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Cooperation Fund for the Water Sector

Pilot Demonstration Activity

Activity Title: Piloting Model for Collaboration Among PDAMs in West Java for Improved Raw Water Management

Proposer (Name, Div/Dept): PDAM Kabupaten Bandung, Kota Bandung, Kab. Subang and Kab. Sumedang (4 PDAMs)

Request Date:

Country (DMC): Indonesia Region: Southeast Asia

Activity Proposed Start Date: 1 February 2008 Activity Proposed Duration: 8 months

Cost Estimate: US$ 50,000.-

Implementing Organization Contact:

Dr. Ina Primiana, SE, MT, Director LMFE, University Padjadjaran Bandung

Jln. Cimandiri, 6, Bandung ; Tel & Fax: (022) 4239954 ; Email: imfe_unpad@yahoo.co.id.

Consultant Identified? If so, Consultant(s) Contact:

ADB Activity Officer - name, position, division, telephone and e-mail

Yuji Tsujiki, Financial Analysis Specialist, Infrastructure Div. Southeast Asia Department Tel- (632) 632-5807, Email- ytsujiki@adb.org

1. Background and Rationale: Service provided by most Indonesian Water Utilities (PDAM) to their inhabitants both in terms of quantity and quality of water is considered very inadequate. One of the main reasons for this is the lack of sufficient raw water sources nearby their existing and/or planned service areas. In addition to this the quantity and quality of water sources which are being used by PDAMs tend to decrease as well, and potential new water sources are further away from PDAM service area. These conditions increase the operation and maintenance cost of PDAM, resulting in poorer service to their current customers and only limited potential for increasing coverage. Because of this, it becomes difficult to raise tariffs, which then results in insufficient capital for PDAM to expand.

At the other side, there are water sources, especially springs, in certain District administrative areas which are not yet utilized by local PDAM, either due to the large capacity or combination of distance and elevation of the springs, which make it not economic to be utilized by the local PDAM. However these water sources could be economical if they are shared with neighbouring PDAM, which do not have alternative or sufficient sources.

Four PDAMs within Greater Bandung (Kota & Kab Bandung, Kab. Subang and Kab. Sumedang), with combined population of over 8 million people, are faced with this dilemma and realized the need of a close (formal) collaboration to utilize the combined water sources in the most efficient and effective way to provide reliable raw water sources for all four PDAMs. This collaboration will give tremendous benefits for all parties, such as :

• Secure quantity of good quality raw water through optimizing all raw water sources in the area • Improved level of service, supporting PDAM professional operation & financial sustainability • Increased access to safe water for the whole population inhabiting the whole Bandung region • Easier access to alternative investment financing through better matching of supply and

demand

The views expressed in this paper are the views of the authors and do not necessarily reflect the views or policies of the Asian Development Bank (ADB), or its Board of Directors, or the governments they represent. ADB does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.

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For PDAM Bandung Municipality, lack of new raw water sources combined with the reduced quantity and quality of existing water sources, results that PDAM can not provide appropriate services to their existing 145,000 customers (serve 40% of the population) and also can not expand their services, not even to the thousands customers presently on the PDAM waiting list. If there is no immediate solution to their lack of raw water sources, service provision of PDAM Bandung will decrease even further in the coming years. PDAM Bandung District also experiences the increasing problem of reduced water from their existing spring sources in the dry season, forcing them to start exploring water sources located outside their administrative boundary; but this is not an easy process due to various administrative, regulatory and financing problems. However there are several spring sources within Bandung District which are not yet utilized by PDAM Bandung District because these springs are not feasible from technical and economical point of view to be used for population of Bandung district; however they could be utilized if this raw water can be provided to Bandung municipality. For Subang and Sumedang District area, there are still many springs which are not yet utilized by either PDAM, because of distance and elevation issues with regard own population, but it appears that most of these springs could be utilized by others PDAMs, especially Bandung district.

For these reasons the four PDAMs approached the USAID funded ESP (Environmental Services Program), which is already working with them in area of watershed management and PDAM performance improvements. Together this proposal was developed requesting to conduct a Pre Feasibility Study to identify the possibilities of collaboration for water source utilization and water supply production of PDAM Subang, District, PDAM Bandung Municipality, PDAM Bandung District and PDAM Sumedang District (Bandung Greater Area). There is currently no umbrella organization (both within and outside the Government), which is responsible for the management and protection of these combined water sources and joined distribution plan with the 4 PDAM.

