Document of The World Bank€¦ · L/C/TF Number(s) IBRD-79150 . ICR Date . 06/27/2013 . ICR Type ....

Document of The World Bank

Report No: ICR2690

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-7195-ID)

ON A

LOAN

IN THE AMOUNT OF $US 200.0 MILLION

TO THE

REPUBLIC OF INDONESIA

FOR THE

CLIMATE CHANGE DEVELOPMENT POLICY LOAN

June 27, 2013

Sustainable Development Department Indonesia Country Management Unit East Asia and Pacific Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective 31 March 2013)

Currency Unit = Rupiah (IDR) US$ 1.00 = Rp 9,600

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

AAA Analytical and Advisory Activities LKPP

Lembaga Kebijakan Pengadaan Barang/Jasa Pemerintah (National Public Procurement Office)

ADB Asian Development Bank LUCF Land Use Change Forestry

AFD Agence Francaise de developpement LULUCF Land Use, Land Use Change and Forestry

AusAID Australian Agency for International Development MDG Millennium Development Goals

BAPPENAS

Badan Perencanaan Pembangunan Nasional (National Development Planning Agency)

MEMR Ministry of Energy and Mineral Resources

BMKG Meteorology Climatology and Geophysics Agency Menko Ekon

Coordinating Ministry for Economic Affairs (CMEA)

BNPM National Disaster Management Agency MMAF Ministry of Marine Affairs and Fisheries

BPK Badan Pemeriksa Keuangan (Supreme Audit Agency) MOA Ministry of Agriculture

BPS Badan Pusat Statistik (Central Bureau of Statistics) MoF Ministry of Finance

CC PL Climate Change Program Loan of Japan and France with GOI, 2008-10

MoFr Ministry of Forestry

CDM Clean Development Mechanism MoH Ministry of Health

CIF Climate Investment Funds MoT Ministry of Trade

MTEF Medium-Term Expenditure Framework

CPF Carbon Partnership Facility NGO Non-governmental Organizations

CPS Country Partnership Strategy PEMDA Pemerintah Daerah (Local Government at District or Province level)

DAK Dana Alokasi Khusus (Special Allocation Funds) PER Public Expenditure Review

DIPA Daftar Pelaksanaan Isian Anggaran (Budget Implementation Statement)

RDA Regional Development Account

DNA Designated National Authority for CDM RDI Rekening Dana Investasi (Investment Fund Account)

DNPI Dewan Nasional Perhubahan Iklim (National Council on Climate Change)

REDD+ Reduced Emissions from Deforestation and Degradation

DPL Development Policy Loan REER Real Effective Exchange Rate

DPR Dewan Perwakilan Rakyat (People’s Consultative Assembly)

RKP Rencana Kerja Pemerintah (Government Work Plan)

FCPF Forest Carbon Partnership Facility RPJM Rencana Pembangunan Jangka Menegah (Medium-Term Development Plan)

FLEG Forest Law Enforcement and Governance RPJMN National Medium-Term Development Plan

GEF Global Environment Facility SAI Supreme Audit Institution GOI Government of Indonesia Satker Satuan Kerja (Working Unit)

IFCA Indonesian Forest Carbon Alliance SFM Sustainable Forest Management

JICA Japan International Cooperation Agency SOE State-Owned Enterprise

KPK Komisi Pemberantasan Korupsi (Corruption Eradication Commission)

UNDP United Nations Development Programme

KPPN

Kantor Pelayanan Perbendaharaan Negara (State Treasury Services Offices)

UNFCCC United Nations Framework Convention on Climate Change

Vice President: Axel Van Trotsenberg Country Director: Stefan Koeberle Sector Manager: George Soraya

Task Team Leader: Timothy Brown ICR Primary Author: Paul Lemaistre

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INDONESIA

CLIMATE CHANGE DEVELOPMENT POLICY LOAN

IMPLEMENTATION COMPLETION AND RESULTS REPORT

CONTENTS

Data Sheet

Komisi Pemberantasan Korupsi (Corruption Eradication Commission) ................................................ iii

A. Basic Information .................................................................................................................... i B. Key Dates ................................................................................................................................ i C. Ratings Summary .................................................................................................................... i D. Sector and Theme Codes........................................................................................................ ii E. Bank Staff ............................................................................................................................... ii F. Results Framework Analysis ................................................................................................. iii Program Development Objectives (from Program Document) ........................................................ iii

G. Ratings of Program Performance in ISR............................................................................. vii H. Restructuring ....................................................................................................................... vii

1. Program Context, Development Objectives and Design.............................................................. 1 Not applicable. .............................................................................................................................................. 4 2. Key Factors Affecting Implementation and Outcomes ............................................................... 5 3. Assessment of Outcomes ................................................................................................................. 9 4. Assessment of Risk to Development Outcome ............................................................................ 19 5. Assessment of Bank and Borrower Performance ...................................................................... 20 6. Lessons Learned ............................................................................................................................ 24 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners ......................... 24

Annex 1 Bank Lending and Implementation Support/Supervision Processes .......................... 27 Annex 2. Beneficiary Survey Results ....................................................................................... 28 Annex 3. Stakeholder Workshop Report and Results ............................................................... 28 Annex 4. Summary of Borrower's Report and/or Comments on Draft ICR ............................. 28 Annex 5. Comments of Cofinanciers and Other Partners/Stakeholders ................................... 29 Annex 6. List of Supporting Documents .................................................................................. 31

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A. Basic Information

Program 1

Country Indonesia Program Name Climate Change Development Policy Loan

Program ID P120313 L/C/TF Number(s) IBRD-79150

ICR Date 06/27/2013 ICR Type Core

Lending Instrument DPL Borrower REPUBLIC OF INDONESIA

Original Total Commitment US$ 200.0 million Disbursed Amount US$ 200.0 million

Implementing Agencies : Ministry of Finance, BAPPENAS, Coordinating Ministry of Economic Affairs

Cofinanciers and Other External Partners : Japan International Cooperation Agency (JICA), Agence Française de Développementt (AFD) B. Key Dates Climate Change Development Policy Loan

Process Date Process Original Date Revised / Actual Date(s)

Concept Review: 03/24/2010 Effectiveness: 08/20/2010 09/07/2010

Appraisal: 04/21/2010 Restructuring(s):

Approval: 05/25/2010 Mid-term Review:

Closing: 12/31/2010 12/31/2010 C. Ratings Summary C.1 Performance Rating by ICR

Outcomes Moderately Satisfactory

Risk to Development Outcome Moderate

Bank Performance Moderately Satisfactory

Borrower Performance Moderately Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance Bank Ratings Borrower Ratings

Quality at Entry Moderately Satisfactory Government: Moderately Satisfactory

Quality of Supervision: Moderately Satisfactory Implementing Agencies: Moderately Satisfactory

Overall Bank Performance

Moderately Satisfactory Overall Borrower Performance

Moderately Satisfactory

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C.3 Quality at Entry and Implementation Performance Indicators

Implementation Performance Indicators QAG Assessments (if any) Rating:

Potential Problem Program at any time: No Quality at Entry (QEA) None

Problem Program at any time: No Quality of Supervision (QSA) None

DO rating before Closing/Inactive status

D. Sector and Theme Codes Climate Change Development Policy Loan

Original Actual

Sector Code (as % of total Bank financing) General agriculture, fishing and forestry sector 46 46 General energy sector 32 32 Other social services 11 11 General water, sanitation and flood protection sector 11 11

Theme Code (Primary/Secondary) Climate change 59 59 Environmental policies and institutions 14 14 Water resource management 12 12 Natural disaster management 11 11 Rural services and infrastructure 4 4 E. Bank Staff

Positions At ICR At Approval

Vice President: Axel Van Trotsenberg James W. Adams Country Director: Stefan Koeberle Joachim von Amsberg Sector Manager: George Soraya Sonia Hammam Task Team Leader: Timothy Brown Timothy Brown ICR Team Leader: Timothy Brown ICR Primary Author: Paul Lemaistre

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F. Results Framework Analysis

Program Development Objectives (from Program Document) The Climate Change DPL supported the Government of Indonesia’s (GOI) efforts to develop a lower carbon, more climate-resilient growth path. It also intended to help Indonesia prepare for the post-2012 global climate change regime by establishing a conducive policy, regulatory and institutional setting to allow Indonesia to access global climate finance opportunities and carbon markets. The CCDPL focused on three main thematic areas: climate change mitigation; adaptation; and cross-sectoral issues. On mitigation, key targets for reductions were forest loss and peat land conversion and burning, reducing the over use of fossil fuels, developing renewable energy alternatives (e.g., geothermal and biomass) and promoting energy efficiency. On adaptation, the key priorities were in agriculture, water management, coastal and marine resource management, as well as disaster preparedness and resiliency. Institutional and cross-sectoral issues included better analysis, policy coordination, and the integration of climate change priorities into the national development planning and budgeting system. Revised Program Development Objectives (as approved by original approving authority) None

