World Bank Support to the Infrastructure Program in Indonesia

M. Benmaamar Developing Indonesia Seminar 2010,

Jakarta, November 8th, 2010

Contents

• Overview of infrastructure expenditure and needs

• Infrastructure and RPJMN (2010-2014)

• World Bank Support:

– Energy

– Water and Sanitation

– Urban and Local Government

– Transport

– CDD Program and Climate Change

Investment in Infrastructure by Sector and by Source (% of GDP)

Sources: Indonesian Government for statistics on national and sub-national governments; Annual reports for state-owned enterprises; World Bank PPI database for private investment, excluding cancelled projects.

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%TELECOMS TRANSPORT IRRIGATION

WSS ENERGY

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

SOE Private Sub-national National Gov't

Total investment in infrastructure by sectors

Total investment in infrastructure by sources

Infrastructure spending represented less than 10% of total national spending and well below the spending on subsidies

Note: The chart includes central and sub-national spending

0

5

10

15

20

25

30

2001 2002 2003 2004 2005 2006 2007* 2008* 2009** 2010**

Sh

are

of

tota

l n

ati

on

al

ex

pe

nd

itu

re (

%)

Education

Government Admin

Int. payments

Infrastructure

Subsidies

Agriculture

Health

Private participation in infrastructure’s investment has slowly recovered recently, dominating by telecommunication and energy

sectors – 0.5% GDP in 2005 – target 0.75% in 2010

Source: World Bank’s PPI database. These figures record investments promised at the time of contracting.

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

1994 1996 1998 2000 2002 2004 2006 2008

US$

Mill

ion

Transport

Water & Sewerage

Telecom

Energy

…and well below Indonesia’s regional peers

Source: Philippine’s Transport for Growth, 2009 (World Bank), various years

Investment in infrastructure (% of GDP)

…Indonesia ranks among the lowest in the region with regard to the quality of infrastructure

Source: Global Competitiveness Index 2009-2010

0 1 2 3 4 5 6 7

Malaysia (rank 26)

Thailand (rank 40)

China (rank 46)

India (rank 76)

Indonesia (rank 84)

Philipines (rank 98)

Vietnam (rank 94)

Indices (scale 0-7; 7 is being the best)

GCI 2009-2010: Quality of Infrastructure

0 1 2 3 4 5 6 7

Quality of roads

Quality of railroad infrastructure

Quality of port infrastructure

Quality of air transport infrastructure

Quality of electricity supply

Indices (scale 0-7; 7 is being the best)

GCI 2009-2010: Quality of Indonesia's infrastructure

The government has set ambitious development targets to be achieved by 2014

Selected development targets Target

Construction of roads: Trans Sumatera, Trans Java, Trans Kalimantan, Trans Sulawesi, Trans West Nusa Tenggara, Trans East Nusa Tenggara, and Trans Papua 19,370 km (by end 2014)

Development of integrated infrastructure and transportation network inter-modes and inter-islands Completed by 2014

Completing optical fiber network development in Eastern Indonesia Completed before 2013

Refinement the transportation system and network in the 4 biggest cities (Jakarta, Bandung, Surabaya, Medan) Completed by 2014

Power plant capacity improvement 3,000 MW per annum

Increasing electrification ratio 80 % (by 2014)

Increasing access to water supply 70% (by 2014)

Selected priority activities in Infrastructure in the 2010-2014 RPJMN

No Priority activities Indicative budget 2010-14 (IDR Tlns)

