timor-leste eighth progress report · rdtl república democrática de timor-leste rmrc road...

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AbbreviationsAbbreviations

ADB Asian Development Bankaldeia subvillage or hamlet (Portuguese)ARP Second Agriculture Rehabilitation ProjectAPRACA Asia-Pacific Regional Agricultural Credit AssociationAusAID Australian Agency for International DevelopmentBPA Banking and Payment AuthorityCBO community-based organizationCDA Community Development AdviserCEP Community Empowerment ProgramCFET Consolidated Funds for East TimorCNRT National Timorese Resistance CouncilCTA Chief Technical AdviserCU credit unionCUF Credit Union FederationCWSS Community Water Supply and SanitationDOF Division of FisheriesDfID Department for International Development (UK)DNAT Direcção National da Administração TerritórioECHO European Community Humanitarian OrganizationEDTL Electricidade de Timor-LesteEIRP-1 Emergency Infrastructure Rehabilitation Project - Phase 1EIRP-2 Emergency Infrastructure Rehabilitation Project - Phase 2EIRR economic internal rate of returnETPA East Timor Public AdministrationETTA East Timor Transitional Administration (replaced by ETPA)FAO Food and Agriculture Organization of the United NationsFIRR financial internal rate of returnFMES Fisheries and Marine Environment ServiceFPRTL Foundation for Poverty Reduction in Timor-LesteGDP gross domestic productGoJ Government of JapanGoT-L Government of Timor-LesteIAMS Infrastructure Asset Management SystemICB international competitive biddingIDA International Development of AgencyIEC information, education and communicationIMFTL Instituição de Microfinanças de Timor-LesteINAP Instituto Nacional da Administração PúblicaIS international shopping

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IT information technologyJICA Japan International Cooperation AgencyLCB local competitive biddingMAE Ministério da Administração EstatalMAFF Ministry of Agriculture, Fisheries and ForestryMDE Ministry of Development and the EnvironmentMDP Microfinance Development ProjectMIS Management Information SystemMTCPW Ministério Dos Transportes, Comunicações E Obras PúblicasNDP National Development PlanNGO nongovernment organizationPCC Project Coordination CommitteePID Program Implementation DocumentPMU Project Management Unitposto subdistrict (Portuguese)QCBS Quality and Cost Based SelectionQRF Quick Response FacilityRDTL República Democrática de Timor-LesteRMRC road maintenance and rehabilitation contractSAS Serviço das Águas e Saneamento (Water and Sanitation Service)SEP Small Enterprises ProjectSMIF Sector Management Investment FrameworkSOTL ADB Special Office in Timor-Lestesuco villageTA technical assistanceTFET Trust Fund for East TimorUN United NationsUNDP United Nations Development ProgrammeUNMISET United Nations Mission of Support in East TimorUNPKF United Nations Peace Keeping ForceUNTAET United Nations Transitional Administration in East TimorUSAID United States Agency for International DevelopmentUSGET United States Support Group in East TimorWB The World BankWS&S water supply and sanitationWSS Water and Sanitation Service (replaced by SAS)WSSRP-1 Water Supply and Sanitation Rehabilitation Project - Phase IWSSRP-2 Water Supply and Sanitation Rehabilitation Project - Phase II

NOTE: In this report “$” refers to US dollars.

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Contents

PageMap of Timor-Leste iiAbbreviations iii

■■■■■ EXECUTIVE SUMMAREXECUTIVE SUMMAREXECUTIVE SUMMAREXECUTIVE SUMMAREXECUTIVE SUMMARYYYYY viiviiviiviiviiIntroduction viiOrigins of the Rehabilitation Programs viiRoads viiiPorts ixPower ixWater Supply and Sanitation xFisheries xiMicrofinance xiADB Technical Assistance xii

■■■■■ PARPARPARPARPART 1:T 1:T 1:T 1:T 1: INTRODUCTIONINTRODUCTIONINTRODUCTIONINTRODUCTIONINTRODUCTION 11111

■■■■■ The Destruction – September 1999The Destruction – September 1999The Destruction – September 1999The Destruction – September 1999The Destruction – September 1999 33333

■■■■■ Rehabilitation – October 1999 Until the PresentRehabilitation – October 1999 Until the PresentRehabilitation – October 1999 Until the PresentRehabilitation – October 1999 Until the PresentRehabilitation – October 1999 Until the Present 44444

■■■■■ Project SummaryProject SummaryProject SummaryProject SummaryProject Summary 77777

■■■■■ PARPARPARPARPART 2:T 2:T 2:T 2:T 2: INFRASTRUCTURE REHABILITINFRASTRUCTURE REHABILITINFRASTRUCTURE REHABILITINFRASTRUCTURE REHABILITINFRASTRUCTURE REHABILITAAAAATIONTIONTIONTIONTION 1111111111

■■■■■ Roads SectorRoads SectorRoads SectorRoads SectorRoads Sector 1313131313

Postconflict Condition 13Planned Interventions 14Cumulative Progress to 7th Progress Report: EIRP 1 17Additional Progress Since 7th Progress Report: EIRP 2 20Continuing and Prospective Needs 23

■■■■■ Ports SectorPorts SectorPorts SectorPorts SectorPorts Sector 2525252525

Postconflict Condition 25Planned Interventions 25Cumulative Progress to 7th Progress Report 25Additional Progress to Date 27Continuing and Prospective Needs 27

■■■■■ Power SectorPower SectorPower SectorPower SectorPower Sector 2828282828

Postconflict Condition 28Planned Interventions 29Cumulative Progress to 7th Progress Report 29

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Additional Progress to Date 33Continuing and Prospective Needs 33

■■■■■ WWWWWater Supply and Sanitationater Supply and Sanitationater Supply and Sanitationater Supply and Sanitationater Supply and Sanitation 3636363636


■■■■■ PARPARPARPARPART 3:T 3:T 3:T 3:T 3: SOCIAL AND ECONOMIC REHABILITSOCIAL AND ECONOMIC REHABILITSOCIAL AND ECONOMIC REHABILITSOCIAL AND ECONOMIC REHABILITSOCIAL AND ECONOMIC REHABILITAAAAATIONTIONTIONTIONTION 5151515151

■■■■■ FisheriesFisheriesFisheriesFisheriesFisheries 5353535353


■■■■■ MicrofinanceMicrofinanceMicrofinanceMicrofinanceMicrofinance 6161616161


■■■■■ PARPARPARPARPART 4:T 4:T 4:T 4:T 4: TECHNICAL ASSISTTECHNICAL ASSISTTECHNICAL ASSISTTECHNICAL ASSISTTECHNICAL ASSISTANCE FUNDED BY ADBANCE FUNDED BY ADBANCE FUNDED BY ADBANCE FUNDED BY ADBANCE FUNDED BY ADB 7777777777

■■■■■ Capacity Building TCapacity Building TCapacity Building TCapacity Building TCapacity Building Technical Assistanceechnical Assistanceechnical Assistanceechnical Assistanceechnical Assistance 7979797979

■■■■■ ADB TADB TADB TADB TADB Technical Assistance Summaryechnical Assistance Summaryechnical Assistance Summaryechnical Assistance Summaryechnical Assistance Summary 8383838383

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Executive Summary

Introduction

The program of Trust Fund for East Timor (TFET)-funded projects sought toaddress the emergency rehabilitation needs following the destruction that took placein September 1999. Asian Development Bank (ADB) managed six of the projects,1

primarily in infrastructure sectors but also in fisheries and microfinance amongeconomic sectors. ADB also funded, from its own resources and in partnership withthe Japan Special Fund, an ongoing program of 22 technical assistance (TAs)2—somesupporting the sectoral activities but the majority addressing the urgent needs of theGovernment of Timor-Leste to rebuild and develop the institutions and capacity ofgovernment itself. Fourteen of the TAs have been completed.

Four 3 of the six ADB-managed projects have been completed and projectcompletion reports are now being prepared to review effectiveness of implementationand learn lessons for the future. A fifth project, Microfinance Development Project,is substantially complete and remaining work addresses needs for transforming themicrofinance institution for its long-term ownership and management. The sixthproject, Emergency Infrastructure Rehabilitation Project Phase 2 (EIRP-2), is currentlyin progress.

With most emergency rehabilitation work completed, this 8th Progress Reportreviews the progress from the destruction and postconflict status in 1999, throughthe project interventions and their impacts, to the continuing need for development.The review takes a sector perspective rather than a narrower, time-bound project-centered view.

Origins of the Rehabilitation Programs

The 1997 Asian financial crisis had increased to over 50% the proportion ofTimorese households living below the poverty line, double Indonesia’s average. The1999 conflict is estimated to have caused the poverty level to increase to some 80%of the people, many of whom faced a real and imminent risk of starvation. Half thepeople were displaced, 175,000 out of Timor-Leste and 200,000 within Timor-Leste.About a third of the displaced people returned within some 6 months. Returning home,

1 The total of the grants for the six projects is $52.8 million. Details are given in Table 1.1.2 The total grants for the TAs approved to date is $9.3 million. In this continuing program of support

by ADB, two TAs for a total of $0.7 million have been approved since the 7th Progress Report.Details of TA grants are given in Table 4.1.

3 Emergency Infrastructure Rehabilitation Project - Phase 1 (Grant 8181-TIM(TF)); Water Supplyand Sanitation Rehabilitation Project - Phases 1 and 2 (Grants 8185-TIM(TF) and 8189-TIM(TF));and Hera Port Fisheries Facilities Rehabilitation Project (Grant 8190-TIM(TF)) are complete andsubjects of project completion reports under preparation in the first half of 2004.

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they found their houses, crops, farm inputs and other means of livelihood looted ordestroyed. Access to nourishment was minimal and tenuous—the people’s ability toproduce their own food had been ruined, the transport system was in danger of failureand the economic supply system had collapsed.

In partnership with the Timorese people, the international community respondedto the humanitarian and security crisis. The TFET strategy sought to facilitate earlyrelief of hardship by institutional and infrastructure rehabilitation. Prioritization wasbased on urgency, with highest priority given to avoidance of imminent failures. Quickimpact engineering work could avoid complete failure in roads, ports, power andwater supply. Economic and financial sectors were less ‘urgent’ in terms of quickimpact works as the failures of markets and institutions had already occurred.

Roads

Postconflict conditionsPostconflict conditionsPostconflict conditionsPostconflict conditionsPostconflict conditions were the result of a long term lack of adequatemaintenance combined with poor design and construction of the roads. Topography,geology, and climate contributed to the fragility of roads built for low traffic volumesand light axle loads. Postconflict humanitarian and security traffic increased volumeand loads, accelerating deterioration so that there was a risk of imminent networkfailure.

Planned interventionsPlanned interventionsPlanned interventionsPlanned interventionsPlanned interventions under TFET consisted of the roads component of theEmergency Infrastructure Rehabilitation Project Phase 1 (EIRP-1) and the whole ofPhase 2 (EIRP-2). The EIRP-1 addressed emergency needs to (i) restore all main arteriesto viable conditions; (ii) construct essential causeways and bridges; and (iii) establishan effective local contracting industry. These interventions addressed theemergency needs and the EIRP-2 supported long-term development throughcapacity building and engineering solutions to reduce maintenance costs to a levelaffordable for Timor-Leste. The EIRP-1 roads component was completed in June 2002.EIRP-2 is ongoing.

Development impactsDevelopment impactsDevelopment impactsDevelopment impactsDevelopment impacts of the EIRP-1 were primarily in maintaining access forhumanitarian and security efforts and in providing rural employment at a critical time.While much of the physical, emergency rehabilitation is unlikely to have long-termimpacts, the EIRP-1 also provided capacity building for the Government to plan,implement, and maintain roads and capacity building for local contractors to carryout such works.

ContinContinContinContinContinuing needsuing needsuing needsuing needsuing needs for the roads sector have been assessed in the sectorinvestment program4 to meet the Government’s 10-year vision to (i) raise the networkto a sustainable condition with life cycle costs minimized, closures reduced, and reliableaccess; (ii) improve key roads to meet the needs of a growing economy; and (iii)

4 “Timor-Leste Transport Sector Investment Program,” November 2003, prepared by the Ministryof Transport, Communications and Public Works with ADB support.

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ensure effective capacity to manage the network with private sector and communityparticipation and adequate cost-recovery from users. The EIRP-2 activities willcontribute to realization of this vision.

Ports

Postconflict conditionsPostconflict conditionsPostconflict conditionsPostconflict conditionsPostconflict conditions included little damage to port structures but the porthandling equipment had been destroyed. Outside Dili, there was very limited cargohandling capacity, based on simple beach landing facilities. Port capacity was toolimited for the volume of humanitarian and security cargo. Ships queued for 9–12days, threatening failure of port activity and consequent disruption of the relief effort.

Planned interventionsPlanned interventionsPlanned interventionsPlanned interventionsPlanned interventions under the EIRP-1 port component aimed to expand portfacilities and improve cargo handling capacity to urgently reduce Dili port congestion.Meeting this short-term objective created facilities for long-term use: the third berthand slipway were repaired; a concrete deck was constructed on the third berth; andthe hardstand area of the eastern container yard was rehabilitated. Works werecompleted in 2002.

Development impactsDevelopment impactsDevelopment impactsDevelopment impactsDevelopment impacts were the increased speed and efficiency in handling securityand humanitarian cargoes. In the long-term, a resource has been created whichimproves capacity to handle import and export of goods.

ContinContinContinContinContinuing needsuing needsuing needsuing needsuing needs are foreseen by the transport sector investment program asbeing for light-handed regulation of financially self-sustaining ports. Dili Port is already“off-budget” with revenues funding recurrent costs.

Power

Postconflict conditionsPostconflict conditionsPostconflict conditionsPostconflict conditionsPostconflict conditions were of generating stations’ equipment and structuresdamaged by arson and gun fire. Control panels, fuel systems, and wiring were destroyedand movable equipment looted. Transformers were drained and riddled with gunfire,and transmission and distribution cables had been removed or damaged in the torchingof adjacent homes and buildings. Office equipment and records were destroyed orlooted. Indonesian staff, who had filled all middle and senior management posts andmost skilled jobs, returned to Indonesia.

Planned interventionsPlanned interventionsPlanned interventionsPlanned interventionsPlanned interventions of TFET were developed in the context of urgentmeasures by individual donors: the Department for International Development (UK)(DfID) restored 21 power stations by April 2000. Other donors including Japan andPortugal, subsequently participated. By late 2000, capacity was restored to 80% of thepredestruction level. The 20% of capacity which remained unusable was typically inthe small, rural power stations and their supporting local distribution networks. Thesebecame the focus of the EIRP-1’s power component. Savings on other componentsof the EIRP-1 were transferred for rehabilitation of transmission and distributionnetworks. Sixteen rural power stations and their networks have been rehabilitated,

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management and financial systems developed, and the Government assisted in strategyand plan development. Physical completion is expected in May 2004.

Development impactsDevelopment impactsDevelopment impactsDevelopment impactsDevelopment impacts of restoration and extension of power supply to ruralconsumers is contributing to poverty reduction by facilitating livelihood activities,improving the quality of life, and supporting the resumption of services, such as health,education and water supply facilities.

ContinContinContinContinContinuing needsuing needsuing needsuing needsuing needs include: (i) establishment of efficient management systemsand sector planning capacity; (ii) review and development of capacity for managementof district and subdistrict systems; (iii) review of eight district power stations and twosubdistrict power stations which have not yet been rehabilitated; and (iv) expansion ofdistribution networks to increase sustainability of power stations, increase poor householdsbenefiting, and enhance affordability through both lower unit costs and quality of supply.

Water Supply and Sanitation

Postconflict conditionsPostconflict conditionsPostconflict conditionsPostconflict conditionsPostconflict conditions were of severe damage from looting, arson anddestruction of equipment, treatment plant, storage tanks, offices, and stores. Watersources were impaired and contaminated; destruction of homes included their meters,latrines and septic tanks. The institutional infrastructure was severely damaged buta core of Timorese technical staff remained. In community operated water systems,the community itself could begin restoration and operation of the systems.

Planned interventionsPlanned interventionsPlanned interventionsPlanned interventionsPlanned interventions by TFET were the Water Supply and Sanitation ProjectPhases 1 and 2 (WSSRP-1 and 2). The WSSRP-1, in Dili and in districts, aimed torehabilitate water supply and sanitation infrastructure and reestablish capacity tomanage, operate and maintain the infrastructure. The WSSRP-2 continued these aims,but the Government decision to focus on rural development resulted in increasedallocations to district and community systems. Implementation began in late 2000and the WSSRP-2 was completed in December 2003.

Development impactsDevelopment impactsDevelopment impactsDevelopment impactsDevelopment impacts included emergency support for rehabilitation of watersupplies in Dili and selected districts and longer term impacts in Dili, districts andrural communities supporting health, infrastructure and human development goals.Some 112,000 people are estimated to benefit from improved water supply andsanitation and some 76,250 person-days employment was generated inimplementation. Capacity building supported sustainability of Government andcommunity-managed systems.

ContinContinContinContinContinuing needsuing needsuing needsuing needsuing needs include improved data on water resources and water use toallow more effective planning, and agencies need to collect and share data.Government resources will be insufficient to fund community and rural services andthe Water and Sanitation Service (WSS) will require assistance to fill the role of peakmanager in the subsector. WSS capacity building needs a longer term approach togive local ownership and improve water supply management. Health and hygienepromotion to end-users will maximize health benefits of the improved services.