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised Target Values

Actual Value Achieved at Completion or Target Years

Indicator 1 : Improve policy coordination of hotspots/clearing of peat lands Monitoring Indicator: Incidence of hotspots/clearing of peat lands

Value (quantitative or Qualitative)

Measured hotspots 2009 Indonesia: 73,800 Riau: 10,448 Source: WWF-I Forest Fire Monitoring Program

10% reduced from baseline n/a

Measured hotspots 2010 Indonesia: 9,615 Riau: 1,608 Source: WWF-I Forest Fire Monitoring Program, January 2011 update

Date achieved 04/26/2010 04/26/2011 04/26/2011 01/28/2011

Comments (incl. % achievement)

Achieved. 87% reduction from baseline value. Presidential Instruction No.11/ 2011 (moratorium on the granting of new concessions on forest and peatland areas) was a key policy action that promoted better management and governance of peatland areas

Indicator 2 :

Improve regulatory framework for REDD implementation and develop demonstration activities Monitoring Indicator: Number of demonstration pilots in REDD projects


4 REDD demonstration sites. Source: MOFR

8 REDD demonstration sites

n/a 2010: 31 REDD Demo Sites Source: redd-indonesia.org (MOFOR website)

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2013: 37 REDD Demo Sites Source: forestclimatecenter.org

Date achieved 04/26/2010 04/26/2011 04/26/2011 10/15/2010 Comments (incl. % achievement)

Achieved. 37 REDD demonstration sites active in 2013 represents over an 800% increase over the baseline.

Indicator 3 :

Improve basis for timber legality, strengthen institutions, and improve incentives for regional governments to address forest loss and degradation Monitoring Indicator: Number of forest crime cases brought to court


Baseline is average of prior years. Illegal Logging Cases: 2007 = 278; 2008 = 171; 2009 = 69 Encroachment Cases: 2007 = 79; 2008 = 45; 2009 = 25 Source: MOFR/PHKA forest case tracking data base

10% improvement in cases brought over 2007-2009 average

n/a

• MOFOR Decree No. 38/2009, updated as Regulation No. P68/2011. • FLEGT-VPA in May 2011 between Indonesian MOF and EU Trade Commissioner • Dec 2012 MoU on governance and corruption in forest sector

Date achieved 04/26/2010 04/26/2011 04/26/2011 12/20/2012


Partially achieved. Ministry of Forestry decrees 38/2009, 68/2011, FLEGT-VPA, and Dec 2012 MoU represent positive steps towards stronger policy coordination and institutional strengthening for timber legality, monitoring, and forest sector enforcement

Indicator 4 : Improve policy framework to promote renewable energy development and investment Monitoring Indicator: MW of capacity under construction


2009 = 1065 MW installed geothermal power Source: MEMR

40% increase over baseline n/a

2012: 8746 MW installed • Hydro (6654.29 MW) • Geothermal (1226 MW) • Mini/MicroHydro(228.9 MW) • Biomas (1618.40 MW) • Solar (22.45 MW) • Wind (1.87 MW) Source: MEMR


Achieved. 1226 MW of capacity represents an 15% increase over baseline for geothermal, plus increases in other renewable energy resources as shown.

Indicator 5 : Improve policy framework to promote energy efficiency development and investment Monitoring Indicator: Energy efficiency ratios


Steel: Electricity Arc Furnace: 700 kWh/t

Energy efficiency improved by 5% in at least one key

n/a Steel: 650 kWh/ton Ceramics: 16.6 GJ/ton Tires: data not available

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Ceramics: 16.6 GJ/t Tires: 8100 kcal/kg Cement: 800 kcal/kg clinker Glass: 12.4 GJ/ton Source: IEA Energy Policy Review for Indonesia, 2008

industrial sector Cement: 800 Kcal/kg clinker Glass: 12 GJ/ton Source: Min of Industry report on Energy Conservation and CO2 Emissions Reduction in Industrial Sector, 2011


Achieved. 7% improvement in energy efficiency in steel sector

Indicator 6 : Establish strategic water management plans in key river basins Monitoring Indicator: Number of water management plans established


2009: 3 Plans 2010: 5 Plans 2012: 12 Plans n/a

2010: 8 Water Resource Management Patterns and Plans (POLA) 2012: 13 POLA approved for key river basins under national government authority; 29 for basins under provincial authority. Source: Min Pub Works, 2012


Achieved. 42 national- and provincial-level water management plans established, representing 250% increase over target value.

Indicator 7 :

Scale up actions to improve climate resilience in agriculture Monitoring Indicator: Percentage of farmers surveyed that show understanding and practicing of adaptation techniques


2010 baseline will be established through survey

20% increase over baseline in targeted kabupaten

n/a Baseline value of farmers' understanding of adaptation techniques not established

Date achieved 04/26/2010 04/26/2011 04/26/2011 04/26/2011


Partially achieved. Presidential Instruction No.5/ 2011 obliges MOA and other GOI agencies mainstream climate smart agriculture practices, including support to farmer's groups. Various MOA units completed Climate Field Schools in 200 units in 29 provinces

Indicator 8 : Scale up actions to establish national disaster risk reduction and management system Monitoring Indicator: Number of provinces with local disaster management agencies


2009: 5 provincial agencies; 20 district-level agencies

2012: 33 provincial agencies; 40 dist level agencies

n/a 2012: 33 provincial agencies; 400 district-level agencies

Date achieved 04/26/2010 04/26/2011 04/26/2011 05/03/2013 Comments (incl. %

Achieved. 97% coverage of provincial agencies (a 34th province was created in 2012); 80% coverage of district-level agencies (400 out of 501 district-level

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achievement) governments).

Indicator 9 :

Establish systems and strategies to improve climate preparedness and resilience in coastal/marine sector Monitoring Indicator: Percentage of coastal communities that show greater awareness and changed practices relative to baseline in target locations


2010 baseline will be established through survey

10% increase over baseline in 8 districts on north coast of Java

n/a

Baseline value of coastal communities' awareness and changed practices not established

Date achieved 04/26/2010 04/26/2011 04/26/2011 04/26/2011


Partially achieved. The MMAF is running the national 'Development of Resilient Coastal Villages' program in 22 districts throughout Indonesia. National strategy being implemented with site-level activities in villages across 22 activities.

Indicator 10 :

Strengthen knowledge base and legal basis for climate change action and link these to national budgeting and planning processes Monitoring Indicator: Increased financing for GOI actions related to the 26% emissions reduction plan


1.736 Trillion Rupiah allocated for 2009 National Development Planning Response to Climate Change (BAPPENAS 2008)

10 Trillion Rupiah for Ministerial proposed projects (cumulative) Nat'l Development Planning Response to Climate Change (BAPPENAS 2010)

n/a

2012: 2012 national budget allocated Rp. 15,9 trillion rupiah for mitigation actions contained in the National Action Plan for GHG Emission (Source: Mitigation Fiscal Framework Review, Fiscal Policy Agency of the Ministry of Finance, December 2012)


Achieved. 2012 budget allocation is nearly 60% increase over target value.

Indicator 11 :

Strengthen policy coordination and develop financing mechanisms for addressing climate change Monitoring Indicator: Funding for climate change projects through ICCTF


Baseline = 0 funding through ICCTF in 2009

£9 Million (UK Pounds) pledged 10% disbursed

n/a

2012: £5,550,000 (UK pounds) in funding received by ICCTF from DFID and AusAID; three funded projects: (Source: ICCTF) • Sustainable Peat Land Management (Min. Agric) • Energy Conservation (Min. Industry) • Public Awareness on Climate Change (BMKG

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Partially achieved. 2012 value is below target (60% of target value), but ICCTF has been made operational, with several key projects funded and completed.

