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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Urban Development ector Unit East Asia and Pacific Region Document of The World Bank FOR OFFICIAL UE ONLY IMPLEMENTATION COMPLETION REPORT (CL TF-29708) ON A LOAN IN THE AMOUNT OF U$110 MILLION TO THE REPUBLIC OF INDONEIA FOR A BALI URBAN INFRATRUCTURE PROJECT June 28, 2005 Report No: IND This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

2 CURRENCY EQUIVALENT (Exchange Rate Effective eptember 30, 2004) Currency Unit = Rupiah (Rp) Rp. 1 = U$ 9,500 U$ 1 = 0011 FICAL YEAR January 1 December 31 BAPPENA BHT BPN BUIP CA CHC EA EIRR EMMP FIRR FRAP GOI IUIDP JBIC Kabupaten KIP Kota MIIP MIP MoF MoU NPV NTB OECF O&M PBME PDAM PLN PPCU PP QAG LA OCEI OP TA TAP4I-2 UEA UKL/UPL UNECO ABBREVIATION AND ACRONYM National Development Planning Board Bali Heritage Trust Land Agency Bali Urban Infrastructure Project Country Assistance trategy Cultural Heritage Conservation Executing Agency Economic Internal Rate of Return Environmental Management and Monitoring Plan Financial Internal Rate of Return Financial Recovery Action Plan Government of Indonesia Integrated Urban Infrastructure Development Program Japanese Bank for International Cooperation Regency (local government) Kampung (poor neighborhood) Improvement Program Municipality (local government) Market Infrastructure Improvement Program Municipal Innovations Project (Ln IND) Ministry of Finance Memorandum of Understanding Net Present Value Nusa Tenggara Barat Overseas Economic Cooperation Fund Operations and Maintenance Project Benefit Monitoring and Evaluation Local Water Utility Company (Perusahaan Daerah Air Minum) National Electricity Company Provincial Project Coordinating Unit Private ector Participation Quality Assurance Group ubsidiary Loan Agreement tudy of Cumulative Environmental Impacts tandard Operating Procedure Technical Assistance econd Technical Assistance Project for the Public and Private Provision of Infrastructure (Ln IND) Umbrella Environmental Assessment Environmental Management and Monitoring Action Plan United Nations Education cientific and Cultural Organization

3 UPP(2)(3) Urban Poverty Project (Cr IND); econd UPP (Ln. 4664, Cr. 3658); Third UPP (Ln. 4779, Cr. 4063) UPT One top-office for Issuing Permits and Certificates (Unit Pelayanan Terpadu) WRR Western Ring Road WWTP Wastewater Treatment Plant Vice President: Country Director: ector Director: Task Team Leader: Mr. Jemal-ud-din Kassum, EAPVP Mr. Andrew teer, EACIF Mr. Keshav Varma, EAUR Mr. George oraya, EACIF

4 INDONEIA BALI URBAN INFRATRUCTURE PROJECT CONTENT Page No. 1. Project Data 1 2. Principal Performance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry 2 4. Achievement of Objective and Outputs 4 5. Major Factors Affecting Implementation and Outcome 8 6. ustainability 9 7. Bank and Borrower Performance 9 8. Lessons Learned Partner Comments Additional Information 15 Annex 1. Key Performance Indicators/Log Frame Matrix 16 Annex 2. Project Costs and Financing 17 Annex 3. Economic Costs and Benefits 21 Annex 4. Bank Inputs 22 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 22 Annex 6. Ratings of Bank and Borrower Performance 22 Annex 7. List of upporting Documents 23 Annex 8. Procurement Improvement 24 Annex 9. Land Acquisition Process for the Western Ring Road in Denpasar 27

5 Project ID: P Team Leader: George oraya Project Name: BALI URBAN INFRATRUCTURE PROJECT TL Unit: EAUR ICR Type: Core ICR Report Date: June 28, Project Data Name: BALI URBAN INFRATRUCTURE PROJECT L/C/TF Number: CL-41550; TF Country/Department: INDONEIA Region: East Asia and Pacific Region ector/subsector: Water supply (30%); olid waste management (30%); Flood protection (15%); Roads and highways (15%); Other social services (10%) Theme: Other financial and private sector development (P); Other urban development (P); Municipal governance and institution building () KEY DATE Original Revised/Actual PCD: 01/17/1995 Effective: 09/04/1997 Appraisal: 01/13/1997 MTR: 07/20/2000 Approval: 05/06/1997 Closing: 12/31/ /30/2004 Borrower/Implementing Agency: Other Partners: Republic of Indonesia/Ministry of ettlement and Regional Infrastructure & Bali Province TAFF Current At Appraisal Vice President: Mr. Jemal-ud-din Kassum Mr. Russell Cheetham Country Director: Mr. Andrew D. teer Ms. Marianne Haug ector Manager: Mr. Keshav Varma Mr. Anupam Khanna Team Leader at ICR: Mr. George oraya Mr. Raja Iyer ICR Primary Author: Mr. Gottfried Roelke 2. Principal Performance Ratings (H=Highly atisfactory, =atisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, U=ubstantial, M=Modest, N=Negligible) Outcome: ustainability: Institutional Development Impact: Bank Performance: Borrower Performance: L U QAG (if available) Quality at Entry: H Project at Risk at Any Time: No ICR H