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Fisheries

Postconflict conditionsPostconflict conditionsPostconflict conditionsPostconflict conditionsPostconflict conditions of Hera Port were poor due to the combination of poorconstruction and maintenance. Most inshore fishing boats and gear had beendestroyed. Offshore, commercial fishing boats were destroyed or removed includingabout 24 which went to Atauro island, of which only 4 or 5 are operational.

Planned interventionsPlanned interventionsPlanned interventionsPlanned interventionsPlanned interventions followed a strategic plan for a private sector-basedindustry. An enabling environment for the private sector was to be created by theGovernment with bilateral support, including fisheries legislation. TFET planned torehabilitate Hera Port to contribute to the objective to improve nutrition by developingoffshore pelagic fisheries. Breakwaters and wharf faces in the harbor basin wererehabilitated by the end of 2002 and the project closed in January 2004.

Development impactsDevelopment impactsDevelopment impactsDevelopment impactsDevelopment impacts remain uncertain. The port is necessary but insufficient,by itself, to develop offshore fisheries. Bilateral support for sector development wasdelayed. Fisheries legislation is expected to be enacted soon. With no enablingenvironment created by the Government, private sector development has not occurred.The intended impacts can be achieved, though delayed.

ContinContinContinContinContinuing needsuing needsuing needsuing needsuing needs depend upon legislation and its implementation by theDivision of Fisheries (DOF) to promote commercial fishing. Port activity must bemonitored as part of fisheries management but staff must first be appointed for theport. The DOF has neither commercial nor port management skills. The DOF also hasno facilities and equipment. These activities were planned to be private sector-basedand if the DOF is to undertake them, it will need support.

Microfinance

Postconflict conditionsPostconflict conditionsPostconflict conditionsPostconflict conditionsPostconflict conditions saw the small, largely urban-based banking sectorwithdraw from Timor-Leste with staff, records, assets and the deposits of the Timoreseclients. The formal payments and regulatory systems ceased to function. Loss ofdeposits contributed to the reduced activity of moneylenders, the major source ofrural finance. Most of the credit unions collapsed, with only 4 of 27 consideredoperational.

Planned interventionsPlanned interventionsPlanned interventionsPlanned interventionsPlanned interventions immediately addressed the transaction requirements ofinternational agencies and staff with offices of two foreign banks providing a limitedrange of services in Dili, including management of the TFET-funded, WorldBank-managed Small Enterprises Project. The Microfinance Development Projectsought to address the needs of the Timorese poor and rural communities by developinga microfinance bank, rehabilitating credit unions and supporting capacitydevelopment.5

5 Capacity development has also been supported by three ADB-funded TAs.

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Development impactsDevelopment impactsDevelopment impactsDevelopment impactsDevelopment impacts include the creation of a regulatory framework andestablishment of the Instituição de Microfinanças de Timor-Leste (IMFTL) which hasthree branches, including two outside Dili. To end-March 2004, IMFTL had made loansto 7,470 individual borrowers, including microcredit groups, of whom 4,422 had fullyrepaid. Some 6,260 people held deposits. Credit unions have proved beyondrehabilitation. Poverty reduction and livelihood activities are served by the ongoingavailability of credit and secure savings facilities for the poor and rural communities.The project is substantially complete and transfer to long-term ownership andmanagement will be completed by the end of 2004.

ContinContinContinContinContinuing needsuing needsuing needsuing needsuing needs of IMFTL are the expansion of its branch network to moredistricts and communities. Further training in finance and banking skills will assistIMFTL and also provide a core of skills to support development of other financialactivities. The legal and regulatory framework requires further development to addressissues including enforcement of credit contracts and completion of the legal frameworkfor credit unions.

ADB Technical Assistance

Grants for the technical assistance program funded by ADB with support fromthe Japan Special Fund now total $9.3 million. Twenty-two technical assistance (TA)projects have been approved, including two since the 7th Progress Report. FourteenTAs have been completed, seven are ongoing or starting and one is delayed pendingagreement on a revised scope to avoid overlap with other work.

TAs include planning and capacity building TAs paralleling TFET-funded projectsmanaged by ADB, including for microfinance, power, transportation and waterresources. Many, accounting for most of the grant total, address the need for capacitybuilding in government at national and local levels.

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Part 1

Introduction

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Intro

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Introduction

The Destruction – September 1999

On 30 August 1999, the people of East Timor1 voted overwhelmingly forindependence. During the following month the people experienced a concertedcampaign of destruction and terror. Half of the people fled their homes and most ofthe country’s infrastructure and private homes and property were destroyed. Almostall property of value was looted, burned or destroyed, including residential and publicbuildings, utilities, inventories of essential food and agricultural stocks. The ability ofEast Timor to function as a coherent social and economic community was at risk.

Pre-September 1999

In 1996, East Timor’s per capita income was $431, compared with anIndonesian national average of $1,153. The country was overwhelmingly rural,with about 90% of the people living in rural areas. Some 71% of the people derivedtheir primary income from agriculture, based on rice and maize crops forsubsistence and domestic markets, supplemented by coffee and beef as cashgenerating, export activities. Only 29% of families had access to potable water,and only 22% had electricity.

The Indonesian economy was particularly hit by the Asian financial crisis of1997: the rupiah declined in value and interest rates rose, dampening economic activityeverywhere. Poverty made East Timor particularly reliant on central Governmentspending—up to 85% of current and capital expenditure in East Timor—and the countrywas consequently hard hit by the constraints which the crisis placed on governmentspending. In 1998, the already low per capita income of the East Timorese people hadfallen further, to an estimated $300, among the lowest in the Asia and Pacific region.In 1996, 30% of East Timorese households were in poverty, twice the nationalIndonesian average. The crisis roughly doubled this, so that 50–60% of householdswere below the poverty line.

Destruction Impacts

The violence following the August 1999 referendum took place in an alreadypoor and weakened country, which had little ability to withstand or to recover fromthe harm inflicted.

1 The name East Timor is maintained for the period prior to the formal adoption of Timor-Leste asthe official name of the independent country in November 2002 and for institution names ofwhich it formed a part, such as UNTAET and TFET.

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Timor-Leste Eighth Progress Report4

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Half the people were displaced. About 175,000 were displaced out of East Timorand reduced to acute poverty in refugee camps. Another 200,000 were displaced withinEast Timor. Within 6 months, about 120,000 people returned to their home villages,but typically found that their homes, crops, farm inputs and other means of livelihoodhad been taken or destroyed.

Wrecked homes were replaced by makeshift plastic structures and tents. Day-to-day access to nourishment was minimal—and made high cost due to the transportcosts on damaged roads and poor infrastructure. The planting season was missed orseverely disrupted for most farm families, with bleak prospects for subsistence andcash farm incomes. Off-farm employment was scarce as both public and private sectorssuffered almost total collapse. Even those with savings—including the small EastTimorese middle class—faced poverty as the Indonesian-controlled financial systemmoved out, taking deposits and records with them.

It is probable that 80% of the East Timorese people survived below the povertyline and many faced a real and imminent risk of starvation.

Rehabilitation – October 1999 until the Present

East Timor, thus devastated, could not meet the demands of social and economicrecovery without substantial and effective international assistance.

The United Nations Transitional Administration in East Timor (UNTAET) wasestablished on 25 October 1999, under Security Council Resolution 1272, to ensurestability and establish a transitional government, rehabilitating and re-equipping thecivil service, police and judiciary. On 17 December 1999, international donors met inTokyo and pledged $520 million for East Timor. This included $150 million forimmediate humanitarian assistance and $147 million for a Trust Fund for East Timor(TFET) administered by the World Bank and managed in close cooperation with theAsian Development Bank (ADB). Responsibilities were shared so that: (i) the WorldBank led in areas of health, education, agriculture, irrigation, small and mediumenterprises, and economic capacity building; and (ii) ADB led in roads, ports,transportation, water, telecommunications, and power.2

Infrastructure Sectors

The strategy for the TFET programs was to be set by East Timorese and UNTAETrepresentatives and facilitated by the World Bank and ADB. The strategy for initialwork plans sought early relief of the people’s hardship and the facilitation of reliefand development efforts through institutional and infrastructure rehabilitation. Criteria

2 Microfinance and community development were added to ADB’s list of responsibilities in theTFET Statement of Operational Guidelines agreed between World Bank and ADB and at the secondDonors’ Meeting in Lisbon in June 2000.

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used in prioritizing programs were: (i) impact on the poor, (ii) generation ofemployment, (iii) institutional capacity building, (iv) need to respond to external timepressures,3 and (v) early treatment of bottlenecks to reconstruction.4

This joint process, undertaken by the East Timorese and the internationalcommunity, set the priorities for the TFET-funded programs managed by ADB andwhich are reported upon in these progress reports:

• RoadsRoadsRoadsRoadsRoads rehabilitation was identified as a priority due to the imminent risk offailure of parts of the road network and the potential for employment creation.The roads component of the Emergency Infrastructure Improvement Project’sPhases 1 and 2 addresses the need to prevent failure of the system and createemployment.

• PortsPortsPortsPortsPorts management was key as the lack of civilian port capacity at Dili createda bottleneck for relief efforts. The ports component of the EmergencyInfrastructure Improvement Projects addressed the need to remove thebottleneck on imports.

• PowerPowerPowerPowerPower needs were immediately being addressed by the UK’s Department forInternational Development (DfID), up to April 2000, and other bilateral donorshad interests in this sector. With bilateral donors directly addressing immediateneeds, early TFET plans were developed as contingency pending assessmentof needs and coordination with bilateral donors. The power component ofthe Emergency Infrastructure Rehabilitation Project, in design andimplementation, has had the flexibility to meet power needs in coordinationwith parallel work by bilateral donors.

• WWWWWater and Sanitationater and Sanitationater and Sanitationater and Sanitationater and Sanitation were judged to be less urgent because the risk oftotal failure was assessed to be less than in roads and power. However, thesector was considered critical to the welfare of the poorest and initial workwas undertaken to prepare a project beginning in late 2000. The Water Supplyand Sanitation Project addressed these critical needs of the poor.

In this process the prioritization was based on urgency, with priority givento imminent failures which could be avoided. In roads, ports and power, completefailure could be avoided by simple engineering measures. Implementing thisstrategy, the major ADB-managed projects for Emergency InfrastructureRehabilitation and for Water Supply and Sanitation were concerned primarily withensuring avoidance of system failures with issues of long-term sustainability oreconomic returns a lower priority than the response to emergency security andhumanitarian needs.

As a result, project design tried to strike a balance between urgency and quality.In the first round of emergency projects urgency was the priority. However, as the

3 For example, the start of the school year, agricultural cycle, timing of human interventions.4 For example, lack of port capacity, lack of procurement and financial management capacity.


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risks of failure were reduced and the pressure of urgency was eased, the balanceshifted to greater emphasis on quality so that issues of sustainability and viabilityassume increasing importance in the second phase continuation projects for roadsand water supply.

Social and Economic Sectors

Humanitarian relief justified the failure avoidance requirement in infrastructureprojects and in the emergency food distribution and health activities to sustain lifeitself. However, when priority was given to avoidance of imminent failures through‘quick impact/fix’ interventions, there were few ‘quick fix’ social or economicprograms. Failure of agriculture, the prime source of income for 71% of the people,was a major problem but not a priority - the planting season for 2000 had alreadysubstantially failed and could not be avoided. The failure of private and public sectoreconomic activity, also, had already happened and no ‘quick fixes’ were possible.

Social and economic rehabilitation - to be led by the World Bank - were muchmore complex, depending on rehabilitation of human resources and institutions ratherthan machinery and construction alone. The absence of ‘quick fix’ options, however,was not seen as justification for delaying the start of preparations.

After centuries of colonization, the East Timorese sought to participate as muchand as soon as possible in the rehabilitation and development of their country, aswell as to prepare for full independence. In Manila and Dili, representatives of theNational Timorese Resistance Council (CNRT) stressed the need for capacity building,aware that there can be no lasting success in development without effective capacitybuilding on a broad scale. UNTAET was responsible for establishing governmentstructures and rehabilitating the civil service, but welcomed the support offered byADB which, to date, has involved 12 capacity building technical assistance programsin a total amount of $5.7 million. This capacity building support is described in Part4 of this report.

CNRT representatives also stressed to ADB the urgent need to commenceeconomic rehabilitation to meet the employment and income needs of the people.Initial work on the Community Empowerment Program (CEP)5 led ADB to identify aneed for private sector microfinance to fill a gap between the TFET SME credit program,managed by the World Bank, and the development funds made available to localgovernments through CEP. CNRT, UNTAET and the World Bank welcomed this initiativefor ADB to act outside the original, narrow scope of infrastructure rehabilitation andparticipate in the economic rehabilitation effort.6

5 A technical assistance (TA 3400 ETM approved by ADB in February 2000) initially funded by ADBbut jointly managed by ADB and the World Bank.

6 Subsequently extended to include support to fisheries through rehabilitation of Hera Port underan ADB managed TFET project.

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Neither the capacity building nor economic rehabilitation interventions formedpart of the initial strategy of emergency, quick impact responses to threatened failures.They do, however, demonstrate the flexibility and responsiveness of the rehabilitationefforts to developing needs, especially the needs indicated by the East Timorese themselves.

Project Summary

In pursuit of rehabilitation efforts in the areas assigned for TFET-funded projects,ADB has designed and managed a total of six projects, of which two have beencontinuations of other projects. The grants and present status of projects aresummarized in Table 1.1.

The total grant for the six projects is $52.8 million. Of this amount some $29.8million, 56%, was for the Emergency Infrastructure Rehabilitation Project (EIRP) anda further $9 million is for the second phase EIRP-2, a total of $38.8 million, 73% ofthe total grant managed by ADB

The first EIRP was a multisector project addressing the needs of roads, ports,and power sector rehabilitation though with roads predominant. The second EIRP isentirely for roads. The division of the grant funds between sectors is summarized in

Table 1.1: TFET-Funded ADB-Administered Projects

As of 30 April 2004

ContractsNo. Project Name Grant Awarded Disbursed Available

8181 Emergency Infrastructure $m 29.800 29.642 29.592 0.158

Rehabilitation Project 1 % 100.0 99.5 99.3 0.5

8198 Emergency Infrastructure $m 9.000 0.467 1.237 8.533


8185 Water Supply and Sanitation $m 4.500 4.500 4.500 0.000


8189 Water Supply and Sanitation $m 4.500 4.500 4.500 0.000


8190 Hera Port Fisheries Facilities $m 1.000 0.998 0.998 0.002

Rehabilitation Project % 100.0 99.8 99.8 0.2

8186 Microfinance Development $m 4.000 3.310 3.679 0.690

Project % 100.0 82.8 92.0 17.3

Total$m 52.800 43.417 44.506 9.383

% 100.0 82.2 84.3 17.8

Note: Disbursed amounts exceed contracts in ongoing projects as the whole amount of Imprest Advance is considered

disbursed even if contracts have not yet been awarded.


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Table 1.2. Implementation of these related projects is reviewed for roads, port, andpower sectors separately in Part 2 of this report.

The second largest commitment of funds was to the two Water Supply andSanitation Rehabilitation Projects. The first phase emphasized restoration of potablesupplies. The second placed more emphasis on long-term sustainability. These projectsare discussed together in Part 3.

The remaining projects are both aimed at social and economic rehabilitation.Hera Port Fisheries Facilities seeks to develop offshore fisheries and theMicrofinance Development Project seeks to develop microfinance in place of thecollapsed and withdrawn Indonesian financial system. These two social andeconomic projects are discussed in Part 4.

Principally from its own resources,7 ADB also funded 22 technical assistanceconsultancies for a total grant of some $9.3 million—an additional amount equivalentto some 18% of the TFET projects managed by ADB. As noted earlier, 12 of thesetechnical assistance grants supported more general capacity building for the newgovernment and these are discussed in Part 4. However, 10 of the technical assistancegrants either supported or complemented the TFET-funded projects and details ofthese grants are included with the relevant sector descriptions in Parts 2 and 3 toprovide a full sectoral picture of ADB-managed projects and technical assistancegrants.

This report describes the six TFET-funded projects managed by ADB. Most ofthe projects are now substantially complete. The two Water Supply and SanitationRehabilitation Projects and the Hera Port Project are complete and Project CompletionReviews of the three projects are being processed in the first half of 2004. There isno additional progress to report for these three projects since the 7th Progress Report.The roads and ports components of the first Emergency Infrastructure RehabilitationProject were completed in June 2002, as planned, and the more complex and improved

7 TAs were mainly financed from the ADB’s ordinary capital resources, not the concessionary fundsprovided by donors for the Asian Development Fund. Some TAs were jointly funded by ADB andthe Japan Special Fund made available to ADB for TAs.

Table 1.2: Sectoral Distribution of Grants in Emergency Infrastructure

Rehabilitation Projects

ComponentEIRP EIRP-2 Total EIRP

US$ m % US$ m % US$ m %

Ports 1.19 4 0.00 0 1.19 3

Roads 20.61 69 7.65 85 28.26 73

Power 5.52 19 0.00 0 5.52 14

Consulting Services 2.48 8 1.35 15 3.83 10

Total 29.80 100 9.00 100 38.80 100

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power component is now drawing to a close in the second quarter of 2004. The ProjectCompletion Review of EIRP-1 will commence in the second quarter of 2004 and theadditional progress reported since the 7th Progress Report is limited to the completionof the power component.