2. Objective: The objective of this PDA is to identify and to formulate the technical, financial and institutional components for a formal collaboration of 4 Water utilities in Bandung region, to facilitate better conservation and improved management of raw water sources. Specifically, the PDA will test the viability of 4 PDAMs collaborating to create a (legal) entity which be involved in the following programs: (i) facilitating water resources protection and management of the combined raw water supply, (ii) strong collaboration with government (local, provincial, national), CSOs and donor agencies for operational support and additional financing. The PDA will also develop the framework for such collaboration, institutional arrangements, and identifying the required processed and mechanisms. 3. Scope and location of Work / Description of Activities: The Scope of Work included in this PDA are:

(1) Raw water production scheme

To prepare the most appropriate water production scheme including following elements: • Analysis of historical and current project information with regard raw water availability • raw water demand prediction on next 10 year projection of water demand for four PDAM • cost estimation of the project implementation, including rough financial projection for next

10 years, for four PDAMs (required investment, operating cost, revenues / tariff ) To assess the sustainability of the system, to be detailed as follows:

• identification water resources prospect of available raw water sources (quantity and quality),

• long term continuity of raw water resources • long term threats related to the water quantity and quality, • recommendations of management, utilization and protection of water sources to maintain or

even upgrade these raw water sources

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(2) Institutional Comparative Analysis and Assessment of Legal Requirements and Processes for Creating the Legal Entity

To analyze and compare the different possibilities for the institutional setups to manage the combined raw water supply, including but not limited to the following components:

• Identify current institutions involved in / responsible for raw water protection and management in target area

• Undertake a stakeholder analysis including CSO, communities, private sector and define roles and responsibilities in catchment utilization and raw water supply

• Identify and summarize existing laws & regulations with regard to roles and responsibilities on watershed management and raw water supply

• Identify and describe political obstacles & opportunities through series of stakeholder workshops

• Identify possible institutional setups, taking into account current institutions, laws & regulations related to management and utilization of water sources

• Compare different options through a SWOT analysis • Describe expected main tasks and responsibilities of combined institution, including the

possible role / responsibility of the entity in bulk water supply to 4 PDAMs • Prepare cost estimation of the project implementation projection for the institution proposed

to manage the system, including alternative financing sources (3) Preparation Phase 2

Based on results, conclusions and recommendations from first phase develop an action plan containing as least the following elements:

• Summary of results, conclusions and recommendations, ready to be presented to stakeholders

• Action plan describing detailed steps, including responsibilities for various stakeholders • Identify potential of long-term financial resources from different Government levels (local ,

provincial and national) and / or donor agencies • Describe requirements to obtain this funding for purpose of raw water protection and

management • Draft TOR for follow-up phase

4. Implementation Schedule, Institutional Arrangements, and Proponent

Qualifications: 4.1. Implementation Schedule:

The project will be implemented over a period of 160 working days (8 months) as follows: Key activities Timeline Result 1: Water Resources Survey & Data Analysis 1 Hydro(geo)logy historical information collected and analyzed end Month 3 2 Raw water demand, supply and water production scheme proposed end Month 5 3 Financial Projection compiled and analysis end Month 5 4 recommendations of raw water management & protection end Month 6 Result 2: Institutional Structures Comparative Analysis 1 Stakeholder analysis of current institutions, CSOs, laws and regulations

completed end Month 3

2 Political obstacles and opportunities identified and agreed upon end Month 4 3 Possible legal setup for new entity prepared and agreed by main

stakeholders end Month 6

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4 Roles and Responsibilities of new entity agreed with stakeholders end Month 8 5 Follow-up plan and financing identified end Month 8 Result 3: Preparation Phase 2 1 Summaries, Action Plan, financial resources and TOR prepared end Month 8 Result 4: Stakeholder workshops 1 First stakeholder workshop (combined with presentation work plan) end Month 2 2 Second stakeholder workshop (combined with Progress Report 2) end Month 4 3 Third stakeholder workshop (combined with Final Report) end Month 7 Final Report Preparation & Submission 1 Work plan end Month 1 2 First Progress report end Month 3 3 Second Progress Report End Month 5 4 Draft Final report end Month 7 5 Final report + third stakeholder workshop end Month 8

4.2. Institutional Management Arrangement: Project preparation was done by the four PDAMs together with the Environmental Services Program (ESP). ESP is supporting a program with communities, local governments and PDAMs to conserve critical watershed and improve access to clean water by PDAM and community water supply systems. The four PDAM have already signed a MoU, which includes representation by PDAM Kabupaten Bandung.

