Document of The World Bank FOR OFFICIAL USE ONLY€¦ · SP2D Surat Perintah Pencairan Dana...
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Document of The World Bank FOR OFFICIAL USE ONLY Report No: 62151-ID PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF US$531.19 MILLION TO THE REPUBLIC OF INDONESIA FOR THE FOURTH NATIONAL PROGRAM FOR COMMUNITY EMPOWERMENT IN RURAL AREAS June 14, 2011 Indonesia Sustainable Development Unit Sustainable Development Department East Asia and Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript of Document of The World Bank FOR OFFICIAL USE ONLY€¦ · SP2D Surat Perintah Pencairan Dana...
Document of
The World Bank
FOR OFFICIAL USE ONLY
Report No: 62151-ID
PROJECT APPRAISAL DOCUMENT
ON A
PROPOSED LOAN
IN THE AMOUNT OF US$531.19 MILLION
TO THE
REPUBLIC OF INDONESIA
FOR THE
FOURTH NATIONAL PROGRAM FOR COMMUNITY EMPOWERMENT IN RURAL
AREAS
June 14, 2011
Indonesia Sustainable Development Unit
Sustainable Development Department
East Asia and Pacific Region
This document has a restricted distribution and may be used by recipients only in the
performance of their official duties. Its contents may not otherwise be disclosed without World
Bank authorization.
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i
CURRENCY EQUIVALENTS
(Exchange Rate Effective June 7, 2011)
Currency Unit = Indonesian Rupiah
IDR 1,000 = US$0.12
US$1 = IDR 8,508
FISCAL YEAR
January 1 – December 31
ABBREVIATIONS AND ACRONYMS
AF Additional Financing
AMDAL Environmental Impact Assessment
APBD Local Government Budget
APBN National Government Budget
ASF Administrative Service Firms
ASF-RMC Administrative Service Firms for Regional Management Consultants
AusAID Australian Agency for International Development
B3 Bahan Beracun dan Berbahaya (Hazardous Material Wastes)
BAPPENAS Badan Perencanaan dan Pembangunan Nasional (National Development Planning
Agency)
Bawasda District level Auditor General Office
BGAP Better Governance Action Plan
BKAD Board for Inter-Village Coordination
BKPG Bantuan Keuangan Pemakmue Gampong (Fin. Assistance for Village Prosperity
Program)
BP Bank Procedure
BPKP Badan pengawas Keuangan dan Pembangunan (National Government Audit
Agency)
BP-UPK Community-Appointed Financial Management Oversight Body
CDD Community Driven Development
CHS Complaint Handling System
CPS Country Partnership Strategy
CSO Civil Society Organization
DA Designated Account
DG Director General
EIRR Economic Internal Rate of Return
ESW Economic and Sector Work
F&C Fraud and Corruption
FM Financial Management
G20 Group of Twenty Finance Ministers and Central Bank Governors
ii
GoI Government of Indonesia
HH Households
HR Human Resources
IBRD International Bank for Reconstruction and Development
ICB International Competitive Bidding
IDA International Development Association
IFR Interim Financial Report
IGSES Implementation Guidelines for Social and Environmental Safeguards
IT Information Technology
J4P Justice for the Poor
JMC Joint Management Committee
JSDF Japan Social Development Fund
KAT/IVPs Komunitas Adat Terpencil/ Isolated and Vulnerable communities
KDP Kecamatan Development Project
KPPN Kantor Pelayanan Perbendaharaan Negara (Treasury Office)
M&E Monitoring and Evaluation
MAD Inter-village Meeting
MD Village Assemblies
MDG Millennium Development Goal
MDTF Multi Donor Trust Fund
MENKO KESRA Coordinating Ministry for People's Welfare
MHP Micro Hydro Power
MIS Management Information System
MOF Ministry of Finance
MOHA Ministry of Home Affairs
MPW Ministry of Public Works
NCB National Competitive Bidding
NGO Non Government Organization
NMC National Management Consultant
O&M Operations and Maintenance
OP Operational Procedure
ORAF Operational Risk Assessment Framework
OSU World Bank Operational Services Unit
PCN Project Concept Note
PDO Project Development Objective
PEKKA Perempuan Kepala Keluarga (Indonesia Women-Headed Household Program)
PJOK Penanggung-Jawab Operasional Kegiatan (Local Project Manager at sub-district
level)
PMD Directorate General of Village Community Empowerment
PMU Project Management Unit
PNPM Program Nasional Pemberdayaan Masyarakat (National Program for Community
Empowerment)
PNPM Generasi Program Nasional Pemberdayaan Masyarakat (National Program for Community
Empowerment) focusing on MDGs
iii
PNPM Green Program Nasional Pemberdayaan Masyarakat (National Program for Community
Empowerment) focusing on environmental sustainability
PNPM-MKP Program Nasional Pemberdayaan Masyarakat Mandiri Kelautan Perikanan
(National Program for Community Empowerment of Self-Supporting Marine and
Fisheries Communities)
PNPM Peduli Program Nasional Pemberdayaan Masyarakat (National Program for Community
Empowerment) targeting most marginalized groups
PSF PNPM Support Facility
POT Provincial Oversight Teams
QCBS Quality and Cost Based Selection
RESPEK Rencana Strategis Pembangunan Kampung (Strategic Plan for Village
Development)
RFP Request for Proposals
RLF Revolving Loan Fund
RMC Regional Management Consultant
Rp Rupiah
Satker Project Management Unit
SIL Specific Investment Loan
SOP Standard Operating Procedures
SP2D Surat Perintah Pencairan Dana (Remittance Order)
SPM Surat Perintah Membayar (Payment Order)
SPP Surat Permintaan Pembayaran (Payment Request)
SW Staff Weeks
TA Technical Assistant
Tim Pengendali National-level oversight body of PNPM
TNP2K Tim Nasional Percepatan Penanggulangan Kemiskinan (National Team for the
Acceleration of Poverty Reduction)
TOR Terms of Reference
TPK Tim Pengelola Kegiatan (Village Implementation Team)
TPM Tim Penyelesaian Masalah (Problem Resolution Team)
TSA Treasury Single Account
TV Television
UKL-UPL Environmental Management and Monitoring Efforts
UPK Unit Pengelola Keuangan (Financial Management Unit)
UPP Urban Poverty Project
WB World Bank
Regional Vice President: James W. Adams
Country Director: Stefan G. Koeberle
Sector Director:
Sector Manager:
John A. Roome
Franz R. Drees-Gross
Task Team Leader: Susanne Holste
iv
PROJECT APPRAISAL DOCUMENT (PAD)
TABLE OF CONTENTS
PAD DATA SHEET ..................................................................................................................................... v
I. Strategic Context .................................................................................................................................. 1
A. Country Context ............................................................................................................................ 1
B. Sectoral and Institutional Context ................................................................................................. 1
C. Higher Level Objectives to which the Project Contributes ........................................................... 3
II. Project Development Objective ............................................................................................................ 4
A. PDO............................................................................................................................................... 4
1. Project Beneficiaries .............................................................................................................. 4
2. PDO Level Results Indicators ................................................................................................ 4
III. Project Description ............................................................................................................................... 4
A. Project components ....................................................................................................................... 4
B. Project Financing .......................................................................................................................... 5
1. Lending Instrument ................................................................................................................ 5
2. Project Cost and Financing .................................................................................................... 5
C. Lessons Learned and Reflected in the Project Design .................................................................. 6
IV. Implementation ..................................................................................................................................... 7
A. Institutional and Implementation Arrangements ........................................................................... 7
B. Results Monitoring and Evaluation ............................................................................................... 8
C. Sustainability ................................................................................................................................. 8
V. Key Risks and Mitigation Measures ..................................................................................................... 8
VI. Appraisal Summary .............................................................................................................................. 9
A. Economic and Financial Analysis ................................................................................................. 9
B. Technical ..................................................................................................................................... 10
C. Financial Management ................................................................................................................ 10
D. Procurement ................................................................................................................................ 11
E. Social (including safeguards) ...................................................................................................... 12
F. Environment (including safeguards) ........................................................................................... 13
TECHNICAL ANNEXES
Annex 1: Results Framework and Monitoring ........................................................................................... 14
Annex 2: Detailed Project Description ...................................................................................................... 19
Annex 3: Implementation Arrangements ................................................................................................... 25
Annex 5: Implementation Support Plan ..................................................................................................... 50
Annex 6: Team Composition ...................................................................................................................... 54
v
PAD DATA SHEET
Indonesia
Fourth National Program for Community Empowerment in Rural Areas Project (PNPM-Rural IV)
PROJECT APPRAISAL DOCUMENT
EAP
EASIS
Date: June 14, 2011
Country Director: Stefan G. Koeberle
Sector Director: John A. Roome
Sector Manager: Franz R. Drees-Gross
Team Leader(s): Susanne Holste
Project ID: P122810
Lending Instrument: SIL
Sector(s): Water supply (20%); Irrigation and drainage
(20%); Roads and highways (20%); Primary education
(20%); Sub-national government administration (20%)
Theme(s): Rural services and infrastructure (55%);
Participation and civic engagement (31%); Rural
markets (11%); Social analysis and monitoring (3%)
EA Category: B Partial Assessment
Project Financing Data:
[x] Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other:
Proposed terms: A variable spread Loan with a final maturity of twenty four and a half (24.5) years,
including a grace period of nine (9) years.
Source Total Amount (US$M)
Total Project Cost:
Cofinancing:
Borrower:
Total Bank Financing:
IBRD
IDA
New
Recommitted
1,283.6 1
26.05
726.37
531.19
531.19
Borrower: Republic of Indonesia
Responsible Agency: Directorate General of Village Community Empowerment (PMD)
Ministry of Home Affairs
Contact Person: Mr. Ayip Muflich
Telephone No.: 6221-79191684
Fax No.: 6221-79196118
Email: [email protected]
Estimated Disbursements (Bank FY/US$ m)
FY 2012 2013 2014
Annual 320.00 176.19 35.00
vi
Cumulative 320.00 496.19 531.19
Project Implementation Period: Start: June 14, 2011 End: February 28, 2014 Expected effectiveness date: August 1, 2011
Expected closing date: June 30, 2014
Does the project depart from the CAS in content or other significant
respects? ○ Yes No
If yes, please explain:
Does the project require any exceptions from Bank policies? Have these been approved/endorsed (as appropriate by Bank
management? Is approval for any policy exception sought from the Board?
○ Yes No ○ Yes ○ No ○ Yes ○ No
If yes, please explain:
Does the project meet the Regional criteria for readiness for
implementation? Yes ○ No
If no, please explain:
Project Development objective: For villagers in PNPM-Rural locations to benefit from improved socio-economic and local
governance conditions.
Project description [one-sentence summary of each component]
Component 1: Kecamatan Grants: Supports the construction of the economic and social infrastructure
needed and requested by the target communities.
Component 2: Facilitation Support: Provides technical advisory services, training and other material
support, through facilitators, to strengthen the capacity of district and sub-district government
institutions and communities in development planning and investment.
Component 3: Implementation Support and Technical Assistance: Provides technical advisory
services, training and other material support for PNPM implementation at the national, provincial,
district, and sub-district levels, including training of facilitators, monitoring and evaluation, and
enhanced technical and financial audits.
Component 4: Project Management Support: Provides technical advisory services and other material
support to strengthen the executing agency, the Directorate General of Village Community
Empowerment (PMD), and to support the management of the incremental activities generated by the
project.
vii
Safeguard policies triggered? Environmental Assessment (OP/BP 4.01) Natural Habitats (OP/BP 4.04) Forests (OP/BP 4.36) Pest Management (OP 4.09) Physical Cultural Resources (OP/BP 4.11) Indigenous Peoples (OP/BP 4.10) Involuntary Resettlement (OP/BP 4.12) Safety of Dams (OP/BP 4.37) Projects on International Waterways (OP/BP 7.50) Projects in Disputed Areas (OP/BP 7.60)
Yes ○ No ○ Yes No ○ Yes No ○ Yes No ○ Yes No Yes ○ No ○ Yes No ○ Yes No ○ Yes No ○ Yes No
Conditions and Legal Covenants:
Loan
Agreement
Reference
Description of Condition/Covenant Date Due
Schedule 2,
Section I.B,
paragraph 1
The Borrower, through PMD, shall implement the Project in
accordance with updated Operations Manual and each
Supplemental Manual, acceptable to the Borrower and the Bank.
During
implementation
Schedule 2,
Section I.B,
paragraph 9(a)
The Borrower, through PMD, shall ensure that all annual audit
reports referred to in Section II.B of this Schedule 2, including
Kabupaten audit reports, shall be published on the PNPM
Website by no later than September 30 in each year of Project
implementation for the prior year annual audit reports,
commencing on September 30, 2011 for 2010 annual reports.
By September
30 in each year,
beginning
September 30,
2011
Schedule 2,
Section I.B,
paragraph 10
The Borrower shall ensure that, except as the Bank and the
Borrower shall otherwise agree in writing, (a) BPKP shall carry
out a continuous audit of the Project in partnership with Local
Government inspectorates; and (b) on terms of reference agreed
among PMD, BPKP and the Bank, BPKP shall, after PMD has
compiled each interim financial report, review such interim
financial report for each calendar quarter during Project
implementation and shall provide to the Bank its clearance of
such interim financial report and its report of each such review
not later than forty-five (45) days after the end of each calendar
quarter.
Not later than
45 days after
the end of each
calendar
quarter
Schedule 2,
Section I.B,
paragraph
11(b) and (c)
The Borrower, through PMD, shall ensure that: tracking of all
active complaints cases is made available on the PNPM Website
by no later than September 30, 2011; and a service standard and a
mechanism for its implementation, acceptable to the Borrower
and the Bank, is established by September 30, 2011.
By September
30, 2011
Schedule 2,
Section I.C
The Borrower, through PMD, shall ensure that each Sub-Project
is prepared, implemented and monitored in accordance with the
Implementation Guidelines for Social and Environmental
Safeguards.
During
implementation
viii
Schedule 2,
Section I.D
The Borrower shall ensure that the Project is carried out in
accordance with the provisions of the Anti-Corruption Guidelines
and the Better Governance Action Plan, which reaffirms the
Borrower‟s commitment to good governance in PNPM.
During
implementation
Schedule 2,
Section II.B,
paragraph 2
The Borrower shall prepare and furnish to the Bank, as part of the
Project Report, interim unaudited financial reports for the Project
covering the quarter, in form and substance satisfactory to the
Bank.
Not later than
45 days after
the end of each
calendar
quarter
Schedule 2,
Section II.B,
paragraph 3
The Borrower shall have its Financial Statements audited in
accordance with the provisions of Section 5.09(b) of the General
Conditions. Each audit of the Financial Statements shall cover
the period of one (1) fiscal year of the Borrower. The audited
Financial Statements for each such period shall be furnished to
the Bank.
Not later than
six months
after the end of
each fiscal
year.
Schedule 2,
Section IV.B
No withdrawal shall be made for payments made prior to the date
of this Agreement, except that withdrawals up to an aggregate
amount not to exceed one hundred million United States Dollars
($100,000,000) equivalent may be made for payments made prior
to this date but on or after June 14, 2011, for Eligible
Expenditures for Kecamatan Grants under Category 1.
Prior to
disbursement
1
I. Strategic Context
A. Country Context
1. Indonesia is the world‟s fourth most populous state, its largest Muslim-majority nation, a country
rich in natural resources and one recently transformed from a centralized authoritarian state into a
relatively stable, democratic and decentralized one. With its recently demonstrated economic resilience, it
is also emerging as a significant player in the region and globally, now chairing the G20 working group
on development.
2. Despite the most recent downturn, Indonesia‟s economy continued to strengthen throughout 2010,
with growth ending the year above pre-crisis levels. Poverty rates fell from 17.4 percent of the population
in 2004 to 13.3 percent in 2010. Economic growth is forecast at 6 percent in 2011 with scope to average
7 percent by mid-decade despite the weaker global outlook. The challenge, however, is to maintain this
momentum into the medium term – as Indonesia‟s demographic shifts and the population ages – and to
ensure that economic growth leads to improved living standards for all Indonesians.
3. It is striking that, despite the achievements of the past decade, 31 million Indonesians still live
below the national poverty line of US$22 per month and half of all households live clustered around the
poverty line, remaining vulnerable to falling below it. Of the total population living in poverty, 65
percent are in rural areas – where half of the population resides and where income and employment
opportunities and delivery of basic services are seriously constrained, and are characterized by regional
disparities. Non-income poverty – as reflected in health and education access and outcomes – remains a
serious problem.
4. While recent history has shown a positive trend in economic and political achievements, this still
remains an incomplete transition. The challenge for policy makers now is to both make the investment
effort and tackle the policy and institutional impediments that limit the effectiveness of Indonesia‟s
institutions in delivering services and accountability to the populace and also those that constrain the
poorest from benefiting more fully from growth and poverty reduction efforts.
B. Sectoral and Institutional Context
5. The National Program for Community Empowerment or Program Nasional Pemberdayaan
Masyarakat (PNPM), which was launched in 2008, is the Government of Indonesia‟s (GoI) flagship
poverty alleviation program. PNPM covers both rural and urban parts of Indonesia; each was built on a
World Bank-financed community-driven development (CDD) project: the Kecamatan Development
Project (KDP) series and the Urban Poverty Project (UPP) series. The rural area program or PNPM-Rural
is now one of the world‟s largest community-based poverty reduction programs, implemented nationwide
in over 60,000 villages. The program was launched by the President of Indonesia and has scaled up
annually from 1,100 sub-districts (kecamatan) covered by the third KDP in 2006, to 4,371 sub-districts
under PNPM-Rural in 2009. PNPM-Rural currently covers 4,791 sub-districts or about 76 percent of
Indonesia‟s sub-districts1. PNPM uses a CDD approach, providing direct block grant financing to local
communities at the sub-district level to finance an open menu of local development priorities – typically
1 PNPM includes five core programs which collectively cover every sub-district in the country. PNPM-Rural is the
largest of the programs. The four other programs consist of two Bank financed projects: PNPM-Urban and Support
for Poor and Disadvantaged Areas; and the respective Asian Development Bank and Japan International
Cooperation Agency financed projects: PNPM Rural Infrastructure Support Program and PNPM Infrastructure for
Socio-Economic Development.