The Microfinance Development Project is substantially complete but has beenextended to late 2004 to facilitate a smooth and effective transfer of the institutionto its long-term, postimplementation operations. Progress is reported here on thetransformation of the Instituição de Microfinanças de Timor-Leste (IMFTL) to itspostproject operations.

The sixth and final project, EIRP-2, also has regrettably limited new progressto report in the period as, almost 2 years after approval on 18 May 2002, it has yetto begin work on the ground.

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Part 2

Infrastructure Rehabilitation

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Roads Sector

Postconflict Condition

The damage caused in the conflict compounded the accumulation of poormaintenance so that the road system was at risk of failure of being able toaccommodate the high levels of traffic needed for military security and forhumanitarian relief for the World Food Program, United Nations High Commission forRefugees, International Committee of the Red Cross and others. Avoidance of failurein meeting such security and humanitarian needs clearly made road rehabilitation ahigh priority.

The road network consists of east-west arteries along the north and south coast,connected by secondary roads running north-south through the highlands. The hillsare not high but precipitous and, with geological conditions of lightly consolidatedsedimentary materials overlying limestone, vulnerable to the 2,500 ml of monsoonrains falling between November and April. The changing courses of the many north-south braided rivers increased the damage to the network.

The network includes some 496 km of national roads, 1,001 km of provincialroads and 4,215 km of district roads. About half the network is paved. Alignments fornational and provincial roads were set under the Portuguese colonial administrationand are generally winding and narrow. The Indonesian administration sought toimprove roads but problems of mountain slope instabilities resulted in many beingupgraded to less than full standard.

Some 80% of the infrastructure budget are being applied to roads. However, anassessment in December 1997 suggested that though national roads were in goodcondition, almost 60% of provincial roads were only of fair or poor condition. For thefeeder roads, on which the farming community relies for access to inputs and markets,none were considered in good condition and 30% were considered poor. Thoughroad conditions were poor, the following year’s budget provided 25% less for roadimprovement and 65% less for rehabilitation.

Topography, geology and climate made the road network fragile. Built for lowtraffic volumes and light axle loads, the network required moderately high levels ofmaintenance, even under normal conditions. Under Indonesian administration, thenetwork suffered from long-term neglect of maintenance. The rains of the 1999/2000monsoon made some roads impassable and others dangerous and difficult to use.Under the loads imposed by the postconflict requirements for security andhumanitarian relief, the roads began to rapidly deteriorate. The network continuedto function, but with a very clear and imminent threat of failure.


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Planned Interventions

At the first donors’ meeting, in Tokyo on 17 December 1999, priorities werejointly established by East Timorese and international donor representatives. In thefirst TFET Work Program for February–July 2000, the priority was to respond to thethreat of failure of the road network. To meet this priority need, ADB prepared theEmergency Infrastructure Rehabilitation Project (EIRP), approved on 13 April 2000.

The EIRP aimed to support humanitarian assistance in East Timor byrehabilitating transport and power infrastructure to facilitate peace and security, andto provide the East Timorese with access to humanitarian relief aid. In this context,considerations of urgency took priority over all others. Such focus on emergencyrelief led to simplicity in the project framework in which goals and objectives—e.g.access—were directly and simply related to outputs—e.g., road repaired to passablecondition. The framework is summarized in Table 2.1.

This simplicity identified the intended outputs of the project in relation to roadsrehabilitation:

• Bridge Restoration WBridge Restoration WBridge Restoration WBridge Restoration WBridge Restoration Worksorksorksorksorks. Keep roads open to security and humanitariantraffic during critical postconflict operations;

Table 2.1: Goals, Objectives, and Targets of the Emergency Infrastructure

Rehabilitation Project – Roads

Design Summary Target

Sector Goal

• Repair main roads to facilitate humanitarianassistance to population centers

• Ensure road sector viability to induce revivalof economic activity

• Employ local labor and skills to initiateincome generation for local population

Purpose/Objective

Emergency road repair • Restore viable road conditions on all mainarteries

• Establish essential equipment forempowering local contracting industry

• Construct essential causeways and bridgeswhere no access is otherwise provided

• Establish contracts

Source: ADB Report on Project Grant: 8181-TF-ETM: April 2000.

Enable transport and powerinfrastructure to allow accessto humanitarian assistance,health care, and water supply

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• Contractor Classification and PrequalificationContractor Classification and PrequalificationContractor Classification and PrequalificationContractor Classification and PrequalificationContractor Classification and Prequalification. Enable Road ServiceDivision to prequalify domestic and international contractor according to theirtechnical and financial capabilities;

• Five Emergency ContractsFive Emergency ContractsFive Emergency ContractsFive Emergency ContractsFive Emergency Contracts. Closure of any specific road subnetworks to becleared within 48 hours during the rainy season in the third quarter of 2000;

• Pilot District Road Priority WPilot District Road Priority WPilot District Road Priority WPilot District Road Priority WPilot District Road Priority Workorkorkorkork. Emergency repairs on the feeder roadnetwork in 3 districts on a pilot basis;

• Road Maintenance and RehabilitationRoad Maintenance and RehabilitationRoad Maintenance and RehabilitationRoad Maintenance and RehabilitationRoad Maintenance and Rehabilitation. Execution of substantive repairsto the structures on the primary road network once the 2000–2001 rainyseason ended;

• SupervisionSupervisionSupervisionSupervisionSupervision. To ensure the quality, through controlled measurement, of theworks under road maintenance and rehabilitation contracts (RMRCs). GuideTimorese contractor in the execution of the works and provide training tolocal supervisors;

• Refurbishment of Regional DepotsRefurbishment of Regional DepotsRefurbishment of Regional DepotsRefurbishment of Regional DepotsRefurbishment of Regional Depots. Establishment of four regional depotsto manage and implement road maintenance;

• Community Road MaintenanceCommunity Road MaintenanceCommunity Road MaintenanceCommunity Road MaintenanceCommunity Road Maintenance. Implementation of a community-basedroutine maintenance program to improve access to markets in poorcommunities and generation of employment and income opportunities;

• Road Asset Management SystemRoad Asset Management SystemRoad Asset Management SystemRoad Asset Management SystemRoad Asset Management System. Implementation of basic road inventoryand asset management program in the Road Services division of the Ministryof Transport, Communications and Public Works (MTCPW) to provide a basisfor preparing an optimum routine maintenance program;

• River TRiver TRiver TRiver TRiver Training Assessmentraining Assessmentraining Assessmentraining Assessmentraining Assessment. Engagement of consultants to assist the ProjectManagement Unit (PMU) with the design of economic and efficient solutionsto problems of bridge abutment damage; and

• Geotechnical AssessmentGeotechnical AssessmentGeotechnical AssessmentGeotechnical AssessmentGeotechnical Assessment. Engagement of consultants to enable the PMUto undertake RMRC projects to maximize benefits while avoiding potentialcostly geological instabilities.

The planned intervention in the EIRP-1 roads component was a simple ‘do this,do that’ response to immediate needs. The intervention was for emergency restorationof roads to allow access. The long-term need for solutions to the poor, nonstandarddesign of the road network, the inadequate maintenance operations, the accumulatedbacklog of maintenance, and the need for institutional development are issuesaddressed by the second phase project, EIRP-2, approved in May 2002, after theemergency security and humanitarian needs had been met by EIRP-1.

A major concern for infrastructure management was the inadequate capacity ofthe administration to finance recurrent costs of operation and maintenance. Extensivefollow-up action was required in the roads sector to ensure sustainability. With limitedfunds, EIRP-1 was unable to carry out periodic maintenance and failure to address thisrequirement in the near future was seen as a threat to the sustainability of the network.


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EIRP-1 implemented the required regional depots responsible for routinemaintenance and introduced a variety of maintenance methods. Continuation of thecapacity building and human resources development was necessary. Both physical workand capacity development is incomplete. In this context, the rationale for EIRP-28 stated:

“The road repair works have been invaluable in facilitating access tohumanitarian aid and peace and security. However, these have addressed immediateroad closures and have only partially been able to implement permanent engineeringsolutions that will reduce the maintenance burden in the long-term. This programrequires additional resources. The EIRP is also supporting longer-term sectordevelopment, establishment of routine maintenance mechanisms, field organization,local contracting industry, community engagement, and capacity building for sectormanagement. Accordingly, the additional funding will focus on intensifying andextending the EIRP objective to restore the road network to a condition in which its

8 ADB, 2002: “Report on Supplementary Funding from the Trust Fund for East Timor (to beAdministered by the Asian Development Bank) to East Timor for the Emergency InfrastructureRehabilitation Project - Phase 2”, paragraph 55.


Rehabilitation Project Phase II – Roads


Sector Goal

• Establish a field organization for maintenanceof the road network

• Significantly reduce backlog maintenancerequirement

• Address all landslips to facilitate access

• Employ local labor and develop skills todevelop sustainable employment opportunitiesin road sector management

Purpose/Objective

Slip reparation

Road backlog reduction • Restore road sections where engineer solutionscan be viably maintained over time

• Empower local contracting industry

• An effective contracting regime

• Repair slips on essential access roads

Establish routine maintenanceorganization

• Build capacity in the established field depotsto build an indigenous field maintenanceadministration

Hand over the road networkin adequate condition, tocontribute to economicdevelopment, and from whichit can be effectively maintained

Source: ADB Report on Supplementary Funding For Phase II: July 2002.

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economic life can be extended effectively through routine maintenance within availablerecurrent funding levels.”

This rationale led to the project design summarized in Table 2.2. This is slightlymore complex than EIRP-1 but is still essentially a simple connection between intendedoutputs, objectives and the sector goal. The significant change from the roadscomponent of EIRP-1 is that the balance between urgency and quality in EIRP-2distinctly shifts the emphasis from urgency to the quality of project implementationand outputs for long-term sustainability,

Cumulative Progress to 7th Progress Report: EIRP-1

Project Management

The Project Management Unit (PMU) began its operation as the ExecutingAgency, within MTCPW, in April 2000 with the support of both international and EastTimorese staff. In addition to its project administrative functions, the PMU supportsestablishment of the road management capacity within MTCPW. The roads contractingsection of the PMU has been the contracting section of the Roads Services divisionin MTCPW. On-the-job training by PMU experts for MTCPW staff has also facilitatedsuccessful implementation of Consolidated Fund for East Timor (CFET)-funded contractworks. The PMU, on a quarterly basis, reviews the sector funding requirement,identifying available funding and the emerging financing gaps. The 2002/2003 budgetplanning cycle has benefited from the first reports of the road asset managementsystem.

The PMU has also acted as coordinator between donors engaged in roadrestoration activities executed by the United Nations Development Programme (UNDP)-Japan, UNTAET, the United Nations Peace Keeping Force (UNPKF) and TFETcomponents (April 2000–December 2002). Coordination efforts were directed to:

• UNTAET’s small works,• Dili-Aileu-Ainaro-Cassa road rehabilitation (Government of Japan), and• UNTAET-funded road repair and bridge restoration project.

Procurement and Construction

The planned first phase of road restoration commenced in June 2000 with theaward of five contracts tendered using international shopping (IS) procedures. Interestfrom local contractors to participate was greater than envisaged. International contractorshad been expected to be used to undertake all maintenance while at the same timementoring local contractors in all aspects of implementation. This assumed that thecapacity of the local contracting industry would be minimal and that considerable supportwould be required. However, two of the five contracts were awarded to entirely localbidders, two to international contractors and one to a joint venture between an


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international and a local company. It was intended in project design (see Table 2.1) thatcontracts would be labor intensive, thereby generating cash incomes in the rural areas.Some difficulty was experienced in reconciling the need to perform the works in a timelyand technical satisfactory manner and the need to generate employment to facilitateeconomic recovery.

The PMU reviewed the efficiency of international competitive bidding (ICB)maintenance contracts, for which only $2 million each would be available. It wasconcluded that a significant portion of the funds available for each ICB would beconsumed in contractor’s overheads. It was therefore decided that the budget identifiedfor contract supervisors should be reallocated to regional engineer trainers whoserole would be to support Timorese regional engineers and maintenance staff indeveloping institutional maintenance capacity. The regional offices would be used toassist in the supervision of work to be implemented under small contract packages.

The physical works would be undertaken by a combination of local andinternational contractors prequalified to undertake works of a value commensuratewith their respective capacities. Contractors were invited to prequalify in threecategories:

(i) up to $50,000,(ii) up to $200,000, and(iii) up to $1 million.

A list of prequalified bidders was established and, later, adopted by the Ministryfor its own works program. Bids were invited for defined work scopes using “Bill ofQuantity” type contracts. A total of 65 such RMRC were let and completed betweenJanuary 2001 and June 2002. It was found that the local contractors had limited capacityto execute the contract in a timely manner and, initially, did not understand the contractarrangements. This also caused difficulty with the supervision arrangements as theregional offices did not have the capacity to supervise the works. Therefore, local andinternational consultants were engaged to assist. The use of local consultants, workingwith international consultants, contributed significantly to training and capacitybuilding among local consultants.

Depot equipment was procured directly by the PMU using international shoppingprocedures.

Implementation of the community-based maintenance program requiredconsiderable inputs from the newly established regional engineer and their supervisors.Detailed community consultations were required involving over 400 community groupsin order to assure that the obligations assumed were fully understood.

Outputs

The outputs achieved by the first Emergency Infrastructure Rehabilitation Projectthrough the above processes are:

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• Bridges RestorationBridges RestorationBridges RestorationBridges RestorationBridges Restoration. EIRP-1 conducted an emergency and a medium-termbridge condition survey covering all major bridge structures and culverts.This resulted in a phased emergency bridge works program and a medium-term bridge rehabilitation program incorporated into the transport sectormaster plan. Under its first phase, the emergency program included worksidentified on nine critical bridges, river training, and provision of a stock oftemporary bridge materials for use in the event of weather-related bridgefailures. EIRP-1 implemented these requirements under its road repaircomponent;

• Roads RehabilitationRoads RehabilitationRoads RehabilitationRoads RehabilitationRoads Rehabilitation. EIRP-1 tendered 65 road repair civil works contracts.The contracts have addressed specific road closures by repairing slips, culvertfailures, and drainage. The contracts under the EIRP-1 addressed backlogmaintenance to the extent possible, in addition to ensuring access on themain road network. These contracts have generated 192,263 labor days, andrestored 1,025 km of road drainage involving 259 villages. The 248 contractorswere prequalified under a capacity classification system providing afoundation for a contractor registry. Of the total 104 prequalified contractors,95 were East Timorese. Community involvement in routine maintenance hasbeen implemented over about 1,445 km of the core network;

• Roads MaintenanceRoads MaintenanceRoads MaintenanceRoads MaintenanceRoads Maintenance. EIRP-1 established four regional depots: Baucau, Diliwith Oecusse as its subdepot; Maliana, and Same, each with an East Timoreseregional engineer. The depots have been equipped with basic equipmentnecessary for routine maintenance and small-scale road repair. The depotsestablished a core routine road maintenance organization. EIRP-1 providedtraining for the emerging contractors on the use of appropriate technologiesfor emergency and periodic maintenance of rural roads, bid preparation,estimation, cost control, contract procedures, and management;

• Roads AdministrationRoads AdministrationRoads AdministrationRoads AdministrationRoads Administration. EIRP-1 established basic accounting and recordingsystems to support field management, budgeting, and contracting, as well asfor record keeping and enhancement of sector governance and accountability;and

• Donor CoordinationDonor CoordinationDonor CoordinationDonor CoordinationDonor Coordination. Road restoration activities were coordinated on ageographic basis by EIRP-1. The road rehabilitation activities include (i) roadworks under EIRP-1, (ii) the UNDP-Japan project for the Dili-Aileu-Ainaro-Cassaroad, (iii) UNTAET-funded road repair and bridge restoration projects, and (iv)the UNPKF road works;

Impacts

The EIRP-1, through provision of employment opportunities at a critical time,assisted recovery in rural areas. Sustainable employment will be provided throughcontinued use of communities for routine maintenance tasks. Overall restoration of


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reliable road access allowed other reconstruction activities to proceed and assistedwith normalization of social conditions. The beneficiary consultations continue toconfirm widespread support for EIRP-1.

The EIRP-1 has had no negative environmental impacts. Repairs to drainagehave decreased the possibility of erosion and much work has been done to preventlandslides adjacent to the roads. No land acquisition was required and consequently,no persons were displaced by the project activities.

When EIRP-1 commenced there were no effective management skills existingin the East Timor roads sector. The Project provided capacity building services toreestablish capacity in the Government to plan, implement, and maintain roads throughthe implementation of (i) a Road Asset Management System, (ii) ContractorClassification and Prequalification, (iii) Contractor Training, (iv) Training of LocalConsultants, and (v) Technical Assistance.

Additional Progress Since 7th Progress Report: EIRP-2

Approved and effective on 18 May 2002, the original completion date for EIRP-2of 31 December 2003 was passed during the period under review. Total disbursementsin the period, as given in Table 1.1, rose to 13.7% but some 81% of this amount hassimply been disbursed to the project’s imprest account. Actual disbursements aresome 2.6% used for consulting services with no outputs having been achieved upto 30 April 2004, almost 24 months after effectiveness. Project completion wasextended to 31 May 2005 in July 2003, almost doubling the original implementationperiod.

However, progress has been made in the period since the 7th Progress Reportin establishing the necessary project management and consultancy requirements:

• the PMU reached its full establishment of national and international staff inFebruary 2004 after completion of the appointments for all engineer posts;

• tender documents for completion of the bridge at Cassa, first studied in 2001,were under preparation at the end of March 2004, expedited by separationfrom the main detailed design engineering contract.

