; (v) a consolidated project completion report; and (vi) a report of the policy andinstitutional development proposals. Although ARD failed to prepare and submit thesereports separately, as the institutional setup was yet to be decided by the Government,information for all items except (iii) and (iv) is provided in the consultant's final report andthe ARD's draft project completion report and proposal for the trial operation.

19. ARD was responsible for the submission of unaudited and audited financialstatements to the Bank within six and nine months respectively after the end of each fiscal

6

year. Audited financial statements and reports for the period from FYI 996 to FYI 998 weresubmitted to the Bank with significant delays, but they were prepared in the Indonesianlanguage and no English versions were submitted to the Bank. No financial statements forFYI 993 to FY1995 were submitted to the Bank.

H. Disbursements

20. Appendix 11 shows disbursements as appraised and actual. A special account wasestablished to facilitate the timely disbursement of loan proceeds. Disbursements weremade in a timely and smooth manner in accordance with procedures of the Government orthe Bank. Final disbursement was made in July 1997, seven months after the loan wasclosed on 31 December 1996. Unused loan proceeds of about $252,000 were canceled.

I. Environmental and Social Impact

21. The Project is essentially an environmental improvement project. The operation ofthe CWCTS will help reduce the risk of intrusion of industrial wastewater into surface andgroundwater. When it is put into full capacity operation, WTPI will remove pollutantsdischarged from the project area into the Citarum River. The pollution level of the CitarumRiver between 1991 and 1998 is shown in Appendix 12. The water quality of the river hasbeen deteriorating with the increased level of biochemical oxygen demand (BOD) andchemical oxygen demand (COD); yearly fluctuations are significant. WTP1 was designed toremove 85 percent of total COD and BOD contained in wastewater discharge. The WTP istherefore estimated to remove 17.5 ton/day of COD and 7 ton/day of BOD, or 13.5 percent oftotal COD and BOD discharged from the upper Citarum River when it is put into full capacityoperation.

22. The Project will improve the overall quality of life through environmentalimprovements that will lead to improved health and increased productivity. The improvedcol'ection system will reduce the problem of open industrial wastewater flows intohouseholds in the project area. Women and children susceptible to diseases in unsanitaryconditions will be particularly benefited.

J. Performance of the Borrower and the Executing Agency

23. The Project was physically completed and became ready for full capacity commercialoperation in June 1997, about 21 months behind the original schedule. The delay wasprimarily due to the poor performance of two contractors engaged to upgrade WTP1.Although ARD made every effort, with the assistance of the consultant, to expedite workprogress, no significant improvement was made because of a lack of basic managementcapacity of the contractors, The CWCTS has yet to be put into full capacity commercialoperation, pending the institutional setup for operational management of the CWCTS. Thedelay in the institutional setup is attributed to (i) involvement of various government agenciesrequiring extensive coordination and consultation; (ii) weak intervention and coordination bythe Steering Committee and a lack of decision making by higher government authorities; (iii)limited delegation of authority to ARD; and (iv) weak support from beneficiary industries. Adraft proposal for operational management of the CWCTS was prepared by ARD soon afterthe Project was completed and was submitted to higher authorities in December 1996. Nodecision was however made at the time, with the result that the commercial operation of theCWCTS remains pending.

K. Performance of the Bank

24. Bank monitoring Qf the project implementation was intensive; four review missions,including the inception mission and 10 special loan administration missions were dispatched

7

during a five-year period. Five special loan administration missions were conducted duringan 8-month period from March to December 1995 to discuss ways to expedite delayedconstruction works for WTP1. Nevertheless, no significant improvement in work progresswas noted. By 31 December 1996, all physical project components had been substantiallycompleted. ARD prepared a plan for operational management of the CWCTS for approval byhigher government authorities. ARD was fully committed to the commissioning test early in1997, followed by the full capacity commercial operation. The loan was therefore closed on31 December 1996. Since then, the Bank has made every effort to help establish operationalarrangements and start the full capacity operation of the CWCTS, but in vain.

III. EVALUATION OF INITIAL PERFORMANCE AND BENEFITS

A. Financial Performance

25. Because the water and sewerage enterprise (PDAM) Kabupaten Bandung (PDAM-KB) is the most likely water enterprise to operate the South Bandung CWCTS, an analysis ofits financial performance was conducted. The analysis of financial statements for theprevious four years showed that PDAM-KB incurred losses in 1994 (Rp349 million), in 1995(Rp768 million), and in 1997 (Rp817 million); and made a profit in 1996 (Rp193 million). Theminimum cash requirement at the end of the year, which should be at least equal to onemonth of operating expenses, was not met in 1995 and 1996. From 1994 to 1997 thenumber of days of accounts receivable ranged from 83 to 169 days and the ratio of long-term debt to total liabilities and equity ranged from 61 to 68 percent. The financial status ofPDAM-KB is highlighted in Appendix 13. Based on this analysis, the financial performance ofPDAM-KB is unsound and unsatisfactory.

26. A trial operation of the WIPI is to be conducted covering a period of 12 months priorto its full commercial operation. A financial projection was prepared starting from the trialperiod and for the next 20 years. It shows that during the 12-month trial operation monthlynet income will be realized ranging from Rp29.9 million (2nd month) to Rp99.4 million (11thmonth) leaving a cash balance after the trial operation of Rp866.5 million. This indicates thatwith the initial tariff of Rpl ,925 per cubic meter (m 3) and corresponding tariff increases of 6.7percent on the 3rd month, 7th month, and 11th month or a total of 20 percent during theperiod, operational income will be more than adequate to cover O&M costs, thus making thetrial operation financially feasible. The financial performance of the South Bandung CWCTSduring the projected trial operation and during the projected commercial operation, as well asthe corresponding assumptions used are shown in Appendix 14.

27. The financial projections from 2000 to 2019 are based on full commercial operation.The projections show that (i) total revenue ranges from Rp14.95 billion (2000) to Rp45.97billion (2019); (ii) total operating expenses ranges from Rp8.97 billion (2000) to Rp37.72(2019); (iii) income after tax ranges from Rp376 million (2005) to Rp8,955 million (2015); and(iv) contribution/average tariff ranges from Rp3,220 per m3 (2000 to 2005) to Rp8,694 per m3(2015 to 2019) with a 103 percent drastic increase in 2015 to cover not only O&M plusdepreciation or debt service whichever is higher, but also replacement of fully depreciatedfixed assets (equipment and laboratory facilities) valued at Rp21 .78 billion at current price(Appendix 14, Table A14.2). This means that the projected operation of the South BandungCWCTS is financially feasible provided that the assumptions used are realized. It can benoted that the operating ratio ranging from 1.2 (2005) to 1.7 (2000) is below the standardratio of 2:1, but since this is a wastewater enterprise and not operated for profit theseoperating ratios can be considered fair financially. The debt service coverage ratio rangesfrom 1.3 (2005) to 9.3 (2015); this is within the Government guidelines of no less than 1.3 forwater enterprises (Appendix 14, Table A14.3).