2
small scale social/economic infrastructure, education and health activities, and micro-loans to women‟s
savings groups – implemented with mechanisms to ensure broad-based participation and transparency.
6. In 1998, the GoI launched KDP; a decade later it was so convinced by its success that it rebranded
the program as the National Rural Community Empowerment Program and committed to its national roll-
out. Today the central government finances more than half of the program cost from its own resources
and local governments support the project with a minimum of 20 percent of the block grant costs. The
strengths of the program are: (a) cost effectiveness – village tertiary infrastructure is being built at
significantly lower cost (a third to half as expensive as under conventional contracting) and returns have
also been very high, with EIRRs of 53 percent on average; (b) welfare effects – evaluations have shown
that welfare rates have improved about 5% faster in project locations compared to locations not covered
by the program; and the vulnerable are less likely to slip into poverty; and (c) inclusiveness - the
planning and management processes reach out to all groups in the village and women play a particularly
important part in PNPM Rural. Women also have special access to funding through a window that allows
up to 25 percent of all block grant funds to be used as capital for women's savings and loans groups.
What sets the program apart is that it has increased the population's trust in government which has
consistently delivered on its promise of resource transfer. Villagers are able to engage in multi-year
prioritization and management of resources, albeit on a competitive basis. Interestingly, PNPM has also
spurred the use of social media and there is active use of Twitter and Facebook to exchange information
amongst groups. With the proposed project, total IBRD/IDA financing for these operations would
increase to a cumulative total of approximately US$2.8 billion (Table 1).
Table 1: KDP/PNPM-Rural Program - Approved & Proposed World Bank
Financing
Project Phase Period
No. of sub-
districts
IBRD/IDA
(US$ mil) Closing Date
KDP 1 1998-2002 986 225.0 31 Dec 2002
KDP Supplemental 2000-2002 986 48.2 31 Dec 2002
KDP 2 2000-2006 1,316 335.5 31 Dec 2007
KDP 3A 2003-2009 760 91.0 31 Dec 2009
KDP 3B + AF 2005-2009 1,800 283.0 31 Dec 2009
PNPM-Rural 2008 2,600 231.2 30 Jun 2011
PNPM-Rural II AF 2009 4,258 300.0 31 Dec 2011
PNPM-Rural III 2010-2012 4,791 785.0 31 Dec 2012
PNPM-Rural IV 2011-2013 4,978 531.2 30 Jun 2014
TOTAL 2,830.1
7. Coinciding with the creation of PNPM, GoI established the PNPM Support Facility (PSF) to
harmonize and coordinate development partner efforts, including the planning and targeting of financial
assistance, as well as the monitoring and evaluation of PNPM operations and impact. PSF receives overall
policy guidance and oversight from the Joint Management Committee (JMC), which comprises GoI non-
executing agencies (National Development Planning Agency - BAPPENAS, the Ministry of Finance, and
the Coordinating Ministry for People‟s Welfare – Menko Kesra) and donor partners. The JMC Chairman
is the Deputy for Poverty, Labor and Small & Medium Enterprises in BAPPENAS. The Bank‟s Country
Director serves as co-chair of the JMC and the Bank administers the PSF Trust Fund into which grant
funding is channeled. Donors are Australia, Denmark, the European Union, the Netherlands, the United
Kingdom and the United States. To date, development partners have pledged in excess of US$188
million for the PSF Trust Fund. GoI and the Bank are also engaged in discussions with other prospective
development partners, such as Canada and the Millennium Challenge Corporation.
3
8. Embedded within Indonesia's Medium Term Expenditure Plan, GoI's poverty alleviation strategy
comprises three clusters: (a) Cluster 1 focuses on social protection through targeted poverty and social
protection programs at the household level; (b) Cluster 2, of which PNPM forms the base, promotes
community level development and empowerment; and (c) Cluster 3 stimulates micro-level growth
through programs that target micro-finance and support to small and medium enterprises.
9. PNPM-Rural, under Cluster 2, is seen as the operational umbrella to the large number of poverty
programs using a CDD approach. Its design and objectives are emblematic of the new relationship
between the state and villages that was fostered by the 1998 political transition and subsequent
decentralization reforms. PNPM-Rural‟s design is consistent with the prevailing „new‟ paradigm of local
knowledge and autonomy: responsive local-level institutions that have altered the approach to rural
development in Indonesia and, in sharp contrast to the New Order period of top-down planning and
control, are geared towards allowing villagers to exercise their rights over matters of public interest and to
be at the forefront of the local development process. The program‟s participatory and transparent
framework has helped improve local governance by directly involving communities in decision-making
and has been successful in increasing the poor‟s (including women‟s) access to tertiary socio-economic
infrastructure and other basic services. About 60 percent of funded village proposals arise from women‟s
special meetings and a majority of the beneficiaries are below or at the poverty line.
10. A Vice Presidential instruction has confirmed that PNPM will continue at full coverage until the
end of 2014. Consultations are underway to better articulate key policy questions for the future, including
those of integration of community-based programs within Cluster 2 and also to strengthen the formal and
informal arrangements between PNPM and sector service delivery at the local level. This policy dialogue
will continue with Government and will be enriched under the proposed fourth phase of PNPM by special
programs/pilots (e.g., PNPM Generasi, which focuses on health and education, and Green PNPM, which
focuses on natural resource management and village-level renewable energy) and associated analytical
work. Other strategic policy questions which the Bank task team will continue to engage on include: (a)
adjustment of the core PNPM model to different kinds of poverty across Indonesia‟s diverse regions (e.g.,
targeting the poorest sub-districts or trying to reach the poorest in richer areas); (b) bringing the social
capital created through PNPM to bear to strengthen the downward accountability of local government;
and (c) utility/scope of PNPM as an instrument to address the needs of the most marginalized and
vulnerable peoples.
11. The most pressing issues in the preparation of PNPM-Rural IV were those of overall
implementation and management quality to ensure that arrangements are robust enough to manage a
program of this scale and complexity. In addition to providing needed financing, the KDP and PNPM-
Rural operations have provided critical implementation support and technical assistance instrumental in
the national scale up of the program, allowing it to reach millions of additional Indonesians. PNPM-
Rural III began actively addressing the systems and managerial stresses caused by the rapid scale-up of
the program. PNPM-Rural IV, in addition to providing financial support, will build on the achievements
and lessons learned under PNPM-Rural III to strengthen the management and implementation systems.
C. Higher Level Objectives to which the Project Contributes
12. The project, which covers about 76 percent of Indonesia‟s sub-districts, directly supports GoI‟s
efforts to accelerate poverty alleviation and extend employment opportunities for the poor. The project is
consistent with the FY2009-12 Country Partnership Strategy (CPS) for Indonesia, Investing in
Indonesia’s Institutions for Inclusive and Sustainable Development, which emphasizes engagement with
government counterparts (including at the sub-national level) and other stakeholders to address critical
governance and institutional challenges. In addition to its cross-cutting engagements to strengthen central
and sub-national government institutions and systems, the CPS identifies five thematic areas, which form
4
the core of the Bank‟s engagement: (a) Private Sector Development; (b) Infrastructure; (c) Community
Development and Social Protection; (d) Education; and (e) Environmental Sustainability and Disaster
Mitigation. The project‟s CDD approach aims to improve existing government programs, strengthen
institutions and improve the links between different levels of government. The proposed project provides
continued support to PNPM, the Government‟s flagship poverty alleviation program, to whose
development the Bank has made a significant contribution.
II. Project Development Objective
A. PDO
13. As under the ongoing PNPM-Rural III operation, the PDO would remain for villagers in PNPM-
Rural locations to benefit from improved socio-economic and local governance conditions.
1. Project Beneficiaries
14. PNPM-Rural benefits an estimated 40 million villagers in PNPM-Rural project areas by increasing
employment opportunities and access to more and better quality basic services. About half of the
beneficiaries are women.
2. PDO Level Results Indicators
15. Key performance indicators for the PDO include:
(a) Improved household HH expenditure rates and improved access to economic and social
services in a minimum of 4,978 sub-districts in 2011 (impacts taken from representative
sample).
(b) Economic Internal Rate of Returns (EIRRs) greater than 30 percent for main rural
infrastructure categories.
(c) Greater than 80 percent satisfaction levels from beneficiaries regarding improved services
and local level governance (impacts taken from representative sample).
III. Project Description
A. Project components
16. The project will have four components with a total investment of US$1.3 billion. The four
components will be the same as the ongoing PNPM-Rural III project. Each component is described
below. For further details see Annex 2.
17. Component 1: Kecamatan Grants (US$1,097.58 million). The objective of this component, which
accounts for the bulk of the project, is to support the construction of the economic and social
infrastructure needed and requested by the target communities, and includes for Component 1(a): (i)
planning for community development, including the preparation of sub-project proposals; (ii) training and
capacity building for communities, including in development planning and investment; (iii) investing in
social and economic infrastructure identified through community development planning; (iv) investing in
activities identified through community development planning using revolving loan funds (RLFs) for
women‟s savings and loan groups; and (v) preparing for and responding to disaster, emergency or
5
catastrophic events, as needed, through subprojects. Component 1(b) consists of providing kecamatan
grants to pilot and special programs.
18. Two pilots (PNPM Generasi and Green PNPM), which are co-financed by PSF grants under
PNPM-Rural III, are likely to receive continued grant support in parallel with the loan-financed PNPM
Rural IV operation.
19. Two special programs (Aceh: PNPM-BKPG and Papua and West Papua: PNPM-Respek), for
which community block grants are provided from the respective provinces‟ allocations, and which are
part of PNPM Rural III, will continue under PNPM Rural IV.
20. Component 2: Facilitation Support (US$110.75 million). This component will provide technical
advisory services, training and other material support, through facilitators, to strengthen the capacity of
district and sub-district government institutions and communities in development planning and
investment.
21. Component 3: Implementation Support and Technical Assistance (US$36.77 million). This
component will provide technical advisory services, training and other material support for PNPM
implementation at the national, provincial, district, and sub-district levels, including training of
facilitators, monitoring and evaluation, and enhanced technical and financial audits.
22. Component 4: Project Management Support (US$38.51 million). This component will provide
technical advisory services and other material support to strengthen the executing agency, the Directorate
General of Village Community Empowerment (PMD), and to support the management of the incremental
activities generated by the project.
23. Crisis response. PNPM‟s platform with its established structures (e.g., disbursement channels
through UPKs) and operating systems (e.g., facilitators on the ground with “local” knowledge) and
nationwide presence can support quick and effective response to emergency situations. In response to
three natural disasters that struck Indonesia towards the end of 2010, GoI requested emergency assistance
to use the PNPM platform and aligned CDD mechanisms as a key pillar of its recovery strategy. The
Bank and other PSF members established a PSF Disaster Management Support Fund to channel financial
resources and utilize the program‟s systems, including its facilitators, to help disaster affected
communities recover and restore livelihoods.
B. Project Financing
1. Lending Instrument
24. As with previous KDP/PNPM-Rural projects, the present project will be financed by a Specific
Investment Loan (SIL), which allows GoI to determine program financing needs and the amount of
foreign borrowing on an annual basis. The Borrower has selected an IBRD Loan in US$ with a Variable
Spread, final maturity of 24.5 years including a grace period of 9 years and annuity principal repayment,
at a rate equal to LIBOR for the Loan Currency plus the Variable Spread.
2. Project Cost and Financing
25. The total project financing requirements are estimated to be US$1.3 billion. Table 2 shows the
project cost and financing.
6
Table 2: Project Costs, US$ millions
Component IBRD* APBN APBD Community Donor** Total
1. Kecamatan Grants 400.00 461.44 178.04 35.34 22.76 1097.58
2. Facilitation Support 99.11 10.66 -- -- 0.98 110.75
3. Implementation Support
and Technical Assistance 30.98 3.57 -- -- 2.22 36.77
4. Project Management
Support 1.10 19.65 17.67 -- 0.09 38.51
Total 531.19 495.32 195.71 35.34 26.05 1,283.61 *Withdraws up to an aggregate amount not to exceed US$100 million equivalent may be made prior t the date of the loan
agreement, but on or after June 14, 2011 for eligible expenditures for kecamatan grants.
**Donor resources have been received under existing trust fund arrangements.
C. Lessons Learned and Reflected in the Project Design
26. PNPM-Rural scaled up very rapidly from 2,600 sub-districts in 2008, to 4,371 in 2009 and over
4,790 in 2010. In 2010 the program was active in 57,000 villages and was financing more than 75,000
subprojects. While the program design was able to support such an expansion, the management and
governance arrangements became strained. The following lessons and action areas were identified:
(a) The institutional and managerial capacities of the executing agency need to grow with the
program. PNPM accounts for about 80 percent of MoHA‟s budget but there are no
designated staff who work exclusively on the program. Reporting lines between PMD, the
National Management Consultant firm (NMC) and Regional Management Consultant firms
(RMCs) had become unclear, resulting in confusion for facilitators and duplication of
assignments. As part of project preparation, the standard operating procedures (SOPs) on the
roles and responsibilities of PMD, NMC and RMCs have been revised and disseminated.
Recruitment is under way for dedicated technical assistance to support key functions, such as
MIS, HR, and FM. A functional review will be carried out that will further clarify staffing
and training needs.
(b) The program needs a robust and integrated Management Information System (MIS). Timely
and reliable data is essential for program managers to monitor implementation and make
informed decisions. The MIS has become fragmented and suffers from inefficiencies and
inaccuracies in data gathering, transmission and reporting. A comprehensive systems analysis
will be carried out for a complete redesign of the MIS platform. The new system will
integrate internal controls and management data requirements and will be adapted to the
decentralized requirements of data entry and retrieval. The full development and launch of
the new system may occur beyond the project period. There will also be new staff recruitment
and training.
(c) Governance enhancements. PNPM has built-in systems to promote downward accountability
and enhance citizens‟ ability to engage as well as to report on grievances and fraud. The
Complaints Handling System (CHS) will be further strengthened to ensure better capture and
follow through, including the escalation of cases which could not or were not resolved at the
local levels. Annual audits will be carried out jointly by the National Government Audit
Agency (BPKP) and district government audit boards (Bawasda) in at approximately 20
percent of sub-districts to help reduce corruption and increase transparency. Results and
recommendations of the audits will be posted on the project website and socialized in the
communities, sub-districts, and districts. PMD with support from NMC will aim to carry out
financial management reviews in all PNPM-Rural sub-districts.
7
(d) Qualified facilitators are the backbone of PNPM. Strong facilitation is one of the important
reasons for PNPM‟s success: facilitators who are familiar with the social dynamics of the
villages are typically recruited from the districts or sub-districts in which they work and, are
provided with training and mentoring.. Pre-service and refresher training for facilitators will
be improved, and facilitators in remote areas, such as Papua will be provided additional
benefits to make such postings more attractive.
(e) Implementation assistance from the Bank. Just as the government‟s team was being
overstretched by the increased scale and complexity of the program, so was the Bank‟s. The
team was increasingly taxed to ensure timely follow up of issues that required management
decision and to provide adequate field-level supervision. Bank‟s implementation support has
been strengthened to meet the requirements of a scaled-up PNPM. A “portfolio approach” is
being adopted to supervision and monitoring, and the various programs and pilots are
supervised in an integrated fashion.
IV. Implementation
A. Institutional and Implementation Arrangements
27. PNPM-Rural IV institutional arrangements build on successful elements of the existing structure
for the implementation of PNPM-Rural III. PNPM-Rural implementation management occurs across five
levels of government: national, provincial, district, sub-district, and village (though sub-districts are not
technically a formal level of government, but are administrative divisions of districts). Each of these
levels has: (a) government policy and coordinating bodies with larger mandates, into which PNPM fits;
(b) administrative bodies (satkers or project management units at the national, provincial and district
levels) providing program oversight and coordination; and (c) bodies or teams for implementation and
oversight.
28. At the national level, PNPM has a coordinating body chaired by Menko Kesra. It includes
Bappenas, the Ministry of Finance, and the main line agencies that execute the component programs as
well as related sector ministries. PMD is responsible for program execution. The NMC firm oversees
implementation of technical assistance.
29. At the provincial level, PMUs within the local government manage the administrative arrangements
and budget for facilitators at the district and sub-district levels who are responsible for technical
implementation of the project. RMCs hire Provincial Oversight Teams (POTs) to provide technical
support to district and sub-district facilitators. PNPM-Rural IV will employ eight RMCs (compared to six
under PNPM Rural III) to manage technical support facilitators working on PNPM-Rural and its pilot and
government add-on projects.
30. At the district level, PMUs provide administrative support and oversight to the program and help to
manage block grant disbursements. Each district has a team of at least three senior facilitators: an
engineer, a social organizer, and a financial specialist with one or more assistants. The district facilitators
provide technical oversight to sub-district facilitators. The PMUs control the funds, based on established
procedures. They facilitate disbursement and oversee the use of these funds, both from the national
budget as well as from local government budget. They do not handle any cash though.
31. At the sub-district level, the program employs a minimum of two facilitators, who directly support
communities with project implementation. The facilitators work closely with sub-district officials,
8
including the sub-district head and the other local government official appointed as the operational head
of PNPM-Rural (PjOK).
32. At the village level, communities prepare and prioritize projects through village assemblies (MDs).
Village cadres or facilitators, one man and one woman, assist with the planning process and support the
village implementation teams who manage sub-project implementation.
B. Results Monitoring and Evaluation
33. PNPM-Rural has a comprehensive monitoring and evaluation (M&E) framework to provide
stakeholders with empirical data regarding the results and impact of the program, and is complemented by
a portion of the PSF trust fund dedicated for special studies and evaluation. Monitoring activities are
designed to ensure the government has a current understanding of project progress and efficiency, and
improve the quality of implementation and planning. The current framework includes both project-
collected data as well as community and external-stakeholder based systems.
34. Monitoring activities include: community participatory monitoring; government supervision and
monitoring; consultants' internal monitoring; independent external monitoring by provincial NGOs;
complaints handling and grievance redress mechanisms; financial supervision and audits, both internal
and external; and, World Bank supervision missions.
