Document of

The World Bank

FOR OFFICLAL USIE ONLY

Report No. 13637

PROJECT COMPLETION REPORT

INDONESIA

SECOND EAST JAVA WATER SUPPLY PROJECT(LOAN 2632-IND)

OCTOBER 26, 1994

Infrastructure Operations DivisionCountry Department IIIEast Asia and Pacific Region

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EQUIVALENTS

Currency Name - Rupiah (Rp)

Annual Average Exchange Rate (Rp/US$)1984 1985 1986 1987 198 1989 1990 1991 1992 I199

Rupiah 1,026 1,111 1,283 1,644 1,686 1,770 1,843 1,950 2,030 2,120

FISCAL YEAR

World Bank July 1 - June 30Central Government April 1 - March 31Water Enterprise January 1 - December 31 for PDAMs

April 1 - March 31 for BPAMs

UNITS AND EQUIVALENTS

1 Meter (m) = 39.37 inches1 Kilometer (kim) = 0.62 miles1 Cubic meter (cu m) = 35.3 cubic feetI Hectare (ha) = 2.47 acresI Liter per capita per day (I/c/d) = 0.26 US gallons per capita per day1 Liter per second (I/s) = 0.264 US gallons per second or

15.8 US gallons per minute

ACRONYMS AND INDONESIAN TERMINOLOGY

A$ - Australian DollarADAB - Australian Development Assistance Bureau (now AIDAB)AIDAB - Australian International Development Assistance Bureau (formerly

ADAB)ADB - Asian Development BankAPBN - (Anggaran Pendapatan Belanja Negara) National Development BudgetBAPPEDA - (Badan Perencanaan Pembangunan Daerah) Regional Development

Planning BoardBAPPENAS - National Development Planning BoardBINA PROGRAM - Directorate of Planning and Programming within DGCK/MPWBNA - Basic Needs Approach (GOI water supply program for cities with

population of 20,000 and above)BPAM - (Badan Pengelola Air Minum) Interim Water Supply Authority operated

by CKBPKP - (Badan Pemeriksa Keuangan Pemerintah) Central Government Audit

BodyCK - Cipta Karya (Directorate General of Human Settlements), within MPWDAB - (Direktorat Air Bersih) Directorate of Water Supply within MPWDDN - (Departemen Dalam Negeri) Ministry of Home AffairsDesa - Rural village, and a third-level unit of administrationDGCK - Directorate General Cipta Karya (Human Settlements), Ministry of

Public Works

FOR OFFICIAL USE ONLY

DIP - (Dattar Isian Proyek) Development budget allocationGOI - Government of Indonesia (the Central Government)GON - Government of NetherlandsHRDP I, II and HI - Human Resources Development Project - Stages I, II and IIIIKK - Ibu Kota Kecamatan. The principal town of a Kecamatan. Also refers

to a GOI water supply program for these towns with 3,000 to 20,000persons

ISWSS - Institutional Support for the Water Supply Sector ProjectIUIDP - Integrated Urban Infrastructure Development Program (decentralized

process of programming)Kabupaten - A second-level administrative unit of local government, headed by a

BupatiKanwil - (Kantor Wilayah) Provincial-level offices of central ministriesKecamatan - Administrative Subdistrict (level II) headed by a CamatKEPPRES - (Keputusan Presiden) Presidential DecreeKotamadya - City or Municipality, also a second-level (Level I) administrative unit

of local Government headed by a Mayor (Walikota)£ - Pounds Sterlinglpcd - Liters per capita per dayLKMD - Lembaga Kemajuan Masyarakat Desa, Village participation associationsMHA - Ministry of Home Affairsmm - ManmonthMPW - Ministry of Public WorksNfi - Dutch guilderO&M - Operation and MaintenancePCK - Provincial Cipta KaryaPDAM - (Perusuhaan Daerah Air Minum) Semi-Autonomous Water Enterprise

owned by Level II Government or by self-governing cityPERPAMSI - Association of Indonesian Water EnterprisesPIU - Project Implementation UnitPLN - (Perusahaan Listrik Negara) National Electricity CompanyPLP - (Directorate Penyehatan Lingkungan Pemukiman) Directorate of

Environmental Sanitation with DGCK and MPWPMDU - Provincial Monitoring and Development UnitPMU - Project Management UnitPPSAB - (Proyek Peningkatan Sarana Air Bersih; Formerly known as PAB or

Proyek Air Bersih) Water supply project offices under Cipta Karya,located in the provinces

Province - A first-level (Level I) administrative unit of local governmentPTU - Provincial Training UnitPUOD - Directorate General of Public Administration and Regional Autonomy in

the Ministry of Home AffairsPUSDIKLAT - (Pusat Pendidikan dan Latihan) Central Educational and Training

Agencies in Government DepartmentsREPELITA - National Five Year Development Plan (Repelita I, 1969-74, Repelita II,

1974-79, Repelita III, 1979-84, Repelita IV, 1984-89)SAR - Staff Appraisal Report of World BankSOE - Statement of ExpenditureTA - Technical AssistanceTKPP - Time Koordinas (Interministerial Coordinating Committee for Urban

Development)UFW - Unaccounted-for-WaterWE - Water Enterprise; a PDAM or BPAM as the case may be

This document has a restricted distribution and may be used by recipients only in the performance of theirofficial duties. Its contents may not otherwise be disclosed without World Bank authorization.

FOR OFFICIAL USE ONLY

THE WORLD BANKWashington, D.C. 20433

U.S.A.

Office of Director-GeneralOperations Evaluation

October 26, 1994

MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

SUBJECT: Project Completion Report on IndonesiaSecond East Java Water Supply Project(Loan 2632-IND)

Attached is the Project Completion Report on Indonesia - Second East Java Water SupplyProject (Loan 2632-IND) prepared by the East Asia and Pacific Region Office, with Part IIcontributed by the Borrower.

The project focused on meeting physical targets for limited water supply coverage inSurabaya and 83 smaller towns in East Java, using a Basic Needs Approach in smaller towns,and the poorer neighborhoods of metropolitan areas. Selection of project towns was governedby a top-down, supply-driven process, largely without direct beneficiary involvement.

The project's physical construction targets were generally met (with minor delays), yetunaccounted-for water losses and operating costs remain high in completed Ibu Kota Kecamatan(principal towns of sub-districts) (IKK) systems. Cost recovery and institutional strengtheningaspects fell short of expectations, and the final ERR is estimated to be about 6 percent. Stafftraining, as well as subproject monitoring and evaluation improved considerably over previousefforts.

The project experience raises concerns that the IKK component for water supply involvesa weak policy framework, largely divorced from economic realities and necessitatingunsustainable subsidies. The outcome of the project is rated as marginally satisfactory, and itsinstitutional development impact as modest. The sustainability of project benefits is rated asuncertain.

The PCR is of good quality. No audit is planned.

Attachment

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.1

PROJECT COMPLETION REPORT

INDONESIA

Second East Java Water Supply Project(Loan No. 2632-IND)

Page No.

P reface ........................................................ iEvaluation Summary ... ii

I. PROJECT REVIEW FROM THE BAN'S PERSPECTIVE . .............. 1. Section 1. Project Identity .1..... ISection 2. Project Background .1Section 3. Project Rationale, Objectives and Description .... 4Section 4. Project Design and Organization. 5Section 5. Project Implementation. 6Section 6. Project Results .12Section 7. Project Sustainability .24Section 8. Performance of Suppliers, Contractors and Consultants ...... .... 25Section 9. Borrower Performance .27Section 10. Bank Performance .28Section 11. Project Relationship . ... 28Section 12. Project Documentation and Data .29Section 13. Major Lessons Learned .30

-I. BORROWER'S EVALUATION (Copy of the Summary attached)' .. .......... 32

III. STATISTICAL INFORMATION ................................. 45Table 1. Related Bank Loans ...... ........... ................... 45Table 2. Project Timetable ................. .................... 46Table 3. Loan Disbursement ................ .................... 46Table 4. Project Implementation Schedule ........... .. ............... 47Table 5. (a) Project Costs Summary ............................... 48

(b) Planned and Actual Allocation of Loan Proceeds .. ............. 49Table 6. Project Implementation Indicators ........... ...... 50

(a) PDAM/BPAM Physical Works .50(b) Water Production, Distribution, Sales and Loss ................ 51(c) Water Connections .52(d) Water Enterprise Staffing .52(e) Operating Results .53(f) Availability of Audit Reports .. . ...... ......... 57(g) Audit Qualifications .58

Table 7. (a) Project Financed TA .. ..... ............ .. 61(b) Status and Impact of Completed Consultant Services .... ..... 61

Basic Data Sheet . . .68

ANNEXESAnnex 1. Compliance with Loan Covenants .70Annex 2. Bank Missions .73

Full report is in the project files.

- i -

INDONESIA

SECOND EAST JAVA WATER SUPPLY PROJECT (Loan 2632-IND)

PROJECT COMPLETION REPORT

PREFACE

1. This is the Project Completion Report (PCR) for the Second East Java WaterSupply Project in Indonesia, for which Loan 2632-IND in the amount of US$43.3 million wasapproved on November 12, 1985. The loan was closed on December 31, 1993, 15 monthsbehind schedule. It was 96 percent disbursed and the balance of US$1.574 million was cancelledin two stages: first an amount of US$108,000 was cancelled in following the reduction in theproject scope and finally, following the last disbursement on April 30, 1994 the balance ofUS$1.466 million was cancelled. The PCR was prepared by the Infrastructure OperationsDivision in Department 3 of East Asia and Pacific Regional Office (Preface, EvaluationSummary, Parts I and III). The revised guidelines for PCR preparation dated June 1989 havebeen followed insofar as possible.

2. As the supervision mission aide memoirs indicate, the Bank paid early attentionto preparation of the PCR. The Bank worked closely with the implementing agencies and theconsultants in preparing outline, first draft, and revised drafts, relating to technical, financial, andinstitutional aspects. In anticipation of the original closing date on September 31, 1992, aworking draft was submitted by the Borrower in September 1992, i.e., 15 months before theactual closing date. A revised draft was received on April 22, 1994

3. This report is based, inter alia, on the Staff Appraisal Report, the LoanAgreement, detailed aide memoirs from the Supervision missions, correspondence between theBank and the Borrower, internal Bank memoranda; and the Borrower's drafts. In view of theclose collaboration and substantial input from the Bank in analyzing the project results, there isno major difference in conclusions drawn by the Bank and the borrower. Accordingly parts ofthis PCR have been extracted from the Borrower's drafts. The PCR also incorporates findingsof a brief mission by the task manager in February 1994. It may be noted that the Borrower hasnot completed audit of the final Project cost. Accordingly, the data contained in the PCR isbased on a reasonable estimate. Differences if any are expected to be minor.

4. A copy of Parts I and III was sent to GOI in May 1994 for review. Borrower'sverbal comments were received and incorporated in early June 1994.

- ii -

INDONESIA

SECOND EAST JAVA WATER SUPPLY PROJECT(Loan 2632-IND)

EVALUATION SUMMARY

i. Objectives: (Section 3) In line with the Bank strategy, the objectives of theproposed project were to provide continuing support to GOI's water sector development andinvestment program, specifically: (a) to substantially increase low-cost clean water production anddistribution facilities throughout East Java Province in conformity with Repelita IV targets; (b) toprovide technical assistance to forthcoming or recently established water enterprises in East Javafor sounder operation and system expansion through introduction of and training in appropriatemanagement, accounting, operating and maintenance practices; (c) to improve provincialgovernment level capability in: (i) planning and implementation of water supply investmentprograms; (ii) monitoring and development of PDAM performance; (iii) provision of technicalassistance and training to PDAMs; and (iv) water pollution control; (d) to implement improvedfinancing policies; and (e) to help in preparation of other urban and water supply projects.

ii. Implementation Experience: (Section 5) All components of the appraised projectwere fully implemented with the exception of some public taps. The implementation schedule isshown in Table 4. Project implementation indicators are detailed in Tables 6(a) through (g). Therewere savings on procurement of the treatment plant in Surabaya, and due to devaluation of the localcurrency. Tle savings were used to extend transmission and distribution network in Surabaya andto fund part of the preparation effort for several new projects.

iii. Project Results: (Section 6) Direct benefits as a result of this project have beengained through substantial increases in (a) the quantity of water produced, (b) the number of serviceconnections and public taps (thereby improving access) and (c) the quantity and quality of drinkingwater sold. Summary of operating results for each WE is shown in Table 6(e). The Loan closingdate was extended by 15 months in order to complete the procurement for extended network inSurabaya. Loan covenants have been generally complied with, with three exceptions: (a) there hasbeen persistent lag in achievement of cost recovery, which is affected by depreciation allowancesand tariff levels. (b) there have been delays in completion of audit reports; and (c) clean up of KaliSurabaya has proven to be much harder than assumed. Setting of tariffs is in the hands of localgovernments. Baupatis have resisted attempts to give more autonomy to the PDAMS in settingtariffs. Efforts continue to encourage WEs to fully account for and recover their costs. While allWEs are covering O&M cost and a part of depreciation, only a few are able to cover fulldepreciation at legally authorized rates. The ongoing East Java Bali UDP (Loan 3304-IND) willmonitor further progress on audit and cost recovery issues. Efforts are still needed for continuingattention for carrying out action program about abatement of pollution by industrial and residentialeffluents discharged into the Surabaya river. Given the limited scope of pollution control under theproject, the recently approved Surabaya Urban Project includes substantial work to carry forwardthe pollution control.

iv. Project Sustainability: (Section 7) The project has a number of aspects whichwere designed to secure sustainability of the WE investments and sector progress. These includedinter alia: (a) maximum use of groundwater and minimum use of surface water sources andcomplex treatment plants; (b) provision of a full range of tools and equipment to each WE for

- iii -

O&M; (c) careful division of investment in each Kabupaten between BNA and IKK-sized towns toensure that in spite of their small size and relative poverty, the WE had a chance to be viablefinancially; (d) periodic revision of tariffs to ensure better cost recovery while still maintaining thetariff's social objectives; (e) provision of training and on-the-job assistance to all 13 WEs to maketheir operations more efficient; (f) establishment of the PTU and PMDU to provide on-goingtraining, monitoring and development assistance to all WEs in East Java, and east Indonesia throughPTU; (g) assistance to strengthen DGCK's ability to direct development of the sector.

v. Low tariffs and higher UFW have prevented full financial viability in most WEs.In any case all are covering O&M and at least a part of the depreciation. The above measures havesucceeded some way in ensuring present benefits are maintained and are likely to be raised in thefuture. Recovery of O&M and even partial depreciation costs through better tariff structure ismaking funds available for improved O&M and even small extensions of the distribution system.Concentrated efforts in human resources development under this and previous projects are beginningto improve WE efficiency and enable them to become relatively self-reliant.

vi. Findings and Lessons Learned: (Section 13) Major lessons learnt in terms ofproject design, implementation, technical, financial and institutional areas are listed below.Elements of project design found to be useful were: (a) the devolution of implementationresponsibility to the province through PMU/PIUs; (b) preparation of detailed design almostcoincidentally with project preparation; and (c) using stockpiled material to commence physicalwork quickly.

vii. Implementation experience indicates that: (a) larger work packages facilitated bylarger multi-year budget allocation benefit the result; (b) not all people can be persuaded to takepiped supplies of water, but most people prefer house connections; (c) improved access is importantto ensuring demand; (d) difficulty in achieving public tap numbers illustrates the importance ofaccessibility of alternate sources (wells); (e) including construction of house connections under theproject is helpful in ensuring reasonable cost of connections, and making water available for salequickly; (f) commissioning of works requires careful allocation of capital and manpower resources;(g) considerable TA is needed to prepare projects and are not easily estimated during preparationof sector projects; and (h) clean up of a major river is a complex task in technical, financial,institutional, and legal terms.

viii. Technical aspects of project results offer the following lessons: (a) further demandfor water exists in Surabaya and BNA towns; (b) balanced development of water treatment,transmission, distribution and consumer services is required; PDAM Surabaya continues to sufferdue to delay in the next phase of water production facilities; (c) chlorination of supplies isobjectionable to some people in semi-rural areas; (d) reduction in UFW is difficult and requireslarge incentives and investment, but is vital; (e) use of flow restrictors in IKK systems should beabandoned; and (f) WE should consider further investment in upgrading IKK system for exampleby installation of water meters in the remaining areas.

ix. Flnancial and institutional results show that: (a) a large and viable PDAM likeSurabaya is able to handle its own project preparation and implementation, while small PDAMslargely rely on central government; (b) a separate PDAM for each Kabupaten is difficult to makeviable for East Java; (c) timely and sufficient tariff adjustments are essential for financial viability;(d) adjustment every three years causes large tariff increases; more frequent adjustments are needed(PDAM Surabaya is now adjusting every two years); (e) investment in training infrastructure hasbeen very beneficial and should continue; (f) poverty alleviation strategies can be addressed throughcareful targeting, project design including public taps, favorably priced; house connections, and welldirected incentives to WEs.

- 1 -

INDONESIA

SECOND EAST JAVA WATER SUPPLY PROJECT(Loan No. 2632-IND)

PROJECT COMPLETION REPORT

1. PROJECT IDENTITY

Name: Second East Java Water Supply ProjectLoan No.: 2632-INDLoan Amount: US$43.3 millionCountry: IndonesiaSector: InfrastructureSubsector: Water Supply

2. BACKGROUND

Sector Development, Planning and Policy

2.1 In East Java province the population during the project implementation period hasincreased from 31 million in 1984 to some 33.6 million people by 1993. It equals almost a fifthof Indonesia's population.

2.2 Of urban and semi-urban populations few were served by piped water system atthe end of REPELITA II in 1979. It required a fundamental reformulation of policy for theprovision of water supply. Therefore, the government embarked upon the "Basic NeedsApproach' (BNA) program. This program targeted investment at small towns, medium cities,and poorer areas in big metropolitan areas. The objective of these programs was to (a) buildsystems which provide an essential service at an affordable price, (b) carry out institutionaldevelopment, (c) use scarce manpower effectively and (d) to demonstrate to consumers thebenefits of safe water supply and to encourage the communities themselves to take initiatives toextend and improve the service. Under the basic needs approach, it was recognized that limitedcentral government funds required relatively low service levels in order to provide water supplyto the largest number of people.

2.3 To achieve these objectives, the programs (especially the IKK program) were to(a) use standardized design procedures, (b) be executed in the provinces and Level II governments(Kabupatens) by local staff to the extent their capabilities permitted (c) use goods purchased inbulk and distributed from regional and central stores, (d) finance projects by loans which werethen to be given free to the Kabupaten government, and (e) set tariffs which were expected tocover operation and maintenance (O&M) costs and depreciation.

2.4 Based on a review in 1981, the Government decided to add a crash program aimedat supplying piped water by 1985 to about 1,700 subdistrict capital towns (IKK), ranging inpopulation from 3,000 to 20,000 people. These IKK projects were designed to provide anaverage of 45 Ipcd to about 60 percent of the project area population, compared to the 60 lpcdfor the BNA projects.

- 2 -

2.5 The national BNA and IKK program supported under the East Java Water SupplyProject (Loan 2275-lND) (the first project) and this project was therefore distinguished fromearlier efforts in that special attention was given to (a) low cost construction, (b) rapidimplementation and (c) focusing design on household needs, especially the poor (hence half thepopulation were to be served through public taps).

2.6 Responsibility for planning and engineering under the project was allocated by theNational Planning Board (BAPPENAS) to the Directorate General of Human Settlements(DGCK). Although Level II governments were in theory responsible for provision of watersupply, they were technically weak and needed central government assistance. However, in linewith a desire to decentralize development efforts, the East Java Provincial Government, throughthe Governor, was to provide assistance. The provincial government was also to play a largerrole in O&M matters in the water enterprises (WEs) benefitting from the project while the centralgovernment implementing agency (the Directorate of Water Supply in DGCK) were to withdrawfrom direct involvement in the WEs after they had been firmly established.

Experience from the Previous Project

2.7 Before this project, the Bank had assisted through (a) Loans 1049 and 1709 toconstruct water supply systems in only 12 large towns spread across Indonesia, and (b) East JavaWater Supply Project (Loan 2275-IND) for about 50 small towns and semi-urban areas in EastJava. However the basic approach had been established whereby Bank financed projects werenot only to assist in rapid provision of piped water supplies but were also to enhancesustainability through improved cost recovery and strengthening of the various institutionsresponsible for the sector development.

2.8 Experience from the previous projects highlighted a number of policy issues whichwere to be addressed under the two East Java projects. These included:

(a) efforts were needed to improve cost recovery, given the large investmentsrequired to meet sector service targets. Hence a tariff study was to beundertaken;

(b) the need to decentralize project implementation to improve the results. Hence theproject was to be managed and implemented from East Java;

(c) improvement in operations of WEs was essential. Hence the establishment of aProvincial Monitoring and Development Unit (PMDU) was agreed;

(d) rapid growth in the sector required sustained support for human resourcesdevelopment. Hence substantial staff development was targeted.

2.9 The experience from previous projects also indicated a number of desirablefeatures of project design which were considered in preparation of this project and generallyincorporated. These included:

(a) establishing a Project Management Unit (PMU) and Project Implementation Unit(PIU) close to the project sites as a means to (i) ease the workload which was

- 3 -

threatening to overstretch Cipta Karya's line organization and (ii) help decentralizethe GOI's development efforts;

(b) reducing the geographical dispersion within a project to certain kabupatens in oneprovince to aid preparation and implementation;

(c) early recruitment of consultants and reasonable preparation of designs in advanceof loan effectiveness to ensure rapid implementation;

(d) institutional development activities to keep pace with physical work; and

(e) early attention to difficulties in procurement of material to remove the mostcommon cause of serious delay in implementation.

2.10 Conclusion and lessons from the Bank's Project Performance Audit Report forEast Java Water Supply Project (Loan 2275-IND) in 1991 were:

(a) There was better performance in the institutional and financial areas than in thetraditional technical provisions.

(b) The excessive emphasis on high speed development resulted, in some areas in asuperficial preparation process.

(c) The Bank must make stronger efforts to help eliminate the extensive andexpensive procurement delays in Indonesia.