6 3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: The Province of Bali, with a population of 3.2 million, has a unique regional culture, and tourism plays a much greater role in its economy than in any other Indonesian province. ince the 1970s, its urban population has been growing fast, stretching urban facilities and services to their limits and resulting in serious deficiencies. The situation was exacerbated by inadequate budgetary and organizational provisions for operations and maintenance (O&M), insufficient revenue generation and institutional weaknesses. Against this background the Bali Urban Infrastructure Project (BUIP) was designed, building on an Integrated Urban Infrastructure Development Program (IUIDP) approach used for the East Java Bali Urban Development Project (completed 1997), and adapting it to the unique situation of Bali. The project objectives are to: Improve urban infrastructure services in Bali in a sustainable manner, to meet (i) basic needs in all important urban centers and (ii) the needs of growing urbanization in outh Bali, as a result of tourism and other economic activities. This objective will be achieved through urban infrastructure investments, private sector participation, cultural heritage conservation, and institutional strengthening. Assessment of Objectives The objectives were clear, realistic, and important to the development of Bali. The project was consistent with (a) GOI s Five-Year Plan (Repelita), which emphasized improving urban services and strengthening local government capacity; (b) Bali's Five-Year Plan; and (c) the 1994 Country Assistance trategy (CA) which emphasized decentralization, urban service delivery, private sector and community participation, and environmental sustainability. It responded well to Bali's particular circumstances by focusing more on private sector participation (PP), cultural heritage conservation (CHC), environmental management, and increasing the involvement of local communities and other non-governmental stakeholders. The project was complex, but Bali is a compact province whose provincial government was relatively stronger than that of other provinces, so the risks were deemed acceptable. 3.2 Revised Objective: N.A. 3.3 Original Components: - 2 -

7 The project had four major components: urban infrastructure, private sector participation, cultural heritage conservation, and technical assistance and training. Part A. Urban Infrastructure Investments ($195 million). This component was divided into seven sub-components. The water supply sub-component included the rehabilitation of production facilities and the installation of 620 km of new distribution pipes, and 29,400 new house connections. It was envisaged that approximately $55 million of the required investment would be financed through private sector participation (PP). The urban roads & traffic management sub-component was to construct 91 km of new roads, and rehabilitate or improve 895 km of roads. The drainage & flood control sub-component was to construct, widen or rehabilitate 368 km of drains to alleviate flooding in 62 locations. The solid waste management sub-component was to construct 37 ha of new waste disposal sites and increase composting capacity to 9,000 m3 per year. The sanitation sub-component was to build or extend seven wastewater treatment plants (WWTPs) and five communal toilets. This sub-component was kept small because another project, funded by OECF (now JBIC), was to cover most of the investment needs for sewerage systems in Denpasar and Kuta. The KIP / MIIP sub-component was to improve 586 ha of kampung areas and 18 markets. The programmatic terminals and parking lots sub-component envisaged the construction of up to four terminals and/or parking lots. Part B. Private ector Participation ($2 million). This component supported two studies to facilitate PP in water supply and in solid waste management, funded from the Bank s econd Technical Assistance Project for Public and Private Participation in Infrastructure (TAP4I-2 Ln IND). Part C. Cultural Heritage Conservation ($10.4 million). This component envisaged: (a) improvements to the Besakih temple complex; (b) pilot conservation activities; (c) an inventory of historic places; (d) strengthening conservation capacity; and (e) signboards at important sites. Details of this component were to be further developed during implementation. Part D. Technical Assistance & Training ($15.1 million). This component was to cover detailed design and construction supervision, support to project management, several studies, and a substantial number of training opportunities in-country and abroad. Assessment of Project Design The components were defined with a high degree of involvement and commitment of the provincial and local governments. Responsibility for project preparation was accorded to the provincial government, a novelty at a time when Indonesia's government was highly centralized. BUIP's design was comprehensive and well thought-out, with the components well suited to meeting the project's objectives. uitable performance indicators were developed at appraisal. The inclusion of the CHC component was justified in the specific context of Bali. The PP component was realistic under appraisal conditions. BUIP also provided far more training opportunities than earlier IUIDPs in order to focus even more on institutional strengthening. 3.4 Revised Components: everal components were added during implementation, because of the dramatically changed circumstances in Indonesia with the on-set of the East Asian economic crisis in mid A sub-component for labor-intensive works was added in 1998, to mitigate rising unemployment and urban poverty. In 2001, three sub-components were added: (a) support to good governance by streamlining bureaucratic procedures; (b) efficiency enhancing innovative service delivery, to stimulate innovations to improve local government activities; and (c) community based poverty alleviation program, to support small-scale pilot - 3 -