35. The program also provides fertile ground for evaluation work on the core government objectives of
poverty, employment, services, community empowerment and quality of governance, as well as
opportunities for experimenting with various intervention strategies. Studies typically employ a mixed
methods approach utilizing quantitative and qualitative components. Evaluation activities include: impact
evaluations for PNPM-Rural and its pilots, including the Revolving Loan Fund Pilot, PNPM-Generasi
and Green PNPM; and, thematic evaluations and studies including: technical quality and costs of services;
economic analyses; sustainability; micro-finance reviews; environment; conflict prevention; gender;
social accountability and local governance.
C. Sustainability
36. The sustainability of PNPM-Rural/KDP has already been broadly demonstrated: (a) strong
community participation, local ownership, and investments in demand-driven subprojects; (b)
institutionalization of the process through local government participation, (e.g., their provision of 20
percent of the block grant investment funds and an additional 6 percent for administration and oversight),
enabling rapid scale-up; and (c) high quality and more economical village-level investments using a
community-driven approach. PNPM programs have built upon the successes and have expanded the
geographic scope of previous operations. The scale-up has taken place in the context of institutional
change, major economic crises, and during the implementation of one of the world's largest
decentralization programs. The success of these programs in spite of socio-political challenges, highlights
their potential for long-term sustainability and their flexibility to adapt to a changing environment.
V. Key Risks and Mitigation Measures
37. The proposed project builds on the ongoing program but with a strengthened management and
governance framework. Key potential risks are summarized in the Operational Risk Assessment
Framework (see Annex IV). The overall risks are rated Medium-I (low likelihood-high impact). The key
identified risks include: (a) institutional and managerial capacity of PMD; (b) formal and informal
fiduciary and governance controls; and (c) availability of qualified facilitators.
9
Table 3. Key Risks and Mitigation Measures
Risk Mitigation Measures
The current PMD team may
lack the capacity to manage
the expanded program
effectively
SOPs on roles and responsibilities of PMD, NMC and RMCs have
revised and disseminated and are being implemented.
Functional review to refine job descriptions, evaluate the number of
positions needed, and ensure positions are adequately staffed.
Technical assistance to strengthen management. ToRs have been
agreed and positions will be advertised by the end of June 2011. Fiduciary and monitoring
systems have come under strain
because of rapid expansion to
national scale
Annual joint BPKP and district inspectors will carry out reviews in
20% of sub-districts and results will be posted on the web and
announced in districts. Audits for FY 2010 funds have been
completed and results will be available by end June.
Internal reviews will be performed in sub-districts. Nearly 3/4 of all
districts inspected recently.
The CHS has been redesigned with web-based case tracking; the
SMS gateway for filing complaints is active; escalation policy is in
place for resolution of cases of alleged fraud and corruption.
A quarterly report will be prepared on the monitoring of controls,
that will be reviewed by the Bank.
BPKP to review the interim financial report for each calendar
quarter during project implementation and provide to the Bank its
report no more than 45 days after the end of each calendar quarter. Delivery quality could be
affected by program size:
weakening of key design
features, training, M&E
Periodic joint reviews by the government and the task team to
monitor implementation and make recommendations for
improvements.
PNPM salary scales adjusted to attract and retain good facilitators;
recruitment of women will be promoted; extra efforts put in place
for facilitators for remote areas, including recruiting and training
reserve facilitators who will apprentice in remote areas as
"assistants."
21 days of pre-service training to new facilitators and a one-week
refresher training course twice a year for all existing facilitators.
The MIS will be audited, redesigned and re-launched and will
integrate agreed upon key performance indicators and internal
controls. NSP Afghanistan will provide support. A first mission
took place in May 2011, and a second one is planned for July 2011.
VI. Appraisal Summary
A. Economic and Financial Analysis
38. The project will maintain the same technical standards and basic design as under the earlier KDP
and PNPM-Rural projects. An economic analysis of 41 KDP subprojects (roads, bridges, water supply
and irrigation) carried out during the first KDP found a weighted average economic internal rate of return
(EIRR) of 60 percent. A 2010 impact evaluation confirmed that village infrastructure built through CDD
costs significantly less - on average 56 percent less - than equivalent works built through the Ministry of
Public Works or local government contracts. A cost-comparison based on the above-mentioned sample
using local government and private engineers to re-cost CDD-built infrastructure showed significant
savings due to the elimination of some of the following costs: middlemen and outside contractors'
10
overhead costs; double and/or triple handling of materials; frequent on-site design modifications; and
extra charges for supervising projects in remote areas.
39. Poverty Impacts. An impact evaluation for the 2007-2009 period demonstrated significant poverty
impacts from the program. Household consumption in PNPM-Rural sub-districts increased by 5-7
percent more than for households in control areas. For (a) poor households and (b) households in poor
and remote sub-districts, the impact was greater, at 7-9 percent and 15-19 percent, respectively. In
addition, PNPM households were 2-4 percent more likely to escape poverty over the period than
households in control areas. These results are consistent with findings from the previous impact
evaluation of KDP2.
B. Technical
40. PNPM-Rural IV, as its predecessors, will finance simple, tertiary village infrastructure, activities
related to social and health services, revolving funds for viable women's savings and loans groups, and
crisis response activities. In 2010, as in previous years, about 81 percent of block grants were used for
access infrastructure, water and sanitation, irrigation and drainage, and school renovations. Technical
designs have been improved over the years and pictorial guidance books help field engineers and villagers
to ensure appropriate construction.
41. In 2011, more than 5,000 field engineers will be contracted and mobilized, and will be supervised
by about 390 senior engineers assigned to each participating district. All new facilitators will be given
pre-service training, with separate sessions on civil engineering, safeguards, and other matters, e.g.,
recommended building practices appropriate for village structures in earthquake prone areas.
42. Experienced PNPM community facilitators receive "refresher training" each year and meet at least
once every month to share experiences and discuss solutions to problems faced. During each annual
project cycle, these facilitators train village technical cadres, village implementation teams, Operations
and Maintenance (O&M) teams, and teams established to carry out feasibility reviews of all proposals
coming from village assemblies. Supervisory engineers at the district level check all designs and budget,
and certify works constructed, paying special attention to those that are more difficult or larger. When
warranted, special arrangements are made for technical assistance and oversight, as in the case of micro-
hydro power investments.
C. Financial Management
43. A financial management assessment was carried out and took into account lessons learned from the
current project. PNPM-Rural IV will further augment the FM controls designed under earlier PNPM
projects, while following broadly the same control framework, which has served the project well in its
many years of implementation. The major FM risks for the project are: (a) the current PMD team may
lack the capacity to manage the expanded program effectively to manage PNPM successfully; (b) uneven
quality in facilitator support to communities in maintaining adequate FM arrangements; and (c) controls
at various levels may not be implemented fully to prevent misuse of project funds. These risks are being
mitigated through existing and strengthened controls as described below.
44. Intensive training arrangements have been put in place to ensure that field consultants and
facilitators are adequately trained to enable community groups to maintain adequate books of account.
Payments at all levels are made using Government‟s single treasury account. Reviews of consultants
payments have been conducted and indicate that the system is working well and there are no significant
delays in receipt of funds by intended recipients. PMU is supported by additional consultants who carry
out independent review of consultant invoices. Additional people may be hired, if necessary to strengthen
11
controls over these payments. Random third party confirmations are being introduced as a part of the
review procedure to strengthen controls over consultants' and facilitators' fees and reimbursables. The
National Satker, with support from the NMC, will regularly review the functioning of payment controls.
A quarterly report will be prepared by the National Satker on the monitoring of controls that will be
reviewed by the Bank. The project auditors, BPKP, will carry out a continuous audit of the project, in
partnership with local government inspectorates, increasing audit coverage to around 20 percent. BPKP
shall review the Interim Financial Report (IFR) for each calendar quarter during project implementation
and shall provide its report of each such review to the Bank not later than forty-five (45) days after the
end of each calendar quarter.
D. Procurement
45. This project will utilize the same procurement and implementation modality for the existing PNPM-
Rural III program, with improvements to address some of the challenges faced so far. The main
improvements from a procurement perspective are: (a) updated scope of work, selection process, and
contract forms for the RMCs from consulting to non-consulting services; (b) updated community driven
procurement instructions in the Operations Manual to reflect lessons learned; and (c) increased spot
checks by ex-post review in addition to the reviews to be carried by BPKP.
46. Procurement under the project will include: (a) selection of one consultant firm, the NMC, to
support the overall management of the program; and (b) procurement of eight RMC firms as
Administrative Service Firms (ASF-RMC) to support the recruitment of provincial coordinators and
specialists, pay their salaries, provide support (e.g., manage training and workshops), and to cover the
operational cost for the RMCs. One of the ASF-RMC will be dedicated to supporting PNPM Generasi
and PNPM-RESPEK. Regional Procurement Consultants under the previous projects were selected under
the Guidelines for Selection of Consultants which usually takes considerable time. However, there are no
real intellectual services provided by these firms as they were mainly providing teams of staff and
administrative support, operational expenses, training, etc. PMD and the Bank team agreed that procuring
the required services as non-consulting services under the Bank‟s Guidelines for procurement of Goods,
Works, and Non-Consulting Services will be more suitable to the project; as the required services of these
firms and the qualifications of the teams are straightforward and pre-determined by the implementing
agency. This will ensure a faster and more straightforward procurement process. Procurement will also
include: (c) recruitment of around 13,400 facilitators; (d) CDD procurement by the communities to
implement the project; and (e) packages for printing (e.g., training materials, event publications) and
recruiting event organizers. PMD has sufficient capacity to manage the procurement under the project.
47. Facilitators under (c) above will be hired by the Provincial Satkers, based on continuation of
contracts for existing and performing facilitators ( i.e single sourcing) or competitive selection process
carried out in batches at the provincial level, with final decisions by the National Satker. Procurement
under community grants will be carried out by communities following the procedures as described in the
Operations Manual for the existing PNPM-Rural project agreed by the Bank, with minor revisions and
improvements, as needed, from time to time. Based on lessons learned in PNPM-Rural, special attention
is needed to ensure proper training of the facilitators in administrative and technical matters, especially
FM and procurement, prior to their deployment to the field. Improvement of the Operations Manual or
training materials will also include simple, relevant and illustrative case studies to enhance understanding
at the community level.
48. Ex-post procurement reviews will rely on BPKP audits for community grants and individual
facilitator contracts. Based upon the procurement assessment, the overall residual project risk for
procurement is moderate.
12
E. Social (including safeguards)
The program will continue to support broad-based social development. Several social issues are
discussed elsewhere in this document. This section will concentrate on: (a) demand-side governance; (b)
gender; and (c) indigenous peoples.
49. Demand-side governance. The program will continue to strengthen the capacity of poor villagers,
including women, to demand better services, and support institutional arrangements that help them
channel their demands to local governments and hold them accountable. This will be accomplished by:
improving the internal governance of communities and sub-districts by promoting broad-based
participation and increased transparency, downward accountability, and strengthened governance
institutions such as the village and sub-district inter-village bodies; strengthening government linkages
through reforms to the bottom-up planning and budgeting process to ensure citizen participation by
including district-level oversight of the subprojects; and, stimulating community demand for better
district-level service delivery (e.g., through PNPM Generasi).
50. Gender. PNPM‟s nationwide reach and CDD approach makes it a useful instrument for government
to remove some of the barriers to gender equality and in so doing improve the effectiveness of poverty
reduction. Like its predecessors, PNPM-Rural IV will continue to: (a) respond to women‟s basic needs,
by funding, for example, water supply, health and education facilities, which help to remove practical
barriers of time and capacity that constrain women‟s involvement in development; (b) increase the
potential for women‟s economic activity by investing in local infrastructure such as roads and bridges
which help to remove some of the obstacles to women‟s access to markets and resources; (c) work with
GoI to make the revolving loan fund mechanism, which helps women engage in income-generating
activities and expand their businesses, more sustainable; and (d) ensure women are active participants in
planning and decision-making, through the emphasis on broad-based participation that helps to break
down some of the barriers to women‟s participation, to ensure that their voice is heard so that decisions
are more responsive to their concerns.
51. In addition to the gender initiatives carried out in the loan funded KDP/PNPM-Rural projects, the
program is informed by and benefits from Japan Social Development Fund (JSDF) financed activities and
activities, evaluations and studies supported by the PSF, including the recently launched GoI PNPM
Peduli project, which aims to fill gaps in government poverty reduction programs to reach the most
marginalized, including women, by capitalizing on the comparative advantage of local CSOs. A very
important JSDF-funded initiative, PEKKA, empowers widows and poor women and equips them with
better knowledge of their rights, helps them to be recognized as heads of households, and supports micro-
finance initiatives.
52. Indigenous peoples. PNPM-Rural demonstrates best-practice principles for indigenous people‟s
involvement in program implementation, including: the recruitment and tailored training for facilitators
from the same ethnic groups; local language translation (as needed); independent reviews by socio-
cultural specialists; and modifications to the planning process to reflect the aim of free prior and informed
consultation leading to broad community support. In addition to being beneficiaries of the program,
indigenous people, like in other communities, are part of the decision making process included in the
organizational structure. For example, they are part or account for the whole of TPKs and UPKs. The
program will continue to provide training, inclusion of indigenous people‟s issues, and improvement in
the quality and skill sets of facilitators.
13
53. Papua presents a special challenge to the Bank‟s Operational Policy (OP) 4.10 on Indigenous
Peoples to provide culturally compatible development benefits, given the porous governance environment
that prevails in many areas of the island. Inputs from a broad range of Papuan stakeholders introduced
many modifications to the global design in order to reflect Papua's unique physical and cultural
conditions. These include adjustments to the geographical units, logistical support for facilitators so they
can reach isolated communities, extra training by dedicated engineers, and the formation of a Papuan
government-NGO advisory group.
54. PNPM-RESPEK, the local government add-on to PNPM-Rural, provides each village in Papua and
West Papua with a block grant of Rp. 100 million (approx. US$11,000). Linked to the program is a
US$1.8 million PSF-financed trust fund that will support a third "Barefoot Engineers" training program
for young Papuan technical facilitators.
55. In summary, PNPM-Rural complies with Bank policies on indigenous people. Project
Implementation Guidelines for Social and Environmental Safeguards (IGSES), which are a supplement to
the Operations Manual, support the involvement of indigenous peoples and address their needs.
F. Environment (including safeguards)
56. The project is rated Category B based on the types of its environmental impacts and it triggers the
Bank‟s Operational Policy (OP) 4.01 on Environmental Assessment. The Operations Manual, including
the IGSES, has been reviewed by environmental specialists, and meets Bank standards. The IGSES
provide a uniform understanding and clear direction for the implementation of safeguards policies for
PNPM-Rural at all levels (including consultants, facilitators, government and the communities) in order
to minimize negative impacts on the community and the environment, and to ensure compliance with
applicable laws, regulations and policies.
57. No large scale, significant or irreversible environmental impacts are anticipated under the project.
PNPM-Rural investments are very small, and under the Indonesian Environmental Assessment rules, they
fall below the minimum size required for a formal environmental assessment. Experience under KDP
highlighted two kinds of environmental risks: first, communities living in or near protected habitats will
use natural resources from these areas, regardless of formal regulations, unless suitable awareness
campaigns are conducted, messages are clearly understood by the communities, and sanctions are
imposed; and environmental risk in poor placement of water supply sources, which can lead to
contaminated water supplies. A few cases occurred in the past due to systemic failures in engineering
oversight, reporting, and follow-up.
58. Proposed mitigation and prevention methods are proper training and monitoring by the supervising
field engineers to carefully screen sub-projects against these risks. Projects with large potential
environmental risks are on the negative list and will not to be funded. Project preparation confirmed that
these improvements are being reflected in the training and monitoring plans.
59. Field engineers who assist communities in the planning, design and implementation of subprojects
are required to consider environmental impacts during the project screening process. In analyzing
environmental effects, the planner must be able to identify a range of impacts that might arise from the
proposed activity.
60. The project Implementation Guidelines for Social and Environmental Safeguards (IGSES), which is
a supplement to the Operations Manual, include the Environmental and Social Codes of Practices for
covering all environmental issues; including land acquisition in village subprojects, specifically for two
cases: (a) voluntary donations; and (b) donations with compensation.
14
Annex 1: Results Framework and Monitoring
INDONESIA: Fourth National Program for Community Empowerment in Rural Areas Project
PDO Level
Results Indicators Co
re
Unit of
Measure Baseline
Cumulative Target Values
Frequency Data
Source/Methodology
Responsibility
for Data
Collection
Description
(indicator
definition
etc.) 2011 2012 2013
Project Development Objective (PDO): Villagers in PNPM-Rural locations to benefit from improved socio-economic and local governance conditions.
Indicator One:
Improved HH
expenditure rates
and improved
access to economic
and social services
in a minimum of
4,800 sub-districts
in 2011 (impacts
taken from
representative
sample).
Change in per
capita
household
expenditure
in
comparison
with change
in control
group.
2%
increase
above
control
group per
project
cycle
(based on
previous
evaluation
of KDP2)
2% increase
above
control
group per
project
cycle
(based on
previous
evaluation)
2%
increase
above
control
group per
project
cycle (based
on previous
evaluation)2
2%
increase
above
control
group per
project
cycle
(based on
previous
evaluation)
Baseline
impact
survey
completed in
2007. Impact
survey
completed in
2010. No
impact study
has been
planned in
the future.
(see footnote
below)
2007 baseline surveys
and 2010 impact
surveys.
National
Coordination
Team,
Bappenas, and
World Bank.
Surveys are
commissioned
to independent
survey firm.
Percent
change in
real per
capita
consumption
attributable
to the project
(in
comparison
with control
group).
Indicator Two:
EIRRs >30 % for
main rural
infrastructure
categories.
Economic
Internal Rate
of Return
EIRR
between 39
% - 68 %
for KDP2
>30%
EIRRs were
last
calculated in
2004.
Exercise will
be repeated
in 2011
Economic analyses
study in 2011-2012.
External
consultant
team.
Economic
Internal Rate
of Return
including
both direct
and indirect
effects.
Indicator Three:
>80% satisfaction
levels from
beneficiaries
regarding
improved services
and local level
governance
% of
Beneficiaries
Previous
satisfaction
levels >
80% for
KDP2.