(d) The operational issues that fledgling water utilities are likely to face must be fullyconsidered at the preparation stage, particularly where planning andimplementation are carried out by a central authority.

(e) Special attention was needed for the selected issues raised by the project:operational (e.g., water quality, unaccounted for water and service level) andfinancial (e.g., viability and sustainability of PDAM, affordability of tariffs,accounting and monitoring).

IJsues and Constraints During Project Preparation

2.11 Even though this project was appraised in April 1985, some six years befbre thePPAR of the first project, many of the PPAR issues and constraints were the subject of policydialogue during preparation of this second project.

(a) xnplementation Capability: Cipta Karya was experiencing increasing difficultiesin implementing its growing development program in time. Many of itsdifficulties stemmed from the logistically complex nature of the sector involvingnumerous local authorities spread over a wide area, as well as restrictive centralbudgetary and procurement procedures and manpower shortages. As a result,Cipta Karya had started moving toward decentralization of its operation toprovincial level agencies. Thus, the use of PMU/PIU established under the firstproject in East Java was included in the project.

- 4 -

(b) Procurement: The Bank was working with the government at national and lowerlevels, to resolve the identified generic and specific issues which were resultingin excessive procurement delays.

(c) Personnel Requirement for the Urban Water Program: The Directorate ofWater Supply (DAB) and PUOD had in progress a human resources developmentprogram which started in 1979 with the objective of training management,administrative and operations personnel for DAB and water enterprises. ForRepelita IV a "Manpower Development Program" would be established withtraining aimed at six broad staff groups.

(d) Operation and Maintenance: Newly employed PDAM staff required extensivetraining and accounting, management and operational system had to be developed.MHA, MPW and the Governor of East Java had agreed to assign developmentfunctions to the Provincial Cipta Karya in East Java which would monitor theperformance and provide assistance to all water entities in a systematic and timelymanner.

(e) PDAM Organization Structure: The Bank felt that creation of a separate waterenterprise for each Kabupaten was not a viable option, particularly for the smallones. GOI agreed to conduct a study of alternative organization structures in IrianJaya, and North and South Sulawen provinces. It examined several options andrecommended strengthening of the Kabupaten model but did not accept theestablishment of an organization on a province-wide basis.

(f) Water Resource Management: The growing scarcity of water supplies foragricultural, municipal and industrial purposes in Java highlighted the need forincreased emphasis on water resource management and appropriate allocation ofsupplies. Accordingly, a water resources master plan study for East Java wasincluded in the project.

3. The Project Rationale, Objectives, and Description

3.1 Bank Role and Rationale for Involvement. The Bank's role and rationale forinvolvement in this sector in general and this project in particular was to: (a) support low-costtechnology development; (b) strengthen the central agencies responsible for sector planning;(c) strengthen provincial and local government capabilities to plan and implement; (d) supportGOI's programs of physical development; (e) assist in manpower development; and (f) improveresource mobilization through increase in locally generated funds and introduction of improvedfinancial management.

3.2 The project was also important in terms of (a) poverty reduction, specifically withtargeted programs to deliver water; (b) improved public sector management, specifically instrengthening institutions at all government levels, but particularly at local government levels, and(c) in increasing public sector efficiency through cost recovery, etc. At the time the project wasapproved, its objectives fit into the broader country assistance strategy as then articulated by theBank.

- 5 -

3.3 Project Objectives. In line with the Bank's rationale, the objectives of theproposed project were to provide continuing support to GOI's water sector development andinvestment program, specifically: (a) to substantially increase low-cost water production anddistribution facilities throughout East Java Province in conformity with Repelita IV targets; (b) toprovide technical assistance to recently established, or planned, water enterprises in East Java forsounder operation and system expansion, through introduction of and training in appropriatemanagement, accounting, operating and maintenance practices; (c) to improve provincialgovernment level capability in: (i) planning and implementation of water supply investmentprograms; (ii) monitoring and development of PDAM performance; (iii) provision of technicalassistance and training to PDAMs; and (iv) water pollution control; (d) to implement improvedfinancing policies; and (e) to help in preparation of future urban and water supply projects.

3.4 Project Description. The project had four major components, described in theLoan Agreement as Parts A, B C and D.

Part A: BNA/IKK Towns - provision of new water supplies totalling 0.75 cu m/s to atleast 75 medium-to-small sized towns and development of 12 water entities in East Java;

Part B: Surabaya - major works including source development, treatment plant andtransmission/distribution pipelines for a 1 m3/s expansion, as well as rehabilitation of theexisting water supply system; and measures to abate water pollution in the Surabaya riverand reduce the cost of water to low-income groups in the provincial capital of Surabaya;

Part C: Institutional Development - provision of central and various provincial trainingfacilities, equipment and tuition; and strengthening of pollution control mechanisms andestablishment of a PDAM development unit in East Java; and

Part D: Other Technical Assistance - provision of (a) advisory services and stafftraining in project implementation, management, and operations for the purposes of partA and B of the project; and (b) future project preparation studies.

3.5 The total cost of the project, including physical and price contingencies wasestimated at Rp 88.4 billion equivalent to US$80.4 million, of which the direct and indirectforeign exchange component totalled US$41.6 million. Technical assistance for projectmanagement/engineering services, training, institutional development and preparation of otherprojects was estimated to cost US$15.3 million equivalent. Part A (44.3 percent of total projectcost) as well as Parts C and D were to be financed by the loan and GOI equity. Part B(29.2 percent of total project cost) was to be financed by the loan, GOI subloan (in localcurrency) to PDAM Surabaya and PDAM equity. The Loan was to be closed by September 30,1992. A notable feature was GOI's intention to provide the completed assets as equity injectionsto all 12 Part A WEs.

4. Project Design and Organization

4.1 Innovative Features of Project Design: Decentralization. PMU and PIU(outside the daily supervision of DAB) were established for the first project in East Java as amajor step in the progressive delegation of implementation and expenditure authority to theprovinces. It was continued for the second project. This establishment coincided with theestablishment of the deconcentrated MPW organization under "Kanwil" (the Minister of Public

- 6 -

Work's representative in East Java), through which the project was to receive guidance. Furthersteps were taken to foster decentralization with the plan to (a) draw most PIU staff fromprovincial and kabupaten public works offices and (b) early consultation with the provincialgovernment and level II relating to the proposed works, their ownership and future operation andmaintenance. PDAM Surabaya exercised full control over Part B through a separate PIU.(PDAM Surabaya had much less control under Loan 1709).

4.2 Like the previous project (2275-IND), physical works under the Loan were to beconstructed only in one province, East Java. Works were to be constructed in 75 towns, 63 ofwhich could be classified almost as rural. Furthermore, the large number of project townsnecessitated GOI staff become responsible for supervision (again a departure from previousprojects) with Consultants acting in the role of Advisors.

4.3 A number of innovative features were also introduced in terms of the projectcontent and technical aspects. The most significant of these were:

(a) A "fast-track" approach to water resource investigation whereby groundwaterdrilling during project preparation focused only on those towns where doubtexisted about the presence of suitable supplies.

(b) Consolidating management of all systems in the kabupaten under a single PDAMwith cross subsidization of the IKK towns from the larger and more profitableBNA towns; and

(c) emphasis on institutional development issues by the Bank and other donorsthrough the Human Resources Development Project (HRDP) and the InstitutionalSupport for the Water Supply Sector Project (ISWSS). This latter projectincluded studies associated with establishing (i) a Provincial Training Unit (PTU),(ii) a Provincial Monitoring and Development Unit (PMDU) in East Java, and(iii) development and implementation of suitable water enterprise monitoringindicators.

4.4 A further feature, although not a part of the original project designs, resulted fromthe introduction of a GOI decree in 1984 (KEPPRES 29/30, 1984) requiring the use of small"economically weak" local contractors to implement many of the government developmentprojects, and certainly all work on projects of the nature of the Second East Java Water SupplyProject.

4.5 Most features of the project design have been successful. Aspects whichcontributed most to project success were: (a) early completion of design; (b) early landacquisition e.g., for land acquisition process Karangpilang treatment plant started in 1984 and wasfully completed in 1986; (c) use of stockpiled material to obviate early procurement delays;(d) devolving central power to the PMU/PIUs and providing these organizations with staff ofsufficient experience and competence; and (e) ensuring early involvement of provincialgovernment and PDAMs. However, some problems were experienced with required use of(i) economically weak, small local contractors, and (ii) use of flow restrictors (instead of meters)in IKKs which is discussed below.

-7 -

5. Project Implementation

5.1 Loan Approval and Effectiveness. The loan (2632-IND) for US$ 43.3 m wasapproved on November 27, 1985 and became effective on April 29, 1986 by which time the workon BNA and IKK project towns had begun. Table 5(b) of Part III show the original allocationof loan proceeds (with a revised) and then final allocation). US$11.08 million was allocated afterthe November 1990 allocaiton, for civil work (Part A, B and C), US$18.63 million for equipmentand material (Parts A, Part B and Part C), US$12.98 million for Consultants and Service (PartA and Part B) and US$0.60 million for training under Part C.

5.2 Implementation. With the exception of some public taps, all components of theappraised project were fully implemented. The implementation schedule is shown in Table 4.Project implementation indicators are detailed in Table 6(a) through (d). There were savings onprocurement of the treatment plant in Surabaya. This was partly due to devaluation of the localcurrency. The savings were used to extend transmission and distribution network in Surabayaand to fund part of the preparation effort for several new projects. Details are discussed below.

5.3 Project Revision. The project was appraised from feasibility studies andpreliminary designs, but no significant revision of these designs for physical works was necessarydespite completion of final designs after appraisal. The revisions related mainly to: (a) changes(generally increased pipe length) resulting from changes in water sources location; (b) additionaldistribution pipes to improve access to piped water; (c) additional water sources development toimprove water source problem; and (d) increased TA for subsequent project preparation.

5.4 A notable variation was the decision to increase the length of pipelines (almostexclusively distribution system). The low rate at which house connection were being achievedin most BNA town prompted the decision in FY 89/90 to extend the systems to outlying areasand infill within the existing system. The original design assumption that all households withinthe service area would use piped water was found to be incorrect. Their choice of sourcedepended on many factors, among which the most important appeared to be (a) accessibility andreliability of existing sources, (b) cost, and (c) perception of the benefits of piped water. Toprovide greater access to the distribution system, "infill" pipe as well as extensions to moreoutlying unserved "urban" areas were therefore undertaken as GOI counterpart funds becameavailable.

5.5 The considerable increase in TA beyond that appraised is one of the mostsignificant revision to the project. This increase was agreed with the Bank and resulted from theneed to continue future project preparation in terms of (a) detailed design and supervision ofSurabaya distribution system extension and rehabilitation; and (b) technical advisory services forpreparation of other projects discussed below. Details of TA contracts are given in Tables 7(a)and (b) of Part III. This increase in TA requirements shows that project preparation requiresconsiderable input which can easily be underestimated or overlooked.

5.6 Loan closing was delayed by a total of 15 months (in 3 steps) mainly due toadditional works for Surabaya. Originally agreed components of Part B were completed onschedule with a substantial cost saving from the Karangpilang treatment plan. However,distribution need in Surabaya was expanding at a faster rate than expected. Pending processingof Surabaya Urban Development Project (Loan 3726-IND approved in April 1994), the Bank

- 8 -

agreed to allow PDAM Surabaya 1/ to use the saving for further expansion of distribution andsystem rehabilitation. The additional equipment/material included: (a) PVC pipe forrehabilitation; (b) steel pipe for northern link; (c) secondary steel pipe; and (d) tertiary PVC pipe.Overall additions to the original design are estimated to have added about 4.2 million or about17 percent of the project cost.

5.7 Public Taps. The number of public taps constructed was some 41 percent lessthan planned. Public taps have generally proved unpopular with many WEs and of little interestto many people in the beneficiary towns. Some reasons given (as under Loan 2275-IND) are:

(a) given a choice of drawing water from a traditional source (a dug well close totheir residence in most cases under this project) and a more distant public tap,people will choose the former for convenience;

(b) social stigma attached to drawing water from a public tap;

(c) public taps provide water for those who cannot afford a house connection, but thatsame group is unlikely to appreciate the benefits related to improved quality ofpublic tap water compared to traditional sources;

(d) WEs find administration of public taps difficult and expensive; and

(e) improving incomes led people to seek a private connection as soon as possible,with once patronized taps becoming "abandoned".

5.8 The poor acceptance of public taps prompted the Project to construct them onlyas requested. Instead attention was directed to increasing the number of residential connections,which, because of low connection fees and sale on credit terms, ensured piped water to all butthe few desperately poor. Total connections exceeded estimates by 9 percent for Part A systems.Details of water connections are shown in Table 6(c).

5.9 Procurement. As a result of the experience from the first project, the effects ofpossible delay were recognized in the project design and mitigated by: (a) ensuring that all biddocuments were ready before or just after loan signing; (b) early agreement with the Bank onstandard tender documents; and (c) early tendering. The first pipe work contract was advertisedin November 1985 i.e., before loan signing. Table 5.1 summarized the four types of tenderingprocedures (based on tender value) followed for the project (Parts A and C) and comparesplanned and achieved times for the 31 materials and equipment contracts awarded under theproject through September 1992. As shown below, the actual tendering period was shorter thanplanned for all sizes of the contracts. Twenty-three of the contracts had a value of less thanRp 500 million.

I/ In context of Surabaya component of East Java Bali UDP discussions.

-9-

Table 5.1: COMPARISON OF PLANNED AND ACHIEVED TIMES FORTENDERING MATERIAL AND EQUIPMENT PACKAGES

Tendering Tender No. Tender Planned AverageProcedure Value Range Package months Achieved

(Rp million) (months)

A >3,000 2 13 to 15 12B >1,000 <3,000 3 13 to 15 12C > 500 < 1,000 3 13 to 15 12D <500 23 6tolO 4

Cost and Financing

5.10 The total cost of the project was Rp 131,395 billion ($76.781 million equivalent),versus the appraisal estimate of Rp 86.99 billion ($79.1 million equivalent). The actual cost was51 percent higher in local currency terms but 3 percent lower than the estimate in dollar terms.The large increase in terms of local currency is due to its devaluation from Rp 1,026 to Rp 2,120per dollar or by 52 percent. These unaudited figures indicate correct order of magnitude, but aresubject to verification and audit by GOI. Details are shown in Table 5.

Table 5.2: SUMMARY OF COSTS

Cost (R million) US$ '000 % of project 7e (US$)Component Appraisal Actual Appraisal Actual Appraisal Actual ACT/APR

Part A 38,535 45,704 35,032 27,347 44 35 78Part B 25,067 52,999 22,786 28,042/a 29 37 123Part C 10,488 17,102 9,534 10,015 12 13 105Part D 12,899 15,590 11,727 11,377 15 15 97

Total 86.989 131.395 79,081 76,781 100 100 97

La Original scope was enlarged.

5.11 Table 5.2 indicates that the increased cost of the project in Rupiah terms is alsodue to a doubled allocation to the Part B with its share increasing from 29 percent to 37 percentin order to finance additional transmission, distribution and rehabilitation for PDAM Surabaya(see para. 5.6). In general the increases can be attributed to an expansion in the scope of works.

5.12 Financing for the project, estimated and actual, is shown in Table 5.3. For Part AWEs, some material stockpiled under the first project (Loan 2275) was used. Under Part B,PDAM Surabaya installed some pipes acquired under the Second Water Supply Project (Loan

- 10 -

Table 5.3: PROJECT FINANCING

Current US$ m % of TotalSource Appraisal Actual Appraisal Actual

East Java Water (Loan 2275) 0.0 1.89 0 2Second Water Supply (Loan 1709) 0.0 1.48 0 2The Project (Loan 2632) 43.3 41.726 55 54Government of Indonesia 28.58 17.76/a 36 23Australian Govermment /b 1.5 NA 2 NANetherlands Government /b 1.0 NA 1 NAPDAM Surabaya 4.7 13.925 6 18

Total 7 9.0 76.781 10 1

/a Includes $4.57 million for Part B./b Details of actual financing provided are not available.

1709). The Government of Australia provided parallel technical assistance to WEs. TheGovernment of the Netherlands provided technical assistance for human resource developmentand PMDU.

Disbursement

5.13 For several years, the loan disbursement exceeded the appraisal estimate. As ofJune 30, 1988, actual disbursement was in fact almost double that estimated at appraisal. Thisgood performance was due mainly to (a) contract packaging being ready at loan signing indicatinggood preparation of the project; (b) Consultants being in place at loan signing; (c) experiencedProject Manager, Assistants and Staff being in place; (d) Contractors/suppliers being moreexperienced with GOI procedures than the previous ones; (e) use of multi-years civil workcontracts in 1987/1988 until 1988/1989; (f) good cooperation of local government, especially inthe provision of major plots of land for facilities (such as reservoir, pump station) and supply of

December 31 1986 1987 1988 1989 1990 1991 1992 1993 1994

Disbursements ($m) 0.33 7.67 26.94 35.11 38.97 40.03 40.49 41.46 41.726SAR Estimate ($m) 0.7 5.4 19.00 33.70 39.80 42.80 43.30 43.3 43.3Disb. as % SAR 48% 142% 142% 104% 98% 94% 94% 96% 96%

certain field supervising staff; (g) fewer revision in physical works because of the longer gestationperiod (less dry wells, IKK design based on field work and reasonable experience); (h) 90 percentBank finance for civil works during April 1, 1986 to March 31, 1987 period under the SpecialAction Program for all Bank-funded projects during "tight finance" period in Indonesia. Theslippage in disbursement rate and eventual need to extend the closing date by 15 months wasalmost entirely due to revision in scope of Part B of the project as explained below. Details areshown in Tables 3 and 5(b).

- 11 -

Commissioning and Handover

5.14 Part A Systems. All systems have been completed. The first IKK and BNAsystems began operation in 1989 and 1990 respectively. All commissioning of IKK systems wascompleted in 1990 and most BNA systems by the end of 1990. Extension of distributionpipework in each FY year after 1989/1990 was also accompanied by certain remedial work suchas redevelopment of wells, replacement of control equipment and repair of pumps and pipework.These works were undertaken to correct deficiencies and improve the operational performanceof a number of the systems and to complete handover of systems.

5.15 Most of the 75 systems were in fact brought into production without majortrouble. The deficiencies arose through a combination of circumstances, probably the mostimportant being (a) unforeseeable declines in water source quality and quantity, in some areas,(b) difficulty in arranging remedial work once contractors had left the site or the contractmaintenance period had expired, and (c) the limited mechanical and electrical (M&E) maintenanceexperience of personnel involved in the project. Efforts to remedy deficiencies were delayed insome cases due to (i) the time necessary to gain budget approval to undertake further work and(ii) difficulty in persuading contractors to return to site after their responsibility for contract workhad expired. Since then, all Part A assets have been completed and handed over to the waterenterprises.

5.16 Part B Systems. PDAM Surabaya completed (a) Karangpilang treatment plant,(b) the distribution works as planned, and (c) additional works as agreed during theimplementation. PDAM Surabaya already had full control over the assets since it used owninternal cash generation and assumed responsibility for the loan.

5.17 Asset Transfer. For Part A WEs the assets were handed over to WEs foroperation as soon as the trial runs were completed. With regards to the formal transfer for allassets, the BPKP audit verifying the asset value has been completed. Ministry of public worksis in process of transferring the assets to the Ministry of Finance. Following the transfer to MOFby end-1994, the assets are expected to be transferred to Ministry of Home Affairs by mid-1995who will in turn transfer to the concerned local government.

Loan Agreement Covenants

5.18 Loan covenants have been generally complied with, with three exceptions:(a) there have been delays in completion of audit reports; (b) clean up of Kali Surabaya hasproven to be much harder than assumed; (c) there has been persistent lag in achievement of costrecovery, which is affected by depreciation allowances and tariff levels. Setting of tariffs is inthe hands of local governments. Efforts continue to encourage WEs to fully account for andrecover their costs. While all WEs are covering O&M cost and a part of depreciation, only afew are able to cover full depreciation at the legally authorized rate. The ongoing East Java BaliUDP (Loan 3304-IND) will monitor further progress on audit and cost recovery issues. Effortsare still needed for continuing attention for carrying out action program about abatement ofpollution by industrial and residential effluents discharged into the Surabaya river. Given thelimited scope of pollution control under the project, the recently negotiated Surabaya UrbanProject includes substantial work to carry forward the pollution control. Details are discussedbelow and shown in Annex 1.

- 12 -

6. Project Results

Operational Aspects

6.1 General. Direct benefits as a result of this project have been gained throughsubstantial increases in (a) the quantity of water produced, (b) the number of service connectionsand public taps (thereby improving access) and (c) the quantity and quality of drinking watersold. Summary of operating results for each WE is shown in Table 6(e). SAR projections coverthe period through 1991. However, the project was completed on December 31, 1993. Sincegenerally there has been no investment in Part A WEs besides the project, one can safely assumethat the 1993 results can be attributed to the project.

6.2 Production. Only 7 of 13 WEs (including PDAM Surabaya) under the projectwere already established and in operation before 1985. Total production (except PDAMSurabaya) was roughly 5.98 million m3 . By 1991, total production for the 12 WEs reached 20.62million m3 , or an increase of 3.5 times the production prior to the project implementation. Byend-1993, it reached 23.29 as compared to the target volume during the appraisal which was23.96 million m3 . One reason for the lag is that most systems (especially those using deep wellas source) operate only for 12 hours instead of the 24 hours projected. PDAM Surabayaproduced about 124 million m3 in 1991 but reached the target 134 two years later in 1993.

6.3 Water Sales have generally been lower thana the target in most Part A WEs.Only four (Kab. Madium, Nganjuk, Pasuruan, and Kot. Pasuruan) reached or exceeded thetarget. Total water sales in 1993 reached about 17 million m3 as compared to the 1991 target ofabout 20 million m3 i.e., a shortfall of 15 percent. PDAM Surabaya was expected to have sold100 million m3 by end of 1991. The actual was 18 percent less. As of December 31, 1993, thePDAM sales are even further behind earlier targets. This was largely due to delayed investmentsin water production facilities which were to start in 1988 but had not started by early 1994 dueto protracted negotiations for Umbulan Springs with a private partner. The follow-on SUDPincludes construction of the Karangpilang treatment plant II originally scheduled to be constructedstarting 1988. The difference in sales is also due to the high actual unaccounted-for-water whichaverages (a) about 25 percent compared to appraisal's projection of 15 percent of total productionfor Part A enterprises; and (b) about 36 percent for PDAM Surabaya compared to an estimated25 percent.