8 investment projects in selected villages. Following the October 2002 terrorist bombing in the Kuta area, BUIP's geographic scope was expanded to include Nusa Tenggara Barat (NTB), the province just to the east of Bali, whose economy also relies heavily on tourism, to help cushion the immediate effects of the bombing on its economy. 3.5 Quality at Entry: Quality at entry is rated highly satisfactory: the project had a clear, logical, and comprehensive objective, and was supported by well defined components. The major sub-projects were thoroughly appraised with much attention to detail. The technical assistance activities were well designed, linking them closely to project objectives. An annual evaluation and review mechanism was established. The Quality Assurance Group (QAG) reviewed BUIP at entry and rated it excellent, and accorded it the highest rating in all categories. Risk Assessment Internal risk. The appraisal correctly assessed risks relating to institutional and operational aspects, procurement, construction and financing as either moderate or low. The project was thus sufficiently resilient to be able to absorb the impact of the unanticipated external risks discussed next. External risks. The appraisal assumed, based on the CA and generally accepted forecasts, that the country s economic growth, its social and political stability, the security situation, and investor confidence would continue. Indonesia s deep economic, financial, political and social crises, trigerred by the East Asian economic crisis, were not anticipated by the Bank. afeguard Policies Environment. BUIP was classified an Environmental Category A project, and a comprehensive Umbrella Environmental Assessment (UEA) was carried out. The UEA was the first instance of public consultation on a project environmental assessment in Indonesia, engaging a wide variety of stakeholders. The environmental management and monitoring procedures and arrangements presented in the UEA were later consolidated in the BUIP Environmental Management and Monitoring Plan (EMMP), which also established environmental tandard Operating Procedures (OP) that were to be included in each work contract. (BUIP's EMMP essentially built the environmental planning function into the project, and was used by GOI as a model for subsequent infrastructure projects). The BUIP UEA is included in the Bank environment data base as "best practice". ocial. During project preparation key stakeholders were extensively consulted. In order to avoid the adverse impacts of development, especially given Bali's unique culture heritage, the project included a component to promote conservation and management of CHC. To address the project's needs for land acquisition and resettlement, a policy framework for land acquisition and resettlement of project affected persons, in accordance with OD.4.30, was adopted by the Government (see also Annex 9). 4. Achievement of Objective and Outputs 4.1 Outcome/achievement of objective: The achievement of BUIP s objective is rated satisfactory, especially in the context of significant changes in the economic, political, social, and fiscal circumstances in the country from the start of project implementation. The planned physical investments were successfully implemented, as were the additional - 4 -

9 components to alleviate poverty and improve governance; the institutional impacts were positive; however, the changed country circumstances adversely impacted the full implementation of PP and the CHC program. The urban road improvements reduced vehicle operating costs, congestion and pollution. imilar benefits were obtained from the improved traffic terminals. Drainage sub-projects reduced flooding, property damage and disruptions in the local economy. The KIP and labor-intensive works sub-projects significantly improved living conditions, especially for the urban poor. anitation and wastewater management sub-projects reduced pollution in surface and groundwater. Community participation was significantly higher than in comparable projects in Indonesia. ignificant institutional strengthening was achieved in procurement and land acquisition (see Annexes 8 and 9 respectively). 4.2 Outputs by components: The following table gives ratings for outputs and outcomes for the project components. Component, ub-component Output Rating Outcome Rating Part A: Physical Infrastructure atisfactory atisfactory Water upply Unsatisfactory Unsatisfactory Urban Roads & Traffic Management Highly atisfactory Highly atisfactory Drainage & Flood Control atisfactory atisfactory olid Waste Management Marginally atisfactory Marginally atisfactory anitation atisfactory atisfactory KIP / MIIP / Market Development Highly atisfactory Highly atisfactory Terminals & Parking Areas atisfactory atisfactory Labor Intensive Projects atisfactory atisfactory Part B: Private ector Participation 1/ atisfactory Unsatisfactory Part C: Cultural Heritage Conservation atisfactory atisfactory Part D: Technical Assistance & Training atisfactory atisfactory Technical Assistance atisfactory atisfactory Training atisfactory atisfactory Innovative ervice Delivery atisfactory atisfactory Part E: Community Based Poverty Alleviation Highly atisfactory Highly atisfactory 1/ BUIP delivered the planned outputs but the envisaged outcome was not achieved. Part A. Urban Infrastructure Investments Achievements under this component are rated satisfactory. Urban Roads & Traffic Management. This sub-component is rated highly satisfactory. Approximately 1,006 km of roads were built, widened or rehabilitated, encompassing all road sections included in the original project scope. Forty-five percent of Bali s road network is now in good condition against the 38% targeted in the PAD. Water upply. This sub-component is rated unsatisfactory. The appraisal had envisaged that investments in the water supply sector would be funded through on-lending to the participating water companies (PDAMs) and through PP. Implementation of an agreed Financial Recovery Action Plan (FRAP) was a precondition for participating PDAMs being able to utilize loan funds. However, because of the economic crisis, these PDAMs could not raise their tariffs to generate funds required to service their existing debt with the Ministry of Finance. In view of this, the FRAPs were not fully implemented and the allocated loan funds were not utilized. Nevertheless, local governments made funds available from their own development - 5 -

