Individually our institution can make a difference but with our partners and a common goal of poverty reduction, we can achieve so much more.

Transcription

1 Donors Council Meeting Dili, East Timor May 2002

2 Individually our institution can make a difference but with our partners and a common goal of poverty reduction, we can achieve so much more. Tadao Chino President Asian Development Bank

3 Asian Development Bank Fourth Progress Report on East Timor ADB/UNTAET-Managed TFET Sectors/Projects ADB s Technical Assistance Grant Projects Updated Poverty Indicators Donors Council Meeting Dili, East Timor May 2002

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5 v Contents Map of East Timor Abbreviations Page iii ix n n OPERATIONAL HIGHLIGHTS POVER VERTY INDICATORS OF EAST TIMOR x xv n n PAR ART 1: ADB/UNTAET AET-MANA -MANAGED TFET SECTORS/PROJECTS 1 Infrastructure Sector 3 A. The Power Subsector 4 1. Introduction and Background 4 2. Short- and Medium-Term Strategy for the Power Subsector 8 B. The Transport Subsector 9 C. The Road Subsector 14 Annex: Draft Financial Statements 18 Grant 8181-ETM: Emergency Infrastructure Rehabilitation Project, Phase I Implementation Status 31 A. Introduction 32 B. Project Objectives and Scope 32 C. Financing Plan and Disbursements 32 D. Work Plan 33 E. Road Restoration 34 F. Port Restoration 43 G. Power Restoration 44 H. Project Management Unit 48 Annex 1: Project Budget 52 Annex 2: Project Disbursements 53 Annex 3: Detailed Work Plans and Donor Coordination Matrix 54 Annex 4: Current Contract Locations 57 Annex 5: River Training Assessment 58 Annex 6: Geotechnical Investigation 60 Annex 7: Locations of the Power Stations under the Program 61 Annex 8: Detailed Power Subsector Development Plan 62 Annex 9: Management Program of the Power Service 70

6 vi Project Progress Report on East Timor TFET-Funded Emergency Infrastructure Rehabilitation Project, Phase II 71 A. Introduction 72 B. Objectives 72 C. Scope 73 D. Major Components 73 E. Cost Estimates and Financing Plan 74 F. Implementation Arrangements 74 G. Environmental and Social Measures 76 H. Risks 77 Grant 8190-ETM: Hera Port Fisheries Facilities Rehabilitation 79 Implementation Status 80 A. Project Objectives 80 B. Project Cost 80 C. Project Commencement and Closing Date 80 D. Project Implementation Progress as of 31 March E. Description of Component s Implementation Progress 81 F. Implementation Arrangements 81 G. Procurement 81 H. Consulting Services 81 I. Donor Coordination 81 n Water Supply and Sanitation 83 A. Introduction 84 B. An Overview of the Current Status 84 C. Current Constraints and Recommendations 87 D. Sector Policies and Legislative Framework 89 E. Proposed National Water Supply and Sanitation Services Development Plan 89 F. Medium- to Long-Term Strategy 90 Annex: Implementation Schedule 91 Grant 8185-ETM: Water Supply and Sanitation Project, Phase 1 Project Completion Report 93 A. Project Objectives and Scope 94 B. Evaluation of Implementation 94 C. Lessons Learned 99 Annex 1: Project Implementation Schedule 101 Annex 2: Summary of Commitments and Disbursements 102 Annex 3: Output and Performance Monitoring Matrix 103

7 vii Grant 8189-ETM: Water Supply and Sanitation Project, Phase II 109 A. Project Objective 110 B. Project Cost 110 C. Project Commencement and Closing Date 110 D. Project Implementation Progress 110 E. Detailed Description of Component/Subcomponent Implementation Progress to Date 110 Annex 1: Project Activities, Cost Estimates, Commitments and Expenditures 113 Annex 2: Expenditure/Commitment/Disbursement Chart 114 n FINANCIAL SECTOR 115 Microfinance 116 A. Introduction 116 B. Key Constraints 119 C. Microfinance Operational Strategy 119 Grant 8186-ETM: Microfinance Development Project Implementation Status 123 A. Project Objectives 124 B. Project Cost 124 C. Project Commencement and Closing Date 124 D. Project Description 124 E. Performance Targets 125 F. Project Implementation Progress 125 Annex 1: Project Activities and Budget Matrix 133 Annex 2: Microfinance Institution of East Timor Loan Products 134 Annex 3: Table of Credit Unions 137 n n PAR ART T 2: ADB S TECHNICAL ASSISTANCE ANCE GRANT PROJECTS 140 ADB S Technical Assistance Grant Projects for 2000 Implementation Status Community Empowerment Program, TA 3400-ETM Transport Sector Restoration, TA 3401-ETM Capacity Building for Governance and Public Sector Management, TA 3412-ETM Poverty Assessment and Statistics, TA 3425-ETM Rehabilitation of the Telecommunications Sector, Phase I and II, TA 3428-ETM and 3504-ETM Microfinance, TA 3435-ETM Environmental Assessment Capacity Improvement, TA 3501-ETM 148

8 viii Project Progress Report on East Timor 8. Strategies for Economic and Social Development, TA 3512-ETM Capacity Building for Local Government, TA 3515-ETM Strengthening the Microfinance Policy and Legal Framework, TA 3556-ETM Economic Policy Forum, TA 3592-ETM 153 n n n ADB S Technical Assistance Grant Projects for 2001 Implementation Status Exclusive Economic Zone Demarcation, TA 3654-ETM Transport Sector Improvement, TA 3731-ETM Microfinance Information Technology Systems Development, TA 3743-ETM Preparing the Power Sector Development Plan, Phase 1, TA 3748-ETM Economic Policies nd Strategies for Development Planning, TA 3803-ETM Postal Services Development, TA 3819-ETM 161 ADB S Technical Assistance Grant Projects for 2002 Implementation Status Capacity Building to Develop Public Sector Management and Governance Skills, TA 3839-ETM 164 PROPOSED TECHNICAL ASSISTANCE ANCE PROGRAM FOR SECOND HALF OF Strengthening Policies and Planning in the Infrastructure Sector Strengthening Policies and Planning in the Agriculture and Natural Resources Sectors 168

9 ix Abbreviations ADB AusAID CFET CU CUF EDTL EIRP EIRP-2 ETPA ETTA FAO FPRET GDP IEC MFI MOCT MOEAD MWPW NGO OSRSG PMU TA TFET UN UNDP UNPKF UNTAET WS&S WSS Asian Development Bank Australian Agency for International Development Consolidated Funds for East Timor credit union credit union federation Eletrisidade de Timor Lorosae Emergency Infrastructure Rehabilitation project Emergency Infrastructure Rehabilitation project, Phase II East Timor Public Administration East Timor Transitional Administration Food and Agriculture Organization Foundation for Poverty Reduction in East Timor gross domestic product information, education, and communication microfinance institution Ministry of Communication and Transport Ministry of Economic Affairs and Development Ministry of Water and Public Works nongovernment organization Office of the Special Representative of the Secretary General Project Management Unit technical assistance Trust Fund for East Timor United Nations United Nations Development Programme United Nations Peace Keeping Forces United Nations Transitional Authority in East Timor water supply and sanitation Water and Sanitation Services NOTE: In this report $ refers to US dollars.

10 x Project Progress Report on East Timor Operational Highlights This Progress Report updates the activities of the Asian Development Bank (ADB) in East Timor. ADB was given responsibility for preparing and implementing projects in the physical infrastructure (ports, power, roads, telecommunications, and water and sanitation) and microfinance sectors. In 2002, ADB dedicated itself to improving its operations and intensified its efforts to expedite project implementation in East Timor. ADB is assisting East Timorese to build and upgrade both physical and social infrastructure as part of the reconstruction of East Timor. To maximize the benefits of rehabilitation, ADB focuses on areas where the impact of poverty reduction is likely to be the greatest. Resources for Operations Authorized grants to date from the Trust Fund for East Timor (TFET) for six ADB- managed projects amount to $52.8 million. In 2000, ADB provided $5.0 million from its own resources in technical assistance (TA) grants for project preparation and advisory purposes for East Timor. A total of 12 TAs were processed and implemented in Out of these, four TAs have been completed and the remaining 8 TAs are ongoing. In 2001, an additional $2.4 million was provided by ADB for further TAs, mainly for capacity building in key government ministries. A total of 6 TAs were approved and are being implemented. In 2002, an estimated $1.5 million has been allocated for TAs for capacity building in national and local governments, strengthening policies and planning in the infrastructure and agriculture and natural resources sectors, and addressing associated environmental protection issues. The sector-specific TAs will help to prepare coherent policy frameworks and identify sector investments. To date, a TA for Capacity Building to Develop Public Sector Management and Governance Skills for $688,000 was approved in March Status of Sector Activities Under TFET Grants To date, total disbursements amount to $29.2 million and comprise 67% of the approved grant amount of $43.8 million. The details of contract awards and disbursements are shown in Table 1. In 2001, as part of ADB s Portfolio Management Action Plan, an automated project system to improve consistency and timeliness, standardized ratings, and reduced subjectivity was introduced. ADB continued to emphasize good governance and transparency in project implementation and timely submission of

11 xi quality-driven audited project accounts. To expedite project implementation and improve transparency, ADB also introduced a quality and cost-based system for selecting consulting firms. 1. Roads, Port, and Power The Emergency Infrastructure Rehabilitation Project, for $29.8 million was approved on 13 April Overall project implementation progress is estimated at 55%. Contract awards and disbursements amount to $26.8 million and $20.7 million (including $4.5 million in imprest account), respectively, which correspond to 90% and 69%, respectively, of the grant amount. The Project is expected to be completed by 30 November As a follow-up to the ongoing project, ADB has prepared another project, the Emergency Infrastructure Rehabilitation Project, Phase II, for $9.0 million. Grant negotiations were completed in December 2001, and the Project is expected to be approved in May The Hera Port Fisheries Facilities Rehabilitation Project, for $1.0 million, was approved on 17 October Project implementation commenced in November 2001 and is expected to be completed by December Social Infrastructure The Water Supply and Sanitation Rehabilitation Project, Phase I was approved by ADB on 31 July 2000 for $4.5 million and the Project was completed as targeted on 31 December The Water Supply and Sanitation Rehabilitation Project, Phase II, for $4.5 million, was approved on 13 July 2001 by ADB. The project implementation progress is estimated at 10%. Contract awards and disbursements amount to $0.33 million and $1.0 million, respectively ($1.0 million in imprest account), which correspond to 7% and 22%, respectively, of the grant amount. Project implementation commenced in January 2002 and is expected to be completed by 30 April Early preparatory works are in progress. 3. Microfinance The Microfinance Development Project was approved by ADB in December 2000, for $7.7 million (TFET Trustee has thus far approved $4.0 million). Project implementation began in February Overall, project implementation progress is satisfactory. The establishment of the microfinance institution (MFI) was approved in December 2001 and final preparatory work for operationalizing the MFI is in progress, and is expected to start operations in May Contract awards and disbursements amount to $2.7 million and $3.2 million, respectively,

12 xii Project Progress Report on East Timor which correspond to 68% and 80%, respectively, of the confirmed grant amount. The Project is expected to be completed by 31 December Table 1: ADB/UNTAET-Managed Grant Projects Contract Sector No. of Awards Disbursements Grants $ million a/ ($M) ($M) Transport and Communications b/ Social Infrastructure c/ Others d/ Total a Approved grant project amounts. b $29.8 million for EIRP I, $9.0 million for EIRP II, and $1.0 million for Hera Port. c $4.5 million for WSS I (completed), and $4.5 million for WSS II. d The Microfinance Development Project has a confirmed fund of $4.0 million. Donors Coordination Besides ADB, other international organizations, bilaterals and nongovernment organizations (NGOs) are providing support for the reconstruction of East Timor, covering a wide spectrum of humanitarian and sectorial assistance. The participation of major donors by sector are shown in Table 2. Table 2: Sectoral Coordination of Key Donors a (by major sector) Agriculture Physical Infrastructure Social Infrastructure Roads Power Water Ports/Marine Education Health Australia Canada EC (from 2003) Japan/JICA New Zealand Norway Portugal TFET (IDA) UN Agencies United States NGOs Japan/JICA Norway TFET (ADB) NGOs Japan/JICA Portugal TFET (ADB) United Kingdom UNDP EC Germany Japan/JICA Portugal TFET (ADB) UN Agencies United States NGOs Japan/JICA Portugal TFET (ADB) Australia Brazil Canada Japan/JICA New Zealand Norway Portugal TFET (IDA) UN Agencies United States NGOs Australia Brazil EC Japan/JICA Portugal TFET (IDA) UN Agencies NGOs a The above table was based on observed areas of interest and/or involvement of various donors/ngos in East Timor during the last 2 years.

13 xiii Status of ADB/UNTAET-Managed Grant Projects and ADB s Technical Assistance (percentage of progress) ADB/UNTAET-Managed Grant Projects (TFET-Funded) Emergency Infrastructure Rehabilitation Water Supply and Sanitation Rehabilitation Microfinance Development Water Supply and Sanitation Rehabilitation II Hera Port Fisheries Facilities Rehabilitation Emergency Infrastructure Rehabilitation II Percentage of Completion Economic Policy Forum Strengthening the Microfinance Policy and Legal Framework Capacity Building for Local Government Strategies for Economic and Social Development Rehabilitation of the Telecommunications Sector, Phase II Environmental Assessment Capacity Improvement Microfinance Rehabilitation of the Telecommunications Sector (Phase I) Poverty Assessment and Statistics in East Timor, Phase I Capacity Building for Governance and Public Sector Management Transport Sector Restoration Community Empowerment Program Percentage of Completion Exclusive Economic Zone Demarcation Transport Sector Improvement Microfinance Information Technology Systems Preparing the Power Sector Development Plan (Phase 1) Postal Services Development

14 Updated Poverty Indicators

15 xvi Project Progress Report on East Timor Updated Poverty Indicators of East Timor Item Latest Data 1. Basic Human Development Indicators Total Population ( 000) (2001) Annual Population Growth Rate (% change) -1.6 ( ) Life Expectancy at Birth (years) 56.0 (1998) Adult Literacy Rate (%) 49.0 (2001) Combined Gross School Enrollment Ratio (%) 85.0 (2001) Net Primary Enrollment Ratio (% of aged 7-12 year olds) 73.0 (2001) 2. Health and Mortality Infant Mortality Rate (per 000 live births) 85.0 (1998) Under-5 Mortality Rate (per 000 live births) (1998) Maternal Mortality Ratio (per 100,000 live births) (1990) Births Attended by Skilled Health Staff (% of live births) 37.0 (1998) Population per Doctor 3,846.0 (1998) Population with Access to Safe Water (%) 37.0 (2001) Population with Access to Sanitation (%) 54.0 (2001) a Gov t Expenditure on Health (as % of total gov t spending) 7.6 (2000/01) b 3. Education Gross Primary Enrollment Ratio (% of aged 7-12 year olds) c (2001) Gross Secondary Enrollment Ratio (% of aged year olds) 38.0 (2001) Ratio of Girls to Boys in Primary and Secondary Education (%) 93.0 (2001) Adult Population with Secondary or Higher Education (%) 19.0 (1998) Student/Teacher Ratio (average for all schools) 52.0 (2001) Gov t Expenditure on Education (as % of total gov t spending) 7.0 (2000/01) b 4. Other Poverty Indicators People Living on below US$1-a-day, 1985 PPP (%) 90.0 (1999) Population in Poverty (% of population falling below the poverty line) 41.0 (2001) Gini Coefficient (1998) Income Ratio (H20/L20) 3.4 (1999) a Preliminary estimate. b As per draft budget for FY 2000/01. c Gross primary enrollment ratio is the ratio of total primary enrollment, regardless of age, to the population of the relevant age group that officially corresponds to the primary level of education. In the case of East Timor, this ratio is over 100 percent because there are those who are enrolled in the primary level who are beyond the relevant age group for primary education, which is 7-12 years old.

16 xvii Part 1 ADB/UNTAET-Managed TFET Sectors/Projects

17 Infrastructure Sector

18 4 Project Progress Report on East Timor Infrastructure A. The Power Subsector 1. Introduction and Background During the earlier administration, power was supplied in East Timor by isolated diesel power stations in Dili, 11 district stations, and about half of the subdistrict stations. A service department, the Eletrisidade De Timor Lorosae (EDTL), established under the United Nations Transitional Administration in East Timor (UNTAET), manages the power sector. The EDTL is now under the responsibility of the Ministry of Economic Affairs and Development (MOEAD). Since late 1999, several donors have been assisting in rehabilitating some of the generating equipment in Dili and in 30 subdistrict power stations. In addition, efforts have been made to ensure financial sustainability of the sector by implementing a tariff structure, identifying customers and establishing a billing system, designing and implementing an effective manpower structure with appropriate training, and defining an overall legal framework to improve management and performance. Draft financial statements (Annex) were prepared based on actual billing and performance data for Dili in 2001/02, and estimates for District and Subdistrict operations. No customer surveys or metering have been done outside of Dili. It is, however, assumed that there are about 20,000 electricity consumers in the Districts with 18,000 in residential and 2,000 in commercial. While the average consumption per consumer can be expected to be much lower in the Districts together than in Dili, there are about the same number of consumers in the Districts as in Dili. When all power generation capacity in the Districts are fully operational, electricity consumption in the Districts would account for about 25% of EDTL load, and Dili the remaining 75%. Fuel accounts for 81% of annual expenditure of EDTL in Dili, with the Districts showing a similar trend. Comparing diesel-based utilities with neighboring countries, fuel is rarely more than 50% of total expenditure. EDTL s expenditure pattern shows severe under-spending in internal strengthening activities such as maintenance, better salaries, and capital improvements. Only 56% of electricity consumers in Dili presently have normal meters. The remaining 44% of connections are not generating significant revenue. Over 8,100 connections in Dili require either new meters or repaired meters, including 682 commercial customers and about 7,500 residential premises. At the present rate of meter installation and meter repair (about 200 meters/month), it will take another 3 years to complete metering in Dili. The implications of this in terms of unbilled electricity produced and revenues foregone are enormous, estimated at $13.4 million over the 3-year period from 2001/02.

19 5 1,600 1,400 1,200 1, Average Usage per Consumer (kwh/month) Dili District Annual Electricity Consumption (GWh) Dili Districts Infrastructure Sector Domestic Commercial Domestic Commercial Metering, Dili April % Normal M eters R eversed M eters 11% 6% 13% 56% Stopped M eters Unm etered C onnections Info rm al C onnections (require m eters) Revenues Foregone due to Incomplete Metering in Dili $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $0 2001/ / /04 Revenues Foregone (totals about $13.4m over three years)

20 6 Project Progress Report on East Timor The Dili tariff structure has recently (April 2002) been extended to apply to all of EDTL s power centers outside of Dili. Since no metering has been implemented in the Districts, no revenue is being collected for the intermittent power produced in the Districts. Due to the need to organize new crews of meter installers/repairers, and meter readers throughout the Districts, any significant metering in the Districts is unlikely prior to the second half of 2002/03 (January 2003). Revenues foregone in the Districts are estimated at about $11.2 million over the 3 years from 2001/02, based on the load estimates outlined above. Incomplete metering in Dili and the Districts in combination is costing EDTL approximately $25.2 million over the 3-year period 2001/ /04. This amount can be reduced only through a substantial increase in the average monthly electricity charges, installations and repairs, and an aggressive campaign to increase revenue collections. As per Directive of April 2002, a single tariff structure applies to Dili and the Districts. For residential consumers, the first 25 kwh/month of metered consumption is subsidized at $1 per customer/month; for all commercial consumers and residential consumers using more than 25 kwh/month, the tariff is about $0.23/kWh. 1 Based on the current installed meters and the monthly rate of meter installation/repair, invoiced revenues are projected as follows: 2001/02: $3.5 million 2002/03: $9.0 million 2003/04: $11.9 million In 2001/02, EDTL has actually collected only about $800,000 (expected by the end of the financial year, not including arrears) from Dili consumers, or about 7% of total operating expenses of $11.5 million. Most invoices are not being paid, and will probably have to be written off. Monthly consumers bills are usually inaccurate. If collections are to increase (and the rate of write-offs decrease), three things appear necessary: (i) erroneous bills have to be greatly reduced; (ii) relations between the public and EDTL and the public s understanding of bill paying and complaints procedures need to be improved; and (iii) an impartial but aggressive disconnection program for nonpayers must be enforced. What are the required targets for revenue collection and reduction in write-offs? The Council of Ministers recently approved a sharply reduced Consolidated Funds for East Timor (CFET) contribution to EDTL in 2002/03, and a limit of only $0.7 million for the year for fuel (sufficient for about 6 weeks of operation). All other funds needed for fuel must be collected from consumers. In 2001/02, the current rate of write-offs is 75 80% of invoiced sales. To meet fuel costs under the reduced budget of 2002/03, the 1 The tariff calculation is as follows: a fixed component of $0.117/kWh is charged, plus a variable component (that varies with fuel price) according to the following formula: x the base fuel price is $0.26/liter divided by the current fuel price (about $0.29/liter). This results in a current nonsubsidized tariff of *(0.29/0.26) = $0.227/kWh.

21 7 $1,000,000 $500,000 $0 -$500,000 Cost Recovery Targets Infrastructure Sector -$1,000,000 -$1,500,000 -$2,000,000 -$2,500,000 -$3,000,000 Jul-01 Jul-02 Jul-03 Net Operating Profit/(Loss) rate of write-off must be reduced to no more than 40% in the 1 st quarter, 20% in the 2 nd quarter, and only 10% thereafter. This would result both in recovery of fuel expenses in 2002/03, and in a small net operating profit starting in the 2 nd quarter. Net revenue collections assumed under the budget is provided in the graph below. Net Revenue Targets $3,500,000 $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $0 Jul-01 Nov-01 Mar-02 Jul-02 Nov-02 Mar-03 Jul-03 Nov-03 Mar-04 Cash Collection per quarter Bad debts (write-offs)

22 8 Project Progress Report on East Timor 2. Short-and Medium-Term Strategy for the Power Subsector The East Timor Transitional Administration (ETTA) restored electricity supply in all of the major power centers in East Timor including Dili, and in about half of the village-level power stations that existed previously. Notwithstanding load shedding, Dili in general receives 24 hours power supply, while most District centers are operated for 6 hours per day, and subdistrict centers not at all. Efforts to build a sustainable power infrastructure or institutional framework have been less successful. Though the generators at the Comoro power station were overhauled, the availability of free power in Dili has led to the demand outstripping the available capacity. Hired generators produced more than half of the electricity supplied in Dili in January 2002, and much of the distribution system is overloaded, weak, inefficient, and prone to breakdown. Work is underway to restore power stations in about 30 rural villages, which will be managed by the communities. In the larger District stations outside of Dili, however, power facilities have not been upgraded and supplies there are intermittent. EDTL manages the Power Service with the institutional responsibility resting with the Ministry of Economic Affairs and Development. Despite efforts to build management capacity and self-sufficiency, including a TFET-funded technical assistance for Establishment of a Power Utility and its Financial Management System (hereinafter, the TA ) that is near completion, EDTL remains financially insolvent and cannot sustain operations with present resources; it lacks trained staff to carry out critical supervisory functions. In Dili, though about half of the electricity consumers are receiving bills under a tariff introduced in August 2001, revenue collections have averaged only about 10% of the amount billed in January April All funds available to EDTL are expended on fuel and wages, and are running down rapidly. As there is no spending on capital improvement, difficulties with the system are set to increase. ADB assisted the Power Service to prepare immediate and medium-term action program for the sector given below, and suggested options for financing these. Additional short-term assistance to address a range of immediate needs, especially in revenue collection, is available from TFET, and longer-term assistance in the form of international expertise appears to be available from the United Nations Development Programme (UNDP) approved stability positions. ADB also has funding for a technical assistance to prepare Phase I of a 20-year power development plan for East Timor. This will include a review of the national economic and electricity demand patterns and prepare a forecast of future requirements in the power sector; a technical review of the availability and costs of imported and indigenous energy resources for power supply; economic and financial analysis; and a least-cost investment plan for the sector, covering both urban and rural areas. Other aspects that will influence the final recommendations are an analysis of the environmental, social, and poverty impacts of making use of the indigenous energy resources once financial and economic viability has been reconfirmed. These are planned for

23 9 examination under Phase II of the study. ADB welcomes cofinancing for Phase II. With the Government committed to the technical assistance, it intends to provide a coherent framework to enable the Government to coordinate the participation of other donors and the private sector in power development in the longer term. The tables below summarize an action plan to address priority needs in the sector. The Government has endorsed the action plan and requests that the technical assistance be implemented without delay. Donors 2 consulted have endorsed the plan. Implementation of the TFET-supported technical assistance will be coordinated by the Project Management Unit (PMU). 3 The action plan includes the activities given in the following tables. Infrastructure Sector B. The Transport Subsector Transport cost forms a major part of the consumer price of all goods available in the market. A reliable and efficient internal transport system is therefore important for agricultural, forestry, and mineral development, for local marketing of surplus production and for transport of cash crops to urban markets and for exports. The amount of passenger and freight transport is closely related to the wealth of the people and the goods traded. Good roads, and efficient ports and airports keep transport costs down, make travel more affordable, and imported goods cheaper and exported goods more competitive. Transport improvements help stimulate economic activity and social interaction, which in turn leads to increased transport demand. District Development, Food Security, and Poverty Alleviation. The Government s short-term objective is to attain food security, as there are durations, and regions where there is shortage of staple food. Also there is a desire to discourage population drift to Dili, to decentralize District level administration, and support rural populations. Generally, the rural poor are those most disadvantaged by remoteness and with least developed transport links. Access to Health and Education. This remoteness limits access to health and education services, and makes distribution of social services harder. Without specific emphasis on development of areas with relatively low human development indicators, transport funds will tend to be allocated to the most heavily used transport routes, which can demonstrate transport savings. The evaluation process for transport investment must address this imbalance by giving more weight to investment that benefits such disadvantaged groups. Environmental Protection and Management. Transport civil works presents a threat to the natural environment and to human habitation. The presence of streams of traffic, noise and fumes, will put pressure on sensitive areas of biodiversity or historical 2 The United States, Japan through JICA and UNDP, Australia. 3 Project Management Unit of the Grant 8181-ETM(TF): Emergency Infrastructure Rehabilitation Project.