6.4 Total Water Connection targets have been met. The project WEs (Part A) wereexpected to have 74,430 connections by end 1991 and maintain that level through the projectionperiod to 1994. Actual number was 80,265 by the closing date of end 1993. PDAM Surabayawas expected to have 168,050 connections by the end of the project on December 31, 1991. Itreached that target in 1993. By December 31, 1993, it had 170,593 connections.

6.5 The population with access to piped water from the 12 Part A WEs is estimatedto have risen from about 66,860 in 1985 (SAR estimate) to about 631,000 in 1991. The totalappraisal estimate was 775,000 by 1991. More recent data are not available. The shortfall isa consequence of a reduced number of public taps which were expected to serve (200 persons perpublic tap). In Surabaya, the number of people served reached 1.848 million in 1993 ascompared to estimated 1.996 million. By end of 1993, 64 percent of the population is served inSurabaya as projected in the SAR.

_ _-- - -

- 13 -

6.6 Improved Water Quality. Before the project, most beneficiaries obtained theirwater from shallow wells close to their residence. Health statistics on the decrease in incidenceof diseases arising from water quality between 1983 and 1990 are not readily available, but astudy 2/ in 1984 indicated at least 60 percent and probably more of traditional water sourcesin the towns studied were bacteriologically unacceptable. Regular testing of the produced wateris now undertaken at the treatment plants in Surabaya and in other large towns. The results aremostly satisfactory. However, generally people still boil their water, indicating a lack of faithby the consumers and probability that water quality at the consumer's tap is sometimes notsatisfactory. Given the low service levels, the focus in the past has tended to be on providingquantity of water rather than quality.

6.7 Although boiling of water taken from the distribution system may still be common,there have been few source quality problems experienced in all 76 systems (Surabaya is usingaerators at intake in order to dissolve oxygen in water). The most common treatment in Part Asystems is now precautionary chlorination, although the operation of many chlorinators by WEstaff in a continuous manner has been erratic. WE staff cite various reasons for not operatingequipment, ranging from people "not liking the taste" to faulty equipment. This matter impactsespecially on IKK consumer water quality where intermittent operation of source works makeschlorination all the more important. The conclusion is that deep wells sources are particularlyappropriate in ensuring higher quality water as they minimize the need for high levels of operatorskill required to maintain even simple treatment works. GOI is increasingly emphasizing waterquality issues in the new projects particularly in large towns and cities.

6.8 Unaccounted for Water (UFW). The Unaccounted for Water (UFW) was higherthan expected for the project towns. It averaged about 25 percent _/ compared to 15 percentexpected at appraisal for Part A WEs; and about 36 percent compared to an estimated 25 percentfor Surabaya. Details are shown in Table 6(b). Reasons noted include: (a) the apparent levelsmaybe in error, particularly for Part A because metering is often not adequate especially in IKKs;(b) experienced installers and constant supervision to ensure leak free systems were often lackingfor pipe laying including service connections; (c) loss detection systems are still weak, and(d) "administrative" losses may be higher than assumed.

6.9 Under this project, Unaccounted for Water (UFW) is higher than expected for the12 WEs in Part A but it is better than under the first project (averaging 32 percent), because:(a) production meter on all IKK has been installed in early implementation; (b) improvement ofcontractors/supervisors skill has been raised with training program by PTU, PMDU assistance;(c) use of better quality pipe for house connections; and (d) use of more valves in distributionsystem, which is for better control of leaks.

6.10 For PDAM Surabaya, UFW was expected to be reduced gradually from 36 percentin 1984 to 25 percent in 1991. The task proved to be more difficult than expected. After startof the project implementation, UFW showed limited improvement but increased to about

2/ Sanitation Identification Study Report, August 1984 by Sir M. MacDonald and Partners Asia as partof preparation of the Second East Java IBRD Water Supply Project.

2/ UFW was 22 percent in 1993 if water leaving production facilities (rather than source) is used. Inaddition, Wes give free water for fire fighting, public gardening, and in some cases for mosques.The real" UFW is thus even lower.

- 14 -

39 percent in 1990 after the Karangpilang treatment plant commissioning and resulting pressureincrease. Since then, rehabilitation efforts (including establishment of zones, repairs of pipes,and improved administration) have begun to show some improvement. Based on PDAM dataUFW for Surabaya at the end of 1993 had declined to about 33 percent. In the rehabilitatedzones of the city UFW is as low as 20 percent. Additional efforts will be continued under theSUDP.

6.11 IKK Operation. Demand for connections in the IKK systems was unexpectedlyhigh. However, as reported for the first project, both capital and operating costs have provedto be high and revenue (based on flat monthly tariff) less than expected. WEs are thereforereluctant to operate the IKKs for long periods. In addition, it has been found that the use of flowrestrictors is not acceptable to consumers and cannot be enforced. Restrictors are alwaystampered with, be it to increase the flow rate or just to clean dirt flushed from the mains duringcommissioning or after repair.

6.12 Flow restrictors were changed to water meters starting 1990/91. The changeindicated remarkable success; the meters in effect have acted as "acceptable" restrictors. Theneed to read the consumer meters also ensures that regular inspection is made of the distributionsystem. Revenues (based on consumption) have doubled, and even quadrupled in one case.

6.13 Other improvements made in the project IKK systems include: (a) formation of"loops" in the network layout; (b) installation of more line valves to enable manipulation of thedistribution system into "blocks" if required; (c) installation of PLN (grid) power supplies andmore electrical protection equipment in the control panels to safeguard against the all to frequentpump-motor damage from electrical surges; and (d) use of production water meters.

Flnancial Aspects

6.14 In 1984, not only were six out of the thirteen WEs not established, but also sixout of the seven established WEs were financially in a poor shape. Audited financial statementswere available for only four: PDAM Surabaya, PDAM Ngawi, BPAM Nganjuk and PDAMKab. Pasuruan. In most others, the first income and cash flow statements were underpreparation. The project has improved financial position and management capacities of all, andtherefore their ability to maintain their new level of service. The improvement can be seen fromexamination of the loan covenants related to financial performance of the WEs (Annex 1).

6.15 Accounting and Audit. Accounting before the project was on a cash basis.Accrual accounting is now established in all WEs as is an annual audit (by BPKP) of the financialreports. The quality of implementation of accounting is presently variable but is improving, withassistance from the PMDU and PTU. Accounts for audit are now prepared soon after the closeof the financial year. Although audits by BPKP could be done more quickly, the accountancystandards have improved. BPKP financial audit for 1992 has been completed for all WEs exceptone. With the exception of Surabaya, all WEs have some audit qualifications even though thenumber of such qualifications has been declining over the period. Almost all have qualificationsrelating to value of fixed assets. Other qualifications in 1992 relate to accounts receivable; andtax liability. 1991 and 1992 qualifications are shown in Table 6(g). PMDU is working with eachone to help remove the audit qualification.

- 15 -

6.16 Water Tariffs. The improved financial position of the enterprises is tiedclosely to the structure and level of tariffs. In accordance with the recommended National WaterRate Structure promulgated by the GOI June 1988, tariffs with a progressive structure are appliedin each WE. The degree of progressivity however varies widely between the project WEs. Thekey issue relates to the low level of tariffs.

6.17 As compared to the earlier practice of tariff adjustment every five years, theadjustments were made approximately every three years, for all the WEs under the project.However the amount of increase was often inadequate to generate gross revenue enough to coverO&M and depreciation. The WEs found some difficulty in implementing higher tariffs due tothe following reasons: (a) the issue of affordability of water tariff to the consumers; (b) limitedautonomy of WEs requiring lengthy approval from local assemblies and Bupati; (c) longprocedures relating to formal transfer of assets; as a result, new tariff proposals may not includeadequate allowance for the depreciation of new assets; and (d) special circumstances, such aselections, resulting in delays. As a whole, these have weakened the WE ability to discharge theircommercial responsibilities for cost recovery. Baupatis have resisted attempts to give moreautonomy to the PDAMs in setting tariffs.

6.18 Actual vs. tariffs estimated at appraisal are shown below:

% Increase inActual Average Needed

SAR La SAR lb Average to cover1991 1991 Actual Dec. 93 as % O&M + Dep.

WE Min. Av. Min. Av. Min. Average SAR Dec. 93

Blitar 136 154 233 264 125& NA NA NALdBondowoso 123 137 211 234 175 210 90 54Kediri 98 123 168 210 175 238 113 31Madiun 130 133 223 228 175 252 110 33Nganjuk 125 164 214 281 150 309 110 19Ngawi 105 162 180 278 185 385 138 10Pacitan 125 146 214 250 175 300 120 63Kab. Pasuruan 75 147 129 252 190 403 160 9Kod. Pasuruan 69 144 118 247 220 424 171 NRLAPonorogo 96 130 165 223 185 290 130 20Probolinggo 167 189 286 324 175 258 80 57Trenggalek 140 165 240 283 220 300 106 38Surabaya - - - 444 160 561 126 NRLdSource: PMDU East Java for Dec. 93 data (Feb. 94)La In 1985 prices.Lb In 1993 prices.L/ Blitar minimum tariff increase by 60% to Rp 200 effective January 1, 1994.Ld NA = Not available; NR = Not required

6.19 Revenue Covenant and Cost Recovery. Covenant 4.06 (a) required each of the12 Part A WEs to have gross operating revenues greater than operating expenses and depreciationin each year after 1991. Based on unaudited operating results for 1993, all 13 WEs covered

- 16 -

O&M. Even though the actual average tariffs as of December 31, 1993 were generally higherthan those estimated in the SAR, only two (Surabaya, and Kot. Pasuruan) covered depreciationalso. This is explained by higher operating costs and depreciation. The issue has been repeatedlydiscussed with GOI. Following detailed discussions during the World Bank mission in July 1992,based upon data from PMDU and PPSAB, GOI suggested and the Bank agreed to a phasedapproach. Based on unaudited data for 1993, tariff increases of of 9 to 63 percent are neededin average tariffs in order to fully cover the depreciation. East Java provincial government haspromised that tariffs will be adjusted by end of 1994 which would result in coverage of O&Mplus depreciation for all WEs. In future these WEs will be monitored under East Java Bali UDP(Loan 3304). A recent supervision mission for that project was assured that on-lending to theconcerned WEs will be withheld pending tariff adjustments. Operating results of two WEs (Kab.Ngawi and Kot. Pasuruan) are summarized below. Results for the remaining 10 WE are shownin Table 6(e).

1985 1990 1991 1992 1993

SAR 2SAR AUDrED SAR AUDITED AUDITED UNAUDITED

KABUPATEN NGAWI

TOTAL REVENUES. Rp mln 77 329 331.16 471 437.54 470.59 585

OPERAnNG EXPENSES, Rp 70 305 269.3 353 308.42 342.38 soomlin

NET INCOME BEFORE 7 24 61.86 II 129.12 128.21 85DEPRECIATION.Rp ml

DEPRECIATION, Rp mln 15 106 97.7 118 319.58 307.29 142

NET INCOME AFrER -8 -82 -35.84 0 .190.46 -179.08 -57DEPRECIATION ANDOTHERINCOME

CASH (MONTH OF 7 2 2 1 2 1.5OPERATING EXPENSES)

% WORKING RAnO 90 93 86.5 75 70 72 85

% OF DEPRECIATION 46 23 63 100 40 42 60COVERED

KOTAMADYA PASURUAN

TOTAL REVENUES,Rpmin ISO 339 619 528 807.65 1111.20 1.250

OPERATING EXPENSES, Rp mli 126 266 422.6 353 484.76 749.46 S00

NETINCOME BEFORE 24 73 196.4 176 322.89 361.74 450DEPRECIATION, Rp min

DEPRECIATION, Rp mli 18 157 185.3 176 247.72 262.77 272

NETINCOMEAFTER 6 -84 11.1 0 75.17 98.97 178DEPRECIATION AND OTHERINCOME

CASH (MONTH OF OPERATING 4 2 2 1 1EXPENSES)

% WORKING RATIO 84 79 68.21 67 60 67 64

% OF DEPRECIAIION COVERED 100 46 100 100 100 100 100

- 17 -

6.20 Covenant 4.04(a)(i) required PDAM Surabaya to produce funds from internal cashgeneration to be not less than 30 percent of its average investment program (for the previous,current, and the next fiscal years). The PDAM has met the target. For recent years, it is shownbelow:

1988 1989 1990 1991 1992 1993

Capital Expenditure 12.1 11.9 14.1 25.5 15.2 18.9Capital Exp. (3-year average) 17.7 18.3 19.9Internal cash generation 13.1 14.6 10.4 12.5% contribution 74% 80% 52%

6.21 PDAM Surabaya has remained in a satisfactory financial position throughout theperiod as shown below:

1988 1989 1990 1991 1992 1993- ---------- Audited------ (Estimate)

Volume Sold - Mill M3 69.2 69.8 75.5 82.1 88.1 86.5# Days Accounts Receivable 95 88 72 76 59 75Employees per 1,000 connections 13.3 13.1 11.6 10.3 10.7 10.0Current Ratio 4.6 3.6 6.8 2.9 3.7 2.7Operating Ratio 71% 60% 66% 71% 72% 70%ROR on Revalued Assets exc. Int.14.3% 26.5% 20.6% 16.6% 16.1% 15.5%% Debt on Debt plus Equity 22/78 24/76 27/73 25/75 23/77 20/80Debt Service Coverage 13.4 22.3 14.9 8.0 6.4 6.6

Source: PDAM Surabaya.

Financial performance for 1993 onwards is being monitored under the approved Surabaya UrbanDevelopment Project. (Loan 3726-IND)

6.22 Assets and Depreciation. The value of fixed assets for the towns included in thisproject are based on the capital costs calculated for each BNA and IKK town. Based on SARdata, (a) fixed assets were assumed to be revalued using the local inflation rates; and(b) depreciation expenses were calculated using a straight line method based on the economiclives of the assets. The composite depreciation rates in the project PDAMs ranged from2.87 percent to 3.28 percent. In the actual audited statements, fixed assets are shown at historiccosts. However, depreciation is shown at rates allowed by tax authorities which are based onstraight line method but averaged 4 to 9 percent of the gross asset value in 1992. As a result,actual depreciation charges are considerably higher than those of the SAR. If estimated 1992depreciation (based on revalued assets) as shown in SAR were applied, more WE would havebeen able to break even.

6.23 Profit Distribution. A MHA circular in 1985 "suggested" to provincialGovernors that distribution of 55 percent of PDAM net profits to their local governments (as

- 18 -

allowed by laws constituting the WEs) be foregone until at least 70 percent of people within theserviced areas received piped water. However, except PDAM Surabaya which has been generallyable to limit its payments based on a revised negotiated formula, most of the project PDAMscontinue to make payments even though they are not even able to cover depreciation. PDAMs,while technically "autonomous", are under the control and ownership of local government, whohave a major voice in tariff setting, capital investment plans and distribution of PDAM profits.Payment to local government can be viewed as providing support to provision of other essentialpublic services, but also can create a relationship where the PDAM becomes a cash generator forthe local government while ignoring the need to build up funds to replace capital assets andundertake improvement and expansion. It is not known how much amount, if any, is reinvestedin the enterprises. PMDU has not been able to collect all data. TKPP and Level I Governmenthave been requested again to insure that there are no net payments to the local governments untilat least 70 percent of population is served. East Java Provincial government assured the February94 supervision mission for East Java Bali Urban Development Project (Loan 3304) that fundingunder subsidiary loans will be withheld for the local governments which continue to withdrawmoney from their WEs. MHA indicated that they are considering changing "the suggestion orguidance" in this regard to "instruction".

6.24 Connection Charges. Connection charges to customers have generally beenlimited to their estimated cost to improve the poor's access to piped water. Charges have variedbetween WEs. In addition, all enterprises have allowed credit terms from 3 to 5 years for theproject-financed connections. The achievement of targeted connection number in most systemswould indicate the prevailing level of charges combined with the credit terms, were not a seriousdeterrent to people wanting connection.

Institutional Development

6.25 National Water Enterprise Development. Introduction of the "Kabupaten-widePDAM" concept under the earlier project (as compared to separate WE for each town) has beenmoderately successful under this project even though most of the WEs are small and continue tostruggle financially. Several WEs were started from scratch. Gradually improved efficiency hasbeen obtained, partly as a result of this approach and also because of direct assistance given tothe project WEs.

6.26 Institutional study for Irian Jaya and Sulawensi funded under this project exploredpossibilities of combining Kabupaten WEs. GOI did not proceed with the recommendationbecause of lengthy legislative procedures and possible administrative problems. Instead,improved performance has resulted from assistance by the provincially based PMDU for trainingand monitoring; and a more active role of MHA, especially in overcoming some of theadministrative and organizational problems identified. Action is still needed by MHA and localgovernments to improve (i) supervisory boards, (ii) personnel policies, and (iii) career prospectsfor WE staff.

6.27 Transformation of all WEs from transitional BPAMs to PDAMs was completedby end 1992. Some of it may have been premature in the sense that the new WEs were(a) barely covering O&M costs at that time, and (b) could have benefited from continuedDAB/PSAB assistance.

- 19 -

6.28 Local governments have the final decision with regard to operation of their WE.Further decentralization of local government public service delivery under the IUIDP process,has been agreed after approval of this project. Such an environment should make the localgovernments and their WEs (a) more responsive to local needs, (b) conscious of the need torecover costs, and (c) apply funds to improvement and expansion of their service. Continuedtechnical assistance to WEs through East Java Bali UPD (Loan 3304) should also ensure furtherdevelopment.

6.29 Sector Organization. Sector responsibilities have not changed greatly during theproject implementation period. The Directorate of Sanitary Engineering (DSE) was reorganizedin 1984 which resulted in creation of a separate Directorate of Water Supply (DAB). Technicalassistance under the loan to build sector organizations was channelled through DAB.

6.30 Sector development has been greatly helped by the Human Resources DevelopmentProjects (HRDP) jointly funded by the Government of Netherlands (GON), the Bank and theGovernment. HRDP developed some 500 training modules for different levels and expertise ofstaff to assist PDAM training and assessment. The output from this project will have continuingusefulness. Furthermore assistance to establish the Provincial Training Unit (PTU) and PMDUin East Java has made East Java the leading province in Indonesia with regard to decentralizationof sector development institutions. Study of the role and function of the Directorate General ofPublic Administration and Regional Autonomy (PUOD) in the Ministry of Home Affairs (MHA)in the water sector reviewed its organizational structure, recommended several modifications, andprepared work program to implement the agreed changes. Some improvement in functioning ofPOUD is visible.

Provincial Monitoring and Development Unit (PMDU)

6.31 Even though the concept of PMDU for monitoring of the water enterprises wasagreed under the earlier loan (2275-IND), final agreement on (a) its location within provincialCipta Karya, (b) definition of role and TOR, (c) construction of office space, (d) recruitment ofstaff, and (e) purchase of equipment and material, was achieved as a part of this project. [Seeparas. 2.12 and 6.01(c), and Annex 5 of SAR.] The PMDU was relatively quickly established.It was able to provide assistance to WEs under the first project during the last few years ofimplementation. It has provided valuable assistance to WEs covered under this project, and allof the remaining (24) WEs of the province in terms of (i) assisting with technical, financial, ormanagement tasks in which they may lack expertise; (ii) lending material from its stockpile;(iii) verifying requests for tariff adjustment. PMDU's job will be much easier if WEs wereviable and healthier. Nevertheless, it is a useful monitoring and development intermediary.

6.32 Since then, the concept of PMDU has been replicated in 25 out of 27 provincesof Indonesia. PMDU in East Java is still weak. Its data often needs to be verified. It is currentlyreceiving institutional development TA funded under East Java Bali UDP (Loan 3304-IND). TheBank is currently urging GOI to meet needs of PMDUs all over Indonesia which require(a) structural place in respective provincial governments e.g., under provincial Cipta Karya;(b) support from provincial governments in terms of ability to work directly with PDAMs andbudget for their operations; (c) sufficient number of experienced permanent staff; (d) suitableoffice space; (e) supporting equipment (vehicles, computer etc.) and facilities (workshops etc.);and (f) expert consultants specially in early phases of their development. Given the importance

- 20 -

of PMDUs in monitoring the enterprises, they ought to be formally made a part of the respectiveprovincial IUIDP organization.

6.33 Training. This component of the project as continuation of Loan 2275, has beenvery satisfactory. Training facilities have been improved in East Java and five other regionaltraining centers. Complete training software developed, and about 70 trainers accredited.Classroom training is favored for technical staff. Staff of DAB as well as WEs all over Indonesiahave benefitted. Training efficiency would further benefit from (i) the full support of WEmanagement in the form of willingness to nominate the staff and pay the nominal cost of training;and (ii) availability of additional O&M equipment before training. Dialogue with GOI iscontinuing.

6.34 PTU in East Java is currently training (each year) about 450 to 500 staff members(directors through operators) for duration of one to two weeks. Additionally about 100 staffmembers from contractors are trained principally in pipe laying. Thus direct assistance to theWEs to improve their organization have been parallelled by development in traininginfrastructure. Some of the WEs have established their own training programs too-PDAMSurabaya being a prime example.

6.35 Project WE Organization and Stafring. The project WEs already establishedin 1984 had small systems rarely covering more than one community, high staff levels and weakorganization. Local Consultants reviewed their organization, and gave training both on andoff-the-job. The assistance provided to each WE included (a) on-the-job and classroom training,(b) instruction manuals for implementing the agreed changes i accounting and technical areas, and(c) introduction of WE monitoring indicators developed under other TA. All enterprises are nowoperated on a Kabupaten-wide basis. A measure of the improved organization is reflected in thestaffing levels for each WE shown in Table 6(d), which shows the staffing/1,000 connectionratios falling from 24 to 13.9 on average or by about 42 percent for Part A WEs; and from 16to 10 or by 38 percent for PDAM Surabaya over the project period.