• detailed design engineering consultants were selected (SMEC of Australia)and contracts were under finalization at end-March 2004;

• training needs assessment for maintenance, technical and managementdevelopment was under way in the period.

Though these events represent progress, they are much delayed compared tothe schedules proposed in project documents. The EIRP-2 is more quality and lessurgency oriented than the EIRP-1 but it was intended that it continue immediatelyafter completion of the EIRP-1 roads component in June 2002. Detailed design engineerswere to have been selected in May 2002 and were to have undertaken geotechnicalassessment and detailed design from June to November 2002. Periodic maintenance

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work based on those designs was to commence in October 2002 and be completedin April 2003.

The EIRP-2 design, illustrated in Box 2.1, set time sensitive goals and objectiveswhich are at risk due to:

• the delay in design and civil works allows road conditions to deterioratefurther, increasing costs due to the continued accumulation of the effects ofpoor maintenance without the project over 2 years and two wet seasons—theintended scope of work and benefits will not be possible at the same cost; and

• the benefits of EIRP-1 are likely to be reversed and lost because of the 2-yeardiscontinuity between implementation of EIRP-1 and EIRP-2; for example,rural employment and development of contractor capacity 9 will have beenlost in the absence of contracts and EIRP-2, rather than building on the gainsof EIRP-1, will have to start again.

All of the risks indicated in the framework, summarized in Box 2.1, have comeabout, save for the availability of TFET funding. The road maintenance benefits of theproject may ultimately be unchanged but delayed. However, the extra damage to roadsand weakening of contractors caused by delay will increase the work and cost ofproject implementation. The viability of the project and its rate of return will inevitablyhave been reduced by the delay.

Box 2.1: Risk/Assumptions for EIRP-2

For the Sector Goal:

• Timely implementation of the Emergency Infrastructure Rehabilitation Project (Phase 2)

(EIRP-2)

• Organization of local employment

• Identification of road sections, where sustainable engineering solutions can reduce

emergency road restoration need

For the Purpose/Objectives:

• Timely contracting arrangements

• Availability of funding from the Trust Fund for East Timor (TFET)

• Effective project implementation

For Inputs:

• Timely deployment of competent consultants

• Timely tender process

9 East Timorese contractors had established capacity on the basis that EIRP-2 would continue theflow of maintenance contracts begun under EIRP-1 before the end of 2002; they complained tothe EIRP-1 PMU of the lack of work and their need to dismiss staff and reallocate resources.


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The delay appears to have several causes with no single cause or party beingresponsible for the delay. Factors which have formed part of the delays are summarizedbelow in terms of their present status and the sequence of delays:

• Implementation ArrangementsImplementation ArrangementsImplementation ArrangementsImplementation ArrangementsImplementation Arrangements. Changes in arrangements were agreedbetween the Government and ADB in August 2003. The grant agreement ofMay 2002 continued arrangements as in EIRP-1, but ADB suggested changesover the following months and formally proposed changes in September 2002which the Government rejected in the same month. During this period,progress on implementation was not possible and neither Project Managernor Chief Technical Advisor (CTA) were recruited until 2003.

• PMU EstablishmentPMU EstablishmentPMU EstablishmentPMU EstablishmentPMU Establishment. Full establishment of the PMU was achieved inFebruary 2004. Planning schedules indicated the PMU being functional inJuly 2002. In July 2002, the Government proposed a procurement plan butADB proposed delay until it could be reviewed by the CTA and detailed designengineers when they had been recruited (2003 and 2004, respectively). During2002 a Project Manager was proposed by the Government but was notacceptable to ADB. In early 2003 the posts of Project Manager and FinancialAdministrator were advertised and recruitment of the Project Manager wasagreed between the Government and ADB in May 2003.

• Recruitment of Chief TRecruitment of Chief TRecruitment of Chief TRecruitment of Chief TRecruitment of Chief Technical Advisorechnical Advisorechnical Advisorechnical Advisorechnical Advisor. A replacement chief technicaladvisor is in post. Planning schedules indicated a fully functional PMU andinception mission, implicitly with a CTA, in July 2002. In 2002 the Governmentindicated that continuation of the services of the CTA (roads specialist) ofEIRP-1 for EIRP-2 was not acceptable and ADB agreed to the recruitment ofa CTA for EIRP-2 in December 2002. The CTA began work in January 2003but resigned and left in March 2003 after progressing: short listing of detaileddesign engineers; preparation of training programs; and development ofprocurement and implementation plans. An interim CTA was engaged toprogress issues such as engineering consultant recruitment. A replacementCTA has been recruited, again using procedures for individual consultants,and commenced work in late 2003 and progress, as noted above, hasresumed.

• Recruitment of Engineering Design ConsultantsRecruitment of Engineering Design ConsultantsRecruitment of Engineering Design ConsultantsRecruitment of Engineering Design ConsultantsRecruitment of Engineering Design Consultants. The contract forengineering design consultants was under finalization in March 2004.Planning schedules indicate selection in May 2002. In December 2002, ADBrequested submission of tender documents for detailed engineering designconsultants. The new CTA produced a short list of firms which was approvedby the Government on 14 February 2003. In March 2003, ADB asked forchanges in the short list prior to the recruitment process itself.

• TTTTTraining Planraining Planraining Planraining Planraining Plan. A training needs assessment is being undertaken in the firsthalf of 2004. Planning schedules indicated training beginning in August 2002.The Road Steering Committee agreed to a training program on 14 February

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2003. On 11 March 2003, a more comprehensive training program wassubmitted, to be implemented with involvement of the Regional Engineersand engineering design consultants to be recruited.

Continuing and Prospective Needs

Timor-Leste has a substantial road network, though it remains in generallypoor condition. EIRP-1 was concerned with emergency rehabilitation rather thanupgrading the road system Terrain, geology and weather conditions imposeconsiderable extra costs on the provision and maintenance of roads in the country.However, the tax base for cost recovery is low with a limited number of vehicles. Therelevance of EIRP-2 is as great as ever, aiming to reduce the high maintenance coststo levels affordable by the Government with a small user base.

The Government has established much of the essential framework for thetransport sector and has identified key issues for roads as:10

• Emphasis on infrastructure works will move from a reactive to a preventativeapproach;

• Road design standards and maintenance practices and vehicle load limitsneed to be oriented to minimizing life-cycle costs;

• Sustainable community-based arrangements are needed for managing therural road network;

• There is a need to engage with the community to address social issues relatedto transport;

• Government staff need additional resources and new skills;• The time to initiate projects is likely to increase with the need for more careful

feasibility studies and determination of financing sources;• Road investment needs will remain high;• Spending will also need to rise to adequately maintain the current road system;• Developing a sustainable private contracting industry, with good contract

management, is necessary to minimize the costs to the Government;• ‘Light-handed’ regulation of the transport sector is considered appropriate; and• User charges are considered essential for a sustainable transport system.

Recognizing the degraded condition of the roads and the high costs of reactivemaintenance, the Government has set a 10-year vision to:

• Bring the road network up to a sustainable condition where, with regularmaintenance, life cycle costs will be minimized, road closures will be reduced,and road access will be reliable;

• Improve key roads to support a growing economy; and

10 This discussion follows the “Timor-Leste Transport Sector Investment Program” prepared byMTCPW with ADB support in November 2003.


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• Ensure effective capacity to manage the road system, comprising assetmanagement systems (including risk management), use of the private sectorfor cost-effective delivery, and reliable funding and adequate cost-recoveryfrom users.

The activities under EIRP-2 will help to address many of these issues andcontribute to realization of the 10-year vision. Even though delayed, the activitiesunder EIRP-2 are likely to prove beneficial for Timor-Leste.

Box 2.2: ADB-Funded TAs Supporting Transport Sector Development

• TA 3401-TIM: Transport Sector Restoration

Started March 2000 : Completed November 2002

$1,000,000

• TA 3731-TIM: Transport Sector Improvement

Delayed

$500,000

ADB provided an advisory technical assistance (TA) for $1,000,000 to promote

effective transport sector management for roads, ports, and airports and develop long

term sector planning. The TA began in March 2000 and continued in parallel with EIRP-1.

The TA reviewed administrative options for the sector and developed priorities for medium

term action and investment programs. Specific outputs included: (i) proposed port and

airport management contracts; (ii) proposed shipping services to Oecussi and Atauro and

related institutional development; (iii) transport sector legislative framework; (iv) review

of port and airport requirements; (v) and a multimodal plan as an input to the National

Transport Plan. This TA was completed in November 2002. A second TA, for $500,000—

supported by the Japan Special Fund—was approved in October 2001 to support

establishment of sustainable operations, management, and administration of transport

sectors. This TA has not yet commenced due to overlapping services provided by the UN.

Timor-Leste formally accepted the assistance, signing the TA letter in November 2003, so

that work can begin.

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Ports Sector


The port structures themselves were not damaged in the period of destruction,however, all the equipment was destroyed.

At Dili, there were no cargo handling systems or equipment in usable condition.Shippers made arrangements with two private sector cargo handlers and all vesselshad to be self-sufficient in lifting gear. To avoid the poor roads from Dili to the southcoast, cargo was landed from barges on the south coast at Suai, though there wereonly basic beach landing facilities rather than a functional port. Other wharves andfacilities were little used as the narrow and poor roads from them constraineddistribution of cargo.

Due to the physical constraints of Dili port and lack of any alternative, the largecargo volumes required to support security, humanitarian and rehabilitationrequirements resulted in severe port congestion. Commercial vessels suffered longturn around times—being off-loaded within a day only after queuing for 9–12 days.The delays and demurrage increased the costs of humanitarian and food imports andexacerbated shortages.

The threatened failure to be avoided in the port was not a sudden collapse ofthe facility but the slow strangulation of trade and aid through inadequate port capacityand management.


The EIRP-1 was designed to support humanitarian assistance by rehabilitatingtransport infrastructure to facilitate peace and security and provide access to thehumanitarian relief aid. As with other EIRP components, the ports sector rehabilitationwas clearly and simply focused on achievement of the urgent task of ensuring thatthe increased level of cargo handling was handled efficiently and effectively in a timelymanner. The goals and objectives are given in Table 2.3.

Cumulative Progress to 7th Progress Report

Project Management

The Project Management Unit has carried out donor coordination for ports sectorinterventions for repair of wharf fenders, navigation aids and upgrading of the westernport area with the Government of Japan.


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Two civil works contracts for the graveling of the eastern container yard, repairsto the east slipway and completion of the wharf extension, were let in June 2000.

The eastern container yard works were accomplished without problems butthe wharf extension work suffered delay due to concrete quality problems. The designof the gravelling of the eastern hardstand was inadequate to the extent that it failedto address the environmental and safety concerns. A subsequent contract to pave thearea was let following international shopping procedures in February 2002 andcompleted in June 2002. This contract included lighting, fire fighting equipment, poweroutlets for refrigerated containers, and fencing.

Outputs

The project has completed:• the third berth and slipway repair,• concrete decking of the third berth,• rehabilitation of the hardstand area at the eastern container yard of Dili Port;

and• a sealed surface in the area to reduce the environmental implications of heavy

machinery operating on a compacted surface.

In terms of donor coordination, the port rehabilitation activities included• the EIRP’s rehabilitation works;• UNTAET’s small works for restoration of lighting and communications at Dili

Port; and


Rehabilitation Project – Ports


Sector Goal

• Urgently reduce port congestion to enableeffective and economical logistics forhumanitarian goods


Purpose/Objective

Expansion and restoration ofport facilities

• Expanded port facilities

• Improved cargo handling capacity



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• UNDP-Japan funded contracts for the restoration of the wharf fenders andnavigation aids at Dili Port.

Impacts

Restoration and improvement of port handling capacity expedited and increasedthe efficiency of security and humanitarian relief efforts and have provided a necessaryresource for subsequent handling of imports and exports.

No land acquisition was required and consequently, no persons were displacedby the project activities. Pavement construction has reduced the dust problem in centralDili.

Additional Progress to Date

Completed in 2002, no further work has been undertaken in the period underreview other than correction of pavement defects and other deficiencies, which werecompleted by the contractor by 4 February 2004. A Defect Liability Certificate hasbeen issued and the balance of retention monies released.


The port will receive further support for the development of its physicalinfrastructure from the Government of Japan. This will include paving of the westerncontainer yard.

The Government’s Transport Sector Investment Plan seeks light-handedregulation for ports as for roads but requires that port authorities generally should befinancially self-sustaining. Dili port is already “off-budget” with revenues fundingrecurrent costs. It is therefore expected that port operations will be sustainable.


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Power Sector


In 1998, the power sector in East Timor comprised 60 power stations with atotal operable capacity of about 26.5 megawatts (MW), of which 14.7 MW was locatedin two power stations serving Dili. The system supplied electricity to about 43,000customers connected through some 700 km of 20 kilovolt (KV) transmission lines andanother 700 km of low voltage distribution lines. The system was operated by theIndonesian power utility, Perusahaan Listrik Negara (PLN). Indonesian staff werepredominant in skilled posts and filled all middle and upper management posts. PLNreportedly provided little or no advanced training to East Timorese staff. Maintenanceof power stations and the distribution system was of poor standard.

The power system was clearly targeted for destruction after the August 1999vote. Most of the generating station equipment and powerhouse structures weredamaged and most of the control panels, fuel systems and wiring were destroyed byfire—both arson and gun fire. Many auxiliary items, such as batteries and starter motors,were removed. The distribution network was also attacked, with cables removeddeliberately or damaged incidental to the destruction of nearby property. Transformerswere drained of insulating fluid and riddled with gun fire to put them beyond repair.

In addition to the physical destruction of generation and transmission capacity,the violence resulted in the departure of the entire management and most technicalstaff, who were not East Timorese. There were no people trained and qualified toreplace them. All communications and computer equipment were removed. Virtuallyall records and files were lost or destroyed, including customer databases, inventory,asset, operation and maintenance records. The destruction was thorough.

However, the importance of electricity supply for temperature controlled storageof foods and medicines, for communications, lighting and power meant that it wasalso a priority target for immediate rehabilitation by the international community. ByApril 2000 the United Kingdom Department for International Development (DfID),using private contractors, had restored 21 power stations to operation. The main Dilistation, Comoro, was able to generate 7–8 MW and return essential supply to thecity. Other bilateral donors, including Portugal and Japan, helped restore powersupplies and by late 2000 operable capacity recovered to 22 MW, over 80% of thepredestruction level.

The generating capacity which had not been restored was typically the small,rural power stations and their supporting local distribution networks. With 90% of thepopulation living in rural areas large numbers of people were without power supplies,even though their individual level of demand was low compared to the much higherconsumption levels of the small urban population served by Dili’s power stations.

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The EIRP aimed to support humanitarian assistance in East Timor byrehabilitating power infrastructure to facilitate peace and security efforts and supporthumanitarian assistance. As with other components of the EIRP, design was made assimple as possible with outputs and objectives closely tied to sector goals in projectdesign, as indicated in Table 2.4.

In this case the designed simplicity was not consistent with the reality. As notedabove, bilateral interventions by the UK, Japanese and Portuguese governmentsprovided uncertainties which complicated the simplicity of design. The EIRP, in commonwith some bilateral efforts, oversimplified the needs of ‘restoration of power supply’by equating power supply with ‘power station rehabilitation’ and ignoring the essentialneed for rehabilitation of transmission and distribution systems in order to supply thepower generated to the consumer in need.

However, this deficiency in planning the EIRP intervention was remedied throughthe flexibility in implementation which characterized all the EIRP components. Thoughthe oversimplified design did contribute to a 2-year delay in completion of the powercomponent, the flexibility allowed the component to correct the mistake as well asto respond to the actual implementation of the bilateral power interventions.


Project Management

In the power sector, the PMU managed the restoration activities for 16 ruralpower stations and associated distribution systems. To date, all sixteen (16) rural


Rehabilitation Project – Power


Sector Goal

• Reinstate power supply to enable watersupply and revival of basic services incommunities


Purpose/Objective

Restoration of power supply • Power station rehabilitation




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power systems are in operation and the PMU has successfully implemented fourteen(14) village based community management systems, a key factor for the sustainabilityof the rural power stations.

The PMU has carried out donor coordination efforts directed to:• Overhauling of Comoro power station (Government of Japan),• Rehabilitation of 13 rural power stations (Government of Japan), and• Rehabilitation of four rural power stations (Government of Portugal).


In October 2000, consultants were mobilized to prepare detailed designs for 15 ruraldistrict and subdistrict power stations that had been either totally destroyed or severelydamaged.

Security concerns in border areas delayed the program and also caused6 additional power stations to be transferred from the Government of Japan programto the TFET project. Although the restoration assessment for 21 rural power stationswas completed in November 2000, budget constraints and the sustainability concernsexpressed by the Transitional Government limited the EIRP to restoration of12 subdistricts and 1 district power station.

A contract for the Project was awarded in February 2002. Physical completionof the rural power restoration is expected by May 2004. The original design of theEIRP and the bilaterally-funded rural electricity projects focused on generating capacitywhile transmission and distribution were excluded from the restoration efforts. The20 kV distribution system was significantly damaged and, in particular, the low voltage(LV) network and consumer connections were very badly damaged, requiring theimplementation of completely new systems.