>80% >80% >80%
Monthly
field reports,
surveys and
field reports
at end of
each project
cycle, bi-
annual
Monthly field reports
from consultants,
government and
NGOs, field surveys,
supervision mission
reports, technical
evaluations.
Consultants,
Government.
Beneficiaries
stating they
are satisfied
with the
impact of the
project in
improving
local services
2 The impact evaluation was intended to cover the PNPM engagement from 2007-2012 and not only the one cycle of block grants which will be financed by
PNPM-Rural IV. However results for this indicator are available only for 2007-2010 due to the loss of the control group which occurred when the program went
to national scale in 2009/2010. While no additional analysis will be generated for the period 2011-2013, the previous results are considered representative of
expected project impact (see Annex 3, sections on Monitoring and Evaluation).
15
PDO Level
Results Indicators Co
re
Unit of
Measure Baseline
Cumulative Target Values
Frequency Data
Source/Methodology
Responsibility
for Data
Collection
Description
(indicator
definition
etc.) 2011 2012 2013
(impacts taken
from representative
sample).
technical
evaluations.
and local
level
governance.
Beneficiaries
Project
beneficiaries,
Beneficiaries
( in millions) 49 49 49 49
Monthly
field reports,
surveys and
field reports
at end of
each project
cycle, bi-
annual
technical
evaluations.
Monthly field reports
from consultants,
government and
NGOs, field surveys,
supervision mission
reports, technical
evaluations.
Consultants,
Government.
Of which female
(beneficiaries)
Beneficiaries
( in millions) 24 24 24 24 As above As above As above
INTERMEDIATE RESULTS
Intermediate Result (Component One): Villagers participate in a process to plan, select and manage basic social and economic infrastructure provided through block grants.
Min. 50%
participation rate
of women and
poorest community
members in
planning and
decision-making
meetings
% of women
and poor
community
members.
In 2008, 48
% for
women and
56 % for
poorest
community
members
>50% >50% >50%
Monthly and
annual
project cycle
reporting
through
facilitators.
Project monthly
reporting. MIS MOHA
>85% of agreed
work plans
completed each
year.
% of work
plans
In 2006, 95
%
completed.
85% 85% 85%
Monthly and
annual
project cycle
reporting.
Monthly and annual
project cycle
reporting
MOHA
16
PDO Level
Results Indicators Co
re
Unit of
Measure Baseline
Cumulative Target Values
Frequency Data
Source/Methodology
Responsibility
for Data
Collection
Description
(indicator
definition
etc.) 2011 2012 2013
>70% of
infrastructure
works are
evaluated as of
high quality
% of
infrastructure
works
PNPM-
Rural 2008
annual
report
showed 65
%
evaluated
as high
quality
>70% >70% >70%
Technical
reviews,
field reports,
World Bank
supervision
missions
Technical reviews,
field reports, World
Bank supervision
missions
MOHA, World
Bank
O&M
arrangements are
in place and/ or
functioning for
>85% of
infrastructure
works.
% of O&M
arrangements >85 % >85% >85% >85%
Technical
reviews,
field reports,
World Bank
supervision
missions
Technical reviews,
field reports, World
Bank supervision
missions
MOHA, World
Bank
By 2011, 4,500
sub-districts with
completed
subprojects (#/type
of infrastructure
works, economic,
education, health,
revolving loans
and environmental
management, etc.)
Infrastructure
works
4,100 sub-
districts in
2010
4,800 4,800 4,800
Monthly and
annual
project cycle
reporting.
Monthly and annual
project cycle
reporting
MOHA
Through the
MDG/Community
Conditional Cash
Transfers pilot,
improvements in
priority health and
education
indicators.
Average
standardized
effects for
education and
health targets
Taken from
Generasi
(2007)
baseline
survey
> 0.03
standard
deviation
Three wave
impact
evaluation,
monthly
project
progress
reports
Impact evaluation
surveys, Project MIS
Survey firm,
PMD
Intermediate Result (Component Two): Consultants at the national, provincial and district levels are providing assistance to communities and local governments to implement
PNPM .
By 2011, >90% of
local government
councils provide
funds and/or
% of local
government
councils
> 70% > 90% > 90% > 90%
NMC
monthly and
annual
reports,
Field reports, PNPM
Governance Study MOHA
17
PDO Level
Results Indicators Co
re
Unit of
Measure Baseline
Cumulative Target Values
Frequency Data
Source/Methodology
Responsibility
for Data
Collection
Description
(indicator
definition
etc.) 2011 2012 2013
oversee PNPM. PNPM
Governance
Study in
2008 &
2010.
By 2012, 90% of
planned facilitators
positions are filled
(sub-
district/district
levels).
% of
positions
filled
> 85% >85% >90 % >90 % HR database Monthly reports and
HR database MOHA
By 2011, 90% of
facilitators receive
the agreed upon
number of pre and
in service training
days
% of
facilitators
receiving
adequate
training
N/A >85% >85 % >85 % HR database Monthly reports and
HR database MOHA
Intermediate Result (Component Three): Project stakeholders use results of M&E activities and studies to improve project performance.
By 2011, 90 % of
planned consultant
positions are filled
% of
positions
filled
> 90% > 90% > 90% > 90% HR database Monthly reports and
HR database MOHA
Audit sample size
increases to min.
of 20% of all sub-
districts and audit
results are made
public.
% of sub-
districts
13.5 % in
2010 20% 20% 20%
Annual
BPKP audit
reports and
World Bank
audits
Annual BPKP audit
reports and World
Bank audits
BPKP,
MOHA, World
Bank
>70% of sampled
villages receive
socialization
material packages
for PNPM in 2011
onward.
% of sampled
villages >70% >70% >70% >70%
Monthly
reports,
budget and
procurement
documents
Regular reporting,
procurement and
budget documents
MOHA
Intermediate Result (Component Four): Project management teams established in a timely manner and functioning.
Number of project
management units
established by
March every year.
Project
management
units.
>350 in
2009 >400 >400 >400
Monthly
reports
HR database and WB
supervision. MOHA
18
PDO Level
Results Indicators Co
re
Unit of
Measure Baseline
Cumulative Target Values
Frequency Data
Source/Methodology
Responsibility
for Data
Collection
Description
(indicator
definition
etc.) 2011 2012 2013
All oversight
consultants and
facilitators paid on
time, in full every
month
% of
facilitators >80% >80% >80% >80%
Monthly
reports
HR database and WB
supervision. MOHA
Kecamatan Grants
disbursed and
accounted for.
% of Block
Grants
>75% in
2009 >80% >80% >80%
Monthly
reports
HR database and WB
supervision. MOHA
19
Annex 2: Detailed Project Description
1. PNPM-Rural's project development objective is for villagers in PNPM-Rural locations to benefit
from improved socio-economic and local governance conditions. PNPM-Rural IV will support
approximately three-fourths of the total sub-districts in the country, reaching a total of about 4,978 sub-
districts. Other areas of the country will be covered by PNPM-Urban and three other core projects under
the PNPM umbrella.
2. Activities that will be supported through the four components of PNPM-Rural IV include:
Continued capacity building in community-level governance, participatory planning and
management of socio-economic infrastructure.
Building or repairing basic productive infrastructure, such as small roads, bridges, irrigation,
and clean water supply systems.
Building or repairing social infrastructure such as school buildings and clinics.
Training women's savings and loan groups for revolving funds management and capital for
village-level revolving funds. .
Developing district and sub-district management and technical capacities.
Utilizing the PNPM platform to implement pilot programs, including PNPM Generasi which
focuses on improving health and education outcomes and the Green PNPM which supports
community investments in natural resource management and renewable energy activities.
Responding to crisis situations, including natural disasters, conflict, and financial crisis.
Table 2.1 summarizes the project cost and financing plan for PNPM Rural IV.
Table 2.1: Project Costs, US$ millions
Counterpart Funds
Component IBRD APBN* APBD
**
Community Donor*** Total
1. Kecamatan Grants 400.00 461.44 178.04 35.34 22.76 1097.58
2. Facilitation Support 99.11 10.66 -- -- 0.98 110.75
3. Implementation Support
and Technical Assistance 30.98 3.57 -- -- 2.22 36.77
4. Project Management
Support 1.10 19.65 17.67 -- 0.09 38.51
Total 531.19 495.32 195.71 35.34 26.05 1,283.61
* National; ** Local; *** Donor resources have been received under existing trust fund arrangements.
3. Component 1: Kecamatan Grants (US$1097.58 million). This component, will support the
construction of the economic and social infrastructure in target communities, and includes for Component
1(a): (i) planning for community development, including the preparation of sub-project proposals; (ii)
training and capacity building for communities, including in development planning and investment; (iii)
investing in social and economic infrastructure identified through community development planning; (iv)
investing in activities identified through community development planning using revolving loan funds
(RLFs) for women‟s savings and loan groups; and (v) preparing for and responding to disaster,
emergency or catastrophic events, as needed, through subprojects. Component 1(b) consists of providing
kecamatan grants to pilot and special programs, which include:
20
(a) PNPM Generasi is an incentivized block grant pilot under PNPM-Rural that aims to support
GoI priorities and the Millennium Development Goals: to reduce poverty, maternal mortality,
and child mortality, and to ensure universal coverage of basic education. In 2007 the pilot
began operating in five provinces and 164 subdistricts. An impact evaluation completed in
2010 showed that PNPM-Rural‟s CDD approach can be modified effectively to empower
communities to demand and access basic health and education services. Recognizing this
success, GoI, with support from the PSF, has committed to expanding PNPM Generasi‟s
incentivized kecamatan grants and facilitation support to new locations with low baseline
levels of health and education. The PSF has committed US$105 million to expand PNPM
Generasi coverage over the 2010-2014 period.3 Thus far US$38.3 million has been allocated
to expand the project into 138 new sub-districts. GoI is currently in discussions with the
Millenium Challenge Corporation regarding the possibility of obtaining additional funding
for this purpose. Additional PSF resources to expand PNPM Generasi will be processed as
Additional Financing to PNPM-Rural IV.
(b) Green PNPM is the environmental pilot for PNPM-Rural which funds block grants and
related technical assistance to promote community investments in natural resource
management and renewable energy. Since 2007, the pilot, through recipient- and Bank-
executed trust funds totaling US$34 million, has financed three annual rounds of block grants
(2008, 2009, and 2010) for community-selected „green‟ activities (e.g., reforestation/agro-
forestry, conservation, watershed management, micro-hydro and bio-gas power schemes,
environmental awareness raising and education), GoI-contracted technical assistance, grants
to local/international environmental NGOs, and environmental impact evaluations and
studies. In 2010, the GoI requested that an additional US$18 million be allocated from the
PSF to continue funding Green PNPM activities through 2012. This proposed additional
financing, which has been endorsed by the PSF donors, would be used to expand Green
PNPM's coverage to additional environmentally sensitive locations, and fund two more years
(2011 and 2012) of block grant disbursements. Additional resources to expand Green PNPM
will be processed as Additional Financing to PNPM-Rural IV.
(c) Aceh: PNPM-BKPG. In 2009, the Government of Aceh, as part of its village prosperity
program (BKPG), allocated over US$100 million (approximately one-eighth of its provincial
budget for the year) in block grants for 6,411 villages in 23 districts and 276 sub-districts.
Planning and implementation of the funds are linked to PNPM-Rural's and PNPM-Urban's
operating systems and utilize PNPM facilitators.
(d) Papua and West Papua: PNPM-RESPEK (Strategic Village Development Plan). In 2007
Papua‟s and West Papua‟s first directly elected governors introduced an ambitious new CDD
program, channeling community grants of Rp. 100 million to each of the 4,478 villages in the
two provinces to fund development activities in the areas of (a) nutrition and food security,
(b) education, (c) primary health care, (d) village infrastructure, and (e) economic livelihoods.
4. The Kecamatan Grants provide block grants directly to each participating sub-district, which on
average consists of about 30 villages. Each village prepares proposals for discussion at an inter-village
meeting (MAD) at the sub-district level. Villages can submit up to three proposals, of which two come
from women‟s groups inclusive of an RLF proposal. Proposals may be for a wide range of activities, e.g.,
building small roads to water systems, and up to 25 percent by value may be towards providing capital to
3 Subject to availability of donor commitments and extension of the PSF for two or more years.
21
women‟s groups for small businesses through the revolving loan funds. A critical element of the
component is that all villagers are given the opportunity to participate in the proposal preparation process,
and that decisions are democratically made.
5. Proposals from villagers will be verified by project facilitators for technical feasibility and
presented at an inter-village meeting, where village representatives decide collectively on the proposals
that will be financed. Block grants to sub-districts range from approximately Rp. 750 million to
approximately Rp. 3.0 billion (approximately US$49,000 to US$324,000) based on the sub-district's
population, poverty level, and project cycles and are usually not big enough to fund proposals from all
villages, so choosing the proposals involves a process of competition, bargaining, and compromise. The
cost of the average sub-project is about $20,000.
6. Project funds will be transferred directly to the collective village accounts at the sub-district level,
and will be released for implementation of the approved subprojects or to women‟s savings and loan
groups. Funds for income-generating ventures must be repaid at market interest rates, into a sub-district-
level revolving fund, to be made available to future borrowers.
7. Component funds may be used for any activity, except for activities specifically excluded under a
negative list or for land purchases of any kind. Activities that are eligible for funding through the grants
include those that:
Can be undertaken by the village, with locally available technical assistance;
Are technically and financially feasible;
Are determined to be a public need;
Benefit the community, especially the poor.
8. Financial Services. The project will continue to support revolving loan funds (RLFs) for women's
savings and loan groups that provide microcredit for low income borrowers, most of whom have few or
no alternative sources of credit, according to a study carried out in 2008. A multi-year pilot, funded
through the PSF, for access to financial services for the poor, especially women, is currently underway.
According to recent assessment of a sample of 150 UPKs managing microcredit in Central Java and
Yogyakarta, PNPM-Rural has achieved significant outreach, and management and financial performance
is good.. Overall, the assessment found that PNPM Rural is a very good program for the purposes of
delivering credit directly to the women of low income families, through community governed structures.
Non-performing loans were found to be somewhat higher than the benchmark for microcredit activities in
Southeast Asia, but overall much better than the average for "people's banks" (Bank Perkreditan Rakyat
or BPRs) in Indonesia. Repayment rates on average are well above 90 percent, and there is potential for
UPKs to transform their microcredit activities into sustainable, pro-poor microfinance vehicles. ,.
However, challenges remain, including the governance aspects of the instrument and the assessment also
recognized that there are problems with RLFs, particularly after loan disbursement and once funds start
revolving. Findings from the the pilot will be the basis for developing capacity building interventions and
strengthening the institutional platform for women‟s savings and loan groups
9. Crisis response, access to renewable energy, and access to basic services. A number of special
initiatives will be funded using the block grant disbursement mechanism, including:
(a) Preparing for and responding to disasters, emergencies or catastrophic events.
(b) Supporting community investments that are environmentally friendly, including investments in
renewable energy. The Green PNPM pilot will continue to support beneficiaries‟ access to energy
22
services derived from renewable sources (e.g., micro-hydro power (MHP), bio-gas, solar). By the
pilot‟s scheduled completion in December 2012, it is expected that a total of 250-300 MHP
schemes will be financed, which will provide electricity to about 39,000 rural households.
(c) PNPM Generasi will continue to empower communities to demand and access basic health and
education services, through incentivized kecamatan grants in at least 90 new sub-districts with
low health and education coverage.
Figure 2.1 Block Grant Cycle – PNPM Rural
23
10. Table 2.2 indicates the Kecamatan Block Grant allocation on and off Java-Bali, by poverty
category.
Table 2.2 Kecamatan Block Grant Allocation
AREA TOTAL
POPULATION
POVERTY
CATEGORY*
PNPM-RURAL
IV BLOCK
GRANT
ALLOCATION
Rp. million**
JAVA-BALI
< 40,000 Less poor 1,000
Near poor 1,500
Poor 3,000
40,000 – 60,000 Less poor 1,250
Near poor 2,000
Poor 3,000
> 60,000 Less poor 1,500
Near poor 2,500
Poor 3,000
OFF JAVA-BALI
< 7,500 Less poor 750
Near poor 1,000
Poor 1,750
7,500 – 15,000 Less poor 1,000
Near poor 1,250
Poor 3,000
15,000 – 25,000 Less poor 1,250
Near poor 2,000
Poor 3,000
> 25,000 Less poor 1,500
Near poor 2,250
Poor 3,000
*Areas categorized as less-poor may still have deficiencies in rural infrastructure and access to services.
** The less poor and near poor sub-districts that have received block grants for more than three cycles
under PNPM-Rural will receive Rp. 450 million and Rp. 650 million, respectively.
11. The program has been proven to reduce the risk of vulnerable villagers falling into poverty.
Empowerment and local level institutional development, good governance, the provision or rehabilitation
of tertiary infrastructure, and a level of social protection to help prevent the vulnerable falling into
poverty supported the government's decision to expand the program nationally in 2009. Given evidence
that impacts are greater in poor and remote sub-districts, the government provides significantly higher
amounts of block grant funds in poor sub-districts than in less poor locations.
12. Sub-project rules for procurement, financial management, technical oversight, and reporting are
provided in the Operations Manual. The manual will be re-issued annually incorporating lessons from
the annual performance review.
13. Component 2: Facilitation Support (US$ 110.75 million). This component will provide technical
advisory services, training and other material support, through facilitators, to strengthen the capacity of
district and sub-district government institutions and communities in development planning and
24
investment. It will finance the sub-district level social and technical facilitators who assist with program
community awareness campaigns, planning, social mapping, village planning, technical assistance, and
oversight of chosen projects. The sub-district level facilitators will work closely with village level
facilitators and community project teams to develop their capacities in planning and project management.
The component will also finance three district facilitators in each district.
14. Component 3: Implementation Support and Technical Assistance (US$36.77 million). This
component will provide technical advisory services, training and other material support for PNPM
implementation at the national, provincial, district, and sub-district levels, including training of
facilitators, monitoring and evaluation and enhanced technical and financial audits. The bulk of this
component will cover the costs of experienced consultants and specialists at the national and provincial
levels who will provide technical advice, field oversight, and coordination to the program, and strengthen
government management, especially at the local level. It will also provide both quantitative and
qualitative monitoring, and strengthen internal systems through better technology, additional training, and
improved oversight. This component includes an enhanced audit program that will expand sampling,
provide capacity development support for district government auditors, and funds to address problems
identified through audit reviews.