1 Land utilization regulation harmonization to build integrated spatial planning and management

3.05

2 Completing Sumatera, Java, Bali, Kalimantan, Sulawesi, NTB, NTT and Papua highway reaching 19,370 km

143.2

3 Building transportation infrastructure based on National Transportation System and Transportation Blue Print

36.8

4 Building 685,000 subsidized houses, 180 Rusunami and 650 twin blocks by 2012

36.7

5 Finishing flood canal in Jakarta by 2012 and Solo by 2013 14.2

6 Completing optic fiber network in eastern Indonesia before 2013 9.8

7 Improvement of transportation system in 4 biggest cities based on urban transportation blue print

2.8

8 Increasing power capacity at average 3,000 MW per annum and oil production 1.2 million barrel per day

54.3

WORLD BANK ENERGY

SECTOR ENGAGEMENT

IN INDONESIA

Key Challenges Facing Indonesia’s Power

Sector

2007 29 GW

2018 87 GW

Looming power shortages in face of growing economy

Only about 70% of population with formal access to electricity

Lack of clear vision due to legal, policy and regulatory uncertainties

Sub-optimal power generation mix is dominated by fossil fuels - with heavy reliance on diesel and substantial expansion of coal underway

Momentous investment needs of around $4-$5 billion annually to meet demand

Geothermal 3.2%

Geothermal 7.0%

Sector/Institutional Reform

Electricity Network System Strengthening

Optimizing Power Generation Mix

Deployment of Energy

Resource Planning

System, ERP (under implementation)

Deployment of an ERP

system through three phases

to strengthen PLN

management capabilities and

governance

Tariff Rationalization

Study (ongoing)

Provide guidance on tariff

setting and policy

Java-Bali Power sector

Restructuring and

Strengthening Project (under implementation)

Strengthen power transmission

network to relieve key

bottlenecks

Power Transmission

Development Project (under implementation)

Improve reliability of

transmission network

Upper Cisokan Pumped

Storage Project (under preparation)

Finance first pumped storage in

Indonesia is key for managing peak

demand in the distribution system and helps reduce the

cost and reliability

Estimated investment around

$800 million.

World Bank in the Power Sector

Geothermal Sector Reform

Carbon Finance and Climate Change

Investment Lending to Strengthen Institutions

$4 million GEF Grant (under implementation)

Enhance policy framework by:

• Pricing & Incentives

• Upstream Risk Mitigation

• Legal & policy review and

amendments

Transactions to tender

projects for development

Long-term domestic capacity

building

Lahendong II CDM

Transaction (under implementation)

Purchase CER from PLN for

20 MW geothermal project

Carbon Finance

Framework for Geothermal (under preparation)

Wholesale provision of carbon

revenues through streamlined

programmatic approach

IBRD/CTF Loan to

Pertamina Geothermal

Energy (PGE) (under preparation)

Immediately scale-up

investment

Blended concessional financing

from IBRD and CTF (up to

$350 million)

Strengthen institutional

capacity for continued

expansion

The World Bank in Geothermal Development

Domestic Gas Development

Regional Electrification and Rural Access ???

Energy Efficiency ???

Domestic Gas Market

Development Project (under implementation)

Expand the use of natural gas

in West Java market

Improve efficiency and reduce

pollution by substituting

cleaner fuel

PGN Restructuring

Pricing Study

Rural Electrification

Project (dropped)

Conducted surveys and

prepared RE Masterplans for 4

regions

Policy Framework for

Regional Electrification

and Rural Access (completed)

Significantly influenced current

electricity law

Request from Ministry of

Industries (under identification)

Preliminary request to explore

EE enhancements within steel

and cement sectors

The World Bank in Energy Sector

WORLD BANK/INDONESIA PARTNERSHIPS IN ENERGY SECTOR

Focus Activity Concept/Status Cost (million)

Geo-

thermal

Geothermal Sector Reform

Project (GEF)

Under Implementation: Policy reforms & transaction

support to address key barriers to investment, funded

by GEF grant

$4

(GEF Grant)

Carbon Finance Framework

for Geothermal Development

Under Preparation: Programmatic application of CDM

to provide streamlined access to carbon financing and

reduce uncertainty for geothermal developers.