10 budgets to finance the installation of approximately 43,200 new house connections (compared to 29,400 estimated at appraisal) and 97 km of new pipes (against 620 km estimated at appraisal). Most of the PDAMs have now implemented the FRAPs and thus have improved their financial condition; with the current more conducive economic and political environment, their financial condition will continue to improve. Drainage & Flood Control. This sub-component is rated satisfactory, with approximately 395 km of drains rehabilitated, slightly exceeding the PAD target of 368 km. The number of major annual floods, 22 per year, dropped below the PAD target of 25 per year. olid Waste Management. This sub-component is rated marginally satisfactory; BUIP provided 30 additional ha of final waste disposal sites (81% of the PAD target) and created a composting capacity of approximately 38,000 m3 of solid waste per year (95% of PAD target). The plan to construct a new landfill site in south Bali, to be jointly operated by several local governments, possibly with PP, was eventually abandoned in favor of a more advanced solid waste management system, which has now been launched with PP. anitation. This sub-component is rated satisfactory. Thirty-five communal toilets were built, far more than the PAD target of five, but only four wastewater treatment plants (WWTP) were constructed compared to the PAD target of seven. The OECF-funded conventional sewerage scheme for Denpasar and Kuta is on-going, as envisaged at appraisal. KIP/MIIP. This sub-component is rated highly satisfactory, with 873 ha of kampung areas improved, against the PAD target of 586 ha. Under the market development sub-component, two new markets were constructed and nine additional markets were improved; the PAD target was to build two new markets and improve another 16. Terminal & Parking Areas. This programmatic sub-component is rated satisfactory. It provided three transport terminals (at Gianyar and Karangasem, and a regional terminal at Gilimanuk, the ferry port to Java), against the target of up to four. Labor-Intensive sub-projects. This sub-component is rated satisfactory. About 200,000 person-days of employment were provided under the initial fund allocation; a further allocation 1999 and 2000 helped generate 320,000 person days of employment. Labor intensive works in NTB supported improvement of about 100 km of roads, and improvement or construction of 44 km of drains. Part B. Private ector Participation (PP) This component, funded from TAP4I-2, is rated marginally satisfactory. BUIP delivered the two envisaged studies as outputs, but the desired outcome in the form of PP was achieved only in solid waste management. PP in Water upply. This sub-component is unsatisfactory because the desired outcome of mobilizing private sector funding was not achieved, even though BUIP satisfactorily delivered the expected output of a study. The main reason for this unsatisfactory outcome was Indonesia s unforeseen economic crisis, which weakened the PDAMs and severely reduced their attractiveness for PP; in addition, the economic crisis had a strong negative impact on PP in infrastructure in general. Nevertheless, the project has fostered a spirit of cooperation among the PDAMs, and the provincial and local commitment to continue the process remains strong. The January 2005 Indonesia Infrastructure ummit confirmed GOI s strong commitment to PP in water supply; this augers well for achieving PP in water supply in Bali in the next few years

11 PP in olid Waste Management. The implementation of this sub-component was satisfactory. In 2001 the local governments of Denpasar, Badung, Gianyar, and Tabanan jointly established a new solid waste management organization. This organization selected an international firm (on the basis of a competitive tender) to operate the waste processing facility for 20 years. Construction of the facility started in February Part C. Cultural Heritage Conservation The implementation of CHC is rated satisfactory. The project was able to deliver most of the loan funded sub-projects and some additional activities. BUIP supported: (a) the rehabilitation of the Taman Ujung Palace in Karangasem; (b) the establishment of the Bali Heritage Trust (BHT) in 2003, as a new permanent body to spearhead the systematic management and conservation of Bali's cultural assets; (c) the preparation of a plan to upgrade the Besakih temple complex and its environs; (d) the compilation of an inventory of historic places; (e) the revitalization of the historic town center of ingaraja; (f) the securing of an important archaeological site in Gilimanuk; (g) other pilot conservation activities; and (h) study tours to Australia, Europe, and the UA. As a result of the economic crisis and the unsettled political conditions in Indonesia from 1998, the envisaged contributions from the private sector and international donors did not materialize. Part D. Technical Assistance & Training The achievements under the TA and training component are satisfactory. All 19 TA packages envisaged at appraisal were provided. The Government and the Bank systematically monitored the outputs and impact of each TA package during implementation. All packages had satisfactory outputs and the majority also had a positive impact. BUIP provided 649 training opportunities in urban management and in environmental management, including: seven PhD courses abroad; five Masters courses abroad; 98 Masters courses in Indonesia; 45 other formal training courses abroad; and 494 other formal training courses in Indonesia. Government and the Bank carefully monitored the implementation of the training component to confirm that it had the desired impact. Beneficiaries of these training opportunities have strengthened infrastructure planning and implementation at the national level and in Bali. Part E. Community Based Poverty Alleviation Program The achievements of this component are rated as highly satisfactory. 335 villages received grants of approximately $11,000 each, to: (a) provide small infrastructure for poor neighborhoods; (b) promote income-generating activities; and (c) set up revolving funds for such activities. The component benefited about half of Bali s poor. 4.3 Net Present Value/Economic rate of return: An EIRR was computed for all major urban road and drainage sub-projects. For major urban roads, the appraisal projected an EIRR of 18.8%; the actual EIRR at completion is 24%. For major drainage sub-projects, the appraisal projected an EIRR of 15.9%; the actual at completion is 18%. ee Annex 3 for details