8

28. The financial internal rate of return (FIRR) was calculated for the South BandungCWCTS. Investment costs are based on actual disbursements of the Project's funds, whileO&M costs and revenues are taken from the projected financial transactions for the planned12-month trial operation in 1999. All costs and revenues are at 1999 constant prices. TheFIRR at project completion is equal to 13.8 percent, while at appraisal it was equal to 5.2percent. A comparison of the FIRRs at appraisal and at project completion (Appendix 15)discloses that the increase in the FIRR by 8.6 percent is accounted for by the higherincrease in revenue of Rp43.4 billion against the net increase of costs of Rp13.2 billion.Sensitivity analyses for increased O&M costs by 10 percent, decreased revenues by 10percent, and simultaneous increase in O&M costs and decrease in revenue by 10 percentwere carried out. The results show that when O&M costs are increased by 10 percent theFIRR drops to 12.18 percent; when revenue is decreased by 10 percent the FIRR drops to10.82 percent; and when there is a simultaneous increase in O&M costs and decrease inrevenue by 10 percent the FIRR decreases to 8.81 percent

B. Economic Performance

29. Potential economic benefits are more or less the effects of wastewater treatment onthe environment, particularly on aquatic life, agriculture, and the population relying on waterenterprises in the downstream areas. Benefits include expected lower morbidity andmortality rates for all life forms: plants, animals, and humans benefiting from less pollutionand ecological balance. Some other benefits are the possible social impact of wastewatertreatment on water enterprise operations as well as the willingness and capabilities to pay ofthose still to be served by the water enterprise. Cost savings will consist of reducedprocessing cost and time to treat and purify water coming from the river to be sold as cleanwater by the enterprise, and reduced medical expenses relative to the lower incidence ofwaterborne diseases among users of clean water sold in the area.

30. In terms of the number of beneficiaries, the wastewater treatment effects are likely toaccrue to 5 million people living in the Citarum River basin or more than 10 million peopleusing the lower Citarum River. The Citarum River water is used as the main water source forthe Jakarta water supply at 20 m 3/sec and for other water enterprises of several cities in thebasin such as Bandung, Purwakarta, and Karawang at 2.4 m 3/sec. The lower Citarum Riverwater is also used for fisheries mostly located in Saguling, Cirata, and Jatiluhur reservoirs. Atpresent fish are cultured in about 6,000 floating net cages at the reservoirs. Otherimmediately identifiable beneficiaries are about 440,000 tillers and landowners ofapproximately 220,000 hectares of ricefields irrigated by water coming from the lowerCitarum River. There are some unquantifiable benefits. Health benefits could contribute tothe economic benefits of the Project, as clean water and sanitary conditions would reducethe incidence of water-related diseases including diarrhea, typhoid fever, and gastroenteritis.

31. These economic benefits are nonquantifiable or difficult to quantify because ofunavailability of data. No economic internal rate of return was calculated at appraisal, andconsequently none was calculated at project completion. However, considering theeconomic benefits, it can be safely concluded that the South Bandung CWCTS iseconomically viable and feasible.

C. Attainment of Benefits

32. It is estimated that the South Bandung industrial cluster comprising about 70industries discharges produced about 16 percent of the total load of industrial wastewaterdeposited in the upper Citarum River district (Kabupaten Bandung and surrounding areas).WTP1 was designed to treat 15,200 m 3/day of wastewater, comprising industrial wastewater,domestic sewage, and sewer infiltration to remove about 85 percent of total COD and BOD.

9

33. During project implementation, several industries converted the production of textilematerials and garments to the dry system. Some industries have merged. At present, thereare a total of 52 industries consisting of 50 textile industries, I food processing factory, and Ielectronic factory, of which 43 were discharging industrial wastewater in the district. Of the43 industries, 36 including a food-processing factory were connected to the CWTCS. Whilethe other 7 industries are ready to be connected, their wastewater can not be treatedbecause of the limited capacity of WTPI. The remaining 9 industries are supposed to havetheir own on-site treatment system or otherwise are discharging illegally. Of the 36 industriesconnected, 3 are yet to be equipped with the required pretreatment chamber to remove solidwaste and oil, and to measure the quantity of wastewater from each industry.

34. The collector system with construction of about 6,200 m of interceptor gravity sewerswith utility holes and inspection chambers, and two lift-pumping stations was completed asenvisaged. The collector system works well to convey wastewater to WTP1, preventingoutflow of wastewaterto the district during the rainy season.

35. Operation of the South Bandung CWCTS commenced in June 1997 on a test runbasis. No tariff has been collected from beneficiary industries. WTPI is still in partialoperation, receiving 60 to 120 I/s of wastewater from 36 connected industries. Thewastewater is treated only biologically at the secondary treatment basins (aeration tanks)and transferred to secondary sedimentation basins (clarifiers) and thickeners. The finaleffluent meets the effluent standards issued by the environmental impact managementagency (BAPEDAL) (BOD 85 mg/I and COD 250 mg/I without toxic materials). The primarytreatment facilities with chemical treatment process are not currently used in order to savecosts for chemical consumption during the test operation. The influent wastewater willinitially be treated chemically at the primary treatment facilities to lessen the level ofsuspended solids and turbidity, and thereafter treated biologically at the secondary treatmentfacilities to remove soluble and colloidal organic pollutants. The treated wastewater is thentransferred to the clarifiers and thickeners to separate supematant water from sludge.Supernatant water is discharged to the river, while the sludge is dehydrated using twodecanters and transported to the disposal site (Cileungsi) managed by the government-authorized company.

36. A pilot plant was constructed to test the performance of chemical and biologicaltreatment facilities, and to explore effective technologies with the use of various kinds ofchemicals for various types of wastewater from different industries such as textile,sugarcane, and milk processing factories. The plant is of an experimental nature with atreatment capacity of 1.0-3.0 I/s and is used by RIWRD.

37. The South Bandung CWCTS is effective in preventing floods of wastewater overstreets and contaminated groundwater intrusion into shallow wells, which is common in thedistrict.

D. Legal Framework

38. There are a number of national laws and regulations governing water pollutioncontrol in Indonesia. The legislation will be implemented through various Presidential andministerial decrees and implementing rules and regulations at the national, provincial, andlocal levels. Key regulations for pollution control include (i) Water Pollution Surveillance(Ministerial Regulation No. 173/MENKES/Per VIll/1977); and (ii) Water Pollution QualityStandard on Industrial Activities (Ministerial Decree Kep.51/MENLH/1 0/1 995). Other relevantlaws and regulations include (i) Industrial Estate Activities (Government Law No. 5/1 984); (ii)Environmental Impact Analysis (Government Regulation No. 51/1993); (iii) Water PollutionControl (Government Regulation No. 20/1 990); (iv) Water Pollution Management (West JavaProvince Regulation No. 10/1995); and (v) Water Pollution Management (Kabupaten

10

Bandung - Regulation No. 14/1998). The laws and regulations require provincialgovernments to install wastewater treatment facilities and prepare environmental impactassessments, and delegate full authority to impose penalties for wastewater discharges andto construct CWCTs to provincial governors. Laws and regulations concerning waterpollution control are listed in Appendix 16.