24 10 Project Progress Report on East Timor Immediate Action Plan for the Power Sector: May December 2002 Recommended Action Target Means and Source of Funding Prepare updated financial statements for the Power Service. Incorporate up-to-date cost, billing, and revenue information into a set of financial statements to provide an accurate picture of the financial condition of the Power Service. ADB staff consultant ADB Launch a public relations (PR) campaign through broadcast and print media and public fora to inform consumers about the prospect of power rationing as a consequence of consumers not paying their bills. Appoint NGO or commercial PR company to design and deliver an ad campaign and conduct consultations with chefs de suco (village chiefs) in Dili. Campaign should be designed with acute sensitivity to local culture and delivered in local languages. TFET $15,000 Purchase needed computer hardware for billing and accounting. Acquire high-speed printer and computers as specified by the project consultant for billing and financial management functions. TFET $15,000 Appoint the PMU to coordinate the recommended TFET-funded power sector activities. Provide short-term services within PMU to coordinate inputs for recommended TFETfunded activities. Services of about 2 person-months required, spanning an estimated 4 calendar months. Appointment of a short term power sector coordinator in PMU for 2 person-months spanning April- July 2002 inclusive. TFET $40,000 Conduct a workshop on institutional utility formats. Establish familiarity with the various models optional for organizing power service within or outside of the Government including departmental, statutory authority, and state owned company models Power coordinator (PMU) TFET

25 11 Immediate Action Plan for the Power Sector: May December 2002 (cont d) Recommended Action Target Means and Source of Funding Conduct a study tour of organizational and tariff issues and solutions in neighboring Pacific island power utilities for senior power sector management. Promote familiarization of senior power sector management with practical issues of organizational framework, manpower structures, financial management, and tariff issues through face-to-face contact with managers in a crosssection of neighboring small utilities (Vanuatu, Fiji Islands, Samoa, New Zealand) A 2-week intensive study tour of neighboring small utilities, representing a range of approaches and management solutions for senior power sector managers, can be arranged by PMU and financed by TFET. TFET $100,000 Infrastructure Sector Complete installation of electricity meters on unmetered customers in Dili (about 4,700 meters still to be installed) and repair approximately 2,300 broken existing meters. Ensure a working meter is installed on the premises of every electricity consumer in Dili. Implementable with existing EDTL trained staff and stock meters. EDTL Develop a manpower structure for management and operation of all of EDTL s rural power stations. Identify needed skills for operating each district and village-level power station under EDTL s responsibility. Conduct a review with recommendations of needed management (admin, billing, revenue collection) and technical skills in rural stations. TFET $20,000 Review the salary structure for senior management and technical positions in EDTL and recommend realistic wage scales that are effective in Develop a competitive salary and wage scale for senior management and engineering/supervisory positions in EDTL. Conduct a review of wages and salaries in local public TFET $20,000

26 12 Project Progress Report on East Timor Immediate Action Plan for the Power Sector: May December 2002 (cont d) Recommended Action Target Means and Source of Funding attracting and keeping qualified local staff. Recruit all unfilled EDTL management and technical positions. Conduct a sector cost study and specify an efficient and equitable cost-based tariff, based on consumers ability and willingness to pay for electricity. and private sector markets and in other developing countries of relevant management and supervisory skills and recommend a suitable structure for EDTL. Obtain endorsement of the Steering Committee and approval by Government if required. Appoint qualified local management and techical staff in unfilled positions in Dili and all rural stations. Sector cost study and tariff recommendation, with the results of consumer survey(s) to be incorporated. To be implemented within existing EDTL budget resources. When complete, a presentation to Government will be arranged on the economic justification of the recommended tariff. EDTL TFET $20,000 and cultural value. Transport plans and policies therefore must be evaluated carefully to balance the gains from easier access against the environmental costs, and should include environmental protection and management measures. Private Sector Development. A national objective is to develop opportunities for private citizens to set up businesses, mobilizing entrepreneurial potential and reducing the relative size of the government sector. Transport presents an important opportunity for private sector participation through engineering design and construction, contracted maintenance, and the operation of passenger and freight transport services. The Government s role is to provide an enabling environment in which the private sector can thrive, while regulating to promote fair competition, safety, and sustainability. Limited Multi-modality. Transport is mainly all by road on the mainland, with the exception of offshore islands and the Oecussi enclave which, since 1999, has been supported by a free coastal ferry or a UN-provided air service. Oecussi could also be served by land-bridge through West Timor, with the cooperation of the Indonesian Government. The free sea and air service is to be replaced by a semi-commercial ferry

27 13 Immediate Action Plan for the Power Sector: May December 2002 (cont d) Recommended Action Target Means and Source of Funding Finalize a comprehensive draft legislative framework for the establishment of an autonomous power authority with an appropriate timeframe for implementation, presented for consideration by the Council of Ministers. Framework and draft legislation to be prepared for endorsement by EDTL and presented to Government for enactment. TFET $20,000 Infrastructure Sector Specify a management contract for the power sector and tender for services. A management contract bid document, consistent with the desired institutional development of the power sector to be specified, including technical, financial, and managerial performance requirements. The bid document, upon approval by the Government, would be put to tender internationally. TFET $20,000 service, operated under a franchise agreement tendered to the private sector. The islands of Atauro and Jaco are accessible only by sea, but have no regular commercial transport service. While there are a number of small coastal wharves and landings, there is no coastal shipping service and demand is limited. Road distances and travel times are generally too short for sea to offer a competitive alternative for general goods transport, although the construction of the road system, and costs of strengthening, may provide a case for moving heavy and bulky loads by sea. Similarly, due to low demand and short distances there is no internal air service, although Dili airport is capable of handling B737, and Baucau B747 size aircraft. Overall, there is relatively little competition between modes of transport, but some scope for coastal shipping and internal air transport if operated as an extension to international transport services. The main port at Dili provides the interface between sea and road transport. Being located close to Dili s business and government center and on a confined site creates some conflict between city traffic and the needs for heavy vehicle access and (de)consolidation of cargo. This is a situation that urban planning will need to review in the future.

28 14 Project Progress Report on East Timor Medium-Term Action Plan for the Power Subsector: Fiscal Years 2002/03 through end 2003/04 Recommended Action Target Means and Source of Funding Power Development Plan TA Prepare a national power development plan and framework for donor intervention in the sector in East Timor. The study should focus early on capacity requirements in Dili. Phase I: Undertake review and preparation of the technical, economic, and financial aspects of the power development plan. Carry out the TA as soon as possible to provide Government with a framework to coordinate donor and private sector participation in developing power capacity with economic use of indigenous resources. TA approved by ADB, for implementation upon counter signature by Government. ADB $400,000 Secure co-financing for analysis and recommendations to meet international environmental standards for power development, maximize social benefits and the impact of the power development plan on poverty reduction. Phase II: Undertake review and preparation of the environmental, social, and poverty aspects of the power development plan. Possible cofinancing of the power development plan TA, for environmental and social impact aspects. $400,000 C. The Road Subsector East Timor has a legacy of an extensive, though lightly constructed and somewhat narrow, road network of 5,000 kilometers (km) of main and secondary roads, of which half are bitumen surface. The roads have had little or no maintenance since 1997, and the combined effects of this, the passage of military vehicles, and one bad year of flooding have caused some damage. The TFET-funded Grant for the Emergency Infrastructure Rehabilitation project (EIRP) funded under the Trust Fund for East Timor (TFET), together with bilateral assistance from Japan and the efforts of the United Nations Peace Keeping Forces (UNPKF), has achieved some stabilization of road conditions, such that it is timely to consider a longer term plan. The focus of this work has been mainly at restoring road drainage structures together with short lengths of resurfacing and to washouts and areas of land instability. A regional maintenance capability is being developed through four

29 15 Medium-Term Action Plan for the Power Subsector: Fiscal Years 2002/03 through end 2003/04 (cont d) Recommended Action Target Means and Source of Funding Other Intermediate Term Recommendations: Recruit international mentors for key management and technical positions within EDTL to provide oversight and training services over a period of about 2 years, to assist local counterparts to become adept in supervisory and management roles. Arrange capital finance for investment in power infrastructure expansion and extension to rural communities. Provide expertise for extended on-the-job training services to local staff in critical technical and management roles. It is understood that an international expert has been recruited for the Head of power position and is expected by end- February This person will participate in selections for these posts. Long-term capital finance requirements for the sector will be identified in the power development plan framework, providing a basis for negotiation with international financiers (multilateral lenders and private sector investors). 2 of the 100 UNDP stability positions can be applied to a multi-year mentoring role in EDTL, in mechanical and electrical engineering. JICA may recruit a Japanese expert to assist with management functions. Financial agreements for discrete projects will follow completion of relevant feasibility/design studies to be carried out by the lending institution or private sector investor. UNDP/ Japan Expected cost: $50,000 per personyear. Multi-lateral lenders, bilateral donors, private sector investors Infrastructure Sector regional depots and, centrally, a road asset management system is being progressively implemented. The Project impact assessment highlights achievements and challenges of the first EIRP. The planned EIRP (Phase 2) will continue this work and support earthworks to diminish the annually recurring emergency requirement by reducing the backlog maintenance requirement and continue programs initiated under the EIRP to establish a viable and efficient maintenance operation in East Timor. The sector faces many issues needing work, some of an engineering nature, others related to the institutions administering the road network, the law governing roads, capacity building of organizations and human resources and, in particular, funding constraints. Assessment of these has led the following action plan required of the sector management.

30 16 Project Progress Report on East Timor (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) Road Classification confirm the National and District roads designation proposals made in this review, or agree to acceptable modifications and then proceed to declare the roads under legislation. Confirm Maintenance Priorities under the 2002/03 budget, undertake maintenance only on the length of core road network that can be maintained to a minimum acceptable level; give first priority to routine and emergency maintenance; second priority to periodic maintenance, and third priority to upgrades or network extensions. Short-Term Upgrading if funds permit, undertake short-term improvement works on the roads in the priorities. Long-Term Improvements recognize that the capacity to widen and improve the alignment of roads will be limited; long-term improvements are likely to be justified on the basis of specific feasibility studies of sections with relatively poor standards in relation to their traffic and with the opportunity to upgrade at reasonable cost. Sources of Funds as there will be a shortfall in funds for maintenance and development of the network over the next 4 years, until oil and gas revenues increase, consider the use of concessionary multinational funding over the bridging period; secure assurance from higher authorities within the Government of a percentage of the recurrent budget for roads appropriation desirably 15%; also strive to institute a Road Fund. Traffic Surveys develop the capability and implement a regular traffic counting and statistical weighing program; undertake an initial comprehensive set of surveys midyear (under technical assistance); use the results to undertake a review of the economic and social benefits of short- and longer-term road investment, making use of the improved data now available (with technical assistance) Institutional Structure and Training within the agreed new institutional structure for a Roads, Bridges and Flood Control Directorate, progressively work to fill approved staff positions with qualified and trained East Timorese; use international advisers and consultants wisely to assist but not operate the Department; consider recruitment of Level 4 understudies for key professional positions to ensure continuity and succession, and develop a policy of continuous training and retraining but without long periods of absence of key staff; endeavor to provide competitive remuneration to key staff. Road Fund work to establish a Road Fund for the dual purposes of securing medium-term assurance of funds for part of the road maintenance needs and to provide improved flexibility in the financial management of the roads expenditures timeframe over the next year. Road Asset Management System extend to the District network and expand the capabilities of the system; transfer the system to the Department;

31 17 (x) (xi) provide a quality control system for data entry and ensure that all estimating processes within the software are validated against field observation. Construction Industry and Private Sector Development continue the initiatives made within the TFET/EIRP project; encourage the formation of private sector professional organizations and business associations; limit the extent of work carried out by the regional depots with their own personnel and equipment to basic emergency response needs. Regulatory issues a basic law for roads has been drafted and needs to be expanded into regulations and directives, making use of the legal drafts already produced under earlier technical assistance timeframe over the next 6 months. Various important land transport regulatory issues in East Timor include establishment of (i) heavy vehicle load control, (ii) public transport regulation, (iii) road safety guidelines, (iv) fiscal provisions for the roads and road transport, and (v) vehicle importation and vehicle construction and use. Infrastructure Sector

32 18 Project Progress Report on East Timor Annex Draft Financial Statements

33 19 Annex Draft Financial Statements Infrastructure Sector

34 20 Project Progress Report on East Timor Annex Draft Financial Statements

35 21 Annex Draft Financial Statements Infrastructure Sector

36 22 Project Progress Report on East Timor Annex Draft Financial Statements

37 23 Annex Draft Financial Statements Infrastructure Sector

38 24 Project Progress Report on East Timor Annex Draft Financial Statements

39 25 Annex Draft Financial Statements Infrastructure Sector

40 26 Project Progress Report on East Timor Annex Draft Financial Statements

41 27 Annex Draft Financial Statements Infrastructure Sector

42 28 Project Progress Report on East Timor Annex Draft Financial Statements

43 29 Annex Draft Financial Statements Infrastructure Sector

44 30 Project Progress Report on East Timor Annex Draft Financial Statements

45 31 TFET- FUNDED GRANT NO ETM(TF) EMERGENCY INFRASTRUCTURE REHABILITATION PROJECT PHASE I Implementation Status

46 32 Project Progress Report on East Timor Grant No ETM(TF): Emergency Infrastructure Rehabilitation Project A. Introduction This report discusses the progress, achievements, and impacts of the Project activities. The Project is being executed in close consultation with three executing agencies the Ministry of Economic Affairs and Development for the power component, the Ministry of Communication and Transport for the port component, and the Ministry of Water and Public Works (MWPW) for the road components. B. Project Objectives and Scope The Project supports the United Nations Transitional Administration in East Timor (UNTAET) by rehabilitating transport and power infrastructure to facilitate peace and security and to provide the East Timorese with access to the humanitarian relief aid. The Project objectives are to (i) undertake emergency road repair works to facilitate efficient transport of humanitarian aid and security cargoes, and to induce revival of economic activity; (ii) expand the capacity of port facilities to reduce congestion; and (iii) reinstate power supply. In addition to its emergency nature, the Project supports long-term sector development through strengthening of the local contracting industry, instituting operation and maintenance systems, and providing capacity building for sector management. The Project scope includes (i) road rehabilitation, including (a) road and pavement repair works, (b) equipment for road works, (c) labor-based road and causeway restoration, and (d) rehabilitation and restoration of bridges and depot facilities; (ii) port rehabilitation, including (a) completion of the third berth at Dili Port; (b) restoration of the landing craft slipway at Dili Port; (c) restoration of the container yard at Dili Port; and (d) port repairs; (iii) power sector rehabilitation, including (a) rehabilitation of up to 21 power stations, (b) rehabilitation and restoration of distribution lines, and (c) support to financial sector management; and (iv) project management and capacity building. C. Financing Plan and Disbursements The Project commenced implementation in April 2000, and is expected to close in November The Project cost is estimated at $29.8 million, with 72% allocated for road restoration, 14% for power, 10% for project management and training, and 4% for port restoration. The Project budget is in Annex 1.

47 33 Overall, Project implementation is satisfactory. Contracts totaling $26.1 million (88%) were awarded by the executing agencies for promoting goods, related services, and civil works. To date, project disbursements totaled $20.1 million (67%), and were slightly lower than the projection, mainly because of slower than expected absorptive capacity of the local contractors. By component, roads, ports, and power rehabilitation disbursed 77%, 55% and 8%, respectively. Project accounts covering 1 July July 2001 were audited by external auditors using international accounting standards prescribed by the International Accounting Standards Committee. Project disbursement details are in Annex 2. Infrastructure Sector D. Work Plan The Project work plan summary for the second half of 2002 is in Table 1, while detailed work plans and donor coordination matrix are in Annex 3. Table 1: Project Work Plan June December 2002 Date Activity Road Sector 30 June 2002 Completion of backlog road maintenance contracts (24 contracts are in progress) 31 May 2002 Completion of construction of the depot buildings funded under the Consolidated Funds for East Timor (CFET) 1 July 2002 (FY of CFET) Transfer of funding for the community-based maintenance program to the regular recurrent budget of the Government (CFET) 31 May 2002 Completion of bridge maintenance Power Sector 15 March 18 May 2002 Rehabilitation of Gleno power station and lines to Ermera and Letefoho 27 February 27 November 2002 Implementation of ICB contract for 14 rural power stations May November 2002 Support for power sector entity, rural power tariff, billing system, and technical operation of Comorro station Port Sector 15 February 16 May 2002 Completion of paving of the eastern container yard

48 34 Project Progress Report on East Timor E. Road Restoration The road sector activities, the major component under the Project commenced from April 2000 and is expected to be completed by 20 June The MWPW staff have received on-the-job training from the Project Monitoring Unit (PMU) in contract preparation, project management, and administration. MWPW s road services are administered through four regional depots in Dili, Baucau, Maliana, and Same and are now fully staffed by an East Timorese regional engineer and supported by international technical advisers. In addition to the EIRP, significant funds include Japan-funded rehabilitation of the Dili-Ainaro-Cassa road comprising 132 km of the designated road, A02; UN Assessed Budget support under two contracts in the Bobenaro-Zumalai area for Bailey-bridges and emergency slip clearance (two contracts) during the rainy season in 2000; Budget support from the Consolidated Funds for East Timor (CFET) for costs of the community-based routine maintenance for the feeder roads; and ADB-funded technical assistance for a transport sector master plan. Draft final report of the study covers short- and medium-term issues of the sector. The civil works is designed to respond to the road conditions that resulted from (i) the neglected basic maintenance, particularly drainage since 1996, (ii) impact of military and humanitarian traffic on a lightly constructed and geologically fragile rural road network, and (iii) the impact of heavy rains, classified as the 50-year monsoon cycle. The recovery strategy progress is reflected in Table 2. Around 77% of the road restoration budget of $21 million under the Project has been disbursed and contracts were awarded using competitive bidding methods. Severe time constraints at the initial stage of the Project precluded the preparation of fully detailed designs for road rehabilitation. The PMU planned and supervised all activities satisfactorily. Activities under the EIRP are summarized in Table 3. (i) Bridge Restoration Works. Key road sections deteriorated rapidly due to intense peacekeeping and humanitarian activities and an exceptionally heavy monsoon rainfall from January to May To keep essential roads open, the UK Department for International Development (DFID) implemented emergency road repair work under time-limited constraints. Immediately upon commencement in April 2000, the EIRP prepared and funded a follow-up program of emergency contracts as an emergency maintenance response over the 5-week period from the end of the DFID-funded contracts up to the start of the first formal EIRP contracts. Impact: Resulted in key road sections kept open to security and humanitarian traffic during critical postconflict operations. While most of this work was temporary in nature, it contributed substantially to the

49 35 (ii) international effort to deliver food aid among other humanitarian support from Dili to the district centers. Contractor Classification and Prequalification. EIRP has established a contractor classification and prequalification system to assign contractors to works categories that are commensurate with their capacities. Infrastructure Sector Impact: This system enabled the Road Services Division to prequalify domestic and foreign contractors according to their technical and financial capabilities. It has played a key role in re-establishing the domestic road construction industry, by ensuring that domestic contractors are offered work according to their evolving capabilities. At present, the register of classified contractors lists 95 domestic firms who are competent to bid for road maintenance and rehabilitation works under three categories. MWPW will update this database periodically based on their performance. A Table 2: EIRP Road Recovery Strategy Stage Objective Status Stage 1 Stage 2 Emergency road opening to facilitate military and humanitarian operations Works to stabilize road bench a failures Completed The geology and topography of the island means that very few road benches can be regarded as permanently stable. However, bench stabilization work funded under EIRP has now reached the point where it is feasible to carry out pavement works on much of the core network. Stage 3 Stage 4 Works to reinstate road pavements Program to provide basic routine maintenance for reinstated roads Under preparation for funding under EIRP-2 and the Consolidated Funds for East Timor (CFET). Village-based routine maintenance scheme has been established on 82% (1,025 km) of the core road network under EIRP. The activity is being introduced to meet two objectives of (i) delivering cost-effective basic routine rural roads maintenance; and (ii) routine maintenance represented by unskilled workers is small, and a sustainable source of livelihood for rural communities. a A bench failure is a slip of the ground beneath the road, where the road was originally formed by a cut into the hillside, commonly caused by a slide in the landfill placed on the sloping hillside to create a level bench for the road.

50 36 Project Progress Report on East Timor Table 3. Road Sector Activities under EIRP Date Activity May June 2000 September 2000 June 2000 Jan 2001 April 2001 September 2000 June 2002 Emergency bridge restoration works for the initial relief and quick impact programs, minimizing road closures and to provide employment opportunities to the conflict-torn society Prequalification system of contractors to establish capability to monitor contractors and subsequently to improve the quality of works Five emergency contracts at the T -section of each north-south road to ensure availability of repair capacity during the heavy rainy season in 2000 A pilot community routine maintenance program Awarded 66 road maintenance and rehabilitation contracts (RMRCs) (42 completed; 24 ongoing) to enable effective routine maintenance September 2000 June 2002 Awarded 39 supervision contracts, with 10 ongoing and 29 completed September 2001 May 2002 May 2001 June 2002 June 2001 April 2002 October 2001 October 2001 March June 2002 Refurbishment of equipment in regional depots in Maliana, Dili, Baucau, and Same Ongoing Community road maintenance with communities responsible for 1,025 km of roads A basic road inventory and asset management program A river training assessment completed A geotechnical assessment completed Support for preparing construction specifications, standards secondary but an important objective of the Project is to use the civil works to facilitate the recovery of the local construction industry and to generate employment. Several small local contractors have been prequalified in a reserved category to bid for small road works to allow them to bid for small contracts to gain experience and enhance their capability in the contracting business and to provide broad-based rural employment. To date, the project has provided 289,000 persondays of employment to East Timorese through small local contractors. Around 55% percent of civil works and supervision under the EIRP have been carried out by local companies and personnel. Figure 1

51 37 Figure 1. Engagement of Local Contractors under EIRP Infrastructure Sector illustrates the percentage of works by value awarded to local contractors. The decline in local contractors activity is mainly due to reduced emergency slip repair, and increased asphalt paving works. (iii) Five Emergency Contracts. In June 2000, five major contracts were implemented for a total value of $4.0 million. Under these contracts, closure of any specific road subnetworks were to be cleared within 48 hours during the rainy season in the third quarter of Two contracts, however, were relocated to Lautem district as a result of security instability along the western border from September to November Impact: The five contracts successfully operated in conjunction with the work of military engineers to repair damage to the road structure and reopen road closures within the target period. A total 71 km of eroded road, 52 landslips, and 45 failed road benches were repaired; 86 km of road drainage were cleared; 6,360 m 3 of gabion walls were constructed; 4 bridges, 7 bridge approaches, 7 bridge protection sites, and 3 river training stations were repaired; and 82,000 labor-days were generated. In seeking to achieve a timely response, the contractors were frequently diverted from one repair site to a more pressing one. Nonetheless, the primary goals of emergency access were achieved and vital economic and social linkages were kept open, although the general condition of the network continued to deteriorate because of poor workmanship caused by compressed time allowed to complete the task. (iv) Pilot District Road Priority Works. The amount of $0.3 million was allocated for emergency repairs on the feeder road network in 3 districts

52 38 Project Progress Report on East Timor on a pilot basis. These were administered by UNTAET s district administrators. Impact: Repair of a total of 40 km of badly eroded roads, 20 landslips, and 15 failed road bench sites under this program improved access to selected villages for humanitarian traffic and the fledgling civil administration, enabled local villagers to earn cash income, and served as a useful pilot for the community routine maintenance program. The overall impact of the program was limited, as few refugees had returned at this time; agricultural output was low and markets were yet to be established; and most villagers were (and still are) accustomed to bypassing road closures. Fund administration was complex and control through district administrators unsatisfactory. (v) Road Maintenance and Rehabilitation. Once the rainy season ended, the EIRP undertook substantive repairs to the structures on the primary road network. A total of 66 road maintenance and rehabilitation contracts (RMRCs) were prepared and tendered for $12.56 million. To date 42 contracts have been completed and 24 are ongoing. Current contract locations are in Annex 4. Impact: The program has reinstated most of the road benches except where major civil engineering solutions are required. This work has ensured that the core road network, on which the country depends, is accessible throughout its length. Extended road closures did not occur during the monsoon rains. Stabilization of the road benches has enabled the introduction of follow-up programs including basic routine maintenance, periodic maintenance, and pavement rehabilitation. (vi) Supervision. A total of 39 supervision contracts have been awarded under the EIRP, 29 of which are completed with the remaining 10 ongoing. The purpose of the supervision is to ensure the quality through controlled measurement of the works under the RMRC contracts. A secondary goal has been to guide East Timorese contractors in the execution of the works, and provide training to East Timorese supervisors, through diligent, informed, and impartial application of contract specifications and conditions. Impact: Repair works have generally been completed in a timely manner and to an acceptable standard. The role of East Timorese supervisors and contractors has risen steadily during the RMRC program; at present 50% of the work is carried out by local contractors, and 70% of the supervisors are East Timorese.