12 4.4 Financial rate of return: The PAD estimated the FIRR of the planned water supply projects. As the water supply component was not implemented as appraised, the FIRR on completion has not been computed. 4.5 Institutional development impact: BUIP's institutional development impact is rated substantial. BUIP supported the development of provincial capacity to manage the preparation and implementation of this project in a very successful manner, despite the economic and political crisis. BUIP successfully pursued significant reforms in procurement and achieved a very high degree of transparency, competitiveness, and efficiency. Improvements initiated in BUIP contributed significantly to the preparation of Presidential Decree No. 80/2003 on Procurement (see Additional Annex 8). BUIP supported training for government staff developed institutional capacity at national, provincial and local levels. Capacity for O&M improved after the decentralization law was promulgated, and after the introduction of the 2003 performance-based budgeting system. A new institution, funded jointly by four local governments in the greater Denpasar area, was established to manage the solid waste management needs on a regional basis. The Bali Heritage Trust, established under the project, has enhanced capacity for heritage conservation in Bali. BUIP significantly strengthened the provincial capacity for environmental management through extensive training for provincial and local staff, consultants and contractors, as well as by providing the provincial environmental agency a strong role in implementing the environmental management and monitoring plan. The project also promoted community participation in planning and implementation, especially through the labor-intensive works program, the community-based poverty alleviation component, and the development planning in Kuta. 5. Major Factors Affecting Implementation and Outcome 5.1 Factors outside the control of government or implementing agency: BUIP was severely affected by several crises. Indonesia's economic crisis, which began around the time when BUIP became effective in eptember 1997, had a profound effect on project implementation. The Rupiah depreciated by over 300% in a matter of months, and domestic inflation exceeded 50% per annum. The events of eptember 11, 2001 triggered a worldwide downturn in tourism, which severely affected Bali's economy. Finally, the October 12, 2002 terrorist bomb blast in Bali's famed Kuta area, which resulted in over 200 deaths, brought Bali's tourism sector to near-collapse and ravaged the provincial economy. 5.2 Factors generally subject to government control: Central Government Restructuring. The Ministry of Public Works, the Executing Agency, was restructured twice as a result of the political changes in Indonesia. Five different directors general and four different directors had responsibility for BUIP over its life. These disruptions delayed work program approvals and resulted in a loss of continuity

13 Impact of Decentralization. The Government enacted a major decentralization law in 1999 and its implementation started in The transition period affected project implementation as the local governments temporarily shifted their focus to internal administrative restructuring. This resulted in sudden changes in staff who were familiar with the project. The fiscal decentralization affected fund flow arrangements and adversely impacted timely availability of counterpart funding. 5.3 Factors generally subject to implementing agency control: Land Acquisition. Land acquisition was a major issue for the Western Ring Road. This was successfully addressed through extensive community consultation, which increased social acceptance of the outcome; however, the process was time consuming and delayed implementation. 5.4 Costs and financing: The total project cost at appraisal was estimated at $278 million, with an IBRD Loan of $110 million. At project closing, the total project cost was estimated at U$104.7 million, or about 31% of the original estimate. The significant cost underrun was due to: (a) the devaluation of the Rupiah from Rp 2,331 to the dollar at appraisal, to Rp 9,500 to the dollar at project close; (b) deletion of the large water supply component ($83.6 million); and (c) significant savings due to improved procurement practices (as described subsequently). After cancellations amounting to $36.03, the final Loan amount was $73.97 million, of which $72.13 was disbursed (see Annex 2). During implementation, there was a significant shift between the amounts on-lent to local governments and the amounts passed on as grants. Because of the impact of the crisis on the finances of local governments, as well as the changes in regulations regarding local government borrowing, the central government passed on all but about $1 million of the Bank loan to the local governments as a grant. Loan Closing Date Extensions. BUIP required three extensions: the original closing date of December 31, 2002 was first extended to December 31, 2003 to complete on-going major sub-projects (e.g., Western Ring Road), and to implement a program of emergency works to rehabilitate bomb-damaged infrastructure in the Kuta area and to extend the community-based program to Kuta. The second extension (to June 30, 2004), and the third and final extension (to eptember 30, 2004), were required to complete and hand-over these and other remaining works. 6. ustainability 6.1 Rationale for sustainability rating: BUIP s overall sustainability is rated as likely. The physical facilities created, such as roads, drains, etc., will be maintained by the respective local governments. With the introduction of the performance-based budget system, adequate funds will be allocated for operations and maintenance. Project supported technical assistance and training have developed the capacity of the various government departments and agencies. Procurement procedures used in BUIP have been mainstreamed into relevant GOI regulations, as indicated earlier. Procedures for community participation were built on traditional Balinese community based organizations, and are sustainable. Financial arrangements are in place to sustain the operations of new entities established under the project, i.e., the regional solid waste agency and the Bali Heritage Trust. 6.2 Transition arrangement to regular operations: The project was implemented by existing organizations under the regular provincial and local government structure. Responsibility for regular operations will remain with these organizations