In April 2002, savings in other components of the EIRP were reallocated toextend the scope of the rural electrification program to include:

• rehabilitation of the medium voltage and implementation of new LVdistribution networks and consumer connections, associated with the selectedpower stations;

• rehabilitation of Gleno district power station;• increase in generating capacity from 50 kW to 100 kW in Betano;• addition of one 100 kW unit in Maubisse;• training;• supply of workshop tools; and• supply of distribution transformers, LV distribution panels, materials and

equipment to be used for extension of distribution network.

These revisions addressed the need to connect generating capacity to consumersto ensure that the power restoration achieves its objectives, particularly that of povertyreduction in the rural sector.

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For the May 2002 Independence Day celebrations, the EIRP helped rehabilitateGleno power station and restore power supply to Ermera and Letefoho. This wasachieved by: (i) extraordinary maintenance to an existing 800 kW generator, (ii) supplyof a 1,250 kVA step-up power transformer, (iii) rehabilitation of 20 kV lines to Ermeraand Letefoho, (iv) rehabilitation of 8 distribution substations, and (v) completion ofnew low voltage distribution system and consumer connections. On 19 May 2002,Gleno power station was inaugurated by ADB’s President, Mr. Tadao Chino.

The EIRP provided also funded purchase of equipment and spare parts requiredfor emergency repair in Baucau and Oecussi district power stations.

In May 2003, the Government requested ADB to provide an expansion of therural power sector program adding the savings of the Project of $0.3 million forrehabilitation of the power stations in Fatululik (1x50 kW generating unit) andFatumean (1x50 kW generating unit) and associated distribution systems and consumerconnections.

Outputs

The outputs achieved by the Emergency Infrastructure Rehabilitation Project inthe power sector are:

• Rehabilitation of Rural Power StationsRehabilitation of Rural Power StationsRehabilitation of Rural Power StationsRehabilitation of Rural Power StationsRehabilitation of Rural Power Stations. The project has assessed 21 powerstations. Detailed assessment of the communities’ needs were carried outand concluded that communities consider power to be essential for ensuringa safe and healthy standard of living, facilitating economic activities, andproviding security. Communities are willing to pay for electricity supply.Funding was available for rehabilitation of 16 prioritized rural power stations(14 subdistricts and 2 districts), associated distribution systems and consumerconnections. The cost was estimated at $3.5 million. The project will haverestored power supply to approximately 5,200 consumers, of whom 37% arenew consumers. The sector required significant additional resources torehabilitate remaining distribution networks, district and subdistrict stations,the latter having been commissioned after the postreferendum conflict withonly quick-impact bilateral assistance;

• Utility Development and Financial Management SystemUtility Development and Financial Management SystemUtility Development and Financial Management SystemUtility Development and Financial Management SystemUtility Development and Financial Management System. The projectinitiated establishment of a power utility, efficient utility management, anda financial management regime. Rigorous tariff collection is beingimplemented. The project procured 1,000 single-phase and 300 three-phasemeters, and prepared a human resource development program for the powersector;

• TTTTTechnical Assistanceechnical Assistanceechnical Assistanceechnical Assistanceechnical Assistance. The project has supported the power sector throughtariff evaluation, accelerated tariff collection, budget preparation, provisionof status reports, and assessment of sector issues. Through technicalassistance and policy dialogue, ADB assisted the Government with preparation


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of strategy options and long-term development directions in the sector. ADBfunded TA 3748-ETM to prepare the power sector development plan.

• Donor CoordinationDonor CoordinationDonor CoordinationDonor CoordinationDonor Coordination. Donor-supported rehabilitation programs werecoordinated in the context of ADB-supported donor coordination meetings.The power rehabilitation activities included: (i) the rehabilitation works underthe project; (ii) rehabilitation of 13 subdistrict power stations and overhaulof the Comoro power station with funding from the Government of Japan;and (iii) Government of Portugal-funded rehabilitation of 4 subdistricts powerstations and support to increase the billing capacity of the power service.

Impacts

Restoration of power supply in rural areas, rehabilitation and implementationof distribution networks, consumer connections and extension to new consumers, issignificantly contributing to poverty reduction, improvement of the quality of life andresumption of social services that use electricity, such as education and health facilities.The Project, extending supply to about 2,000 new consumers, is also providing long-term socioeconomic benefits. The beneficiary consultations continue to confirmwidespread support for the project.

Benefits are constrained by affordability. Some communities have difficultyfunding fuel supply, so hours of power supply are limited. Benefits could increasesignificantly if measures are implemented to reduce unit costs and increaseaffordability. Some such measures are included under continuing needs later in thissection.

The project has had no negative environmental impacts. No land acquisitionwas required as existing rights of way were used and, consequently, no persons weredisplaced by the Project activities.

When the project commenced there were no effective power sector managementskills in Timor-Leste. The Project has provided capacity building services, but effortsto build a sustainable power infrastructure and institutional framework have beenchallenging. The major challenges facing the sector are:

• to manage the transition from a subsidized public service to a truly user-supported power system;

• to improve financial sustainability; and• to establish sector management competency and institutions.

The rural power stations rehabilitation component has provided training andcapacity building to 40 local operators and to four operators at national level. Trainingfor local operators provided basic skills for operation and ordinary, scheduledmaintenance. Training of national level operators focused on extraordinarymaintenance and major overhaul activities, including dismantling and replacingengine parts.

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A contract has been signed between the Government and CEM, Companhia deElectricidade de Macao for the management of the power sector. The contract hasbeen in force from 1 December 2003.

In August and December 2003, the assessment of the various options for thefull utilization of funds available to expand the existing medium and LV distributionsystems identified Maubisse, Batugade, Lolotoe and Betano as suitable candidates.Expansions of distribution system in Maubisse and Lolotoe have been completed,while Betano and Batugade are scheduled to be finished by May 2004. These willincrease significantly the sustainability of the power supply by doubling the numberof consumers connected.


The project has made a great contribution to restoration of essentialinfrastructure and services in Timor-Leste. However, much remains to be done tocontinue the rehabilitation. The main concern for infrastructure management is theinadequate capacity of the growing country to finance the recurrent costs of operationsand maintenance of the reinstalled facilities.

In the subdistricts where rehabilitation of rural power stations and distributionnetworks are provided under the project, community management committees havebeen formed to take responsibility for day-to-day operation and maintenance of thepower station.

To date 16 rural power systems are operative (2 district and 14 subdistrict powerstations). The fourteen (14) subdistrict stations have adopted community-basedmanagement structure which have been generally successful in managing the localelectricity supply since the restoration of their power stations, including arrangingthe imposition of a tariff structure, the collection of fees from consumers, thedisconnection of nonpaying consumers, ensuring only legal connections are made tothe distribution network, purchasing consumables such as fuel and oil, in additionto successfully operating the power station to an appropriate and reliable schedule.

There is evidence that some subdistricts (Baoknana and Passabe in OecussiDistrict) experience difficulty in fee collection at times, to the extent that they maydefer fuel purchase or reduce the operating times of the generator. All other powersystems of Balibo, Batugade, Betano, Bobonaro, Bobometo, Lequidoe, Lolotoe,Maubisse, Manelima, Turiscai, Fatululik, Fatumean are already operating fullyindependently although it is probably premature to assess these as completesuccesses, nor those few subdistricts still experiencing difficulties with revenuecollection as failure.

Experience with villages where the power station and distribution systems areoperative is in general positive. The village-based committee has been periodically


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monitored and assisted by the project and the overall performance is satisfactory. Infuture, the communities will be supported by a roving maintenance team set up byEDTL, for major overhauling—dismantling and replacement of engine parts.

Experience in implementation and initial operations has demonstrated thataffordability of power supply in the rural areas is a continuing issue affecting bothshort- and long-term sustainability. Community feedback remains positive andindicates awareness of the precarious financial situation presented by such smallconsumer bases, with local committees asking for additional connections. Importantfactors influencing sustainability will be:

• the technical support for major maintenance works to be provided byElectricidade de Timor-Leste (EDTL);

• availability of additional funds in the future for extension of the distributionsystems to increase the number of customers; and, thus,

• the benefits and sustainability of power stations through a large customerbase and higher load factor.

The power sector rehabilitation program has contributed essentially to thequality of life of the poor. In the medium term, the installation of capacity forgeneration and expansion of the distribution network in the rural areas createsthe opportunity for substantially greater poverty reduction benefits. Realization ofthis potential requires:

• assistance to establish efficient management systems and sector planningcapacity;

• capacity development for management and operation of district andsubdistrict systems and review of local power management capabilities;

• review of technical needs of 8 (eight) district power stations (Aileu, Baucau,Los Palos, Maliana, Oecussi, Same, Suai and Viqueque) and associateddistribution systems. The conditions of these eight (8) district power stationsnot covered under the donor-funded rehabilitation programs have becomeacute and power supply disruptions are common.

Box 2.3: ADB-Funded TAs Supporting Power Sector Development

• TA 3748-TIM: Preparing the Power Sector Development Plan

Started February 2003 : Completed December 2003

$400,000

ADB provided an advisory TA to prepare a power sector master plan for the

development and expansion of the power system. The master plan, completed in 2003,

establishes the basis for future development of the power sector in Timor-Leste, including

generation, transmission, distribution and extension of electrification. The master plan

also addresses policy and institutional issues in power development.

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• Review of technical needs of the two (2) remaining subdistrict rural powerstations of Fohorem and Tilomar (Covalima District) as well as and in otherrural districts, not covered for rehabilitation under any other donorprogram; and

• Rehabilitate and expand distribution networks to boost the sustainability ofthe power stations, to increase the number of poor households connectedto the system, to expand the hours of supply per day, and enhance affordabilitythrough both lower unit costs and quality of supply.


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Water Supply and Sanitation


Water supply service coverage averaged 73% overall in Indonesia, but in occupiedTimor-Leste only 48% coverage was achieved by systems which were poorly planned,designed, and operated. Outside Dili coverage fell to 39% in district capitals and 29%in subdistrict towns. Poor operation and maintenance led to high levels of water loss,intermittent supply, and poor quality. Villages and rural areas sometimes hadcommunity-owned and -operated supplies, including piped supplies, but many reliedon informal sources of water. Shallow wells were a major source of supply in bothrural and urban areas, including Dili.

Most towns had a basic but inadequate solid waste disposal system using wastebins at strategically located sites—solid waste was commonly dumped in public areasor burned. Sanitation coverage was estimated by UNDP11 at 38% in 1998. Dili had adrainage system built in the Portuguese period but this was poorly designed and lackedregular maintenance for many years. The limited sanitation coverage led to effluentbeing discharged into drains and limited solid waste disposal system meant that drainswere clogged with solid waste, including food waste. Drains were infested with verminand were a health hazard.

In September 1999, town and village water supply and sanitation facilities weresubject to looting, arson and destruction. Vehicles, pumps and motors were removed;treatment plant were damaged; offices, stores and other buildings were burnt;pipelines, tools and spare parts were stolen; storage tanks were ruptured; water sourcesimpaired and contaminated; and destruction of homes included destruction of supplymeters, latrines and septic tanks.

The institutional infrastructure was severely damaged. Buildings, equipment,records and files were destroyed, damaged or removed. Non-Timorese managementand professional staff left, but a core of Timorese technical and support staff remained.Communities which owned and operated water supply and solid waste systems wereable to begin to restore and operate their systems.


The Project designs were consistent with the TFET goals of (i) provision ofpostemergency assistance to priority sectors including support for the developmentof a functional management organization; and (ii) repair and rehabilitation of damagedinfrastructure.

11 UNDP, 1998. Common Country Assessment; DiKesTk. I; Health Profile.

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The goals and objectives of Water Supply and Sanitation Rehabilitation Project- Phase I (WSSRP-1) are summarized in Table 2.5 and were to: (i) rehabilitate watersupply and sanitation infrastructure throughout Timor-Leste; and ii) to reestablishhuman and institutional capacity to manage, operate and maintain water suppliesand sanitation. The grant provided by TFET was $4.5 million.

The Phase I Project had three components:■ WWWWWater Supply and Sanitation Sector Management and Inater Supply and Sanitation Sector Management and Inater Supply and Sanitation Sector Management and Inater Supply and Sanitation Sector Management and Inater Supply and Sanitation Sector Management and Investmentvestmentvestmentvestmentvestment

ProgramProgramProgramProgramProgram. To establish an integrated water supply and sanitation sectormanagement and investment program for Timor-Leste. A PMU wasestablished within the Water and Sanitation Service (WSS) and a detailedwork program was prepared to guide the activities during implementation.

Table 2.5: Goals, Objectives, and Targets of the Water Supply

and Sanitation Rehabilitation Project – 1


Sector Goal

• Reduced dependence on unsafe and inconve-nient water sources

• Improved health through better access toclean water, appropriate sanitation, andimproved environmental health knowledge

Purpose/Objective

Component 1:

To build institutional andcommunity capacities foreffective WS&S sectormanagement

• Strategic and sustainable WSA; sustainablecommunity management of smaller watersupplies (establishment of the PMU bySeptember 2000, preparation of the ProjectImplementation Document completed byDecember 2000)

To provide the people of EastTimor with adequate, afford-able and sustainable watersupply and sanitation (WS&S)services, using appropriatetechnology and managementsystems

Component 3:

To promote improved environ-mental health and communityWS&S participatory practices

• Improved community hygiene and self-helpparticipatory practices, activities commencingSeptember 2000

Source: ADB Report on Project Grant: 8185-ETM-TFET: July 2000.

Component 2:

To repair and rehabilitateWS&S facilities in rural andurban areas

• Repaired and rehabilitated WS&S facilities onthe basis of priority need, works commencingSeptember 2000, willingness to pay andfunds availability


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■ Capacity Building and Institutional Development ProgramCapacity Building and Institutional Development ProgramCapacity Building and Institutional Development ProgramCapacity Building and Institutional Development ProgramCapacity Building and Institutional Development Program. To identifyand implement priority capacity and institutional development activities to:(i) support water supply and sanitation systems in operation, being built, orplanned; and (ii) complement capacity building and institutional developmentactivities funded by other donors. Three subcomponents were:• Support for Quick Response Facility referred to in Component 3,• Rehabilitation of workshops, stores, generator sheds and other

infrastructure essential to water supply and sanitation operations; and• Procurement of workshops, equipment, communications and other facilities

fundamental to water supply and sanitation operation.■ WWWWWater Supply and Sanitation Implementation Programater Supply and Sanitation Implementation Programater Supply and Sanitation Implementation Programater Supply and Sanitation Implementation Programater Supply and Sanitation Implementation Program. This component

had three subcomponents:• Quick Response Facility - civil works, materials and equipment for urgent

repair and rehabilitation across all districts of Timor-Leste;• Dili Water Supply Repair and Rehabilitation - civil works, materials and

equipment to complement the Japan-funded Dili Water Supply Project,including: network rehabilitation associated with the upgraded transmissionmain, replacement of asbestos-cement mains, and urban and semi-urbanlow-income area repairs and rehabilitation; and

• District Water Supply Repair and Rehabilitation - to address the needs of smallerurban and rural communities, including: procurement and installation of pipes,fittings, pumps, motors and generators; supply of construction materials; designservices for small- and medium-scale water supplies; hire of constructionequipment; rehabilitation of water bores and raw water intakes; and supportfor water quality testing and groundwater test pumping.

The second phase project, WSSRP-2, had similar goal and objectives,summarized in Table 2.6, and was divided into three components following on fromWSSRP-1 activities:

■ Project Management UnitProject Management UnitProject Management UnitProject Management UnitProject Management Unit. This component extended the operation of theProject Management Unit established under WSSRP-1 to implement WSSRP-2 and to continue support to planning plan for future development of thewater supply and sanitation sector.

■ Capacity Building and Institutional DevelopmentCapacity Building and Institutional DevelopmentCapacity Building and Institutional DevelopmentCapacity Building and Institutional DevelopmentCapacity Building and Institutional Development. This built on the workof the similar component in WSSRP-1. Training and other assistance was providedin priority areas and to generally strengthen water supply and sanitation (WSS)capacity. Sustainable management arrangements and consideration ofrecurrent cost issues formed part of each subcomponent:• Capacity Building and Technical Assistance - Support to WSS for policy,

human resource, and institutional development, including:- training programs in priority topics,- management and financial information systems,

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Table 2.6: Goals, Objectives, and Targets of the Water Supply

and Sanitation Rehabilitation Project Phase II


Sector Goal

• Reduced dependence onunsafe and inconvenient watersources

• Improved health throughbetter access to clean water,appropriate sanitation, andimproved environmental healthknowledge

Purpose/Objective

• Strengthened WSS projectplanning and implementationcapability

• Establishment of the PMU inAugust 2001

To ensure the communities of East Timorhave access to such Water Supply andSanitation (WS&S) services as are consideredessential for public health, for protection ofthe environment, and for promotion ofeconomic growth based on appropriatetechnology and management systems

Component 3: WS&S Implementation

To assist with implementation of priorityWS&S projects in Dili and districts in coopera-tion with other donors including throughappropriate community participatoryinvolvement in implementation and associatedWS&S health promotion, education, andtraining

• Priority improvements to watersupply systems in Dili anddistrict capitals in coordinationwith works by other donors

• Priority rehabilitation andimprovements for communityWS&S

• Priority urban sanitationimprovements

Component 2: Capacity Building andInstitutional Development

To improve the capacity of the Water andSanitation Service through support forpolicy development, management andfinancial information systems, humanresources development and training, andaid coordination.