6.36 On the whole, the project has contributed to improved awareness of sound waterutility practices within the WEs. However organizational problems still exist, typically (as notedby the PMDU) (a) Bupatis/Walikotas are too busy and the Board of Supervisors of WEs oftenmeet too infrequently to pay the required attention to problems faced by PDAMs (b) Directorsand other senior staff are often not selected on the basis of their professional qualifications(c) these staff often have limited career prospects in the PDAM and prefer to remain Level 11employees, thus encouraging frequent transfers and imposing heavy new training loads, (d) theexistence of large numbers of temporary employees (on secondment from local governments) inthe WEs, even though regulations require they become permanent (direct) employees of the WEwithin three years, and (e) poor communication with their central government overseer, theMHA. Many of these organizational shortcomings have now been exposed under projectassistance to the WEs. An increasingly active role of MHA is needed to obviate them. The Bankis planning to address some of these issues under the proposed National Water Sector Projectwhich is now under preparation.

6.37 Technical assistance provided under the project, manmonths and cost are listed inTable 7(a) under the headings "Training", "Monitoring and Development", "Pollution Control",and "Implementation Assistance". The details of the services, purpose, status and impact of eachservice are given in Table 7(b).

- 21 -

Overall Enterprise Performance

6.38 As mentioned in PPAR (Report No. 10853 dated August 20, 1992) for East JavaWater Supply Project (Loan 2275-IND), PMDU has a simple scoring system for monitoringperformance of the PDAMs. Total score of 200 points is divided into six categories ofperformance: service level-50 points; finance-50; efficiency-30; important functions-20;organization-20; continuity of supply/maintenance-30. Enterprises receiving 60 percent ormore are rated "good"; the rest are considered "problem PDAMs". Action plan is devised toassist each in removing the weaknesses.

6.39 The latest available report was prepared in 1993 and evaluated 1992 performance.The project WEs were evaluated as follows:

Service ImportantLevel Finance Efficiency Functions Organization Continuity Total %

Provincial Average29 .0 21 16 14 14 20 114 57.0

Kab. Blitar 30.5 8 16.5 16 16 24 111 55.5Kab. Bondowoso 30.5 4 26.0 16 18 30 124.5 62.0Kab. Kediri 27.0 8 12.25 16 11 28 102.5 51.25Kab. Madiun 21.5 8 19.5 16 16 18 99 49.5Kab. Nganjuk 27.5 8 23.5 15 18 22 114 57.0Kab. Ngawi 13.0 8 15.5 7 10 18 71.5 35.75Kab. Pacitan 24.5 12 13.0 4 11 16 80.5 40.25Kab. Pasuran 25.0 40 8.0 25 20 16 134 67.0Kot. Pasuran 32.25 8 15.0 18 13 28 110.5 55.0Kab. Ponorogo 30.0 12 14.0 11 12 24 103 51.5Kab. Pabilingo 28.0 4 9.0 16 18 26 101 50.5Kab. Trengalek 30.0 12 12.5 15 14 18 101.5 50.75

6.40 The results may be summarized as follows: (a) service level (composite ofpopulation served, quantity and quality of water) in most is below the average for the provinceeven though the number of connections targeted under the project have been achieved;(b) financial performance (in terms of net income after depreciation and liquidity) is belowaverage for all except one indicating inadequate tariffs; (c) efficiency (enterprise as a whole,production, distribution) is below average for most; (d) performance of important functions(inventory control, customer service, reporting system) is above average for almost all, indicatingthat the technical assistance provided in these areas has been useful; (e) organization (structureand coordination) is above average for most indicating usefulness of technical assistance;(f) continuity of supply, reflecting maintenance is above average in most enterprises.

6.41 Overall most WEs ranked below the provincial average. Only two (Kab. Pasuruanand Kab. Bondowoso) received more than 60 percent of the total score. The fact that this projectconsisted of the poorest among the poor areas and WEs may be a part of the explanation. PMDUhas an ongoing monitoring and corrective action program. The progress will be furthermonitored under the on-going East Java Bali UDP.

- 22 -

OrHER PROJEcT RESULTS

6.42 Future Project Preparation. GOI budget difficulties in the mid-1980s requiredan increased allocation from loans to support and accelerate preparation of future projects. Thisenabled a pipeline of projects to be maintained in the sector. Thus Parts C and D of the loanwere used to finance a series of consultancy contracts, some of which had not been consideredat appraisal. In summary they were: (a) Karangpilang II Design; (b) Provincial Water ResourcesMaster Plan Study; (c) detailed Design of PDAM Surabaya Distribution System Expansion andRehabilitation; (d) East Java/Bali IUIDP; (e) institutional study for North - South Sulawesi WaterSupply; (f) study of the role and function of PUOD in water supply sector; and (g) consultantServices for Jakarta Rehabilitation Pilot Project. Thus several projects namely East Java BaliUDP (Loan 3304); Sulawesi Irian Jaya UDP (Loan 3340); Second Jabotabek UDP (Loan 3219)have materialized in part thanks to funding from this project. Summary assessment of the impactof each service is at Annex F.

6.43 Impact on Physical and Technological Environment. Some minor disturbancesto traffic and access during construction were experienced but their impact was minor, mainlybecause hand-dug pipe trenches require little access and road surface damage is quickly repaired.Matters which could have been troublesome were not, these being (a) land acquisition (a numberof sites, particularly for reservoirs, were relocated to less populated locations) and (b) pipelayingin built-up areas (the generally small diameter pipes can be easily re-routed and require no heavyequipment for laying). The impact of additional waste water generated in supplied areas cannotbe easily assessed, however the proportion of waste water in the drainage systems in the wetseason is very small in comparison to stormwater. Improved sanitary practices introduced underother GOI programs (mainly through the Health Ministry) also reduced the risk of water bornedisease being transported in the extra waste. A further positive impact is that clean water hasbeen supplied to a large number of people who would otherwise have relied on unsafe supplies.

6.44 The project introduced electro-submersible pumping technology while experienceof pumped systems was minimal prior to the project. Pumped systems are unavoidable on manyoccasion but project experience (and some analysis under the East Java Water Resources Study)indicates preference should be given to gravity schemes wherever possible even where the capitalcosts are a little higher than for pumped systems. The project also introduced sophisticatedelectronic telemetry control systems in a number of towns, but this should be minimized asdifficulties in obtaining spare parts and local electronic technicians to repair the units have alreadyoccurred. Electrical control equipment has been less than satisfactory, but at least mostcomponents are available in the market and trained maintenance personnel are becomingavailable.

6.45 Kali Surabaya Pollution Control. Appraisal of the Project showed that severeindustrial pollution occurring in Kali Surabaya would adversely affect the existing works atNgagel and the proposed works at Karangpilang. The problem was tackled in a number of ways:(a) design of the treatment plant to allow for dealing with the level of pollution identified;(b) provision of additional cost of operation of the plant; (c) initiation of work on pollutioncontrol through a first-stage study aimed at preparing recommendations for improvement; and asecond stage for implementation of the recommendations. The project included a total ofUS$0.47 for pollution control activities. The task proved to be more complex in technical,financial, institutional, and legal terms. Lack of a single provincial authority responsible forcleanup of the river proved to be the most serious problem.

- 23 -

6.46 The plant was built and is operating as intended. Major polluters were identifiedand persuaded to instal pre-treatment facilities on their sites. The consultants hired for (c) havemade a number of proposals, but momentum was lost when the TA budget was exhausted, andGOI did not request further funding. The current problems are two-fold: First, the provincialgovernment is unable to take action on key organizational issues pending central governmentdecision about formation of environmental agencies at provincial level. Second, shortage offunding to obtain additional consultancy equipment for the laboratory staff and transport formonitoring and meeting other O&M.

6.47 Through the PROKASIH (Clean Rivers) program for the Brantas River Basin, GOIand the East Java Provincial Government have initiated actions of their own to clean severalrivers,including Kali Surabaya. This program appears to be reducing the pollution fromindustrial sources upstream of Surabaya. Raw water analyses show a considerable reduction ofthe main pollutants since 1991. Furthermore, the ongoing East Java Bali Urban DevelopmentProject provides funds to reduce the largest source of pollution to Kali Surabaya, human wastedischarges from Surabaya's upstream neighbors (Gresik, Mojokerto and Sidoarjo). Additionalfunds would be provided under the recently approved Surabaya Urban Development Project(Loan 3726-IND)to support a K. Surabaya Pollution Control Action Program, largely byimproving their capacity to monitor river water quality.

E. RATES OF RETURN

Economic Internal Rate of Return (EIRR)

6.48 The appraisal recognized that the EIRR would be low, averaging +4.4 percent.'he ex-post EIRR for 3 of the 12 WEs averaged one to two percent, and was negative for therest of Part A WEs. These low rates reflect low tariffs and provide the economic justificationfor higher tariffs. As noted in the SAR, these EIRR calculations are not a fair measure of thetrue EIRR because they do not adequately capture other externalities such as health benefits andtime savings and increased property values. In the meantime essential and safe water will beprovided to a heretofore unserved population at a price which will encourage communityacceptance.

6.49 The EIRR for PDAM Surabaya (Part B) is estimated at 16 percent. As shownabove, the PDAM has consistently earned over 15 percent financial rates of return on revaluedassets for the last five years. Since the willingness to pay is usually equal to or higher than thetariffs, real EIRR would be higher than the financial rate of return.

Poverty Alleviation

6.50 During the appraisal, it was estimated that Part A of the project (12 BNAs and 63IKKs) would benefit 820,000 people by 1991, through house connections and standpipes. About90 percent of the total population or 1.2 million persons in the beneficiary towns were below therelative poverty level of US$ 130 equivalent/household/month in 1985. Based on GOIcalculations as of 1991, actual population served by the project in Part A alone, totaled 631,000persons through house connections and standpipes. The number of people served has increasedsince then. In Surabaya about 470,000 additional people are being served since commissioningof the project-funded Karangpilang WWTP in late 1989 which is larger than the 240,000mentioned in the SAR.

- 24 -

6.51 Although numbers of public taps intended for use by the poor were not achieved,the impact on the poor may not have been severe because tariffs remain low in the socialconsumption blocks and shared connections are common. It must be noted that about 80 percentof the total connections have been directly funded by the project while the remaining have beeninstalled by the WEs. The low use of public taps experienced in many locations may also partlyreflect the improving incomes, and hence reduced poverty.

6.52 Direct benefits have also flowed to the poor from the project. These includegeneration of employment, cheaper water through PDAM as compared to earlier reliance onvendors,, better health and extra time, especially for women, for more productive activities.

7. Project Sustainability

7.1 The project has a number of aspects which were designed to secure sustainabilityof the WE investments and sector progress. These included inter alia:

(a) maximum use of groundwater and minimum use of surface water sources andtreatment plants which are dependent on mainly imported mechanical andelectrical plant;

(b) provision of a full range of tools and equipment to each WE for O&M includingwater loss reduction activities;

(c) the careful division of investment in each Kabupaten between BNA and IKK sizedtowns to ensure that in spite of their small size and relative poverty, the WE hada chance to be viable financially;

(d) periodic revision of tariffs to ensure better cost recovery while still maintainingthe tariff's social objectives;

(e) provision of training and on-the-job assistance to all 13 WEs to make theiroperations more efficient; in case of Karangpilang treatment plant for Surabayaand other WEs, staff used in construction phase were largely kept once the plantwas commissioned to ensure sound operation;

(f) establishment of the PTU and PMDU to provide on-going training, monitoringand development assistance to not only under these project WEs loan 2275 andloan 2632, but also the other WEs in East Java, and east Indonesian through PTU;

(g) assistance to DGCK to not only develop training materials and WE monitoringand development methods but also to strengthen DGCK's ability to directdevelopment of the sector.

7.2 Low tariffs and higher UFW have precluded full financial viability to date formost Part A WEs. The base tariff in December 1993 varied from Rp 125 to Rp 220/ni3 i.e., US6 cents to 10 cents equivalent. At the time, average tariff in Swabayer and Jakarta equalled aboutUS$28 and 50 cents respectively. In any case, all WEs are covering O&M and at least a part ofthe depreciation. The above measures have succeeded some way in ensuring present benefits are

- 25 -

maintained and are likely to be raised in the future. Recovery of O&M and even partialdepreciation costs through better tariff structure is making available funds for improved O&Mand even small extensions of the distribution system. Concentrated efforts in human resourcesdevelopment under this and previous projects are beginning to improve WE efficiency and enablethem to become self-reliant, viable bodies providing a public service responsive to the needs ofthe population in the Kabupaten.

7.3 There is little doubt that the market exists for clean water supplies. That demandhowever is influenced not only by water costs and people's incomes but also the quality of servicethe WE maintains. It is in this area that benefits could be increased in many WEs through futureaction in both technical and institutional development. The proposed National Water SectorProject is expected to address these issues.

8. Performance of Suppliers Contractors and Consultants

8.1 Supplies. Twenty-six of 28 bids were won by local suppliers while the other two(for workshop maintenance equipment and well screen pipe) were foreign contractors with localoffices. Seventeen of the 28 bids were on an ICB basis and 22 different suppliers were awardedthe 28 contracts.

8.2 The performance of suppliers of pipe, well equipment, miscellaneous items andmost mechanical and electrical equipment has been acceptable. Experience indicates that M&Eand imported materials contracts still should be awarded as early as possible (before all othersif practicable) because of the time required to complete them. Lack of clear standard documentshas been a part of the delay.

8.3 The recent introduction of standard documents by the Bank should assist inharmonizing the conditions suppliers experience between projects, improve quality control andenhance project staff management of supply contracts.

8.4 Civil Contractors. GOI regulations require that all development budget workover Rp 1 million be performed under contract. Contracts (over 137) were undertaken by some67 different Indonesian contractors, mostly small local companies. The presidential decrees of1980 and 1984 stipulate that projects with a value less than Rp 200 million must be tenderedamong small "economically weak" contractors established in the districts where the works willbe undertaken. These contractors must also be prequalified to undertake government works.There are more than 3,000 prequalified contractors for MPW work in East Java. Less than 100are classed as not "economically weak", and most rely upon government works for their survival.

8.5 The ability of the contractors for Part A towns depended mainly upon the abilityof their management and senior site staff. Many of the contractors employed at least one(generally young) engineering graduate on site. Quality of the work performed by these smallcontractors was often less than satisfactory. However, all contracts were completed and theirperformance generally improved over time, as their experience increased. Factors which helpedperformance have included: (a) "slicing and packaging" of the works into elements whichreduced contractor's risk; (b) decentralization of payment procedures during the project to enablepayment through local treasury offices (KPN) rather than in Jakarta; (c) allowing price escalationsin 1986 following devaluation; (d) limiting tender invitation lists to those who had previously

- 26 -

worked on the project; (e) government intervention to control prices nationwide of cement, steeland other construction materials, thus reducing price fluctuations; and (f) tradesman andcontractor training at PTU. During the process, a large number of small contractors receivedtraining and experience.

8.6 In the case of Part B, the main contractor (P.T. Wijaya Kusuma) for Karangpilanghad experience of similar treatment plants and did not experience any major problem.

Performance of Consultants

8.7 The proportion of the loan used to finance TA increased substantially with 45contracts awarded to 22 different consulting firms. Much of this increase was due to additionalnew project preparation. Consultants therefore played a significant role in the project. Underthe project 233 manmonths of foreign consultant and 5,197 manmonths of local consultants werecontracted. Large number of local consultant man-months is partly explained by wide spreadnature of the project and exclusive use of local consultants in the field. Appraisal estimates were234 foreign and 1,249 local man-months. Co-financiers (ADAB and GON) also providedtechnical assistance for human resource development, WE institutional development, and PMDU.Division of work was clear. Each agency followed its own contractual arrangements.

Table 8.1: ANALYSIS OF CONSULTANT SERVICES

Total CostsTA Component Contracts Man-months (US$ '000

Local Foreign Equivalent)

Training 14 831 0 1,380

Monitoring/Dev. 5 40 0 147

Pollution Control 2 482 NA 855

Implementation 15 3,159 207 2,998Asgistance

Future project 8 685 260 5,442Preparation

Totals 39 5,197 233 10,822

8.8 Project management and advisory services to the PMU/PIU following on fromproject preparadon enabled early momentum to be maintained through support of the new PMU.These services relied more on the local consultant. Although not intended to provide fullsupervision of the works, the consultants provided valuable support for GOI supervision staff by

- 27 -

ensuring timely preparation of each year's tender documents and providing experiencedconstruction engineers to advise PIU subsections. They were also useful in consolidating loanmonitoring, management and reporting under the East Java PMU.

8.9 Institutional development aspects have involved local consultants most heavily,although foreign consultants, also provided very useful inputs. There was useful transfer of skillsand knowledge (especially under HRDP) in the fields of training, management and finances andthe material produced have been, and will be, very useful in improving enterprise performancein the sector.

8.10 Preparation of future projects required more foreign consultant services than otherparts. The performance of these Consultants was also satisfactory. Use of foreign consultantswas found to be necessary partly because of the projects' complexity. These services were allcompleted satisfactorily.

9. Performance of Borrower

9.1 The Project Office. The PMU and PIU were officially established in March 1983for the first project. In 1984 the PMU/PIU and the local PPSAB merged. During this project,a much greater responsibility for procurement, payments and supervision of consultants has beengiven to the provincial staff. All these new found responsibilities have been soundly discharged.

9.2 The credit for these achievements (and the early project preparation) lies mainlywith the project staff, who have demonstrated that, with appropriate guidance and assistance fromDGCK, deconcentration of central government activities is a workable concept. PPSAB in EastJava now have a large staff experienced in water supply project implementation. A number ofthese staff have now been sent to other provinces as project managers, while those who remainin East Java will fill many key positions for implementation of the much larger investments underfuture projects.

9.3 Directorate of Water Supply (DAB). The DAB subdirectorates directly involvedin the physical implementation were those responsible for Implementation, Planning and Design(Perencanaan), and Development (Pengaturan). Their performance has been steadily improvingas increased experience of staff and improved coordination of the numerous agencies providingassistance to DAB has taken effect through such measures as creation within DGCK of theCentral Project Finance and Central Project Management Offices. Staff training provided throughDGCK and MPW has been beneficial and ongoing projects will further improve GOI staffperformance.

9.4 Provincial and Local Government. Provincial and local government have alsoplayed useful roles, although not the complete one foreseen at appraisal. Local governments wereparticularly efficient in land acquisition matters while provincial government, through BAPPEDA,have played a useful role in early project establishment and then later in the project as anoverseer of commissioning and hand-over of the facilities. The experience gained will beinvaluable for the much greater role of these parties in the future IUIDP approach. The localgovernments have been less supportive in terms of timely tariff adjustments and reinvestment offunds.

- 28 -

9.5 The performance of PDAM/BPAMs has been mixed. BPAMs have generally beenstaffed by younger and better trained people originating from DGCK. Their enthusiasm andcommitment to the project helped in relatively fast project implementation, and institutionaldevelopment of the new enterprises. PDAMs have also generally been supportive of the project.Creation of the PMDU under the MHA and provincial government, along with greater WEinvolvement in project preparation, are expected to improve PDAM performance under futureprojects. PDAM Surabaya which assumed full responsibility for Part B completed the originalcomponent on original schedule and below cost.

10. Performance of the Bank

10.1 The project grew out of preparation work for the first project. Early preparationwork on two separate projects (one for 25 BNA towns and another for 100 IKK towns in EastJava) were recast into one (Loan 2275) for immediate implementation, and this Loan 2632 to bedelayed by a couple of years. A number of Bank missions in 1984 (during Loan 2275implementation) assisted in bringing the first project quickly to the appraisal stage, with issuessuch as WE organization, O&M capacity, WE monitoring and project implementationarrangements being set-out early. Valuable dialogue ensued between GOI and Bank staff.

10.2 Appraisal. Unlike Loan 1709 which required a post-appraisal some two yearsafter appraisal in 1977, and even then did not become effective until 1980, appraisal to loaneffectiveness for Loan 2632 was completed in one year in April 1986. This achievement waspartly due to the cooperation of Bank staff, who were able to ensure that the issues did notbecome obstacles to progress, but nevertheless were satisfactorily resolved.

10.3 Supervision. The timing and number of supervision missions was satisfactorywith a suitable selection of members from appropriate disciplines. Twenty-two staff in totalcontributed to 20 missions. There have been several changes in the technical staff. However,the task manager remained unchanged. There has been appropriate attention toinstitutional/financial aspects of the project, technical issues and to the application of lessonslearnt in the follow-on projects.

10.4 Bank staff have maintained good working relationships with all GOI agencies andtheir inputs have provided valuable support and guidance to GOI staff responsible for sectordevelopment. Advice from and ideas generated by the missions have been welcome and a basicsource of guidance to GOI staff. The support provided in overcoming obstacles to progress suchas making provision of extra funding during times of limited GOI budget in 1986/87, agreeingrevised procurement procedures and acting to coordinate efforts between agencies have beenparticularly appreciated. The contributions of the Bank's resident staff in Indonesia relating toprocurement have been helpful with prompt responses to GOI queries and ready access being thenorm.

11. Project Relationships

11.1 GOI and Bank. A good working relationship between DGCK and the Bank staffhave enabled early and effective resolution of obstacles to progress and was an underlying reasonfor the good progress on physical implementation of the project. Regular supervision has

- 29 -

minimized the potential for conflict. Improved familiarity of Bank staff with Indonesian customand exposure of GOI staff to new ideas and concepts introduced by the Bank has been beneficialin bringing change to the sector.

11.2 Continuing dialogue has taken place throughout the project, primarily in thecontext of Bank supervision of the various loan covenants relating to institutional developmentand water enterprise performance. In spite of slow change, persistent supervision in this area hasbeen particularly beneficial in raising the awareness of all involved in the sector to these issuesand creating an atmosphere conducive to change.

11.3 Apart from considerable informal discussion, the main medium or "vehicle" forcommunication has been the aide memoires, which are discussed widely in the implementingagencies during and after preparation. Because of the aide-memoire's importance, and the needfor it to be relevant to all GOI agencies involved in the project (including MOF andBAPPENAS), particular attention was given in later years to increased GOI participation in itspreparation and use of summaries to highlight findings. Continued efforts in this regard wouldbear fruit.