14 7. Bank and Borrower Performance Bank 7.1 Lending: The Bank s performance in project identification was highly satisfactory. The project concept is consistent with GOI policies and the CA, and builds on experience from other on-going IUIDP projects, in particular the East Java Bali Urban Development Project. It takes into account Bali's unique cultural and environmental features, and prospects for PP. The Bank s performance in preparation assistance was highly satisfactory. The Bank strongly supported the Government decision to have Bali province lead project preparation, which not only increased ownership of the project at provincial and local levels, but also significantly reduced project preparation time compared to earlier IUIDP projects. The Bank s performance at appraisal was highly satisfactory. The appraisal team included all the necessary expertise, and had a good balance of field-based and international staff. It confirmed that the project had a clear and achievable objective, the necessary components and inputs, as well as appropriate monitoring indicators. The team's appraisal of project design, institutional capacities, political commitment, the financing instruments, and the necessary safeguards and fiduciary measures was thorough. The loan was negotiated six weeks after appraisal mission departure. The appraisal did not anticipate the economic crisis that hit East Asia and Indonesia six months later; this was consistent with the regional and country risk assessments in early Overall, the Bank s performance in lending was highly satisfactory (see also section 3.5 on quality at entry). 7.2 upervision: The Bank s performance in supervision was satisfactory. In addition to implementation of the investment program, supervision focused on development effectiveness, and fiduciary and safeguard aspects. Bank supervision also strongly supported the introduction of improved bidding processes and the innovative land consolidation approach to land acquisition. The Bank responded quickly to the impact of the economic crisis by agreeing to amend the loan agreement to: (a) introduce a labor intensive small works component; (b) community based poverty alleviation programs; and (c) extend the geographic scope to NTB province. The Bank also worked closely with government to cancel loan savings. upervision was task managed from headquarters for the initial start-up period, but was subsequently transferred to the field in March 1999; however, the former task manager remained a member of the task team and ensured a smooth transition. Field management of the project enabled the Bank to respond quickly to the impact of the economic crisis and work with Government on loan amendments and cancellations. A QAG panel assessed BUIP supervision until after the MTR to be highly satisfactory overall, as well as in each of the major parameters

15 7.3 Overall Bank performance: The Bank s overall performance in BUIP was satisfactory: the project's quality at entry was excellent, and the strong performance during supervision enabled the project to be completed satisfactorily despite the unprecedented economic, political and social crises in Indonesia. Borrower 7.4 Preparation: The Borrower s performance in project preparation was highly satisfactory: the project was identified as a logical extension of earlier IUIDP projects, tailored to Balinese conditions. The central government decentralized responsibility for project preparation, while continuing to support the province with appropriate guidance at crucial stages, e.g., pre-appraisal, appraisal. 7.5 Government implementation performance: The central government s performance in project implementation was satisfactory. It actively supported decentralized project management at the provincial level, by limiting its own role to providing overall policy guidance. The Executing Agency ensured that the quality of implementation was good. MoF and the National Development Planning Board (BAPPENA) responded quickly to the needs of BUIP, by approving additional components, closing date extensions and cancellations in a timely manner. However, MoF's consistent and significant delays in the release of budget funds slowed implementation of BUIP. MoF was also slow in replenishing the pecial Account. 7.6 Implementing Agency: The performance of the implementing agencies, especially the Provincial Project Coordination Unit (PPCU), was highly satisfactory. The provincial government and the local governments shouldered almost the entire responsibility for implementing the project. Most of the appraised sub-projects were completed before the original loan closing date of December 31, However, in order to utilize the significant loan savings, the program was expanded to include other components and additional sub-projects. The outstanding performance of the implementing agencies on procurement and financial management was acknowledged by a Bank-appointed, independent auditor who stated: We find that overall the Bali Urban Infrastructure Project (BUIP) is the best-performing project with very little deviation in either procurement or financial management. (Procurement Post Audit and Financial Audit. Moores Rowland, Jakarta, Main Report, p.7.) The implementing agencies actively implemented BUIP's EMMP, with rigorous screening of sub-projects. Land acquisition and resettlement was carried out in accordance with the agreed resettlement policy framework. Local governments in southern Bali failed to restructure their PDAMs, despite the joint decree of August 2001, which was endorsed by the local parliaments and the provincial government. Problems encountered in the Jakarta water concessions likely contributed to the unwillingness of Bali local governments to complete restructuring as a prelude to initiate PP in water supply. 7.7 Overall Borrower performance: The Borrower s overall performance is rated as satisfactory