$20-$40 in initial

ER purchases from

first tranche

Lahendong Geothermal

Project

Under Implementation: Facilitate the carbon off-set

transaction on behalf of PLN

Geothermal Clean Energy

Investment Project

Under Preparation: Support Pertamina/PGE develop

up to 150 MW of additional power generation capacity

in Ulubelu and Lahendong geothermal fields.

up to $ 350

(IBRD and CTF)

Power

Sector

Java-Bali Power Sector

Restructuring and

Strengthening Project

Under Implementation, help PLN w/ strengthening

power system and improving management capailities

(also $6 million TA to PGN)

$141

(loan amount)

Additional Financing, Board approved, 2010:

Extended Deployment of the ERP System, building on

successful pilot in original project

$30

(loan amount)

Power Transmission

Development Project

Under Implementation, Board approved, 2010: Help

PLN strengthen bottlenecks in transmission network

$ 225

(loan amount)

Upper Cisokan Pumped

Storage Project

Under Preparation: Develop pump storage site in Java

to reduce high reliance on oil and gas for peaking

$800

(loan amount)

Gas

Sector

Domestic Gas Market

Development Project

Under Implementation: Improve the distribution

network in West Java to accommodate new gas

supplies from Sumatra

$80

(loan amount)

WATER AND SANITATION

The Gaps 2009

coverage MDG Targets Coverage

gaps

Non -Piped Water (protected)

Urban 50% 78% 28%

Rural 46% 62% 16%

Piped Water

Urban 44% 68% 24%

Rural 12% 20% 8%

Sanitation

Urban 63% 79% 16%

Rural 30% 60% 30%

Source: Indonesia National MDG Reports 2008 and Cipta Karya Renstra 2010

Estimated costs needed

to achieve MDGs

Targets in water and sanitation: USD 450 M

annually

Estimated costs needed to achieve

MDGs Targets in water and sanitation:

Indonesia vs other SE Asia countries

0 20 40 60 80 100 120

Lao

Myanmar

Cambodia

Indonesia

Philippines

Vietnam

Thailand

Coverage

Co

un

try

Improved Sanitation Rural Sanitation

Improved Sanitation Urban Sanitation

Improved Water Supply Rural WaterSupply

Improved Water Supply Urban WaterSupply

Source: JMP Report 2010

GOI Programs: •IKK ~ USD 480 M

•Poor households ~ USD 120 M •Special areas ~ USD 30 M

GOI Programs: •PAMSIMAS & Arid/isolated villages

and small islands ~USD 460 M •DAK Water Supply ~ USD 175 M

WB Support: •UWSSP USD 23.5 M

•GPOBA Jakarta USD 2.6 M •GPOBA Surabaya USD 2.4 M •Various TAs ~ USD 400,000

•Greater Bandung (pipeline) ~ USD50M •Umbulan (pipeline) ~ USD 200 M

•WSS Financing (pipeline) ~ USD300M

WB Support: •PAMSIMAS USD 150 M

•WSP studies

URBAN

RURAL

GOI Programs: •Debt Restructuring for PDAMs

•Interest Rate Subsidy & Guarantee •Water Hibah

•Support for regional facilities •Raw water support (with SDA)

WB Support: •WASAP USD 25 M

•National Road Map USD 180,000 •IDPL •DAK

NATIONAL POLICY AND REGULATIONS

GOI PROGRAMS & WB SUPPORT in WATER SECTOR Total GOI budget 2010-2014:

~USD 1,267 M

GOI PROGRAMS & WB SUPPORT in SANITATION

GOI Programs: •Sanitary landfill in 210 cities •Integrated 3R in 250 locations •Sewerage and Waste Water Treatment Plant in 11 cities

•Drainage improvement to cover area of 4,600 ha

GOI Programs: •PAMSIMAS

•DAK Sanitation ~ USD 175 M

WB Support: •Greater Bandung (pipeline) ~ USD

50 M •JUFMP USD 150 M

WB Support: •PAMSIMAS USD 150 M

•TA in Sanitation Marketing (WSP)