53 39 (vii) Refurbishment of Regional Depots. Four regional depots have been established to manage and implement road maintenance. East Timorese regional engineers had been engaged by the East Timor Public Administration (ETPA) in each depot by October Each regional engineer is assisted and trained by an international engineer. Establishment of the regional depots has included the refurbishment of buildings, the supply of office furnishings, and a modest quantity of plant and equipment (September 2001). Refurbishment of an EIRP-funded depot in Dili has been completed, while the Baucau depot required relatively little refurbishment and is now operational. Rehabilitation of depots in Maliana, Oecussi, and Same is being funded by the CFET and is expected to be completed in May These regional administrations are operating from temporary accommodation pending completion of permanent buildings. The ETPA assumed full financial responsibility for the operation of these depots with effect from 1 June Infrastructure Sector Impact: The regional depots are effectively implementing the communitybased routine maintenance program. This work depended on the establishment of field depots for consultations and liaison with communities for planning and monitoring of works. Since the establishment of the field depots, the community-based maintenance program has become the key for the delivery of routine maintenance across the primary road network, providing a significant sustainable source of rural employment. The field depots provide support for long-term road maintenance at district levels. (viii) Community Road Maintenance. Since May 2001 contracts have involved 259 village communities responsible for 1,025 km of roads. Difficulties in implementing the program were experienced in some areas, due to the large number of villages claiming separate identity, each with small road frontages. In other areas the suco (village) elders have assisted actively in the coordination of village-based activities. In general, however, the initiative has been received with enthusiasm. The community maintenance program initiated under the EIRP will be continued under the planned EIRP- 2. To ensure sustainability, funding of the community program needs to be integrated in the recurrent ETPA road budget. Impact: Community consultations were carried out to identify the impacts of the community-based road maintenance program. The key impact of the program is the improved access to markets In poor communities. A significant benefit has been the employment and the income opportunities generated under the program, both through the road rehabilitation programs that have employed large numbers of people (289,000 persondays).

54 40 Project Progress Report on East Timor Particularly, the community maintenance program has provided 192,263 persondays of employment to date. Progress in implementing the Community Road Maintenance program is shown in Table 4 and Figure 2. Table 4: Performance Data for Village-Based Routine Maintenance Road Lengths No. of Community (No. of persondays) Period Dili Maliana Same Baucau Contracts Labor Employed 01-Jan , Feb , Mar , Apr , May , Jun , Jul , Aug , Sep , Oct , Nov , Dec , Jan , Feb , Mar ,263 Figure 2. Length of Road Under Routine Maintenance

55 41 These data illustrate that the routine maintenance program is now well established. Nevertheless, concerns that need to be addressed before the program can be considered fully sustainable are listed in Box 1. Box 1: Concerns Under Community Engagement Program Infrastructure Sector 1. Management The implementation methodology currently awards a separate contract per intervention cycle. To improve and simplify program management, this should be changed to annual contracts to provide continuous maintenance along the lines of the lengthman system (see Box 4). 2. Supervision Most regional engineers are now taking a lead role in the program. It is necessary to ensure that staff appointed to field positions are willing and able to operate in the assigned location. 3. Funding In addition to year-round monitoring, the program requires annual and long-term commitment to ensure effective road maintenance. 4. Rates The daily wage that has been set at $3.50 for unskilled labor under the community engagement program is being reviewed to set minimum rates for unskilled labor. The EIRP is expected to generate more than 300,000 persondays, or 820 personyears of work. This translates to a wage bill of about $1.05 million under the EIRP. The Project provides stable and sustainable source of income that can be effectively interphased with the seasonality of agricultural production during the Project period.

56 42 Project Progress Report on East Timor Figure 3. Persondays of Employment Provided (ix) Road Asset Management System. A basic road inventory and asset management program has been developed and installed in the Road Services division of the MWPW to provide a basis for preparing an optimum routine maintenance program. The first draft of the report was completed in September Verification of data has been completed and the program was available to feed into the budgeting process for FY2002/03. The Road Asset Management System will provide data on the extent and quality of the road asset to enable effective road sector resource allocation to improve economic returns to provincial road investments. Under the system, a planning framework has been established (i) to prioritize road maintenance for preparing annual and 5-year routine maintenance investment programs and periodic maintenance works schedules; and (ii) to prepare simple feasibility studies for road investments. The road designation of the road network has been revised to meet the needs of the current administration. Asset inventory data has been entered for all primary roads (A01 A06) together with some data on priority district roads. Road condition data is still incomplete but will be updated by September At the request of the Roads Services division, a small bridge management module was added to the system during April 2002 and training on its use will be undertaken in June Impact: The system can produce prioritized work plans that reflect local conditions and priorities. However, updating of inventory and condition data has been slow. Updating road condition data from the regional depots has

57 43 (x) been delayed and needs attention. Updating of data is done annually with the regional depots taking an inventory, following cyclical and annual schedules. River Training Assessment. The EIRP has engaged consultants to advise on river training (1 personmonth) to assist PMU with the design of economic and efficient solutions to problems of bridge abutment damage. A summary of the recommendations is in Annex 5. Infrastructure Sector (xi) Geotechnical Assessment. EIRP has engaged consultants to prepare a comprehensive geotechnical assessment (3 personmonths) to assist PMU in the design of economic and sustainable solutions to road slips and embankment failures due to geological characteristics. A summary of the recommendations is in Annex 6. Impact: The technical services enabled the PMU to undertake RMRC projects that maximized benefits while avoiding potentially costly geological instabilities. It must be noted, however, that a number of these instabilities exist on links within the core network, and these will have to be stabilized or bypassed in due course. F. Port Restoration The EIRP s port component was designed to reduce congestion and transport costs that hampered the initial delivery of relief and security goods to East Timor. In addition to the EIRP, significant donor funding sources include Japan-funded restoration of wharf fenders and aids to navigation under Phase 1, and restoration of western port area for container storage and maneuvering; and UN Assessed budget for minor works including lighting, fire and safety improvement, and telecommunications. Two components under the EIRP aimed to improve facilities at the Dili port: (i) completion of the third western berth and repair of the landing slipway, and (ii) pavement of the eastern container yard. A component funding beachmatting of the Suai, Betano, and Beacu landing sites was deemed unnecessary as the private sector vessel operators carried their own mats. At the request of UNTAET, the EIRP funded an examination of a tugboat operation at the Dili Port and the preparation of a viability study for shipping services for the Dili-Oecussi and Dili-Atauro routes. Reports and recommendations on these were delivered to UNTAET in The report confirmed the need for tugboat operations and that the demand fully justifies the commercial operation of a tugboat without a subsidy from the port operation. A competitive tender was recommended for implementation of tugboat services. A minimum subsidy tender was proposed for establishing safe and sustainable services to the Oecussi and Atauro routes. The subsidy is expected to be reduced through generated demand and improved income levels over time.

58 44 Project Progress Report on East Timor Under the EIRP port component, the Dili slipway became operational in September 2000 and has been fully utilized, and the compacted eastern container yard upon completion was occupied by military cargo. The third berth was completed in September 2000, but was opened to vessel traffic only in July The port component is 55% expended and will be completed by 16 May (i) Eastern Container Yard. The eastern container part at the Port was a soft area 225 m long and 40 m wide. Provision of a gravel layer over the area in September 2000 improved container management and provided additional maneuvering space, thereby alleviating congestion at the Port. While initially used by the United Nations Peace Keeping Forces (UNPKF) for managing military cargo and support services, it reduced its presence to core operations in the far eastern part of the area to accommodate the increasing civilian cargo. A contract has been awarded to seal the container yard using interlocking concrete blocks, and work will be completed by 20 May (ii) Completion of the Third Berth. Construction of the third berth at the Dili Port was left uncompleted since The decking and strengthening of the third berth was completed in September Opening of the third berth was delayed because testing of the quality of the used concrete had to be carried out by an independent laboratory abroad. The final laboratory report was delayed due to the need for multiple concrete sample takes, and was completed only on 31 May The report included a schedule of remedial actions to be performed by the contractor. The Engineer s Certificate of Completion was issued on 2 July (iii) Repair of the Slipway. Emergency repairs of a concrete landing ramp site at the Port were undertaken. It became operational in September 2000 and now serves as a barge-landing for goods, particularly military and humanitarian aid. G. Power Restoration The power system was heavily damaged during the postreferendum. Most generating station equipment and powerhouse structures including control panels, fuel systems, and wiring were destroyed by fire. Many auxiliary items, such as batteries and starter motors, were looted. As a result of the crisis, the power sector management became dysfunctional, and since September 1999 the sector has been managed by a power service unit functioning within the Department of Infrastructure of UNTAET. Consequent to the national elections in August 2001 and the establishment of the ministries, power service was transferred to the Ministry of Economic Planning. Power restoration under the EIRP originally included (i) rehabilitation of 15 rural power stations, and (ii) support to develop a power utility and its financial management system. The delayed procurement of the ICB contract for rehabilitating the rural power stations has now been completed and is expected to be completed by end 2002.

59 45 (i) Rural Power Rehabilitation. Funding for restoring power stations not considered for bilateral assistance by the governments of Japan and Portugal will be under the EIRP. In September 2000, the EIRP inherited an additional six stations from the Japanese Government-funded complementary rural power rehabilitation program primarily due to the security conditions surrounding these stations. In late 2000, the EIRP assessed the technical restoration needs of 21 stations including 18 subdistrict and 3 district stations. The estimated cost exceeded the EIRP power component budget. In the subsequent tender process, under a reduced scope, the bids received conform with the availability of budget for rehabilitation of 1 district and 13 subdistrict stations, totaling stations and the respective transmission and low voltage distribution lines. Technical training for local mechanical and electrical operators, covering operating and routine maintenance procedures, by the equipment suppliers is included as part of the contract. A contractor has been selected for the restoration work and has commenced the detailed design phase. On-site construction work is expected to commence in June/July 2002 with all projects completed and commissioned by 30 November The locations of the power stations under the program are in Annex 7. Infrastructure Sector Impact. Consultations with a number of communities were carried out to assess the social benefits of the projects as perceived by villagers, the ability and willingness of villagers to pay for electricity and, where applicable, the capacity of the village to manage the day to day operation of a small diesel power supply station (Boxes 2 and 3). In all project villages, electricity supply existed before 1999, but has not been operating since, and will be restored. 1 In some villages, supply will be restored by reconnection to a mini-grid operated by the Power Service (EDTL), while in others, new stand-alone diesel generation facilities will be provided. (ii) Power Sector Restructuring. A consulting team was mobilized in late April 2001 to assist in the restructuring of the East Timor power sector and in the design and implementation of a financial management capacity for the national power utility entity. Although the consultancy was completed in late February 2002, many of the expected outputs were not achieved, 1 The Project contains rehabilitation of the selected power stations with new generators and auxiliatory equipment, transmission lines, and low voltage distribution lines. The Project includes extensions of the transmission to ensure that a maximum impact is leveraged from the rehabilitated power stations. It also will develop affordable packages for connecting households within villages under the program that did not receive electricity in the past.

60 46 Project Progress Report on East Timor Box 2: Rural Power Station Management and Administration In villages where new diesel generation facilities are provided, community management committees have been formed to take responsibility for day-to-day operation and maintenance of the power plant. The village, through the management committee, will be free to decide the number of hours per day of operation (which indeed could change from time to time based on fluctuations in the availability of cash to pay for fuel), the methods of fee collection, and the monthly rates applicable to different levels of consumption. The villages criterion in making these decisions is that enough cash will be generated from users to pay the base running costs of the system (mainly fuel) for the desired number of hours per day of operation. Consumers will pay a flat rate per month for electricity, depending on desired power consumption which will be regulated by load limiters of appropriate capacity. For a 50 kw installed capacity system, such as the ones envisaged for Betano and Liquidoe, approximately 300 consumers each carrying a small lighting load of about 140 watts can be served. A sample calculation of costs per consumer is given below. The communities will be supported by a roving maintenance team of technicians. The team will assist the management committees to estimate costs, keep track of revenues and inventories, and schedule deliveries of running supplies. Household connections Household load at given no. of 36W fluorescent lamps kw Household average load at given hours of operation kwh/month Max. number of households to be connected Home connections Summary of Costs Fuel US$/month Oil US$/month Wages US$/month Spare parts for ordinary maintenance US$/month Subtotal 1, US$/month Contingencies US$/month Total Electricity Running Costs 1, US$/month Cost of per kwh delivered US$/kWh delivered (only recurrent costs) Total cost fee for each household connection 4.04 US$/month/households (max. no. of home=330) Cost of one (1) additional hour of operation per day/month US$/month Cost of one (1) additional hour of operation per day/month/household 0.67 US$/month/given no. of households Increase in cost for each additional lamp 1x36W per given hours/month 1.01 US$/month/household/given no. of households Increase in cost for each additional 100W per given hours/month 2.80 US$/month/household/given no. of households/ 100W load including finalization of the legislative and institutional framework, cost analysis to support the tariff, social impact analysis and constraints in the ability to pay. Effective means of collection and implementation of a comprehensive manpower training program. To rectify these deficiencies, a short-term action plan has been developed and accepted by the Government. The Government and the donors in the sector have endorsed the action plan. The detailed Action Plan is in Annex 8. The Plan focuses mainly on

61 47 Box 3: Participatory Process in Power Development Information was obtained from village residents, village leaders and shop owners. The consultation team also had the opportunity to meet with representatives of a village women s organization in Gleno. Discussions focused mainly on household concerns about and impacts of the restoration of electricity to identify the essential uses of electricity when it was available before 1999, the impacts of the loss of electricity on their daily lives since then (i.e., how have villagers coped and made up for the loss of services, etc.), and what practical value would the restoration have now, in the villagers perspective. Villagers were also asked about their main sources of cash income to ascertain their ability to pay for electricity. From the response to these questions, positive indications emerged regarding the villagers willingness and ability to pay for electricity, especially in light of their current expenditures on alternatives to electricity such as candles and kerosene. Prior to 1999, electricity was available to all respondents, typically for 24 hours per day, but for some 12 hours, and in one case for only 6 hours per day. During that time, all households used electricity for lighting, and TVs, radios, and irons were common. Household refrigeration was by no means universal but was common in the more populated areas visited. During that period, villagers typically recalled spending Rp8,000 30,000 per month for electricity (equivalent to $8 30 per month). In general, villagers reported that the electrical appliances they used before 1999 are still in their houses. Since the loss of electricity in 1999, villagers generally reported their greatest losses as the reduction in the quality of, and an increase in the cost of, lighting, as this is now supplied only by candles and kerosene. Poor lighting was seen to reduce learning by children. In addition, villagers have experienced a total loss of access to electrical media (TVs, VCRs), irons, and refrigerators that provided for cost-effective inventory of foodstuffs. Reported expenditures on substitute fuels (candles and kerosene) for lighting varied widely from the equivalent of about $2/month in one village to about $30/month in another. A typical response, however, that for present purposes is regarded as a median is an expenditure of about $0.30/day or about $9/month. This level of expenditure considerably exceeds the expected monthly cost of electricity for lighting from a village-managed standalone diesel power station as planned under the project ($4 5/month). Villagers were clearly very supportive and enthusiastic about the restoration of electricity in their villages. In the centers receiving stand-alone diesel generation capacity to be managed by the communities, management committees have already been formed and appear ready for the training to be provided under the project. Village residents expect, first, a higher quality and less expensive form of lighting, which is expected to improve children s education by extending reading hours in the evenings and to provide opportunities for increased handicraft activity and social gatherings. Villagers frequently mentioned the benefit of regaining use of TVs and VCRs for entertainment and news. Several villages expect to benefit from the resumption of refrigeration, and in one case, plans were evident to introduce electric-powered sewing machines for evening-hours employment in the home. In another case, a group of restaurant owners indicated that the restoration of electricity would enable them to operate up to 10 pm instead of the current 5 pm in the absence of electricity, and thus allow them to earn more income. Infrastructure Sector

62 48 Project Progress Report on East Timor improvement in public relations and the population s understanding of billing and payment procedures, in conjunction with a comprehensive review of sector costs and the tariff; workshop and discussion on options for the institutional framework for the power sector leading to an early decision by the Government on the preferred organizational structure of the power utility, which include formation of an independent power authority, establishment of a separate limited liability company, or continuation in modified form as a government department. Options will be presented in a workshop to be held in mid-june 2002 followed by a study tour for senior government and power service managers of similar utilities in neighboring island countries that exemplify the different approaches. This will allow direct observation of the practical implications of the different organizational options and detailed discussions on relevant issues with utility managers; and development of a strategy to address sector management issues for the next 3 years, including specification of a possible management contract arrangement for the sector. In addition, the project will purchase urgently needed computer equipment for the Power Service division to support billing operations. Impact: Improvements in the management of the Power Service and gradual financial strengthening of the sector are expected to result in improved services, greater customer satisfaction, and a gradual increase in capacity to extend power supply to new areas of the country. In addition, higher efficiency will result in lower costs for all consumers. Increasing reliability and lower costs of power supply are expected to support economic development and will result in higher incomes. A major impact is the reduction and gradual elimination of the fiscal subsidy to the sector and achievement of financial self-sustenance by the sector. H. Project Management Unit The Project Management Unit (PMU) began its operations as the Executing Agency in April 2000 with the support of both international and East Timorese staff. Now the PMU reports to three ministers, the Minister of Economic Affairs and Development on the power component, the Minister of Water and Public Works on road component, and the Minister of Communication and Transport on port component. In addition to its project administration functions, the PMU supports establishment of the road operations within MWPW. The roads contracting section of the PMU has been merged with the contracting section of the Roads Services division in MWPW. On-the-job training by PMU experts for MWPW staff has also facilitated successful

63 49 implementation of CFET-funded contract works. The technology transfer program accomplished by the PMU is detailed in Annex 9. The PMU, on a quarterly basis, reviews the sector funding requirements, and identifies available funding, and the emerging financing gaps. The 2002/2003 budget planning cycle has benefited from the first reports of the road asset management system (both recurrent and capital requirements). The funding level remains inadequate to maintain the core road network main core network. It is estimated to cost almost $40.5 million over the next 5 years. Infrastructure Sector Box 4: Comments on the 2002/2003 Proposed Budget International Staffing. The structure of the public sector staff is designed to ensure affordability in light of the limited fiscal revenues. These may not, however, be adequate to attract the appropriately qualified incumbents. Training requirements are, therefore, expected to exceed needs for human resource development. Minimum and focused international advisory services are proposed for intensive capacity building. This approach has been adopted under the UNTAET policies as it is gradually withdrawing as the administrator of East Timor. The UN will fund seven international positions in MWPW with two directly for the Road Services division (roads adviser and an adviser to the Minister). It is recommended that MWPW identify candidates with significant experience in road sector management and in execution of transfer of technology programs. Local Staffing. The Road Services division has approved the establishment of 147 positions. The current CFET budget cannot afford this level of staffing, and only 87 of the positions are currently filled. The structure extends the road services beyond the four regional depots intended for administration of road maintenance and establishes staff in each district. This is excessive at this stage. It is furthermore noted that a large structure may become a financial burden to the agency in the long-term. The budget proposal already shows a shortfall of $1.7 million under its local personnel item. Goods and Services. The operating costs of the Road Services division are met from this budget line and includes: travel and subsistence, training and workshops, utilities, vehicle operations, stationary and supplies, fuel for generators, maintenance of equipment and buildings, operations (general), and miscellaneous services. The respective costs have been estimated in detail by the department. It is recommended that the goods and services be assigned, to the extent possible, under output-oriented headings within the budget to reflect the true costs of all activities. Routine Maintenance. Routine maintenance estimates are based on the following forecast of the network needs: 2002/ / / / /07 Main roads 1,275 1,275 1,275 1,275 1,275 District roads ,000 Secondary district roads ,000 Urban roads Total 1,695 2,095 2,535 2,955 3,375

64 50 Project Progress Report on East Timor Box 4: Comments on the 2002/2003 Proposed Budget (continued) For planning purposes routine maintenance budget is subdivided into unskilled and skilled work. Village groups carry out the unskilled work including vegetation control, drain and culvert cleaning, and clearing minor slips. Ideally, each suco (village) frontage onto a maintained road will have an annual maintenance contract. In principle, this work is carried out using the one lengthman system with an agreed length of road being assigned to one man on the basis that he completes the maintenance of his section within a 2-week period. At the end of the period, the lengthman starts again. Typical lengths per man range from 1 to 4 km depending on the season, topography, and similar works-inducing factors. The average length is taken at 2 km per day. Given a 260-day working year, and a daily labor rate of $3.20, this results in a basic cost of $420/km. A management and administration cost of 30% must be added to give a final rate of $546/km. In practice, implementation methodology may vary from place to place, but the unit costs should not differ significantly. The proposed budget for the routine maintenance program thus remains underfunded. Emergency Maintenance of Major Slips. A major slip is too large to be cleared by village labor. Immediate slips may be cleared and repaired by either small maintenance crews of the regional depots or by a local contractor. A contractor will be used to clear major slips. An allowance of $350/km would be sufficient to meet this expected workload based on the current experience. However, this would reduce as the network is being stabilized under the effective maintenance programs and the two phases of the Emergency Infrastructure Rehabilitation Project (EIRP). Flood Control. Many of East Timor s large rivers are braided. In times of flood, the braids are inundated and the rivers become wide and fast flowing. When the river subsides, it is common for a new braid to dominate. Both the peak flow and newly located braids can be damaging to the road and its bridge structures. The Roads Services division is planning to examine the options for preventive measures. The EIRP has funded a river training assessment that commences this planning process. The Road Services division plans to have an extensive bridge and bank protection program based on the recommendations contained in the EIRP report. This translates to a medium-term forecast ranging from $200,000 in the first year (2003/04) to $605,000 in the fourth year (2005/06). Periodic Maintenance. All roads other than the earth roads require periodic maintenance to replace the surface material that erodes over time because of traffic and rainfall. According to the data in the asset management system, the 1,282 km of classified roads fall into gravel surfaced and premix (sealed) surfaced roads as follows: Gravel Surface/Expected Life Premix Surface/Expected Life Hill 34 km per 3 years 431 km per 6 years Plain 193 km per 6 years 624 km per 12 years The following program is required to ensure that the expected life is realized: Surface Km per Year Rate per Km Total Gravel 44 $21,000 $924,000 Plain 124 $45,000 $5,580,000 Total 168 $39,000 $6,504,000

65 51 Box 4: Comments on the 2002/2003 Proposed Budget (continued) These annual forecasts are equal to provision of periodic maintenance on 13% of the network per year at an average cost of $39,000 per km. With an allowance of 20% for overhead (management and administration) costs, this amounts to a unit rate of $46,000 per km of road per year. At present there is no assured funding for periodic maintenance. Consequently, the Road Services division needs to recognize a need for deferred road maintenance requirement of $40.5 million in a 5-year period. This relates directly to the deficits in the periodic maintenance programming. Impact of not funding periodic maintenance and not funding the deferred maintenance rehabilitation program would be a loss of sealed surfaces resulting in slow speeds of km per hour and rough rideability and loss of gravel surfaces resulting in reduction in the road system and extreme surface roughness. Bridge Maintenance. The Roads Services division, in consultation with the PMU, has estimated the requirement for periodic bridge maintenance at $100,000 per year. This works is currently unfunded, leaving a 5-year deficit of $0.5 million. Road Safety. Lethal road accidents are frequent in East Timor resulting from the narrow carriage-widths of 4.5 meters. The Roads Services division, in consultation with the PMU, has estimated the requirement for a rolling program to introduce road safety features at about $40 per km per year. The works would include the provision of road signs, barrier rails, and possibly minor realignments, and would apply to the adopted network as it is expanded to include district and feeder roads. The 5-year estimate of $306,000 is currently unfunded. Infrastructure Sector

66 52 Project Progress Report on East Timor Annex 1 Project Budget

67 53 35,000,000 30,000,000 Annex 2 Project Disbursements Infrastructure Sector 25,000,000 US Dollars 20,000,000 15,000,000 Power Ports Roads PMU 10,000,000 5,000,000 0 March Apr May Jun Jul Aug Sep Oct Nov Power 1,137,773 1,203,607 1,534,794 2,145,110 2,792,110 3,439,110 4,086,110 4,733,110 5,120,000 Ports 676, ,001 1,061,451 1,229,200 1,240,000 1,240,000 1,240,000 1,240,000 1,240,000 Roads 14,852,351 15,817,844 16,838,715 17,784,208 18,559,344 19,252,896 19,946,448 20,640,000 20,640,000 PMU 2,011,015 2,262,957 2,384,363 2,533,170 2,648,721 2,718,211 2,768,000 2,795,500 2,800,000

68 54 Project Progress Report on East Timor Annex 3 Detailed Work Plans and Donor Coordination Matrix

69 55 Annex 3 Detailed Work Plans and Donor Coordination Matrix (cont d.) Infrastructure Sector

70 56 Project Progress Report on East Timor Annex 3 Detailed Work Plans and Donor Coordination Matrix (cont d.)