16 8. Lessons Learned BUIP was a complex multi-sectoral urban infrastructure project, with special emphasis on PP and cultural heritage, which expanded the decentralization envelope in Indonesia. High quality at entry, strong client commitment (especially at provincial and local levels), and dedicated supervision from a field based Bank team enabled the project to be implemented in a satisfactory manner, despite the multi-layered crisis that affected Indonesia from late The principal lessons from the project are: (a) PP in water supply should be handled as a separate project. The water supply component of BUIP envisaged PP and investment in the outh Bali region. Despite the strong commitment of the central and provincial governments, and the prima facie viability of PP in the region, PP did not materialize, mainly because of the reluctance of the local governments to merge the PDAMs and lose direct control over water supply in their jurisdictions. This was compounded by the strong negative impact of the economic crisis on foreign private infrastructure investments in Indonesia, including the Jakarta water concessions. In the end, GOI and the Bank task team had to abandon this part of the water supply component, and focus on the remaining aspects of this complex project. In retrospect, it is clear that the water supply PP should not have been made a part of an already complex integrated project, with so many innovative features. (b) The CHC component should have been more modest. Because of the unique cultural environment of Bali, and the strong interest from Government at national, provincial, and local levels, as well as strong endorsement from Bank management, the CHC component was designed in a comprehensive manner. The component was to be part financed by donors, as well as the international and Indonesian private sector. However, implementation was considerably hampered by the lack of experience of the CHC department with Bank procedures. The crisis and its aftermath resulted in donors and the private sector shying away from financing the CHC component. A more modest CHC component, focusing on a limited number of activities and financed by Bank and Borrower contributions would have been more effective. (c) Under certain conditions, a decentralized integrated urban infrastructure project can be successful. BUIP was more successful than other IUIDP projects in Indonesia because of: (i) the compact geography of the province; (ii) the strong commitment and leadership of the provincial government; (iii) the strong commitment of the central government to decentralization, and the willingness of the central government to play a facilitating and monitoring role; and (iv) the relatively good institutional and human resources capacity of the small number of local governments involved. In addition, field based supervision enabled the Bank to address issues as they arose, rather than to wait for formal half-yearly supervision missions. In the absence of these favorable conditions, some of the other IUIDPs had significantly less favorable outcomes. (d) Problems of governance can be tackled under the right circumstances. BUIP was extraordinarily successful in improving governance in procurement because of the strong commitment of key leaders in the province, and the pioneering efforts made to benchmark costs, and improve transparency. The spotlight on governance issues in the wake of the crisis was a major contributing factor. (e) The technical assistance component should be very focused. Compared to other IUIDPs, BUIP had fewer technical assistance packages. The 19 packages were grouped under five broad categories: (i) detailed engineering design and supervision (three packages); (ii) project management advisory services

17 (two packages); (iii) training (two separate categories); (iv) institutional development (seven packages); and (v) project related studies. Because of the attention paid by Government (especially at the provincial level), capable monitoring and management by PPCU, and regular supervision by the Bank, the overall achievement of this component was satisfactory. Nevertheless, the full impact of some of the good studies with satisfactory outputs could not be attained, because of the overload on key provincial decision makers. In retrospect it is clear that the technical assistance component should be more focused, with fewer packages, especially on institutional development and project related studies. 9. Partner Comments (a) Borrower/implementing agency: The following are comments from the Ministry of Public Works, Directorate General of Human ettlement Our Ref: 252/HL KA/2005 Jakarta 17 June 2005 To: Mr. Keshav Varma ector Director Urban Development ector Unit East Asia and Pacific Region, The World Bank 1818 H treet N.W. Washington, D.C , UA ubject: Comments For The World Bank's ICR For Bali Urban Infrastructure Project (BUIP) Dear Mr. Varma, We are very pleased to note that the overall achievement of BUIP is rated satisfactory. We also would like to express our appreciation for the best collaboration and network developed during the project implementation period. In general, the Government is in conformity with the Bank's assessment in the ICR. However, we feel it is necessary to add the following comments: 1. Project Achievement. Generally, the Government is in conformity with the Bank that the outcome rating of BUIP targets stated in Project Appraisal Document, is generally satisfactory. It can be said that almost all of the scope of work planned in the PAD is achieved, not to mentioned the work extension such as labor-extensive program and infrastructure for NTB. Although there are some differences in details, but they do not significantly affect the overall achievement valuation. The discrepancies may come from the distinctions in defining the measure or evaluation indicators. Therefore, in order to obtain a more comprehensive and agreed valuation, we suggest that the Bank provide the evaluation methodology in the final ICR document. 2. Control and Implementation. In comparison with similar project packages in past UDP family, BUIP can be considered an innovative model in terms of project control and implementation. Controlled flexibility in the implementation is also a positive value added, that is to say, provides discretion in fulfilling the program execution priority. Comparing to other similar program in the past, BUIP's approach achievement can be a lesson learned for other urban development programs in the future. However, it should be noted that this success was supported by the condition of Bali areas which are bestowed with conducive culture