15. Component 4: Project Management Support (US$38.51 million). This component will provide
technical advisory services and other material support to strengthen the PMD and support the
management of incremental activities generated by the project, including pilot projects and government
add-ons as well as crisis response activities (e.g., natural disasters, conflict, and financial crisis). Most of
these operational costs will be covered by the government through the national (APBN) and local budgets
(APBD); the remainder will be financed through the loan.
25
Annex 3: Implementation Arrangements
A. Institutional and implementation arrangements
1. PNPM-Rural IV institutional arrangements build on successful elements of the existing structure
for the implementation of PNPM-Rural III. PNPM-Rural implementation management occurs across five
levels of government: national, provincial, district, sub-district, and village (though sub-districts are not
technically a formal level of government but are administrative divisions of districts). Each of these levels
has (a) government policy and coordinating bodies with larger mandates and into which PNPM fits; (b)
administrative bodies (satkers or project management units at the national, provincial and district levels)
providing program oversight and coordination; and (c) bodies or teams for implementation and oversight.
2. At the national level, PNPM has a coordinating body chaired by Menko Kesra and includes
Bappenas, Ministry of Finance, and the main line agencies that execute the component programs, as well
as related sectoral ministries. PMD, within the Minsitry of Home Affairs (MoHA), is responsible for
program execution. A National Management Consulting (NMC) firm, hired by PMD, oversees the
implementation of techincial assistance.
3. At the provincial level, PMUs within the local government manage the administrative arrangements
and budget for facilitators at the district and sub-district levels who are responsible for technical
implementation of the project. Seven Regional Management Consultants (RMCs), based in Jakarta, will
be responsible for the quality of implementation in clusters of provinces. The RMCs will create oversight
teams consisting of a coordinator and supporting specialists in each province. These Provincial Oversight
Teams will provide technical support to district and sub-district facilitators.
4. At the district level, satkers provide administrative support and oversight to the program and help to
manage block grant disbursements. They facilitate disbursements and oversee the use of these funds,
both from the national budget as well as from local government budget, but do not handle any cash. Each
district has a team of at least three senior facilitators: an engineer, a social organizer, and a financial
specialist with one or more assistants. They also undertake joint audits of the program with the local
auditors. The district facilitators provide technical oversight to sub-district facilitators.
5. At the sub-district level, the program will employ a minimum of two facilitators (one social
organizer and one field engineer plus at least one field assistant). Sub-district facilitators will play a lead
role in the inter-village meetings (MADs) where communities are informed about the program, the annual
planning process, and the approval and implementation processes. The facilitators will work closely with
sub-district officials, including the sub-district head and the other local government official appointed as
the operational head of PNPM-Rural (PjOK).
6. At the village level, communities will prepare and prioritize projects through village assemblies
(MDs). The MDs also select village cadres or facilitators, a man and a woman, who will assist with the
planning process and support the village implementation teams (TPKs). The cadres and TPKs are also
responsible for ensuring that poor villagers benefit directly from the sub-projects, in part through the use
of their labor. TPKs also ensure accountability and transparency by reporting sub-project implementation
status, including the use of funds, to villagers. Village MDs also establish teams to help with proposal
writing, operations and maintenance, community monitoring, and elect representatives to the inter-village
meetings held at the sub-district level.
26
Figure 3.1: Project Implementation and Organization Chart
Ministry of Home AffairsMenko Kesra
PNPM Oversight Body
Directorate General of Village
Community Empowerment /
National Satker
National Management
Consultants
Central
Provincial Satker GovernorProvincial Oversight Team
Province
Kabupaten Satker Bupati/MayorKabupaten Facilitators (3)
Kabupaten/
District
Kecamatan Inter-village
ConsultationsCamat/Kecamatan HeadKecamatan Facilitators (2-3)
Sub-district Financial
Management Unit (UPK)
Kecamatan/
Sub-district
Village Assembly Meetings
(MD)Kepala Desa/Village HeadVillage Cadres
Community Project
Implementation Team
(TPK)
Village
Community Beneficiaries
PNPM Inter-Ministerial
Coordination Team
Inter-sectoral Coord. Team
Inter-sectoral Coord. Team
Elected Village Representative
Council (BPD)
Local Project Manager (PJOK)
B. Financial Management
7. PNPM is a community empowerment program, but its implementation over a large number of
locations led to significant financing of technical assistance. The Bank is providing financial support to
communities and technical assistance to the GoI in implementing PNPM-Rural. From a financial
management perspective the project can be viewed as supporting two main areas:
27
(a) Direct project financial support to local communities in 32 provinces, 393 districts, 4,978
sub-districts and over 60,000 villages under PNPM-Rural IV. These communities receive
block grants which amount to a total of around US$1 billion.
(b) Total project financial support for technical assistance, which reached US$100 million under
PNPM-Rural III and will increase to US$142 million under PNPM-Rural IV. The technical
assistance will finance the salaries and services of not less than 9 services firms (1 NMC and
8 RMCs with respectively 50 and 300 staff) and 13,400 facilitators (1,400 at district and
12,000 at the sub-district level).
8. Two sets of control processes are in place. The financial support to local communities follows the
principles of CDD, including participatory governance, local empowerment and social accountability. The
technical assistance follows traditional principles of investment lending including financial
accountability, control over activities and monitoring of controls. The high volume of transactions for
both parts of the project puts the controls over payments as the highest area of vulnerability with a risk to
be managed at all levels.
9. A financial management assessment was carried out and took into account lessons learned from the
current project. The major FM risks for the project are: (a) PMD lacks the institutional and managerial
capacity to manage PNPM successfully; (b) uneven quality in facilitator support to communities in
maintaining adequate FM arrangements; and (c) controls at various levels of the project are insufficient to
prevent misuse of project funds. The FM risk for the project is considered “substantial” because of the
sheer scale of the project - spread over 60,000 villages and 5000 sub-districts across the country with
limited capacity at the community level to manage and account for funds.
10. The National Satker (project management unit within PMD) consists of 63 staff including eight
staff who work on financial management. The NMC provides 11 FM consultants to support the National
Satker for the national level monitoring, and the RMCs employ at least three consultants in each province
who provide technical assistance and monitoring support. The project employs approximately 1,400
management facilitators at the district level and 12,000 community facilitators at the sub-district level
who provide downstream technical assistance and monitoring support. Intensive training arrangements
have been put in place to ensure that the field consultants and facilitators are adequately trained to enable
community groups to maintain adequate books of accounts. Payments at all levels are made using
government's single treasury account and reviews of consultants' and facilitators' payments have been
received by the intended recipients without significant delay. The National Satker is supported by
additional consultants who carry out independent reviews of consultants' and facilitators' invoices.
Random third party confirmations are being introduced as a part of the review procedure to strengthen
controls over consultants' and facilitators' fees and reimbursables. The consultants who carry out reviews
of consultants and facilitators invoices will select a sample for which they would contact the original
vendors to ensure that the invoices for the reimbursables are genuine. The National Satker with support
from the NMC is expected to regularly review the functioning of payment controls. A quarterly report
will be prepared by the National Satker on the monitoring of controls that will be reviewed by the Bank.
The project auditors, BPKP, will carry out a continuous audit of the project in partnership with local
government inspectorates thus increasing the audit coverage to around 20 percent. BPKP shall review the
IFR for each calendar quarter during Project implementation and shall provide to the Bank its report of
each such review not later than 45 days after the end of each calendar quarter. A detailed FM assessment
has been prepared and is available in project files.
11. The project will follow the financial management arrangements under the ongoing PNPM-Rural III
project; however, some of the key controls are being strengthened. The key features of the FM
arrangements (including strengthened controls) include:
28
(a) Flow of funds to communities. Commitment Officers in District Satkers assemble requests
from the various UPKs at the sub-district level for which they are responsible. After
documentation review, the Commitment Officer forwards the requests to the Payment and
Verification Officer. After document verification, the Payment and Verification Officer
issues a payment order (SPM) to the Treasury Office (KPPN). The Treasury then issues
remittance orders (SP2D) to the operational bank or Bank Indonesia branch office, which
arranges for remittance of funds from the Designated Account (DA) to the respective UPK
accounts. The District Satker monitors to ensure that the funds are remitted to the UPKs in a
timely manner. The project has an active complaints handling system, and any delays in
receipt of payments at the community level can be reported.
(b) Flow of funds to district and community facilitators. The PjOK at the sub-district level
reviews and certifies sub-district facilitators‟ reports prior to submission to the Provincial
Satker. Similarly, the District Satker reviews and certifies district facilitators‟ reports before
submitting the invoices to the Provincial Satker. The Commitment Officer in the Provincial
Satker, receives and reviews the invoices from facilitators which they then forward to the
Payment and Verification Officer. After document verification, the payment officer issues an
SPM to the Treasury Office. The Treasury Office checks the budget availability and issues
the SP2D to the Treasury Office‟s operational bank, which transfers the funds directly to the
facilitators‟ account.
(c) Flow of funds to Consultants/Training Providers/Suppliers. Consultants/Training
providers/suppliers submit invoices to the commitment officer in the National Satker. There
are five individual consultants who help the National Satker review and verify the invoices.
After review of the supporting documents, invoices are forwarded for payment to the
Verification Officer in the National Satker. After document verification, the Payment Officer
issues an SPM to the relevant Treasury Office. The Treasury Office checks the budget
availability and issues an SP2D to the Treasury Office‟s operational bank which transfers the
funds directly to the beneficiaries‟ account. The government‟s Treasury Single Account
(TSA) system is used for all payments at all levels.
(d) Accounting and reporting. TPKs keep accounts for each sub-project and prepare a progress
report, which includes a report on funds received and utilized on sub-project activities. TPKs
keep all supporting documents and provide one copy to the UPK for requesting funds. UPKs
are required to prepare simple accounting and financial reports for sub-district grants. UPKs
keep supporting documents for all transactions from the block grants. The sub-district
facilitators assist UPKs in administering the block grants and certify the monthly report
submitted to the district. UPKs also prepare a separate report (balance sheet and income
statement) for revolving fund activities. The district facilitator prepares a consolidated report
for each district and submits to the Provincial Satker and the Provincial Oversight Consultant.
Provincial consultants submit the report to the National Satker and the NMC through the
project management system for consolidation. The National Satker submits quarterly IFRs to
the Bank.
(e) Flow of Documents. The original documents are retained as follows: (a) National level - all
supporting documents related to transactions which take place at the central level, including
the NMC and RMC payments - iIn addition, the National Satker receives a copy of the SP2D
from all Provincial and District Satkers; (b) Provincial level - all supporting documents
related to district and sub-district facilitator payments and incremental operating costs of
29
Provincial Satkers; (c) District level - all supporting documents related to block grant
payments and incremental operating costs of District Satkers; and (d) Community level - all
supporting documents related to the block grants (sub-project expenditures), including
revolving fund activities.
(f) Internal controls/Kecamatan Grants. Community based controls include: the facilitator‟s
review and certification of the community report; at least three signatures are required to
withdraw funds from the community account; cross village audit; establishment of
community oversight; and display of project reports, including disclosure of the financial
report in a public area. The complaints handling system is being strengthened and is
becoming web based for continuous monitoring of complaints received. Audit coverage is
being increased through the involvement of local government auditors. In addition,
monitoring coverage by district and provincial FM consultants is being increased. Regular
borrowers‟ confirmations are being introduced to manage the high risks of revolving funds.
(g) Facilitation support, technical assistance and project management. There are 1,400 district
facilitators with on average 3-4 facilitators per district and there are 12.000 sub-district
facilitators with on average 2-3 facilitators and assistants per sub-district. Facilitators
receive payments from the Treasury Office directly into their accounts. Reviews of
facilitators‟ payments indicate that there were no significant delays in receipt of funds. The
review is being strengthened to include independent third party confirmations. Audit
coverage includes consultant contracts and reimbursables. Consultant contracts have been
streamlined to reduce the ambiguity around reimbursable expenditures. The National Satker,
with assistance from the NMC, is expected to monitor the payment controls. A quarterly
report will be prepared by the National Satker on the monitoring of controls. BPKP will carry
out a continuous audit of the project in partnership with local government inspectorates.
BPKP shall review the IFR for each calendar quarter during project implementation and will
provide to the Bank its report of each such review not later than 45 days after the end of each
calendar quarter.
(h) Audit. The external auditors‟ opinion on financial statements will include an opinion on the
internal control framework, and a report on performance indicators. The audit manual has
been upgraded to be risk-based and focused on internal controls. An MOU between DG
PMD, Inspectorate General (IG) MOHA and BPKP has enabled the involvement of local
government auditors in the auditing of local level project accounts. BPKP has trained the
local government auditors in all provinces. The annual audit will cover around 20 percent of
the sub-districts.
C. Disbursements
12. The project funds will be disbursed against eligible expenditures as shown in Table 3.1
Table 3.1: Expense Categories
Category
Amount of the Loan
Allocated
(expressed in US$)
Percentage of
Expenditures to be
financed
(inclusive of Taxes)
(1) Kecamatan Grants
400,000,000
80% of Kecamatan
Grant amount disbursed
30
(2) Consultants services, goods, training and
workshops, and incremental operating costs
for facilitation support under Part II of the
Project
99,110,000 100%
(3) Consultants services, goods, training and
workshops, and incremental operating costs
for implementation support and technical
assistance under Part III of the Project
30,980,000 100%
(4) Consultants services, goods, training and
workshops, and incremental operating costs
for Project management support under Part
IV of the Project
1,100,000 100%
TOTAL AMOUNT 531,190,000 * Withdrawals up to an aggregate amount not to exceed US$100 million may be made for payments made prior to the date of the
loan agreement, but on or after June 14, 2011, for eligible expenditures for kecamatan grants.
13. The applicable disbursement method is “Reimbursement” for the block grants, and “Advance”,
“Reimbursement” or “Direct Payment” for other expenditures. Payments for block grants will be made
from GoI sources and reimbursed by the Bank to the MoF treasury account. For other components, a
Designated Account (DA) denominated in US dollars will be opened by DG Treasury (MoF) in Bank
Indonesia (central bank) or a commercial bank acceptable to the Bank. The DA will be solely used to
finance eligible expenditures other than for block grants. The ceiling of the advance to DA will be
variable, and the advance(s) will be made on the basis of the six month projected expenditures. Reporting
on the use of DA funds and expenditures for block grants will be based on quarterly IFRs. Applications
for reimbursement of block grants shall be submitted together with: (a) statement of expenditures; and (b)
either copies of records evidencing eligible expenditures and amounts actually paid, or the certification
for reimbursement of kecamatan grants issued by MoHA. Applications for the replenishment of the DA
advance shall be submitted along with the quarterly IFRs, supported by: (a) a list of payments for
contracts under the Bank‟s prior-review together with records evidencing such expenditures; (b) a
statement of expenditures; (c) IFRs for other expenditures and cash forecast for the next two quarters; and
(d) the DA reconciliation statement and a copy of the related bank statement. Applications for direct
payments will be supported by records evidencing eligible expenditures. All documentation for
expenditures submitted for disbursement will be retained by the Implementing Agency and be made
available to the auditors for the annual audit, and to the Bank and its representatives if requested.
14. The DG Treasury will authorize its relevant Treasury Offices located near the implementation units
to authorize payments of eligible project expenditures by issuance of remittance order (SP2D), charging
the GOI account or the DA, as appropriate. For this purpose, the DG Treasury shall issue a circular letter
to the relevant Treasury Offices, providing guidelines and criteria for eligible project expenditures in
accordance with the loan agreements. When expenditures are due for payment, project implementing
units will prepare a payment request (SPP) to the Payment Officer within the project implementing
unit. After document verification, the Payment Officer will issue the payment order (SPM) together with
the supporting documentation for submission to the relevant Treasury Office. The Treasury Office will
check the budget eligibility and issue the remittance order to the Treasury Office‟s operational bank,
which will transfer funds directly to the payee‟s account and arrange for debit for the loan portion to the
DA. Although the DA will be in the name of DG Treasury MoF, the National Satker will be responsible
for reconciling the DA and preparing separate applications for the withdrawal of reimbursements and
advances of DA, duly approved by DG Treasury, before their submission to the Bank. Copies of DA bank
statements will be provided to the National Satker by DG Treasury, MoF.
31
D. Procurement
15. This project, as a continuation of the existing PNPM-Rural III project, will utilize the same
procurement and implementation modality for the existing program, with improvements to address some
of the challenges faced so far. The main improvements will be to: (a) change the scope of work, selection
process and contract forms for the management firms at the regional level from consulting to non-
consulting services; (b) update the manual for community driven procurement to reflect lessons learnt;
and (c) carry out more spot checks for ex-post review, in addition to the reviews to be carried out by
BPKP.
16. Procurement under the project will include: (a) selection of a consultant firm (NMC) to support the
overall management of the program; (b) recruitment of individual consultants to work in seven RMC
teams; (c) procurement of eight Regional Management Consultant firms as Administrative Service Firms
(ASF-RMC) to support the recruitment of provincial coordinators and specialists, pay their salaries,
provide support (e.g., manage training and workshops), and cover the operational cost for the RMCs.
One of the ASF-RMC will be dedicated to supporting PNPM Generasi and PNPM-RESPEK.
Procurement will also include: (a) recruitment of around 13,400 facilitators; (b) CDD procurement by the
communities; and (c) packages for printing and recruiting event organizers. The implementing agency is
familiar with the implementation of this project and has managed the required procurement tasks well .
17. Procurement for the proposed project will be carried out in accordance with the World Bank's
"Guidelines: Procurement under IBRD Loans and IDA Credits" dated January 2011; "Guidelines:
Selection and Employment of Consultants by World Bank Borrowers" dated January 2011; and the
provisions stipulated in the Legal Agreement. For each contract to be financed by the Loan, the different
procurement methods or consultant selection methods, estimated costs, prior review requirements, and
time frame are agreed between the Borrower and the Bank in the Procurement Plan. The Procurement
Plan will be updated at least annually or as required to reflect the actual project implementation needs and
improvements in institutional capacity. As of January 2011, a new presidential decree governing public
procurement is in effect. This new decree (Perpres 54/2010) does not have clear articles on the
applicability of Bank Guidelines in case of loans/grants. This has been addressed in the legal agreement
and during negotiations.