11.4 GOI, Bank and Cofinanciers. The Bank's role in coordinating assistanceprovided by the Australian and Netherlands Governments (cofinanciers of this project) has alsobeen helpful as it has brought some uniformity of approach to the sector which otherwise mayhave been lacking, given the large number of bilateral/multilateral agencies working with DGCK.DGCK have had a long relationship with both AIDAB and GON and a good dialogue has beenestablished with both.

12. Project Documentation

12.1 Loan Agreemnent. The loan agreement covenants have not only provided usefultargets for GOI, but have also provided a structured means through which the project could besupervised. The sections of the loan agreement most often referred to were those aboutprocurement. Simplification of previous loan covenants requiring a fixed rate of return on"revalued assets in operation" to one requiring that GOI ensure "gross revenues be not less thanoperating expenses and depreciation" has proven to be more easily understood by operations staffand also more easily monitored.

12.2 Staff Appraisal Report (SAR). This document proved invaluable duringimplementation as a reference and "control" document. As the project progressed and staffchanged, it became ever more useful. Hence the clarity and accuracy are very important. TheSAR for this project was probably the document most often referred to by the Borrower. Onesection which could have been better was that relating to TA. The services expected could havebeen more clearly defined. However, most of the TA for future project preparation was notforeseen at the time of the appraisal.

12.3 WE Monitoring Indicators. Performance indicators for WE's were developedand introduced to the WEs under the project. These indicators are now provided quarterly bythe WEs to the PMDU and PPSAB. However, as review of PMDU quarterly reports shows thereis still considerable progress to be made in ensuring that these indicators have been completed

- 30 -

correctly. Frequent changes to WE staff has hampered progress in this area. This system ofindicators is now used for monitoring all WEs in Indonesia.

12.4 Detailed (Flnal) Engineering Design. A large number of drawings wereproduced along with Bills of Quantities. Contract packaging required some modification attendering stage.

13. Major Lessons Learned

13.1 Experience from previous projects had already highlighted the delay to projectsbecause of (a) cumbersome procurement (b) insufficient project preparation and (c) mismatchesbetween ability to produce water and of that to sell it. The experience of those projects alsoconfirmed that expectations about reduction in the level of unaccounted-for-water have beenover-optimistic and that alternative sources of supply need to be considered when preparingdemand projections.

13.2 Major lessons learnt in terms of project design, implementation, technical,financial and institutional areas are listed below. Elements of project design found to be usefulwere:

(a) the devolution of implementation responsibility to the province throughPMU/PIUs;

(b) limiting the project sites to one province;(c) preparation of detailed design almost coincidentally with project preparation; and(d) using stockpiled material to commence physical work quickly.

13.3 From implementation, experience indicates:

(a) larger work packages facilitated by larger multi-year budget allocation benefit theresult;

(b) not all people can be persuaded to take piped supplies of water, but most peopleprefer house connections;

(c) improved access is important to ensuring demand;(d) difficulty in achieving public tap numbers illustrates the importance of

accessibility of alternate sources (wells);(e) including construction of house connections under the project is helpful in

ensuring reasonable cost of connections, and making water available for salequickly;

(f) commissioning of works requires careful allocation of capital and manpowerresources;

(g) considerable TA is needed to prepare projects and are not easily estimated duringpreparation of sector projects; and

(h) provision of technical assistance constitutes only the first step in clean up of amajor river. It must be followed up with institutional reform and actualimplementation of the clean up.

13.4 Technical aspects of project results offer the following lessons:

- 31 -

(a) further demand for water exists in Surabaya and BNA towns;(b) balanced development of water treatment, transmission, distribution and consumer

services is required; PDAM Surabaya continues to suffer due to delay in the nextphase of water production facilities);

(c) chlorination of supplies is objectionable to some people in semi-rural areas; is stillerratic in some IKKs and needs improvement;

(d) reduction in UFW is difficult and requires large investment but is vital, especiallyfor a large city like Surabaya;

(e) use of flow restrictors in IKK systems should be abandoned; and(f) WE should consider further investment in up-grading IKK system for example by

installation of water meters in the remaining areas.

13.5 Financial and institutional results show that:

(a) a large a viable PDAM like the one in Surabaya is able to handle projectpreparation and implementation on its own without a significant input from thecentral government;

(b) a separate PDAM for each Kabupatan is difficult to make viable for East Java.(c) timely and sufficient tariff adjustments are essential for financial viability;(d) adjustment every three years causes large tariff increases; more frequent

adjustments are needed (PDAM Surabaya is now adjusting every two years);(e) investment in training infrastructure has been very beneficial and should continue,(f) poverty alleviation strategies can be addressed through careful project design and

targeting, including public taps, favorably priced house connections, and welldirected incentives to WEs.

13.6 Sustained operation of project works will depend upon (a) the WEs being helpedby PMDU and PTU to continue to provide a reliable service; (b) timely and sufficient tariffadjustments being made to cover O&M, depreciation and taxes if any. GOI should revisit theissue of appropriate size of WEs. Regional WEs are likely to perform better by poolingresources. The role of PMDUs may also be enlarged. They may be able to providereimbursable services to the needy WEs through management or service contracts.

- 32 -

PROJECT COMPLEION REPORT

INDONESIA

Second East Java Water Supply Project(Loan No. 2632-IND)

PART II

PROJECT REVIEW FROM BORROWER'S PERSPECTIVE

- 33 -

GOVERNMENT OF THE REPUBLIC OF INDONESIAMINISTRY OF PUBLIC WORKSDIRECTORATE GENERAL OF CIPTA KARYA

SECOND EAST JAVAIBRD WATER SUPPLY PROJECT

LOAN-2632 IND

PROJECT COMPLETION REPORT

APRIL 1994

PMU - JATIM PMU - PUSATKANWILDPU CIPTA KARYA - DABJI. Raya Menganti, Wiyung - Surabaya JI. Raden Patah I/1Phone 577721 - 575595 Jakarta SelatanTelex 33130, Fax (031) - 575764

- 34 -

SUMMARY

BACKGROUND (Section 2 of Part II)

S.01. The Government of Indonesia has directed ever larger amounts of funds into the watersupply sub-sector since the beginning of REPELITA I in 1969. A major acceleration of effortstook place at the end of REPELITA II in 1979 when the GOI embarked upon the Basic NeedsApproach (BNA) programme and then added the Ibu Kota Kecamatan (IKK), programme.These programmes were to quickly raise the levels of population benefitting from piped water.

S.02. The Second East Java IBRD Water Supply Project (Loan 2632-IND) constructed watersupplies in 12 BNA towns and 63 IKK towns under these programmes. The approach of theprogrammes was similar to previous ones in that special attention was focussed on low con-struction and rapid implementation with only an essential level of service being provided.Furthermore, the finance was to be provided by central government in the form of grants.Recovery of 0 & M plus depreciation was targetted.

S.03. Responsibility for planing and engineering under the project was allocated by theNational Planning Board (BAPPENAS) to the Directorate General of Human Settlements(DGCK) because, although Level II government are in theory responsibility for provision ofwater supply, they are technically weak and need central government assistance. However inline with a desire to decentralize development efforts, the East Java Provincial Government,through the Govemor, was to provide assistance. The provincial government was also to play alarger role in 0 & M matters in the 12 water enterprises (WEs) benefitting from the projectwhile the central government implementing agency (the Directorate of Water Supply inDGCK) were to withdraw from direct involvement in the WEs after they had been firmlyestablished.

S.04. Before this project, the World Bank had assisted 2 others (Loans 1049 and 1709) toconstruct water supply systems in only 12 large towns spread across Indonesia and I other(Loan 2275-IND). However the basic approach had been established whereby Bank financedproject were not only to assist in rapid provision on piped water supplies but were also toenhance sustainability through improved cost recovery and strengthening of the various institu-tions responsible for the sector development.

S.05. Experience from the previous projects highlighted a number of issues which were to beaddressed under the project. These included:

(a) efforts were needed to improved cost recovery, given the large investments require to meetsector service targets (hence a tariff study)

(b) the need to decentralize project implementation to improve the results; (hence the projectwas to be managed and implemented from East Java

(c) improvement in the levels of 0 & M were essential (hence the establishment of a Provin-cial based Monitoring and Development Unit - PMDU and

(d) rapid growth in the sector required sustained support in the area of human resourcesdevelopment (hence substantial development in this field was targetted).

- 35 -

PROJECT OBJECTIVES, DESCRIPTION (Section 3)

S.06. The specific project objectives were to:(a) substantially increase low cost water production and distribution facilities through-

out East Java Province,(b) provide technical assistance,(c) improve provincial government capability,(d) implement improved financing policies and,(e) help in preparation of other water supily project.

The description of the project were:(i) Part A : BNAtIKK towns in East Java(ii) Part B: Sub-project PDAM Surabaya(iii) Part C : Institutional development and(iv) Part D : Other technical assistance

PROJECT DESIGN AND ORGANIZATION (Section 4)

S.07. The project was to be implemented in one province (East Java) and to include thedeveloped IKK programme in a Bank project. From experience, implementation was to have anumber of new approaches, these being (i) reduced geographical dispersion, (ii) decentralizedmanagement and implementation units (PMU/PIU), (iii) early recruitment of consultants andattention to procurement and (iv) provision of sustained institutional development activities.

S.08. A number of other innovative features introduced were:

(a) accelerated project preparation including detailed design and making use of ground-water resources previously not considered

(b) use of flow restrictors and less usual design criteria as well as standardized modulesin the IKK programme to minimize costs

(c) cross subsidization and expansion of WE responsibilities to cover all systems in theK.abupaten, and

(d) a commitment to support a number of institutional development projects.

S.09. Most aspects of the project design have been successful. Aspects which contributedmost to project success were:

(a) early completion of design, aided by a new approach to water resource investigations

(b) use of stockpiled material and or workshop to obviate early procurement delays

(c) devolving central power to newly established PMU/PUI and providing these organi-zation with staff of sufficient experience and competence, and

(d) ensuring early involvement of provincial government and PDAM.

PROJECT IMPLEMENTATION (Section 5)

S.10. Preparation and appraisal were completed in less than 1 years. Loan effectiveness andthen good disbursement rates followed. Early discussion and agreement with EWs on theirresponsibility and the simple (grant) financing arrangements ensured work under the project

- 36 -

could commence quickly. Early launch of works were facilitated by there being no delay inmaterials supply because they were available from stockpipe. At the same time most IAservices were also contracted. The combined result was that disbursement rate exceeded thatestimated until 1988.

Revision and Delays

S.11. There has not been major revision of the physical works although (i) about 60% moredistribution system costing about Rp. 4,6 billion has been added to improve people's access topiped water, (ii) some revision of many IKK systems has been undertaken before implemen-tation. A large increase in TA has occurred during the project. Although time overrun onphysical work under the project was about 60%, this time was necessary to complete the dis-tribution extensions. These extensions resulted in targetted connection numbers beingsurpassed. Part A completed in March 1992 but not Part B for pipe procurement.

S.12. The distribution system required extension because not all people wanted a connection(as initially assumed). Public taps were supposed to serve 50% of the beneficiaries but 41 %less were constructed than planned because, inter alia, for those who want piped water, houseconnections are seen as being much more desirable. These assumption that a strong demand forpiped water exists among all groups in society is not always correct because water existsamong all groups in society is not always correct because(i) traditional sources are often seen as more convenient(ii) there is some stigma attached to drawing water form a public tap and(iii) there is little incentive for WEs to promote the use of public taps.Improving socio-economic conditions also leads to decreasing dependence on taps. Because ofthese factors and the low cost of obtaining private connections, connections have beenpromoted under the project.

Procurement

S.13. Procurement experience under the project also indicates (i) foreign suppliers are nowunlikely to be competitive for most ICB contracts in Indonesia (ii) LCB procedures are mustfaster than ICB (iii) increased support of the deconcentrated/decentralized logistics section ofproject, (iv) greater use of supply and install contracts (especially for M & E work) should beencouraged and (v) M & E contracts remain the most crucial in project completion and shouldbe awarded as early as possible.

Costs and Fmancial

S.14. The project cost US$ 63.22 million compared to an appraisal estimate of US$ 79.08million. The cost of components (actual vs estimated) in Rp billion was:

Component Cost (Rp. billion) Percentage of TotalAppraisal Actual Appraisal Actual

Part A 38.53 45.70 44 43Part B 25.07 27.17 29 23Part C 10.49 17.10 12 16Part D 12.90 15.59 15 18

Total Rp. billion 86.99 105.57 100 100equivalent US$ million 79.08 63.22

- 37 -

GOI contribution USS 16.7 million from its own sources. The cost expressed in rupiah hasincreased from Rp. 86.99 to 105.57 billion mainly because the value of the rupiah hasdepreciated from USSS 1 = Rp. 1.100 at appraisal to about US$ 1 = Rp. 2.033 at projectcompletion. However the scope of the project also increased (especially TA Services), so acomparison of actual and estimated costs has little meaning.

S.15. Financing came not only from Loan 2632, but also other Bank Loans (1709 and 2275-IND) as well as GOI and the Governments of Australia and the Netherlands. The wide sourceof finances is indicative of the way that the loan was used to support a number of differentprojects as GOI budget restrictions became more severe in what has become known as the"adjustment period" (1983 - 88).

Commissioning and Handover

S.16. Some technical difficulties were experienced during commissioning and hand-over, butthese were not exceptional. However, the time taken to resolve them could have been less.Logistical support, budget and manpower were all required to commission the works. Thelessons learnt from the first project in this regard have however been applied to the SecondEast Java project with success.

Loan Agreement Covenants

S.17. AU covenants have been complied with except those relating to cost recovery, which iseffected by depreciation allowances and tariff levels. Setting of tariffs is outside the control ofcentral government, but efforts continue to encourage WEs to fully account for and recovertheir costs and still needed for continuing attention for carry out action program aboutabatement of pollution by industrial and residential effluents discharged into Surabaya river.

PROJECT RESULTS (Section 6)

S.18. Total production (except PDAM Surabaya) was roughly 5.98 million m3. By 1991, totalproduction for the 13 WEs reached 20.62 million m3, or an increase of 3,5 times the produc-tion prior to the project implementation. This is however below the targe volume during theappraisal which was 23.96 million m3 . One major reason is that most system (especially thoseusing deep well as source) operate only for 12 hours instead of the 24 hours projected.

S.19. Water sales are lagging appraisal values by about one year. The 1990 estimate was15.07 million mi3 while 1991 actual was 15.02 million m3. This differences is not the effect ofdelay of construction and commissioning but due to the high actual unaccounted-for-waterwhich average 27% compared to appraisals 15% total production.

S.20. The population benefitting from piped water under the 12 project WEs is estimated tohave risen from about 66.860 in 1985 (SAR estimate) to about 631.000 in 1991. The totalappraisal estimate was 775.000 by 1991. The short-fall is consequence of less number peopleserved per public tap (200 persons per public tap in appraisal).

S.21. Further benefits area accruing from better water quality. However many people still boiltheir water out of habit as high levels of preventable disease were common in these townsbefore piped water was provided.

S.22. Boiling of water may still be common, but there have not been a lot of source qualityproblems. Those experienced were typically excess salinity, turbidity or iron content. Mostproblems have been rectified without complicated treatment. Precautionary chlorination

- 38 -

equipment is universally installed but its operation is erratic for technical and sociologicalreasons. The use of deep wells under the project is therefore an appropriate policy as waterfrom them require little treatment.

Unaccounted for Water

S.23. Unaccounted for water (UFW) is higher than expected for the project towns (averagingabout 25 %, compared to 15 % expected at appraisal). Improvement under this project include

(i) production meter on all IKK has been used in early implementation,(ii) improvement of contractors/supervisors skill has been raised with training

programme by PTU, PMDU and consultants,(iii) use of GI pipe for house connections,(iv) use of more valve in distribution system, that is for easily controlled leaking.

The lessons of experience have been learnt and corrective actions such as establishment ofUFW detection training facilities, programmes and monitoring system are being implemented.

IKK Operation

S.24. The initial IKK programme was a bold programme initiated in response to a needimprove coverage quickly. Demand for the water exists but an analysis of recorded operatingcosts for selected systems show IKK costs to be higher than BNA as below

Average DirectTariff Operatinz(Rp/m3 ) Costs (mi)

IKKs 80 94BNAs 212 194

Economeis of scale are not available in the IKK towns and low income generation potentialtends to discourages WEs from operating them for long hours.

S.25. Flow restrictors in IKK systems were found to be unacceptable and impractial. Recentinstallation of water meters in trial towns found meters act as "acceptable' restrictors. Thisimprovement, along with a number of others introduced to customize design for individualsystems improved IKK performance. The results could be further studied and the findingsapplied nationally.

Financial Aspects

S.26. The finances of all project WEs has improved along with their management andaccounting. Accounts for audit are now prepared soon after the close of the financial year,and, although annual audits could be done more frequently, the accountancy standards wereimproved.

S.27. As of March 1992 out of the 13 WEs covered by SEJWSP, only PDAM Surabayacovers 0 & M and depreciation. Other 4 PDAMs covered 0 & M only while 2 PDAMs(Kabupaten Ngawi and Kabupaten Pasuruan) were not able to cover 0 & M cost. Out of 6BPAMs, only 2 covered 0 & M costs. GOI indicated that it will be very difficult this year toimplement the large increases needed to cover 0 & M and depreciation.

- 39 -

S.28. Water tariffs have been generally applied in accordance with the recommend Nationalstructure. Often however they need "fine tuning" with regard to progressivity and consumerclassification. They also require more frequent adjusment. Average levels now exceedexpected levels calculated at appraisal. Tariff adjusment is a lengthy process which will beassisted by the newly formed PMDUs and is sometimes hindered because cost recovery is notseen as all important by some local authorities.

Depreciation

S.29. Full value assets, and therefore full dipreciation, is frequently not being accounted for(it is the second most commonly identified reason for BPKP qualification WE accounts).Programmes have been impelemented through DAB to improve accounting of these costs.Local government have the final decision with regard to operation of their WEs thereforesignificant decentralization of local government public service delivery under the IUIDPprocess should make them more responsive to local needs and conscious of the need to recovercosts and apply funds to improvement and expansion of their service.

Institutional Results of Project

S.30. Introduction of the "Kabupaten-wide PDAM" concept under the project has beensuccessful and a similar approach is being use in other provinces. Improved efficiency hasbeen obtained, partly as a result of this approach and also because of direct assistance given tothe project WEs. Staffing levels have fallen on average from 25 employees/1000 connectionsto 11.

S.31. Some investigation has been made of combined Kabupaten WEs but it was not pro-ceeded with because of probable administrative problems. Instead, improved performance willresult from assistance by newly established provincially based units for training and monitoringand a more active role of MHA, especially in overcoming some of the administrative andorganizational problems identified. Action to improve (i) supervisory boards (ii) personnelpolicies and (iii) career prospects will flow from greater MHA oversight.

Sector Organization

S.32. Sector responsibilities have not changed greatly during the 1980's. The Directorate ofSanitary Engineering (DSE) was reorganized in 1984 while assistance under the loan to buildsector organizations was channeled through DAB. Many PDAMs received assistance and arenow in a stronger position to play an increased role in future intergrated development projects.

S.33. Sector development has been greatly helped by the Human Resources DevelopmentProjects (HRDP) and also the Institutional Support for the Water Supply Sector (ISWSS)projects. HRDP developed many modalities to assist PDAM training and assessment. Theoutput from this project will have continuing usefulness even when transferred to MHA.Furthermore assistance by the ISWSS project to establish the Provincial Training Unit (PTU)and PMDU in East Java has make East Java the leading province in Indonesia with regard todecentralization of sector development institutions.

Training

S.34. This component of the project as continuation of Loan 2275 has been very satisfactoryas well as training facilities being improved, complete training software developed, and some70 trainers accredited. Classroom training is being directed to WE management and new

- 40 -

employees while on-the-job training is favoured for technical staff. Training efficiency wouldbenefit from (i) appropriate timing, (ii) the full support of WE management, and (iii) provisionof paper 0 & M equipment before training. HRDP developed a full range of training tools.

Future Project Preparation

S.35. This enable a pipeline of projects to be maintained in the sector. Thus the loan was usedto finance a series of consultancy contracts, some of which had not been considered atappraisal. In summary they were:

(a) Karangpilang II Design and Provincial Water Resources Master Plan Study(b) Detailed Design of PDAM Surabaya Distribution System Expansion and Rehabilitation(c) East Java/Bali IUIDP(d) Institutional Study for North - South Sulawesi Water Supply(e) Study of the role and function of POUD in water supply sector(f) Consultant Services for Jakarta Rehabilitation Pilot Project

Impact on Environuments

S.36. A small negative impact during construction has been far outweighed by the positiveimpacts of clean water, given that some 80% of illness is generally attributed to consumptionof unsafe water. Use of deep wells mostly have been successful and most of the technologyappropriate. The project has also helped to improve the technical ability of government andconsultant staff.

Rates of Return

S.37. The appraisal recognized that the EIRR would be low, averaging + 4.4%. The actualEIRR for 3 of the 12 WEs averaged + 1.24%, and for the 8 WEs it is - 2.97%. The otherWEs EIRR is too negative to be calculated. The FIRR during the appraisal was computed butnot given in the SAR. A recalculation of actual and appraisal rates indicates that PDAMsKabupaten Pasuruan, Kotamadya Pasuruan and Ponorogo, and BPAM Kediri are positivewhile all were probably negative during the appraisal. For the actual FIRR all WEs are nega-tive. Again the low tariffs is the major reason for this low financial ratio.

Poverty Alleviation

S.38. Quantifying the poor and the improvement to their life caused by this project aredifficult, but national studies indicate that poverty fell nationwide from 28.6% of the popula-tion to 17.4% in the period 1980 to 1987. The largest reduction were in rural areas of Java,but poverty in urban areas also decreased. One of the main reason given for this reduction isthe substantial investment in physical infrastructure, such as water supplies provided by thisproject.