This PDA will be implemented with LMFE (Management Faculty) of University Padjadjaran

(Bandung) as the implementing agency on behalf of the four PDAMs. The PDAMs will, however, be fully on board in all stages of PDA implementation, including advising ADB on their approval of the release of payment.

The four PDAMs will provide in-kind contribution to the project (office space, local transport, and local staff) and ESP will directly provide technical support.

4.3. Proponent Qualification: LMFE of University Padjadjaran Bandung is an independent institute under the Management Faculty of the University and has been in operation since 15 October 1988. The Management Faculty of UNPAD has been in existence since 1 December 1973. The goal of LMFE is to implement training, education and research programs to support the University mission. Organization structure of LMFE can be described as follows: Headed by a director (Dr. Ina Primiana), who is supported by a Secretariat; Activities of LMFE are divided over three sections: Research, Training and Scientific Development. All activities focus on the institutional and management aspects, which include institutional analysis, corporate culture, business planning, marketing strategy, feasibility studies. LMFE has around 15 fulltime professional staff members and in addition can call upon professional support by the University lecturers, which provides a pool of 30+ highly qualified specialist in fields of institutional management, marketing, finance, human resource development, operational, information systems, environment, etc. LMFE has extensive experience in implementing studies and training programs working with different Local and Provincial Government Departments, other Bandung based Universities, water utilities, local NGO’s and associations, private sector and donor agencies. They have a lot of experience in identifying institutional and political obstacles with Local and Provincial Governments and Parliaments, organizing seminars and assessment as well as previous studies on raw water situation in Bandung area.

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PDAM Kabupaten Bandung is a medium sized PDAM with around 46,000 connections, 330 employees, production capacity of 600 liter / sec and annual revenues of ca. US$ 3 million. Being in the central location of the four PDAM and having the secretariat of the Provincial board of all PDAMs in West-Java Province it is well suited to represent the four PDAMs. PDAM follow strict accounting and reporting principles, in line with National Government regulations and sufficient for ADB requirements. PDAM Kabupaten Bandung will coordinate the required office space, local transport facilities and supporting staff from the four PDAMs. Environmental Services Program (ESP) is a 5 year USAID-funded program, which focuses on supporting sustainable improvements in critical watersheds and water utilities. It has on his permanent staff a range of local specialists (like watershed management specialist, GIS specialists, PDAM specialists), who will support this pre-Feasibility study. ESP senior advisor will provide back-up for the necessary communication with National Government Departments. The provincial West-Java ESP office is situated in Bandung. ESP will continue until 30 September 2009.

ESP and PDAMs will be involved in all phases of the project in a supporting role to LMFE: • Preparation Phase: ESP/PDAM will support the preparation of the PDA proposal, facilitate

necessary meetings with ADB staff, National government representatives and support PDAM in selection consulting services

• Implementation Phase: ESP Watershed management, GIS, PDAM and Financial specialist

and PDAMs will support LMFE in the implementation of the program, maintain regular contact, assist in data collection & provision of maps, advice on financial projections, and support contact with stakeholders (Local & National Government, Parliament, donors, communities). ESP will also support PDAM in the project reporting, if required and act as liaison between PDAM management and ADB staff.

• Dissemination Phase: ESP and PDAMs will support LMFE in contacting key stakeholders for

follow-up program, advice on TOR preparation and assist in dissemination of results. 5. Expected Results (outputs/outcomes/effects/impacts): 5.1. Outputs:

The demonstration project will achieve the following measurable project outputs / reports:

i. Report on raw water demand, supply and protection scheme ii. Report on current institutions, laws, regulations and possible political obstacles iii. Report on possible legal setup , role & responsibilities new entity iv. Follow-up action plan, including financial sources and TOR v. (at least) three stakeholder workshops

The reports on the current status of the raw water sources within the whole target area, combined with the water demand and financial projection will be a fundamental outcome for development of further steps (more detailed studies, public and/or private sector financing opportunities) to be discussed as well in stakeholder workshops 1 and 2

The comparison of various institutional options and the preferred set-up agreed by the key stakeholders will also be a crucial achievement of this pilot study to support establishment of a professional, sustainable management system. This will be introduced in stakeholder workshop 2 and finalized after stakeholder workshop 3. The three stakeholder workshops will provide ample opportunity to obtain the political commitments from all levels of Government (Local, Provincial and National) required for the follow-up phase, which will be the formal establishment of the recommended institution to manage and maintain the water sources allocated as raw water supply for the four PDAMs

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Stakeholder workshops:

Consultants, collaborating with PDAMs and ESP, will organize three large stakeholder workshops:

• Start (end month 1): outline objectives, tasks & approach of the study and to obtain stakeholders aspirations, suggestions and (political) commitments

• Mid term (month 4/5): provide update on progress, assumptions and direction of the study and to obtain stakeholder feedback , suggestions and further (political) commitment

• Final (end month 7): discuss study results and recommendations for preferred institutional arrangements and follow-up activities.