(b) Intermediate Outcome Indicator(s) N/A

G. Ratings of Program Performance in ISR (N/A)

H. Restructuring (N/A)

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INDONESIA CLIMATE CHANGE DEVELOPMENT POLICY LOAN

IMPLEMENTATION COMPLETION AND RESULTS REPORT 1. Program Context, Development Objectives and Design 1.1. Context at Appraisal

1.1.1. Economic Context In 2010, the outlook for Indonesia’s economy was that momentum would continue to build, with growth rising above 6 percent in 2011 and with scope for growth to average 7 percent by mid-decade, despite the weaker global economic outlook. The projected growth rates above 6 percent and the projection of mild inflation rates to rise only slightly over the coming years, suggested ongoing progress in poverty reduction. In the period 2010-14, the budget was expected to increase by more than 30 percent in real terms compared to 2005-2009 period (about US$500 billion in 2008 prices) creating significant opportunities to improve public services. In order to seize these opportunities, the Bank recommended that Indonesia needed more effective and accountable institutions that could translate available resources into better development outcomes. The Bank considered these actions as particularly important as Indonesia embarked on a period of second-generation reforms to provide, for example, more sophisticated services in infrastructure, better education, and a sustainable health system. These projections of rising growth rates and improving social outcomes were considered by the Bank to be contingent on the government aggressively progressing in this agenda, with political developments at the time creating the risk that reforms would be slower and shallower than may have been expected in late 2009. 1.1.2. Political Context The Government, re-elected in 2009, recognized the need to face the challenge of realizing its potential as a competitive, inclusive, sustainable and resilient middle-income country by adapting the institutions and mechanisms that govern the functioning of the state and shape state-society interactions. To go beyond strong economic performance and consolidation of the political system, the Bank concluded that Indonesia needed to accelerate growth and job creation while ensuring that it is inclusive and sustainable. Indonesia also needed to capitalize on the potential of its young population and rapidly growing labor force, improve the investment climate (mainly by improving quality of infrastructure and reducing regulatory/legal uncertainty), stimulate creation of higher value-added non-agricultural jobs and increase agricultural productivity. Inadequate environmental management was also seen as a challenge to sustainable development, providing some of the rationale for developing a climate change focus in the Bank’s engagement with the Government of Indonesia (GOI) on development policy operations. The GOI developed National Priority Action Plan for 2010, which laid the base for the Medium Term Development Plan (RPJM) 2010-2014). The GOI’s 11 sectoral priorities included energy issues, environmental and climate change, and disaster preparedness. The CCDPL operation was planned and implemented in the aftermath of the global financial crisis of 2008-9 – from which Indonesia emerged relatively unscathed, thanks in large part to growth driven by strong domestic consumption and key commodity exports. At the time there was still some uncertainty about the state of the economy and the potential for repercussions from the down turn affecting trading partners and investors. Thus,

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there was considerable interest to put in place financing mechanisms to ensure budget support, but no additional incentives to establish more robust coordination mechanisms or cross-sectoral policy reforms that cut across multiple sectors and issues. 1.1.3. Strategic Context The CCDPL was strategic because climate change remains an economic development challenge facing Indonesia, in terms of threats to food and water security, agricultural productivity, rural and coastal livelihoods, disease processes and production of essential environmental services. At the same time, Indonesia’s green house gas (GHG) emissions are globally significant, with two thirds coming from land use change and forestry (LUCF) and peat fires. Although fossil fuel related emissions per capita are relatively low. Energy use is growing rapidly and becoming more emissions intensive because of the increasing reliance on coal-fired power and rising use of motorized transport. Policy interventions under this operation were also strategic because of the opportunity to increase economic efficiency and competitiveness in the forest, land use and energy sectors. The CC DPL supported the GOI’s policy agenda on climate change, an issue of growing global concern. The CCDPL focused on three core strategic areas: (i) addressing the need to mitigate Indonesia’s greenhouse gas emissions; (ii) enhancing adaptation and resiliency efforts in key sectors; and (iii) strengthening the institutions and cross-cutting policy framework needed for a successful climate change response. It was also seen as an opportunity to harmonize support with several development partners and create a platform for continuing dialogue and reform, and to build on the Bank’s significant history of DPL support in the areas of economic and infrastructure policy reform. The CCDPL was fully consistent with the WBG Country Partnership Strategy for Indonesia (2009-2012), which was oriented towards strengthening Indonesian institutions in order to face development challenges. Consistent with the CPS, specifically Core engagement 5 “Environmental Sustainability and Disaster Mitigation”, the CCDPL focused on strengthening institutions and building effective country systems. Other ongoing operations at the time included several Clean Development Mechanism (CDM) projects, and the Forest Investment Program (FIP). In terms of collaboration with key partners’ programs, the CCDPL was jointly deployed with and provided parallel financing for the “Climate Change Policy Loan” (CC-PL) series, jointly financed by JICA and AFD. 1.2. Original Program Development Objective and Key Indicators The CCDPL aimed to GOI efforts to develop a lower carbon, more climate-resilient growth path. It was also intended to help Indonesia prepare for a post-2012 global climate change regime by establishing a favorable policy and institutional setting to access global climate finance opportunities and carbon markets. The CCDPL was designed for the Government to use program/policy lending to support the President's ambitious climate change agenda. Specifically, the CCDPL supported the following policy areas in Table 1.

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Table 1: CCDPL Objectives and Key Indicators

Objectives Key Indicators Policy Area 1: Mitigation Land Use and Forestry Sector Mitigation Improve policy coordination and management of peatland

Incidence of hotspots/clearance of peatlands

Improve regulatory framework for REDD implementation and develop demonstration activities

Number of demonstration pilots in REDD projects

Improve basis for timber legality, strengthen institutions, and improve incentives for regional governments to address forest loss and degradation

Number of forest crime cases brought to court

Energy sector mitigation Improve policy framework to promote renewable energy development and investment

MW of capacity under construction

Improve policy framework to promote energy efficiency development and investment

Energy efficiency rations

Policy Area 2: Adaptation and Disaster Preparedness Establish strategic water management plans in key river basins

Number of water management plans established

Scale up actions to improve climate resilience in agriculture

Percentage of farmers surveyed that show understanding and practicing of adaptation techniques

Scale up actions to establish national disaster risk reduction and management system

Number of provinces with local disaster management agencies

Establish systems and strategies to improve climate preparedness and resilience in the coastal and marine sector

Percentage of coastal communities that show greater awareness and changed practices relative to baseline in target locations

Policy Area 3: Cross Sectoral and Institutional Issues Strengthen knowledge base and legal basis for climate change action and link these to national budgeting and planning processes

Increased financing for GOI actions related to the 26% emissions reduction plan

Strengthen policy coordination and develop financing mechanisms for addressing climate change

Funding for climate change projects through ICCTF

1.3. Revised Program Development Objectives

The PDO remained consistent and unchanged throughout the series. 1.4. Original Policy Areas Supported by the Program (as approved) Policy Area 1: Mitigation: Land Use Change and Forestry (LUCF) Sector. The CCDPL focused on actions critical to address governance issues and upstream drivers of deforestation and loss. The operation recognized GOI efforts to develop strategies and identify financing sources for addressing LUCF emissions sources, in collaboration with development partners. CCDPL policy actions were aimed at: peatlands, REDD piloting efforts, and forest governance improvements. Expected benefits included: policy harmonization and enabling conditions for integrated action to reduce peat degradation and fires and improved forest and

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land management practices. In addition, improved policy setting plus implementation actions were expected to reduce emissions and allow the GOI to access forest financing mechanisms in the post-2012 climate regime. The CCDPL recognized Indonesia’s achievements in this policy area and all others below with the prior actions listed in Table 2. Mitigation: Energy Sector. The CCDPL focused on policy actions essential to addressing emissions reduction priorities, including renewable energy, energy efficiency, and cost reflective energy pricing. Due to large potential capacity, geothermal is one of the best options to diversify Indonesia’s energy mix. However, the regulatory framework created barriers and uncertainties for project developers. To accelerate geothermal power development, three key policies were targeted: (1) mandatory power purchase (off-take) by PLN; (2) mandatory market policy of a fixed tariff (feed-in tariff) or a fixed quantity (renewable energy portfolio standards); and (3) a compensation mechanism to allow the incremental cost of geothermal power purchase to pass-through to consumers or compensate PLN through government payment. Expected benefits included increased economic benefits from energy efficiency; increased energy security from investments in renewable domestic energy sources; and economic and social benefits of reduced emissions. Policy Area 2: Adaptation and Disaster Preparedness. The CCDPL focused on actions in the key areas of Indonesia’s vulnerability and adaptation needs, including water resources, agricultural resilience, coastal threats and livelihoods, and disaster preparedness. Indonesia recognized adaptation as a key priority area to protect the poor, who will likely experience the greatest impacts, yet have the least resources and capacity to respond. CCDPL policy areas included planning and institutional development at the regional level in the water resources sector and disaster risk reduction area, extension and capacity development at the community level in the agriculture, and strategic planning and community development in the coastal and marine sector. Expected benefits in this policy area included: improved capacity and resilience at institutional level and community level in key sectors, as well as integration of adaptation needs into disaster preparedness plans and institutions. Policy Area 3: Cross Sectoral and Institutional Issues. An integrated national response to climate change requires cross-sectoral planning and coordination and appropriate institutional structures for formulating and carrying out policies and programs. BAPPENAS, Ministry of Finance, the National Council on Climate Change and the Ministry of Environment each play an important role in coordination, policy making, planning and budget formulation, while sectoral ministries retain responsibilities over key areas of the economy responsible for the bulk of Indonesia’s emissions. Key actions targeted by the CCDPL include: developing a firmer scientific understanding and institutional framework for coordination and action; mainstreaming climate change issues into the national development planning and budgeting process; and developing institutions, plans and information systems to allow Indonesia to benefit from global climate finance mechanisms. 1.5. Revised Policy Areas (if applicable) The policy areas remained consistent over the one-year duration of the CCDPL. 1.6. Other significant changes Not applicable.