RURAL

GOI Programs: •Sanitation Hibah

•APBN Support for regional facilities

WB Support: •WASAP USD 25 M

•IDPL

URBAN

NATIONAL POLICY AND REGULATIONS

Total GOI budget 2010-2014: ~USD 1,436 M

21

22

• Cities accommodate half of Indonesia’s population and are responsible for a major share of national GDP

– Urbanization rate expected to be 68% by 2025

– Metropolitan Jakarta produces 20% of national GDP, with about 6% of population

– The Largest Cities are growing at an annual average 6-8% real GRDP

• Yet, cities are not delivering services as one would expect

– Delivery of basic services in Indonesia is low in terms of access, service coverage, and quality

– 90 million people do not have an electricity connection

– Water utilities serve only 14 percent of the population

– Only 1.3 percent of the population having access to a sewerage network.

• Investment in infrastructure is urgently needed in urban areas

– Investments in major infrastructure services has declined since the 1990s

– Government does not have enough resources to cope with huge infrastructure investment needs.

• Urban Poverty is increasing, yet not well understood

Urban$&LG Program (I) • PDO: Improve the accountability and reporting of the

Central Government’s Specific Purpose Grants (DAK) for the infrastructure sectors

• The Project will be a pilot in 5 Provinces, with a proposed size of US$ 220 million over four years and designed as a Specific Investment Lending and the proposed mechanism will be Output-Based Disbursement (OBD).

• Key Issues: Result-Based mechanism and use of country system

LG & Decentralization

Project (DAK Reimbursement)

• PDO: To pilot support to district governments in improving transparency, accountability and public participatory practices and in undertaking reforms in financial management and procurement

• The Project is a pilot in nine provinces and 14 districts with total Loan/Credit of US$ 29.5 million

• Main components: Local Governance Reform, Poverty Targeted Investment, and Implementation Support

Initiatives for Local

Governance Reform Project

(ILGRP)

23

• PDO: The project will strengthen local governance and improve the provision of selected urban services by participating ULGs and additional participating ULGs.

• The Project area coverage includes five provinces and 10 municipalities/districts, with total Loan of US$ 45 million.

• Main components: core governance reforms, urban institutional development program (UIDP) and investment.

Urban Sector Development

Reform Project (USDRP)

• PDO: Asist GOI to ensure that the urban poor benefit from improved socio-economic and local governance conditions.

• Community driven program in urban areas.

PNPM Urban / UPP Project

Urban$&LG Program (II)

Transport

26

TransJakarata

About 80 percent of infrastructure public spending is concentrated on transport sector

Sectoral composition of national public spending on infrastructure (%)

Sectoral composition of national public spending on infrastructure by level of government, 2009 (%)

0

10

20

30

40

50

60

70

80

90

100

2001 2002 2003 2004 2005 2006 2007 2008 2009

% o

f t

ota

l

Transport Irrigation WSS Energy Telecom

Central

Province

Districts

0

20

40

60

80

100

Transport Irrigation WSS Energy Telecom

Transport: recent development and key issues The transport sector has been the main priority of infrastructure public

spending representing 70 percent of infrastructure budget

Yet the current level of investment (< 2% of GDP) has not been sufficient to meet the growing demand for transport infrastructure

The current expressway networks (650 km) is only one third of the estimated needs (2000 km) – Around 10 km/year last 10 years - need 400km/year

More than a third of the provincial roads and more than half of the district-level road network is in bad condition

Land acquisition remains one of the main obstacles to expressway development

The contribution of the railways to total traffic is still very low (only 0.7%)

Passengers railway has decreased since the deregulation of the aviation industry. The performance of PT Kereta Api, KAI (the Railway Corporation) has deteriorated recently

Despite its important role in Indonesia domestic logistics system and inter-island shipping, the port capacity has not improved and much below the capacity of the international trans-shipment ports.