39. As stipulated in the Loan Agreement, the provincial government of West Java shouldpromulgate rules and regulations for (i) suitable tariff structure; (ii) compulsory use of theservices of the South Bandung CWCTS; (iii) discharge controls including pretreatment,segregation, and minimization of toxic wastes and domestic sewage; (iv) penalties fortampering with, and dumping of garbage into the collection system; and (v) others to operateand maintain the CWCTS effectively. The local law No. 14 issued by Kabupaten Bandung in1995 regulates discharges of industrial wastewater and provides for the cancellation ofbusiness permits and penalties for the violation of the laws,

40. Based on Presidential Decree No. 77 issued in November 1994, the regionalenvironmental impact management agency (BAPEDALDA) of West Java province wasestablished in June 1998. BAPEDALDA is responsible for interagency coordination andintegration, environmental quality monitoring, and regulatory control of industrial wastewaterdischarges. A new regulation (PERDA 3) issued in October 1998 delegates the setting oftariff rates, and implementation and reinforcement of regulations at the local level authoritiesfor permitting wastewater discharges to the local government authorities.

E. Institutional Arrangements

1. Trial Operation

41. A joint operation proposal was prepared by BAPEDAL, RIWRD, BAPEDALDA,Jatiluhur River Authority, Kabupaten Bandung and its PDAM, and the industry societyassociation (Yayasan) to conduct a trial operation of the South Bandung CWCTS. The trialoperation aims to test and evaluate the operation of the CWCTS, and to select the mostviable option for its operational management. It will also evaluate performance ofpretreatment units and dissemination to other industries and communities. A total of 61 staffwill be mobilized during the trial operation. PDAM will provide 26 staff and RIWRD 17 staff;the remaining of 18 staff will be recruited externally. The trial operation will provideinformation on technical, financial, and environmental aspects of the CWCTS necessary todetermine adequate institutional structures and tariff rates. Based on an instruction by thesecretary general of the Ministry of Public Works (Ref. No, KL. 03-SJ1205 dated 18 March1998), BAPEDAL initiated formulation of a joint evaluation team comprising BAPEDALDA,Kabupaten Bandung and its PDAM, Yayasan, Jatiluhur River Authority (POJ), and RIWRD.RIWRD will chair the evaluation team. The functions of the evaluation team include (i)supervising the trial treatment process and operation; (ii) coordinating all parties involved inthe trial operation; (iii) issuing directives and resolutions to settle problems met during thetrial treatment process and operation; and (iv) submitting monthly reports or such otherreports requested from time to time in connection with the trial treatment process andoperation including the final result of the said trial operation to the Ministry of Public Works,State Ministry of Population and Environment, BAPEDAL, and the governor of West Javaprovince. The team will evaluate the outcome of the trial operation and makerecommendations on institutional structure including an agency to take over the operationalmanagement of the South Bandung CWCTS as well as the adequate tariff structure.

42. The trial operation will require Rpl I billion over 12 months. BAPEDAL will seekcentral Government funds (about Rp2 billion) necessary to meet O&M expenses during thefirst three months of trial operation. The remaining Rp9 billion will therefore be paid fromtariffs or contributions from beneficiary industries. Initiation of the trial operation still requires

11

the approval of higher authorities. Three official letters need to be issued to start the trialoperation: (i) a joint decree between the Ministry of Public Works and the provincial governorto assign the primary responsibility of the trial operation to PDAM-KB; (ii) a governor'sdecree to authorize the joint evaluation team to supervise and evaluate the trial operation;and (iii) minutes of agreement between PDAM KB and Yayasan to jointly conduct the trialoperation. Draft decrees for items (i) and (ii) have been prepared for endorsement by higherauthorities. During the trial operation, the participation of the connected industries throughYayasan is essential to ensure 100 percent collection efficiency.

2. Commercial Operation

43. After the 12-month trial operation, South Bandung CWCTS will be operated on acommercial basis, although it is considered a nonprofit wastewater treatment plant. Theproposed organizational structure for CWCTS management and administration will be undera supervisory board that will supervise the activities of the general manager who, in turn,would be responsible for the performance of two departments (Finance and Administration)and three technical divisions (Industry Services, Collector System, and Treatment Plant).The organizational staffing structure envisioned will be composed of the 61 staff mobilizedduring the trial operation plus additional employees recruited from time to time as the needarises to eventually total 86 employees. The proposed organization for operationalmanagement of the South Bandung CWCTS is shown in Appendix 17.

IV. CONCLUSIONS AND RECOMMENDATIONS

A. Conclusions

44. The major objective of the Project is to establish the groundwork for theimplementation of CWCTS projects through the construction and operation of the SouthBandung CWCTS. The target for the provision of physical facilities was essentially met withthe scope and cost as originally envisaged. The completion was however delayedsignificantly, and the commercial operation of the CWCTS has yet to commence. Theinstitutional setup for operational management is still pending. Project benefits are yet to beaccrued. However, the Project provided RIWRD with invaluable experience and skills thatwill constitute a basis to evolve a CWCTS to other industrial clusters. The FIRR is 13.8percent compared with 5.2 percent estimated at appraisal. Based on these observations, theProject is considered partially successful. The following provides conclusions on majoraspects of the Project.

1. Technical Aspects

45. The upgraded South Bandung CWCTS provides 36 beneficiary industries with themost economical and convenient means to comply fully with national regulations forwastewater discharge, and help reduce pollution of the Citarum River. The present capacityof WTP1 is 175 I/s on average and 225 I/s at maximum. This capacity meets only the volumedischarged from 36 connected industries. There is still about 50 I/s of wastewater dischargedfrom seven industries, which can not be treated because of the limited capacity. Industrialwastewater in the south Bandung district was estimated to reach 230 I/s in 1995, 335 I/s in1998, and 415 I/s in 2015. Although these estimates will no longer be valid and need to beupdated in view of the economic recession experienced since July 1997, the presentcapacity of the South Bandung CWCTS is apparently insufficient to meet the present andfuture demands. The construction of WTP2 is therefore essential in the near future.

12

46. The prototype CWCTS developed under the Project seems technically feasible andtechnologies used are considered sound and appropriate. The completed CWCTS under theProject will be used as a model for other CWCTS in the country. WTPI is able to treatwastewater to a level that meets government standards. The Project rehabilitated andupgraded the existing wastewater treatment facilities with additions of chemical treatmentsystems within the limitation of available land. The layout of facilities, although optimized tothe extent possible, is therefore not necessarily adequate for efficient O&M. The capitalinvestment cost would be more than what would have been needed to construct a WTP withthe same capacity and processing. The design of WTP2 with the same treatment system willbe more appropriate and be copied to other CWCTSs.

47. WTPI has not yet been put into full capacity operation. During the commissioningand test operation, each of the facilities was tested and operated, and confirmed satisfactoryin its performance, while the automatic control system required occasional repair andadjustments. The total system operation to process the designed quantity of wastewaterthroughout the entire system has never been conducted. This will be conducted during thejoint trial operation.