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2. Key Factors Affecting Implementation and Outcomes 2.1. Program Performance Table 2 provides a list of ‘prior actions’ achieved by the Government as the basis for approving the first CCDPL. As climate change policy and financing touches on many aspects of economic management, the matrix of policy actions covered a wide array of commitments. The Bank and partners showed considerable flexibility in recognition of the GOI’s ownership of program objectives and the need to engage across a range of ministries and agencies.

As expected for a program covering 11 separate policy areas, some parts of the program performed better than expected while others fell short. In a number of key areas (climate finance, REDD+, water resources management, disaster preparedness) progress was significant, with outcomes exceeding expectations. In other areas (peatlands, energy efficiency, and coastal adaptation) progress was considered less significant or transformative. Those areas with less than desired achievements were hindered in part by complex regulatory environments, and uncertainty in prioritizing investments.

Table 2: Prior Policy Actions (as listed in Legal Agreement/Program Document)

Climate Change Development Policy Loan Pillar 1: Mitigation 1. Peatland Conservation. Issued and began implementation of a master plan on peat land

rehabilitation in Central Kalimantan. 2. REDD. Launched National Readiness Program for REDD, established regulatory

framework, and joined both FCPF and UN-REDD. 3. Forest Management and Governance. Issued regulations to establish a national timber

legality standard and a system for verification and monitoring to assist in reducing illegal logging and forest loss.

4. Renewable Energy Development. Issued national regulations to mandate development and purchase of power from renewable energy resources, to establish a ceiling price for geothermal power purchase, to establish the purchase price of electricity from renewable energy sources, and to provide tax incentives for renewable energy development.

5. Energy Efficiency. Issued Government Regulation on Energy Conservation and implemented national system of energy audits for major firms in key sectors.

Pillar 2: Adaptation and Disaster Preparedness 6. Water Resources Sector. Issued Presidential Regulation to establish and staff the Water

Resource Council and prepared integrated water resource management plans (POLA) with climate change assessment in national strategic river basins.

7. Agriculture Sector. Developed an irrigation asset management information system. Implemented a rice production intensification program and climate field schools.

8. Disaster Risk Management. Enacted national law and established a National Disaster Management Agency (BNPB). Finalized and launched the National Action Plan and integrated Disaster Risk Reduction and adaptation into RPJMN, 2009.

9. Marine and Fisheries Sector. GOI launched the National Plan of Action (NPOA) of Coral Triangle Initiative, approved a roadmap of CTI actions for 2010-11.

Pillar 3: Cross Sectoral and Institutional Tests 10. Mainstreaming in National Development Program. GOI finalized the Second National

Communication to UNFCCC, submitted mitigation actions under the Copenhagen Accord, and issued key development planning documents related to climate change.

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11. Policy Coordination and Financing for Climate Change. The GOI issued the National Action Plan Addressing Climate Change, established a National Council on Climate Change, and launched the Indonesia Climate Change Trust Fund (October 2009).

2.2. Major Factors Affecting Implementation Adequacy of Government commitment The CCDPL was conceived as a series of operations supporting the GOI’s program for climate change response and reform. The Bank’s operation came in the third year of the GOI’s engagement in this effort, following on two prior annual policy operations supported by JICA and AFD. However, as the Bank’s first operation was approved in May 2010, important changes were announced in the senior management of the Ministry of Finance, resulting in some uncertainty in the appetite for development policy operations. Responsibilities of key personnel also changed at BAPPENAS, the agency most involved in managing the CCDPL process with affected ministries. This resulted in a shift in continuity of policy dialogue with key officials, if not the overall level of commitment to the aims of the CCDPL. These changes also reduced the level of coordination and communication between these two key agencies. By early 2011, uncertainties were also expressed about the GOI’s need for continuing budget support through the series of climate operations. The Bank discussed the CC program/policy loan concept with GOI and partners as early as 2007, during the UNFCCC COP 13 meeting in Bali. In 2008, the Bank determined to wait for a more conducive governance / coordination framework to emerge (The National Council on Climate Change was formed only in July 2008 and was months away from becoming operational) with a more integrated policy reform program. This had an impact on the program because the matrix of policy actions and the coordination/oversight system of the process had already been established for two years before the Bank became actively involved. The Bank team strived to streamline and prioritize the existing policy agenda, but there was less effort on considering the political dynamics and possible pitfalls on certain issue areas. Also, by coming in late relative to JICA and AFD, the Bank was mainly in the position to buy into the existing process, providing another layer of international financing support. Overall, Goverment commitment to the CCDPL was strong, since over the course of CCDPL implementation, there was strong ownership and interest among the central planning and financial management agencies in using climate change and the President’s commitments as a driver for important reforms in key sectors, including land use and energy. There was also good capacity at operational levels to carry initiatives through to implementation. The Bank entered the operation in its third year based on its assessment of the availability of a meaningful entry point into forestry and energy sector issues, as well as policy progress on the national coordinating mechanism; in this case led by BAPPENAS and the Ministry of Finance. Based on these considerations, the timing of entry for the CCDPL operation is judged as appropriate. Soundness of background analysis including lessons learned

The CCDPL was borne out of a strong framework of technical analysis, strategic documents, and action plans, as a result of the GOI’s efforts on SNC, Strategy Response, and submissions to the UNFCCC. These provided a strong rationale for specific actions and a unified sense of what needed to be done across a range of sectors, particularly on mitigation. It is important to note that a leading technical rationale for the chosen policy actions was emissions mitigation potential. While important, this one focus might ignore other important factors in a decision,

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such as the distribution of benefits or the impact on the poor. Where climate objectives were perceived to impose some opportunity cost or interference with achieving other important objectives of an institution, less progress was made. For example, the belief that economic growth would suffer was a common argument for resisting action to reduce emissions or further regulate forestry and land use change. Assessment of design There was good coordination and strong levels of technical assistance between Government and development partners, which was an important part of the CCDPL program, particularly in areas where analysis of data, options and scenarios could inform agencies’ policy choices. For this reason, the Bank was keen to cooperate and coordinate with JICA and AFD and strengthen our partnership of support behind the Government’s climate agenda. Development partners provided consultants, analysis, and monitoring support on renewable energy issues, forestry issues, and on particular industry engagements (e.g., cement). Through the CCDPL’s steering and technical committees, there was a good framework for coordination across agencies in terms of establishing policy actions and monitoring achievements. Process meetings were managed by BAPPENAS with wide representation from involved agencies. Beyond coordinating the process, there were challenges in coordinating the GOI’s policy response on some key issues, such as peat land management or upstream incentives in the energy sector. Resolving these kinds of issues involved a combination of technical and financial decisions and required bringing in parts of agencies not originally represented in the CCDPL steering process. This was a good and logical step in terms of resolving issues, but resulted in some delays on some critical issues. Relevance of risks and effectiveness of mitigation measures. The risks identified in the CCDPL’s original project design document were appropriate and realistic. The task team benefited from strong client and partner relationships with country clients and also across sectors and units within the Bank. This enabled the identification of key issues, engagement with the key agencies and officials, and sustained dialogue and coordination with Government and development partners. The key risks identified in the project design document and the assessments of mitigation measures are included below: • Viability of GOI's climate change national action plans. The mitigation measure was

to improve capacity via TA and AAA to assist the GOI to develop priorities and workable plans with appropriate resource allocations. Much of this work continues into the World Bank’s current engagement with the GOI, via projects identified in section 2.4 below.