S.39. About 66% of planned public taps were constructed but more house connections wereinstalled because (i) even low income people favour the use of private connections wheneverpossible (ii) public taps are more difficult to administer and (iii) the incidence of poor areas arebecoming less. These "pockets" of poverty are now the target of special programmes and evensome projects towns have already received assistance under these programmes.

- 41 -

PROJECT SUSTAINABILITY (Section 7)

S.40. Sustainability of project benefits has been secured by

(i) use of simple sources(ii) provision of 0 & M equipment(iii) cross-subsidization(iv) revision of tariffs to achieve cost recovery(v) establishment of PTU and PMDU, and(vi) assistance to DGCK to develop training system(vii) further review of same project town's needs under follow-on IUIDP projects.

S.41. Demand for piped water undoubtedly exists but it is influenced not only by costs butalso quality and reliability. These latters factors can be improved by various actions to (i)improve levels of 0 & M, (ii) strengthening financial management of WEs through opera-tional, and (iii) continued assistance to PTU and PMDUs.

PERFORMANCE OF SUPPLIERS CONTRACTORS AND CONSULTANTS (Section 8)

Suppliers

S.42. All supplies for this type of project will probably be local companies, and although theirperformance has be acceptable, experience indicates special attention should be given to M &E contracts.

Contractors

S.43. Over 136 contracts were completed without default by 66 East Java contractors. Almostall were small local contractors whose performance was related more to individual managersthan to results of prequalification examinations. These contractors performed acceptability,with a number of factors being important (especially packaging and payment) in achieving thisresult.

S.44. Overall the construction industry is still developing as evidenced by the heavy super-vision needed during construction of the water towers Training of contractor staff is beingintroduced into the sector and the legal and administrative framework for contractorsimproved.

Consultants

S.45. Consultants played a significant role in the project with 34% the loan being disbursedagainst 44 contracts. Man-month inputs and costs were:

Man-months Costs (US $ million)Local 5192Foreign 233

S.46. Project management consultants have been used continously since loan effectiveness.The role of the local consultants has been dominant and a wide range of assistance given to thePMU/PIU. Institutional development and preparation of future projects was undertaken usingassociations of local and foreign consultants. Again the local role has increase over and a nowmost often they are lead consultant in any association. Technology transfer could have beenbetter. Although the performance of consultants has been satisfactory and billing rates recently

- 42 -

increased to ensure talented consultants remain in the sector, reduced levels of their use isdesirable to lower costs. However continued growth will require their use in future projectswith much the same design as was applied to TA under this project.

PERFORMANCE OF BORROWER (Section 9)

PMU/PIU

S.47. Despite rapid growth in staff from about 60 in 1983 to 300 in 1980, the PMU/PIU havetaken on many new responsibilities and have discharged these soundly. Increased training ofproject staff will be beneficial. Four senior member of the PMU/PIU staff have become projectmanagers in other provinces and those who remain provide a nucleus of key staff to "seed"into larger future projects.

DAB

S.48. During the project central DAB sub-directorate concerned with the physical works havegenerally had to shift from a role of direct involvement to one of providing guidance, coor-dination and oversight. Performance in this new role has been good. On-going projects forstaff training and development along with the experience gained by staff under this project willfurther improve performance in their new roles in both Jakarta and the provinces.

Provincial and Local Governrent

S.49. Both played useful roles but not as central as originally envisaged. However theexperience gained will be very useful for the up-coming role they will have under IUIDP. Theperformance of WEs has been mixed, with BPAMs being better than PDAMs because PDAMstend to have of less well trained staff, and also for institutional reasons. PDAM performancewill be improved with PMDU support.

PERFORMANCE OF BANK (Section 10)

S.50. A number of missions in 1981 and 1992 brought this project quickly to appraisal.Negotiation, signature and effectiveness were completed within 4 months. This achievementwas partly due to Bank staff ensuring issues did not become obstacles to progress, but werenevertheless satisfactorily resolved.

S.51. Supervision missions were satisfactory with respect to timing and selection of disci-plines. 14 staff were used on 20 missions. Their inputs have provided valuable guidance toGOI. The contribution of RSI has been especially pleasing and expansion of RSI's role shouldbe considered.

PROJECT RELATIONSHIPS (Section 11)

S.52. Good working relationships maintained between all parties have contributed to theproject's successes with intelligent supervision minimizing the potential for conflict andenabling fruitful dialogue to continue. Attention to ensuring aide-memoires remain widelycirculated would be beneficial while continued support from the Bank in coordinating otherbilateral/multilateral agencies is appreciated.

- 43 -

DOCUMENTATION (Section 12)

S.53. Simple loan covenants in the Loan Agreement have provided meaningful targets and ameans of supervision but the sections most commonly referred to are those relating to pro-curement. Wherever possible these should be harmonized with GOI regulations.

S.54. The staff Appraisal Report (SAR) proved invaluable as a reference and 'control'document throughout the project although sections on TA and costs could have been better.

S.55. WE monitoring indicators have also proved useful for supervision but their accuracy ispresently not good and action is being taken to improve it.

S.56. Documents for procurement of the works prepared under the detailed design assign-ments could have been broken into more packages to facilitate the yearly procurement cycle.Drawings capable of reduction to A3 size are also very useful to facilitate field supervision.

S.57. Data related to the project are not readily accessible. Improved areliving would providea stronger basis for a control system.

MAJOR LESSONS LEARNED (Section 13)

S.58. The lessons of experience from previous projects were all incorporated into this projectin some manner and all have been confirmed by the experiences of this project.

S.59. Elements of project design found to be useful were:

(i) the devolving of implementation responsibility to the province,(ii) limiting the geographycal dispersion of sites,(iii) preparation of detailed design almost coincidently with project preparation, and(iv) using stockpiled material to commence physical work quickly.

S.60. From implementation, experience indicates:

(i) larger work packages facilitated by larger budget allocation benefit the result,(ii) not all people can be persuaded to take piped supplies of water,(iii) improved access is important to ensuring demand,(iv) difficulty in achieving public tap numbers illustrates the importance of accessibility(v) including construction of connections under the project is very beneficial,(vi) commissioning of works require careful allocation of resources, and(vii) considerable TA is needed to prepare projects and are not easily estimated during

preparation of sector projects.

S.61. Technical aspects of project results offer the following lessons:

(i) further demand for water exists in BNA towns,(ii) chlorination of supplies is erratic and needs improvement,(iii) reduction in UFW is difficult but is vital,(iv) use off flow restrictors in IKK systems should be abandoned, and(v) further investment in up-grading IKK system for example by installation of with

water meters should be studied.

S.62. Financial and institutional results show that

(i) cost recovery can be improved through tariff adjusmetment,(ii) Kabupaten-wide PDAM's (with strengthening) are viable for East Java,

- 44 -

(iii) investment in training infrastructure should continue,(iv) poverty alleviation strategies can be included though careful project design.

S.63. Sustained operation of project works will depend upon the WEs being helped by PMDUand PTU to continue to provide a reliable service.

S.64. Mechanical and electrical supply contracts need special attention in any project.

S.65. The Bank's Staff Appraisal Report is widely referred to and should identify all compo-nents as explicitly as possible. All other project documents should be archived in an easilyaccessible centre which could form the basis of a "control system".

S.66. Part III contains statistical data in Tables while the Appendices contain concise back-ground data from which the statistical data has been compiled. The appendices also containuseful data on costs for each system and detailed reviews of the training component and theimpact of every consultant service contract.

- 45 -

PART III: STATISTICAL INFORMATION

Table 1: RELATED BANK LoANs

Loan Number Purpose Approval Status

Loan 1049-INS Improve and extend supplies in five 1974 Completed 05/31/82/ Began IBRDFirst Indonesian cities throughout Indonesia, including the involvement in water supply sector inWater Supply Project two towns in East Java of Malang and Indonesia and included many

Banyuwangi institution- building aspects which arestill relevant.

Loan 1709-INS Expansions of systems in five cities and 1979 Completed 12/31/86. UpgradedSecond Indonesian new installation in two other cities Surabaya supply, continue institution-Water Supply Project throughout Indonesia, including Jember building activities and focused

and Surabaya in East Java, all with attention on high levels ofpopulations greater than 50,000 unaccounted water. Financed

feasibility studies and detailed designof 25 (BNA) towns part of Loan2632, and prepared Loan 2275 andpart of Loan 2632

Loan 2275-INS Improvement or establishment of water 1983 Closed 12/31/90. The predecessorofFirst East Java supply systems in eight East Java Water Loan 2632 and financed the prepara-Water Supply Project enterprises and institution building tory work done for Loan 2632.

mainly within the Ministry of Public Implementation remaining towns fromWorks the 25 towns project. Financed

design of Karangpilang. WTP-I

Loan 2816-INS To support entire GOI urban infrastruc- 1987 Closed 03/31/90. Was the source ofUrban Sector Loan I ture expenditure program and assist in GOI counterpart funds for both the

institutional reform for decentralization First and Second East Java Projectduring 1987/88

Loan 3219-INS Improve water supply and waste water 1991 OngoingSecond Jabotabek disposal in greater Jakarta area.Urban DevelopmentProject

Loan 3304-INS Improve urban infrastructure expenditure 1991 Ongoing. Effectively the follow-onEast Java-Bali Urban and service delivery in the two Provinces project from Loan 2632. CoveringDevelopment Project seven sectors including water supply

and all Kabupaten in East Java

Loan 3340-INS Improve urban infrastructure including 1991 OngoingSulawesi and Irian water supplyJaya UrbanDevelopment Project

Loan 3726-INS Improve urban infrastructure including 1994 Approved in April 1994.Surabaya Urban water supplyDevelopment Project

- 46 -

Table 2: PROJECT TbIETABLE

Items Date Planned Date Revised Actual Date

Identification (InitiatingProject Brief - 10/84

Preparation - 10/83-04/85Preappraisal - - 12/84Appraisal Mission 12/81 - 04/85Loan Negotiations - - 09/20/85Board Approval - - 11/12/85Loan Signature - - 11/27/85Loan Effectiveness - - 04/29/86Project Completion 12/31/91 ... 12/31/93Loan Closing La 09/30/92 06/30/93 12/31/93

La The loan closing date was extended (a) from September 30, 1992 to May 31, 1993 onSeptember 30, 1992; (b) from May 31, 1993 to July 31, 1993 on November 27, 1992; and(c) from July 31, 1993 to December 31, 1993 on July 22, 1993.

Table 3: LoAN DISBURSEMENTS

A. DISBURSEMENT PROFILE

Appraisal Estimate Actual asSemester Cumulative Actual Cumulative Percentage

End US$ Million US$ Million of Estimate

12/31/1985 0 0 005/30/1986 0.2 0 0

12/31/1986 0.7 0.33 4806/30/1987 2.9 2.28 79

12/31/1987 5.4 7.67 14206/30/1988 11.0 21.90 199

12/31/1988 19.0 26.94 14206/30/1989 28.5 32.68 115

12/31/1989 33.7 35.11 10406/30/1990 37.7 38.73 103

12/31/1990 39.8 38.97 9806/30/1991 41.9 39.61 95

12/31/1991 42.8 40.03 9406/30/1992 43.3 40.49 94

12/31/1992 43.3 40.49 9406/30/1993 43.3 40.60 94

12/31/1993 43.3 41.46 9606/30/1994 43.3 41.73 96

Loan was signed on Nov. 27, 1985 and became effective April 29, 1986. Front-endcommitment fee was waived.

Table 4: PROJECT IMPLEMENTATION SCHEDULE

ACTIVITY 1985 1986 1987 1968 1989 1990 1991 1992 1993

1 2 3 4 11 2 13 ' 1 2 3 14 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4McIumsuc

P rocuremeut Document

PAff A ...A....I...... T TOIAS0>

MATERIALS EQU l_N TL-A Land AII T

-Piping and Pitting amm'm am- Well Casing

- Mechanical & Electrical-

CIVIL WOIIS:

-Sorces Development l NEW

-ISMA Civil. works - 77-I orkshop

- Production Building & office7

- Pipe Laying

- House Can. I. Public TapT

- IrK Scheme & HC/PT

-Mechanical & Electrical

- Pie& Pitting

CIVIL WORKSt

SieWorks aammwa

-Inae& Primary Plant

- Main Eloctrical Supply

- Main Process Plant

- Storage

- Distribution Rehabilitation

PART C - INSTIThIWIAL DIV.

* civil Work

- Equipment & Material

- Conaultancy Service

- Training & Inetitutional Day

PART D

- Inst itutional Development

- Future Project Preparation 7 != -Appraisal Zetimate- -Actual

- 48 -

Table 5(a): PROJECT COST SUMMARY

- -------------- Current -------(RR million) US$ '000 % of Total % (US$)

Item APR ACT APR ACT APR ACT ACT/APR

Part A:- Civil works 19,916 24,969 18,106 14,950 23 19 83- Equipment 18,619 20,735 16,926 12,396 21 16 73

Subtotal 38,535 45,704 35,032 27,347 44 35 78

Part B:- Civil works 20,077 35,464 18,252 18,764 23 25 103- Equipment 4,990 17,535 4,537 9,278 6 12 202

Subtotal 25,067 52,999 22,786 28,042 29 37 123

Part C:- Civil works 3,891 1,780 3,538 1,066 4 2 30- Equipment 1,278 1,729 1,162 1,034 1 1 89- Training & Advisory

Services 3,588 13,593 3,262 7,916 4 10 243- Operating costs 1,730 - 1,573 - 2 0 0

Subtotal 10,487 17,102 9,534 10,015 12 13 105

Part D:- Technical Assistance 9,530 10,560 8,664 7,706 11 10 89Project Administration(PMU/PIU) 3,369 5,030 3,063 3,671 4 5 120

Subtotal 12,899 15,590 11,727 11,377 15 15 97

Total 86,988 131,395 79,081 76,781 100 100 97

/a The US$ and Rupiah figures not additional but are conversions. Parts A, C, D based on prevailingexchange rates at the time of disbursement. Part B (PDAM Surabaya)average exchange rate $1 = Rp1,890 used

lb Based on US$. Sum of columns may not add to total due to rounding.

- 49 -

Table 5(b): PLANNED AND ACTuAL ALLOCATION OF LOAN PROCEEDs

Amoun of Loan Allocated (US$ equ.valmet)

Category Agrmmm Amaidmat Amedmet Acta % ofdated dated daed Disbursed - of elxped s

Nov. 27,1965 May 3,19 Nov. 26, 1990 Aprg 30, 1994 to be(planne) (Revision 1) (Revision II) fianced

1. Civi Work(a) Part A and C 7,000,000 7,000,000 6,068,838 5,687,026 45%(b) Civil works, for - 2,000,000 1,347,941 1,347,941 90%Part A, cazred outunder contractsbetween AprD 1, 1966to March 31, 1967(c) Part B of Project

8,000,000 8,000,000 3,665,940 3,664,700 65%

2. Equipame and 100% of forignnmatrial expnditur, 95% of(a) Part A and C 12,800,000 12,800,000 10,261,729 9,821,071 local expenditures (ex-(b) Pazt B 3,200,000 3,200,000 8,370,340 8,189,947 factory Costs) and 65%

of local expenditusfor other item

produced lcally

3. Consultants' nd 5,500,000 5,900,000 12,962,947 12,424,477 100%pecialits' ervices

(except Pat C. l(e) ofthe project)

4. Triningunder Pai - 600,000 602,265 589,517 100%C. (d) of the Project

S. UnallkoatVd/Mic Fund 6,600,000 3,800,000 0 1,150

Tota 43,300,000 43,300,000 43,300,000 41,725,828

Note:1/ Category l(b) crated in 1996 to provide 100% financing (net of taxes) from the loan proceeds as a stop-gp mewre to nitiate th

i--pat of evere GOI FY86/87 budget deficiencies. This financing of the work assisted in ealy commiioning of a number of thewshemes, and mainained the momentum of the project. The reallocated loan funds were mainly sourced from r vings from the balanceof disbumrnments under Category I(a) due to changes in the Rupiah to USS exchange ate nd use of some previously unallocated fonda.

a` The increase in Consultant services (Category 3) was due primarily to increaed allocation to future project prepartion activitie underdie project. This wu necessary because GOT funds have becomne increasingly redricted during the decade while the need to maintaina pipeline of new projects remained.

Table 6: PROJECr IMPLEMENTATION INDICATORS(a) PDAMsBPAM Phrbal Works

KAB. KAB. KAB. KAB. KAB. KAB. KAB.Total % Diff. BLITAR BONDOWOSO KEDIRI MADIUN NGANJUK NGAWI PACrrAN

APR ACT TNCDC) 7P r A PR ACT AR ACT APK ACT APR AAPR ACTAPK ACI

IndicatorNo. of Civil Contracts-BNA 37 67 81 3 4 2 6 4 4 4 7 4 6 4 4 2 5-KK 74 47 (36) 7 5 6 2 8 4 7 4 8 4 5 4 7 5

Cost fcurrent prices)EiuivalentiRjpil 19,917 24,962 25 1,639 1 779 1 463 2 103 2,387 2,694 1,542 2 573 1 879 2,123 1,420 1,541 1,290 2,056

- Equivalent US$000 18,108 14,950 (17) 1,489 1,065 1,330 1,259 2,170 1,613 1,402 1,540 1,707 1,275 1,291 923 1,173 1,231

Pipeline (km) 549.2 782.3 42 36.5 46.4 71.4 118.6 46.2 75.7 35.8 54.5 29.1 46.4 24.7 30.1 44.5 50.8

Comments on Proiect Implementation Indicators1. Project indicators, as distinct rom WE pertonmance indicators, were not defined at appraisal.

The above indicators have been chosen from many available (including those of Annex M) as fairly portraying implementation2. Comments on and analysis of the indicators are given in Part Ul.

Source: GOI PCR draft.

KAB. KOD. KAB. KAB. KAB.PASURUAN PASURUAN PONOROGO PROBOLINGGO T'GALEK

APR ACT APR ACT APR ACT APR ACT APR ACT

IndicattrNo. of Civil Contracts-BNA 3 5 3 7 3 7 3 7 2 5-KK 6 4 - - 6 4 6 4 9 7

Cost (current prices)- EquivalentRp mil 1,123 1,801 2,234 2,188 2,300 2,696 1,305 1,827 1,337 1,783- Equivalent US$000 1,021 959 2,031 1,309 2,091 1,614 1,198 1,094 1,215 1,068

Pipeline (km) 25.2 52.2 93.2 93.2 70.5 103.4 39.3 70.3 42.0 40.7

(b) PDAM/BPAM WATER PRODUCTION, DISTRIBUTION, SALES AND Loss (Actual vs. Target)

Water Production /a Water Distribution Water Sales EBRD PMDU /kmillion M! Lb million MN

No. PDAM million MW Water Loss (%) Water Loss (%)

1 l992 11993 1992 1993 i 193 12 1c

1. Kab. Blitar 1.1 1.3 0.9 1.1 0.71 0.86 35 34 21 22

2. Kab. Bondowoso 1.2 1.8 1.2 1.8 0.86 1.48 28 18 28 18

3. Kab. Kediri 1.2 1.6 1.2 1.6 1.06 1.08 12 33 12 32

4. Kab. Madiun 1.5 1.59 1.42 1.57 1.3 1.35 13 15 8 14

5. Kab. Nganjuk 2.2 2.4 2.2 2.4 1.89 1.94 14 19 14 19

6. Kab. Ngawi 1.7 1.8 1.7 1.8 1.36 1.4 20 22 20 22

7. Kab. Pacitan 1.0 1.3 1.0 1.3 0.8 1.04 20 20 20 20

8. Kab. Pasuruan 3.1 3.2 2.8 2.9 2.2 2.3 29 28 21 21

9. Kod. Pasuruan 4.0 4.2 3.7 3.8 2.67 2.76 33 33 28 2710. Kab. Ponorogo 2.0 2.2 2.0 2.2 1.52 1.7 24 29 24 23

11. Kab. Probolinggo 0.7 0.7 0.7 0.7 0.55 0.56 21 20 21 20

12. Kab. Trenggalek 1.1 1.2 1.1 1.2 0.8 0.9 27 225 27 25

Part A 20.8 23.29 19.29 22.37 15.72 17.37 24 25 19 22Kod Surabaya 138.23 134.77 88.11 86.52 36.3 35.8

Source: PMDU East Java. (Feb. 1994)

/a Measured by bulk meter at source./b Volume leaving ground reservoir. Production and distribution may be same where ground reservoir does not exist./c 'PMDU loss" calculated on basis of water distribution rather than production. For example, some water is given free e.g., mosque, fire fighting, public

gardening.

- 52 -

Table 6 cont'd(C) WATER CONNECTIONS

(December 31, 1993)

Actual SAR TargetDec. 31, 1993 Dec. 31, 1991

Kab. Blitar 6,022 5,590Kab. Bondowoso 5,900 7,170Kab. Kediri 4,857 7,910Kab. Madiun 7,259 5,010Kab. Nganjuk 7,955 6,900Kab. Ngawi 3,218 5,060Kab. Pacitan 5,699 4,920Kab. Pasuruan 9,450 6,660Kot. Pasuruan 11,268 7,520Kab. Ponorogo 9,100 8,130Kab. Probolingo 3,509 4,630Kab. Trenggalek 5,668 4,930

Total Part A 80,265 74,430

Kot. Surabaya 170,593 206,05OLg

Total Project 250,858 280,480

La 168,050 by December 31, 1991. The lower actual number of connections in Surabaya is largelydue to shortage of water supplies, rather than the demand for connections.

Source: PMDU East Java.

(d) WATER ENTERPRISE STAPFNG

Staff/l,000Staff Ratio La connections SAR1984 1984 (Sep. 93) Target Ratio a

Kab. Blitar 82 NA 20 10.19Kab. Bondowoso 89 NA 8.22Kab. Kediri 78 NA 13 9.6Kab. Madiun 96 NA 13 12.53Kab. Nganjuk 90 19 12.61Kab. Ngawi 84 26 13 16.99Kab. Pacitan 91 25 20 11.17Kab. Pasuruan 150 23 18 12.61Kot. Pasuruan 98 17 9 8.91Kab. Ponorogo 96 36 11 8.49Kab. Probolingo 66 NA 12.95Kab. Trenggalek 96 NA 23 12.18

Part A 1,116 24 13.9

Kot. Surabaya 1,709 16.02 10 11.21

Total Project 2,825 11.3

La Staff per 1,000 connections.