18. The main risks that are identified are: (a) delays in selection of NMC and ASF-RMCs; (b) scope
and quality of ex-post reviews; (c) findings from ex-post reviews not reflected in improving the CDD
procedures; and (d) clarity of the applicability of the Bank Guidelines on procurement. Based on
mitigation measures completed and to be carried out during implementation (see below), the residual
procurement risk is rated as moderate.
19. A number of mitigation measures were completed during preparation:
Agreement with GoI on the applicability of Bank Guidelines with the full effectiveness of
Perpres 54/2010, based on precedents set by the loans and grants negotiated between the
Bank and GoI in 2011.
Procurement Plan prepared by MoHA and procurement process for the NMC and the
seven ASF-RMCs launched.
Agreement on revisions to the scope of the BPKP post review exercise and reporting
formats.
20. The following measures will be carried out during project implementation:
Contracts for the ASF-RMCs awarded by August 2011.
32
NMC contract to be awarded by December 2011.
Follow up on performance of NMC and ASF-RMCs.
Follow up on BPKP post review.
Continuous improvements to the manual.
More guidance and refresher courses to facilitators.
Spot checks for post review conducted by the Bank.
21. Procurement of Goods and Non Consulting Services. There will be procurement of eight
administrative firms to provide services of payment of salaries, support operational costs for the RMCs
individual consultants, and to manage training and workshops. These will be selected using non-
consulting services contracts and carried using ICB or NCB methods based on the value of the contracts.
The estimated values of these contracts range from US$3.6 million to US$5 million. The bidding
documents for these packages are already under preparation and first draft has been submitted to the
Bank‟s for review. The Individual consultants will be selected on a competitive basis by the National
Satker and will be placed in seven regional management consultants‟ teams to support management and
implementation of the project. In addition, there will be nine packages for event organizers and printing
services. The procurement methods that will be allowed under the project will include International
Competitive Bidding (ICB), National Competitive Bidding (NCB), and Direct Contracting. Please see
Table 3.2.
22. Selection of Consultants. There will be a selection of one firm under the project which is the NMC;
at an estimated cost of US$5.3 million. The firm will mobilize a large team to provide technical and
management support for individual consultants and facilitators placed at the regional, provincial, district
and sub-district level. It will also provide support to the PNPM coordination team and MoHA on all
technical and managerial aspects of the program including program development, human resources
development, program monitoring and good governance. The functions of the NMC have been expanded
from previous years and are critical for the project. The assignment will be for an initial two years period
with possible extension on a yearly basis subject to program needs and good performance of the selected
firm. The selection method will be Quality and Cost Based Selection (QCBS). The RFP for this
assignment already went through the first round of review by the Bank and the short listing process was
launched in May 2011 with the award of contract expected in October-November 2011. Please see Table
3.3.
23. Regional Procurement Consultants under the previous projects were selected under the Guidelines
for Selection of Consultants which usually takes considerable time. However, there are no real intellectual
services provided by these firms as they were mainly providing teams of staff and administrative support,
operational expenses, training etc. PMD and the Bank team agreed that procuring the required services as
non-consulting services under the Bank's Guidelines for procurement of Goods, Works, and Non-
Consulting Services will be more suitable to the project; as the required services of these firms and
qualifications of the teams are straightforward and pre-determined by the implementing agency.
Furthermore, PMD preferred the option of selecting the individual consultants under the RMC teams as
individuals as they believe this will provide them with better control of quality and performances of these
individuals.
24. The district and sub-district facilitators (a total of 13,400 facilitators at an estimated amount of
US$100 million) will be hired and individually contracted by the 32 Provincial Satkers. Each individual
contract will be less than US$17,500. Positions will be public announced and posted on the project
website, clearly spelling out the minimum qualifications and requirements. Then through an agreed
selection mechanism, the most qualified candidate among those who apply will be selected as facilitators.
Facilitators from the ongoing program may be selected on sole source basis depending on performance.
33
Details of the procurement process will be provided in the Operations Manual and SOPs, acceptable to
the Bank and the Borrower. Management of the contracts and payments will be done at the provincial
level supported by districts and the AMS-RMCs. Provincial Satkers are staffed by provincial civil
servants and responsible to the Governor. The budget for facilitators is channelled from the National level
through the Provincial Satkers, who agree with PMD (in coordination with the Bank) on the use of the
budget and rules and procedures for implementation of project funds. The National Satker supervises the
use of the funds provided to the Provincial Satkers.
25. Kecamatan Grants. The Kecamatan Grants (the average value of subprojects will be less than
US$20,000, with US$400 million in total) will be mostly for (a) investing in social and economic
infrastructure identified through community development planning; (b) investing in activities using
revolving loan funds (RLFs) for women‟s savings and loan groups, and (c) preparing for and responding
to disaster, emergency or catastrophic events, as needed, through subprojects. Grants will be disbursed to
communities in villages scattered in all provinces. Procurement under the kecamatan grants will follow a
community participation approach, using the forms and simplified procedures as defined in the existing
Operations Manual acceptable to the Bank, which will be revised from time to time by incorporating
lessons learned.
26. Ex-post review. BPKP will carry out ex-post reviews for this project. In addition, the Bank will
carry out some spot check post reviews to compare results and as a measure of quality control. BPKP post
review will include a review of the recruitment process for facilitators, and will ensure consistency of the
reporting format among the different reviewing teams, as results and details of reviewed grants and
communities vary within the report.
27. In its recent ex-post review report on the execution of kecamatan grants, BPKP identified that the
wide geographical spread of implementation activities and the ongoing capacity issue for implementation
at the community level (especially in remote areas) continues to increase risks of procurement delays, and
deviations from agreed procedures as well as some cases of mismanagement of contract implementation.
For this purpose, the National Satker will ensure improvements in this area through timely in-service and
refresher training for the field facilitators. Procurement guidance in the existing Operations Manual will
be reviewed and simplified, to the extent possible, in order to enhance its practicality and suitability for
the communities at the village level, while ensuring that the fiduciary requirements are met. The project
should also make available more relevant and actual examples and case studies to allow better
understanding by community groups. Cases of deviations should be used to show clearly the dos and
dont‟s. In addition, generic design specifications for common works (which are frequently accepted to be
funded by the grants) may also be provided to facilitators and communities, such as for village roads,
public sanitation facilities, etc. to provide an initial or additional technical reference.
28. Since the Project consists of repetitive and straight-forward procurement, based on the above
assessment and subject to carrying out improvements and mitigation measures, the residual project risk
for procurement is determined to be moderate.
29. Procurement Plan. The Borrower, during project preparation, developed a Procurement Plan for
the project, which provides the basis for the procurement methods. The Procurement Plan will be updated
in agreement with the Bank annually, or as required to reflect project implementation needs and
improvements in institutional capacity. The thresholds for prior review as well as the revised procurement
method will be determined in the procurement plan, taking into account inputs from the Bank's
supervision missions, and agreed to by the Bank.
30. Details of the Procurement Arrangements Involving International Competition:
34
(a) Goods and Works and non consulting services: four packages for non-consulting services will
follow the ICB method.
(b) Consulting Services: there will be one package for consultant firms under the project.
31. Tables 3.2 and 3.3 summarize procurement arrangements and schedules for non-consulting services
and consulting services respectively.
Table 3.2: Procurement Arrangement and Schedule for Non-Consulting services
Ref.
No.
Description of
Assignment
Contract
Price
(US$
mil)
Procurement
Method Pre-qualif
(Yes-No)
Domestic
Preference
(Yes/No)
Bank
Prior
Review
Expected
Bid Opening
Date
1 AMS-RMC 1 4,9 NCB No No May 11 July 11
2 AMS-RMC 2 5 ICB No No May 11 July 11
3 AMS-RMC 3 5 ICB No No May 11 July 11
4 AMS-RMC 4 4.1 NCB No No May 11 July 11
5 AMS-RMC 5 5 ICB No No May 11 July 11
6 AMS-RMC 6 4.8 NCB No No May 11 July 11
7 AMS-RMC 7 4.6 NCB No No May 11 July 11
8 AMS-Generasi
& RESPEK 3.6
NCB No No June 11 July 11
9 Printing
package 0.65
NCB No No NA Nov 11
10
Event
organizers
( 8 packages)
0.28 to
0.92
NCB No No NA Oct 11
11 Kecamatan
Grants 400
CDD No NA NA NA
Table 3.3: Procurement Arrangements and Schedule for Consulting services
Ref.
No.
Description of
Assignment
Contract
Price(US$
mil)
Selection
Method
Bank
Prior
Review
Expected
proposal
submission date
1 NMC 5.3 QCBS
May 11 August 11
2
Kecamatan
/Kabupaten
Facilitators
100
CS/SSS*
NA NA
*Competitive selection and single source selection of individual consultants
E. Better Governance Action Plan
32. The government has declared a strong stance against corruption in PNPM which is reflected in
the measures under this Action Plan. PNPM‟s governance and integrity framework builds on over a
decade of field experience and specific research trials under KDP and PNPM. The guiding principle
35
underlying the anti-corruption program is that procedures must encourage oversight and action by
multiple stakeholders, not just GoI or the Bank. Its key features are:
(a) Local control of funds. The PNPM projects are designed to increase local control over funds.
Funds are transferred directly from the government treasury office into community accounts.
Beneficiaries know the amounts of the block grants and are involved in or informed about
decisions on the use of these funds. All accounts have multiple signatures. Public village
accountability meetings are held to account for subproject results and the funds utilized. Key
information, including on funding levels, is made publicly available, either posted on village
information boards, on the project websites and in some cases in the local press.
The GoI is keenly aware of the risks that PNPM might be used for political activities or
political parties and is determined to mitigate against this risk. The Loan Agreement (in the
Annex 1 to Schedule 2, Paragraph 2), and subsequently the Project Operations Manual,
specify the prohibition for the funds to finance activities related to political practices or
parties. This prohibition will be publicly stated to ensure community awareness and
compliance.
(b) Competition. Since the demand for funds outstrips by far the availability of resources,
decisions need to be made on which projects will receive funding. To ensure transparency,
this decision is made through a competitive process at the sub-district level, which is
conducted by the community assembly. Government officials need to sign off on the result
of the competition, but do not have a vote nor discretionary authority.
(c) Internal controls. The primary means of internal control is through the project‟s management
and monitoring systems. Routine supervision is performed by a Provincial Coordinator,
Provincial Administrator, Financial Management Specialist, Complaint Handling Specialist,
Management Information System Specialist and Training Specialist. There are also three
facilitators in every district (empowerment, engineering and finance) who are responsible for
supervising program activities in every sub-district. Every specialist and facilitator is
required to complete at least twelve days of field supervision per month. Locations visited
are prioritized, at all levels, based on risk, including technical difficulties of sub-projects,
areas with known complaints, weak community facilitators, and remote areas where capacity,
including among local government partners, tends to be weak. The NMC now has positions
for eleven national-level auditors to perform regular financial, fiduciary, and technical
internal audits and seven specialists to investigate complaints, as well as sixty-plus
consultants to undertake various supervision activities. Joint missions with the World Bank
are now carried out on a quarterly basis. Information received from supervision reports, mass
media, monitoring reports, NGOs and the public is recorded into the program‟s Management
and Information System (MIS). Backing this system up is a complaints-handling unit, which
is part of the overall monitoring program.
(d) Audits. BPKP performs annual audits and reviews the program‟s financial management
controls. Audit procedures have become more complex because of the substantial
contribution of funds from local governments, which are audited by the Bawasda. The
sample of audited sub-districts will be approximately 20 percent and audit results are shared
at the district level and posted on the project‟s website. PMD/NMC will compile an
aggregate list of findings and recommendations which will be posted on the website and
monitored quarterly.
36
(e) Village-level social controls. PNPM projects rely on broad-based participation that helps
promote greater accountability. all stages of the project there are checks, balances, and
mechanisms whereby villagers can hold the project accountable. For example, villages carry
out cross village “audits,” one village inspecting another village‟s subprojects and records.
Women groups have proven to be particularly effective in reviewing the use of funds and
materials procured by the village implementation teams.
(f) Press and NGOs. PNPM implementation is actively monitored by NGO watchdogs and the
media (national and local newspapers, community radios, social media and several local TV
stations). PNPM engages with media, providing project fact sheets, carrying out media field
visits, holding radio and TV talk shows, and publicizing reported cases of fraud and
corruption and actions taken to resolve these cases. Specialized NGOs also provide training
to media journalists interested in covering PNPM and support the publication of monthly
articles on corruption cases.
(g) Code of Ethics. All consultants employed by the PNPM projects have to abide by the Code
of Ethics for consultants, which is included in the Operations Manual and stated in each
individual‟s contract. In line with the SOPs for the handling of breaches of the Code of
Ethics, any serious violation results in termination of employment. PMD and the NMC
maintain a database which currently has about 450 consultants/ facilitators who violated the
code of ethics and are banned from being employed because of violations, such as consistent
tardiness, and complacency in carrying out due diligence as necessitated in the Operations
Manual.
(h) Complaints handling. PNPM has redesigned its complaints handling mechanisms, which are
detailed in the Operations Manual. The objective is to resolve complaints as fully as possible,
at the location where they are reported to have happened. Beneficiaries, or anybody who has
an interest in the program, can easily file complaints either through the facilitators, or by
sending SMS messages. Complaints are reported on a website and investigated. The result
of the investigation is also made publicly available. The purpose of these publications is to
increase beneficiaries‟ awareness about their role in holding the program accountable, to
convey the importance of the fight against corruption in PNPM, and to provide a feedback
loop to the authors of complaints. The data from the redesigned complaints handling system
will also be used more actively by PNPM management to target audits and supervision and to
identify areas for improvement in program operations. This will be further enhanced through
the adoption of a service standard and mechanism that provides for automatic suspension of
problematic locations after 30 days if no action is taken by PNPM management.
(i) Sanctions. Sanctions for corrupt behavior are built into the project cycle and, crucially, are
widely socialized. PNPM facilitators, consultants, UPK managers or TPKs run the risk of
being dismissed or criminally charged if exposed with corrupt behavior. Government
officials may also be dismissed or, more commonly, rotated to less desirable posts,
hierarchically or geographically. In case of unresolved corruption cases, disbursements to an
offending village, sub-district or district - depending on the spread and level of abuse - can be
suspended until appropriate action is taken. This has proven to be an effective deterring
mechanism as well as a good way to push for resolution of corruption cases at the village
level. In the case of insufficient action, a sub-district may be declared a "problem area"
(currently there are 12 sub-districts with this status). Sanctions will also apply against proven
financing of political activities or parties or illicit charges for the purpose of financing them.
These sub-districts still have facilitators to help solve problems and facilitate planning,
although disbursement of funds is suspended until the issues are addressed as needed. The
37
Bank loan cannot reimburse the expenditure from the block grants unless appropriate action
has taken place to address the abuse. One of the biggest challenges is how to apply sanctions
consistently and ensure that they are credible enough to act as a disincentive towards
corruption.
33. While the key features of the control framework are place, and remain overall effective in
mitigating corruption risks, most of the corruption cases can be traced back to weak compliance and due
diligence with PNPM policies and existing controls. High-level discussions with GoI counterparts have
led to an agreement on a reform program to reverse this trend and further strengthen the program‟s
governance and integrity framework. A number of critical objectives have been agreed with the
implementing agency in order to improve governance and enhance the control systems. In order to
measure progress towards these objectives, a number of critical benchmarks have been identified and
some have been completed as part of preparation for PNPM-Rural IV while others will be fulfilled during
implementation.
34. This BGAP is organized around these five critical governance and integrity objectives: (a)
enhancing institutional capacity and renewing management; (b) strengthening the Management
Information System; (c) strengthening the Complaints Handling System; (d) enforcing existing fiduciary
controls; (e) improving the quality and deployment of human resources, particularly facilitators.
(a) Enhancing institutional capacity and renewing management of PMD. PMD‟s capacity had
not kept up with demands of the program for strong and effective management. Reporting
lines between PMD, NMC, and RMCs had become confused sending conflicting messages to
project staff and consultants. As a first step new SOPs were issued to clarify reporting lines
roles and responsibilities of key players, particularly for facilitator management. A
performance evaluation of the consultant firm at the national level has also been conducted,
leading to the replacement of its leadership. A functional review has been planned as part of a
managerial renewal process. The overarching objective will be to ensure that the
implementing agency has the institutional and managerial capacity to manage PNPM
successfully, in line with the following principles: (a) staff fully dedicated to PNPM; (b)
staffed with qualified civil servants and technical assistance; (c) staff selected through
competitive processes; and, (d) staff movement in line with government HR regulations.
(b) Strengthening the Management Information System (MIS). The program needs a well
functioning and integrated MIS that can be used as a tool in the management and decision
making process. A preliminary assessment of gaps in MIS systems has already been
conducted, and an audit of the whole MIS system planned to support the redesign of the
system and provide reliable and comprehensive data to inform decision-making and reporting
has been agreed. Key principles that will drive the redesign of the MIS are (a) prioritization
of data to focus on those that are critical to inform decision making at various levels; (b)
built-in checks and balances to ensure accuracy of data; (c) integration of different databases
that currently exist; and, (d) generation of simple and automated reports to inform
management decisions.
(c) Strengthening the Complaints Handling System (CHS). New SOPs on complaints handling,
with a three-month deadline for resolution of fraud and corruption allegations at each level,
improved protocols for escalation of cases and a new policy for stagnant and deadlocked
cases have already been issued. These SOPs are being actively implemented through a series
of instruction letters issued by the implementing agency to mobilize all actors. To support
these new policies, an audit of the whole CHS has been conducted and a new blue print
produced based on the successful PNPM-Urban model. Web-based software applications
38
have been developed and a trial run completed. All Financial Management and Complaints
Handling Specialists have already received trainings in complaints handling and financial
controls, to be followed by refresher sessions. Going forward, there will be an expansion of
partnerships with legal aid offices for the protection of whistle blowers and provision of legal
assistance to community members through a partnership with the Bank‟s Justice for the Poor
program.