• Effectiveness of GOI counterpart. The mitigation measure was for the DPL operation

to contribute to efforts to harmonize development partner support and focus analysis and policy advice within the steering committee and monitoring mechanism. This mitigation measure was judged as effective, particularly in the World Bank’s cooperation and coordination with the AFD and JICA to monitor progress across the CCPL and CCDPL.

• GOI commitment to a progressive series of policy reform over medium term. There

was no mitigation measure for this identified risk, though as climate policy and implementation have progressed, GOI commitment to policy reforms in key areas – particularly renewable energy and forest governance – remains strong.

• Operation size and visibility. The identified risk was that the CCDPL should choose

appropriate triggers of sufficient importance in order to justify the lending volume. This

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was an appropriate statement, and justifies the Bank’s prudence in narrowing down the CCPL’s policy matrix to 11 policy areas.

• Fiduciary and reputational risks. This identified risk is consistent across all Bank

programs in Indonesia and the rationale that the CCDPL – and all other Bank engagements, with the required FM and procurement procedures – could contribute towards a strengthened overall fiduciary environment is appropriate.

• Forest management as a long term challenge with possibly slow progress. The

identified mitigation measure was to engage via a range of instruments to help the GOI to develop a sound REDD+ program to address governance and forest loss. The Bank is engaging in REDD+ in the 2013-2015 CPS and progress is considered positive, though slow.

• Energy pricing is a long term challenge and there is a risk that progress will be

intermittent. The Bank rightly judged this as a ‘highly charged political issue’ and the mitigation measures – advocating reforms to improve the investment climate for alternative energy investments and incentives for greater energy efficiency – were suitable within the scope of the CCDPL.

2.3. Monitoring and Evaluation Design, Implementation and Utilization The CCDPL monitoring and evaluation framework was designed to provide feedback and adjust approaches on the overall climate policy reform agenda. The technical meetings and sectoral engagements produced a rich understanding of the issues and challenges in a range of high priority areas, as well as some understanding of the pros and cons of different approaches and the reactions to the approaches at different levels in critical ministries. The matrix of actions was focused through dialogue to a fairly tight set of issues and performance indicators, at least for such a complex and cross-cutting agenda. However, the breadth of coverage did present some challenges for tracking and monitoring performance. A more focused and effective monitoring system, developed, owned and implemented by the Government, may have been better able to monitor policy outcomes and performance indicators. Such a system could be housed in the Deputy for Development Performance Evaluation (www.BAPPENAS.go.id) in BAPPENAS, for example. The M & E framework was implemented via three mechanisms. First, at the official level, the GOI established a Steering Committee and a Technical Committee, responsible for ensuring progress and follow up on agreed policy actions. Second, the GOI counterparts and Development Partners held regular meetings and continuous dialogue to assess progress and bottlenecks. This was facilitated by having the teams (from all development partners) based in the field, with external technical support missions as needed. Locally available team members were able to bring in sectoral knowledge, results from analysis, and networks based on other operations to deepen the CCDPL policy dialogue around complex issues. Third, the monitoring effort had a dedicated technical team from a consultancy (financed by JICA) and a forestry expert (financed by AFD) to gather detailed evidence and documentation of achievements and progress. This was especially useful in the production of monitoring documents to track progress in key policy areas. The CCDPL monitoring was used mainly in response to reporting needs related to the program loan, though the information could also have been used to assess where and how policies were being implemented properly with good results and where more intervention might be needed. In addition, the results framework indicators could have been more closely

http://www.bappenas.go.id/

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linked to policy triggers and more achievable in the time frame of the operation. For example, many actions might contribute indirectly and over the long term to the GOI’s commitment to reduce GHG emissions by 26% by 2020 against business-as-usual projections, but these results might not be seen in 2012 or even 2015. 2.4. Expected Next Phase/Follow-up Operations The GOI continues to prioritize climate change action, well beyond the policies and triggers originally included in the CCDPL. Indonesia embraces REDD+ as a means of mitigating emissions and creating incentives for more sustainable forest management and governance reforms. Reforms in the energy sector have resulted in feed-in tariffs, upstream geothermal proving efforts, and plans for subsidy reform that follow on the priorities and programs outlined in the CCDPL. The Bank continues engagement in key areas to advise central agencies on upstream policies and strategies that affect environment and climate outcomes. The current CPS (2013-2015) prioritizes sustainable development and disaster resilience as a key engagement area. The Bank’s environment and climate work program focuses on challenges identified as priorities in the CC DPL, such as strengthening national forest governance and monitoring systems. The Ministry of Finance and BAPPENAS, for example, are now interested in creating a “Green Development Support Facility to provide advice and technical assistance on key sustainability issues, with the aim to influence the next RPJM. However, Indonesia’s institutional structures and coordination mechanisms for integrating work across a range of sectors remain weak, and thus pose challenges for unified climate intervention from the top. Regarding the GOI’s ultimate decision to drop the CCDPL series, this was a political decision, but perhaps could have been addressed with better communication and constituency building. As it became clear that certain factions resisted the notion of borrowing for climate change, the Bank and development partners prepared fact sheets and briefs to explain the concept of a “development policy loan” (as a strategic tool for convening and progressing priority policies at a high level, in a country with a declining debt burden), to a more general audience. These points may not have been communicated sufficiently at a high level, partly because the appetite for this form of dialogue was not evident and partly because the partners did not want to be seen as “marketing” loans. The monitoring of the 2011 matrix was continued beyond the CCDPL and a final steering committee meeting was organized by the Government on November 2012. 3. Assessment of Outcomes 3.1. Relevance of Objectives, Design and Implementation The CCDPL recognized and supported GOI commitments, built on the climate policy and financing dialogue between the Government and its development partners and enhanced Indonesia’s efforts to access other forms of climate finance. It also built on the GOI’s strong program and road map for climate change action, as embodied in key planning and budgeting documents. In that regard the PDO and policy areas continue to be highly relevant to GOI policy as well as the World Bank’s CPS (2013-2015). The actions initiated under the DPL are consistent with the follow-up operations discussed above in section 2.4, notably support to

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the REDD+ agenda, incentives for sustainable forest management and governance reforms, and support to the emerging green development agenda. The CCDPL included objectives that were extremely relevant to addressing Indonesia’s climate challenges and built on priorities and programs that the GOI itself had set in motion. These objectives and focus areas for action remain relevant. At appraisal, climate change and environment were (and remain) among the core areas of engagement under the Bank’s Country Partnership Strategy. The Bank recognized Indonesia’s potential as a leader in mitigating and adapting to climate change and anticipated facilitating access to global climate finance, supporting reforms and investments in the forestry and energy sectors, and working to increase resilience to disasters. The operation also supported the GOI in harmonizing policies and coordinating across institutions to improve the GOI’s climate response and potential to access global climate finance. The Bank and development partners continue to assist the GOI to establish appropriate policies, implement programs and stimulate investment to reduce emissions from forest and land use loss and degradation, to improve energy efficiency and competitiveness, to foster development of renewable energy resources, to prepare and prevent disasters and build resilience, to improve water management and agricultural practices, and to improve institutional coordination in policy making at all levels. 3.2. Achievement of Program Development Objectives

3.2.1. Overall Achievement of Objectives The overall outcome rating for the CCDPL is moderately satisfactory. The CCDPL aimed to support the Government’s efforts to develop a lower emission, more climate-resilient growth path and to help in establishing a favorable policy and institutional setting to access global climate finance opportunities and responded to the President's ambitious climate change agenda. In terms of access to climate finance, Indonesia has successfully accessed nearly every possible form of global climate finance (grants, trust funds, concessional loans, program loans, etc) and sustained substantial bilateral grant support for climate change actions that would not ordinarily be available to a middle income country. The CCDPL contributed to the visibility of Indonesia’s programs internationally and provided an endorsement through development partners’ agreement on the policy reform matrix. In terms of forests and land use, Indonesia has scaled up its REDD+ initiative and made important reforms in a challenging institutional context. The moratorium on new forest clearance licenses was an historic action that many sector analysts had recommended for decades. The effort to solidify a REDD+ regulatory framework and agency is ongoing. There continues to be resistance from entrenched interests. But the REDD+ process also has substantial allies and has created a relatively more open and consultative process around forest and land use issues than in the past. This result is emerging from a process of policy reform supported by a wide range of partners and institutions over years, not least Norway’s global efforts and the CCDPL process. Emissions reductions take time to achieve and need to be built on a solid set of policies and programs, which Indonesia has been putting into place. Monitoring of forest cover change is a slow process and results are not produced annually. In terms of energy sector regulation and incentives, the picture in retrospect is more positive than it appeared as it emerged. Indonesia now has a reasonable system of feed-in tariffs for