- 53 -

Table 6 (e): OPERATING RESULTS

1985 1990 1991 192 1993

Acta SAR ACTUAL SAR ACTUAL ACTUAL ACTUAL(SAR) (Audited) (Audited) (Unaudited)

KABUPATEN BLITAR

TOTAL REVENUES, Rp mn NA 255 136.32 405 118.81 276.68 216

OPERATING EXPENSES, Rp mln NA 219 51.37 286 57.88 75.04 200

NET INCOME BEFORE DEPRECIATION Rp mli 36 84.95 119 60.93 201.64 16

DEPRECIATION, Rp mln NA 105 63.96 119 249.42 302.64 NA

NET INCOME AFrER DEPRECIATION AND -69 20.99 0 -188.49 -101.00 NAOTHER INCOME

CASH (MONTH OF OPERATING EXPENSES) NA 1 2 0.5

% WORKING RATIO NA 86 37.96 71 48 27 93

% OF DEPRECIATION COVERED NA 34 100 100 24 66 NA

KABUPATEN BONDOWOSO

TOTAL REVENUES, Rp mn 1 274 173.44 431 264.20 295.3 392

OPERATING EXPENSES, Rp mm 4 238 91.76 305 148.29 240.98 300

NET INCOME BEFORE DEPRECIATION, Rp min -3 36 81.68 126 115.91 54.32 92

DEPRECIATION, Rp mn 2 110 253.9 126 321 304 304

NET INCOME AFTER DEPRECIATION AND -5 -74 -172.21 0 -205.09 -249.68 -212OTHER INCOME

CASH (MONTH OF OPERATING EXPENSES) I 1 2 1 1.2

% WORKING RATIO 400 87 52.91 71 56 81 77

% OP DEPRECIATION COVERED 0 33 32 100 36 18 30

KABTPATEN KEDDU

TOTAL REVENUES, Rp mln NA 285 133.72 509 479.62 553.97 380

OPERATING EXPENSES, Rp mln NA 251 105.85 349 303.40 457.20 312

NET INCOME BEFORE DEPRECIATION, Rp mln NA 34 27.87 160 176.22 96.77 68

DEPRECIATION, Rp mln NA 141 243.69 160 131.00 127.00 186

NET INCOME AFTER DEPRECIATION AND NA -107 -215.82 0 45.22 -30.23 -118OTHER INCOME

CASH (MONTH OF OPERATING EXPENSES) NA 1 1 2 1

% WORKING RATIO NA 88 79.16 69 81 82 82

% OF DEPRECIATION COVERED NA 24 11 100 100 76 37

- 54 -

1985 1985 19 1991 1992 1993Acut,a SAR

SAR SAR ACTUAL SAR ACTUAL ACTUAL ACTUAL

KABUPATEN MADIUN

TOTAL REVENUES, Rp mln NA 196 211.05 316 279.00 269.66 415

OPERATING EXPENSES, Rp mln NA 212 195.52 266 178.31 208.20 300

NET INCOME BEFORE DEPRECIATION Rp mml -16 15.53 50 100.69 61.46 115

DEPRECIATION, Rp mln NA 97 NA 110 389.99 306.36 250

NET INCOME AFFER DEPRECIATION AND -113 NA -60 -289.3 -244.90 -135OTHER INCOME

CASH (MONTH OP OPERATING EXPENSES) NA NA 2 1

% WORKING RATIO NA 108 107 84 63 77 72

% OF DEPRECIATION COVERED NA 0 NA 45 26 20 46

KABUPATEN NGANJUK

TOTAL REVENUES, Rp mln NA 368 34.95 549 209 315 605

OPERATING EXPENSES, Rp mln NA 323 26.68 390 214 311 344

NET INCOME BEPORE DEPRECIATION, Rp 45 8.27 159 -5 4 261mln

DEPRECIATION, Rp mln NA 143 47 158 373 281 378

NET INCOME AFPER DEPRECIATION AND -98 -38.7 1 -378 -277 -117OTHER INCOME

CASH (MONTH OF OPERATING EXPENSES) NA 1 2 2.2

% WORKING RATIO NA 88 77 71 97 98 57

% OF DEPRECIATION COVERED NA 31 18 100 0 1 69

KABUPATEN NGAWI

TOTAL REVENUES, Rp mln 77 329 331.16 471 437.54 470.59 585

OPERATING EXPENSES, Rp mln 70 305 269.3 353 308.42 342.38 500

NET INCOME BEFORE DEPRECIATION, Rp 7 24 61.86 118 129.12 128.21 85lin

DEPRECIATION, Rp mln 15 106 97.7 118 319.58 307.29 142

NET INCOME AFrER DEPRECIATION AND -8 -82 -35.84 0 -190.46 -179.08 -57OTHER INCOME

CASH (MONTH OF OPERATING EXPENSES) 7 2 2 1 2 1.5

% WORKING RATIO 90 93 86.5 75 70 72 85

% OF DEPRECIATION COVERED 46 23 63 100 40 42 60

- 55 -

1985 1990 19 1991 1992 1993Attual SAR Acual

SAR

SAR ACTUAL SAR ACTUAL ACTUAL ACTUAL

KABUPATEN PACITAN

TOTAL REVENUES, Rp mln 9 214 140.37 340 223.43 245 240

OPERATING EXPENSES, Rp mln 11 181 112.24 229 152.53 157 208

NET INCOME BEFORE DEPRECIATION Rp mln -2 33 28.13 111 70.90 88 32

DEPRECIATION, Rp mln 13 109 232.34 123 274.82 183 184

NET INCOME AFTER DEPRECIATION AND -15 -76 -204.21 -12 -203.92 -95 -152OTHER INCOME

CASH (MONTH OP OPERATING EXPENSES) 3 2 2 1 0.5

% WORKING RATIO 112 84 78.36 68 68 64 87

% OF DEPRECIATION COVERED 0 31 12 90 26 48 17

KABUPATEN PASURUAN

TOTAL REVENUES, Rp mln 161 417 493.95 565 855.29 829.13 915

OPERATING EXPENSES, Rp min 137 362 419.4 420 561.70 513.31 694

NET INCOME BEFORE DEPRECIATION, Rp mln 24 55 74.55 145 293.60 315.82 221

DEPRECIATION, Rp mln 35 130 100.22 145 377.04 308.05 299

NET INCOME AFTER DEPRECIATION AND -11 -75 -25.67 0 -83.44 7.77 -78OTHER INCOME

CASH (MONTH OF OPERATING EXPENSES) 2 4 2 11

% WORKING RATIO 85 87 85 74 65 61 76

% OF DEPRECIATION COVERED 68 42 74 100 89 100 74

KOTAMADYA PASURUAN

TOTAL REVENUES, Rp mln 150 339 619 528 807.65 1.111.20 1,250

OPERATING EXPENSES, Rp mln 126 266 422.6 353 484.76 749.46 800

NET INCOME BEFORE DEPRECIATION, Rp mln 24 73 196.4 176 322.89 361.74 450

DEPRECIATION, Rp mln 18 157 185.3 176 247.fl 262.77 272

NET INCOME AFTER DEPRECIATION AND 6 -84 11.1 0 75.17 98.97 178OTHER INCOME

CASH (MONTH OP OPERATING EXPENSES) 4 2 2 1 1

% WORKING RATIO 84 79 68.21 67 60 67 64

% OF DEPRECIATION COVERED 100 46 100 100 100 100 100

- 56 -

198S 1990 191l 192 1

Actual SAR ACTUAL SAR ACTUAL ACTUAL ACTUAL

KABUPATEN PONOROGO

TOTAL REVENUES, Rp mln 14 357 225.54 534 324.29 376 556

OPERATING EXPENSES, Rp mnm 24 280 362 240.07 283 406

NET INCOME BEPORE DEPRECIATION Rp mln -10 77 172 84.12 93 150

DEPRECIATION, Rp mln 3 152 172 102.07 260 260

NET INCOME AFTER DEPRECIATION AND -13 -75 0 -17.85 -167 -110OTHER INCOME

CASH (MONTH OF OPERATING EXPENSES) 1.3 2.5 2 1 0.1

% WORKING RATIO 171 78 68 74 75 73

% OF DEPRECIATION COVERED 0 51 100 82 36 58

KABUPATEN PROBOLINGGO

TOTAL REVENUES, Rp mln S 232 387 85.17 160 190

OPERATING EXPENSES, Rp mrln 16 227 281 121.11 136 150

NET INCOME BEFORE DEPRECIATION, Rp mln -8 5 106 -35.9 24 40

DEPRECIATION, Rp mlln 3 93 106 148 148

NET INCOME AFTER DEPRECIATION AND -11 -88 0 -124 -108OTHER INCOME

CASH (MONTH OP OPERATING EXPENSES) I 1 2 1 0.5

% WORKING RATIO 196 98 73 142.20 85 79

% OF DEPRECIATION COVERED 0 5 100 0 0 27

KOTAMADYA TRENGGALEK

TOTAL REVENUES, Rp mln NA 219 122.42 380 180.81 196 296

OPERATING EXPENSES, Rp mln NA 212 95.21 272 169.89 168 253

NET INCOME BEFORE DEPRECIATION, Rp mrln NA 7 27.21 108 10.92 28 43

DEPRECIATION, Rp mrln NA 94 73.87 108 174.63 156 156

NET INCOME AFTER DEPRECIATION AND NA -87 -46.66 0 -163.71 -128 -113OTHER INCOME

CASH (MONTH OF OPERATING EXPENSES) NA 1 2 1 0.5

% WORKING RATIO NA 97 78 72 94 86 85

% OF DEPRECIATION COVERED NA 7 37 100 6 18 28/A Source: PMDU East Java. (June 1994)/B In 1985 some WEs were not in operation at all, some operated as a part of the local public works department, and the rcst were already WEs./C 1992 data is audited for all except Bondowoso, Pacitan, Ponorogo, and Probolingo.

- 57 -

Table 6 (f): AVAILABILrrY OF AUDIT REPORTS

FINANCIAL REPORTPDAM

1986 1987 1988 1989 1990 1991 1992 1993

Blitar KB =_ == X- X' +

Bondowoso KB X* X* +

Kediri KB _ =_ X X* +

Madium KB X' X* +

Nganjuk KB X* X* X* X X X X* +

Ngawi KB X X X X X X X* +

Pacitan KB X* +

Pasuruan KB X* X X X X X X* +

Pasuruan KD X X X X X X* X* +

Ponogoro KB X* X* +

Probolinggo KB X* X* +

Trenggalek KB .X_ X* +

Surabaya KD X X X X X+ X* X' _

X = Audit report prepared and available at PMDUX*= Audit report prepared, but not available at PMDU.+ = Being audited.

Source: PMDU East Java (February 10, 1994).

rvisor Table 6 (g): AuDrr QUALIFICATIONS (1992)

Accounting Accounting Accounts Internal Registration Balance FinancialPDAM Unqdifd System Staff Receivable Control Inventory Fixes Assets Sheets Legalization

Blitar KB 1991 * *1992

Bondowosa KB 1991 *1992

*

Kediri KB 1991 *1992

Madiun KB 1991 *1992

Nganjuk Kab. 1991 *1992

Ngawi Kab. 1991 *1992

cxPacitan Kab. (NA)

Pasuruan Kab. 1991 *1992

Pasuruan Kod. 1991 *1992

Ponorogo Kab. *

Probolingo Kab. 19911992

Trcnggakk Kab. 1991 *1992

Sumbaya Kot. 1991 1992

Source: PMDU East Java.(June 7, 1994)I\ Tax payments not up to date

- 59 -

Table 7: (a) PROJECT FINANCED TECHBNCAL ASSISTANCE

Manmonths CostDescription of Services Eq. US$ Eq. Rp.

Local Foreign ('000) (Million)

TrainingAl Development of skill for Water Enterprise Personnel NA NA 90.42 141.49A2 Classroom training for PTU Jatim 56.0 0 115.79 194.57A3 Local expenditure only for HRDP III 287.0 0 458.02 767.44A4 Preliminary design of PTUs 108.5 0 81.62 136.41AS Strengthening DAB (Pengaturan) 58.0 0 76.68 137.84A6 Provision & advisory services to int. training network 6.5 0 109.52 197.30A7 ITN/CK Support, Year 2 NA NA 118.64 212.30A8 Prep. & implementation of the prep. of fin. statements 44.0 0 54.87 88.40A9 Inservice training S BPAMs of Gorontalo, Minahasa etc. 45.0 0 65.50 109.25

AIO Inservice training S BPAMs of Ianpung Tengah, Pontianak 44.0 0 61.17 103.09All Inservice training 5 BPAMs of Tembilahan, Bengkalis etc. 45.5 0 61.12 102.50A12 Skill Dev. & Classroom training for 210 staff of WE 37.5 0 112.53 191.48A13 5 courses in Skill Dev. & Classroom training 29.75 0 37.77 59.87A14 Skill Dev. & Classroom training in pipelaying NA NA 26.11 48.36

Subtotal A 831.75 0 1,469.96 2,490.30

Monitoring and DevelopmentBI Extension HRDP-Advisory Services to PMDU East Java 34.5 0 68.99 123.90B2 Detailed engineering design of PTU building NA NA 48.70 83.98B3 Construction supervision for supporting facility NA NA 12.00 15.64B4 Construction supervision of PMU/PIU/PMDU NA NA 17.73 29.92

Subtotal B 34.5 0 147.42 253.44

Pollution ControlCl Pollution Control Kali Surabaya Stage II 0 0 165.53 269.07C2 Pollution Control Kali Surabaya Stage III 482.1 0 689.63 1,119.32

Subtotal C 482.1 0 855.16 1,388.39

Implementation AssistanceDI Advisors to SEJWSP PMU/PIU East Java 698.0 51

}2,671.37 4,566.75D2 Ext. of PMU/PIU Advisors to March 90 588.0 39 2D3 Add. No. 2 Ext. PMU/PIU Advisors to March 91 166.0 5 242.24 474.55D4 Consulting services for supervision constr. KP-I

Stage 1 644.0 56 1,149.41 1,928.55D5 Add. No. 1 to contract No. 5 123.0 0 96.50 185.00D6 Unaccounted for Water Study in Sby. 348.0 55.75 1,212.26 2,001.40D7 Management & Training Services to S proj. BPAM/BPAM's 85.0 0 102.45 182.35D8 Management & Accounting Advisory Services 135.5 0 157.09 289.99D9 Compile financial statement Second WSP (Loan 1709) 13.9 0 93.01 149.53

D10 Compile financial statements Loan 1709 37.5 0 54.74 90.05Dll Compile financial statements Loan 2275-IND 14.6 0 19.13 30.76D12 Preparation of opening balance sheets 25.0 0 23.41 38.00D13 Prep. of opening balance sheets in 6 BPAM di NTT, NTB 30.0 0 31.16 50.85D14 Prep. of opening balance sheets in 6 BPAM; Sulsei, Sulteng 24.0 0 30.76 49.75D15 Prep. of opening balance sheets Sulut, Kalteng, Raiu, etc. 26.4 0 27.95 45.21

Subtotal D 3,158.9 206.75 S,911.48 10,082.70

- 60 -

Table 7: (a) PROJECT FINANCED TECHNICAL ASSISTANCEConsultant Services (Cont'd)

Mannionths CostDescription of Services Eq. US$ Eq. Rp.

Local Foreign ('000) (Million)

Future Project PreparationSurabaya WS I

El Karangpilang II design and provincial water resources 0 0 2,589.44 4,297.11Master Plan Study

E2 Detail design Surabaya distribution system extension 206 5 243.29 506.25Project

E3 Detail design & supervison of Surabaya distribution 333 4.5 259.17 508.22system rehabilitation

Subtotal El - E3 539 9.5 3,091.9 5,311.58

East Java WS El[E4 East Java/Bali IUIDP 0 0 1,184.64 2,109.26

Subtotal E4 0 0 1,184.64 2,109.26

Water OrganizationE5 Institutional study Irian Jaya, N & S Sulawersi for 44 13 179.52 293.2

water supplyE6 Study of the role and function of POUD in water 102 4 147.27 248.21

supply sector

Subtotal E5 - E6 146 17 326.79 541.41

OthersE7 Service for Jakarta rehabilitation pilot project 0 0 406.7 719.36E8 Rehab. pipe laying Jakarta Rehab. Pilot Project 0 0 434.17 779.69

Subtotal E7 - E8 0 0 840.87 1,499.07

Total E 685 26.5 5,444.2 9,461.32

Grand Total S.192.2S 23.2 13.282237.10

- 61 -

Table 7 (b): STATUS AND IMPACT OF COMPLETED CONSULTANT SERVICES

Purpose DefinedNo. DetaD of Servkes at Appraisal Status and Impact

A. Training

A.1 Development of skill for Giving practical assistance to Completed.Water Enterprise Personnel development of skill for water Gave practical training and produced 5in 8 Kabupatens enterprise personnel in 8 volume instruction manual for

Kabupaten in Java implementing the accounting system ineach enterprise. Fully used.

A.2 Classroom training for To provide assistance and guidance Completed.PTU in East Java incl. for the operation of PTU in East - PTU in East Java has been operatedsome operating costs Java. The activities are: (a) to since FY90191.

assist guide and support PTU chief - All preparing program and executingand staff in operating the have been prepared by PTU staff.organization; (b) to plan, prepareprograms and execute visit toWEs; (c) to operate PTU byplanning and providing thenecesary funds.

A.3 Local expenditure only for To consolidate operationalization Completed.HRDP III inc. PMDU EJ and implementation of thesupport, PMDU Human developed products.Resources Development (a) improvementofeffectivenessof

training monitoring of WEs inIndonesia, (b) development oftraining courses, implementation ofa strategy for wide scaleapplication of the communityrelated programs, (c) guidanceestablishment and development ofPMDU. East Java to execute theconsultancy duties of designing thePTU's building in SemarangBandung Ujung Pandang andMedan.

A.4 Preliminary design of To assist the establishment of Completed.PTUs for Semarang provincial regional training centers Consultant activities enabled constructionBandung U Pandang & in Semarang, Bandang, Ujung of provincial regional training center inMedan & NTC for Jakaita Pandang and Medan, upgrading Semarang, Bandung, Ujung Pandang,

NTC Jakarta. Medan and upgrading NTC Jakarta.

A.5 Strengthening DAB (a) to ensure that output of STD Completed.(Pengaturan) work will achieve the target set; Objectives largely achieved.

(b) to develop staff of directorateoperations in carrying out his dutyconcerning task of guidance anddirection to PAM; (c) to increaseskill for staff of SubDirectorateoperator in field of accountancy.

A.6 Provision and advisory The specific objectives are Completed.services to international - to provide advice to DGCK on - The training program and the othertraining Network at bidang the design and implementation related activities has beenDildat Cipta Karya of training and information implemented within Nov. 1967-1988

programs in the field of low - Coordination with ITN - ITE Centercost water supply and sanitation has developed by doing the translation

- translation and adaptation of the of training materialstraining materials - Seminar for decision makers has been

- review of pilot sanitation performance 4 seminars in February,programs April and June 1988.

- monitoring and evaluation of - Training for Central CK engineers (6effectiveness of training courses trainings) from July to Septemberand seminars. 1988

- Training for Provincial CK trainers (1training) in Oct. 88.

- 62 -

Purpose DefredNo. Detail of Services at Apraibal Status and Imoact

A.7 ITN/CK support Year 2 To strew efficiency altemative Completed.technology for central and local This training is second year period ofgovernment staff A6.

A.8 Prep. and implementation To improve the knowledge and Completed.of the prep. of fin, state- skills for financial staffs of project, Objectives largely achieved.ments on foreign aid proj. BPAM and PDAM by givingin coop with BPKP in U. upgrading in the ofPandang, Surakarta and - Accounting system andSurabaya procedures;

- Cost accounting and budget;and

- Foreign Aid Administration

A.9 Inservice training 5 To improve the knowledge and Completed.BPAMs of Gorontalo, skill for BPAM Director and staff Objectives achieved.Ende, Maluku, Tengah, in Gorontalo, MinahLsa, Ende,Pontianek, Blor Maluku tengan, Pontianak and

Biora

A. 10 Inservice training 5 To improve the knowledge and Completed.BPAMs of Lampung skill for BPAM Director and staff Objectives achieved.Tengah, Pontianak, Kota in Lampung tengah, Pontianak,Waringin Timur, Kapuas, Kota Waringin Timur, Kapuas andBaran Beran

A.11 Inservice training 5 To improve the knowledge and Completed.BPAMs of Tembilahan, skill for BPAM Director and StaffBengkulu Pariaman tanjung in Tembelahan, Bengkalis, PadangJabung, Bengkulu Utara Pariaman, Tanjung, Jabung and

Bengkulu Utara.

A. 12 Skill Dev. & Classroom Preparing the establishment and Completed.training by prep. & impl. managing of a water enterprise The classroom training programwas heldprog for 210 staff of WE. (PAM). start from Nov. 87 until Feb. 88 and the

Objective of classroom training trainers come from various Provincialwere: (a) to provide assistance to WE in Indonesia. The curriculum andthe DAB for technical deve- syllabus were: (i) basic course,lopment, (bj to boost professional (ii) advance course, (iii) training fordevelopment of We in Indonesia, technical, (iv) training for trainers,(c) to sustain momentum in HRD (v) training for head of customer relationfor the Indonesia water supply section, (vi) skill development trainingsector, for pipe layer.

A. 13 5 courses in Skill Dev. & To develop the knowledge and The training was executed in S phasesClassroom training in skill for BPAM staff through and attended by the total of 62management genset & classroom training. Specific participants from Jun 87 until Septemberaccountancy training: 87.