• Improved capacity to plan,implement and manage WS&Ssystems.

• Improved capacity to managemajor projects and aid coordi-nation activities

Component 1: Project Management Unit (PMU)

To assist WSS to implement the Trust Fundfor East Timor (TFET)-funded water supplyand sanitation (WS&S) Rehabilitation Projectand to plan for future development of theWS&S sector

Source: ADB Report on Project Grant: 8189-TF-ETM: July 2001.


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- water resources study,- tariff and billing system,- development of asset management systems,- support in major projects, donor and NGO coordination, andwater resource and environmental monitoring, evaluation and capacity

building; and• IT and Communications Equipment - Upgrading of essential computer and

communication systems.■ WWWWWater Supply and Sanitation Implementation Programater Supply and Sanitation Implementation Programater Supply and Sanitation Implementation Programater Supply and Sanitation Implementation Programater Supply and Sanitation Implementation Program. This continued

and developed activities commenced in the similar component in WSSRP-1and had five subcomponents:• Quick Response Facility - continued WSSRP-1 services to respond rapidly

to urgent water supply and sanitation repair and rehabilitation needs acrossTimor-Leste;

• Dili Water Supply Rehabilitation and Improvement - continued WSSRP-1provision of civil works, materials and equipment for priority rehabilitationand improvement activities, including complementing Japan-funded watersupply and sanitation projects, installing gauging stations on surface watersources, and restoring the Dili meteorology station;

• District Towns (Public) Water Supply Repair and Rehabilitation Program -continued WSSRP-1 procurement of equipment and civil works for prioritywater supply and sanitation rehabilitation and improvement in districtcapitals and WSS priority works;

• Community Water Supply and Sanitation Rehabilitation and Improvement -a new activity extending the scope of work in WSSRP-1 to rehabilitationand improvement of community-managed water supply and sanitationsystems through: supporting/extending other donor programs; engagingNGOs for implementation in priority areas where they are currently active;and support to sector coordination activities of WSS; and

• Urban Sanitation Improvement - also a new subcomponent for key urbansanitation initiatives particularly for Dili, including solid waste collection,septic tank desludging and septage treatment, drain cleaning, structuralrepair and asset mapping of priority drainage systems.

Both phases received grants of $4.5 million and the initial allocations weresimilar but the balance as implemented was quite different. The initial allocationswere, roughly: project and sector management, 11–14%; capacity building, 12.5%;implementation 60%; and contingency 15%. In the first phase most of the contingencywas used to double the allocation for capacity building. In the second phase theGovernment sought to increase the emphasis on implementation in rural areas andmost of the contingency was used for this purpose.

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Project Management

The Project Management Unit for WSSRP-1 was established within WSS underthe Minister of Infrastructure. The PMU was located next to the WSS head office,allowing easy interaction between WSS and the PMU.

An East Timorese Project Manager was engaged in October 2000 but left inFebruary 2001 and was not replaced. PMU staff were two full-time internationaladvisers (Community Development Adviser and a Chief Technical Adviser), a part-time international Financial Adviser (jointly with EIRP), and five other local technicaland administrative staff. Short term international consultants assisted in thedevelopment of a detailed work program and of a Sector Management InvestmentFramework.

The Grant Agreement required a project steering committee but this wasnot possible in the dynamic political and institutional environment. To offset thisloss, a strong emphasis was placed on local participation by counterpart staff andrecipient communities. National and international NGOs were already workingthroughout Timor-Leste in areas assigned by UNTAET and were actively involvedin WSSRP-1 planning and implementation in their assigned areas. Ongoingconsultations were held with the East Timor NGO Forum and local and internationalNGOs.

The WSSRP-2 PMU was established in October 2001. A local Project Managerwas appointed in 2002 and the complement of Timorese staff increased while thenumber of international staff was reduced. The original two international staffwere replaced by a Sector Development Adviser/Team Leader and a Chief TechnicalOfficer. With completion of transition to the national Government, responsibilitywas transferred from the Minister of Infrastructure to the Secretary of State forElectricity and Water under the Minister of Transport, Communications and PublicWorks.

Table 2.7: Summary of Project and Sector Management Outputs

WSSRP-1

Sector Management Investment Framework

WSSRP-2

Assist Stakeholder Coordination Meetings, review documents, sector planning advice

Assist sector input into National Development Plan / 5-Year Development Plan

Assist Donor Coordination Mission (x2)


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WSSRP-1 encountered no significant problems with procurement of goods andservices, though there were some delays. The need to satisfactorily complete WSSRP-1activities delayed WSSRP-2 commencement but there were no significant contractorperformance or procurement delays which delayed WSSRP-2 completion.

For the larger contracts, local competitive bidding (LCB) was used for prequalifiedcontractors based in Timor-Leste. Five LCB exercises were conducted in WSSRP-1.The first resulted in five bids of which the highest was 13 times the lowest. This wasthe first urban water supply contract bid in Timor-Leste for some years and a varietyin bid prices was expected and accommodated in the evaluation of bids. Followingthe award of each contract, results and the engineer’s estimate were sent to eachbidder so that improved market information flows could create a more competitiveenvironment. By the third LCB exercise the bid price range had narrowed to a factorof less than 3.

To ensure the quality of materials and minimize time losses, the Projectpurchased major materials, for installation and commissioning only, by civil workcontractors. Materials were procured by quotation by invitation to established suppliersand by direct negotiation when there was only one supplier in Timor-Leste, e.g., forwell-drilling. Materials were delivered and inventoried as project stock from whichcontractors were required to withdraw materials.

For district and community contracts, partner NGOs were selected in the absenceof LCB. An important factor in making this decision was the existing UNTAET/EastTimor Transitional Administration (ETTA) policy to assign NGOs to specific districts,to maximize use of scarce donor funding for local communities and minimize overlapof activities. This was acceptable to all donors.

The WSSRP-1 contract for NGOs was based on a simplified contract. Afterselecting NGO partners by district the NGO was invited to submit project proposalsbased on Terms of Reference prepared by the PMU, including WSS-issued guidelinesfor standardized sizes and types of pipe work and installations. Proposals were followedup by field assessments and discussions with the NGOs before preparing the finalcontract. A major criterion for all NGO projects was the need for them to be “demand-driven” by the communities concerned, to include sustainable community managementarrangements as an integral part of the project and to be implemented in closeconsultation and coordination with the WSS at the district level.

This approach was improved upon in WSSRP-2. The TORs were fully revised,guidelines on proposal preparation issued, and NGO prior performance assessed. Aformal contract document with specific outputs nominated (i.e., Bill of Quantities)was used and payments then related directly to the contracted outputs. This requiredNGOs to adopt a more contractually oriented attitude and required capacity buildingof both local and international NGOs.

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Outputs

The physical outputs of the projects arise from the Water Supply and SanitationImplementation Program, the major activity of both WSSRP-1 and WSSRP-2.Theoutputs by subcomponents are summarized here.

• Quick Response Facility (QRF)Quick Response Facility (QRF)Quick Response Facility (QRF)Quick Response Facility (QRF)Quick Response Facility (QRF) was established to undertake unforeseenurgent repairs during WSSRP-1 and WSSRP-2. The major outputs included:- five water supply deep wells in Dili and Suai;- repair of the Viqueque water supply transmission main over the Cuha River;- support for WSS with procurement for minor urgent works during transition;- assistance to WSS to carry out procurement activities to complement major

works being implemented by other funding agencies;- procurement to assist USGET upgrade water treatment plant in Dili Oecussi;- complementary work with the Japan-funded Dili Water Supply

Rehabilitation and Improvement Project;- upgrading electrical equipment Dili water pumping stations;- drain cleaning and manhole rehabilitation in Dili;

• Dili WDili WDili WDili WDili Water Supplyater Supplyater Supplyater Supplyater Supply repair, rehabilitation, and improvement were ongoingduring WSSRP-1, and WSSRP-2 completed rehabilitation work through smalllocal contracts, contracts for deep well drilling, and water supplyimprovements such as repair and rehabilitation of public taps and other waterpoints in low-income urban and semi-urban areas. Major outputs under thetwo phases included:- coverage of the sucos of Bidau Santa Ana Metiaut and Becora in eastern Dili

where an estimated 8,800 persons benefited from improved water supplies;- support for preparations to reintroduce water supply user charges, including

review of meter installation requirements and procurement of fourthousand water meters were procured to support the program to, 224meters were installed by WSS for non-domestic users;

- in-house design and documentation for the warehouse at Dili DistributionDepot;

- development work on Comoro F deep well and replacement of Comoro Abore with a new bore, now known as Comoro G.

• District TDistrict TDistrict TDistrict TDistrict Towns Wowns Wowns Wowns Wowns Water Supply Repair and Rehabilitationater Supply Repair and Rehabilitationater Supply Repair and Rehabilitationater Supply Repair and Rehabilitationater Supply Repair and Rehabilitation was ongoingunder WSSRP-1 and WSSRP-2 and was allocated increased funds in responseto the Government’s policy decision in late 2002 to focus on rural development.The activity provided a range of immediate assistance activities to addresswater supply and sanitation needs of smaller urban and rural communitiesthrough contracts with local and international NGOs. Training inenvironmental health, gender awareness, community participation andplanning was provided during implementation to ensure sustainability andequity. Major outputs included:


○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

- a large number of people, estimated at 112,000, benefited throughimproved water and sanitation facilities;

- capacity of local NGOs was enhanced through contracts and the opportunityto work in conjunction with international NGOs;

- rehabilitation of part of the transmission main for Viqueque;- construction of new intake, transmission main, reservoir, and distribution

main in Lauhata (Liquica);- construction of new transmission main and installation of new submersible

borehole pump in Suai;- construction of new bore, installation of new transmission main, reservoir,

distribution mains and public tanks in Oecussi;- construction of intake improvement works at principal surface water

sources for Gleno and Maliana;- installation of a new reservoir for Gleno; and- rehabilitation of the transmission main and construction of a new reservoir

for Maliana.• Communi ty WCommuni ty WCommuni ty WCommuni ty WCommuni ty Water Supply and Sani ta t ion Rehabi l i ta t ion andater Supply and Sani ta t ion Rehabi l i ta t ion andater Supply and Sani ta t ion Rehabi l i ta t ion andater Supply and Sani ta t ion Rehabi l i ta t ion andater Supply and Sani ta t ion Rehabi l i ta t ion and

ImproImproImproImproImprovementvementvementvementvement. A new subcomponent in WSSRP-2, building on activityundertaken under the district towns subcomponent in WSSRP-1. Thesubcomponent was allocated greater funds in response to the Government’sdecision to emphasize rural development. Sixteen local and internationalNGOs were contracted to implement about $780,000 of communityparticipation water supply and sanitation projects. The average cost for theseactivities was approximately $200 for roads benefiting household. The projectsgenerally included health and hygiene promotion components. To enhancesustainability, the benefiting communities were required to commit socialcapital to construction and operation and maintenance activities before thephysical activities commenced. The outputs are:- provision of basic water and sanitation services for many small

communities;- enhanced community empowerment through local participation,

accountability and organization; and- greater local NGO capacity to undertake similar activities in the future.

• Urban Sanitation ImproUrban Sanitation ImproUrban Sanitation ImproUrban Sanitation ImproUrban Sanitation Improvementvementvementvementvement. A new subcomponent in WSSRP-2 andthe first project activity focused on sanitation rather than water supply. Asolid waste collection activity was not implemented after consultations withWSS. The major outputs were:- existing documentation on the drainage system was reviewed and a

database of the drainage system was established based on the field inspections;- existing WSS contract documentation was modified to suit drainage

construction and drain cleaning work in contracts with private sectorcontractors for maintenance of the drainage system;

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- priority works to improve operation of the central Dili drainage systembetween the Maloa and Lahane streams, including: clearing and repair ofroad inlet pits, cover replacement, clearing open channels and piped drains,and minor structural repair work; and

- upgrading a storage building at Tibar waste disposal site to house the WSSbulldozer.

Institutional Development

Institutional development was the major activity throughout both phases of theproject. In WSSRP-1 there was a greater requirement for sector institutional capacitybuilding activities than was originally envisaged during Project design, and most ofthe grant contingency was allocated to capacity building activities. The three keyareas in the overall Timor-Leste institutional framework are: (a) the government Waterand Sanitation Service (WSS), (b) Timor-Leste NGOs, and (c) the private sector assuppliers of goods and construction services.

Table 2.8: Summary of Physical Outputs

WSSRP-1

Bidau Santana (Dili) Water Supply System Construction

Becora Transmission Main & Bekosi Deep Well Construction

Construct and equip three deep wells (Dili)

Hera Water Supply System Construction

Viqueque Transmission Pipeline Rehabilitation (River Crossing)

Construct one deep well (Suai)

Various NGO contracts for Urgent Rehabilitation of Water Supply Systems inManatuto, Los Palos, Same, Zumalai, Suai, Bobanaro, Emera and Liquiça

Various Quick Response Activities, including activities to complement and enhancethe activities of other donors

WSSRP-2

Quick Response Facility (Small procurement, urgent pump repairs, electricalrepairs, drafting, rainfall harvesting guide)

Dili Water Supply Rehabilitation and Repair (Warehouse construction, complementaryactivities for Government of Japan Project)

District Towns Water Supply Rehabilitation (Gleno, Liquica, Maliana, Oecussi, Suaiand Viqueque)

Community Water Supply and Sanitation Improvements (16 NGO contracts,including health and hygiene promotion)

Urban Sanitation Improvements (Urban drainage and wastewater improvements)


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The emphasis of institutional development activities shifted during the twoprojects as priorities changed from immediate needs to long-term development. Broadareas of development were:

• WSS District OperationsWSS District OperationsWSS District OperationsWSS District OperationsWSS District Operations. Twelve buildings were identified, reconstructedfor office, store, and workshop use and equipped with essential operationaland maintenance tools, equipment and materials. Each of the 12 districtoperations centers was also equipped with a pick-up vehicle. Radio equipmentwas purchased for installation by others in all 12 district centers to allowcommunication with Dili.

• Legal and Regulatory FrameworkLegal and Regulatory FrameworkLegal and Regulatory FrameworkLegal and Regulatory FrameworkLegal and Regulatory Framework was necessary and separate draftlegislation was prepared for Water Resources, Water Services and forSanitation Management draft in WSSRP-1. The still evolving high level legalframework prevented enactment, although the policies were supported bystakeholders. In WSSRP-2, as requested by the Government, revisions of thedrafts were undertaken and an implementation plan prepared. This enhancedunderstanding and ownership of the draft legislation by WSS staff, who werenot involved during the WSSRP-1 activity. The Government will progress thelegislation to promulgation.

• Reintroduction of WReintroduction of WReintroduction of WReintroduction of WReintroduction of Water User Chargesater User Chargesater User Chargesater User Chargesater User Charges. In WSSRP-1, a Tariff Study wasundertaken of willingness-to-pay and ability-to-pay analyses that providedurban water supply tariff recommendations and an implementation plan forfuture cost recovery scenarios at differing levels of service and cost recovery.Support was also given to WSS in reestablishing effective communicationswith customers, and to develop their understanding of WSS functions andresponsibilities. In WSSRP-2, further support was given but the requiredlegislation was not passed, so it was not possible to introduce water usercharging.

• TTTTTechnical Guidelinesechnical Guidelinesechnical Guidelinesechnical Guidelinesechnical Guidelines establishing operational standards and procedureswere prepared in WSSRP-1 along with technical studies on solid wastemanagement and water quality improvement. In WSSRP-2, improvement ofthe Community Water Supply and Sanitation (CWSS) Guidelines was madeto enhance the sustainability of outcomes in small communities and ruralareas. Support was also given for the introduction of an Infrastructure AssetManagement System (IAMS) to allow WSS to quantify its infrastructure assetsand as a resource for budget and plan preparation.

• TTTTTrainingrainingrainingrainingraining - WSSRP-2 supported 12 WSS staff to attend overseas training. Thisgave exposure to improved methods of technology and management of waterand sanitation services and established beneficial linkages and contracts withindustry peak bodies, other utilities and individuals.

• PlanningPlanningPlanningPlanningPlanning - During WSSRP-2 greater emphasis was placed on longer termplanning rather than immediate needs. The Project assisted WSS with:

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Table 2.9: Summary of Capacity Building Outputs

WSSRP-1

Project Implementation Document (PID)

Repair & fit-out of WSS District Buildings (all districts)

Purchase 13 Vehicles, 1 Motorbike & 13 Tool Sets for WSS District Operations

Purchase 2-Way Communications Equipment for WSS Operations

Water Supply Tariff Study and Recommendations

Public Relations Assistance for WSS Customer Services Division

Prepare Guidelines and Procedures for WSS Infrastructure and Community WaterSupply and Sanitation Divisions

Urban Solid Waste Management Plan and Improvement Recommendations

Urban Water Treatment Study for WSS District Operations

WSSRP-2

Training

Legislation Development

5-Year Sector Development Planning

Infrastructure Asset Management System

Dili Water Supply Master Plan

Reintroduction of Water User Charges (incomplete)

Dili Drainage and Wastewater Management Strategy

Community Water Supply and Sanitation Guidelines

- the preparation of the draft National Development Plan (NDP) and the 5-YearSector Development Plan, setting appropriate sector goals and activitiesfor inclusion in the NDP and budget submissions;

- preparation of a Dili Water Supply Master Plan to map out developmentof the system and water resource requirements up until the year 2020. TheProject inspected all 8,014 existing water service connections and assessedthe rectification required for each connection. This provided a texturaldatabase of all the connected properties and digital maps showing everyconnected property. When a geographic information system (GIS) is used,the data base can be spatially referenced for each property and informationin the water meter condition data base can be utilized;

- preparation of a Dili Drainage and Wastewater Management Strategy,including a major survey of existing sanitation facilities and communityexpectations for improvement. The strategic plan established a clearinstitutional framework for the management of wastewater, drainage and


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solid waste in urban areas and provided a program for implementation inthe medium term.