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renewable energy and prioritized plans for promoting energy efficiency in key sectors, as well as experience with energy efficiency auditing. The large energy sector subsidy remains a deep political economy issue linked to poverty alleviation, budgeting, and economic performance, not just to climate change, and it was never part of the CCDPL program for that reason. On the regulatory side, the framework is gradually improving through better coordination across the energy and finance ministries, which are learning to speak a common language across a large institutional divide in terms of mandate and perspective. This represents the challenge of making policy incrementally in a complex institutional environment – including concerns about budget impacts, risk allocation and favoritism across industries and firms -- more than any issue associated with climate change. On peatland, certainly more could have been done. Peat is an important gap in the legal framework and is not adequately captured under the responsibilities of any one agency. Indonesia could do more to bring the appropriate players together and develop an approach that makes some improvement over the status quo, which makes these lands nearly an open access resource with little oversight or control. Indonesia made efforts on issues related to water resources and management, agricultural resilience, coastal threats and livelihoods, and disaster preparedness, with the establishment of offices in every province. This partly reflects Indonesia’s experience with earthquakes, storms and flooding in recent years and stakeholders’ perception of the need to act. More could reasonably be done on adaptation, particularly actions in the key areas of Indonesia’s vulnerability and adaptation needs. However, this is an area of great uncertainty and it is difficult to know how to prioritize and where investments will have the greatest pay off. (cf. Turn down the heat, 2012, World Bank). The CCDPL provided a clear program and policy direction that served as a platform for harmonizing partner investments in key areas. CCDPL did not become the chief convening mechanism for GOI agencies, partly due to competing political and institutional interests compounded by changes in key officials in key agencies. A public expenditure review (by the MOF in 2012 supported by UNDP) showed increasing resource allocations to climate relevant activities – and that improvements in cost effectiveness and targeting were possible. The CCDPL unfolded in the context of competition among GOI agencies over the role of climate finance, the North-South divide in the global climate negotiations, and by changes in power and responsibility within key Government agencies. But the objectives and actions achieved were worthwhile and the process has stimulated further action. Experience and capacity were developed and relationships among agencies were fostered that may provide the confidence to continue and accelerate reforms. 3.2.2 Pillar 1 Actions Related to Mitigation1 Peatland Conservation - Rating: Moderately Satisfactory CCDPL recognized that the GOI had previously issued and begun implementation of a master plan on peat land rehabilitation in Central Kalimantan. This was seen as an opportunity to enhance policies for conserving peat from drainage, conversion and fire, one of the country’s largest sources of emissions. Under the CCDPL series, the GOI agreed to 1 In later documentation, the GOI and partners agreed to reorder the issues in the program document to reflect the importance of cross cutting issues and upstream strategic actions. This also reflected the perception that institutional and governance issues, as well as adaptation issues, should be given equal space with mitigation. This ICR document reflects the original order of issues in the Bank’s DPL documents.

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coordinate among ministries to control peatland emissions under the framework of presidential regulation and to implement key steps in national multi-sector policy dialogue establishing a legal framework for the national strategy for lowlands. While substantial progress has been made in dialogue and regulatory initiatives have been launched, inter-sectoral coordination and a stronger regulatory base has not yet been achieved. The Ministry of Environment has drafted a government regulation on peatland management (2011). In parallel, the Ministry of Public Works has developed a regulation on Lowland/ Swamp management (2012). The two processes are based on different legal frameworks and ministerial authorities. Some peat land is lowland and some lowland is peat land, so the technical aspects of who regulates remain to be clarified. The two drafts provide a firmer basis for inter-departmental consultations to determine the way forward to improved management of these critical areas. After harmonization between the two Ministries (ongoing), the two regulations will be issued to improve coordination mechanisms for managing peat land and lowlands. MOE has also produced maps of Peatland Hydrological Units in Sumatra and Kalimantan as a basis for further specifying regulatory needs. REDD+ - Rating: Satisfactory The CCDPL recognized Indonesia’s efforts to reduce emissions from deforestation and forest degradation through the implementation of a national REDD+ framework, particular the launch of a National Readiness Program for REDD+, initiation of a regulatory framework, and membership in both FCPF and UN-REDD. Policy commitments under CCDPL included plans to better define roles and responsibilities of government agencies, local communities, and the private sector in managing forest carbon assets. The GOI has made substantial progress on its National REDD+ initiative, in parallel with the CCDPL process. The GOI is currently determining how REDD+ will operate, under the leadership of a National REDD+ Agency to be established under the authority of the President. In the interim, a multi-sectoral Task Force has managed the participatory and consultative process of developing a National Strategy, selected Central Kalimantan as a pilot province, and suspended new forest conversion licensing for two years. The GOI has made substantial progress on creating a financing mechanism and planning for establishment of a National REDD+ Agency. Presidential Instruction No.10/2011 on Moratorium was issued in May 2011. The REDD+ National Strategy was finalized in June 2012 and launched at the Rio +20 Conference, as well as domestically. The GOI also exceeded targets when committing to establish and implement REDD demonstration activities in at least 3 locations, together with partners. In fact, more than 30 REDD+ demonstration activities are operating in Indonesia with some level of recognition from MOFR. Plans for the REDD+ Agency and financing mechanism are now in an inter-departmental review process, expected to lead to approval by the President. This is a complex agenda and further progress, and possibly some setbacks, can be expected. Forest Management and Governance – Rating: Moderately Satisfactory This action aimed to improve forest governance and management through the establishment of improved rules on Forest Management Units (FMU), financial incentive scheme for local governments, and timber legality. FMUs are work units of local governments that can perform site-level forest management and medium- to long-term planning depending on the designated conservation, protection, and social functions of the forest. FMUs are designed to be staffed by professionals on matters pertaining to forest and land-use planning and

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monitoring, forest protection, investment and work opportunity development, and engaging with forest stakeholders including concessionaires and forest communities. The CCDPL acknowledged the GOI (Ministry of Forestry, MOFR) effort to improve forest management and governance through establishment of Forest Management Units. In 2010, the MOHA and MOFOR issued key regulations regarding norms, procedures, and technical standards of FMU management. Using this regulatory base, the GOI established 22 model FMUs (across the Protection, Production, and Conservation forest areas) in 2010 and an additional 77 Model FMUs in 2011. The establishment of FMU’s should provide a framework for decentralizing management of forest areas and managing for multiple uses, in conjunction with communities and local stakeholders. The CCDPL recognized the GOI’s achievement in issuing regulations to establish a national timber legality standard and a system for verification and monitoring (SVLK) to assist in reducing illegal logging and forest loss. Building on this, the GOI issued decrees for assessing the capacity for oversight, certification and monitoring in the National Standards Agency. After pilot testing with 11 firms, the timber legality system was implemented through 115 timber industries, 4 natural forest concessionaires, and 1 industrial timber plantations up to June 2011. Having established a this domestic timber legality system, the GOI Voluntary Partnership Agreement in May 2011 with the European Union, allowing Indonesian timber products to compete in European markets. In December 2012 the UKP4, the KPK, the Ministries of Forestry, Environment, the Attorney General’s Office, the National Police, and the Center for Financial Transaction Reports and Analysis (PPATK) signed a Memorandum of Understanding to coordinate efforts towards law enforcement related to crimes in the forest and peatland sectors. The above policy achievements demonstrate progress toward the PDO Indicator 3 (illegal logging cases) because that data source was discontinued by the MOFOR after 2009. It is expected that further investment in the FMU agenda will promote improved forest management and governance, due to more professional management closer to forest areas, greater ownership and management of forest areas by local governments, and improved engagement with forest stakeholders, notably concession holders and forest communities. Renewable Energy Development - Rating: Satisfactory The CCDPL recognized the need to improve energy security and reduce future GHG emissions from electricity generation through new geothermal projects within an improved policy framework for private sector participation. The operation recognized the GOI’s effort to issue national and ministerial regulations to mandate the development and purchase of power from renewable energy resources, to establish a ceiling price for geothermal power purchase, to establish the purchase price of electricity from renewable energy sources, and to provide tax incentives for renewable energy development. In subsequent actions, the GOI aimed to improve the policy framework for promoting and identify financing needs to mitigate upstream risk of geothermal projects. In 2010, MOF, MEMR and BAPPENAS completed studies toward a policy framework for geothermal development, including a risk mitigation mechanism and tender process improvements. Based on this, the GOI established a Rp 1.16 trillion fund for upstream exploration drilling as a means of mitigating risk and stimulating investment in the subsector. Subsequent MOF decrees established the Geothermal Fund (financial mechanism) and appointed the Centre for Government Investment as its manager.