48. The collector system has been maintained adequately since its completion. Whileutility covers are frequently damaged by traffic, they have been repaired or replaced.Although the utility covers were constructed of concrete assuming that the roads will bepaved, they should have been designed with cast iron material in view of the heavy trafficand possible delays in road improvement works.

2. Financial and Economic Aspects

49. The South Bandung CWCTS appears to be financially and economically feasible asthe proposed contribution during the trial operation and tariff rates thereafter will cover atleast O&M costs plus depreciation or debt service, whichever is higher. The proposed trialoperation will provide a basis to establish adequate tariff structures. Tariff will be collectedfrom the first month of the trial operation. The proposed initial rate is Rpl ,925 per m 3 , whichwill be increased thereafter. The setting of contribution/tariff rates has taken into account thecapacity/willingness to pay of the participating industries that appear least affected by theeconomic crisis. The proposed initial tariff rate still needs discussion by all industries as arange between Rpl ,500 and Rpl ,800 is what they have agreed among themselves. Onaverage, the proposed average tariff of Rp3220 per m 3 at the start of the full commercialoperation is equivalent to 1.03 percent of the sales revenue, while a factory having its owntreatment system spends about 1.4 percent of sales revenues for treatment of wastewater.

50. Disposal of sludge containing toxic materials at the disposal site designated by theGovernment is costly. This will cause a substantial increase in tariff. Government regulationsfor a list of toxic materials and allowable ranges of concentration should be confirmed toexamine whether the proposed tariff for disposed toxic materials chargeable fromdischarging industries are adequate.

51. The financial performance of PDAM-KB does not appear sound and satisfactory. Inview of the need for reasonable financial self-reliance for South Bandung CWCTS businesstransactions, consideration will be given to maintaining an accounting and reporting systemseparate from other operational expenses for effective and continuous monitoring when theCWCTS is operated and maintained by the PDAM. No dividend will be considered for othergovernment institutions.

13

3. Legal and Institutional Aspects

52. There are various laws and regulations at the national level to manage and controlthe river water quality and industrial pollution. Regulation No. 14/1998 enacted byKabupaten Bandung aims to control wastewater discharges from domestic and ordinaryindustries within Kabupaten Bandung. However, penalties imposed for noncompliance withthe regulation are not enough to compel every industry to abide by the law. No bylaws orregulations that could be specifically applicable to the operation of the South BandungCWCTS have been issued yet, although the district head is delegated the authority to do so.A specific law should be issued to provide for (i) tariffs necessary to cover O&M costs, debtservice, or depreciation, whichever is higher; (ii) heavier penalties both criminal and civil(including cancellation of permits to operate or shutdowns until satisfactory compliance hasbeen achieved, reprimanding them for repeated violations, etc.) that would deter industriesfrom violating the law; and (iii) guidelines to be followed for inspecting and monitoring actualcompliance by each industry with all existing laws on wastewater disposal.

53. Institutional arrangements for operational management of the South BandungCWCTS are yet to be finalized. The institutional arrangements proposed by RIWRD have notyet materialized. The trial operation was scheduled jointly by RIWRD, PDAM-KB, andYayasan over 12 months to determine the most suitable form of institutional arrangements.The outcome of the project will serve as a basis for the Government to formulate policyguidelines, establish institutional arrangements, and prepare an investment plan for thecontrol of industrial wastewater discharge in Indonesia. The proposed organizationalstructure and staffing pattern is considered adequate to run the South Bandung CWCTS ona commercial basis.

B. Lessons Learned

54. The pending institutional setup for operational management of the CWCTS hasresulted in delays in full capacity commercial operation and accrual of benefits from theProject. A rather negative response from industries, the ARD's weak position to force theindustries to accept the proposed institutional arrangements and its lack of capacity tocoordinate various government agencies were considered responsible for this delay. Theestablishment of institutional arrangements should have been a condition of loaneffectiveness or the project should not have been implemented until the Government's firmcommitment to the establishment of the institutional arrangements for operationalmanagement had been available.

55. The equipment contractor for upgrading WTP1 was not well qualified or capable ofsatisfactorily performing the work. The contract was awarded through internationalcompetitive bidding procedures in accordance with the Bank's Guidelines for Procurement.No prequalification process was applied, as the guidelines do not require it for procurementof equipment and materials. This resulted in the contract being awarded to the lowest pricedbidder, who was eventually recognized as an inappropriate and incapable of satisfactorilyperforming the work. Bidding without prequalification for a complex contract requiring highexpertise will pose a risk that unqualified contractors will bid and be selected, as a lower bidprice is normally given preferable consideration. The equipment contractor used manysubcontractors who were also not well qualified. Bid evaluation should have examined thequalifications of subcontractors offered, and additional or substitute subcontractors shouldhave been rejected.

56. Equipment and instruments installed in WTP1 are not uniform. They were importedfrom nine different manufactures/countries. This has created difficulties in the O&M offacilities and obtaining spare parts. This could have been minimized if clear and stringent

14

technical specifications had been prepared to encourage the contractor to select equipmentbased on compatibility as well as efficiency and economy of O&M.

57. A number of contractors failed to complete the works according to the schedulesagreed under the contract. There was however no case in which liquidated damages asprovided in the conditions of contract were imposed. In hindsight, if such was applied, delaysin the completion of the Project could have been minimized.

58. The January 1998 flooding caused serious damage to neighboring houses. Of 30households, eight claimed compensation for the repair of damaged houses, blaming theflood on the construction of the inlet channel to WTP1 Lack of information dissemination orlimited involvement of people and communities in initiating, planning, and implementing theProject from the outset partly contributed to this problem. Community information campaignsare needed on CWCTS projects that will contribute to a clean environment and lead to betterlives for households, including improved hygiene and health conditions.

C. Recommendations

1. Project Related

59. While the Government investment strategy has shifted to focus on economic growthand social safety nets due to the current socioeconomic situation, the momentum forenvironmental pollution control should be maintained as part of Government's long-termstrategies for development. At appraisal, the number of polluting industries in Java wasestimated to increase from 5,050 in 1990 to about 9,500 by the end of 2000. Of this total, theGovernment plans to serve 7,600 industries through about 22 CWCTSs, while the remaining1,900 industries will rely on individual on-site treatment schemes. As of 31 March 1999,there were about 9,170 polluting industries.

60. The Bank should continue to provide follow-up monitoring and supervision until theproposed trial operation has been completed and the commercial operation starts. Theproposed trial operation should be commenced as soon as possible. Concerted efforts byBAPEDALDA, PDAM-KB, and other agencies concerned are essential to expedite theissuance of two decrees for the initiation of the proposed trial operation to be endorsed byhigher authorities. They will also assist in preparing minutes of understanding betweenPDAM-KB and Yayasan to jointly conduct the trial operation. All government agenciesconcerned should cooperate to ensure that adequate funds are made available as soon aspossible to meet O&M costs for the first three months of the trial operation.