(d) Enforcing existing fiduciary controls. Formal controls have been strengthened under PNPM-
Rural through: the deployment of human resources in the central and provincial financial
management oversight units; new SOPs on internal audits which made them mandatory in all
sub-districts; new instructions on increased supervision of village procurement; development
of an improved risk-based audit manual and ToRs; training of local government auditors and
expansion of the audit sample size to 20 percent of all sub-districts starting in 2011; and
budget provisions to improve fiduciary training. Continuous efforts are nonetheless required
to ensure successful implementation of new SOPs and system improvements, and reverse
recent years of underinvestment in human resources. While engagement with civil society,
which plays a vital role - as watchdog - in exposing corruption cases has been stepped up
under PNPM-Rural III, progress has been more uneven as regards village-level social
controls. Revisiting these systems, as an „intensive practice space‟ for improved local
governance, will be fundamental for moving forward. In particular, capacity improvements
and increased oversight are needed for community self-monitoring groups.
(e) Improving the quality and deployment of human resources, particularly facilitators. The role
that facilitators play in ensuring application of program procedures, transparency, and
limiting corruption in PNPM is crucial. As key players in the oversight system, facilitators
train and monitor community sub-district financial management units and village
implementation teams (UPKs and TPKs, respectively). The implementing agency has taken
critical steps to reverse years of underinvestment in facilitators, including: (a) budget
provisions to create 20 percent reserves; (b) restoration of the competitiveness of salary
scales; (c) new guidelines on recruitment and instruction on performance evaluation; (d)
budget provision for twenty-one days of pre-service training and semi-annual week long
refresher trainings; and, (e) 95 percent positions filled in accessible areas.
35. In addition to PNPM-Rural's work with the Bank‟s fiduciary and governance teams, four additional
activities promote anti-corruption work in the project:
(a) A comprehensive Governance Review of the program will be conducted to further strengthen
PNPM‟s governance and integrity framework. The central/local government levels and
community level are all important and due for review. The Review will build on, and expand
the scope of, ongoing commitments:
A first phase will consist of an in-depth and systemic analysis of the existing program,
addressing both the central/local government levels, and including management
arrangements and incentives. The results will inform the ongoing implementation of the
PNPM-Rural portfolio and preparation of PNPM-Rural V.
A second phase will focus on the community level, where the bulk of funds are disbursed
to community organizations, and consist of an applied exercise to review the utility and
robustness of governance systems, transparency and downward accountability
mechanisms at the community level, with a proposal to bring FM and governance
39
specialists/practitioners from community development programs in other regions to
Indonesia to review practices, procedures and experience, share lessons, etc.
(b) Through the establishment of the Bank-managed PNPM Support Facility in Jakarta, it is
feasible to adopt an implementation support strategy that involves constant rather than
periodic oversight. Field supervision and monitoring intensified in 2010, and implementation
support missions, which cover between two and four provinces, will be fielded at least once a
month in 32 provinces to review aspects of the programs and to provide implementation
support. Specific attention will go to: (i) improving fiduciary controls and oversight; (ii)
undertaking technical reviews of project implementation; and (iii) preparing ex-post
community procurement reviews; and, (iv) monitoring follow up of fraud and corruption
complaints by responsible parties.
(c) PNPM‟s Multi-donor Trust Fund (PSF) includes a window dedicated to strengthening
government agencies‟ ability to monitor and oversee PNPM and a window to involve civil
society and NGOs. PSF has moved towards a “portfolio approach” to supervision and
monitoring whereby the various programs and pilots under the PNPM umbrella are
supervised in an integrated fashion. The benefit of this portfolio approach is that challenges
with core systems such as the MIS, complaints handling system, performance management of
staff, or relations between the management consultants and Satkers, can be addressed in a
comprehensive fashion rather than on a project-by-project basis.
36. The analytical work conducted through the PNPM Support Facility on governance and anti-
corruption includes several PNPM-based activities, such as longitudinal reviews of what makes for
effective corruption reduction; randomized evaluations (in partnership with the national anti-corruption
board) on petty corruption in government programs. While results from such programs benefit the Bank's
overall governance reform strategy, they also benefit PNPM implementation.
F. Environmental and Social (including safeguards)
37. There are two safeguards policies trigged under the project: OP 4.01: Environmental Assessment;
and OP 4.10: Indigenous Peoples. Environmental and social safeguards are built into Project operations
through the IGSES. During PNPM-Rural IV preparation, GoI undertook a review and consolidation of its
environmental and social safeguards approaches and documentation and combined them into a
consolidated set of guidelines and associated checklists and forms that replace the frameworks used in
earlier PNPM projects. Two formal changes were made to reflect this streamlined approach. OP 4.04 on
Natural Habitats is not triggered as the program will not be undertaken in prohibited, critical natural
habitats, nor will it result in significant conversion of natural habitats. OP 4.12: Involuntary Resettlement
is not triggered because it was determined that due to the community driven nature of PNPM, any land
provided will only be on a voluntary basis, and will be documented in accordance with the IGSES. The
Project does not involve or permit involuntary taking of land and involuntary restrictions of access to
legally designated parks and protected areas.
Environment
38. Experience from the ongoing PNPM-Rural projects as well as their predecessor, the Kecamatan
Development Projects (KDP), indicate that any adverse environment impacts are typically site specific,
small in scale and can be managed locally by adopting screening criteria, good engineering designs and
construction practices. This is also the case for PNPM-Rural IV which follows the same design and the
same project components as PNPM-Rural III. Nonetheless, with the substantial scope of operations under
PNPM-Rural IV, and an implementation area that spans environmentally and socially sensitive areas,
40
ensuring sufficient attention to the relevance and the application of Safeguards guidelines, and their
adequate monitoring and oversight, is a priority.
39. With village grants capped at US$35,000 and a mean of $20,000, PNPM-Rural infrastructure is
very small, hence the associated potential environmental impacts are of a concomitant scale. No PNPM-
Rural subproject reaches the minimum threshold needed to trigger Indonesia‟s environmental assessment
procedures. The 2006 review of 321 randomly chosen villages found no cases of significant adverse
environmental impacts. Minor impacts included poor site management, poor placement of water facilities,
and failure to conduct PNPM‟s environmental awareness programs for villagers.
40. Field oversight reviews have not identified significant or recurrent environmental impacts. Site
visits by oversight engineers and the national project management database record environmental
concerns, and these were reviewed during the appraisal of the KDP and PNPM-Rural project series. Bank
supervision missions also include environmental safeguard specialists as well as civil engineers with
environmental training. Typical examples of negative environmental impacts are set out in the Table 3.4
along with control strategies that could be used to avoid similar problems in the future.
Table 3.4: Sample Cases of Environmental Impact in KDP/PNPM Rural
Location Activity Environmental Impact Control Strategy
Sub-district
Sosopan, South
Tapanuli, North
Sumatra.
Irrigation project Aek
Bustak.
Caused downstream areas
to suffer drought from lack
of water flow.
Incorporate standard
guideline requiring design
engineer to check effects of
incremental water demand on
downstream users.
Lancap Jae, Sub-
district Arse.
Use of heavy equipment
in constructing a new
road.
Disturbed wildlife in the
surrounding forest.
Largely unavoidable and only
of short term effect. No
special safeguards
recommended
Cilacap, Central
Java.
Construction of a bridge
with a reduction in the
wetted perimeter of the
channel.
Reduction in flow area
caused a stream to
overflow, causing damage
to productive rice fields.
Failure to follow good design
principles. Need to find out
why communities or their
engineering advisers were not
applying standard design
safeguards to supervise for
the required certification.
41. The principle behind managing environmental impacts in PNPM-Rural is to limit potential negative
impacts and to develop the positive impacts of any infrastructure construction activity. As part of the
planning process, a form indicating potential environmental issues is provided in the IGSES, which is a
supplement to the Operations Manual. Potential impacts are then monitored during and after
implementation by the village and technical facilitators.
42. The following items are on the project's negative list and are reflected in the project's legal
documents:
(a) Activities related to the military or army; activities related to political practices or parties.
(b) Building/rehabilitation of government offices or religious facilities.
(c) Purchase of chainsaws, weapons, explosive materials, asbestos, or other environmentally
destructive materials (such as pesticides, herbicides, prohibited drugs, etc.)
(d) Purchase of any fishing boat with capacity above 10 tons and any related equipment.
41
(e) Government officers' salary.
(f) Activities using child labor below working age per regulations of the Borrower.
(g) Activities related to the production, storage or sale of goods with tobacco content.
(h) Activities in locations which are stated as a natural preserve per the regulations of the
Borrower, except in any case in which there is a written permit from the official responsible
for management of any such locations.
(i) Activities for mining or collecting or usage of reefs.
(j) Activities related to management of water resources from any river that flows from or to a
country other than the territory of the Borrower.
(k) Activities related to relocating river lines.
(l) Activities related to reclamation of land of more than 50 hectares.
(m) Building any new irrigation network with an area of more than 50 hectares.
(n) Activities to build a dam or water tank with large capacity of more than 10,000 cubic meters.
Indigenous Peoples
43. Indonesian communities covered by the World Bank‟s policy on indigenous people can generally
be classified in two categories:
(a) Masyarakat Adat /Adat communities/Customary law communities. These are based on lineage
or locality and are bound by customary law. Characteristics of these communities include: (i)
self identification as a distinct indigenous cultural group, (ii) collective attachment to
ancestral territories and to the natural resources in the territories; and (iii) customary cultural,
economic, social, or political institutions.
(b) Komunitas Adat Terpencil (KAT)/Isolated and Vulnerable communities (IVPs). This is a
government-designated category of customary law communities that live in isolated areas.
The characteristics attributed to these communities include: (i) collective attachment to
ancestral territories and to the natural resources in the territories; (ii) customary cultural,
economic, social, or political institutions; and (iii) an indigenous language. They are also
identified by government as: (i) having a subsistence economy; (ii) using simple tools and
technology; (iii) having a high dependence on the environment and local natural resources;
and (iv) having restricted access to social, economic, and political services.
44. These two categories are included as part of the PNPM-Rural's guidelines to ensure full
participation of indigenous communities, including principles of free prior and informed consultation with
a broad community support schemes during subprojects preparation.
45. Review of Experience. KDP / PNPM did not anticipate any significant adverse impacts on
indigenous or culturally distinct populations and none have been found during project supervision. Test
cases specifically supervised for this purpose have included the Baduy, on Java, who as a rule reject
outside development projects, and indigenous communities on the island of Nias, near West Sumatra. In
both cases KDP / PNPM practice proved highly adaptive. In Baduy the project did not enter until it was
approached by traditional leaders and the terms of encounter negotiated and recorded by both sides. In
Nias, KDP / PNPM initially experienced several implementation problems because of its isolation and the
deeply hierarchical village structures, but again no adverse impacts could be identified. Ongoing post-
tsunami reconstruction is closely supervised by the Bank through the closely linked KRRP (KDP
Recovery and Rehabilitation Project) funded by the MDTF for Aceh and Nias and, again, no adverse
impacts have been identified on any of the indigenous communities. General supervision in the eastern
islands also did not turn up any systemic adverse impacts on ethnic minorities. Specific measures in the
42
project design that appear to promote culturally appropriate activities include the villager's customary
authorities own election of their representatives to the project, use of sub-village planning units, and even
flexibility in facilitator's operational funds that allows them to support traditional customary activities.
46. Project design itself has also proven to be somewhat more flexible than anticipated when it first
started. Thus, in provinces such as Aceh or West Sumatra, where kin-based descent units also carry out
important administrative functions, the project produced special guidelines that used these traditional
units rather than the standard sub-district and village structures. In parallel with the increased use of
culturally apposite forms of social organization has come an entirely new generation of problems
associated with the people excluded by traditional social structures, such as, for example, women,
immigrants or villagers of low status groups. These problems do not have easy solutions. For the moment
the primary means for addressing them is through better training and facilitation, with some trials (e.g., in
Aceh) to work with traditional leaders on making their group's workings more inclusive.
Land Acquisition
47. PNPM-Rural has a simple policy framework and a set of operational procedures to guide cases of
land acquisition in village sub-projects. PNPM Rural's guidelines and reporting formats are part of the
IGSES supplement to the Operations Manual. Implementation of these guidelines is built into the
Operations Manual oversight and facilitator terms of reference, and the project provides both internal and
independent monitoring of their implementation. Policy guidelines and procedures meet the standards of
World Bank policies on voluntary land donations.
48. As it will not be possible in many cases to eliminate the need for acquisition, the guidelines allow
for acquiring assets through the following two methods:
(a) Voluntary Donations. In accordance with local custom, community members have the right
to donate their land or other assets or to move their homes temporarily or permanently
without seeking or being given compensation (with proper recording).
(b) Donations with Compensation. Persons who donate their land or other assets have the right
to seek and receive compensation (partial or full market price of the property).
G. Project Monitoring and Evaluation
49. The objective of the PNPM-Rural M&E system is to provide stakeholders with timely and
empirical information to monitor and improve the program, and assess results, specifically with respect to
the PDO level indicators discussed in Annex 1. M&E activities are funded under Component 4 of the loan
(primarily for MIS and other monitoring activities) as well as via a separate trust fund (M&E Special
Studies) under the PSF.
50. Monitoring. Monitoring activities are designed to ensure that the government has a current
understanding of project progress and efficiency, and an ability to track progress and improve the quality
of implementation. The data collected focus on input and outputs to assess whether locations are
receiving required inputs, progress toward completion of socialization activities, proposal development
and sub-project construction, and accounting for disbursement. The monitoring system is also designed
to directly collect data on PDO-level indicator 3 (satisfaction of beneficiaries with service delivery and
local governance) as well as project component intermediate results listed in Annex 1 through a number
of complementary measures including: (a) the project MIS system; (b) community participatory and
independent external NGO monitoring; (c) financial supervision and audits; and (d) Government,
43
Consultant and World Bank field supervision reporting. A Complaints Handling and Grievance Redress
mechanism is also in place to document and track response to any issues arising in the field.
51. The government currently has in place an MIS system which collects a comprehensive set of data
on every village/sub-project in the program. However, the scale up of PNPM over the past few years,
including the addition of pilots (including disaster relief, PNPM-Generasi, PNPM-Green) has generated
some problems with timely receipt of information and data management. As part of an agreed action plan
to address these issues, the government has started a renewal of the system building on lessons from
similar programs in other countries, including the National Solidarity Program in Afghanistan which is
providing support to PMD. Furthermore, the GoI committed to ensuring that all MIS positions at the
NMC will be filled, has created additional data entry positions at the district level to ease the burden on
district and sub-district level facilitators, and is hiring programmers at NMC to better integrate the
currently disparate pilot program systems with the main system for PNPM-Rural IV with the objective to
move toward a fully integrated web-based system. The government has also committed to improving the
quality and effectiveness of the final user-level reporting mechanisms to ensure that MIS system data is
used to identify problems more quickly and improve project implementation via a PSF-funded recipient
executed grant with Bappenas. The full development and launch of the new system may occur beyond the
project period. There will also be new staff recruitments and training.
52. Evaluation. The overall evaluation framework includes: (a) impact evaluation activities designed to
directly measure project impact for PDO level results indicators as well as other areas of interest to the
government; and (b) studies planned to address issues critical to the government‟s learning agenda in
greater depth. Designs utilize mixed methods approaches, including both qualitative and quantitative
components when feasible. In the past, the bulk of the analytical work was carried out by international
experts, with support from the World Bank. The program is shifting its approach to increasingly work
with and through national research institutes and, by doing so, foster capacity in these organizations, as
part of an effort across development partners to strengthen the knowledge sector in Indonesia.
53. Impact Evaluation. During preparation for PNPM-Rural I, the task team and government agreed on
a rigorous impact evaluation plan designed to evaluate the PDO-level indicator 1 (increase in per capita
household expenditure) as well as other key areas of interest to the government (poverty, access to
services, employment and governance). A key feature of the design was the use of a well-identified
control group to use as a counterfactual comparator with PNPM locations. Given that the scale-up of
PNPM to every rural sub-district in Indonesia was to be completed by 2010, the period available for
evaluation was limited to 2007-2009. The results of this evaluation showed that PNPM households saw
their consumption increase by 5-7 percent more than the control households; poor PNPM households and
PNPM households located in poor and remote sub-districts saw larger gains of 6-8 percent and 15-19
percent, respectively. Because all control areas are now receiving the project, there will not, however, be
an opportunity to continue to rigorously evaluate PDO-level Indicator 1 for PNPM-Rural IV. Given the
fact that the results are consistent with an evaluation of predecessor project KDP2, and that the project
design and implementation have not changed, the results obtained for the evaluation of PNPM over 2007-
2009 are considered representative of the impact for the overall PNPM engagement from 2007-2012/13.
It is planned to complete an updated economic analysis study in the coming year (2011/12) with results
available in 2012 to report on PDO-level Indicator 2, Economic Internal Rate of Return.
54. Thematic Studies. Several areas of interest on the government‟s learning agenda are being explored
via in depth thematic studies, including, inter alia:
(a) Local Level Institutions: a mapping of the power, political and incentive-based relationships
between institutions at the district and village levels including communities, village
government, district government, district service provision and community development
44
programs. The study is designed to determine how PNPM can be improved to increase social
accountability with poverty reduction programs at the local level.
(b) Incidence of Benefit: will explore how infrastructure benefits are distributed among
households at the village level across socio-economic characteristics, including gender,
poverty, and relationship with village government.
(c) Infrastructure Census: will develop a database of all available infrastructure for every village
in Indonesia (including main road, bridges, water supply, schools and health clinics) in order
to estimate the remaining infrastructure deficit, financing gap of addressing the deficit and to
track the progress of reducing the deficit over time. The objective is to increase the capacity
of the government to utilize a more systematic and evidence based approach to determining
needs and priorities for PNPM moving forward (including targeting, maintenance and block
grant size), assessing the impact of community-based programs on poverty reduction and
determining local government block grant allocation.
(d) Community Management of Development Portfolio: The government is currently developing
a strategy to integrate all community based poverty reduction programs into a single
platform. The study will determine what mechanisms communities are using to manage the
proliferation of these programs as an input to the overall integration strategy.
55. Pilots. In order to continue to improve implementation effectiveness and project design, a number
of ongoing pilots are planned or currently under implementation which are supported by impact
evaluations:
(a) PNPM Generasi: recently, a 3-year evaluation of PNPM-Generasi was completed and plans
for subsequent evaluation of the new project design for Generasi going forward are being
developed.