71 57 Annex 4 Current Contract Locations Infrastructure Sector

72 58 Project Progress Report on East Timor Annex 5 River Training Assessment The report intends to raise awareness among East Timorese Engineers of the need for careful design of all structures that may be affected by erosion caused by rivers. Methods of preventing erosion of riverbanks and the undermining of bridges and bridge approach embankments were suggested and in particular, the inappropriateness of gabions in many current applications was highlighted. The Ministry of Water and Public Works has created a section within the Roads Services division to cater for flood control generally (as opposed to flood control directly associated with transport infrastructure) and the recommendations presented in the consultant s report will be equally applicable to this. A major source of failure of the road network in East Timor is river erosion at bridge sites. Two main problems were assessed: (i) Undermining of bridge abutments implying scour of the riverbed at the abutment that has led to failure of the bridge approach. Bridge abutments are generally constructed on piles and are therefore resistant to failure. In many cases in East Timor, the bridge approach is however lost through erosion; and (ii) Upstream river alignment implying progressive change in river alignment that is expected to move outward and downstream with bends. This means that water no longer flows straight through the bridge. Erosion is increased as the flow impinges directly on the bridge abutment or the bridge approach. Majority of the sites where these problems occur throughout the country were investigated. Recommendations detailed in a report submitted in January 2002 included (i) Abutment protection against scour. Rock filled gabion baskets can provide adequate protection against scour at abutments provided that: Gabions are excavated into the bed to allow for bed scour. Scour during floods may be temporary, with the scour refilling as the flood drops. As a general guide, at least 2 meters of scour below general bed level should be expected in most rivers in East Timor during floods. Scour should be individually estimated at sites where important work is proposed. Gabions are protected against damage by bed load, debris, and abrasion. Concrete facing of gabions can provide this protection. The concrete should be heavily jointed to accommodate movement in the gabion. (ii) Alignment against upstream of bridges. Alignment training is a mandatory component of bridge stabilization projects in East Timor. Gabion groynes can be used for alignment training as a short-term interim approach. Gabion groynes can provide temporary protection but are unlikely to provide secure solutions in the long term. Permeable piled groyne fields are the preferred approach for alignment training for both minor and major projects. These will consist of lines of steel or concrete piles oriented transverse to the flow, designed to reduce flow velocity and cause deposition in selected areas.

73 59 The report recommends the following four work programs for immediate implementation: (i) Interim Works. Field advice has been provided at numerous sites and interim works recommendations have been developed at three specific sites as examples (Gleno, Lautem, and Natarbora). These are already being treated and some of the demonstrated approaches have been adopted and adapted for applications elsewhere. This program should continue. (ii) Abutment Protection Program. Toward the end of the wet season, each Regional Engineer in conjunction with a river specialist and his East Timorese counterpart will select a range of appropriate sites for the design and installation of abutment protection works. These works are intended, not only to protect the bridges where they are deployed, but also to train staff and contractors in appropriate techniques for long-term stability. (iii) Alignment Training Program. One or two sites in each relevant region will be selected for demonstration alignment training works using permeable piled groynes in the 2002 dry season. At each selected site, a river training specialist and his Timorese counterpart will work with regional engineering staff to design river training works. The river training specialist and his East Timorese counterpart will supervise the work in conjunction with regional staff. (iv) Major sites Program. Two sites are under consideration for major bridging and river training works. These are the crossings of the Mota Mula at Zumali and the crossing of Sahem River at Natarbora. These are both substantial projects worthy of rigorous evaluation of the risks and costs of a range of alternatives. Requirements for a detailed design review focusing on river issues are outlined in the report. Infrastructure Sector

74 60 Project Progress Report on East Timor Annex 6 Geotechnical Investigation Slope stability failures are common on the road network of East Timor and result in frequent closures and reduced ride quality. Contributing factors include steep terrain, high rainfall, unstable geology, and a poor road maintenance history. Under the geotechnical investigation several locations throughout the country where these problems occur were investigated and suggestions to improve the efficiency of maintenance and rehabilitation works were detailed in a report submitted in April The consultant assisted in the identification of works for inclusion in future programs where major intervention (realignment or construction of slip remedial works) would be a feasible and technical option for the solution to chronic instabilities. The study has been successful in raising awareness of the need for conservative design of retaining structures, particularly if these are to be undertaken without detailed geotechnical investigations. A policy of avoiding the construction of retaining structures, where possible, has been developed. In many cases, lowering of the road or shifting it sideways away from the slip is a preferable (and often less expensive) means of maintaining the road. The report highlighted the potential difficulties of any type of road construction in the Bobonaro sandstones, which occur in the Viqueque and Bobonaro areas. Geological maps are available to identify the occurrence of these particularly weak materials that are responsible for the poor condition of the roads from Balibo to Maliana and from Ossu to Viqueque. The necessity to invest in careful geotechnical investigation for major investments in East Timor is apparent from the condition of the road network and the consultant s report, and seminars with East Timorese engineers has contributed to raising of general awareness of the problems associated East Timor s severe climatic and geological condition. The report makes the following recommendations to improve the efficiency of maintenance and rehabilitation works under the conditions in which funds are limited: (i) Reduce the reliance on large stone pitched and gabion retaining walls; (ii) Consider executing small-scale changes to horizontal and vertical alignments to reduce the fill component of road benches and the need for large retaining structures. (iii) As a general rule, carry out major works only where there is a reasonable assurance of long-term success; otherwise keep expenditure to a minimum; (iv) Refer to the stability zones map provided for initial design planning; (v) Tailor designs to the local soil and rock conditions, in particular where the natural soil and rock materials are unstable; (vi) Continue to stress the importance of regular maintenance of drainage systems; (vii) Continue to stress the importance of effective supervision, training of supervisors, and allocation of resources to supervision; and (viii) Improve the process of approval of construction materials.

75 61 Annex 7 Locations of the Power Stations under the Program Infrastructure Sector

76 62 Project Progress Report on East Timor Annex 8 Detailed Power Subsector Development Plan Sector objectives are needed to provide a backdrop for assessing the current status of the sector and for considering future development options. The following are suggested as long-term objectives of the power sector in service to national development: (i) The power sector will create and maintain reliable and affordable power supplies to meet the needs of the immediate areas served, to support (i) economic productivity and (ii) quality of life; and (ii) Supplies will be developed to achieve lowest possible costs in the long run, tapping the economic potential of indigenous resources to displace costly imported fuels. Indigenous resources to be developed may include natural gas, hydro, solar, and others. A. Power Sector Planning A sector development plan is needed that identifies (i) the long-term electricity demand requirements of the country, both in the urban and rural areas, (ii) resources available to meet the demand, (iii) the longterm investment costs, and (iv) the impact on the environment, on the social needs, and on poverty in the country. No power plan exists for East Timor; thus, the future electricity demand is not well understood, nor is the potential of the indigenous energy supply, nor how much sector development is likely to cost the country and users of electricity. This information is vital as the Government plans for national development in the years ahead. A power development plan should be regarded as a live tool in the hands of the Government a framework that could be used to coordinate the participation of the international donor community, the private sector, local organizations, and the Government s own capital investment program for power. The framework would provide both an opening for participation by different groups and a means to eliminate duplication and to identify emerging resource gaps. B. Institutional Development 1. Current Status In the wake of the violence of 1999, the physical facilities of the power subsector remained surprisingly intact and, in most of the larger power centers including Dili, could be re-started. However, the management of the system, a branch of the PLN, was removed from East Timor, along with all of the Indonesian skilled workers. An entity to handle power operations had to be built from scratch by the transitional administration, largely by establishing international personnel into senior operator positions. This entity had neither the structure nor the mandate to manage the subsector, plan for its development, and is unable to be accountable for its performance, or to ensure financial self-sufficiency. The sector has been operated as a fully subsidized public service, with all fuel, manpower, urgent maintenance, and other costs paid directly from UN allocations. Beginning in April 2001, the Trust Fund for East Timor (TFET) funded a technical assistance (TA) to restructure the power subsector and build financial management capacity in the new power entity, which was to lead to the establishment of an independent power authority in East Timor. These results would require a fully-developed legal framework, a manpower structure and a staff training program, and the installation of financial management tools including a cost-based tariff, billing and accounting systems, software, defined procedures, and identification and valuation of assets. While a consulting firm was engaged to carry out the TA in early February 2001, the intended outputs have only been partially achieved. The TA

77 63 outputs and the remaining gaps are outlined below with a discussion of means to address immediate and longer-term needs. 2. Sector Steering Committee A requirement for institutional development program to be successful is that a power subsector Steering Committee be formed early to ensure that stakeholders in the transitional administration and in the elected Government were routinely informed of recommendations and could participate in critical decisions. It is therefore appropriate that the Steering Committee be formalized to function as an interim Board of Directors accountable to the Government with the appointment of its members made by the Chief Minister. A Steering Committee was formed only in January 2002 and comprises members representing the Ministry of Economic Affairs and Development, the Ministry of Finance, the Central Administrative Services Department, the Eletrisidade De Timor Lorosae (EDTL), Head of Power, other EDTL staff as required, and the Project Management Unit (PMU) of the Emergency Infrastructure Rehabilitation Project. Infrastructure Sector 3. Institutional Framework The Power Service, later known as EDTL, was placed under the East Timor Transitional Administration (ETTA) Infrastructure Department. EDTL remained part of the Infrastructure Department until the latter was reorganized after the August 2001 elections, and was transferred to the Ministry of Economic Affairs and Development. EDTL s financial relationship with the East Timor Public Administration (ETPA) is defined, both before and after the reorganization, by the Budget Law as amended by the Department of Finance in June The relevant amendments permit revenue retention by a number of public agencies in East Timor including Power and, at least in principle, permit increased autonomy in those agencies, although this is not defined. A legislative framework is required to specify the rights and responsibilities of each agency identified in the amendments. Regulations defining the rights of EDTL to charge users in Dili for power consumption and procedures to be followed for connections and disconnections, etc., are contained in the United Nations Transitional Administration in East Timor (UNTAET) Tariff Directives, the latest of which became law in April Directive 10/2002 covers power sector operations outside of Dili providing that the tariff implemented in Dili is valid in the District jurisdictions. 4. Options for Institutional Model EDTL may consider the following options for its institutional development: (i) continue operating as a government department with limited autonomy; (ii) be established as an independent power authority; or (iii) take advantage of the current provisions of the Budget Law that allows an increasing degree of autonomy to be granted as management capacities increase, culminating in formal establishment of an independent power authority after a gradual growth process. Option (i) is not recommended as it lacks a structure to provide incentives to improve efficiency and recover costs, and thus will not deliver improved sector management in the long run. Option (ii) is not realistic at this time as EDTL lacks a management with the training required to control an independent entity properly. Needed management skills in financial accounting and reporting, personnel supervision, cost estimation and tariff formulation, and other key management functions can be learned over time by the local staff and ingrained into the organization. At that time it can be expected that the financial strength of the utility will similarly improve.

78 64 Project Progress Report on East Timor Annex 8 Detailed Power Subsector Development Plan (cont d.) 5. Private Sector Participation In the longer term, power generation and distribution capacity will need to be strengthened and extended in East Timor to meet demand and growing expectations of power availability and reliability, within a power development planning framework. This will require costly investment. In addition, as the system grows, management structures may evolve to include new partnerships with the Government, such as community-management arrangements, 1 facilities that are owned, operated, and managed by the private sector for bulk sales to the public power supply, or arrangements under which a private company would accept responsibility for managing Government assets under contract. Certainly, the private sector could provide a source for needed investment in power in the near term. In both investment in infrastructure and provision of management services, the private sector has expressed an interest to participate in the power subsector, and new approaches can be expected. A number of proposals of varying quality have been made during the past year, including from companies in Australia, Portugal, Singapore, and Brunei. To tap the potential economic and financial opportunities that could be provided by the private sector while avoiding unacceptable risks, a consistent framework for soliciting and evaluating proposals and for negotiating with genuine contenders is needed. Broad technical, economic, and financial performance criteria; minimum environmental standards; and the rights and obligations of the respective parties (government and the private sector) should be indicated and made available to potential bidders. The framework would not replace any final project agreement to be negotiated between the parties, but could be used as a guideline for shaping initial proposals, evaluating them, and steering negotiations. The long-term power development plan recommended above would also be used by the Government in this context to determine whether proposals were consistent with planning objectives. Recommendations. To meet the above objectives, targets under a short and medium term program are suggested as follows: (i) develop and enact a full legislative framework to support the establishment of an independent power authority in East Timor, but which incorporates a realistic (transitional) timeframe before formal establishment of full accountability to allow for management capacity to strengthen. The timeframe should include an action plan that specifies the capacities to be achieved by management before taking control of an independent power authority and the steps required to ensure that they are achieved; and (ii) evaluate the potential for private sector participation in the sector, both for management services and for investment; explore outsourcing options and provide recommendations to utilize such participation effectively, and develop a framework for private sector participation in the power sector as a part of the institutional development program. Short term actions to be accomplished require (i) determination of the appropriate model for organizing the power sector; (ii) finalization of a comprehensive draft legislative framework for the establishment of an autonomous power authority under a realistic timeframe, presented for consideration by the Council of Ministers; and 1 These are being implemented for the village-level diesel power stations that are under reconstruction with TFET and Japanese assistance. The concept of community management could, in the future, be extended to more village areas, using diesel, solar, or minihydro technology.

79 65 (iii) preparation of a consistent framework for private sector participation in the power subsector, to assist the Government in evaluating proposals and in conducting negotiations for private sector management services and investment. 6. Organizational Structure and Human Resources Development In 1999 all public power sector management capacity in the country was destroyed. A management structure is needed that specifies the numbers and functions of staff, the skills required, and a sufficient salary scale to attract and keep qualified staff in employment in electricity supply. Recognizing that existing staff and new entrants will not have all of the technical and management skills required, a permanent staff training capacity is also needed. Because of the dispersion of public power supplies throughout East Timor¾there are 12 electrically-isolated District stations including Dili and about 46 isolated smaller diesel power stations that are either operating or are being reconstructed¾the need for manpower is extensive with a high degree of duplication (i.e., many of the same technical staff positions have to be supplied to each station, and management/administration needs are increased also). Even though some of the smaller stations will be community-managed, the manpower needs of EDTL will be high compared to the requirements of more centralized utilities of the same size in other countries. It is estimated that when adequately staffed, EDTL will need at least 250 full-time personnel. By the end of the transitional administration in May 2002, there will be no international staff working in EDTL, either as consultants or as ETPA staff. All senior management positions (some of which are presently vacant) up to and including the Head of Power are or will be localized primarily with inexperienced staff who need training. Achieving proficiency in these positions, once recruitment is complete, is likely to take 2 3 years of on-the-job training. Transitional and permanent manpower structures have been recommended, but the recommendation of a permanent structure has not been finalized. No structure has been recommended for operations outside of Dili. Complete job descriptions of all middle- and senior-management positions have not been prepared. Most of EDTL s management positions remained unfilled, and training in a large number of key management functions has not commenced. A salary structure has been proposed, based on civil service rates. A training program for technical and management personnel has been proposed but it has not been implemented; its costs and funding sources are unknown. Managerially, EDTL remains adrift, with limited capacity to reach or implement urgent decisions affecting the survival of the organization. Staff training is insufficient to deal effectively with the requirements of revenue collection, budget formulation, accounting, or financial reporting, and there is little assistance immediately available beyond the scope of the current TFET support, which expires in June The financial management systems that have been developed under the TA (accounting and billing systems) cannot be used by the utility without additional international support for management-level training and handover. The United Nations Development Programme (UNDP) has prepared a list of 100 stability positions for continued funding beyond the end of the UNTAET tenure, of which 3 appear to be in the power sector. These include two engineering positions for work in technical operations and one advisor position. In addition, JICA has recently expressed interest in providing an expert as an intermediate-term management advisor. Together, these potential international advisors could provide a long-enough commitment to on-the-job training to permit EDTL to complete the effective transition to fully localized management. Infrastructure Sector

80 66 Project Progress Report on East Timor Annex 8 Detailed Power Subsector Development Plan (cont d.) The extension of a trainer for billing operations and a power engineer/trainer for technical operations at the Comoro power station may be supported by TFET for an additional period of 3 months to permit completion of handover procedures and training of the principal local staff member responsible for billing, and continued training of local technicians and operators until longer term mentors are appointed. EDTL s salary structure is based on civil service rates plus a 20% margin to be paid in lieu of overtime. However, senior management positions in EDTL have remained vacant, and it is clear that the salaries offered are not effective in attracting and keeping qualified local staff. A competitive salary structure should be determined, based on a review of salaries for similar positions in East Timor and in neighboring developing countries. The personnel expenditures constitute 2% of the total expenditure of the power service costs. Recommendations Objectives for EDTL are to (i) specify and implement an efficient manpower structure for the power entity, with a recommended salary structure that can attract and retain qualified staff; and (ii) design and assist implementation of an appropriate utility-wide training program. Short-term action required includes (i) recruitment for all unfilled management positions; (ii) Implementation of a short-term training and hand-over support for billing operations and technical supervision in Dili; (iii) conduct of a review of the salary structure for EDTL to ensure that wages and salaries are sufficient to attract and keep local staff in senior management and technical positions; (iv) identification of manpower needs in each rural power station; (v) preparation of a multi-year international mentoring program for key management positions in EDTL to assist the transition to effective localized management. In this context, support for the power subsector from the United Nations Development Programme s list of 100 stability positions and JICA s expressed interest in providing a management expert as discussed above should be urgently pursued; and (vi) review the EDTL salary scales and recommend adjustments, if required, to ensure that qualified local people are attracted to work in management and technical supervision and can be retained by the utility. 7. Financial Management Capacity A tariff level of approximately 25 cents per kilowatt-hour (kwh), that adjusts automatically to changes in the fuel price, with no minimum threshold for billing, was implemented for Dili electricity consumers under an UNTAET Tariff Directive that took effect in August An initial lifeline block of consumption of 25 kwh per month, charged at $1, was incorporated into the tariff structure for Dili and the Districts. Otherwise consumption by all consumers in Dili is charged at approximately 25 cents per kwh. Tariff to be charged outside of the Districts will be based on the cost of immediate consumables for operating a power supply at a restored power station divided by the households receiving power. Recipient villages have expressed willingness to pay and ability to collect and administer the payment. No sector cost study has, however, been completed that provides economic justification for the present tariff, although budgetary estimates indicate that 25 cents is close to actual average costs. Also,

81 67 no survey of urban consumers ability and willingness to pay for electricity has been carried out. These studies, and further examination of the tariff structure, are needed to ease fears that the tariff is arbitrary, generally too high, and unfair to some user groups. The cost study should include a tariff recommendation based on economic efficiency principles (marginal costs). A registry of assets for Dili only has been prepared without valuation. Approximately 19,500 premises (comprising about 18,200 residential and 1,300 commercial) in Dili that are connected or had once been connected to the power supply have been identified, of which about 13,500 are presently metered. 2 A large Timorese staff of meter readers, data entry operators, and customer service officers to carry utility meter reading, billing, and revenue collection functions in Dili has been trained. Three EDTL billing centers have been established in Dili and billing system software that is adequate as a permanent system has been developed and installed. An inexpensive commercial accounting software has been selected and installed, and is currently operated in parallel with the Government s FreeBalance system. However, no computer hardware has been purchased to run these systems. There is no database of customers or billing activity carried out in power centers outside of Dili, such as Baucau, Suai, Maliana, etc. In addition, there are presently no local staff within EDTL that have been trained to supervise either billing or financial accounting and reporting functions, making it difficult for the utility to maintain these functions after June Moreover, in Dili, revenue collections have reached only 10% or less of invoiced sales. If collection rates do not improve quickly, EDTL will be unable to continue a 24-hour-per-pay supply of power to Dili for the balance of the fiscal year. Customers have not recognized the need to pay for electricity and disconnections have not been carried out in anywhere near the volume needed to enforce payments. The previously weak provisions under the Tariff Directive have been strengthened in April 2002 to authorize more rapid implementation of disconnections. Another cause of poor collections can be traced to a lack of public information about the power supply and lack of good relations between the public and EDTL: consumers are largely uninformed of the EDTL s financial predicament and the looming prospect of power rationing. An intensive multi-media public relations campaign that brings these issues to consumers is likely to improve collection rates in Dili and may help to stave off the need for power cuts. An option for reducing the costs of billing and servicing customers that is in use in some developing countries is prepayment metering, in which customers pay in advance for a desired amount of electricity and are given a code which opens their meter for the amount of electricity purchased. When this amount has been used, the meter can be replenished with a new payment. The system eliminates billing and meter reading (although periodic inspections are still required to control tampering) and it eliminates the need for disconnections and reconnections. A prepayment meter costs approximately $100 installed, implying a total cost in Dili of up to $2 million if prepayment meters were to be installed for all customers. A cost-benefit study of this option is needed to determine its financial feasibility for implementation in the longer term. In the power subsector, financial management capacity refers to the ability to (i) collect, account for, and report revenues adequate to meet the cost of services; (ii) calculate an efficient price for services (tariff); (iii) estimate, control, account for, and report expenditures and the financial status of assets and liabilities; Infrastructure Sector 2 About 2,300 of these meters are known to need repair.

82 68 Project Progress Report on East Timor Annex 8 Detailed Power Subsector Development Plan (cont d.) (iv) (v) meet financial obligations to employees, the Government, and suppliers; and create and implement budgets and business plans and achieve targets of financial performance that are specified in advance. Under the transitional administration, the Power Service had none of this capacity, as its finances were entirely managed by central authorities. It is vitally in the interests of Government that the power entity has financial management capacity, in order to control costs, report to the Government periodically on its financial condition, and limit the exposure of the Government to uncontrolled losses and requirements for subsidy. Recommendations. The immediate tasks in establishing financial management capability of the Power Service are the following: (i) complete the accounts for the independent power authority, extend the asset registry to all power centers in East Timor, value all assets, and implement a methodology for updating the registry and revaluing assets periodically; (ii) conduct a sector cost study and formulate a tariff level and structure for East Timor based on efficient pricing principles, recognizing constraints on the ability and willingness of consumers to pay for electricity; (iii) implement a financial management and reporting system within EDTL, including appropriate computer hardware and software operated by qualified and trained managers; (iv) identify, register, and value all public power sector assets and implement effective procedures to update the register and re-value assets periodically; (v) identify all electricity customers and enter them into a customer database and billing system; (vi) implement billing and revenue collection systems that produce accurate and timely bills to all customers and achieves high rates of collections backed up by adequate enforcement measures; (vii) purchase of the needed computer equipment billing and accounting urgently; 3 Limited funds are available in the TFET to support this purchase; (viii) complete the installation of electricity meters on unmetered customers in Dili (about 4,700 meters to be installed) and effect repairs on approximately 2,300 broken existing meters. Existing EDTL local staff have been trained in meter installation and repair, and a refurbished meter testing facility at Caicoli is ready to begin operations. This enables metering in Dili of approximately 4,700 additional meters and repair of broken meters by local EDTL staff resources; (ix) launch a public relations campaign through broadcast and print media in Dili to inform the public about the financial condition of EDTL, and the consequences of not paying their bills should be designed and implemented without delay. Resources for this are available from TFET; (x) conduct a sector cost study and specify an efficient and equitable cost-based tariff, based on a survey of consumers ability and willingness to pay for electricity; (xi) conduct a cost/benefit analysis of prepayment metering options for Dili and prepare an implementation proposal, if appropriate; and (xii) conduct a power sector asset valuation for use in the financial accounts and in preparation for transfer of ownership of assets to an independent power authority. 3 The present billing and accounting systems are installed on old ETTA computers that are near the end of their useful life. Bills are currently printed on a printer that is borrowed, strictly outside of business hours, from Public Works.