: Road network conditions

Road Status Length Share Condition

(km) (%) Good & Fair (%) Bad (%)

National 34,629 10 83 17

Provincial 46,499 13 63 37

Regency 240,946 69 43 57

City 25,518 7 96 4

Toll 649 0 100 0

Total 348,241 100 54 46

Source: PJM 2005 and KMPU 2006 and DGH 2008

Figure 1 Traffic demand 1998-2009

0

50000

100000

150000

200000

250000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Pa

x/t

on

ne

s (

00

0)

0

5000

10000

15000

20000

25000

Pa

x/t

on

ne

-km

(m

ill)

Passenger Tonnes Passenger-km Tonne-km

Railways traffic demand

-

5

10

15

20

25

30

35

40

45

50

2001 2002 2003 2004 2005 2006 2007 2008*

Mill

ion

s

Passenger cars

Bus

Truck

Motorcycle

Exponential growth in cars and motorcycles in Indonesia

31

Transport Program (I)

• Improvements to Strategic National Roads

• Implementation Support (PAS)

• Road Sector Institutional Development

Strategic Road Improvement Project, SRIP (USD200m)

• improve condition o f the strategic road network

• support decentralization of planning and management responsibilities for civil works on Provincial and Kabupaten roads

Second Eastern Indonesia Road

Transport Project- EIRTP-2

(USD200m)-

• Developing the MEH for the narrowest and most congested 300 km section of the Straits and demonstrating its value for improving navigation safety and marine environmental protection,

• (b) Facilitating the integration of marine environment systems and data flow and information exchange through the MEH system

Marine Electronic Highway

Project, GEF (Malaysia,

Singapore and Indonesia):

USD17m

32

Transport Program (II)

• 700 km Road betterment along the Western Sumatera corridor – 530 meters of bridges

• Disaster mitigation measure (including landslide mitigations)

• A contingent emergency response component

• Empowering the procurement service units

Western Indonesia Road Improvement

Project, WINRIP($US300m)

• Refinancing using country systems along Output- based disbursement approach

Road Asset Preservation Project, RAPP

(FY12, $US300m)

33

Indonesia connectivity agenda

The challenge of connectivity in Indonesia

•Economic growth will be unbalanced, but development still can be inclusive.

•Economic agglomeration rather than spatial evenness •Make that high growth inclusive:-

-Provide access to affordable basic services across the country and targeted interventions to promote convergence in living standards -Join lagging regions to leading regions -Connect regions through inter-modal, efficient chain systems

Moving Ahead

Consolidation, Review

And Prioritization

Moving from a framework to actions

Suggested priorities for action:

1. Provide performance-based transfers for local governments to build and maintain infrastructure (especially roads)

2. Complete Trans-Java expressway and coordinate with rail services

3. Reduce cost of inter-island shipping - Provide transparent on-budget subsidies for pioneer shipping in Eastern Indonesia, and develop RO-RO nautical highways

4. Improve operational efficiency at Tanjung Priok and move ahead plans to develop a new deep water port

5. Development of an efficient public transport system in Jabodetabek

Sustainable Development

• Disaster Risk Management

• Community-based program, PNPM…

• I-DPL series

• CC-DPL series

• Indonesia Guarantee Fund, IGF

• Analytical Work (i.e. Infrastructure Public Expenditure Review)

WB contacts - ENERGY :

- Migara Wayawardena: mjayawardena@worldbank.org

- Leiping Wang: lwang3@worldbank.org and

- Khairy Al-Jamal: kaljamal@worldbank.org

- WATER & SANITATION: - Fook Chuan: feng@worldbank.org

- Urban& LG: - George Soraya: Gsoraya@worldbank.org and

- Peter Ellis: pellis@worldbank.org

- TRANSPORT: - Mustapha Benmaamar: mbenmaamar@worldbank.org

Thank you