(b) Revolving Loan Fund: the new Revolving Loan Fund pilot is being implemented in Central
Java and Yogyakarta with plans to expand to two additional off-Java provinces in late 2011.
A randomized evaluation for both the on- and off-Java locations is in preparation.
H. PNPM Support Facility (PSF)
56. The PSF was established in 2007 through a multi-donor trust fund to support the management and
technical implementation of PNPM (which includes PNPM Rural) with the following specific objectives
:
(a) ensure better coordination among development partners and across grants supporting PNPM;
(b) develop capacity at all levels to plan, manage, and improve poverty reduction programs;
(c) reduce poverty through government and civil society partnerships; and
(d) support high quality monitoring and evaluations efforts.
57. A Joint Management Committee (JMC) chaired by Bappenas and co-chaired by the Bank governs
the PSF. In addition to Bappenas and the World Bank, Australia, Denmark, the European Commission,
the Netherlands, the United Kingdom, and the United States are members of the JMC. Menko Kesra and
the MoF are also members of the JMC. The Vice President's Poverty Commission (TNP2K) actively
coordinates with the PSF. The Asian Development Bank, the Islamic Development Bank, Japan and
45
Canada, which contribute significant resources to PNPM Mandiri and other community empowerment
programs, maintain coordination with the PSF, but are not members of the JMC.
58. The PSF is a key vehicle for GoI and other stakeholders coming together to discuss strategic
directions. Four strategic issues emerge as priority items: (a) integration of various community-driven
development programs within Cluster 2 of the government‟s poverty alleviation framework; (b)
adjustment of the core PNPM model to different kinds of poverty across Indonesia's diverse regions; (c)
bringing the social capital created through PNPM to bear to strengthen the downward accountability of
local government; and (d) strengthening the "handshake" between PNPM and sector service delivery.
59. PSF commitments more than doubled in 2010 reaching US$90 million, and are set to more than
double again with expected commitments reaching over US$185 million in 2011. Commitments are
channeled through four windows:
(a) Block grants to communities, using the established mechanisms of the PNPM core projects.
Examples include support to PNPM's Generasi incentivized block grant pilot program to
support health and education outcomes, and support to disaster recovery efforts.
(b) Coordination and supervisory support, which entails managing the PSF program and its
projects, reporting, knowledge management, and staffing.
(c) On-granting to Indonesian civil society, intended to harness the resources and capabilities at
the grassroots level to reach the marginalized who are not currently being reached by PNPM;
and
(d) Specialized technical assistance, which consists of expertise related to M&E and special
studies.
46
Annex 4: Operational Risk Assessment Framework (ORAF)
Project Development Objective(s)
The project development objective for PNPM-Rural IV is for villagers in PNPM-Rural locations to benefit from improved socio-
economic and local governance conditions.
PDO Level Results
Indicators:
1. Improved HH expenditure rates and improved access to economic and social services in a
minimum of 4,978 sub-districts in 2011.
2. >80% satisfaction levels from beneficiaries regarding improved services and local level
governance.
3. EIRRs >30% for main rural infrastructure categories.
Risk Category Risk Rating Risk Description Proposed Mitigation Measures
Stakeholder
L
At the local level, some villagers may
be marginalized by village elites
and/or local governments exert too
much influence on the allocation of
block grants.
Strong facilitation; strengthening of
inter village decision-making forums;
requirements for female representation
in key positions; and oversight
practices.
Implementing Agency Risks
(including FM & PR Risks) H
PMD has insufficient capacity to
manage a national program across
various agencies and levels of
government; poor quality of NMC
and RMC performance, including
adequate qualified staff on
procurement, FM, and IT/MIS.
The fiduciary and monitoring systems
have come under strain because of
rapid expansion of the program to
national scale. They may be
compromised by lack of adequate
Joint reviews by task team and key
senior government officials will
monitor follow through of benchmark
commitments and increased Bank
supervision on governance, and
fiduciary aspects.
IFRs will be post-reviewed by auditors
and issues solved prior to the
processing of the next Withdrawal
Application.
PMD will undergo a functional review
47
Risk Category Risk Rating Risk Description Proposed Mitigation Measures
oversight from regional/national
teams, delayed response to „red flags‟
and poor functionality of IT/reporting
systems.
to redefine job descriptions, revise
number of positions needed, and
ensure positions are adequately staffed
in line with the GoI policies with
regard to rotation of staff.
Additional TA provided in FM and
procurement.
SOP has been issued clarifying roles
and responsibilities of PMD, NMC,
and RMCs.
Mandatory good quality pre-service
and refresher training for facilitators
provided.
Joint audits by BPKP and district
auditors in 20% of sub-districts, with
reports and recommendations posted
on project‟s website and tracked.
Improved web-based complaints
handling database with case tracking.
Introduction of service standards for
automatic action after 30 days for
fraud or corruption in kecamatan
grants or by consultants, leading to
temporary suspension of
disbursements and termination of the
facilitator contract and debarment of
the individual by the client.
Improved MIS/IT system to provide
48
Risk Category Risk Rating Risk Description Proposed Mitigation Measures
better management tools and
improved management control
systems.
Incorporation of the Better
Governance Action Plan in the
project‟s operations manual and
disclosure on website.
Design
M-L
The Revolving Loan Fund (RLF)
encounters problems of fraud and
corruption after the first cycle.
A dedicated pilot is now focusing on
assessing and improving RLF design
and operations and will make
recommendations to transform RLF
operations into more financially and
institutionally sustainable forms.
Social &
Environmental
L
Lack of due attention to, or oversight
of, the Bank‟s Safeguards policies
(particularly after the scale-up) on the
cumulative impacts of small-scale
subprojects.
Insufficient technical guidance under
PNPM Green.
IGSES has been introduced as annex
to project‟s operations manual and the
Bank task team will monitor its
implementation
Training for facilitators and project
staff includes safeguards
Program & Donor L
Lack of cohesiveness among
interventions financed by donors.
Regular exchange of information and
coordination of activities amongst
donors.
Delivery Quality
M-I
Project scale could lead to a
weakening of key design features,
such as strong facilitation, formal and
informal fiduciary controls, and social
accountability mechanisms.
Delays in recruiting, training, and
retaining qualified facilitators.
Joint reviews by task team and key
senior government officials on
implementation quality and
recommendations for improvements.
Appropriate HR policies; monitoring
of training programs.
49
Risk Category Risk Rating Risk Description Proposed Mitigation Measures
Monitoring and evaluation agenda
could be neglected.
Task team will revitalize evaluation
work and will support PMD to rebuild
MIS.
Risk Rating: at
Preparation
Risk Rating during
Implementation Comments
Medium-I Medium-I
This project builds on a strong program that has achieved positive
and large scale development results on the ground. While the
prevailing risks highlighted above are of significant concern, the
mitigation measures that are being put in place will counteract recent
weaknesses. Financing will be channeled to existing participating
sub-districts, which have a proven track record in community based
resource and project management. The task team will work closely
with senior government officials, project agencies, and consultants to
ensure that the proposed mitigation measures are effectively
implemented.
Legend: L: Low; Medium - L :Medium-Likelihood (high likelihood, low impact); Medium - I : Medium-Impact (low
likelihood, high impact); H: High.
50
Annex 5: Implementation Support Plan
1. The strategy for implementation support has been developed based on the nature of the project and
the ORAF risk profile (Annex IV). It will aim to provide field based, incremental, flexible
implementation support to the client through a „portfolio approach‟ to supervision and monitoring
whereby the various projects and pilots under the PNPM Rural umbrella are supervised in an integrated
fashion. The main thrust of the incremental supervision and monitoring efforts will be to ensure that the
agreed benchmarks for an improved management and governance framework are implemented. The team
will have regular review meetings with PMD to monitor progress and on a quarterly basis will meet
jointly with PMD and Bappenas to review implementation.
2. Capacity: The Bank has dedicated field staff in key geographic locations (e.g., Papua) and a
permanent mobile team, who are constantly both responding to information (e.g., disbursement data) and
pro-actively addressing risk areas (e.g., staff quality/training). Significant TA is being provided by the
Bank through the ongoing projects to address weaknesses in systems that have been catalyzed by the
program‟s scale up, particularly on the fiduciary side. The Bank will also assist the implementing agency
in: (a) developing a program of formal certification for PNPM facilitators, which would serve as both a
quality assurance mechanism and a performance motivator; (b) reinvigorating the program‟s focus on key
principles, including community empowerment and downward accountability (e.g., through
communication materials and in training modules); and (c) reinforcing third party/community-based
monitoring practices, including peer-peer oversight modalities. The Bank and other donor partners have
previously supported the implementing agency with dedicated training on procurement, etc. Under this
project, additional training support will be offered, with a concomitant commitment by the implementing
agency to retain trained staff.
3. Governance: The Bank will assist GoI in conducting a comprehensive Governance Review of the
program to build on and expand ongoing commitments to strengthen the program‟s governance and
integrity framework. The central/local government levels and community level are all important and due
for review. A comprehensive review of these inter-related levels will be conducted through two
components: (a). Governance Review - Management and Systems to provide a more in-depth and
systemic analysis of the existing program, addressing both the central/local government levels, and
including management arrangements and incentives; and, (b) Governance Review - Community level will
consist of an applied exercise to review the utility and robustness of governance systems, transparency
and downward accountability mechanisms at the community level, with a proposal to bring FM and
governance specialists/practitioners from CDD programs in other regions to Indonesia to review
practices, procedures and experience, share lessons, etc. The Bank will pay particular attention to
supporting the implementation of the findings of the Governance Review.
4. Fraud and corruption: In addition to the Governance Review, which will analyze the robustness
of formal and informal fiduciary controls at all levels, the Bank will assist the implementing agency in
establishing a task force for information systems review and improvements to audit, and overhaul the
existing MIS platform. Specific support will be provided for the testing and roll out of a new web-based
complaints-handling system and for the implementation of new protocols for the escalation of complaints,
particularly for stagnant and deadlocked cases. The Bank will also assist the implementing agency in
conducting a review of internal audit implementation, and in reviewing the external audit manual
following the testing of the new risk-based framework.
5. Delivery Quality: The Bank will work closely with PMD to ensure that the key design features of
the program, such as strong facilitation, formal and informal fiduciary controls, and social accountability
mechanisms are in place. Bank supervision will focus on monitoring that agreed requirements and quality
standards for pre/in service training for facilitators and government staff are being met. Adapting the
51
modus operandi of PNPM to match different socio–economic and geographic conditions will be an
important aspect of integrating the various PNPM programs and is important for increasing the
effectiveness of PNPM as part of GoI‟s broader social protection arsenal. The PNPM Support Facility
Trust Fund will continue to finance Bank-executed impact evaluations and special studies to assess the
program‟s impacts and provide insights on appropriate block grant size, duration of participation in the
program, facilitation/socialization and other project design features for different contexts, including not
only poverty and population, but other criteria such as infrastructure deficit and capacity of local
governments and communities.
6. Role of other partners: Many of the donors which are active in Indonesia are members of or are
affiliated with the PNPM Support Facility and the implementation support shall consist of joint
supervision missions.
Implementation Support Plan
7. Project implementation will be supported by a task team based in the Jakarta office and in key
locations across Indonesia, which will ensure that the Bank can undertake regular field supervision
nation-wide and in ongoing policy dialogue on the future of the program and more broadly in GoI poverty
reduction efforts. As part a “portfolio approach” to implementation support, joint missions with donor
partners of the PSF will be conducted at least once a year; formal supervision missions with GoI will be
organized semi-annually; the Bank field team will also conduct routine supervision missions every
month. Locations to be visited will be prioritized based on risks, and each of the thirty-two provinces
covered by the program will be visited at least twice a year. The Bank is developing a web-based „issue
management‟ tool to incorporate implementation issues/risks and related corrective measures identified in
Back to Office Reports and Aide Memoires into a single platform, to support pro-active monitoring and
follow up on action plans. Detailed inputs from the team are given below:
(a) Technical: Appropriate technical specialists will review and guide the Technical Assistance
component of the project, and participate in missions,and review the quality of infrastructure
works financed in a sample of locations.
(b) Fiduciary: Financial Management specialists will conduct regular financial assessments in a
(risk based) sample of project locations to gauge compliance with key elements of formal and
informal fiduciary controls, including: budgeting and counterpart funding; disbursement
status; internal controls including internal audits; accounting and financial reporting; FM
facilitation; and management of the RLF. Formal supervision of financial management will be
undertaken annually. In addition to the procurement prior review to be carried out by the Task
Team, continuous support missions will visit the field on an going basis to carry out spot
check post review of procurement actions. The procurement team will provide training at
central level, and suggest improvements to the operation manual.
(c) Gender: A gender specialist will participate in formal and routine supervision missions to
assess whether women are active participants in planning and decision-making, and whether
sub-projects funded respond to women‟s needs and increase the potential for women‟s
economic activity. They will propose strategies and modifications to project design for
effective gender mainstreaming.
(d) Safeguards: A safeguards specialist will participate in formal supervision missions to assess
the status of safeguard implementation and reporting.
52
(e) Operations: Day to day operations of the project will be supported from the Jakarta office.
Table 5.1: Implementation support focus
Time Focus Skills Needed Resource Estimate
(Staff Weeks)
First twelve
months
Implementation of
benchmarks to improve
governance and
management framework
Institutional capacity building 6
Governance 6
MIS 3
Training 3
HR 3
Environmental monitoring Environmental Specialist 4
Social monitoring Social Specialist 4
Financial management Financial Specialist 4
Gender Gender Specialist 3
Community Infrastructure Engineering 3
Procurement training and
support at central level
Procurement Specialist 3
Procurement expost
review spot check
Procurement Specialist 6
Communications Communications Specialist 3
M&E M&E Specialist 8
Safeguards Safeguards Specialist
(environment and indigenous
people)
4
Implementation Support ACS 4
Team Leadership TTL 20
12-48 months Implementation of
benchmarks to improve
governance and
management framework
Institutional capacity building 12
Governance 12
MIS 3
Training 3
HR 3
Environmental monitoring Environmental Specialist 8
Social monitoring Social Specialist 8
Gender Specialist Gender 6
Engineering Community Infrastructure 6
Financial management Financial Specialist 8
Procurement training and
support at central level
Procurement Specialist 2
Procurement expost
review spot check
Procurement Specialist 6
Communications Communications Specialist 6
M&E M&E Specialist 16
Safeguards Safeguards Specialist
(environment and indigenous
people)
8
Implementation Support ACS 8
Team Leadership TTL 40
53
Table 5.2: Skill Mix Required
Skills Needed Number of Staff Weeks Number of Trips Comments
Institutional capacity 10 4 international
Governance 18 4 international
MIS 6 2 international
Training 6 2 international
HR 6 2 international
Environmental Specialist 12 6 local
Social Specialist 12 6 local
Gender 9 6 local
Community
Infrastructure
9 6 local
Financial Specialist 12 6 local
Procurement Specialist 9 10-12 local
Communications
Specialist
9 6 local
M&E Specialist 24 6 local
ACS 12 6 local
TTL 60 10 local
Technical specialists 20 5 International and local
54
Annex 6: Team Composition
World Bank staff and consultants who worked on the project:
Team Composition
Name Title Unit
Susanne Holste Lead Social Development Specialist / Task Team Leader EASID
Kevin Tomlinson Operations Officer EASID
Sentot Satria Social Development Specialist EASID
Natasha Hayward Sr. Social Development Specialist EASER
Jan Weetjens Social Development Sector Coordinator EASID
Renaud Rodier Social Development Specialist EASID
Alex Setiadji Fiduciary/Governance Consultant EASID
Sri Kuntari Social Development Specialist EASID
John Victor Bottini Social Development Consultant EASID
Franciscus Prahastanto Operations Assistant EASID
Nia Yuniarti Program Assistant EASID
Melinda Good Sr. Counsel LEGES
Juan Martinez Sr. Social Development Specialist EASIS
Virza Sasmitawidjaja Safeguards Consultant EASIS
Dayu Indira Dharmapatni Sr. Social Development Specialist EASIS
Catrini Pratihari Safeguards Consultant EASID
Dennie Mamonto Safeguards Consultant EASID
Amien Sunaryadi Sr. Operations Officer EACIF
Rajat Narula Sr. Financial Management Specialist EAPFM
Unggul Suprayitno Sr. Financial Management Specialist EAPFM
Imad Saleh Lead Procurement Specialist EAPPR
Yoko Doi Financial Management Specialist EASFP
Dewayani Diah Savitri Gender Consultant EASID
Zulfi Novriandi Procurement Consultant EASID
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NANGGROE ACEH DARUSSALAMSUMATERA UTARARIAUSUMATERA BARATJAMBIBENGKULUSUMATERA SELATANLAMPUNGBANGKA-BELITUNGBANTEND.K.I. JAKARTA
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PROVINCES:
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JAWA BARATJAWA TENGAHD.I. YOGYAKARTAJAWA TIMURBALINUSA TENGGARA BARATNUSA TENGGARA TIMURRIAU KEPULAUANKALIMANTAN BARATKALIMANTAN TENGAHKALIMANTAN SELATAN
KALIMANTAN TIMURSULAWESI UTARAGORONTALOSULAWESI TENGAHSULAWESI BARATSULAWESI SELATANSULAWESI TENGGARAMALUKU UTARAMALUKUPAPUA BARATPAPUA
2324252627282930313233
IBRD 38629
MAY 2011
INDONESIAFOURTH NATIONAL PROGRAM
FOR COMMUNITY EMPOWERMENTIN RURAL AREAS
CITIES AND TOWNS
PROVINCE CAPITALS
NATIONAL CAPITAL
PROVINCE BOUNDARIES
INTERNATIONAL BOUNDARIES
Th i s map was p r oduced by t he Map De s i g n Un i t o f T h e Wo r l d B a n k . T h e b o u n d a r i e s , c o l o r s , d e n o m i n a t i o n s a n d a n y o t h e r in format ion shown on th is map do not imply, on the par t o f The Wor ld Bank Group, any judgment o n t h e l e g a l s t a t u s o f a n y te r r i to r y, o r any endorsement or acceptance of such boundar ies .