In addition to the above large stakeholder workshops, the consultant will also conduct around 12 smaller workshops with local communities and other local stakeholders (per Kota / Kabupaten) to obtain more information on key issues and suggestions as well as further promote concepts of increased raw water conservation and the necessary legal and financial instruments to do this.

For stakeholder participation, please see item 7 below.

The project team will produce following progress reports:

• Work-plan Report describes the methodology of work implementation, organization structure and specialists that will be involved in Pre FS, Work Schedule and manpower schedule.

• First Progress Report, provide data’s collected and analysis of secondary data’s related with water sources and existing water supply system of each PDAM, political obstacles and political will to setup umbrella institution, legal issues, etc

• Second Progress Report, provide information on large and smaller stakeholder workshops, result of water source examination, water demand projection, evaluation of institutional alternatives, etc

• Final Report feasibility analysis of water source utilization, demand and financial projection analysis included source of financial funds, proposed alternatives for management institutions and recommendation of the next action required.

5.2. Outcomes:

This Demonstration project will be the start of a crucial intervention to improve long-term sustainability of the water resource condition in the area around Bandung (Greater Bandung). It is expected that this project can contribute to the following, long-term outcomes:

(i) improved management of water resources in Greater Bandung catchment area

(ii) improved protection of raw water resources, partly financed through PDAM tariff collection

(iii) a legal entity responsible for (i) and (ii), with roles and responsibilities agreed by all relevant stakeholders (Local and Provincial Governments/Parliaments, NGO’s, communities)

5.3. Effects and Impact:

The importance of this pre-Feasibility study is to identify the key problems with the water sources in the target area’s as well as the possibilities & benefit of close collaboration between the four utilities and their Local Governments. The workshops will promote this awareness and provide the incentives to form a professional sustainable organization, which will manage these resources for the future benefit of the 8 million people currently living in here and desperately in need of a reliable water supply service.

6. Measurable Performance Indicators:

Water Resource study for the target area including:

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• Primary and secondary data description and analysis • Hydrology and Hydrogeology characteristics • Raw water protection requirements

Water Demand Projection study for target area including • Population projection linked with water consumption patterns • Potential Water supply systems

Financial projection study for target area including • Cost estimate for water source development • Identification of potential financing streams

Institutional Management study, including • Identification and comparison of different institutional options • Conclusions and recommendations from stakeholders workshops

Legal requirements and procedures for forming the legal entity

Reports

• Work plan (month 1) • Progress Report 1 (end month 3) • Progress Report 2 (end month 5) • Draft Final Report (end month 7) • Final report (end month 8)

7. Stakeholders Participation:

Concerned Local Governments and Parliament: These are the key stakeholders form which the necessary political commitment is required to setup the (joined) management institution/agency and support future financing plans. They will not only be the main focus for the three stakeholder workshops, but will participate in regular (monthly) teams meeting.

Provincial & National government agencies: These agencies are crucial in supporting the initial concept, promoting it to Local Governments and Parliaments, providing additional technical expertise, identifying /resolving legal bottlenecks and disseminating it to other regions.

NGOs and Universities: They will be strong supporters during the stakeholder workshop to support both the professional direction and the community recognizing and involvement.

Local communities in watershed area’s: This program builds on developing strong relationships between water utilities and local communities, who are the main occupants of said catchment’s resources. ESP is already working with communities in some of the target area’s and will continue to built the bridge between PDAM and community groups, in order to involve them in all planning and decision making processes.

Donor and other financing agencies: This study will develop an institutional setup and plans, which will require substantial future donor and financial support. USAID/ ESP will facilitate participation of key donor and financing agencies (like ADB, WB, local banks, bond houses) during the stakeholder workshops.