61. Legislation at the national level is considered adequate for wastewater pollutioncontrol and establishment of CWCTS projects. However, supportive legal measures toguarantee the support of industries for CWCTS projects are still weak. There should becomprehensive and strict enforcement of the existing legislation as well as the imposition ofsanctions and/or heavy penalties, both criminal and civil, for those violating laws andregulations. BAPEDAL and BAPEDALDA should be strengthened with the provision ofsufficient staff and budget to enable them to fulfill their obligation to control industrialwastewater. It is recommended that BAPEDALDA be made the implementing agency of thelocal government in monitoring compliance with laws, rules, and regulations related to properindustrial wastewater disposal. In addition, a regulatory board (regional or national level)should be established not only for the operation of the South Bandung CWCTS, but also forthe future operation of similar schemes. The board's function would be (i) to ensure that tariffstructures and corresponding tariff rates are reasonable and adequate to at least cover theO&M costs (preferably plus depreciation/debt service whichever is higher), and (ii) to act andsettle complaints from the public and disputes between Kabupaten Bandung and its PDAMand Yayasan, if any.

15

62. The proposed tariff rate of Rpl ,925 per m 3 at the start of the trial operation isconsidered reasonably low and well within the affordability of beneficiary industries to pay.Subsequent increases ranging from Rp2,053 to Rp2,310 per m 3 or 20 percent in 1999 areconsidered within their affordability. However, after the start of commercial operation of theCWCTS, tariff rates from 2000 to 2019 range from Rp3,220 per m 3 (2000 to 2005) toRp8694 per m3 (2015 to 2019). Although the rates are still considered affordable, suchincreases should be made based on mutual agreements between the beneficiaries and theoperating agency.

63. The completed WTPI is prone to flooding because of its location in a low-lying area.Although some protective measures were undertaken under the Project, the WTP wasflooded twice since its completion. Further measures need to be taken to reduce the risk offlooding. While three pump stations have been constructed to reduce the flooding problems,the issue should be dealt with within the context of regional flooding and drainage problems.Based on a recent instruction by the district head, the Directorate of Water Resources of theprovincial government will discuss ways and means to address flooding problems with allconcerned agencies before the trial operation is started.

64. The Citarum River is still very polluted in the dry season. There is still a great needfor wastewater treatment in Majalaya, Cimahi, and other industrial clusters, in addition to theconstruction of WTP2. One of the PDAM's water treatment plants in Kabupaten Bandung(Batujajar Plant) has suspended its operation since 1998 because of the high cost oftreatment (production cost was Rpl ,700 per m 3) because of an excessive level of pollution inthe lower Citarum River. The operation of WTP1 should therefore be expedited. It may beworthwhile during the trial operation to include chromatographic analysis of commoncarcinogenic chemicals in dyes used in the textile industry as the water from the CitarumRiver is used for the drinking water supply in downstream communities including Jakarta.

65. To improve the financial performance of PDAM-KB, consideration should be given tothe following: (i) because the present water tariff rate (Rp750 per m 3) and its revenuesgenerated from 1994 to 1997 are not enough, thereby resulting in operating losses, the tariffshould be increased so that it will generate enough revenue to at least cover actual O&Mcosts; (ii) cost reduction programs should be instituted starting with the efficient handling ofchemicals, proper use of electricity, avoidance of incurring overtime pay, reduction in the useof office supplies, and adoption of a preventive maintenance system; and (iii) the reductionof unaccounted for water by reducing both physical and commercial losses.

66. It is recommended that the project performance audit report, if deemed necessary,be prepared upon the completion of the trial operation currently expected in mid-2000.

2. General

67. In view of the increased level of pollution in the Citarum River, continued efforts bothby the Government and the related stakeholders to control the impact of industrialwastewater are essential. The Bank's future assistance as a catalyst to their endeavors isrecommended. With ever-increasing economic activities, river water quality has beendeteriorating continuously. Experience indicates that the restoration of the water quality oncepolluted could require more than two decades.

16

APPENDIXES

Number Title Page Cited on_______________________________________________ (page,_para)

I Chronology of Major Milestone Events 17 1, 3

2 Project Components per Appraisal and Actual 18 1, 3

3 Organization Chart for Project Implementation 19 2, 5

4 Project Cost at Appraisal and Actual Costs 20 2, 7

5 Project Cost Expressed in Current and Constant Prices 21 3, 9

6 Financing Plan as Appraised and Actual 22 3, 10

7 Loan Allocation by Category at Appraisal and Actual 23 3, 10

8 Implementation Scheduleas Appraised and Actual 24 3, 11

9 Procurement/Packaging Schedule as Planned and Actual 25 4, 15

10 List of Loan Covenants and Status of Compliance 26 5, 17

11 Quarterly Loan Disbursements, Appraised and Actual 30 6, 20

12 Water Quality of the Citarum River 31 6, 21

13 Financial Performance of PDAM Kabupaten Bandung 33 7, 25

14 Financial Performance of the South Bandung CWCTS 34 7, 26

15 Financial Analysis of the South Bandung CWCTS 43 8, 28

16 Laws and Regulations Concerning Water Pollution Control 44 10, 38

17 Organization Chart for the South Bandung CWCTS 45 11, 43

17

Appendix 1

CHRONOLOGY OF MAJOR MILESTONE EVENTS

YearMonth Description ________________________________

1992 Feb Loan approval; nominal start of project implementation

1992 Feb Loan signing

1992 Apr Loan effectiveness

1992 May Actual start of project implementation

1992 Fielding of consultants

1992 Sep First loan funds disbursement (to the consultant)

1992 Jun Transferring project administration from Water Supply, UrbanDevelopment and Housing Division East (AEWU) to IndonesianResident Office (IRO)

1993 Dec Signing of various supply and civil works contracts

1994 Feb Signing of contract for supply, erection and commissioning ofmechanical electrial and instrumentation works for the upgrading ofTreatment Plant No. 1

1995 Jun Loan reallocation, partial loan cancellation ($767,000), and firstextension of the loan closing from 30 June 1995 to 30 June 1996

1995 Nov Signing of various supply contracts for additional works

1995 Dec Floods at the project site

1996 Jan Signing of various civil work contracts for additional works

1996 Mar Minor change in project scope and utilization of surplus of loan funds

1996 June Second extension of the loan closing date from 30 June to 31December 1996

1996 Oct Extension of consulting services and utilization of surplus of loan funds

1996 Dec Extended loan closing date

1997 Jul Final disbursement

1997 Jul Cancellation of $252,039.71 and closing of loan account

1998 May Heavy rain and damaged inlet channel to the wastewater treatmentplant

1999 March Project completion review by the Bank

18

Appendix 2

PROJECT COMPONENTS PER APPRAISAL AND ACTUAL

Item Appraisal Actual Change (+1-)

A. Collection System

1. Interceptor sewers 6500 m 6206 m + 106

2. Force main line 650 m 679 m + 29

3. Lift pumpStation I 4 units 4 units -Station II 6 units 4 units -

4. Sewer cleaning equipment 1 unit 1 unit -

B. Treatment Facilities

1. Inlet worksFlow recorder 1 unit I unit -

Automatic bar screen 1 unit -- -- - 1Aerated grit chamber 1 unit -- -- - 1Air compressor 2 units 1 unit - 1Influent lift pumps 2 units -- -- - 2