18 and environment. Additional reminder that should be presented is that the program components, which are planned and executed in BUIP, are broad and vary. Besides physical components which are traditionally covered in UDP projects, this project, carried out some other activities such as cultural heritage and tourism revitalization, community empowerment, capacity building, and private sector participation. 3. Closing Date Extension. Project closing date was delayed for about three times, extended the completion time for about 21 months beyond the original plan. The Ministry of Finance was the institution that endorsed the closing date proposal, and it contributed to this delay, though it can be understood because the MoF has the responsibility to limit financial burden of the government. Regardless of the reasons, this extension caused the postponement of the community to harvest the benefit from the developed infrastructure. There are many factors associated with the reasons for closing date extension, which in fact, occurred in almost all UDP loan projects. In case of BUIP, land acquisition is one of the reasons for the delay. However, land acquisition problem should have been identified at the first time before project component implementation. The delay in BUIP occurred because of the land acquisition problem in Western Ring Road (WRR) package. Learning from the background of the problem, while giving emphasize to in-advanced land preparation, backed up by preparation, implementation, a more secure project mechanism, and other things, in the future, it is expected that BUIP can be the last case for closing date extension. 4. Urban Roads & Traffic Management. In general, the achievement of urban roads and traffic management component development is assessed as successful, despite some discrepancies between PAD's planned outputs and the real achievements, prolonged land acquisition process of WRR, the component of this project, contributed to the delay of BUIP completion. In fact, the land acquisition problem was solved partly and the road was built, but unfortunately, without appropriate technical performance, due to the lack of technical specification compliance. In the future, land acquisition for any component development, in this case urban roads, should comply with standard technical requirements and driving safety. 5. Water upply. Water supply component which was programmed through LA was not realized because the PDAM's were unable to increase their borrowing capacity. This fact can be the source of learning for future feasibility studies, in which the preparation process should cover formal commitments of all stockholders of UDP. In case of BUIP, despite the absence of water supply sector loan, the efforts for water supply service improvement were not reduced. This component was carried out anyway using APBD and APBN source of funds to compensate the absence of foreign source of funding. 6. Private ector Participation (PP). Program implementation for water supply and solid waste components were planned to be incorporated in a regional implementation arrangement, that is, the management process involving two or more local governments who possess mutual expectation and interdependence. This innovative program is really expected to be the pilot of water supply and solid waste management for other region in Indonesia. Even though the targets of PP programs in these two components were not fully achieved, a better solid waste service arrangement is expected to be realized through Badan Pengelola Kebersihan arbagita (BPK), a regional implementation institution for solid waste management. The BPK should be maintained and activated by provincial government as a potential implementation agent for solid management agent for solid waste and other sector development. 7. Institutional Arrangement. From the preparation to the implementation phase, the involvement of provincial and municipal governments are considered superior. From government point of view, this is a good achievement. On the other hand, during the implementation of the BUIP, there had been a "take it for granted" change to the role and involvement of Executing Agency, whose position in BUIP arrangement was no longer the entire process of UDP implementation. While at the same time, the Bank somewhat

19 intensified its role, presenting a more influential role and support in the implementation process. Depart from this reality, the government expected that in the future, the EA terminology can be reoriented to the most recent condition of central-local government relationships. It is also imperative to carry out the reformulation of formal roles between Bank, BA, Implementation Agency, and other parties to guarantee a better mechanism for future UDP implementation arrangement. Thank you for your kind attention and continued support. Bambang Goeritno Director for Technical Development (b) Cofinanciers: Not applicable (c) Other partners (NGOs/private sector): Not applicable 10. Additional Information None

20 Annex 1. Key Performance Indicators/Log Frame Matrix Narrative ummary Key Performance Indicator PAD Target Realization Realization as % of PAD Target Project Development Objectives Improve urban infrastructure services in a sustainable manner to meet the basic needs of all important urban centers in Bali and the needs of growing urbanization in outh Bali as a result of tourism and other economic activities (a) Urban infrastructure investments (b) Private sector participation (c) Institutional strengthening (d) Cultural heritage conservation % of population served by piped water % of roads in good condition Volume of solid waste delivered to disposal sites (Million m3 per year) Number of major floods recorded per year Project Outputs Number of new water connections 29,400 43, Length of pipes laid (km) Length of roads constructed (km) Length of roads widened and surfaced (km) Volume of waste composted (m3 per year) 40,000 38, Area of waste disposal sites constructed or expanded (hectares) Number of communal toilets installed Number of wastewater treatment plants built or extended Length of drains constructed, widened or rehabilitated (km) Area of Kampungs improved (hectares) Number of markets built or improved Number of planned private sector investments committed Number of private sector participation studies completed EMMP implemented Yes Yes 100 Environmental training conducted Yes Yes 100 Revenue increase (RIAP) targets for local Yes Yes 100 governments achieved FRAP targets for PDAMs achieved Yes Mostly 75 Number of cultural heritage sites improved Inventory of cultural heritage sites compiled Yes Yes 100 Capacity for cultural heritage conservation Yes Yes 100 strengthened