Impacts

WSSRP-1 provided immediate support for rehabilitation of water supply systemsin Dili and selected districts and capacity building for longer term institutionalstrengthening of WSS. Flexible implementation arrangements allowed the Project torespond quickly to emerging needs and opportunities. WSSRP-2 was consistent withADB’s and TFET donor’s poverty alleviation strategies and the Timor-Leste draftNational Development Plan, in particular its health, infrastructure and human resourcedevelopment goals.

Approximately 112,000 people benefited directly from improved water andsanitation services and an estimated 76,250 person-days of employment was generatedby implementation. Timor-Leste as a whole benefited from the institutional capacitybuilding and sector development activities and the capacity of local private sectorcontractors and local NGOs was significantly enhanced through the award of smallercontracts.

Sustainability of urban water supply and sanitation outcomes will dependprimarily on the capacity and budget of WSS to maintain the infrastructure and systems.The Project has improved the capacity of WSS and, at present, the Government is ableto provide sufficient operational budget and human resource numbers to maintainthe urban infrastructure and systems. Implementation of water user charges will furtherenhance financial sustainability.

To enhance sustainability of district and community level outcomes, NGOsrequired the benefiting communities to commit social capital to the Project. However,in many instances the longer-term maintenance is beyond the capabilities of thecommunities alone and continued Government support will be for longer termsustainability.

Environmental conditions have improved as the Project addressed hazards ofwaterborne disease and lack of sanitation through water, sanitation and drainage works,consequently improving the health and dignity of beneficiaries. The improvement ofwater supplies in urban areas, particularly Dili, has provided an enhanced platformfor economic growth. In the small communities and rural areas the provision ofimproved water supplies has allowed these communities greater freedom to utilizetheir scarce physical and financial resources to improve their income, social statusand health.


WSSRP-1 was completed on 30 June 2003 and WSSRP-2 was completed on31 December 2003. A Project Completion Report on both projects is being drafted.

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The emergency phase is over and longer term planning is needed. Most watersupplies in urban and rural areas have generally been restored to preconflict servicelevels. However, service levels are still inadequate to achieve Timor-Leste’s publichealth, human dignity and economic development goals. Measures which could raiselevels further are discussed below.

• TTTTTargeting of Limited Resourcesargeting of Limited Resourcesargeting of Limited Resourcesargeting of Limited Resourcesargeting of Limited Resources - Greater emphasis needs to be given todata collection and analysis (benchmarking) to allow more effective targetingof limited resources. All stakeholders working within the sector need to beencouraged to undertake appropriate baseline surveys before and after theirrespective activities, and to provide the data to WSS and other stakeholderagencies. WSS needs to be encouraged and assisted to collate and analyzethis data, and to develop appropriate sector strategies to best target the scarceresources.

• Small Community and Rural Area AssistanceSmall Community and Rural Area AssistanceSmall Community and Rural Area AssistanceSmall Community and Rural Area AssistanceSmall Community and Rural Area Assistance - As the Government’sresources will not be sufficient, in the foreseeable future, to provide adequatewater and sanitation services for small and rural communities, WSS shouldbe encouraged and assisted in its role as lead agency of this subsector. Itshould be encouraged and assisted to enter into appropriate, constructivepartnerships with community-based and nongovernment organizations toprovide water supply and sanitation services in these areas.

• Institutional StrengtheningInstitutional StrengtheningInstitutional StrengtheningInstitutional StrengtheningInstitutional Strengthening - Future institutional strengthening and humanresource capacity building support should be undertaken in a longer termmanner that supports local ownership and understanding for enhancedsustainability of outcomes. Previous institutional strengthening activities may

Box 2.4: ADB-Funded TAs Supporting Water Sector Development

• TA 3986-TIM: Integrated Water Resources Management

Started February 2004

$600,000

ADB approved an advisory TA in November 2002 to create a national water policy

that will lead to the adoption and progressive implementation of integrated water resources

management. The intended policy will be broad ranging, covering institutional, legal, water

assessment, water sharing and allocation, and environmental issues. Initial activities in the

TA have addressed the need to raise awareness of stakeholders, through workshops and

public events, of the need for a cross-sectoral approach to integrated water resources

management. Working papers have been produced on environmental, institutional and

social issues and on water resource availability and demand. The TA will be completed in

February 2005 and is being undertaken in close cooperation with Timorese and international

stakeholders, including donors.


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require reiteration to newer stakeholders and reinforcement for the existingWSS staff. Institutional strengthening activities in the medium term shouldfocus on improving:- urban water supply levels of service,- urban water supply demand management,- recovery of costs from urban water supply users, andplanning and management of donor and NGO activities in small

communities and rural areas.• Health and Hygiene PromotionHealth and Hygiene PromotionHealth and Hygiene PromotionHealth and Hygiene PromotionHealth and Hygiene Promotion - Water supply and sanitation service users

need health and hygiene information and education to maximize the healthbenefits of improved water supply and sanitation services. WSS should beencouraged and assisted to work with relevant government agencies toimplement health and hygiene promotion programs.

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Part 3

Social and EconomicRehabilitation

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Fisheries


The coastline of Timor-Leste is only some 650 km and most has little or nocoral reef. No areas of barrier reef or seamounts are within reach of small fishingboats. There is very little continental shelf and the depth drops to over 2,000 m within20 km. There is only a limited area of fringing coral reef and a number of fragileecosystem pockets (mangroves, sea grasses, etc.) These areas are likely to supportlimited coastal marine resources.

In 1997, there were reported to be 630 fishing vessels with outboard engines,including 349 in Dili alone, and 1,387 canoes. In that year 9,066 people worked asfishers and caught some 2,423 metric tons (mt) of marine fish. Hera Port, near Dili,is Timor-Leste’s only fishing port. The port was developed under ADB’s FisheriesInfrastructure Sector Project and completed in 1993. It was built to poor standardsand maintenance was neglected but it was the base for larger commercial offshorefishing vessels.

Under Indonesian occupation, access to the offshore fisheries resources was deniedto the people of East Timor and instead benefited Indonesians, primarily from Sulawesi.

The postballot destruction resulted in substantial losses of fishing gear andvessels and the withdrawal of personnel in fisheries administration. All the commercialfishing boats left Hera Port, about 24 moving to Atauro Island—a Timor-Leste offshoreisland north of Dili—and the rest leaving Timor-Leste or being destroyed.

After the conflict, Timor-Leste was faced with the dual task of trying to restoreits fishery as well as promoting sustainable use of the resource to avoid repeating thenumerous failures which characterize tropical fisheries interventions.


With the withdrawal of Indonesian fisheries personnel, UNTAET established anew administration in the form of the Fisheries and Marine Environment Service(FMES)12 to deal with management, legislation, policies and enforcement in thefisheries sector while the commercial and practical aspects of fishing were deliberatelyleft as the domain of the private sector.

Incorporating lessons learned from failures of fisheries in other countries, FMESestablished a strategic plan13 to develop Timor-Leste’s fishery sector. The goals of theplan were:

12 Now the Division of Fisheries (DOF).13 Fisheries and Marine Environment Service, 2001: “Fish for the Future: A Strategic Plan for the

Fisheries of East Timor.”


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• to sustain and enhance the aquatic resources and their supporting ecosystems;• to establish and implement a fisheries act and accompanying legislation;• to address the needs and aspirations of coastal communities, community

members and social groups;• to establish a profitable private sector-based fishing industry that maximizes

sustainable economic returns for East Timor;• to establish a viable aquaculture industry;• to provide sustainable marine recreational activities for the recreational

fishing, charter fishing, and dive tour subsectors;• to assert jurisdiction and control over the living marine resources in the

surrounding seas;• to develop the capacity of staff of FMES and other service providers; and• to operate and efficient and accountable FMES.

In this plan the government role is to provide an enabling environment for privatesector activity and the framework within which the private sector must work. This planwas entirely consistent with ADB’s own experience-based policy on fisheries.14

Rehabilitation of Hera Port was a focus for implementation of the plan. Theport includes an ice factory, training workshops, boat yard, fuel and stores supply tobecome part of the private sector-based fishing industry along with the fish catchingand marketing activities the port would support.

UNTAET, in consultation with the ETTA, CNRT, and members of Timor-Leste’scivil society, asked the TFET trustee to provide assistance to rehabilitate the fishingharbor at Hera Port. The natural resources sectors were under the InternationalDevelopment Agency (IDA)-World Bank portfolio, but because ADB had moreexperience with small fishing harbors from its Pacific involvement, ADB was requestedto undertake this activity in conjunction with the IDA-implemented Second AgricultureRehabilitation Project (ARP II).

The Project was modest in scope, comprising the rehabilitation andstrengthening of three individual breakwaters totaling approximately 140 m inlength, and rehabilitation of the wharf faces of the harbor basin totalingapproximately 400 m. The work included replenishing washed-away core materialfrom the breakwaters and enforcing the seaward sides with stone armor, thusprotecting the harbor against wave action. Vertical concrete slabs anchored inprofiled steel piles enforced the wharf faces inside the harbor basin. This createda secured mooring site for easy on- and off-loading of vessels. The working apronalongside the wharves was also upgraded and/or rehabilitated. The Projectemphasized as much use of local labor, local purchase of materials, and lease andhire of equipment from Timor-Leste nationals as possible, as well as training atall levels in harbor construction.

14 ADB. 1997: The Bank’s Policy on Fisheries.

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The allocation of $1,000,000 was determined more by the maximum amountthat the ARP Il project could allocate—and still keep its objective and scope—ratherthan by a calculation of what was required for harbor rehabilitation. It was concludedthat a functional harbor could be created for this amount but with very little scopefor any additional works.

The goals and objectives of the Project, summarized in Table 3.1, set the portrehabilitation in the context of the wider FMES strategic plan and achievement of thegoal and objectives depended on those parallel institutional developments.Consideration was given to wider institutional development needs but the proposedfisheries support from bilateral donors resulted in a project design for the simplerehabilitation of Hera Port and without any ADB involvement in any other aspect ofthe fisheries sector.


Project Management

During the initial planning of the project, it was envisaged that the Project wouldbe implemented by the established PMU of the ARP II, comprising the procurementofficer and with active involvement of the staff from the DOF. In reality, most of thework was done by the procurement officer and the foreign adviser to the DOF. TheDOF staff only attended 6 of the 47 site meetings, which were held at Hera port duringimplementation. The anticipated involvement of the DOF staff in the work of PMUwas, in hindsight, overoptimistic due to: (i) the small number of the DOF staff; (ii) theirunfamiliarity with construction matters; and (iii) the sheer number of other donorprojects in the fisheries sector to attend to.

Table 3.1: Goals, Objectives, and Targets of the Hera Port Fisheries

Facilities Rehabilitation Project

Design Summary Targets

Sector Goal

• 50% of the Food and Agriculture Organiza-tion recommended annual fish consumptionper capita reached by 2006

Purpose/Objective

To achieve responsible fisheriesmanagement by promotingoffshore pelagic fisheries andthus easing inshore fishingpressure

• Vessels targeting the pelagic resources willincrease by 5 per year in the next 4 years

Contribute to sustained foodsecurity of marine protein inEast Timor

Source: ADB Report on Project Grant: 8190-TF-ETM: October 2001.


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A full-time consultant in charge of implementation would have been preferred,but was not possible under the limit of special funding. A supervisory engineeringfirm was awarded a contract to ensure construction was carried out to specifications.Weekly site visits were held and all issues were discussed and rectified where possible.The supervisory engineers also played an important role in evaluating the cost of theadditional work to be undertaken and for which variations were issued. Detailedminutes from site visits were sent every week to ADB.

The Project experienced significant delays initially. The PMU was unfamiliarwith ADB tender documents and it took time for these to be issued. Two local firmsrequested additional information and the date for bid submission was extended by1 month. Capacity and time to evaluate the incoming bids was also a severe constrainton the PMU and ADB, therefore, engaged a staff consultant to assist with this exercise.

The contract was finally awarded to Wakachiku Construction Co. of Japan in July2002 and the contract was signed in August 2002. Mobilization commenced in September2002, almost a full year behind schedule. However, once mobilized, the contractorproceeded smoothly with the implementation and the firm’s understanding of thelocal culture and settings was a decisive factor in the very efficient implementation.


The high emphasis on local participation in construction and delivery of goodsand materials called for inclusion of one or more NGOs in project implementation.Several NGOs were approached during the appraisal mission and their variousexperiences from other rehabilitation projects, ongoing and completed, were factoredinto design. This was the reason why the project documents proposed procurementof civil works as a single contract through local competitive bidding (LCB). However,during implementation the PMU realized this would likely fail as most domestic firmswith strong links to NGOs did not possess experience for design-and-build contractsand for geotechnical considerations. Thus, it was decided to use the more time-consuming international competitive bidding (ICB) procedures. At bid opening, noneof the tenders with NGO involvement were price competitive.

The firm which won the contract, Wakachiku Construction Co. (Japan), followedthe original design without major changes. All specified outputs were achieved to avery high construction standard and some savings were used to carry outcomplementary work not included in the original scope of work. The protracted tenderprocess unfortunately caused delay in implementation, and commencement only beganafter another monsoon season had eroded even more core material from the breakwaters.This affected the original estimation of bill of quantities but was accommodated withinthe budget. The further erosion of the breakwater caused a considerable siltationof the port basin, which had to be addressed by the contractor. A contract variationwas approved to include a thorough dredging of the port basin and this has clearlyimproved the use of the port to accommodate other vessels.

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Outputs

The final output was much better than envisaged, as not only complementarywork was carried out within the budget but the Timor-Leste Government used someof its own development funds to fence the entire perimeter and install navigation lights.

The project cost, at appraisal, for all civil works, local labor, engineering design,goods and related services—including pile-driving equipment, batching plant, andtruck hire—and supervisory engineering services was estimated at $866,000 withcontingencies amounting to $134,000, fully utilizing the IDA grant of $1,000,000. TheGovernment spent in addition $77,000 from its own development funds for additionalwork not included in the design. ADB disbursed in total $998,161 with the remaining$1,839 being returned to the World Bank.

Institutional Development

In the context of the FMES strategic plan, ADB’s original assistance programincluded a technical assistance project for formulating fisheries legislation. This wasnot carried out because a bilateral donor offered more comprehensive assistance tothe fisheries sector which also included formulation of fisheries legislation. However,this bilateral program was delayed by 2 years and, ultimately, the fisheries legislationwas not included. Instead, the Government sought other donor assistance to formulatethe important legislation. At this time this draft is only available in Portuguese. Thedraft legislation has been passed by the Council of Ministers, but still awaits thePresident’s endorsement.

The legislation does not refer to Hera Port, but the present strategy of the DOFis enforcement by licensing—which they will be empowered to do by the legislation.Until the laws are passed the DOF has delayed action. Licensing of both foreign andlocal entities will include caveats to ensure they use the Hera Port facilities.

The DOF is currently in negotiation with the Malaysian Government, the privatesector of Japan and the Spanish Government to initiate a boat building industry torestore and enhance the former fishing fleet. The DOF are confident this will happenwithin the next 6 months.

Without the fisheries legislation and promotion of the offshore fisheries, theanticipated private sector activities within Hera Port, such as repair shops, stores,boat building, ice-making, and product supplies such as water and fuel and exportpackaging have still not been established. The absence of any capacity for a commercialapproach within the DOF is likely to delay the optimal functioning of Hera port.However, a fisheries project, funded by the Australian Agency for InternationalDevelopment (AusAID), is ongoing and will hopefully be a catalyst for the full utilizationof the port. This has already begun with AusAID utilizing the port facilities for trainingpurposes at least once a week. They also see the port as an excellent site for their“wet” laboratory.


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Impacts

At project completion the Project is still rated as relevant, offering the prospectto improve the dietary intake of protein to a population with very high incidence ofpoverty.

The Project is rated as efficient as the Project meets its technical targets inproducing the physical output of a rehabilitated port within the planned budget forinputs.

The Project’s sustainability is rated likely. The absence of any commercial fishingvessels in larger numbers, and the absence of any commercial private sector supportactivities, is worrying. If a legislation empowered the DOF is able to attract commercialfishing boats and attract the private sector to develop port services and facilities then,from a financial point of the view, the expected annual revenues exceed expectedannual costs by three times and the Project would be sustainable.

However, the Project is rated as less efficacious. The missing link between theoutput of a rehabilitated port and the objective target of an increasing number ofvessels using the port—thus improved catch and nutrition—is not working at thistime. The parallel developments foreseen in the FMES strategic plan have simply nothappened and there is a visible lack of activity by the DOF, the successor of FMES,to promote a private sector fishery. This may be explained by: (i) lack of sufficientnumber of staff and skills within the DOF, and (ii) the number of different fisheriesprojects being implemented in Timor-Leste absorbing scarce capacity.