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Through an iterative process over several years, the GOI clarified the scheme of compensation for the incremental cost of geothermal electricity to off-takers. A Presidential Regulation in 2010 established a higher compensation level for geothermal electricity. Later, a regulation obliged the national electricity company (PLN) to purchase geothermal power at a maximum price of US$0.097 per kWh. Also, MOF issued regulations that provided for a Guarantee Letter for PLN, later in August 2011. Progress on signing power purchase agreements between PLN and independent power producers was substantially better than expected. Six new PPAs were signed by March 2011 for total 435 MW geothermal power and another 4 PPAs were signed by October 2012. The GOI then gradually expanded this regulatory approach to other renewable energy sectors. Regulations in 2010 and 2011 provided incentives for renewable energy development and implemented valued added taxes for fuel subsidies. Feed in Tariffs rules for solar and wind were completed in 2012. In 2011, the Government began the development of two power plants of approximately 110 MW and approximately 40 MW at the Ulubelu and Lahendong (Tompaso) geothermal fields, respectively, alongside the construction of a Steamfield Above-Ground System. These activities are partially funded by the Geothermal Clean Energy Investment Project for Indonesia and supported by the World Bank, and are meant to increase the utilization of clean geothermal-based electricity to reduce pollution and improve the environment. They also are useful pilots for installing major geothermal capacity on islands outside of Java, and help to diversity the nationwide energy mix towards renewable energy sources. Energy Efficiency - Rating: Satisfactory CCDPL acknowledged GOI efforts to reduce emissions by enhanced energy efficiency in energy intensive sectors through the use of new technology and the rehabilitation, renovation and replacement of existing facilities. As prior actions, the GOI had issued a Government Regulation on Energy Conservation and implemented a national system of energy audits for major firms in key sectors. In the years following CCDPL, the Ministry of Industry developed a Grand Strategy for energy conservation in the industrial sector (with financing from ICCTF), with the first phase of implementation started in September 2010, and a second phase in June 2011. The strategy included technical needs assessment, energy manager training and standard operation procedures. Outputs of the work with 35 steel companies and 15 pulp and paper companies, and 9 cement companies included energy and emissions baselines, energy management information systems, capacity building, technical guidelines, investment audits, and dissemination events. The Ministry of Industry also finalized technical guidance on emissions reductions for the cement industry. MEMR also completed work on a framework, known as REFF-Burn: An Integrated Program for Reducing Emission from Fossil Fuel Burning. In other actions related to energy conservation, MEMR drafted a master plan for energy conservation (RIKEN) including energy efficiency standards, an energy audit program and a monitoring and evaluating framework, in collaboration with MOI. The RIKEN and related rules were in draft as of late 2012, awaiting finalization and approval. MEMR issued Regulation No.6/2011 on the procedures and performance tests for Energy Saving Lamps. 3.2.3 Pillar 2 Actions Related to Adaptation and Disaster Preparedness Water Resources – Rating: Highly Satisfactory CCDPL recognized the GOI’s issuance of a Presidential Regulation to establish and staff the National Water Resource Council – a multi-stakeholder body designed to formulate water

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policies at the national government level – and efforts to prepare integrated water resource management plans (POLA) with climate change assessment in national strategic river basins. In 2010 and beyond, Indonesia continued efforts to improve water resource management for adaptation in strategic river basins. MPW made further progress on strategic assessment of the water future of Java, and prepared an action plan for priority interventions as part of the River Basin Strategic Water Management Plans. In 2010, provincial water councils were formed in 18 provinces, and 8 River Basin Management Plans were approved by the Minister of Public Works. Four additional plans were approved in 2011, and draft master plans were completed for 2 key River Basins on. The monitoring indicator was to increase the number of water management plans from 3 at baseline to 12 by 2012. At this time, a total of 29 have been approved for basis under provincial authority and 13 for basins under the jurisdiction of the national government, or 350% over the target. These plans establish a uniform information baseline and adaptive management approaches that will help basin managers adapt to an uncertain future. Climate Resilient Agriculture – Rating: Moderately Satisfactory CCDPL recognized the GOI’s effort to develop an irrigation asset management information system and implement a rice production intensification program and climate field schools in target provinces. In the following implementation periods, MOA continued to strengthen and scale up efforts to improve resilience of farm production and reduce drought risk. The System for Rice Intensification (SRI) was completed in 62 units of 8 provinces (16 districts). The Climate Field School program completed 261 units in 29 provinces (243 districts) by two directorates within the Ministry of Agriculture. In 2011, 599 units were completed. Technical Guidance related to Climate Field School (based on Presidential Instruction No. 5/2011) was issued in March 2011. The guidance focuses on measures to control pests and disease caused by climate change impact and water management in non-irrigated areas. Disaster Risk Management – Rating: Satisfactory CCDPL noted that the GOI enacted the law on Disaster Management and established a National Disaster Management Agency (BNPB), finalized and launched the National Action Plan for Disaster Risk Reduction, and integrated Disaster Risk Reduction and climate change adaptation into the medium term development plan (RPJMN, 2009). Following in 2010 and 2011, the GOI fulfilled the commitment to establish Local Disaster Management Agencies (BPBD) in all provinces with 32 at the end of 2010 and the final one in Papua, established in 2011. These agencies are now budgeted regularly and functioning according to their allocated tasks. Capacity strengthening activities are ongoing with support from several sources, including GFDRR. As of 2013, the BNPB reports that 33 of 34 provinces (the latest province being established in December 2012) have functioning, budgeted, and staffed BPBDs, with up to 400 branch offices established at the district-level. The monitoring indicator was the percentage of farmers that showed understanding and practicing of adaptation techniques, relative to a baseline that was to be created during the project. The 2010 baseline was not established over the one-year duration of the project, so data is not available for this policy area. Marine and Fisheries – Rating: Moderately Satisfactory Under CCDPL, GOI was recognized for launching the National Plan of Action of Coral Triangle Initiative and approving a roadmap of CTI actions for 2010-11. In subsequent years,

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the Ministry of Marine Affairs and Fisheries (MMAF) continued to strengthen the institutional and regulatory framework to manage coastal zones and to increase coastal community resilience. MMAF’s Climate Resilient Village planning project for coastal area was completed in mid 2010; this entailed detailed engineering, implement the design and develop the community resilience through workshop and training; also a Strategic Plan for a model coastal village was finalized in 2011 for Tanjung Pansir Village, Banten Province. In 2010, MMAF also completed a study on coastal vulnerability in relation to sea level rise in Java and Bali and another in West Sumatra. These studies resulted in a more comprehensive draft strategic plan and recommendations for wider coastal vulnerability application in Indonesia. MMAF also reviewed and updated its Strategic Plan for Blue Carbon Research in Indonesia for 2011-2014 and released the plan for public review. The monitoring indicator for this area was the percentage of coastal communities in 8 districts on the north coast of Java that showed a greater awareness and changed practices, relative to a baseline to be created over the duration of the CCDPL. The baseline was not established during the project life, so data are not available for this policy area. Climate Forecasting and Impact and Vulnerability Assessment – Rating: Moderately Satisfactory After the initial CCDPL period, the GOI and Development Partners agreed to add a focus area on climate forecasting and vulnerability assessment. Under this focal area Indonesia took the following important steps to strengthen the institutional framework and capacity for scientific research on adaptation:

• The Meteorological Agency (BMKG) developed a climate change modeling program to assess impact and vulnerability and completed 7 modeling scenarios, as well as vulnerability assessment study in East, Central and West Java;

• In 2010, MMAF established the Indonesian Global Ocean Observing System (INAGOOS) Data Center and Secretariat in Jakarta; and

• In 2011 the MMAF publicized its Strategic Plan (2011-2014) for INAGOOS and it became part of the RAN-GRK regulation.