83 69 8. Operational Capacity The physical capacity in the larger District power stations in East Timor was only lightly damaged by the violence of 1999, and much of it could be re-started. However, the power infrastructure overall is weak because of years of neglect and poor maintenance during the Indonesian administration. In Dili, UNTAET has undertaken to overhaul the generating capacity in the Comoro power station with assistance from Japan. This is, however, at best a temporary solution as most of the capacity at Comoro is near the end of its useful life; one engine was lost to a catastrophic failure in late Little has been done with the power station at Caicoli; all engines there are old and would have to be overhauled if they were to be used again. To cope with growing load in Dili, which now has a peak requirement of about 12.5 MW 4 compared to about 9.5 MW only a year ago, ETPA has hired a substantial amount of generating capacity on short term contract. In January 2002, the hired capacity supplied well over half of the electricity generation in Dili. Given the need for this capacity, a comparative financial analysis of available short-term options should be carried out, to determine the optimal period for hiring generators versus additional investment in permanent capacity. Outside of Dili, no overhauls of the large District stations (e.g., Baucau, Suai, Same, etc.) have taken place and no program for them is currently planned. Service in these stations is unreliable and extensive rehabilitation of some of them is required. In contrast with the larger stations, many of the smaller subdistrict power stations throughout East Timor were heavily damaged or destroyed in With TFET and Japanese funding, construction work is about to begin to rehabilitate 26 of these small stations in rural areas 5 in addition to the 4 stations that were restored with Portuguese assistance. This work will be completed in about November Hired generators are currently supplying more than half of the electricity produced in Dili, but this is at best an expensive stop-gap measure. Costs may be reduced if some new permanent capacity is installed sooner rather than later, but this is not yet known. A study of near-term requirements and financial options is needed to support EDTL s decisions regarding the goods and services and capital budgets in the coming financial year. An immediate option exists to implement a long-term power development planning TA that has been approved by the Asian Development Bank. Recommendations. The power development planning technical assistance should be accepted by the Government and implemented without delay. An initial analysis of near-term requirements and options for Dili and the Districts should be undertaken. Infrastructure Sector 4 5 Actual load in Dili is higher than this figure, because many large electricity consumers presently generate their own supplies. These consumers are likely to return to the system once reliability improves. Also, the true economic demand for power in Dili is not known, because most consumers do not (yet) pay for electricity. The TFET program also includes support for the overhaul of the Ainaro District station, and refurbishment of the Gleno District station and the power line connecting Gleno to Ermera is under consideration. An investigation of requirements in the Maliana District station will also be undertaken.

84 70 Project Progress Report on East Timor Annex 9 Management Program of the Power Service

85 71 TFET- FUNDED EMERGENCY INFRASTRUCTURE REHABILITATION PROJECT PHASE II

86 72 Project Progress Report on East Timor Emergency Infrastructure Rehabilitation Project, Phase II A. Introduction While East Timor inherited a relatively dense and, to a large extent, sealed road network, road maintenance has been severely neglected. The inherent instability of the hilly topography, the vulnerability of the coastal network to flooding and river realignment, and the sensitivity of road pavements to poor drainage, all combine to make a high maintenance network. The road network remains fragile. The network would require a high level of maintenance. Recurrent maintenance of gravel roads is much more costly than that of paved roads, even taking due account of the different service levels. A reduced service level will not result in significant savings in routine maintenance costs. For example, the budget required to maintain a two-day access to Maliana on a gravel surface is the same as that needed to maintain a half-day access using the present paved surface. The EIRP Phase I has implemented road repair works in addition to its port and power components. However, these have addressed immediate needs and have only partially been able to implement permanent engineering solutions that will reduce the maintenance burden in the long term. This program requires additional resources. The EIRP Phase I is also supporting longer-term sector development, establishment of routine maintenance mechanisms, field organization, local contracting industry, community engagement, and capacity building for sector management. Accordingly, the additional funding will focus on intensifying and extending the EIRP Phase II objective to restore the road network to a condition in which its economic life can be extended effectively. B. Objectives The EIRP Phase II will focus on stabilizing the road network and enabling it to be left in a condition, from which it can be maintained with a relatively modest budget. The objective of the EIRP Phase II is to support earthworks to reduce the annually recurring emergency requirement by reducing the backlog maintenance requirement. It will also continue programs initiated under the EIRP Phase I to establish a viable and efficient maintenance operation in East Timor, and support technical preparation of the East Timorese maintenance service to carry out routine maintenance and contract village groups.

87 73 C. Scope The EIRP Phase II scope includes (i) preventive civil works and periodic maintenance, (ii) support for the establishment of a routine maintenance regime, (iii) detailed engineering, and (iv) training and project management. Infrastructure Sector D. Major Components 1. Civil Works to Reduce Emergency Maintenance Requirement Earthworks. The earthworks rehabilitation will support the reconstruction and minor realignment of short road sections that have become unstable and have potential for technical correction. The soils, topography, and climate combined render the road network vulnerable to landslides. Clearing and repairing these is a major component of the recurrent maintenance activities. Annual repairs cannot effectively and economically reinstate the extensive landslip sites. More permanent solutions are required through improved alignment and fully engineered slope stabilization works and bioengineering techniques. This component will initiate a strategy for preventive civil works for bench failures that are currently absorbing an unacceptable proportion of the recurrent budget. Bioengineering. Bioengineering techniques will be used to enhance slope stability. Under these techniques, indigenous plants will be identified that will effectively reduce soil moisture, resist surface erosion, and bind surfaces with strong and deep root systems. Once appropriate plants are identified, small nurseries will be established, and optimum planting and care strategies identified, demonstrated, and implemented. Periodic Maintenance. Periodic maintenance requirements cost about $12 million per annum. This reinstates road surfaces damaged by traffic abrasion and wet season erosion. Most roads have lost the integrity of their wearing surfaces. Consequently, they deteriorate too rapidly for routine maintenance to be effective, and have become impassable in wet weather. While an ideal periodic maintenance program would resurface about one seventh of the network each year, periodic road resurfacing is required at intervals of 5 to 10 years. However, no such program has been implemented during the past four years, and as much as 60 percent of the network is overdue for resurfacing treatment. Sites needing work most urgently will be identified and this treatment strategy initiated. A small bridge replacement program will support the repair or replacement of substandard and vulnerable major drainage structures on the main roads. 2. Support to Establish a Routine Maintenance Regime Steep slopes, erodible sedimentary materials, and intense rainfall characterize the road network environment. Under these conditions even minor slips and drain block-

88 74 Project Progress Report on East Timor ages result in road sections becoming impassable after heavy rainfall. Under the EIRP Phase I village groups are responsible for maintaining the road drainage system; eventually, funding for this will be transferred to the recurrent budget of the East Timor Transitional Administration. The EIRP Phase II provides technical support to establish the community-based maintenance program and related technical capacity in the field organization. 3. Project Management and Training The EIRP Phase II will use the established project management and implementation arrangements agreed for the EIRP Phase I, including the PMU reporting to the head of the Department of Infrastructure. The EIRP Phase II will support the incremental time and personnel requirements of the PMU. The PMU will engage geotechnical and design engineering services and other short-term specialists, as required. Significant skills upgrading is needed to enable the East Timorese to assume managerial and technical responsibility for implementing the routine and periodic maintenance regime, bio- and other engineering techniques, and financial and administrative accountability for the sector. Under the EIRP Phase I, immediate, and mediumand long-term training requirements are being identified under a comprehensive human resource development assessment, which will determine the specific skills required for the planned institutional arrangements for the sector. The EIRP Phase II will provide the technical training to establish technical capability of the road maintenance organization. However, this program is likely to require additional resources, and the PMU of EIRP Phase II will make all efforts to identify cofinancing for this purpose. E. Cost Estimates and Financing Plan The total cost for the EIRP Phase II is $9 million. The estimated costs of the components are summarized in Table 1. Funding for EIRP Phase II will be provided on a grant basis from the TFET. F. Implementation Arrangements The Executing Agency. East Timor as administered by UNTAET will be the recipient of the grant and the Ministry of Water and Public Works (MWPW) will be the Executing Agency. The PMU will be the project implementing agency and will report to the minister of MWPW. The PMU will program, administer, and coordinate daily activities. It will be headed by an East Timorese project manager and comprise an internationally recruited chief technical adviser, engineers, and an accountant. The selection of these will be subject to ADB s approval. The chief technical adviser will support the project manager with EIRP Phase II administration and its contracts in accordance with ADB guidelines. The adviser will be accountable to ADB for the quality and timeliness of project

89 75 Table 1: Cost Estimates and Financing Plan ($ million) Description Total Cost A. Civil Works 1. Backlog and Earthworks Slip Rehabilitation 1.35 Infrastructure Sector 3. Routine and Periodic Maintenance Program 1.35 Subtotal (A) 6.72 B. Consulting Services 1. Project Management and Training Design Services 0.33 Subtotal (B) 1.35 C. Contingencies 1. Physical Contingency Price Contingency 0.16 Subtotal (C) 0.93 Total 9.00 a Physical (10 percent) and price (2 percent) contingencies are included. Source: Staff estimates. implementation. Engineers will program and coordinate daily project activities, including design, supervision, procurement of goods and services, and management of civil works contracts. The international consultants will train East Timorese counterparts in their areas of responsibility. Consultant Services. International and domestic consulting services will be required for (i) project management and (ii) detailed engineering. These consultant services will be selected in accordance with ADB s Guidelines on the Use of Consultants. However, the term member countries under these guidelines for purposes of the EIRP Phase II will include ADB member countries, East Timor, and all donors and members of international organizations that have provided contribution funds to the TFET. Individual consulting services will be selected for project management. The PMU will be funded under the Project. Slope stabilization requires geotechnical assessment of the soil conditions and detailed engineering. These services will be selected from an international firm. Advance procurement action for detailed design was approved to ensure that works can be mobilized during the first half of 2002 in accordance with the project implementation schedule. Procurement. All procurement for the EIRP Phase II will be carried out using international and the local competitive bidding and international shopping procedures in

90 76 Project Progress Report on East Timor accordance with ADB s Guidelines on Procurement. Contractors will be eligible to tender for one or more of the contract packages within their respective bid capacities. ADB approval prior to award will be required for all contracts. Advance procurement action is proposed for the design supervision consulting services to enable commencement of works in accordance with the implementation schedule. Implementation Schedule. Programs under the EIRP Phase II will be implemented over 18 months from June 2002 and be completed by December Disbursement. The EIRP Phase II will be disbursed under the (i) imprest account, (ii) direct payment, and (iii) reimbursement methodology as provided under the guidelines pertinent to the EIRP Phase I and in accordance with ADB s disbursement guidelines. The imprest account established for the EIRP Phase I in Dili, East Timor will be used for disbursement of the supplemental grant. Reporting and Accounts. Reporting requirements, accounts, and financial statements under the additional funding will be established as determined under the EIRP Phase I. These include inception report, quarterly progress reports, audits, draft final report, and project completion report. The PMU will establish the necessary accounts in Dili, and maintain separate accounts for all expenditures under the EIRP Phase II, including its individual contracts and other components. These bank accounts will be under the control of the chief technical adviser. The PMU will furnish ADB with accounts and related financial statements reflecting the accounts for each projectrelated contract. These financial statements will be audited using generally accepted accounting principles by auditors acceptable to ADB. The audited financial statements together with the auditor s report will be forwarded to ADB within six months of the end of each related fiscal year. The PMU consultants will keep detailed records on the costing and expenditures of the project components and will assist with reporting. G. Environmental and Social Measures 1. Environmental Impact and Social Dimensions The EIRP Phase II is classified as environmental category B. Accordingly, an initial environmental examination was prepared in accordance with the ADB s Environmental Guidelines for Selected Infrastructure Projects. The IEE indicates that while constructionrelated environmental impact is unavoidable, this can be mitigated using appropriate engineering practices. The IEE concludes that the EIRP Phase II will result in a net benefit with costs of mitigation being outweighed by the envisaged benefits. 2. Poverty Reduction and Social Assessment The EIRP Phase II is classified as a pro-poor growth intervention. An initial social assessment (ISA) and a poverty assessment were carried out. Significant positive im-

91 77 pacts are expected for the beneficiary communities. The civil works component is expected to enhance the reliability of road access for communities around the country, including poor and vulnerable communities. The establishment of a community-based road maintenance regime will provide a cost-effective means for ensuring that roads are maintained, and provide a mechanism for fostering sustainable incomes to the rural communities that have a strong need for income generating opportunities. Rural communities in East Timor have a strong structure of rural representation, and village representatives are capable of organizing collective activity, such as road maintenance. The initiative is supported by and appropriate to the local conditions and community structures. Infrastructure Sector H. Risks The EIRP Phase II does not face any unusual risks. Funding has been committed from the TFET, albeit in three stages of $3.0 million, $5.0 million, and $1.0 million. Procurement and disbursements will be sensitive to the staged issue of commitment authority. Experience in managing the staged funding allocation under the EIRP Phase I has been positive. Due to the limited number of skilled East Timorese supervisors and engineers, the EIRP Phase II is focused to provide maximum opportunities for training. However, the lack of an adequate pool of technically qualified East Timorese can delay complete transfer of the road agency to Timorese control. The PMU will support road agency operations and will seek sustainable solutions for staffing and training issues. Finally, road maintenance and road sector services can be justified by the broad economic benefits of the sector, the road network s role inducing economic growth and development, as well as social necessity. Road maintenance funding, while seen as expensive in East Timor s context, is recognized by all stakeholders as necessary to ensure the selected growth and social development pattern of East Timor. The EIRP Phase II will ensure adequate support to the budget preparation process and to information dissemination on the importance of road maintenance.

92 79 TFET- FUNDED GRANT NO ETM HERA PORT FISHERIES FACILITIES REHABILITATION Implementation Status

93 80 Project Progress Report on East Timor Grant No ETM: Hera Port Fisheries Facilities Rehabilitation Project A. Project Objective The Project s overall objective is to contribute to sustained food security of marine protein for the East Timorese. The goal is to achieve responsible fisheries management by promoting offshore pelagic fisheries and thus ease the inshore fishing pressure. B. Project Cost The total cost of the Project is estimated at $1 million equivalent. The Project will be entirely financed on a grant basis from the Trust Fund for East Timor (TFET). Funds for the TFET have been committed by donors. The International Development Association (IDA) of the World Bank Group is the Trustee of the TFET. IDA and the Asian Development Bank (ADB) are responsible for jointly managing the TFET funds. An imprest account will be established within the PMU with a ceiling of $500,000, and operated according to ADB s guidelines. C. Project Commencement and Closing Date The project commenced in October 2001 and is expected to be completed by 31 December D. Project Implementation Progress as of 31 March 2002 The Project was approved in October The project will be managed by the Project Management Unit of the TFET-funded and World Bank-managed Second Agriculture Rehabilitation Project in consultation with the Fisheries, Marine and Environment Division (FMED). Project preparatory works are in progress. Tender bids have been received. ADB is assisting with evaluation of the technical aspects, and the PMU will evaluate on the other aspects (e.g., use of labor, use of local materials, etc.). Final selection of the firm will be finalized in May Rehabilitation activities is expected in June 2002.

94 81 E. Description of Component s Implementation Progress The Project will rehabilitate the necessary harbor infrastructure facilities at Hera Port for larger offshore fishing vessels. Design and construction workplan preparation are in progress. F. Implementation Arrangements Infrastructure Sector Under the Second Agriculture Rehabilitation Project (ARP II), which is administered by IDA, $1 million has been allocated for a fisheries component. ADB has been requested to prepare and administer this component. The United Nations Transitional Administration in East Timor (UNTAET) will be the initial recipient of the grant from the TFET and will use the existing project management unit (PMU) of the ARP II, with support from FMED staff, to execute the Project. The PMU will oversee project implementation and coordinate the various activities. In particular, the PMU will program, administer, and coordinate daily project activities. G. Procurement Procurement will be conducted in accordance with ADB s Guidelines for Procurement, except that the definition of member countries for purposes of procurement eligibility will, in addition to ADB member countries, include East Timor and all donors and members of international organizations that have contributed funds to the TFET. The project is in the process of preparing procurement details. H. Consulting Services The Project will require 6 person-months of domestic consulting services. The consultant will be selected in accordance with ADB s Guidelines on the Use of Consultants and other arrangements satisfactory to ADB. The PMU is in the process of recruiting the consultant. I. Donor Coordination Relevant donors will be consulted in the project implementation and in strengthening the marine and fisheries sector.

95 Water Supply and Sanitation

96 84 84 Project Progress Report on East Timor Water Supply and Sanitation A. Introduction The Water and Sanitation Services (WSS) initiated under the United Nations Transitional Administration in East Timor (UNTAET) has been established and is now in operation. It has a total of 153 local staff out of an approved staffing limit of 174. Of these staff, approximately 130 are engaged in urban water supply provision, and approximately 65 of these staff are involved directly in providing water supply services outside Dili. In addition, 16 international staff (UNTAET, United Nations Volunteers, donor-funded) are assisting in capacity-building, planning and management activities. WSS will still require significant assistance and capacity-building efforts to undertake its broad responsibilities and extensive future developmental needs in the water sector. As part of its responsibilities WSS is also playing a key coordination role with the Trust Fund for East Timor (TFET)/bilaterals/NGOs in developing water resources, and in providing water supply and sanitation services. The annex shows the implementation schedule of water supply and sanitation projects. B. An Overview of the Current Status 1. Urban Water Supply Under the current TFET program the urban water supply system is expected to be rehabilitated to the levels prior to the independence struggle. However, this level of services is considered poor in terms of planning, design, and operation and maintenance. During the pre-crisis era most supplies were intermittent, pressures low, and water leakages high. Prior to the crisis, service coverage was 39% in district capitals and 29% in subdistrict towns. The average access to piped water supply was limited to only 13%. In Dili, it is estimated that there were 17,000 house connections and some 270 public water stands. In other urban areas, the unserviced population made extensive use of private shallow wells by choice rather than pay for a low level of water supply service. It was estimated that only 48% of the total population of East Timor had some form of access to safe water. With TFET and other donor assistance, there has been significant progress in rehabilitating these services with emergency system repairs. The public water supply systems in each of the district capitals are generally being restored. While the emergency phase and subsequent activities have made considerable progress towards rehabilitation, the service coverage and service delivery standards that

97 85 previously existed were poor (48%). A significant investment in urban and rural water supply systems is therefore still required to improve the levels of service. 2. Rural Water Supply The coverage of rural areas with water and sanitation facilities was limited to 38% and 35%, respectively. Postreferendum, the availability of usable water and sanitation facilities at village household level was further reduced to about 10% and 5%, respectively. No detailed inventory of the present facilities currently exists. WSS has established a Community Water Supply and Sanitation Division to reestablish a service to the rural population. Due to fund constraints, activities are very limited. The Division is working closely with a UNICEF Project to provide basic assistance to small rural communities through NGO support. The TFET s WSSRP-Ph. 1 has undertaken intensive community awareness and community participation in managing water use. Box 1 shows the Asian Development Bank s (ADB) experience in undertaking water supply projects through participatory process. Water Supply and Sanitation Sector 3. Sanitation Before September 1999, approximately 35,000 of the 130,000 population (27%) in Dili was served by a garbage collection service. The pumping out of septic tanks was only on a request basis. There was no formal place to dump septage and so this was disposed of on vacant land. 4. Solid Waste The increasing population in Dili is providing a significant challenge to solid waste disposal efforts. While a solid waste disposal site existed in Dili, the collection system was grossly inadequate and there was indiscriminate dumping of wastes in drains and on sidewalks. Significant quantities of waste were disposed of by burning. Most plants and equipment were destroyed and needed rehabilitation. Septic tanks pump out for private houses had all but ceased. The community and institutional systems for collection and disposal are no longer operational. The WSS has reestablished a Sanitation Division that currently provides a reduced level of urban sanitation services. Due to staff restrictions, the Division has contracted out limited household waste collection service and is now managing the Tibar waste disposal site. The WS&S Project, Phase 2, will undertake solid waste disposal works and will attempt to undertake urgent drainage improvements. Further assistance is still required in the regulation and control of household drainage and septic tanks. Rebuilding the capacity of the local private sector to provide low cost sanitation services is essential. In 2002/2003, WSS has targeted to provide essential, solid waste disposal service to at least 80% of Dili residents.

98 86 Project Progress Report on East Timor Box 1: Participation: Making a Difference Participation is the centerpiece of any water service endeavor. The most successful experiences in water use are based on involving the people who consume the water. Excluding them from participation has tended to make solutions to sustainability elusive. In Nepal, ADB financed rural water supply projects in the 1980s where gravityfed village water supply schemes were built by the Department of Water Supply and Sewerage and handed over to communities for operation and maintenance. Many of the schemes were not taken over by communities. They had not been consulted about their requirements, not involved in subproject design, and excluded from sharing in the costs of implementation. Subsequent projects developed community awareness and promoted active community participation in rural water supply and hygiene sanitation schemes. Water users associations were established and communities decided how much water they needed, what they were willing to pay for, and how they would manage the facilities. In irrigation and rural development projects, water users associations have typically improved equity in water distribution, resolved water disputes, collected water charges, and maintained tertiary networks. In some cases they have also successfully taken over ownership of small-scale irrigation schemes. Nepal, Pakistan, and Philippines have particularly good examples of developing participatory approaches to operation and maintenance through farmer-managed irrigation schemes. A 1995 ADB postevaluation report found that poverty levels in such schemes were considerably lower in project areas in Nepal than elsewhere. In Pakistan, an evaluation (September 1998) of the ADB-financed Second On- Farm Water Management Project showed that participatory on-farm drainage was extremely effective but was not sustained by complementary maintenance of the main drainage systems. The efficacy of cooperative approaches was demonstrated yet again in Indonesia under the ADB-financed Irrigated Command Area Development Project (postevaluated in May 1998) where water users associations were significantly strengthened, and contributed to equitable water allocation and improved system maintenance. 5. Drainage The drainage systems in most towns including the Dili drainage system has been poorly maintained and consists of poorly designed and constructed drains. There are significant solid waste and silt deposits that cause a reduction in drain cross-section. This is further aggravated by broken roadside entry pits, and broken or missing drain covers. The drains have become fertile breeding grounds for vermin and insects and are a significant health hazard. The lack of maintenance combined with poor design and construction cause flooding during the wet season. A master plan for a drainage system

99 87 for Dili was prepared in 1995 but has not been implemented. Further funding will be required to improve drainage in all towns including Dili. 6. Water Resource Management The water resources require urgent assessment, protection, and a system of allocation to the various users (water supply, irrigation, environmental requirements, and possibly hydropower generation) to ensure most efficient and economic use of the limited resource. The water resource sector suffered significant losses including all records, equipment, and staff. The TFET-funded WS&S Project (Phase I) has prepared a water resource management policy and legislation. WSS has established a Water Resource Division to facilitate and assist the assessment, allocation, and protection of East Timor s surface and underground water resources; however, the division s capacity is limited. Box 2 shows the lessons learned by ADB from water supply projects. Water Supply and Sanitation Sector C. Current Constraints and Recommendations Constraint Lack of effective water supply and sanitation services management Lack of tariff policy and regulatory framework Low service coverage Lack of resources and capacity among stakeholders Lack of funding Recommendation Formulate and implement institutional, policy, and legal framework Formulate and implement water and sanitation services legislation Formulate appropriate tariff policy and implement the tariff system Improve service levels and reliability of water supply and sanitation services Install new connections based on demand and system capacity Promote awareness and capacity building in all related programs Seek donor assistance to finance capital works and capacity building

100 88 Project Progress Report on East Timor Box 2: Lessons Learned by ADB from investments in the Water Sector There is a need to move rapidly from disaggregated water sector investments aimed at primarily creating assets to an era of holistic, integrated investments to promote efficient water use. Investments in water supply and sanitation, flood control, irrigation and drainage and watershed management should be set in the context of managing water resources within river basins. The creation of assets in each subsector, and water use within that sector has impacts on other sectors that need to be factored into investment decisions to optimize project designs. Competition for use of dwindling water resource requires support for the development of an effective legislative framework that gives users rights to water and mechanism for dispute resolution. There is a need to promote efficiencies in water use by supporting demand management, including water pricing. The poor need to be targeted for equitable and rapid access to water. Communities need to be empowered, educated, and involved in the process of water management. Capacities need to be sustainably built to manage water use more efficiently.