2. Primary treatmentMeeting pumps 4 units 4 units -Rapid mixers 2 units 1 units - 1Slow mixers/flocculators 3 units 1 units - 2Sedimentation basins 2 units 2 units -Metering pumps 4 units 3 units - IPrimary effluent pumps 2 units 5 units + 3

3. Secondary treatment -Aeration tanks 12 units -- -- - 12Aerators 24 units -- -- + 24Mixing units -- 12 units 12

4. Sludge treatment -Primary sludge pumps 2 units 2 units -Fresh sludge thickener 1 units 1 units -Sludge digestion tanks 2 units 2 units -Sludge mixing pumps 3 units 3 units -Digested sludge thickener 1 units 1 units -Digested sludge pumps 4 units 2 units - 2Sludge dewatering machine 4 units 2 units 2

19

Appendix 3

ORGANIZATION CHARTFOR PROJECT IMPLEMENTATION

Head of Agencyfor Research and Development

Project_____________ Director

ProjectManacer

InteragencySteering Committee

Interagency AdvisoryTechnical Committee

Consultant Research Institute for AdministrativeGKW Consult/lndah Karya Water Resources Development Group (

Multidiscilinarv Project Team (11)

3.90

6.40

0.40

0.60

0.40

1.30

0.80

1.90

4.70

8.30

1.00

0.00

5.70

8.30

4.96

3.99

8.95

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

4.96

3.99

8.95

1.00

0.00

1.00

5.96

3.99

9.95

PROJECT COST AT APPRAISAL AND ACTUAL COSTS($ million)

Change fromComponent Appraisal Actual Appraisal Report

Foreign Local Total Foreign Local Total Foreign Local Total

Exchange Currency Cost Exchange Currency Cost Exchange Currency Cost

A. Base Cost

Civil Works 1.00 4.10 5.10 0.58 2.34 2.92 (0.42) (1.76) (2.18)% (42) (43) (43)Equipment 2.00 0.50 2.50 3.18 0.74 3.92 1.18 0.24 1.42% 59 49 57Consultant 0.90 0.80 1.70 1.20 0.69 1.89 0.30 (0.11) 0.19% 33 (14) 11Land Acquisition 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Taxes and Duties 0.00 1.00 1.00 0.00 0.22 0.22 0.00 (0.78) (0.78)% (78) (78)

0

Subtotal (A)%

B. Contingency

Physical%Pnce%Total Contingency%

Subtotal (B)%

Interest DuringConstruction (IDC)

Total

10.30

1.00

1.70

2.70

13.00

1.00

14.00

1.0627

(0.40)(100)

(0.40)(100)

(0.80)(100)

0.266

0.00

0.265

(2.41)

(0.60)(100)

(1.30)(100)

(1.90)(100)

(4.31)(52)

0.00

(4.31)

(1.35)

(1.00)(100)

(1.70)(100)

(2.70)(100)

(4.05)(31)

0.00

(4.05)0

CD

a

( ) = negative number; IDC = interest during construction.

21

Appendix 5

PROJECT COST EXPRESSED IN CURRENT AND CONSTANT PRICES

Table A5.1: Project Base Cost in Current Prices($ million)

Cost 1992 1993 1994 1995 1996 1997 Total

Foreign Exchange 0.813 0.249 1.722 0.685 0.865 0.631 4.965

Local Currency 0.126 0.782 1.255 1.142 0.591 0.091 3.988

Total 0.939 1.031 2.977 1.827 1.456 0.722 8.953

Table A5.2: Project Base Cost in 1992 Constant Prices($ million)

Cost 1992 1993 1994 1995 1996 1997 Total

Foreign Exchange 0.813 0.229 1.469 0.531 0.619 0.403 4.064

Local Currency 0.126 0.719 1.071 0.886 0.423 0.058 3.283

Total 0.939 0.948 2.540 1.417 1.042 0.461 7.347

Table A5.3: Local Costs in Current Prices and 1992 Constant Prices

TotalPrice 1992 1993 1994 1995 1996 1997 (change

from AR)a

l992Constant(Rpbillion) 0.259 1.509 2.302 1.949 0.951 0.134 7.104% (13.15)

Current(Rpbilliori) 0.259 1.642 2.699 2.513 1.33 0.21 8.653% 5.78

$Equivalent($ million) 0.126 0.782 1.255 1.142 0.591 0.091 3.988

AR = Appraisal report.Compared with appraisal estimate of Rp8.18 billion ($3.99 million, excluding interest during construction on domestic loans)

at 1992 prices.

Table A5.4: Conversion Factors

Item 1992 1993 1994 1995 1996 1997

Ave. Exchange Rates 2,050 2,100 2150 2,200 2250 2,300of Rupiah to the Dollar

GDP Deflator 1 1.0882 1.1726 1.2893 1.3984 1.567GDP Gross domestic product.

FINANCING PLAN AS APPRAISED AND ACTUAL($ million)

Appraisal ActualComponent Bank Government Bank Government

FX LC Subtotal LC Total FX LC Subtotal LC Total

A. Base Cost1. Civil Works 1.00 1.50 2.50 2.60 5.10 0.58 0.65 1.23 1.69 2.922. Equipment 2.00 0.22 2.22 0.28 2.50 3.18 0.33 3.51 0.41 3.923. Consulting Services 0.90 0.38 1.28 0.42 1.70 1.20 0.44 1.64 0.25 1.894. Land Acquisition 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.005. Taxes and Duties 0.00 0.00 0.00 1.00 1.00 0.00 0.00 0.00 0.22 0.22

Subtotal (A) 3.90 2.10 6.00 4.30 10.30 4.96 1.42 6.38 2.57 8.95

B. Contingencies1. Physical 0.40 0.20 0.60 0.40 1.00 0.00 0.00 0.00 0.00 0.002. Price 0.40 0.40 0.80 0.90 1.70 0.00 0.00 0.00 0.00 0.00

Subtotal (B) 0.80 0.60 1.40 1.30 2.70 0.00 0.00 0.00 0.00 0.00

Subtotal (A&B) 4.70 2.70 7.40 5.60 13.00 4.96 1.42 6.38 2.57 8.95

Interest During Construction 1 .00 0.00 1.00 0.00 1.00 1.00 0.00 1.00 0.00 1.00

Total 5.70 2.70 8.40 5.60 14.00 5.96 1.42 7.38 2.57 9.95FX = Foreign Exchange; LC = Local Currency.