INAGOOS is the Indonesian counterpart to the Global Ocean Observing System, an international program (coordinated by UNESCO-IOC) meant to coordinate ocean observations and provide modeling and technical analysis support. INAGOOS monitors ocean climate phenomena and provides information to meet GOI’s demand for high-quality and timely information relevant to sound policy and decision making. 3.2.4 Pillar 3 Actions Related to Cross Sectoral and Institutional Issues Mainstreaming Climate Change in the National Development Program - Rating: Satisfactory Under CCDPL, the GOI was recognized for finalizing the 2nd National Communication to the UNFCCC, submitting mitigation actions under the Copenhagen Accord in January 2010, and issuing key development planning documents related to climate change, as well as the RPJM. Later in 2010, the GOI went on to finalize the Indonesia Climate Change Sectoral Roadmap (ICCSR), which became the basis for further actions. The presidential decree on National Action Plan for 26% GHG voluntary reduction (No 61/2011) was signed on September 26, 2011 (a delay from the original plan). This formalized the commitment and specified the necessary actions of line ministries and regional governments.

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Policy Coordination and Financing for Climate Change – Rating: Satisfactory The CCDPL recognized the GOI’s achievement in issuing the National Action Plan Addressing Climate Change, establishing a National Council on Climate Change, and launching the Indonesia Climate Change Trust Fund (October 2009). In terms of climate financing, following the establishment of the Indonesia Climate Change Trust Fund (ICCTF), the GOI evaluated proposals and funded $4 million worth of projects from Ministries of Agriculture, Industry and the Meteorological Agency. Operating procedures and trustee arrangements were formalized, in line with applicable Presidential Regulations. The GOI has also succeeded in accessing climate finance resources from several global trust funds under the Climate Investment Funds, as well as bilateral development assistance. It is estimated that the GOI has benefited from over a billion dollars worth of climate assistance over a five year period (including $400 million from the Clean Technology Fund, a billion dollar pledge from Norway, and hundreds of millions in bilateral programs). This contributed to awareness, interest and capacity to access international climate finance. In terms of incentives for climate change action at the sub-national level, there has been some progress on a thorny topic. MOF and BAPPENAS held discussions and developed technical studies for improving the design of the Special Allocation Fund (DAK) to provide more explicit climate change incentives for sub-national governments. This proved difficult because of the cross sectoral nature of climate change and the sectoral nature of the existing DAK (19 sectors, Rp. 25 Trillion in 2011). As an interim alternative, the GOI increased the allocation for the forestry sector. In coordination, MOFOR issued Technical Guidance for using Forestry DAK to improve incentives for better forest management in line with climate needs. MOF continues Analytical studies on this key issue. GHG Measurement and Monitoring - Rating: Satisfactory In later periods, the GOI also wished to record progress in developing a monitoring mechanism for carbon emission and absorption through establishment of a National GHG Inventory System. After submission of the main report of the 2nd National Communication to UNFCCC (Feb 2011), the GOI also issued a Presidential Regulation on National GHG Inventory (No. 71/2011). Under the regulation, the Ministry of Environment is charged with developing the National GHG Inventory System (SIGN) at the national level, with technical inputs from the line ministries. Work is in progress at the local levels – with the support of provincial governors and mayors – to improve data used for local and national GHG inventories. By 2014, the Government plans to have established a solid foundation for GHG inventory preparation, in line with increased reporting requirements under the UNFCCC and also so that inventory data can be used as a tool for effective and informed policy making. 3.3 Justification for Overall Outcome Rating Rating: Moderately Satisfactory The CCDPL’s objective of supporting the Government’s efforts to achieve a lower emission, more climate-resilient growth path and to help in establishing a favorable policy and institutional setting to access global climate finance opportunities was strategically important and appropriate given demands from Government. The CCDPL responded specifically to the President's ambitious climate change agenda and brought together significant financial resources from key development partners. In a number of key areas (climate finance, REDD+, water resources management, disaster preparedness) progress was significant, with

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outcomes exceeding initial expectations. In other areas (peatlands, energy efficiency, and coastal adaptation areas) progress was less significant or transformative. Those areas with less than desired achievements were hindered in part by complex regulatory environments, and uncertainty in prioritizing investments. As noted above, the CCDPL process was managed in an institutional landscape colored by competition among agencies on the role and placement of climate policy and particularly climate finance, the North-South divide in the global climate negotiations, and by changes in power and responsibility within key Government agencies. But the objectives and actions achieved were worthwhile and the process has stimulated further action, including the grant and TA projects that the Bank is now managing in the climate change mitigation space. Experience and capacity were developed and relationships among agencies were fostered that may provide the confidence to continue and accelerate reforms. 3.4 Overarching Themes, Other Outcomes and Impacts 3.4.1. Poverty Impacts, Gender Aspects and Social Development In the forest sector, the Indonesia CCDPL supported efforts to reduce forest degradation, deforestation, illegal logging, and use of fire through regulatory processes and institutional capacity improvements. Although there is some potential for negative social and poverty impacts depending on how a scheme for REDD or peatland management is carried out in practice, the REDD+ process in Indonesia has been very consultative, with opportunity for engagement with disadvantaged groups, including indigenous peoples. Investments in land use planning, water management, and governance, as well as civil society monitoring offer the potential to improve the positive and reduce the negative aspects of REDD implementation. When REDD+ programs or more rigorous standards in land management are implemented, land-use patterns and values will be affected; some will gain and others will lose. Although there is a need for caution to ensure that policies do not unduly restrict or disrupt local livelihoods, there is also a need to consider these potential impacts against the ‘business-as-usual’ path, which would entail continuing loss of habitat and biodiversity, illegal logging and revenue loss, and marginalization of poor and indigenous communities. In the energy sector, the CCDPL helped to promote investment in energy efficiency and renewable energy through an improved regulatory framework and coordination of incentives. More efficient energy use and pricing will also free up budgetary resources for job creation and poverty alleviation. Policies that can affect consumer prices are linked to programs that anticipate and avoid negative impacts on the poor, such as compensatory cash transfers. Experience and sophistication on targeting and evaluating cash transfers has improved over time and the GOI has demonstrated the capacity to lessen the adverse impacts on the poor. In general, mitigation actions are likely to have positive environmental impacts, including direct emissions reductions and co-benefits such as cleaner air, better managed watersheds, and preservation of habitat, as well as reduced health losses associated with smoke and haze. The CCDPL also aimed to to improve adaptation, resilience and preparedness in rice production, water management, coastal zones and disaster response. The poverty and social impacts of policies related to adaptation, disaster preparedness and cross-sectoral and institutional issues are expected to be positive or neutral. Domestic investments in adaptation help to increase the resilience of the resource dependent poor, both in coastal and inland areas, as well as the urban poor exposed to flooding, disease and extreme weather events. In the medium to long run, adaptation efforts will help the poor to be more prepared for climate related changes, even though there is some uncertainty. Climate change has definitely

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brought new forms of financing to Indonesia, including investments at local level, participatory processes, information exchange and livelihood programs. 3.4.2. Institutional Strengthening The CCDPL aimed to improve institutional coordination and capacity for climate change response, which will help Indonesia in the long run as the effects of climate change become more apparent. The program aimed to strengthen coordination and regulation of peat land issues, an area of weakness in current law and practice. It also aimed to strengthen the body of knowledge, policy and guidance on climate mitigation and adaptation. Through dialogue processes and policy discussions, the CCDPL helped key GOI agencies understand links between sectors and levels of the economy and create networks of practitioners with a common understanding and approach to addressing climate change over the medium term. 3.4.3. Other Unintended Outcomes and Impacts As noted above, there are a number of co-benefits associated with climate change mitigation, including reduced air and water pollution, reduced health risks associated with fire/haze, improved production and delivery of environmental services, greater energy efficiency and international competitiveness. These are not unintended, but non-quantified, outcomes and impacts. On the institutional side, the CCDPL process unfolded in parallel with an overall increase in the level of interest, attention and action on climate change among the central planning and finance ministries that allocate resources and address trade-offs. This has led to stronger leadership on cross cutting issues and program level responses, such as planning for greener and more sustainable development. This is in contrast to an approach based around more narrow sectoral interests and a competition for resources and policy influence.

3.5 Summary of Stakeholder Workshops The lead GOI regularly convened technical working groups and steering committees that invited cross sectoral participation. Meetings were used to clarify the nature and rationale for the CCDPL program and to track progress against indicators. These meetings served an important function for exchanging information and views among key stakeholder agencies. 4. Assessment of Risk to Development Outcome The risk that the development outcomes of the CCDPL will not be maintained going forward is rated as moderate. Three risk areas identified in the 2013-2015 CPS

Document of The World Bank€¦ · L/C/TF Number(s) IBRD-79150 . ICR Date . 06/27/2013 . ICR Type ....

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Transcript of Document of The World Bank€¦ · L/C/TF Number(s) IBRD-79150 . ICR Date . 06/27/2013 . ICR Type ....