101 89 D. Sector Policies and Legislative Framework Following are the recommendations for the policy and legislative framework of the water supply and sanitation sector of East Timor. (i) Improve access to water and sanitation services for public health, environmental protection and promotion of economic growth; (ii) Promote public-private-community/ngo participation in restoring water and sanitation services; (iii) Provide, operate, and maintain water supplies to Dili and district towns and for rural communities; Water Supply and Sanitation Sector (iv) Improve regulations and increase public awareness to foster water conservation and management; (v) Review charges to recover costs for water supply and sanitation services; (vi) Promote ownership for community-based water management; and (vii) Establish a national water management authority to promote a national focus on the water sector. E. Proposed National Water Supply and Sanitation Services Development Plan Vision: To ensure the East Timorese have access to water supply and sanitation services, which is essential for health, environmental protection, and economic growth. Goals: (i) (ii) (iii) (iv) (v) Establish and maintain a WSS department responsible for management and operation of WSS services in East Timor. Coordinate with other agencies including district administrations and communities to ensure efficient delivery of services. Involve the private sector for cost-effective delivery of services. Inculcate ownership at all levels and promote equity between regions, urban, and rural communities. Protect the natural environment from all forms of degradation and pollution of water bodies.

102 90 Project Progress Report on East Timor F. Medium- to Long-Term Strategy (i) Develop/implement strategies for institutional development including policies and legal frameworks for water resource management and urban sanitation. (ii) Improve planning and management of water supply systems through preparation of asset databases and regular master plan reviews. (iii) (iv) Develop best practice strategies for community participation. Facilitate, support, and implement the community water supply and sanitation programs. Rehabilitate and augment Dili and district town water supply systems, and establish water tariff policies. (v) Implement water supply operation and maintenance (O&M) improvement programs including new connections, reduction of unaccounted-for water, and minimize unauthorized connections in Dili and district towns. (vi) Implement improvements to urban sanitation (including solid waste, wastewater, and drainage) in Dili and district towns. (vii) Implement IEC programs and consultations to ensure that communities are informed and contribute to WSS activities. (viii) Ensure effective donor coordination to maximize the contribution of donor activities to the strategic plan and programs. (ix) Promote and support the involvement of the private sector and NGOs in water supply and sanitation activities for development and O&M.

103 91 Annex Implementation Schedule Water Supply and Sanitation Sector

104 93 TFET- FUNDED GRANT NO ETM WATER SUPPLY AND SANITATION REHABILITATION PROJECT PHASE I Project Completion Report

105 94 Project Progress Report on East Timor Grant 8185-ETM(TF): Water Supply and Sanitation Rehabilitation Project Phase I A. Project Objective and Scope The Project objective is to provide East Timorese with sustainable water supply and sanitation (WS&S) services using appropriate technology and management. The Project scope included (i) restoration of damaged WS&S infrastructure and (ii) building institutional capacity to manage and operate the system. The Project cost for phase I was estimated at $4.5 million and the Project commenced implementation in August 2000, and was completed on 31 December B. Evaluation of Implementation 1. Project Components a. Component 1: WS&S Sector Management and Investment Program Component 1 is comprised of two parts. The first was to establish a Project Management Unit (PMU) under the United Nations Transitional Administration in East Timor (UNTAET) Water and Sanitation Services (WSS) to assist with program implementation. The second was to prepare a detailed work program to guide the PMU over the implementation period and beyond. The output was to be documented as a detailed Program Implementation Document (PID) for the coordinated improvement of East Timor s WS&S sector, including a Sector Management and Investment Framework (SMIF). The PMU was established in September 2000, supported by two local and international NGOs as well as donors involved in the WS&S sector. The PMU consisted of 2 fulltime consultants and 5 East Timorese staff. In addition, 16 short-term consultants also supported project implementation. The PID containing a detailed WS&S implementation plan and indicative future plan were prepared to support project implementation. The PID and SMIF were completed by December These were subsequently approved by UNTAET/East Timor Public Administration (ETPA) in early 2001.

106 95 b. Component 2: Capacity Building and Institutional Development Program In coordination with the WSS and relevant bilateral donors, the Project identified and implemented priority capacity and institutional development activities. The component provided timely assistance to evolving and longer-term needs including support for the quick response facility described under subcomponent 3.1. As part of the capacity building effort, the repairs and outfitting of WSS facilities in all the 12 districts (the 13th district which is Dili was covered under Component 3) were prioritized and completed under this component. Vehicles for each of the 12 districts were procured to improve their capacity to respond to emergency repairs. In order to maintain communication with the main center in Dili, radio equipment was also installed in all 12 district centers. Some of the main activities completed included: (i) The rehabilitation of 11 WSS district offices/stores and offices, which are now occupied by WSS staff; Water Supply and Sanitation Sector (ii) Training of East Timorese staff, NGOs, and local communities. Guidelines establishing operational standards and procedures have also been prepared; (iii) WS&S policy and legislative details to assist WSS in defining its mandate and formalizing its operational authority in the sector; and (iv) Initial work on the water tariffs structure. c. Component 3: Water Supply and Sanitation Implementation Program Component 3 will provide most of the physical rehabilitation and development assistance to beneficiaries: (i) Component 3.1: Water Supply Authority WS&S Quick Response Facility A quick response facility was established to support Water Sanitation Services (WSS) in undertaking urgent, substantial repairs to and rehabilitation of water supply systems across all 13 districts of East Timor. (ii) Component 3.2: Dili Water Supply Repair and Rehabilitation Program This component provided supplementary and complementary rehabilitation work such as small local contracts, construction contracts for deepwell drilling, as well as urban and peri-urban low-income works such as repairs and rehabilitation of public taps and other water points, in order to

107 96 Project Progress Report on East Timor maximize the benefit of major works being implemented by other donors, in particular from the Government of Japan. (iii) Component 3.3: Districts Water Supply Repair and Rehabilitation The component provided a range of assistance to address the needs of smaller urban and rural communities throughout the 13 districts of East Timor. Processes of environmental health, gender awareness, and community participation and planning were also undertaken during implementation to ensure sustainability and equity. The PID included a detailed and prioritized list for funding activities under this component. A major portion of the assistance was delivered through local and international nongovernment organizations (NGOs) and community-based organizations (CBOs). The major achievement include: Three bores in Dili and two in Suai have been sunk and are operational. Miscellaneous works have been carried out by the Sanitation Section of the WSS and local contractors. Four generators and associated equipment have been procured and transferred to WSS. Contracts were awarded to local companies to provide standard design drawings for all project components. Rehabilitation of local water supply system in Bidau Santa Ana. Approximately 9,000 people benefited. Rehabilitation of local water supply system in Becora zone (stage 1). Approximately 15,000 people benefited. Rehabilitation of local water supply system in Hera. Approximately 1,630 people benefited. Solid Waste Management Plan for Dili and tender documents for WSS Project Phase II. 4,000 meters/valves sets were procured in February 2001 by the PMU and were handed over to WSS for installation; further meters will be procured after water tariff structure is approved by the Government. 6 local and international NGOs were contracted to undertake water supply rehabilitation works in 12 districts. Design and civil works for Suai and Liquica. Local water supply systems in Zumalai, Ermera, Same, Turiscai, Lospalos, Bobonaro and Viqueque.

108 97 2. Implementation Arrangements There were no major changes in implementation arrangements from those agreed during appraisal (Annex 1). WSS was the executing agency. For day-to-day administration and coordination, a PMU in Dili was established, headed by a Water Engineer as Project Director. The PMU was assisted by international and local East Timorese consultants. The consultants in association with the local East Timorese had overall responsibility for detailed design and supervision of civil works. 3. Project Costs and Disbursements As at appraisal, the Project cost was estimated at $4.5 million for phase I activities to restore basic services (Annex 2). Additional investment for the sector was further provided through a Phase 2 project, which is now being implemented. There were no significant delays; however, due to its emergency nature and lack of institutional capacity in East Timor, some minor delays in tendering and awarding of contracts were experienced. Actual project cost at closing was $4.3 million. Remaining funds were utilized to undertake additional works as part of WSS Project Phase II. Water Supply and Sanitation Sector 4. Project Schedule The entire Project from detailed design through construction was completed as planned between August 2000 and the project completion date of 31 December There were some initial delays in selection of consultants, and civil works, which started later than projected. However, there were no major delays in completion of the project components. At the loan closure date of 31 December 2001, the project was generally completed. 5. Engagement of Consultants and Procurement of Goods and Services A total of 64 person-months of consultancy work were proposed for detailed design and project implementation. However, at completion, the final time requirement for consultants was 75 person-months totaling $1.1 million. Additional consultancy was needed to support East Timorese to complete remaining works. The procurement of goods and services was mainly undertaken using local contractors and NGOs. A total of 15 NGO contracts and 4 local competitive bidding (LCB) contracts were awarded. Total civil works amounted to $2.7 million. Overall, the consultants and contractors, given the situation in East Timor, have performed satisfactorily.

109 98 Project Progress Report on East Timor Box: Project Beneficiaries No. of WSSRP-I-Activity Implemented by Benficiaries NGO Contracts 1 Suai and Fohorem rehabilitation of local water supply systems 2 Zumalai rehabilitation of local water supply system 3 Manatuto rehabilitation of local water supply system 4 Manatuto planning for future water supply systems 5 Ermera rehabilitation of local water supply system 6 Ermera planning for future water supply systems 7 Same rehabilitation of local water supply system 8 Turiscai rehabilitation of local water supply system 9 Procurement for Manatuto, Same and Turiscai 10 Lospalos rehabilitation of local water supply system 11 Lospalos additional works associated with the above 12 Liquica (East) rehabilitation of local water supply system 13 Liquica (West) rehabilitation of local water supply system 14 Bobonaro rehabilitation of local water supply system Subtotal LCB Contracts 1 Bidau Santa Ana Water Supply System 2 Liquica Water Supply System 3 Hera Water Supply System 4 Becora Transmission Main 5 Viqueque Transmission Main Subtotal Bia Hula Bia Hula and Oxfam ACF ACF ACF ACF ACF FORTE and ACF ACF Probem Probem HTO Oxfam and HTO Oxfam and CBOs WP Lorong Matan Holdings East Timor Construction PT Gunung Kijang Hazell Brothers TIC East Timor 2,562 5,000 33,100 n/a 3,000 n/a 8,952 2,355 n/a ,631 1,726 7,434 68,107 4,800 4,500 1,333 11,000 20,000 41,633 Total number of recipients of WSSRP-I activities 109,740 ACF = Action Contre Le Faim (international NGO); Bia Hula = Local NGO; CBO = Community Based Organization; FORTE = Local NGO; HTO = Hamoris Timor Oan (local NGO); Probem = Local NGO.

110 99 6. Environmental Impacts The Project has had no significant impact on the environment. WS&S division will continue to monitor water and groundwater recharge. The restoration of WS&S has improved the general environment and productive activities and livelihoods of the people. There is a need to establish a water management authority to monitor, among others, the environment. 7. Project Benefits The Project has resulted in a range of important quantifiable and nonquantifiable socioeconomic benefits at the local level. These relate to general improvements in the quality of life of the project beneficiaries. Many communities have benefited from access to water for the first time. In Dili, and other major towns, the quality of services compared to the level that was in existence before has also improved. Based on interviews with beneficiaries, the quantifiable benefits have been achieved as a result of various project activities (Annex 3). Water Supply and Sanitation Sector C. Lessons Learned 1. External Assistance There is still a significant need for external support to the sector. While most water supply services in urban and rural areas have generally been restored to the basic service levels provided during earlier administration, this service is not considered adequate based on the generally accepted standards. There is a need for further improvement to achieve public health, human dignity, and environmental protection goals. 2. Sector Planning External assistance should fit within the strategies prepared by WSS for the provision of water supply and sanitation services. The emergency phase is now over, and longer term planning should be based on a systematic assessment of needs. 3. Flexibility Sector assistance projects should be designed with sufficient flexibility to respond appropriately to evolving needs. Projects that have too rigid implementation arrangements may create secondary problems and additional workloads for WSS.

111 100 Project Progress Report on East Timor 4. Capacity Building There is an ongoing need for capacity building effort at all levels. However, capacity building support should be undertaken at an appropriate pace and timing to ensure the required understanding and ownership of local staff and community are developed. Some previous capacity building activities may need to be repeated for the benefit of the new staff and further reinforcement for existing staff. 5. Water Leakage & Wastage Levels of service can be improved rapidly and cost effectively by reducing water supply distribution system leakage and consumers wastage. The introduction of cost recovery based on a tariff structure will rapidly reduce consumer wastage. 6. Wastewater Disposal A safe collection and disposal strategy for household and commercial wastewater should be developed and implemented (wastewater referring to the discharges from small sewage treatment plants, septic tanks, cess pits, kitchen and bathrooms, and open storm water drains). This issue has received very limited attention to date, but has been highlighted as a major area of concern by WHO. 7. Health and Hygiene Promotion WSS should work with the Department of Health to implement health and hygiene promotion programs in parallel with provision of infrastructure, increasing service levels and coverage to bring about the desired public health improvements. WS&S service users will require health and hygiene information and education to maximize the health benefits of improved services.

112 101 Annex 1 Project Implementation Schedule Water Supply and Sanitation Sector

113 102 Project Progress Report on East Timor Annex 2 Summary of Commitments and Disbursements as of 29 March 2002

114 103 Annex 3 Output and Performance Monitoring Matrix Water Supply and Sanitation Sector

115 104 Project Progress Report on East Timor Annex 3 Output and Performance Monitoring Matrix (cont d.)

116 105 Annex 3 Output and Performance Monitoring Matrix (cont d.) Water Supply and Sanitation Sector

117 106 Project Progress Report on East Timor Annex 3 Output and Performance Monitoring Matrix (cont d.)

118 107 Annex 3 Output and Performance Monitoring Matrix (cont d.) Water Supply and Sanitation Sector

119 109 TFET- FUNDED GRANT NO ETM WATER SUPPLY AND SANITATION REHABILITATION PROJECT PHASE II IMPLEMENTATION STATUS

120 110 Project Progress Report on East Timor Grant 8189-ETM: Water Supply and Sanitation Rehabilitation Project Phase II A. Project Objective The objectives of the Project (Phase II) are to: (i) improve the capacity of water supply and sanitation (WSS) Services; and (ii) assist with the implementation of priority projects in Dili and districts, subdistricts, and villages in cooperation with other donors. B. Project Cost The project cost is estimated at $4.5 million. The entire cost will be funded from the TFET. C. Project Commencement and Closing Date The Project commenced in July 2001 and is expected to close by 30 April D. Project Implementation Progress 1. Overall Progress Physical implementation of the Project began in January To date, the Project Management Unit (PMU), under the Water and Sanitation Services (WSS), has been established. The Team Leader, a Chief Technical Adviser, and an East Timorese project manager have been appointed. An imprest account has been established. Detailed project activities, and contract commitments and disbursements are in Annexes 1 and 2. E. Detailed Description of Component/Subcomponent Implementation Progress to Date 1. Component 1: Project Management Unit The PMU has the services of two international consultants (Team Leader and Chief Technical Adviser) and an East Timorese project manager. The PMU will be further supported by an East Timorese community development specialist and a number of local support staff. In addition, a local finance officer will also be recruited to support the PMU.

121 Component 2: WSS Capacity Building and Institutional Development The Project has prepared a national development plan which will serve as a guide in project implementation. The Plan is being reviewed by government departments concerned. In addition, detailed implementation plans are being finalized. So far, two East Timorese have been trained in new government accounting package. In addition, two WSS staff will attend the forthcoming international water conference in Melbourne. 3. Component 3: WS&S System Implementation a. Subcomponent 3.1: WS&S Quick Response Facility The Project has identified several activities to meet water supply demands from various districts and Dili and the related hardwares have been procured to provide quick assistance. Water Supply and Sanitation Sector b. Subcomponent 3.2: Dili Water Supply Rehabilitation and Improvement The Project is coordinating the activities with other donors to implement the program soon. Required materials are being procured for upgrading of Dili water supply. c. Subcomponent 3.3: District Town (Public) WS&S Rehabilitation and Improvement The Project has identified district priorities for major towns. The PMU is in the process of recruiting staff to expedite design, and construction and supervision of water supply in Viqueque, Suai, Liquica, Oecussi, Gleno, and Maliana. Approval to proceed has been received from WSS for rehabilitation of Viqueque, Gleno, and Maliana. Community WS&S systems. d. Subcomponent 3.4: Community WS&S Rehabilitation and Improvement Todate, $1.6 million worth of proposals have been submitted by NGOs for funding considerations. Shortlisting of the proposals is in progress. e. Subcomponent 3.5: Urban Sanitation Improvement Based on consultation with WS&S, the solid waste collection will be deleted and rehabilitation of the Tibar Waste Disposal site will be included. Procurement of a tracked

122 112 Project Progress Report on East Timor loader to assist in waste disposal activities and drainage rehabilitation will also be undertaken in the second quarter of 2002 in Dili. The Project is gathering momentum now and it is expected to be fully completed within the Project closing date.

123 113 Annex 1 Project Activities, Cost Estimates, Commitments and Expenditures as of March 2002 Water Supply and Sanitation Sector

124 114 Project Progress Report on East Timor Annex 2 Expenditure/Commitment/Disbursement Chart

125 Financial Sector

126 116 Project Progress Report on East Timor Microfinance A. Introduction The field of microfinance has developed substantially in the last 25 years and has seen significant growth in the last decade. From the simple credit delivery schemes for the poor in support of their livelihood, microfinance has evolved to be considered as an important part of the financial sector to serve a market niche long deprived of access to responsive, reasonably priced, sustainable and broad-ranged financial services, including savings, loans, remittances, transfer payments, and insurance (Table 1). Thus, microfinance issues can no longer be confined within the narrow context of short-lived project objectives, but now transcend a spectrum of concerns covering the aptness of policies, institutional sustainability, responsiveness of financial products and services, the mitigation of risks and moral hazards inherent to the financial sector, and the viability of the micro and small enterprises. Learning from its own extensive experience in its developing member countries, ADB has adopted a holistic microfinance strategy that supports (i) the creation of a policy environment conducive to microfinance; (ii) developing the financial infrastructure; (iii) building viable institutions; (iv) supporting pro-poor innovations; and (v) supporting social intervention (Figure). Nonetheless, the design of a microfinance project for East Timor had to hurdle a difficult choice between: designing a simple credit delivery scheme with performance measured against disbursement goals within the project period; or, initiating the development of a microfinance system that would last beyond the Trust Fund for East Timor (TFET). There were strong justifications and even a sense of urgency to launch a quickdisbursing project to help poor households cope from the shocks of the postreferendum destruction and help reverse the economic standstill given (i) the disruption of agriculture and displacement of people; (ii) the massive loss of key economic resources and production inputs; (iii) a sharp fall in demand for goods and services as the economy stagnated; (iv) the outmigration or lack of confidence of entrepreneurs and the private sector; and (v) the closure of banks. Yet, there were encouraging signs of a slow but steady economic recovery, albeit fueled mainly by donors assistance and a large expatriate community. More importantly, however, the transition from humanitarian aid to developmental pursuits needed to be supported and sustained. Clearly, setting up a microfinance system would be a far more vital legacy for an independent East Timor than a palliative quick-disbursing microcredit project that will not survive after TFET.

127 117 Demand Table 1: Demand for Microfinance: Structure and Characteristics 1. Households a. Poorest (Rural and Urban) Products and Services and Characteristics Sources of of Demand convenient access to safe and liquid deposit services passbook savings with unlimited withdrawal facility strong demand for consumption and emergency loan with no collateral small size loans for livelihood activities occasional loans to finance lumpy expenditures such as school fees service outlets at close proximity simple procedures low transaction costs Financial Sector a. Poor (Rural and Urban) 2. Enterprises a. Microfarms (Rural) b. Fisheries, Livestok and Poultry (Mainly Rural) c. Nonfarm (Rural and Urban) convenient access to safe, liquid deposit facilities return on savings passbook savings with easy withdrawal facilities term deposits with small denominations and regular interest payments money transfer services, payment services insurance services for livestock consumption and emergency loans small loans for livelihood activities loans to finance lumpy expenditures low transaction costs small loans for working capital (fertilizer, seeds) small loans for fixed capital (purchase of simple tools, land improvements etc. below informal market interest rates easy access and minimal transaction costs seasonal demand deposit facilities (safe, liquid, convenient) return on deposits working capital loans for feed fixed capital loans (for tools, purchase of chicks) small loan size substantial demand from livestock sector deposit services (safe, liquid, convenient) insurance services deposit services (safe, liquid, and convenient) money transfer, payment services insurance and leasing services a wide range of enterprises demand for loans is not seasonal demand is large for working capital loans relatively large loans within the confines of microcredit minimal transaction costs and easy access

128 118 Project Progress Report on East Timor Figure: Determinants of Microfinance Development Macroeconomic Policies Price stability Policy Environment for Financial Development Interest rate policy Policies on competition Economic Growth Overall growth rates Sectoral growth rates Rural Infrastructure Roads Bridges Markets Microfinance Development Financial Infrastructure legal framework for financial transactions and enforcement of contracts prudential regulation supervision of financial institution disclosure of financial Information accounting policies and practices facilities for training Sectoral Development Policies Fiscal Policies Terms of trade Taxation of financial institutions and transactions Institutional Capacity to reduce transaction costs to achieve viability to achieve outreach Level of Social Development and Demographic Characteristics Population density Adult literacy rate

129 119 B. Key Constraints East Timor offers a daunting challenge to the development of its microfinance sector, considering (i) an economy ravaged by the destruction of the postreferendum violence; (ii) poor infrastructure, with limited communications and transport facilities for market access; (iii) a nation in transition lacking vital laws, regulations, and policies for economic activities; (iv) the absence of a formal financial infrastructure, especially in the rural areas; (v) limited local expertise; and (vi) a growing culture of donor dependence. Financial Sector C. Microfinance Operational Strategy Notwithstanding the formidable challenges, East Timor also offers a rare opportunity for adopting proven best principles and practices in microfinance developed from costly lessons learned elsewhere. The first two of the above-mentioned constraints are being dealt with by the collective efforts of government and the donors. However, the Microfinance Operational Strategy adopted for East Timor directly addresses the last four constraints as it focuses on: creating an enabling policy environment for the viable delivery of a wide range of financial services to the poor, especially women and in the rural areas (Table 2); fostering a sustainable microfinance infrastructure through the establishment of a viable microfinance institution (MFI or bank) and the rehabilitation of credit unions (CUs); Intensive capacity building of East Timorese to manage the MFI and CUs, and to provide effective social intervention for skills and values formation among clients; Adopting and promoting best practices in microfinance including (i) customized replication of the Grameen Bank model, and (ii) universal practices of CUs and MFIs; Promoting private initiative and autonomy among CUs and MFI (bank), with a divestment scheme for the latter to East Timorese citizens, civil society, CUs, etc.

130 120 Project Progress Report on East Timor Table 2: Microfinance Services and its Impact on Poverty Channel Direct Impact General Non-poor Access to Poor Microfinance services reduce poverty as access to financial service leads to investment and higher household income. Access to savings services stabilizes consumption patterns and lessens dependency on debts. Legislative, regulatory and supervisory environment created for MFIs will allow poor in non-project areas to access and benefit from financial services. MFIs will stimulate improved supply of financial services, which could be accessible to rural non-poor, particularly savings. Microfinance services accompanied with community organization, capacity building, and skills training enhances social capital and reduces poverty of opportunity. Access to basic microfinance service improves livelihoods through efficient and productive use of local resources. Similar arrangements will be encouraged either through commercial and/or donor involvement. Could benefit from commercial interventions. Lessens financial and business risk of the poor. The strategy components are embodied in the design of the TFET-funded Microfinance Project 1 and the supporting technical assistance packages funded by ADB related to the strengthening of the microfinance policy framework and capacity building Grant 8186-ETM(TF): Microfinance Development Project approved for $7.72 million in December 2000, with firm commitment from Trustee for $4 million. TA 3556-ETM: Strengthening the Policy and Legal Framework for $0.25 million approved in December 2000; and TA 3743-ETM: Microfinance Technology System for $0.15 million approved in October 2001.

131 121 Table 2: Microfinance Services and its Impact on Poverty (cont d) Channel Direct Impact General Non-poor Access for Women All the above, places resources directly in the hands of the poor and provide services to their communities. Risk mitigation is provided for activities that are preferred by women borrowers. Enhances role of women in rural society which has positive externalities for the household, community, and on the local economy. Financial Sector Labor market Increase in employment in rural areas resulting from borrower investments. Through replication, other MFIs will stimulate rural employment. Transfer Credit line and interest revenue from microfinance operations will assist the poor and facilitate access to productive and social services.