- Mechanical & Electrical

- Accountancy & Management

A. 14 Skill Dev. & Classroom To develop the knowledge and Completed.training in pipelaying and skill for PDAM Staff through - The trainings were executed in 2instruction classroom training, phases and attended by the total of 65

Specific training: participants from August 1 until- pipelaying and September 1, 1987.- maintenance

- 63 -

Purpose DefinedNo. Detail of Services at Appraisal Status and Impact

B. PDAM Monitoring and Development

B.1 Extension HRDP- To establish a province-wide Completed.Advisory Services to monitoring unit in East Java PMDU has become an effectivePMDU East Java Tingkat I Dinas Cipta Karya. The organization

scope of advisory service are:SIMPAM implementation;implementation training andcoordination regarding communityrelated activities; general manage-ment systematic approach; deve-lopment of annual work plan;training planning; professionalguidance to Staff; reporting ofPMDU to other administrationlevel and authorities.

B.2 Detailed engineering design Development & Expansion of the Completed.of Provincial Training Unit East Java PTU practical training Enable construction of the PTU buildingbuilding phase 11 and facilities at this location on Phase 11 and PMU/PMDU office buildingPMU/PMDU office build- Wilyung complex objective ofing at Wiyng, East Java. assignment was to prepare detail

design of the PTU phase 11.

B.3 Construction supervision Not specifically defined but project Completed.for supporting facility. objective of establishing an office Road bridge and staff housing ofRoad bridge. Staff housing for PMU/PMDU/PTU Complex. Wilyung PMU/PMDU/PTU complexand mosque of Wilyng constructed to satisfactory standard.PMU/PMDU/PTU com-plex

B.4 Construction supervision of Not specifically defined but project Completed.PMU/PIU/PMDU office objective of establishing an East PMDU/PIU/PMU office and Phase 11 ofand phase II of PTU build- lava PTU implicitly required con- PTU buildings constructed to satisfactoryings struction supervision standard.

C. Pollution Control Ist. Dev.

C.1 Pollution Control Kali To strengthen agencies of the East Completed.Surabaya. Stage 11 Prepa- Java Provincial Government to - Pre-investment proposals for reductionration of Short-term Action more effectively: (a) monitoring of pollution load from the four majorProgram water pollution; (b) control liquid waste producing industries.

industrial and residential effluent - Improving domestic sanitation havedischarge; and (c) provide been prepared based on sample surveytechnical advice to pollute, through of the communities within thea review and implementation of immediate catchment of Kalinew organization arrangement, Surabaya.legal procedures and powers,staffing, training of staff andprovision of monitoring equipment.

C.2 Pollution Control Kali Continuation of study about Completed.Surabaya. Stage III Inst. pollution control Kali Surabaya. - Waste treatment plant installed andDev/lmplementation of This study consists of assistance to operating at a major pollutersimmediate Improvement implement on agreed abatement (December 87).Plan action plan with the main - New effluent and river quality

components: (i) reduction of standardestablishedforEastJavabaseresidential waste discharges on nationals guidelines (Dec. 87).through a domestic sanitation pro- - Classification of Kali Surabaya,gram, (ii) reduction of industrial Brantas and Porong as Golongan Bwaste discharge with supervision i.e., water suitable for water supplyof 4 main polluter, and (iii) longer after appropriate treatment (Dec. 87).term institutional development. - Monitoring team (SPH) establish by

Dinas Pengairan and working (July88).

- Legal action has been initiated against- Institutional development plan.

- 64 -

Purpose DefrnedNo. Detail of Services at Appraisal Status and Imvact

D. Implementation Assistance

D.1 Advisors to SEJWSP a) Project management assistance Completed.PMU/PIU East Java to PMU for (i) monitoring, The PMU and PIU's activities were able

review and problem solving in to be expanded considerably to enable:respect to financial and physical - all major components of the 12 BNAprogress (ii) coordination of and 63 IKK Second East JavaPIU reporting and action, and subproject to be constructed(iii) liaison with IBRD. - Disbursement rate increased to get

b) Project execution assistance to ahead of schedule.Part A Project PIU for(i) management of physical andfinancial progress, (ii) trainingin contract administration;quality control, commissioningof system, (iii) coordinating ofconsumer education campaignsand (iv) on-the-job training ofBPAM/PDAM staff andoperators

D.2 Ext. of PMU/PIU Advisors Continuation of service provide Completed.to March 90 under DI. Continuation of the PMU and PIU's

activities under DI to enable:- First commissioning of 12 BNA/63

IKK subproject.

D.3 Extension PMU-PIU Continuation of service provided Completed.Advisors to March 91 under D.2. Preparation of tender Continuation of the PMU and PIU's

document and assisting the PIU activities under D.2 to enable:Part A implementation of the - implementation of remaining workremaining work; monitoring BNA/IKK subprojectreporting to the World Bank; - Commissioning of all 12 BNA/IKKcommissioning to all works of Part A subprojectSEJWSP (12 BNAs - 63 IKKs); - Compilation data for preparing ofcollection and compilation of PCR PCR.Loan 2632-IND.

D.4 Consulting services for Assistance to Part B PIU for: Completed.supervision constr. Karang (i) Managing of physical and Part B PIU activities were able to bePilang WTP Stage 1 financial progress including expanded considerably to enable:

monitoring review and problem (i) all major components of thesolving; (ii) review and evaluation Karangpilang Stage 1 construction.of tenderers and contractor (ii) commissioning and operationalproposals and detailed designs; training of the system.(iii) training in contract administra-tion, quality control, com-missioning and operation ofsystem; and (iv) reporting andliaison with PMU and IBRD.

D.5 Add No. 1 to contract Continuation of services provided Completed.No. 5. under contract D.4. Continuation of the PIU Part B activities

under D.4.

D.6 Unaccounted-for-Water - intended to establish a loss Completed.Study in Sby. (Mostly reduction program in 3 phases a. Establish that the largest part of thefinanced by Loan 2275- to reduce losses to 15% by losses (26%) could be attributed toIND). 1991. The 4th phase is imple- leaking distribution pipe work with

mentation of the full program the next largest percentage (5%) beingby PDAM itself. illegal connections.

- scope expended to include (i) a b. Recommended a combined meterreview of the ngagel works effi- policy which could pay itself within 3ciencies (phase 1), (ii) review years.and recommendation regarding c. Loss reduced from about 40% in 1985meter testing and (iii) introduce to 35% in 1989. 5 Ieakage controlrehabilitation technique to zones establishod under the pilotPDAM staff. project begun in phase II and comple-

ted at the end of phase III.

- 65 -

Purpose DefinedNo. Detail of Services at Appraisal Status and Impact

D.7 Management and training To improve the WE's management Completed.Services to 5 proj. and accounting aspect so that theBPAM/BPAM's and PTU- WE's Staff are able to prepareEl Assistance financial report that meet the

Indonesian accounting Principal(PAI) in 5 BPAM/PDAM, andPTU Staff.

D.8 Management and Account- To improve the WE's management Completed.ing Advisory Services to 8 and accountancy aspect so that the - Achievement increase in EastProject PDAM/BPAM's in WE's staff are able to prepare recovery and human resources factor.East Java. financial reports that meet the - An option of cost recovery increase

Indonesian Accounting Principal was: (i) income increase by the(PAI). number of tariff and served HC,

(ii) cost efficiency, (iii) both of themsimultaneously implemented.

D.9 Compile financial statement The general objective of the Completed.Second WSP (Loan preparation of the financial - enabled auditors opinions to be given1709) > statement is to establish their at the end of 1996 had not been able

credibility reflecting the actual to previously provide financial reportsfinancial performance of executing which were required for complianceagencies concemed. with loan covenant 4.02(b) of Loan

1709.- At completion of Loan 1709 some of

the financial reports were stil judgedto be deficient.

D. 10 Compile fin. statements The general objective of the Completed.Loan 1709. preparation of the financial - enabled auditors opinions to be given

statement is to establish their at the end of 1986 had not been ablecredibility reflecting the actual to previously provide financial reportsfinancial performance of executing which were required for complianceagencies concemed. with loan covenant 4.02(b) of Loan

1709.- At completion of Loan 1709 some of

the financial reports were still judgedto be deficient.

D.11 Compile financial state- The purpose consists of the Completed.ments Loan 2275-IND) opening balance sheet for BPKP - Enabled auditors opinions.

audit analysis; for controlling and - Financial report which were requiredmeasuring of the development of for compliance with Loan CovenantPAMtBPAM in the future. 4.02(c) of Loan 2275-IND.

D.12 Preparation of opening The purpose consists of the Completed.balance sheets in 5 BPAM opening balance sheet for BPKP - Enabled auditors opinions for all 5in Bali. audit analysis; for controlling and BPAM DT.II Kalteng and Bali.

measuring of the development ofPAM/BPAM in the future.

D.13 Preparation of opening The purpose consists of the Completed.balance sheets in 6 BPAM opening balance sheet for BPKP Enable auditors opinions for all towns inKodya/Kab. di NTT, NTB audit analysis; for controlling and 6 BPAM Kodya/Kab. NTT, NTB andand TimTim. measuring of the development of Tim Tim.

PAM/BPAM in the future.

D.14 Preparation of opening The purpose consists of the Completed.balance sheets in 6 BPAM opening balance sheet for BPKP Enabled auditors opinions for all townsSulsdl. Sulteng and DIY audit analysis; for controlling and in 6 BPAM Sulsel. Sulteng and Daerah

measuring of the development of istimewa Jogjakarta.PAM/BPAM in the future.

D.15 Preparation of opening The purpose consists of the Completed.balance sheets in 6 BPAM opening balance sheet for BPKP Enabled auditors opinion for all town (inSulut. Kalteng, Riau, Jatirn audit analysis; for controlling and 6 BPAM, Sulut, Kalteng, Krian, Jatim,Jateng dan Jabar measuring of the development of Jateng and Jabar).

PAM/BPAM in the future.

- 66 -

Purpose DefinedNo. Detail of Services at Appraisal Status and Impact

E. Future Project Preparation

E. 1 Karangpilang 11 Design & - to review and update to the year Completed.Provincial Water Resources 2010 the Surabaya city water Consultant under this project activities toMaster Plan Study supply master plan including the enable:

distribution system, storage and (i) construction of the Karangpilangtreatment. water treatment plant Stage 11. (ii)

- to prepare feasibility study and construction water system for future withdetail design for the 2 m3/s preparing E.J. water resources data.capacity second stage develop-ment of the KarangpilangTreatment Plants and treatedwater conveyance system.

E.2 Detailed Design Surabaya Assistance to PDAM: (i) prepare Completed.Distribution System procurement documentation for Consultant under this project activities toExtension Project material, equipment, and civil enable:

work, (ii) evaluated and awarded - bidding process and construction ofsome of the contract packages, transmission, primary, secondary and(iii) detail design for transmission, tertiary distribution system.primary distribution, secondary - pump station and reservoir.distribution and tertiary dist.system (iv) crash house connectionprogram (v) pump station andreservoirs.

E.3 Detailed Design and Assistance to PDAM: (i) prepare Completed.Supervision of Surabaya the rehabilitation project; Consultant under this project activities toDist. System Rehabilitation (ii) prepare detail designs for the enable implementation of:Project. project work to be implemented; (i) establishment of distribution zone;

(iii) to implement and evaluate the (ii) establishment of the leakage controlproject; (iv) train staff; (v) monitor policy; (iii) program for futureand provide advice regarding distribution system rehabilitation.establishment of the leakage con-trol policy; (vi) based on theresults and experience gainedduring the project, assist PDAMSby to prepare their program forfuture distribution systemrehabilitation.

E.4 East Java/Bali IUIDP Not specifically indicated in SAR, Completed.but need for future program in Consultant under this project activitiesEast Java and Bali (IUIDP): to enable implementation under IUIDP- to prepare detail design in 5 program.

towns in East Java/Bali- to prepare tender document civil

work and mechanical/electrical.

E.5 Institutional Study Irian To provide a basic for structured Completed.Jaya N & S Sulawesi for analysis and discussion on - Each of the five WE alternativeWater Supply Organization organizational options that will organization structures was produced

lead to general agreement within namely:various agencies of GOI including 1. Level II WSEMinistries of Home Affairs, Public 2. WSE covering more than oneWorks, Finance and Bappenas on Kabupatenappropriate structure for water 3. Provincial WSEsupply enterprises. 4. National WSE and

5. River basins WSE.- Furthermore, recommendation about:

- implementation consideration;- institutional support and- implementation program.

- 67 -

Purpose DerinedNo. Detail of Services at Appraisal Status and Impact

E.6 Study of the role and func- i) Make a review and analysis of Completed.tion of POUD in water alternative organizationsupply sector. structures based on financial

orability, staffing adequacy andoperating efficiency criteria

ii) Recommend suitable structureiii) prepare work program to

implement the acceptedrecommcndation

E.7 Service for Jkt. Rehabili- The PAM Jaya intends to improve Completed.tation Pilot Project. its operational efficiency and Consultant of Jakarta rehabilitation Pilot

prepare for a major system Project activities to enable:expansion - implementation of rehabilitation of the(i) rehabilitation of the distribution system through a wastage

distribution system through a control program.wastage control program - construction of the secondary and

(ii) expansion of the secondary tertiary distribution systemand tertiary distribution - operation of the system.system

(iii) improvement of management,operations, maintenance andfinancial system and

(iv) training of operator and staff.

E.8 Rehab. pipe laying Jkt. Construction of rehabilitation and Completed.Rehab. Pilot Project installation of pipes at Pluit, Construction of rehabilitation Pilot

Tanjung Duren and Gelora Project has becn implemented asSenayan Rehabilitation Pilot satisfactory standard.Project PDAM system improve-ment studies.

- 68 -

LOAN 2632-INDSECOND EAST JAVA IBRDWATER SUPPLY PROJECT

BASIC DATA SHEET

KEY PROJECT DATA

Appraisal Actual orEstimate Current Estimate Difference

Total Project Cost- Equivalent US$ million 79.081 77.553 1.528- % difference (2%)or- Equivalent Rp. billion 86.988 132.828La 45.840- % difference 34%

Loan Amount (US$ million) 43.30 43.30Disbursed 41.73Cancelled - 1.57

Completion Date 12/31/91 12/31/93 2 years

Loan Closing Date 9/30/92 12/31/93 15 months

CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENT

IBRD FY 1986 1987 1988 1989 1990 1991 1992 1993 1994

Appraisal Estimate 0.2 2.9 11.0 28.5 37.7 41.9 43.3 43.3 43.3Actual (US$ million) 0.0 2.28 21.9 32.68 38.73 39.61 40.49 40.60 41.73Act. as % of Appr. (%) 0 179 199 115 103 95 94 94 96

Date of Final Disbursement: April 30, 1994

La At appraisal US$1 = Rp 1,100. Devaluation of the rupiah over the life of the projectresulted in, an average of US$1 = Rp 1,713. By end 1992, US$1 = Rp 2,120. Also thescope of project increased, particularly for distribution system in Surabaya and technicalassistance for future project preparation.

- 69 -

PROJECT DATES

Appraisal ActualEstimate

Preparation began - October 1983Loan Negotiations - September 20, 1985Board Approval - November 12, 1985Loan Signature - November 27, 1985Loan Effectiveness - April 29, 1986Completion Dec. 31, 1991 December 31, 1993Loan Closing Sept. 30, 1992 December 31, 1993

OTHER PROJECT DATA

Borrower Government of Indonesia (GOI)Executing Agency Directorate of Water Supply within Ministry of Public

Works.

Follow-on Proect

Name East Java - Bali Urban Development ProjectLoan Number 3304-INDAmount US$180.3 millionSigning May 3, 1991Completion June 30, 1996Loan Closing December 31, 1996

Name :Surabaya Urban Development ProjectLoan Number :3726-INDAmount :$175 millionSigning :May 17, 1994Loan Closing :March 31, 1999

- 70- ANNEXI

COMPLIANCE WITH LOAN COVENANTS

Section ofLoan Subjec Compfiane Reirks

Agrement Sta

3.01 (b) Provision of operating funds for Complied Tariffs regularly increased and Operating funds (subsidies)water entities (except PDAM provide to project BPAMs as needed.Surabaya)

3.02 (a) Relending proceeds of loan to Part Complied Subsidiary Loan Agreemnent signed on March 10, 1986.B of project under a subsidiaryloan agreement with PDAMSurabaya

4.01 (a) Records and accounts to be main- Complied Accounts for Part A have been maintained at PMU in Surabaya;tained by all departments or Part B at PDAM Surabaya, and for C and D at PMU in Jakartaagencies or the borrower

4.01 (b) Above project accounts to be Complied Dates of audits are shown belowaudited independently

4.01 (c) Provide certified copy of the Complied All reports were unqualified.report of the audits to the Bank byOctober 31, of each year.

4.02 (c) (i) Water entities to establish Complied Most of them are qualified.accrual accounting systems priorto systems becoming operational

(ii) Accounts to be independently In progress There have been delays. 1992 audits for 12 out of 13 WEsaudited, and the result report to were completed as of June 7, 1994.the Bank by Prov. CK by August31, starting with accounts for yearending 12/31/90.

4.02 (b) PDAM Surabaya to maintain Compliedadequate accounts

4.02 (b) (i) PDAM Surabaya account to be Compliedindependently audited

(ii) Provide certified financial Compliedstatements and auditors' reportfrom PDAM Surabaya to the Bankby June 30 of each following year

4.04 (a) (i) PDAM Surabaya to produce Compliedfunds from internal sources forinvestment purposes for each FYafter 12/31/86 to be not less than30% of investment program.

4.05 Water entities to establish water In progress BPAMs always applied this structure. Some PDAMs usemrte structures in accordance with slightly different structure as permitted by Ministry of Homedecrees No. 5.1984 and Affairs.28/KPTS/84 of 01/23/84 asamended

4.06 (a) Water entities gross operating In progress Based on 1993 unaudited data provided by PMDU, all WEs arerevenue to be not less than covering O&M. Two are covering depreciation.operating expenses and deprecia-tion by FY91

-71 - ANNEX I

Section ofILoan Subject | Compliance Remarks

Agreement ___ Status

4.06 (c) Tansfer of inventoried asuet to In proceu Physical asets handed over to WEs. Pormal transfer processwater entities within I year of underway.completion of project

4.06 (d) Depreciation allowance to be In process Based on PMDU information, everal WEs continue to makeapplied to improvement and net payments to the local governments.expansion of water systems.

5.01 (a) Insurance or other provisions by Complied GOI guarantee to replace the asuets is implicit.water entities.

5.02 (a) Charges for Domestic Service In Progres Connection charges were between Rp 80,000 for BNAsConnections by water entities (US$50) and RP 15,000 (US$9) for IKKs.(except PDAM Surmbaya) not to Payment terms for the connections made by project varied fromexceed average installation cost. 3 to 5 years. Connections outside the project may havePayments allowed to be made over received as low as 6 months credit only.a 5-year period.

5.03 Carry out action program for In Progres Progress slow but recognizable. A new nationwide agency mayabatement of pollution in the be set up in East Java branch. Further support and progressSurabaya river, expected under SUDP.

5.04 Establish PDAMs in the 8 CompliedKabupatens of Blitar, Bondowoso,Kediri, Madiun, Nganjuk, Pacitan,Ponorogo, Trenggalek andProbolinggo by December 31,1992.

Sch.l () Subsidiary loan agreement with Complied Agreement signed 10/03/66.Sch.3(b) PDAM Surabaye is executed and

legally binding

(li) _

(iii) (The identified) Industries In proces Long-term effort needed. Being carried out by GOI under theirresponsible for Surabaya river clean rivers' project. Continued effort supported underpollution to complete preinvest- SUDP.ment studies, and carry out therecommendations.

(iv) Directorate of Environmental CompliedSanitation (of Cipta Karya) tocarry out prefeasibility study forimprovement of DomesticSanitation.

Sch.5 (a) The PMU establish for 1st East CompliedPart 1. Java Water Supply is to manage

Parts A and B of 2nd East JavaLoan and over-all reportingcoordination.

(b) A new PMU is to be estab- Complied PMU Jakarta tructure was formalized by CK in November 15,lished to manage pans C & D of 1986. Head of SDO headed PMU Pusat.the 2nd East Java Loan.

(c) The PIU established for lt Complied Four sub-PIUs were established to expedite implementation.East Java Water Supply is to Organization ructure to clearly separate roles of PMU andimplement Part A. PIU not well defined.

- 72 - ANNEX 1

Section ofLoan Subject Compliance Rarks

Agreement Status

(d) (i) A new PIU within the CompliedPDAM Surabaya is to be estab-lished to implement Pan B.

(d) (ii) A new PIUJ within Cipta CompliedKarya is to be establiahed toimplement Part C and D of 2ndEast Java Loan.

Sch.5 (a) and (b) Part A of the Project Substantially Project and WE needs were met.Part 5. (BNA & EIK towns) acquire 23 completed

four-wheel vehicles and 34motorcycles by June 30, 1986.

Sch.5 PDAM Surabaya to carry out a In progress Long-term effort needed. Will be continued under SUDP.Part 6 water loss reduction program

- 73 - ANNEX 2

BANK MISSIONS

No. Date Number of Staff Staffweeks

Preparation

1. Apr6-21, 1984 2 52. Aug - Sept. 1984 3 9

Pre-appraisal

1. Nov 23 - Dec 13, 1984 4 16

Appraisal

2. Apr 6 -24, 1985 4 123. Aug 16- 30, 1985 3 7

Supervision

1. Nov - Dec 1985 4 82. May8-19, 1986 2 53. Jul 28 - Aug 15, 1986 2 64. Oct 27 - Nov 7, 1986 4 85. Nov - Dec 1986 3 66. Apr 6 - 11, 1987 4 67. June 1987 2 48. Octl3-25,1987 3 79. November 1987 3 710. Feb 8- 12, 1988 4 511. June 1988 2 312. November 1988 3 613. March 1989 2 414. Oct 15 - 20, 1989 3 515. Feb 20 - 27, 1990 3 416. June 20 - July 3, 1991 5 1017. Mar 4 - 11, 1991 3 418. Oct21 -28, 1991 3 419. July 13-18, 1992 2 320. Feb 22 to Mar 2, 1993 2 4

Total Supervision 109 sw

Note: Each supervision mission was in conjunction with one or more additionalassignments. Until closing of East Java Water Supply Project (the firstproject) on December 31, 1990 both projects were supervised at the same time,within the staff weeks shown above. Based on the Bank's MIS, a total of 84sw was spent on supervision of this project..