8. Scope for Replication/Use in Other DMCs:

The problems faced by the four PDAM in Bandung area are the same in many other area’s of Indonesia, with dwindling water resources to be shared by multiple water utilities, without any formal collaboration structure or framework. The strong support by the USAID funded, ESP program, will introduce these results and lessons learned from this PDA to their other relevant working areas (Malang, Yogyakarta, Medan, Sibolga and Aceh). It is further expected that results of this study will link up with other ADB initiatives in the Bandung – Citarum river basin, so that this PDA will help in

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developing a model that could facilitate the design of future investment project proposed for ADB funding.

9. Cost Estimate:

The estimated total cost, including remuneration, workshop, local travel, reporting, and logistical support, is $88,000. Contribution from PDA grant is for US$ 50,000, with the remainder shared between PDAM and ESP (as in–kind contributions). Details can be found in table below. Can you kindly have the table recasted based on the following approved cost categories: Seminars/workships/conferences: Specialists services (this will cover consultants and technical support) Project Management (this will cover local officer support, reporting, sundries)

Input/Expenditure Category PDA

Grant (in US$)

PDAM Contribution

(in US$)

ESP Contribution

(US$)

Total

1. Local consultants (ca. 540 mandays):

Team leader , Institutional, Legal Financial, Hydrologist, Water Supply / specialists + Assistants, data-entry staff

34,400

0 0 34,400

2. Workshops/Fieldtrips: 15 stakeholder workshops (in

Bandung)

13,000 0 3,000 16,000

3. Local office support: - Office space (furnished, AC,

computer) - Local transport (to field)

- admin staff support (secretariat) - maps, other secondary data

20,000 6,000 6,000 4,000 4,000

0 20,000

4. Technical Support (ca. 150 mandays) : - Senior advisors (expatriate) - Hydro(geology) specialist - Watershed management specialist - Water Supply / Institutional Specialist - Financial Specialist

0 0 15,000 15,000

5. Other inputs: - Reporting

- Miscellaneous sundries

2,600 500 2,100

2,500

Total 50,000 20,000 18,000 88,000

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ANNEX 1: Time Schedule

Time Period N

o Subject Activity Month 1

Month 2

Month 3

Month 4

Month 5

Month 6

Month 7

Month 8

A WATER RESOURCES 1 Hydro(geo)logy historical information

collected

2 Data analysis and examination of long term continuity of water quantity and quality

3 Recommendation of raw water management & protection

B WATER PRODUCTION SCHEME AND FINANCIAL PROJECTION

1 Collect and analysis the existing water consumption and projection raw water demand

2 Propose water production scheme & cost estimate

3 Financial projection compiled and analyzed

C INSTITUTIONAL STRUCTURES COMPARATIVE ANALYSIS

1 Collect & analysis of current institutions, laws and regulations completed

2 Political obstacles and opportunities identified and agreed upon

3 Possible legal setup for new entity prepared and agreed by main stakeholders

4 Roles and Responsibilities of new entity agreed with stakeholders

5 Follow-up plan and financing identified

D PREPARATION PHASE 2 1 Summaries, Action Plan, financial resources

and TOR prepared

E STAKEHOLDER WORKSHOP

1 Large Workshops 2 Smaller Local workshops G REPORTS

1 Workplan 2 Progress Report 1 3 Progress Report 2 4 Draft Final report 4 Final report

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ANNEX 2: Budget breakdown

Breakdown estimated consultant cost No Activity Unit Volume Unit cost

($) Total Amount

(Rp.$) 1 Institutional specialist(s) / Team leader mm 8 700 5,600 2 Institutional specialist / regulations mm 8 550 4,400 3 Financial Specialist mm 4 550 2,200 4 Hydrologist/hydro-geologist (2p x 2m) mm 4 550 2,200 5 Water Supply/Environmental Specialist mm 4 550 2,200 6 Civil engineer (part-time) mm 4 550 2,200 7 Assistants Institutional specialist mm 16 350 5,600 8 Assistant technical mm 16 350 5,600 9 Secretary mm 8 175 1,400 10 data collection, entry package 1 3,000 3,000

Total budget 34,400 Breakdown workshops (3 large, 12 small) No Activity Unit Volume Unit cost

($) Total Amount

(Rp.$) 1 package meeting large meeting 50 people

each package 150 20 3,000

2 package meeting large meeting 25 people each

people 300 10 3,000

3 workshop materials (folders, reports, etc) package 500 10 5,000 4 workshop operation/documentation workshop 15 200 1,000 5 site visit (2x bus rentals, etc) field visit 1 500 1,000

Total budget 13,000