132 123 TFET- FUNDED GRANT NO ETM MICROFINANCE DEVELOPMENT PROJECT Implementation Status

133 124 Project Progress Report on East Timor Grant No ETM: Microfinance Development Project A. Project Objectives The Project supports the overall goal of poverty reduction in East Timor. It seeks to facilitate and generate community-based opportunities for increasing rural incomes and employment by supporting the growth of micro-enterprises of the poor with accessible and responsive financial services. Specifically, the Project aims at establishing a sustainable microfinance system for poor and low-income households in East Timor. B. Project Cost The total project cost is estimated at $7.72 million (to date, Trustee has committed $4.0 million). C. Project Commencement and Closing Date The Project was approved in December 2000 and is expected to be completed in December D. Project Description The Project has three major components, which are TFET-funded as follows: (i) Setting up of a sustainable microfinance institution (MFI), envisioned to become a licensed bank under existing Banking Regulations. The MFI will focus on the poor and the rural areas through direct retail banking, or by supporting other sustainable MFIs targeting the same market niche. It will adopt current best practices and proven principles in microfinance. The Project provides for initial capitalization for the MFI. (ii) Strengthening, rehabilitation, and promotion of credit unions (CUs) and its federation following universally accepted principles and best practices of cooperatives and credit unions, through the provision of seed capital and technical assistance for setting up a CU Central Fund to provide a liquidity and investment pool for CU members;

134 125 institutional capacity building for CU primaries and their federation; support for initial office supplies, equipment, and rehabilitation of the offices; and salary support on a 3-year diminishing scale for CU staff; and Financial Sector (iii) Setting up of a Project Management Unit (PMU) composed of international and local consultants to facilitate the MFI formation and strengthening of the CU movement, and to perform overall Project management functions. The Asian Development Bank (ADB) also provided technical assistance for $550,000 to support the Project, as follows: (i) TA 3435-ETM: Microfinance Project, for $150,000. (ii) TA 3556-ETM: Strengthening of the Microfinance Policy and Legal Framework, for $250,000. (iii) TA 3743-ETM: Microfinance Information Technology Systems Development, for $150,000. E. Performance Targets Based on the original Project cost of $7.7 million, the target was to serve 20,000 poor households over a 3-year period. However, this target was reduced to about 10,000 households based on confirmed TFET funding of $4.0 million. With the reduced funding, the Project still aims at rehabilitating or reorganizing 21 credit unions and the setting up of the microfinance institution with 3 branches (from an original target of 6 branches). F. Project Implementation Progress Project Preparatory Activities. Project activities started in January 2001, with the appointment of an interim Project Manager funded by TA 3556-ETM. The initial disbursement from TFET for setting up the PMU was delayed and was received only in May 2001, after a 3-month delay. Nonetheless, initial preparatory activities covered (i) establishment of the Project Coordinating Committee; (ii) selection and recruitment of international experts, formation of an Inter-Agency Steering Committee and implementation of TA 3556-ETM to finalize the policy and legal framework; (iii) setting up of the Selection Committee, qualification standards, and recruitment of international and local experts for the PMU; and (iv) initial advocacy on recommendations under TA 3556-ETM, including the organizational set-up of the proposed MFI to address issues on its ownership, control, and autonomy. Overall Progress. Project activities gathered momentum with the resolution of major policy constraints in the setting up of the MFI. The disbursements for capacity

135 126 Project Progress Report on East Timor building of the MFI and the credit union, which started in June 2001, totaled 31%, and are projected to reach 55% by end-june 2002 and 78% of the budget by year-end, reflecting the on-going activities in preparing the MFI and the CUs to fully operationalize by midyear MFI and the CUs disbursements reached only 6% of the total budget as of end-2001, mainly due to delays in policy decisions to set up the MFI, but this should accelerate to 86% by end-june 2002 and 89% by end-2002 (Annex 1). Detailed disbursement progress is in Annex Setting up the Microfinance Institution a. Policy and Regulatory Issues By May 2001, ADB consultants under its TA 3556-ETM have completed their findings and recommendations in close coordination with various stakeholders and potential partners in developing the microfinance sector in East Timor. The recommendations for setting up the MFI were based on the following considerations: (i) prohibition on the United Nations Transitional Administration in East Timor (UNTAET) to invest in a financial institution with potential to incur liabilities; (ii) similar legal issues for the first East Timor Transitional Administration (ETTA) to be the owner of a financial institution; (iii) the MFI s need for operational autonomy and insulation from political pressure in order to be faithful to its mandate while attaining sustainability; (iv) role of donors in providing proper guidance based on their extensive experience and current proven principles on microfinance, as well as their aversion for (potential) state-owned banks; (v) the existence of Banking Regulations under which the MFI will operate; (vi) the expected enactment of the Company s Act for the MFI to be a corporate entity and to fulfill the requirement of the Banking Regulations; and (vii) the divestment of the MFI (or bank) to East Timorese citizens, NGOs, and CUs with a view to maintaining its fully private status. The ADB TA consultants also noted that UNTAET Regulation 2000/8 on Bank Supervision and Licensing has sufficient provisions for the MFI to operate within the banking system as a specialized (non-bank) financial institution or as a duly licensed bank. Thus, they proposed (i) the creation of a Foundation to be the initial and controlling owner of the MFI; (ii) the Foundation to be governed by Trustees, with majority composition from major Trust Fund for East Timor (TFET) donors and ADB, and East Timorese representatives; and (iii) the creation of an MFI as a corporate entity, registered under the Company s Act with provision to be a licensed as a bank. The consultants also drafted the statutes and bylaws of the proposed Foundation and MFI. These proposals were well received by the Government, donors, and other stakeholders. However, the mechanisms for setting up the Foundation and MFI were still not in place, resulting in considerable delay in Project implementation. Firstly, the enactment of needed laws, i.e., the Company s Act and regulations on foundations, did not materialize due to the dissolution of the National Consultative Council and the first ETTA

136 127 on 15 August 2001, in preparation for the election of the Constituent Assembly and the creation of the East Timor Public Administration (ETPA). Secondly, the Constituent Assembly formed after the August election was mainly tasked to draw up the country s first Constitution, and not to enact specific laws. Clearly, there was no chance for the Foundation and the MFI to be a legal entity created through a Company s Act or similar regulations until after independence, which is scheduled in May This in turn prevented its registration under UNTAET Regulation 2000/8. To avoid further delay, the PMU and ADB TA consultants worked simultaneously on other options to legalize the existence of the Foundation and the MFI. After a series of consultations with the Office of Principal Legal Adviser (OPLA), the Office of the Special Representative of the Secretary General (OSRSG), and the Chief Minister, ETPA, it was decided to create the proposed entities by Executive Order of the OSRSG, who has the ultimate legislative powers as Transitional Administrator. Nonetheless, the Project and the need to create the proposed entities had to be presented to the Council of Ministers following an established policy of the OSRSG to have maximum involvement of ETPA, in line with the Timorization program leading to East Timor s independence. The advocacy efforts finally materialized with the issuance of a series of executive orders by the OSRSG during the first week of December 2001 creating the Foundation and the MFI, a full year delay after Project approval. This was the turning point that hastened project implementation and the execution of the next logical steps in project planning, i.e., MFI capitalization and the application for a banking license. Financial Sector b. Creation of the Foundation and the MFI The OSRSG, with full endorsement of the Council of Ministers, issued Executive Orders No. 2001/7 and 2001/8 on 1 December 2001 creating the Foundation for Poverty Reduction in East Timor (FPRET) and the Microfinance Institution of East Timor (MFIET), respectively. Under the interim arrangement, FPRET will initially own and control MFIET until a divestment program is adopted. As previously arranged, major TFET donors (represented by AusAID and the Portuguese Mission) and ADB appointed three representatives, while ETPA nominated two East Timorese to the Board of Trustees of the Foundation. The European Union (EU) requested and was granted a non-voting observer status in the Board of Trustees. The Trustees held a series of organizational meetings to set up MFIET, including the appointment of its Board of Directors composed of two ADB representatives, the PMU Project Manager, and the two East Timorese Trustees of FPRET. Subsequently, the MFIET Board convened to initiate the pre-operational preparations of MFIET to engage in microfinance operations as envisaged. A total of $2.0 million intended as paid-up capital for the MFI was received by FPRET from the TFET Trustee on 20 February The application for a bank license was submitted to the Banking and Payments Authority (BPA, acting as the central bank) submitted last 25 February 2002 by the MFIET board of directors. Among others, the PMU and an ADB TA consultant prepared and

137 128 Project Progress Report on East Timor submitted the documents needed for the BPA application, including (i) the proof of required capital, (ii) Board resolutions approving the application, (iii) approved business plan and financial projections, (iv) organizational set-up and functional chart, (v) risk management manual, (vi) operating manuals, (vii) chart and manual of accounts, (viii) bank software features, and (ix) personal data of the governing Board members and officials of FPRET and MFIET. c. Adopting Conservative Prudential Ratios FPRET acts more as the custodian rather than owner of the assets of MFIET, ensuring that the MFI will viably and responsibly pursue its main objectives until this is divested to East Timorese owners as envisioned in the Project. Thus, the Foundation has set a policy to adopt ultra-cautious prudential measures on the use and handling of deposit liabilities to minimize the risk on micro-savers in the unlikely event of a massive bank failure. MFIET s deposit operations is more to service rural clients and not to fund credit expansion. Loans, which will be the only major risk asset of the bank, will be funded largely by equity that is a grant from TFET. Under the worst-case scenario, MFEIT s equity should readily absorb losses with minimal risks to depositors. To this end, a high liquidity reserve of at least 50% of deposit liabilities (i.e., in cash on hand, in banks, the BPA, or in triple A available government securities) will be maintained at any given period. Deposit liabilities are not likely to be sizable given the limited resources of the market. Nonetheless, measures will be taken to maintain deposit liabilities to be not more than the total equity and reserves. This ratio would appear high and expensive for the MFI (or any bank); however, this will be factored in the setting up of interest rates for loans and deposits, taking into account the impact on viability and clientele concerns. d. MFIET Organizational and Physical Preparations Simultaneous with the advocacy efforts, the operational preparations for MFIET started as early as September It must be noted that there is a lack of qualified banking personnel, especially at the supervisory and management level, given such positions were reserved for others under the earlier administration. Nonetheless, recruitment of key staff including loan officers, microfinance loan field staff, chief accountant, IT/EDP personnel, cashiers and bookkeepers started in October 2001 through rigorous examination and interview processes. The loan officers and staff have undergone continuous intensive training in finance theories and principles, banking concepts and ethics, loan administration and loan product handling, and microfinance group lending schemes based on proven best practices. The loan officers were trained and undertook rapid market assessment in November 2001 to determine branch sites with the best market potential and demand for microfinance services. The loan officers are currently undergoing training in microcredit operations and savings mobilization. Site selection for head

138 129 office and branches were finalized as soon as the Executive Orders were received and the governing bodies for the Foundation and the MFI were formed. The project has finalized several loan products for the MFIET (Annex 3). e. Trade Name, Logo, and Business Forms Financial Sector The MFIET Board of Directors has approved the proposed bank s trade name and logo, which was also endorsed by the Project Coordination Committee. The proposed bank s name, as soon as it receives the license to operate as a bank, would be Banco Desenvolvimento Timor-Leste. The logo would depict East Timorese identity. However, the actual use of the name and logo will hinge on the approval by BPA of the application of MFIET for a banking license. In the meantime, MFIET will commence its microcredit and saving operations on a limited scale under Sec. 6 of UNTAET Regulation 2000/8, as a nonbank, specialized (micro) financial institution. Its business forms, such as passbooks, transaction validation slips, loan application forms, promissory notes, discount statements, cashier/ bookkeeper proof sheets, collection sheets, receipts, etc. have been designed and are now being printed and produced. The formulated chart of accounts of MFIET that has been developed since October 2001, along with the draft manual of operations, has been synchronized with the recommended chart of accounts of the BPA. f. Installation of the MicroBanking IT System TA 3743-ETM, which was approved in October 2001, provided for the installation of the MicroBanking System (MBWin) operating procedures for MFIET. MBWin is a specialized software designed by the UN Food and Agriculture Organization (FAO) and GTZ (German Development Agency) for microfinance institutions, rural banks, and credit unions. It will be the core banking software for MFIET. The software provides (i) online customer-oriented transactional support, (ii) backroom (recording and accounting) information processing, (iii) field level support for data recording and processing (loans and collection monitoring), and (iii) an integrated, interactive management information system. An East Timorese staff attended basic training on MBWin conducted in Bangkok in November FAO consultants are now in Dili to conduct further training and assist in the software installation. The training component will be funded from the Project. The adoption of MBWin is of considerable importance in the light of the relatively low level of accounting and bookkeeping skills in East Timor, and the highly retail banking nature of microfinance. A manual accounting system would have been costly, prone to error, and highly vulnerable to moral hazards inherent to financial operations. The reconfiguration, translation, and customization of the MBWin Software has been completed in April Users training, transaction dryruns, simulation, and handson use of the different facets of the banking system commenced on 20 April. The training will continue until actual live run-in time for the target date of inauguration in the 2nd

139 130 Project Progress Report on East Timor week of May The computer system and the networked structure have been installed and tested in the MFI office. All systems are expected to run smoothly. The TA also provides for the comprehensive review of the accounting and internal control system months after installation, operation, and practice. It also supports the comprehensive evaluation of the installed system and adopted operating procedures in terms of adaptability, efficiency, and convenience to bank users and customers, and effectiveness of control measures. g. Group Formation Following microfinance best practices and adopting this to East Timorese sociocultural conditions, the PMU trained bank staff in group formation and institutional intervention techniques for the target clientele. As a result, the first microfinance groups and centers have been identified and formed. As of date, 22 groups of 3-7 members per group (a total of about 126 members) have been formed in various centers, as follows: (i) Liquicia 3 centers composed of 13 groups with total 70 members, of which 54 would be the initial borrowing members; (ii) Dare, Dili 1 center of 7 groups and a total of 30 members, with 22 initial borrowers; and (iii) Metinaro 2 centers of 7 groups and 26 members. Another 3 centers of similar sizes will be formed in other sites within the next 2 months. In addition, 22 Comoro Market vendors, 14 Bicora Market vendors, and another 8 from the Taebise Market in Dili have undergone the needed preparation to be among the first microfinance clients of MFIET, expected to receive loans ranging from $50 80 during the first cycle. The borrowers and loan amounts will soon progressively grow larger as MFIET staff gain the confidence to recruit and serve more of the target households. 2. Rehabilitation of the Credit Unions a. Training Intensive training activities for CUs have been pursued since the last quarter of The PMU in coordination with Hanai Malu (CU federation) conducted and completed training of trainers for 25 CU members. Similarly, officers and staff of one operational CU, 6 rehabilitated, and 5 newly organized CUs received refresher courses on bookkeeping and financial recording through direct coaching and on-the-job training done by the CU federation staff and PMU consultants for CU strengthening and rehabilitation. Further inputs were provided through seminars/workshops by CU experts to officers and the staff of the CU federation and the 12 CUs in (i) financial and credit management, (ii) CU governance, and (iii) credit union principles and philosophies. More importantly, an adjusted CU chart of accounts appropriate to the conditions of credit unions in East Timor has been developed. Similarly, an appropriate performance indicator system for credit unions dubbed as Lafahec (customized from the Pearl system advocated by the World Council of CUs) has been developed. The adoption of Lafahec

140 131 was been approved in an extra-ordinary general meeting of the credit union representatives and the Federation on 18 December Another 6 CUs will receive similar assistance during 2002 (see Annex 4). To support the formal training efforts, a field visit/study tour on the Australian CUs and CU foundation was conducted from 4 to 11 December 2001 involving 12 officers and directors of various credit unions in East Timor. The participants witnessed and learned how the broad-based, efficient, and active credit unions in Australia N.T. actually operate. They visited the Traditional Credit Union, the Northern Territory Credit Union, and the Police Credit Union. The International Development Manager of the Credit Union Foundation-Australia (CUFA), based in Sydney, Australia came to Darwin to share their lessons and experiences in operating CUs with the visiting East Timor CU representatives. Financial Sector b. Support for CUs Due to the inability of the CUs to normalize operations in the absence of office facilities to conduct businesses, the Project has allotted funds for the building and setting up of new offices. A total of $23,800 was distributed among qualified CUs. The funds were provided through the federation, which supervises the rehabilitation activities. The CU office reconstruction will all be completed by mid-may 2002, and procurement of the office supplies and basic office equipment (e.g., computers, printers) for the CUs will be undertaken shortly. c. Strengthening of the Credit Unions Federation The federation of the CUs in East Timor, Federasi Hanai Malu, has received technical and logistic support from the project including transport facilities, office equipment and computer systems, office furniture, and supplies, and training materials. Subsidies for administrative and personnel costs were also provided. The PMU considers the federation as the main implementer of planned activities to revive and strengthen the CUs. A national conference and general assembly of CUs was held from 8-9 March An election of new board directors of the federation has been conducted. Of the five elected to the board, four are newly elected to the position. A Supervisory Committee was also formed composed of three highly experienced CU organizers and promoters. A shift in strategy was contemplated in the 3rd quarter of Instead of exclusively focusing on rehabilitating and reviving the 21 CUs that used to operate prior to the referendum, efforts of the federation will also be devoted to promoting the formation of new CUs. This strategy is especially applicable in districts where there is little chance of reviving the old CUs. Details of CU activities are shown in Annex 4.

141 132 Project Progress Report on East Timor 3. Issues a. MFIET Application for Banking License While the application for banking license was submitted, the BPA approval may not be forthcoming pending the issuance of an assurance from FPRET (as initial owner ) to provide additional equity to maintain the minimum $2 million capital required for Level C banks such as microbanks. Understandably, the Board of Trustees of FPRET cannot unilaterally provide the assurance since this would entail additional TFET allocation beyond the $4 million that have been committed. b. Additional $ 1.5 million from TFET During the first 2 3 years of its operation, the microfinance bank may incur losses, as any start-up business would experience. Hence, its net worth, or total capital accounts, may fall below $2.0 million, due to possible initial losses. The BPA would require recapitalization to keep the capital position at the required $ 2.0 million level. This issue could pose a problem unless the TFET release part, if not whole, of the balance of $3.7 million as envisaged in the original Project design. An additional $1.5 million should be adequate to provide recapitalization, even assuming a worse case scenario of massive losses. However, it is almost unconceivable that MFIET will incur losses beyond $1.0 million, given the prudential measures (e.g., high liquidity reserves for deposits and overprudent capital to risk asset ratio) adopted by FPRET and the MFIET board of directors, and the intensive capacity building efforts and conservative financial projections. More importantly, the additional equity would greatly enhance the outreach of MFIET in the rural areas that now need formal, responsive, and sustainable financial services to help spur the much-needed economic recovery of East Timor.

142 133 Annex 1 Project Activities and Budget Matrix Financial Sector

143 134 Project Progress Report on East Timor Annex 2 Microfinance Institution of East Timor Loan Products

144 135 Annex 2 Microfinance Institution of East Timor Loan Products (cont d.) Financial Sector

145 136 Project Progress Report on East Timor Annex 2 Microfinance Institution of East Timor Loan Products (cont d.)

146 137 Annex 3 Table of Credit Unions Financial Sector

147 Part 2 ADB S Technical Assistance Grant Projects

148 141 ADB s TECHNICAL ASSISTANCE GRANT PROJECTS FOR 2000 Implementation Status

149 142 Project Progress Report on East Timor Community Empowerment Program, TA 3400-ETM Project Rationale Establish an efficient and effective system of local governance for the people of East Timor. Beneficiary Rural communities in East Timor Project Scope Form effective local councils to cover all 13 districts, 64 subdistricts, and 440 villages of East Timor. Undertake detailed plan for socioeconomic assessment. Train and deploy village representatives. Prepare technically sound village rehabilitation plans. Prepare comprehensive plan for long-term capacity building of village development councils. Executing Agency UNTAET Cost Estimate and Financing Plan $1,290,000 equivalent, of which $990,000 is financed by ADB on a grant basis from the ADB-funded TA program and the rest by the World Bank Date of Commencement/Project Completion February 2000/September 2001 Outcome Assisted in conducting council elections in 50 subdistricts comprising 348 villages. As a result 4,800 council members were elected. Assisted in the appointment of posto (subdistrict) and suco (village) facilitators to guide the council members in identifying potential village programs for the implementation of the TFET-funded CEP program. Assisted the Office of Internal Administrator district representatives in the consultation process with community leaders. Disbursed grants under the CEP program of the World Bank to village development councils covering 317 suco councils. Distributed to each village development council emergency rehabilitation support including building materials and farm equipment. Established a communications system for village council members including designing of graph and materials to convey project information messages. Resulted in the preparation of the World Bank-managed TFET-funded Community Empowerment and Local Governance Project for $21.5 million.

150 143 Project Rationale Transport Sector Restoration, TA 3401 ETM Establish effective transport sector management in the transport subsectors by (i) taking initial steps to establish the institutional and regulatory framework for the road, port, and airport subsector management, and (ii) reviewing the respective long-term development requirements to enable these subsectors to contribute to poverty reduction and economic growth. Beneficiary East Timor Project Scope Review the legal, regulatory, and policy frameworks. Propose and establish immediate management and administrative structure. Outline specifications for an immediate and long-term restoration and procurement needs and development program. Propose and initiate a business-oriented contracting industry. Support preparation of a national transport policy and investment framework. Executing Agency UNTAET (Ministry of Communications and Transport; Ministry of Water and Public Works) Cost Estimate and Financing Plan $1.0 million financed by ADB on a grant basis from the ADB-funded TA program. The TA will also finance all costs of East Timorese counterparts. Date of Commencement/Project Completion March 2000/March 2002 Outcome TA has examined restoration of operations in the three transport subsectors in East Timor commencing in February It has prepared proposals for (i) management contracts for the operation of the port and the airport sectors, (ii) competitive and sustainable shipping services to Oecussi and Atauro, institutional organization of the transport sectors, (iii) legislative framework for the transport sectors, and (iv) reviews and assessment of port and airport sector investment and restoration needs, and (v) a multi-modal transport plan. The latter has provided background and support documentation for preparation of the national transport plan, and has been published for the donors meeting in May 2002 under title Transport Sector Masterplan for East Timor. ADB s Technical Assistance Grant Projects for 2000

151 144 Project Progress Report on East Timor Capacity Building for Governance and Public Sector Management, TA 3412-ETM Project Rationale To build the capacity of East Timorese in critical skills development for economic recovery including parliamentary business, judicial administration, and public sector management. Beneficiary East Timorese public officials Project Scope The capacity building interventions include various methodologies such as workshops in East Timor, attendance at seminars or training programs in other countries, secondment to public sector agencies of other countries, study tours, or visiting experts to offer policy advice and on-the-job training. Executing Agency UNTAET Cost Estimate and Financing Plan $1 million financed by ADB on a grant basis from the ADB-funded TA program Date of Commencement/Project Completion April 2000/December 2002 Outcome A total of 11.8 person-months of international experts on personnel recruitment and training have been fielded to build capacity in the central government offices. 50 potential recruits have been selected through rigorous selection process for public sector management training. 1,300 East Timorese from the 13 districts attended workshops organized by the Conselho Nacional da Resistencia Timorense (CNRT) to debate on the government structure. 47 participants attended a 5-day local government training program at the Civil Service Training Academy. 5 senior East Timorese officials have undergone public sector management training in Bangkok. 4 specialists have been fielded to provide information technology and fiscal policy advice in the central government office (Central Payments Office and Central Fiscal Authority). 10 desktop computers and 2 printers have been provided for use by the central government. 2 experts have been fielded to provide advice on fishery matters.

152 145 Project Rationale Poverty Assessment and Statistics, TA 3425-ETM There is a pressing need to prepare an update on social and economic conditions in East Timor to assess current production and dissemination of social and economic data, and to identify prioritized actions needed to produce and disseminate appropriately comprehensive, reliable, and timely data in a post-untaet East Timor. Beneficiary East Timor Project Scope The TA will prepare a report on economic and social conditions that encompasses the key productive sectors of agriculture, private sector activity, physical infrastructure, health, and education. Executing Agency UNTAET Cost Estimate and Financing Plan $52,900 equivalent financed by ADB on a grant basis from the ADB-funded TA program Date of Commencement/Project Completion April 2000/August 2000 Outcome 1,000 households and 50 businesses were surveyed in 6 districts. A twin report on poverty assessment and statistical assessment and needs analysis were prepared and submitted in June 2000, which was made the basis of TA 3512-ETM (Strategies for Economic and Social Development). It has been widely used as a reference material by other aid organizations in their work in East Timor. ADB s Technical Assistance Grant Projects for 2000

153 146 Project Progress Report on East Timor Rehabilitation of the Telecommunications Sector, Phases I and II, TA 3428-ETM and 3504-ETM Project Rationale There is an urgent need to establish a national telecommunications strategy in two phases. Beneficiary Urban and rural communities of East Timor Project Scope Examine viable technical options to rehabilitate and reconstruct the telecommunications sector, taking into account the existing technical set-up as well as future extensions, and the short- and long-term implications of various technical solutions. Formulate strategy and planning recommendations for the future East Timor telecommunications sector. Assess the government s role in setting up a regulatory framework as well as the modality of its involvement in sector operations. Prepare and evaluate the tender process including shortlisting of candidates, designing the evaluation criteria, and preparing tender documents. Executing Agency UNTAET Cost Estimate and Financing Plan Phases I and II are estimated to cost $300,000 and the entire cost will be financed by ADB on a grant basis from the ADB-funded TA program. Phase I will also finance all costs of one East Timorese counterpart. Date of Commencement/Project Completion May 2000/December 2001 Outcome A total of 7.5 person-months of international experts have been engaged to provide assistance in setting up a program for the technical repair, rehabilitation,and extension of the telecommunications system of East Timor. A national telecommunications strategy has evolved from the findings of the consultants.