VVCD

ax.0)

LOAN ALLOCATION BY CATEGORY AT APPRAISAL AND ACTUALa($)

ActualAmount Undisbursed

Description Appraisal 1st Reallocation 2nd Reallocation Disbursed Balance

A.. Foreign Exchange Expenditure1. Civil Works 1,026,000 676,000 1,717,000 1,449,316 287,684

Collection System 354,000 254,000 588,000 468,950 119,050Treatment Plant 672,000 422,000 1,129,000 980,366 148,634

2. Equipment and Materials 1,996,000 3,046,000 3,372,000 3,294,508 77,492Collection System 94,000 544,000 604,000 556,910 47,090Treatment Plant 1,902,000 2,502,000 2,768,000 2,737,598 30,402

3. Consulting Services 913,000 1,113,000 1,546,000 1,639,136 (93,136)

0)B. Local Currency

1. Civil Works 1,988,000 1,041,000 0 0 0Collection System 684,000 334,000 0 0 0Treatment Plant 1,304,000 707,000 0 0 0

2. Equipment Materials 279,000 326,000 0 0 0Collection System 13,000 60,000 0 0 0Treatment Plant 266,000 266,000 0 0 0

3. Consulting Services 433,000 433,000 0 0 0

C. Interest During Construction 998,000 998,000 998,000 998,000 0

D. Unallocated 767,000 0 0 0 0

-DTotal 8,400,000 7,633,000 7,633,000 7,380,960 252,040

a The foreign exchange and local currency for the same component were merged in conformity with the preentation of budget categories of Bank projects.

-.1

IMPLEMENTATION SCHEDULE AS APPRAISED AND ACTUAL

Description 1991 1992 1993 1994 1995 1996 1997___________________________________________________________ -I-- ii I II Ill IV I II III RI I II III I II lii IV I Ii Ill IV I II Ill IV

Project Approval

Consulting Services -Recruitment

-

Service Period

Engineering Works

Collection System- DEL) and bid preparation

- Bidding process - -

- Supply and construction - - - - -• _• __ __• . __ _.

Treatment Facility- DEL) and bid preparation

-

- Bidding process ET ________

- Supply and construction• _-_ __ . _•_ _••.

Other Facilities- DEL) and bid preparation

- Bidding process • •

- Supply and Construction • •

Commissioning • •

Institutional Development

- On the job training of CWCTSstaff________

- Promulgation of supportive rules. U.

- Preparation of policy guidelinesand institutional development • U

- Preparation of a planning -methodology and guidelines • U

______________________________________________________________________ 1st Extension up 2ndLoan Period to 30 Jun 1996 Extension

Original Loan Period (10 April 1992 to 30 June 1995) ______________ up to 31 Dec1996

CWCTS centralized wastewater collection and treatment scheme; DED = detailed enoineerinti desiqn.Note: As Appraised

As Implemented

p)

VVCD

0

ICB ($734 Million)

DA DMRp

IS RpIS RpIS Rp

Sin$IS Rp

LCB RpLCB Rp

2,380,6651,346,886,250

101,732,000717,953,00037,835,000

101,650374,238,000

1,765,578,000597,667,000

01

Rp

4,279,385,000Rp

1,893,445,682Sin$

2,578,250Rp

888,706,000Rp

73,213,636Rp

42,400,000

Rp

109,071,000Rp

209,750,000Rp

445,830,000Rp

5,623,636

PROCUREMENT/PACKAGING SCHEDULE AS PLANNED AND ACTUAL

Package Description AS PLANNED ACTUALNoiCode Mode of Mode of Currrency Total

_________________________________________________________ procurement procurement

A. Consulting Services1. CS DED, construction supervision, and advisory service

B. Collection System

1. CSEQ 1 Supply of UPVC pipes2. CSEQ 2 Supply of concrete pipes3. CSEQ 3 Supply of pumps and accessories

4. CSEQ 4 Supply of concrete pipes with utility holes and accessories5. CSCW 1 Civil work for main trunk6. CSCW 2 Civil work for the extension of main trunk

C. Treatment Plant1. TP1/CW Civil work for construction of treatment plant2. TP1/EQ Supply of mechanical electrical

3.TP1/CM Chemical supply for trial operationChemical supply for trial operationChemical supply for trial operation

D. Others1. TP1/CWAR Civil work for access road improvement2. PP/SD

Pilot Plant3. LE

Laboratory equipment4. F

Fence Improvement

ICB ($5.66 Million)ICBICB

- IS- DP- DP

- LCBIS ($0.31 Million) IS

for Pilot Plant and Lab. IS- DP

DA = Direct appointment; IS = international shopping; ICB = international competitive bidding; LCB = local competitive bidding.

a.x.(0

26

Appendix 10, page 1

LIST OF LOAN COVENANTS AND STATUS OF COMPLIANCE

Reference in Loan Loan Covenants Status ofAgreement Compliance

Section 4.02 The Borrower shall make available, as promptly as needed,the funds, facilities, services, land, and other resourceswhich are required for the carrying out of the Project and forthe operation and maintenance of the Project facilities.

Section 4.03(a) The Borrower shall cause competent and qualifiedconsultants and contractors to be employed to an extentand upon terms and conditions satisfactory to the Borrowerand the Bank.

Section 4.06(b) The Borrower shall (i) maintain separate accounts for theProject; (ii) have such accounts and related financialstatements audited annually, in accordance with soundauditing standards, by auditors acceptable to the Bank; (iii)furnish to the Bank, as soon as available but in any eventnot the later than six (6) months after the end of eachrelated fiscal year, unaudited copies of such accounts andfinancial statements, and not later than nine (9) monthsafter the end of each related fiscal year, certified copies ofsuch audited accounts and financial statements and thereport of the auditors relating thereto, all in the Englishlanguage; and (iv) furnish to the Bank such otherinformation concerning such accounts and financialstatements and the audits thereof.

Section 4.07(b) The Borrower shall furnish to the Bank (I) quarterly reportson the carrying out of the Project; (ii) monthly reports on theoperation and management of the Project facilities duringthe first six (6) months of commissioning and evaluation;and (iii) thereafter annual performance reports on theoperation and management of the Project facilities untilsuch time as the Bank may no longer require suchperformance reports.

Section 4.07(c) The Borrower shall prepare and furnish to the Bank a reporton the execution and initial operation of the Project,including its cost, obligations under the Loan Agreement,and the accomplishment of the purposes of the Loan.

Partly complied with.All required facilitiesmade available duringthe project period.Operation andmaintenance are stillunder discussion.

Complied with.Consultants andcontractors wereemployed in accordancewith Bank's guidelines;however, somecontractors were not wellqualified.

Partly complied with.Audited financialstatements for FYi 993,FYi 994, and FYi 995were not submitted yet,while those for FYi 996,FYi 997, and FYi 998have been submitted. Allstatements wereprepared in Indonesianand no English versionswere submitted.

Partly complied with. Noreports on the operationand management of theproject have beensubmitted.

Partly complied with.The project completionreport prepared by theexecuting agency (EA)provides suchinformation to a limitedextent.

27

Appendix 10, page 2

Partly complied with.Pending institutionalsetup for operationalmanagement, fulloperation is yet to bestarted.

Section 4.09 The Borrower shall ensure that the Project facilities areoperated, maintained, and repaired in accordance withsound administrative, financial, engineering, environmental,utilities and maintenance and operational practices.