154 147 Project Rationale Microfinance, TA 3435-ETM A preliminary assessment recently undertaken by a consortium of private companies and international funding agencies has concluded that East Timor offers excellent opportunities for the establishment of viable microfinance institutions (MFIs). Rehabilitation and expansion of credit union operations, building on local initiatives, is one of the best alternatives available for rapid establishment of viable MFIs in East Timor. Another promising prospect in East Timor is the establishment of a specialized microfinance bank, patterned after successful models in other countries, such as Bolivia and the Philippines. Beneficiary Microentrepreneurs in East Timor Project Scope Support the preparation of a detailed assessment of longer term options for sustainable development of the microfinance sector in East Timor, and assess the demand and requirements for microfinance services, including the viability of establishing a microfinance bank in East Timor. Prepare a microfinance project report specifying the design and implementation requirements for establishing microfinance banking system in East Timor, including specifications for a financing facility for credit unions and other microfinance intermediaries. Executing Agency UNTAET Cost Estimate and Financing Plan $150,000 equivalent financed by ADB on a grant basis from the ADB-funded TA program Date of Commencement/Project Completion June 2000/September 2000 Outcome A project feasibility report was prepared and submitted to ADB in August As a result, the TFET-funded Microfinance Development Project was prepared and is now under implementation. ADB s Technical Assistance Grant Projects for 2000

155 148 Project Progress Report on East Timor Environmental Assessment Capacity Improvement, TA 3501-ETM Rationale Develop a core of East Timorese expertise to review, evaluate, and monitor the enforcement and implementation of environmental management laws, regulations, and standards. Beneficiary UNTAET (Environmental Planning Unit of the Ministry of Economic Affairs and Development) Project Scope Develop environmental and natural resources management capacity and provide short courses on environmental management in East Timor for six selected East Timorese professionals, and identify in-service training with environment departments of two ADB developing member countries on environmental impact assessment evaluation and implementation monitoring. Develop an institutional development plan for environmental management in East Timor. Review the environmental and natural resource laws, legislation, and regulations currently enforced in East Timor, and make related recommendations considering the conditions in East Timor. Prepare an environmental profile of East Timor identifying critical environmental issues and problems. Executing Agency UNTAET (Environmental Planning Unit of the Ministry of Economic Affairs and Development) Cost Estimate and Financing Plan $250,000 financed by ADB on a grant basis from the ADB-funded TA program Date of Commencement/Project Completion January 2001/June 2002 Outcome Consultant s Interim Report was received on 5 October 2001 and provided an Environmental Profile Report and the status of training activities for upgrading the Environmental Planning Unit s capacity to undertake environmental impact assessment. Draft final report expected in June 2002 will provide the environmental profile, status and effectiveness of the in-country and external training, make recommendations for the institutional and legislative framework, and an action plan for strengthening the operations of the environmental monitoring function.

156 149 Strategies for Economic and Social Development, TA 3512-ETM Project Rationale To support the formulation and adoption of a coherent set of policies and strategies for economic and social development. Beneficiary East Timor Project Scope Conduct an in-depth poverty analysis based on household survey and participatory methods. Formulate strategies for economic and social development. Design a simple, workable, and cost-effective economic and social management strategy (ESMS). Executing Agency Economic Affairs Department, Trade and Commerce Division, ETPA Cost Estimate and Financing Plan $650,000 equivalent financed by ADB on a grant basis from the Japan Special Fund funded by the Government of Japan Date of Commencement/Project Completion January 2001/December 2002 Outcome The TA team of consultants submitted its final report to ADB in September The final report proposes an implementation strategy for capacity development of the public sector. The poverty assessment component is a joint undertaking involving ADB, UNDP, the World Bank and ETTA. The village-level survey has been conducted and the data widely disseminated. The main output to date has been the preparation of a detailed inventory at the suco (i.e., village) level of existing social and physical infrastructure, of the economic characteristics of each suco and of the coverage of public services. The presentation by the National Planning and Development Agency (NPDA) of the initial analysis from the Survey of Sucos in Timor Lorosa e was attended by 100 participants and accompanied by good press coverage. The household survey design, questionnaire, and training of survey teams are complete and field work was conducted during end The participatory poverty assessment plan has been prepared and training commenced in September. The poverty assessment (field surveys) was completed in late A report on the PPA is available. The consultative phase will result in a povertyfocused development strategy. The data of the HIES are being analyzed and a report on the HIES findings will be prepared. A composite report describing the results of the three field surveys is being prepared by ADB consultant and expected to be finalized around mid ADB s Technical Assistance Grant Projects for 2000

157 150 Project Progress Report on East Timor Capacity Building for Local Government, TA 3515-ETM Rationale ADB, under the Community Empowerment TA, has provided financing to support district and national level workshops on local government. ADB has also supported Civil Service Academy workshops on this issue for East Timorese in the employment of the transitional government. The objectives of this TA are (i) to support the development of a detailed capacity building plan for East Timorese district administrators to strengthen their skills and capabilities for taking on new roles, and (ii) to provide opportunities for involvement of decision makers in the establishment of political structures for local government by evaluating the experiences of other developing countries in Asia. This TA is envisaged as the first phase of a longer term capacity building initiative for local government in East Timor. Beneficiary East Timor local government officials Project Scope District Administrators Strengthening. The district administrators are the focus of this TA component. Individual consultants will be contracted to develop a capacity building plan for the East Timorese district administrators under this TA. Local Government Political Structure Workshops. East Timorese who will be responsible for the form of local government to be adopted by East Timor participate in these workshops. A series of workshops with external experts on local government for the conceived decision makers.

158 151 Capacity Building for Local Government, TA 3515-ETM (cont d.) Executing Agency East Timor Transitional Administration (ETTA) Cost Estimate and Financing Plan $150,000 equivalent financed by ADB on a grant basis from the ADB-funded TA program Date of Commencement/Project Completion October 2000/December 2001 Outcome A number of international experts have been engaged to conduct workshops and a study tour, and prepare a discussion paper for consideration by the newlyformed Constitutional Assembly. A Think Tank has been set up comprising 20 East Timorese decision makers to identify the components of an effective and efficient system of local government appropriate to the needs of East Timor, and to examine and debate the options for future local government structures. The Think Tank is supported by a Secretariat. 11 members of the Think Tank accompanied by the Research Officer of the Secretariat visited two provinces in the Philippines for a study of the local government unit of the country and its relevance to East Timor. A discussion paper was presented to the Constituent Assembly in the third week of September to assist the members in identifying an effective and efficient system of local governance. ADB s Technical Assistance Grant Projects for 2000

159 152 Project Progress Report on East Timor Strengthening the Microfinance Policy and Legal Framework, TA 3556-ETM Rationale Lack of adequate microfinance policies is the major constraint in the establishment of viable microfinance institutions; despite the great potential for microfinance services, banking facilities and services are currently very limited; existing policies are not conducive for delivery of financial services to the poor; and microfinance institutions need an environment in which they can operate without unnecessary restrictions. Beneficiary East Timorese Project Scope The TA will help prepare policies and regulations, including (i) policies on ownership and establishment of a microfinance bank; (ii) licensing and minimum capital requirements for the establishment of microfinance banks; (iii) legislation enabling microfinance banks to provide full financial services to the poor; and (iv) legislation to facilitate the formation and operation of credit unions and cooperatives. Executing Agency Economic Affairs Department, UNTAET Cost Estimate and Financing Plan $250,000 equivalent financed by ADB on a grant basis from the ADB-funded TA program Date of Commencement/Estimated Project Completion February 2001/July 2001 Outcome Consultants have finalized and advocated for (i) the draft Credit Union Law, (ii) monitoring and supervisory guidelines/standards for credit; (iii) credit union central fund policy and guidelines; (iv) a Foundation to address the ownership and control issue for the Microfinance Bank; and (v) draft statutes and by-laws of the Foundation and the Microfinance Bank.

160 153 Project Rationale Economic Policy Forum, TA 3592-ETM To provide a strategic vision and policy direction to the East Timorese leadership for the sound economic development of their country; and To build capacity and ownership among the East Timorese in the area of economic policy work. Beneficiary East Timor Project Scope Recruit qualified international experts with knowledge and experience in economic policy for preparing papers on forum-related topics. Conduct a two-day Economic Policy Forum. Prepare an international quality publication. Executing Agency Economic Affairs Department, ETPA Cost Estimate and Financing Plan $150,000 equivalent financed by ADB on a grant basis from the ADB-funded TA program Date of Commencement/Project Completion December 2000/December 2001 Outcome The Economic Policy Forum was held on March 2001 in Dili. Papers prepared by international experts were discussed at the forum on subjects such as Currency and Monetary Arrangements for East Timor; Finance Policy for East Timor; East Timor s Economic Relations with Indonesia; Property Rights in East Timor s Reconstruction and Development; Poverty, Equity and Living Standards in East Timor; etc. The consultant s report containing the forum presentation, summary of discussion, discussion papers, and overview of papers is under preparation. Further work is being done to translate a summary of the paper into local languages Portugese and Bahasa Indonesian translations will be finalized by June ADB s Technical Assistance Grant Projects for 2000

161 155 ADB s TECHNICAL ASSISTANCE GRANT PROJECTS FOR 2001 Implementation Status

162 156 Project Progress Report on East Timor Exclusive Economic Zone Demarcation, TA 3654-ETM Project Rationale The fisheries sector has a good potential for providing job opportunities and economic growth for the new nation. Beneficiary East Timor Project Scope Provide East Timor with a complete data set to establish a correlation to the geographical coordinates of compiled or published charts and maps by using differential Global Position System to produce a final digital database. Provide a homogeneous map series produced at an appropriate scale. Provide a data set that will satisfy the requirements under the United Nations Convention on the Law of the Sea (UNCLOS), so that lists of coordinates, specifying a geodetic datum, can be supplied to the UN. Executing Agency Division of Fisheries, UNTAET Cost Estimate and Financing Plan $145,000 of which $120,000 equivalent will be financed by ADB on a grant basis from the ADB-funded TA program and $25,000 will be financed by UNTAET by provision of counterpart staff, necessary support services, and office facilities. TA Commencement Date May 2001 Project Completion Date March 2002 Recruitment of Consultants Recruitment of consultants is in accordance with ADB s Guidelines on the Use of Consultants and other arrangements satisfactory to ADB for the engagement of domestic consultants. Implementation Progress to Date The consultants were fielded in June 2001and prepared all the necessary baseline readings and produced the required charts with limits of a possible exclusive economic zone area. These data and charts can now be used as the basis for East Timor s discussions with its neighboring countries, Australia and Indonesia, in reaching an agreement of its future internationally accepted EEZ demarcation.

163 157 Project Rationale Transport Sector Improvement, TA 3731-ETM To support establishment of sustainable operations, management, and administration of the transport sectors. The TA will assist legal and operational establishment of effective and appropriately sized operations of (i) a port authority, (ii) an airport authority, and (iii) a road administration. The TA will identify effective management and administrative structures and processes through a stakeholder analysis, demand-based service delivery assessment, and an inclusive consultation using performance-based evaluations of agencies to determine operational arrangements for delivery of optimal services. Beneficiary East Timor Project Scope Review of legal, regulatory, and policy proposals for the transport sectors covering roads, ports, and aviation subsectors; finalization of these proposals and support for their implementation. Review institutional and administrative arrangements proposed for the transport sectors, finalize these proposals after carrying out extensive consultations to ensure sustainability of the plans, and finalize support for their implementation. Prepare and finalize support for implementation of a transitional plan transferring transport sector management to East Timorese. Executing Agency East Timor Public Administration: Ministry of Transport and Communications and Ministry of Water and Public Works Cost Estimate and Financing Plan $500,000 equivalent financed by ADB on a grant basis from the Japan Special Fund funded by the Government of Japan. TA Commencement Date October 2001 Project Completion Date August 2002 Recruitment of Consultants Recruitment of consultants is in accordance with ADB s Guidelines on the Use of Consultants and other arrangements satisfactory to ADB for the engagement of domestic consultants. Implementation Progress to Date In light of the additional international support funded under UNTAET and UNDP capacity building schemes, the TA scope and terms of reference are under review. Consultants will be short-listed in September ADB s Technical Assistance Grant Projects for 2001

164 158 Project Progress Report on East Timor Microfinance Information Technology System, TA 3743-ETM Project Rationale To ensure efficient microfinance operations by microfinance bank (MB) and the credit unions. Beneficiary East Timor Project Scope Provide software for the Microfinance bank and the credit unions designed to reduce paper work and increase staff productivity, provide efficient customer services with proper controls, and effective management information system. Executing Agency Economic Affairs Department, UNTAET-ETPA Cost Estimate and Financing Plan $150,000 equivalent financed by ADB on a grant basis from the ADB-funded TA program. TA Commencement Date October 2001 Project Completion Date June 2002 Recruitment of Consultants Recruitment of consultants is in accordance with ADB s Guidelines on the Use of Consultants and other arrangements satisfactory to ADB for the engagement of domestic consultants. Implementation Progress to Date A contract was signed between ADB and FAO in March 2002 for the installation and customization of the microbanking software (FAO-G72 MBWIN). The Microbanking System has already been installed, translated and configured. Additional computer hardwares and network accessories are scheduled to arrive in May Local East Timorese are being trained in operating the system. The Project is expected to be completed as scheduled.

165 159 Preparing the Power Sector Development Plan Phase I, TA 3748-ETM Project Rationale To prepare a long-term domestic energy sector development plan, including sector strategy to support sustainable economic development and growth, and reduce poverty in East Timor. Beneficiary East Timor Project Scope Prepare a detailed and comprehensive technical survey of the energy sector in East Timor. Determine a least-cost development strategy for the power sector that facilitates economic development and poverty reduction. Prepare a 20-year technical master plan for the sector based on a demand growth model. Prepare a technical and economic feasibility study for prioritized investment requirements. Executing Agency East Timor Public Administration Ministry of Economic Affairs and Development Cost Estimates and Financing Plan $400,000 equivalent financed by ADB on a grant basis from the Japan Special Fund funded by the Government of Japan TA Commencement Date July 2002 Estimated Project Completion Date January 2003 Recruitment of Consultants Recruitment of consultants is in accordance with ADB s Guidelines on the Use of Consultants and other arrangements satisfactory to ADB for the engagement of domestic consultants. Implementation Progress to Date Consultants will be short-listed in May ADB s Technical Assistance Grant Projects for 2001

166 160 Project Progress Report on East Timor Economic Policies and Strategies for Development Planning, TA 3803-ETM Project Rationale To develop skills to enhance the capabilities of the East Timorese leadership. To set up systems and procedures to monitor and evaluate the achievement of strategic economic objectives and action programs. Beneficiary East Timor Project Scope Development of strategic, managerial, and technical competencies for senior East Timorese civil servants. Enhancement of economic and financial capabilities through the development of specific applied skills in economics and finance-related disciplines for senior East Timorese managers. Strengthening of public policy analysis and dissemination to improve public awareness of and participation in public policy formulation, implementation, and assessment. Executing Agency UNTAET (Ministry of Economic Affairs and Development) Cost Estimates and Financing Plan $950,000 equivalent financed by ADB on a grant basis from the Japan Special Fund, funded by the Government of Japan. TA Commencement Date March 2002 Project Completion Date March 2003 Recruitment of Consultants Recruitment of consultants is in accordance with ADB s Guidelines on the Use of Consultants and other arrangements satisfactory to ADB for the engagement of domestic consultants. Implementation Progress to Date In consultation with the government, the Special Liaison Office in East Timor is in the process of recruiting consultants in the area of trade and investment policy.

167 161 Project Rationale Postal Services Development, TA 3819-ETM To provide assistance in reestablishing an appropriate framework for developing an efficient, cost-effective postal system in East Timor. Beneficiary East Timor Project Scope Prepare a master plan for rehabilitation and establishing postal infrastructure and services. Establish a suitable legal framework. Implement a training program for East Timorese to effectively manage the postal system. Executing Agency UNTAET (Ministry of Communications and Transport, Telecommunications and Postal Division) Cost Estimate and Financing Plan $250,000 equivalent financed by ADB on a grant basis from the Japan Special Fund funded by the Government of Japan. TA Commencement Date March 2002 Project Completion Date December 2002 Recruitment of Consultants Recruitment of consultants is in accordance with ADB s Guidelines on the Use of Consultants and other arrangements satisfactory to ADB for the engagement of domestic consultants Implementation Progress to Date Two international consultants have been engaged for the preparation of the master plan and the human resource development plan. The reports are expected by July ADB s Technical Assistance Grant Projects for 2001

168 163 ADB s TECHNICAL ASSISTANCE GRANT PROJECTS FOR 2002 Implementation Status

169 164 Project Progress Report on East Timor Capacity Building to Develop Public Sector Management and Governance Skills, TA 3839-ETM Project Rationale To assist the East Timorese in assuming the functions of the new East Timor Government, and in efficiently managing the administration following the principles of good governance and poverty reduction. Beneficiary East Timorese Civil Administrators for Local Administration and Community Leadership Project Scope Develop a capacity-building program for district and subdistrict administrators, traditional village chiefs, and trainers from either the Civil Service Academy (CSA) or other indigenous sources. Implement the capacity-building program developed in the first stage. Executing Agency ADB s Special Liaison Office in East Timor Cost Estimates and Financing Plan $688,000 equivalent to be financed by ADB on a grant basis partly from the Japan Special Fund and partly from ADB s Technical Assistance Special Fund TA Commencement Date March 2002 Project Completion Date September 2003 Recruitment of Consultants Recruitment of consultants is in accordance with ADB s Guidelines on the Use of Consultants and other arrangements satisfactory to ADB for the engagement of domestic consultants. Implementation Progress to Date The TA was signed by the Special Administrator for the Secretary General in the last week of March 2002 An individual consultant will be used for Phase I to conduct a needs analysis and develop the terms of reference (TORs) for a consulting firm to develop and implement a capacity-building program. Using the results of the needs analysis and the TORs developed during Phase I, a short list of consulting firms will be finalized to implement the capacity building program. The timetable for commencement of Phase I is currently set at mid-june It the will be followed by a tentative commencement of Phase II by early October 2002.

170 Proposed ADB Technical Assistance Grant Projects for Second Half of 2002

171 166 Project Progress Report on East Timor Proposed Technical Assistance Program for Second Half of 2002 Technical Assistance Project US$ Strengthening Policies and Planning in the Infrastructure Sector 420,000 Strengthening Policies and Planning in the and Natural Resources Sectors 400,000 Total 820,000

172 167 PROJECT PROFILE FOR PROPOSED TA IN Project Name: Strengthening Policies and Planning in the Infrastructure Sector 2. Sector/Subsector: 3. Crosscutting Operational Priority: Human Development, Economic growth, and environmental protection 4. Poverty Classification: Poverty intervention 5. Description of Assistance: a. Background/linkage to country/regional strategy: Infrastructure sector management including land, air, and maritime transport, water and power supply, and telecommunications were affected by the events of September All organizational structures ceased to exist with the exodus of East Timorese professionals. Under UNTAET, most of the laws and regulations of the previous administration were no longer valid and needed revisions. A major effort to familiarize the emerging East Timorese best sector practices, including efficient management administrative structures, cost recovery practices, regulatory framework and enforcement mechanisms, and longterm sector policies. This capacity building objective is in line with the proposed interim strategy for ETM. b. Goal and purpose: The objective of the TA is to assist in establishing a viable and functional infrastructure management identifying options for interim and longer term sector development and management policies and strategies enhance and build capacity of the East Timorese. c. Components, outputs, specific deliverables: The TA will include (i) preparation of policy, strategy, and regulatory options for sector management, (ii) seminars and training to enhance decision making capabilities among East Timorese, and (iii) identification of appropriate delivery and enforcement mechanisms with related administrative systems and resources. d. Expected results and deliverables: The TA will deliver (i) optional papers with various alternative strategies to be incorporated papers into the Government s own policy documents through consultations and (ii) detailed policy and impacts dialogue and training through mentoring, seminars, and workshops. TA report will cover an outline of the critical policy, strategic, and management issues challenging the infrastructure sector management e. Social or environmental issues or concerns: TA will assist in streamlining bureaucratic structures and will support private sector involvement in sector management and service delivery. f. Plans for disseminating results/deliverables: TA outputs will be disseminated within ADB and among the relevant ministries and sector participants in ETM to ensure broad consultations. 6. Executing Agency: Ministry of Water and Public Works and Ministry of Communication and Transport 7. Project Implementation Period: Starting November 2002 Proposed ADB Technical Assistance Grant Projects for 2001

173 168 Project Progress Report on East Timor PROJECT PROFILE FOR PROPOSED TA IN Project Name: Strengthening Policies and Planning in the Agriculture and Natural Resources Sectors 2. Sector/Subsector: 3. Crosscutting Operational Priority: Human Development, Economic Growth, Environmental Protection 4. Poverty Classification: Poverty Intervention 5. Description of Assistance: a. Background/linkage to country/regional strategy: Agriculture and natural resources management (coastal and aquatic resources, forest and biodiversity) are crucial for the future development of East Timor. Agriculture and natural resources sector accounts for about a quarter of the economy s output, and up to three quarters of employment. To date, there is a lack of policies in sustainable exploitation and conservation of natural resources. Urgent action is needed, lack of it may cause substantial damage to existing natural resources and could aggravate poverty. b. Goal and purpose: The goal of the TA is to provide appropriate policy framework and planning tools to East Timor s Government in the sustainable development and management of agriculture and natural resources sectors. The purpose of the TA is to review the current status and prepare appropriate policies and framework for the development of the sectors. c. Components, outputs, specific deliverables: The TA will cover the following components: (i) a review of the agricultural and natural resources sectors; (ii) formulate plans, policies, and framework for the sustainable development and management of the sectors; and (iii) provide capacity building in the appropriate agencies to ensure effective preparation and implementation of the plans and policies. d. Expected results and deliverables: The TA will result in a status report of the agriculture and natural resources; provide appropriate plans, policies and framework; will strengthen the capacity of the concerned agencies in managing natural resources development. e. Social or environmental issues or concerns: There will be no major social and environmental concerns on the country. The TA will assist in preparing plans and policies for sustainable natural resources development. f. Plans for disseminating results/deliverables: Dissemination of outputs will be through: (i) national and district workshops with the stakeholders; (ii) distribution of the TA report to all concerned agencies; and (iii) ensuring the results are discussed at all levels and appropriate policies are legislated for implementation. 6. Executing Agency: Ministry of Agriculture and Fisheries 7. Project Implementation Period: 3 rd Quarter of 2002

174 ADB AT A GLANCE MEMBERS AND SHAREHOLDINGS Regional: 43 % Shareholding a Afghanistan Australia Azerbaijan Bangladesh Bhutan Cambodia China, People s Rep. of Cook Islands Fiji Islands Hong Kong, China India Indonesia Japan Kazakhstan Kiribati Korea, Republic of Kyrgyz Republic Lao People s Democratic Republic % Shareholding a Malaysia Maldives Marshall Islands Micronesia, Fed. States of Mongolia Myanmar Nauru Nepal New Zealand Pakistan Papua New Guinea Philippines Samoa Singapore Solomon Islands Sri Lanka Taipei,China Tajikistan Thailand Regional: 43 (cont d.) % Shareholding a % Shareholding a Tonga Uzbekistan Turkmenistan Vanuatu Tuvalu Viet Nam Total regional Nonregional: 16 % Shareholding a Austria Belgium Canada Denmark Finland France Germany Italy The Netherlands % Shareholding a Norway Spain Sweden Switzerland Turkey United Kingdom United States Total nonregional Grand total a Figures may not add because of rounding. TECHNICAL ASSISTANCE LENDING TECHNICAL ASSISTANCE GRANTS BY SECTOR, 2001 US$ Million % Agriculture and Natural Resources Social Infrastructure Finance Transport and Communications Energy Industry and Nonfuel Minerals Multisector Others Total grants to developing member countries Regional activities Grand total RECIPIENTS OF TECHNICAL ASSISTANCE GRANTS, 2001 US$ Million % Indonesia People s Republic of China Viet Nam India Philippines Cambodia Pakistan Lao People s Democratic Republic Bangladesh Papua New Guinea Other Developing Member Countries Total LOANS BY SECTOR, 2001 US$ Million % Transport and Communications 1, Energy Agriculture and Natural Resources Finance Social Infrastructure Industry and Nonfuel Minerals Multisector Others Total 5, BORROWERS BY COUNTRY, 2001 US$ Million % India 1, People s Republic of China Pakistan Indonesia Bangladesh Viet Nam Sri Lanka Philippines Nepal Papua New Guinea Other developing member countries Total 5, Regional activities Grand total 5,

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