Execution of Project and Operation of Project Facilities;Financial and Other Matter

Schedule 6, para. I An Interagency Steering Committee shall be established,consisting of senior representatives from BAPPENAS,BAPEDAL, Ministries of Finance, Industry, Population andEnvironment, and Home Affairs; and the Vice Governor ofWest Java Provincial Government. The Steering Committeeshall meet at least once every quarter or wheneverrequested by its chairman or the Project Director, to provideoverall policy guidance for the Project.

Schedule 6, para. 2 An Interagency Advisory Technical Committee, chaired bythe Head of Public Works Provincial Office, West Java,shall be established consisting of senior representativesfrom ARD, Directorates General of Human Settlements,and of Water Resources Development, West JavaInvestment Board, West Java BAPPEDA, Bureau ofInternational Cooperation, Provincial Office of Industry, andIndustrial Society of South Bandung, and as necessary,other local industry representatives. The Committee shallmeet at the request of its chairman or the Project Director tooversee coordination, implementation and generalmanagement of the Project.

Complied with. TheSteering Committee wasestablished in 1992. TheCommittee was howevernot convened asfrequently as envisaged.

Complied with.The Committee wasestablished in 1992, andmeetings wereconvened as envisaged.No meeting wasconducted due to staffchanges in 1995.

Schedule 6, para. 3 The Director of RIWRD shall be the Project Director, who Complied with.shall have overall responsibility for the Project and for Project director andregularly informing the Interagency Steering and Advisory project managerCommittees of progress and developments. An appointed in 1992.environmental or sanitary engineer shall be appointed full-time Project Manager.

Schedule 6, para. 4 A Project team to assist the Project Manager and Complied with. A fullconsultants shall be composed of suitable RIWRD staff, counterpart team wasincluding environmental and civil engineers, a chemist, established in 1992.financial analyst, economist and an accountant.

Implementation and Operation

Schedule 6, para. 5 The Borrower shall cause ARD to implement the Projectand operate the Plant either directly or through theestablishment of an appropriate unit or entity of ARD orunder the control of the Borrower.

Partly complied with. Noentity has yet to beappointed to operate theplant. This will bedecided based on a trialoperation scheduled in1999.

28

Appendix 10, page 3

Schedule 6, pare. 6 The Borrower shall promptly provide ARD with adequatestaff, funds, facilities, services and other resources, includingrevenues from any tanffs, to operate the Plant fully andcontinue to operate the Plant to the satisfaction of the Bank.

Environmental Aspects

Schedule 6, para. 7 The Borrower shall ensure that (I) environmental impactand protection controls and measures are included in thedesign of all Project facilities; (ii) such controls andmeasures are maintained in good operating conditions; and(iii) appropriate budgetary allocation is made for operatingexpenses relating to the environmental aspects.

Partly complied with.The plant has not yetbeen fully operatedpending institutional set-up including tariffs.

Complied with.Water quality metersinstalled; environmentalchanges monitored; andadequate operationalfunds relating to theenvironmental aspectsare allocated.

Schedule 6, para. 8 The Borrower shall cause ARD to maintain and, if Complied with.reasonably required by the Bank, to modify its water qualitymonitoring program for the Citarum River and areasurrounding the Plant.

Land

Schedule 6, para. 9 The Borrower shall promptly take action as is necessary to Partly complied with.acquire, prior to the scheduled start of relevant civil works, Land for wastewaterall land, rights in land, including without limitation, right of treatment plant No. 2 isway, easements and leases, and other property rights still under negotiation.required for the construction and/or establishment of theProject facilities.

Legal and Policy Frame Work; Tariffs

Schedule 6, para. 11 The Borrower shall, not later 31 December 1993, or suchother date as may be agreed between the Borrower and theBank. (A) promulgate and/or amend (i) a suitable andreviewable wastewater treatment variable tariff structureand mechanism, (ii) compulsory use of the Plant byindustries connected, or reasonably capable of beingconnected, to the collection system, (iii) discharge controlsand capacities, including pretreatment, segregation,domestic sewage and toxic waste minimization standards;(iv) sanctions for tampering or unauthorized dumping intothe collection system; and (B) effect such other policymodifications: all as are necessary to support theestablishment and operation of the Plant.

Schedule 6, para. 13 The Borrower shall ensure that any revenue generated fromthe imposition of wastewater treatment tariffs derived fromthe operations of the Plant is used primary and chiefly forthe operation and maintenance of the Plant.

Partly complied with.Açi) and (ii) have yet tobe complied with. A localimplementing law tocontrol wastewater waspromulgated in 1995.The law providessanctions and penalties.

Partly complied with.This will be determinedbased on the trialoperation scheduled in1999.

29

Appendix 10, page 4

Financial Matters

Schedule 6, para. 14 The Borrower shall ensure that the Plant is operated in Not yet complied with. Asuch a manner so as to achieve (i) satisfactory Qg.j proposal for operation ofrecovery targets, at least sufficient to cover operating the plant was based onexpenses, and (ii) a degree of financial self-reliance and the concept of financialindependence from the Borrower or any of its administrative self-reliance.subdivisions.

Partly complied with.While a permanentinstitutional setup is yetto be in place, the planthas been operatedsatisfactorily on a test-run basis.

Schedule 6, para. 15 Notwithstanding para. 14 of Schedule 6, the Borrower shall,until the Plant has achieved financial self-reliance andindependence satisfactory to the Bank and the Borrower,ensure the effective operation of the Plant.

Water Quality Monitoring

Schedule 6, para. 17 At least there (3) months prior to the commissioning of the Not complied with. NoPlant, the Borrower shall formulate and provide to the Bank water quality monitoringa water quality monitoring program for the Citarum River for program has beenBank review, submitted.

Schedule 6, para. 17 The Borrower shall carry out, or cause the carrying out of,the water quality program and shall ensure that periodicsummaries of the water quality program are prepared andincluded in the reports specified in Section 4.07 (b) of thisLoan Agreement.

Postcompletion (PC) Plan

Schedule 6, para. 18 Prior to 30 June 1993, the Borrower shall formulate, inconjunction with the consultants, and provide to the Bankfor its comments, the PC Plan for the Plant, which plan shallinclude, inter alia, proposals for (i) a suitable tariff structureand mechanism; (ii) future organization, administration, andownership options, including industrial participation; and (iii)financial performance objectives.

Operation Plan

Partly complied with.The water quality of theCitarum River is beingmonitored, but noreports have beensubmitted to the Bank.

Party complied with. TheEAs proposal for thetrial operation and theconsultant's final reportproviding the PC planwere submitted to theBank with significantdelays.

Schedule 6, para. 19 Prior to 31 March 1994, the Borrower shall formulate, in Partly complied with.conjunction with the consultants, and provide to the Bank Limited information wasfor its comments, the operational plan for Part B of the provided in theProject. consultant's final report.

Schedule 6, para. 20 Prior to the completion of the Project, the Borrower shallformulate, in conjunction with the consultants, and submit tothe Bank for its comments, a report of the policy andinstitutional development proposals specified in Part D of