The current staff skills within the DOF do not include any commercially-mindedunit, and any increase in staff numbers in the future is unlikely to be outside itstraditional fisheries “core functions”. This is a cause for concern, as worldwideexperience has shown clearly that any responsible management of fisheries ismore likely to occur when business and economic skills are applied, as opposedto scientific skills.

It is also of concern that the DOF confirms that the fishing fleet is still in a badstate of repair. As in 2001, only 4 or 5 of the offshore boats are operational out of afleet of 24. The port offers safe anchorage and, if private sector development can beattracted, access to repair and maintenance facilities. It is expected that the fleetcould rejuvenate at a rate of 5 boats per annum.

The DOF has indicted willingness to proceed with the operations, butimplementation is delayed due to the DOF’s desire to have the fisheries legislation inplace first. However, it is not easy to assess the relevance or impact of the newlegislation when, at this stage, there is no English translation of the draft law. TheDOF anticipates that once legislation is in place and it can issue licenses then the fleetwill rejuvenate.

Hera port is the only location that can form the base for a fishery targeting therelatively cheap and fast-growing smaller offshore pelagic fish species needed toincrease nutrition through increased catch of cheap fish. Many smaller vessels are

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using Hera port today but these do not contribute substantially to large catches ofcheaper fish and may be risking more rapid depletion of inshore and reef fisheries.

Lack of government promotion for pelagic fishery casts doubts as to whetherthe link between the Project output of a rehabilitated Hera Port and the objectives ofimproved catches and nutrition will be realized.

In this context, the future economic impacts of the Project are speculative.However, beneficial impacts have been enjoyed during implementation:

• many people were engaged directly as laborers and the Project employed atotal of 826 people for an equivalent of approximately 25,000 person-days,about 12% of the contract value was for local wages;

• the Timor-Leste private sector were contracted to supply all aggregates, corematerial, armor rock, and other goods for around 22% of the contract value;and

• many unskilled workers employed by the Project received useful workexperience and training in the special requirements for marine structuresconstruction and operators of machines developed skills for future projectsand maintenance.


The successfully completed Project closed on 28 January 2004. A draft ProjectCompletion Report15 is in the final stages of preparation.


The Government of Timor-Leste now has a rehabilitated port constructed to avery high standard. It appears that the Government has every intention of using thisport as the catalyst for its commercial fishing industry. However, the DOF is delayinguse of the port on the grounds that the legislation in not yet in place. Thus, responsiblefisheries legislation needs to be enacted and implemented to optimize the use of theharbor for pelagic fisheries. The legislation and act will probably be enacted in the nearfuture.

Future benefits require that the facilities are used and used efficiently. In thisregard the following needs should be met:

• Future MonitoringFuture MonitoringFuture MonitoringFuture MonitoringFuture Monitoring. As the fisheries sector develops in Timor-Leste, it willbe important to monitor the development at Hera port as this will be animportant indication on how the country in general manages its fishery. Theoffshore resources are likely to be licensed initially to the distant water fishingnations, due to very high investment costs. Commercial use of Hera port will

15 This progress report is substantially based upon and reflects the findings of the Project CompletionReport draft.


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probably first be by vessels from these nations. The management of such afishery will, therefore, be a good indicator as to what assistance to Timor-Leste will be needed in managing its domestic fisheries.

• Further Action or Follow-UpFurther Action or Follow-UpFurther Action or Follow-UpFurther Action or Follow-UpFurther Action or Follow-Up. The DOF has indicated that the fishinglegislation will give them the power to issue licenses of two types (i) foreignoperator licenses, and (ii) domestic operator licenses. It is through this systemthat the Hera port usage will be enforced. Any commercial licenses will includea clause whereby the fishing fleet will be obliged to use Hera port. This actionis fundamental to the sustainability of the rehabilitated port and should bemonitored.

• Port Management.Port Management.Port Management.Port Management.Port Management. The DOF has yet to appoint staff to the Hera port andit is recommended that now the port has been reconstructed that this becarried out immediately, with appropriate budgets and resources put in place.The DOF has also indicated a capacity gap in port management and, therefore,further support in this area may be considered.

• Additional Assistance. Additional Assistance. Additional Assistance. Additional Assistance. Additional Assistance. The DOF has indicated that the port lacks equipmentfor efficient operation and consideration may be given to this, though theintention at appraisal was that such service provision be outsourced. Capacitybuilding assistance may address this issue through training.

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Microfinance


Before September 1999 there had been a basic network of 18 bank branchesin East Timor. State-owned banks operated 15 branches (5 central government and10 regional government) and there were 3 private bank branches. The branches wereconcentrated in urban centers and there were no licensed rural banks, though BankRakyat Indonesia (BRI) operated a number of village bank units. As of March 1999,formal bank lending was $18.2 million but savings deposited with the banking systemtotaled $68.4 million, almost four times as much.

As in Indonesia, credit unions had been promoted in East Timor as vehicles forgovernment projects. The first credit union in East Timor was established in 1990 and27 existed in 1999. The unions formed a credit union federation (CUF) in 1994. Surveyssuggest that about 11% of the population had borrowed from banks compared to 33%borrowing from nonbank financial institutions, including 20% reliant on money lenders.Half were unable to borrow from any source.

As a result of the conflict, all the Indonesian banks, including BRI, closed andremoved their records, equipment and vehicles. Only 4 of the 27 credit unions continuedto operate after the conflict; 17 continued to exist as CUF members but were notoperating. In the aftermath of the conflict, two foreign banks established offices inDili to provide limited banking services, such as payments and foreign exchangeservices, but not lending activities nor services in rural areas.

The loss of savings as the Indonesian banks closed greatly limited the abilityof the private sector to operate and help rehabilitate the economy. Moneylenders’ability to lend was severely hampered due to their losses. Surveys in preparation forthe Microfinance Development Project (MDP) suggested that only 5% could borrowfrom moneylenders compared to 20% before the conflict. Interest rates were as highas 20% per day.

Market failure in the financial sector was recognized by UNTAET and donorsas justifying the use of public sector TFET funds to finance private sector activity.From April 2000 the TFET-funded, World Bank-managed Small Enterprises Project(SEP) provided loans of from $500 to $50,000 through one of the Dili foreign bankoffices.16 SEP loans were for periods of 3–36 months with a 3-month grace period andinterest at 10% per annum.

Surveys undertaken as part of the preparation for MDP showed that men soughtloans of up to $1,000 for microenterprises while women sought loans of $10–100 assmall traders. SEP did not cater for the needs of microenterprises and such small

16 The foreign bank did not use any of its own funds to support SME or other lending programs.


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borrowers and the market failure for microcredit needed to be met separately fromthe SEP.


ADB was given responsibility to manage microfinance interventions on behalfof TFET and developed a strategy for such development based upon TA findings (seeBox 3.2.1). The objective of the microfinance strategy in Timor-Leste is to ensureaccess to institutional financial services of the poor in rural areas to support theireconomic activities. The strategic focus was on:

• Creating a policy environment that will enable viable delivery of a wide rangeof services to the poor;

• Fostering a sustainable microfinance infrastructure for the establishment ofa microfinance bank and widespread credit unions;

• Intensive capacity building to enable local talents in Timor-Leste to managethe operations;

• Supporting a pro-poor economic growth focus; and• Promoting and adopting best practices in microfinance development,

including customized replication of the Grameen model and universal bestpractices of credit unions and other microfinance institutions.

The intervention proposed by ADB combined a TFET-funded project withADB-funded supporting technical assistance. The Microfinance Development Project(8186-TIM(TF)) was approved on 6th December 2000 and became effective on 18th

December 2000.

Box 3.1 TA 3435-ETM: Microfinance

Started June 2000 : Completed December 2001

$150,000

The TA built upon work by the private sector and international agencies which

identified opportunities for microfinance through rehabilitation of credit unions and a

microfinance bank.The TA included a survey of the financial status and credit needs and

experience of some 300 households in 37 villages. Over 80% of interviewees had incomes

below $20 per month. This project preparatory survey data was the principal source of

objective data on poor households’ financial condition in the early postconflict period.The

TA assessed options and requirements for viable microfinance in Timor-Leste and, by August

2000, had produced the feasibility study leading to the Microfinance Development Project

funded by the Trust Fund for East Timor.

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The Project cost was estimated at $7.72 million. The TFET Grant Agreementprovided for the full amount but initially committed only $4 million as the amountthen available. The additional $3.72 million was not subsequently committed. Theproject was implemented within the $4 million by reducing equity paid up to Instituiçãode Microfinanças de Timor-Leste (IMFTL) by $1.5 million and by the saving of $2.5million as a result of the credit unions and CUF lacking capacity to receive the originallyintended credit line.

The project’s goals and objectives, summarized in Table 3.2, were to be achievedthrough provision of institution building and provision of finance to rehabilitate creditunions and establish a new, microfinance bank. Credit would focus on credit servicesfor micro-enterprise and income generating activities and provision of deposit takingand savings services. Project preparatory surveys identified poor rural and semi-urbanhouseholds as the priority prospective clients. Project preparation also indicated strongurban demand, including from the urban poor, and whilst project design did not targeturban groups it did not exclude them.

Table 3.2: Goals, Objectives, and Targets of the Microfinance Development Project


Sector Goal

• About 20,000 of East Timor’s 78,000 poorhouseholds (26 percent) will move above thepoverty line.

Purpose/Objective

Increase rural incomesthrough employment opportu-nities, and improve the qualityof life of the beneficiaries

Reduce rural poverty

Develop a sustainable ruralmicrofinance system moreresponsive to the needs of therural poor, including women

• Performance of microfinance system will beimproved, with better focus on policies andstrategies.

• Increase annual per capita income of benefi-ciaries from $55 to about $80 by the end ofthe Project

Create sustainablemicrofinance institutions tohelp reduce poverty byproviding the poor readyaccess to financial services

• Microfinance bank established to provideaccess to financial services

• Credit unions strengthened to providemicrofinance services to their members

Sustainable policies andregulatory framework

• Legislation passed for sustainable ruralfinancial institutions

Source: ADB Report on Project Grant: 8186-ETM-TFET: December 2000.


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Credit Unions and the Credit Union Federation

The Project provided for rehabilitation of 21 credit unions to give outreach tosome 8,000 poor families. The Project provided support until early 2003, by whichtime 17 credit unions proved beyond rehabilitation and only 4 achieved a levelconsidered operational.

Independent verification17 of the 15 credit unions currently listed by the CUFindicated that 5 are old unions. Only 3 were considered to have the potential to beviable in the short term and the others have less than 50 members each and this isconsidered too small a size to be viable. Sustainable credit unions need at least 250members to be able to generate benefits for members.

The existing credit unions, and the CUF itself, have very low absorptive capacityfor external credits and assistance. Support to rehabilitate four credit unions in Same,Atsabe, Bobonaro, and Ailieu has been provided, as well as to the CUF. Each wasprovided with some $23,000 worth of office furniture, equipment, and buildingreconstruction costs. Support was given in the form of: (i) formal training to the CUFtrainers in bookkeeping; and (ii) direct field-level assistance to credit unions in setting-up books of accounts and records. The assistance sought to accelerate credit unionrehabilitation and enable the CUF to support revival of the credit union movement,but credit unions still cannot produce acceptable financial records to give confidenceto members or lenders. Without such financial records it was not possible for creditunions to demonstrate creditworthiness and financial competence.

The Project supported the CUF in a variety of ways:• support for the CUF mobility and personnel cost to maintain contact with

credit unions;• capacity building through training-of-trainer, workshops, management and

bookkeeping training, updating skills to assist in establishing new creditunions;

• support for staff to attend a credit union executive training program andworkshops overseas, including the Asian Center for Credit Union Conferencein September 2002 in Bangkok and a study tour in Australia in December2001; and

• a credit union specialist to set up financial systems for the CUF and credit unions.

Despite this support, the CUF could not provide financial and monitoring reportson the activities of its member credit unions or demonstrate the capacity to act as afinancial intermediary for wholesale loans to the credit unions. Thus, when the CUF

17 The study was conducted by Dr. Ranjith Hettiarachchi, Chief Executive Officer of the AsianConfederation of Credit Unions based in Bangkok, Thailand.

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asked that Project funds be released to them for re-lending to member credit unionsthe request was refused as neither the credit unions nor the CUF could demonstratecapacity to manage such funds.

As and when individual credit unions can demonstrate creditworthiness, theycan apply to IMFTL branches or other lenders. The lender can then determine thecreditworthiness of the applicant against its normal lending criteria and lend theamount it considers appropriate. A variant of this approach could includeestablishment of a central fund for credit unions managed by IMFTL. Such approacheswould not give a financial intermediary role to the CUF and has not been acceptedby them.

Instituição de Microfinanças de Timor-Leste

Establishment and Branches

Implementation of the Microfinance Development Project required developmentof a policy and legal framework within which the intended microfinance institutioncould be developed. ADB funded technical assistance to support that developmentand a second TA to establish a management information system—these TAs arereviewed in Box 3.2.

Following the development of a policy and legal framework, IMFTLestablished a head office on 13 May 2002, and now has three branches. The Dilibranch was launched in May 2002, Gleno in September 2002, and Maliana inNovember 2002.

The operating license, issued by the BPA on 22 May 2002, authorizes IMFTL to:• receive deposits in the form of demand, time, and other types of deposits in

US dollars;• extend credits with a 65% minimum of portfolio for microcredits;• provide payment and collection services;• issue and administer current accounts/checks; and• provide safekeeping services for valuables.

With the authority to engage in demand deposit accounts, IMFTL created asettlement account with the Banking and Payment Authority (BPA) and is a memberof the Timor-Leste interbank clearing system.

During riots on 4 December 2002, the Dili branch was badly damaged and wasforced to move to a temporary office in the Dili commercial area for most of 2003.The building, furniture, equipment and supplies were looted and burned but IMFTL’sdata base and financial records were recovered from the computerized back-up systemdeveloped under the ADB TA for information technology. Operations resumed withina week of the riots. On 24 November 2003, IMFTL transferred to a renovated buildingas a permanent office.


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Institution and Capacity Building

A total of 34 staff has been recruited to run IMFTL with an additional12 security staff employed directly by IMFTL. These and other indicators arepresented in Table 3.3.

To enable staff to undertake efficient microfinance operations a wide range oftraining activities and workshops were undertaken. Subjects included: microfinanceprinciples, loan products and applicant evaluation, accounting and banking procedures,credit group formation, outreach and target setting. Selected staff were given on-the-job training in the computer system and MBWin financial software, developed by

Box 3.2: ADB-Funded TAs Supporting Microfinance Development

• TA 3556-ETM: Strengthening the Microfinance Policy and Legal Framework

Started February 2001 : Completed June 2002

$250,000

• TA 3743-ETM: Microfinance Information Technology System

Started March 2002 : Completed June 2004

$150,000

ADB provided an advisory TA for $250,000 to help UNTAET develop a policy and legal

framework for microfinance operations. ADB also provided a TA for $150,000, part of

which supported the installation and adoption of the UN/FAO-GTZ microbanking system

(MBWin) as the core microfinance and banking software for Microfinance Institution of

Timor-Leste (IMFTL) operations. This part of the TA was completed in September 2003.

The TAs prepared:

• policies for the establishment of a microfinance bank including by-laws for

incorporation, ownership, licensing, minimum capital requirements;

• the creation of a foundation to act as the initial owner of the microfinance bank

or institution;1

• broad policy and regulations for effective microfinance operations; and

• draft regulations for credit union operations.

As a result of the TA, the founding documents and statutes of the Foundation for

Poverty Reduction (the Foundation) and IMFTL2 were approved with the promulgation of

two executive orders 3 in December 2001. The Foundation’s Board of Trustees was

established by December 2001, and the Board of Directors of IMFTL was organized in early

2002. The Banking and Payment Authority issued a preliminary operating license on

22 May 2002.

1 UNTAET or any recipient of the Grant could not own a bank or financial institution due to prohibitions under theUN Charter.

2 This is the official name of the microfinance institution to be established under the Grant in accordance with theobjectives of the Project (paragraph 2 of the Aide Memoire).

3 Executive Orders Nos. 2001/7 and 2001/8 were issued on 1 December 2001 by the Office of the UN Special

Representative of the Secretary General (OSRSG), Sergio Vieira de Mello.

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UN/FAO-GTZ as a microbanking package. Formal MBWin training was conducted bythe ADB-funded UN-FAO technical assistance team.18

Each field officer serves slightly over a hundred clients on average, with anoutstanding loan portfolio of about $8,000. A number of workshops have been conductedwith field officers to identify constraints and new approaches to reach a target of 300clients per field officers, comparable to the experience of MFIs in other countries.

The Project established links with regional microfinance institutions and bankingassociations to share their experience. During its 16th Annual Conference in September2003, the Asia-Pacific Regional Agricultural Credit Association approved IMFTL’s fullmembership.

Requirements of Long-Term, Sustainable Operation

Viability of IMFTL depends on the capacity of management and loan staff tomake sound loans and effectively collect repayments so that the level of loans past

18 Services are financed under TA No. 3743-ETM: Microfinance Information Technology Systems

Table 3.3: Microfinance Institution Implementation ProgressAll figures are cumulative, unless otherwise stated

Dec 31 Mar 31 Jun 30 Sept 30 Dec 31 Mar 312002 2003 2003 2003 2003 2004

No. of MF Institution Planned 3 3 4 5 5 5offices opened Actual 51 5 5 5 5 5

No. of MF staff hired Planned 35 40 50 60 70 70Actual 26 26 28 30 32 46

Amount of saving/ Planned 300,000 400,000 500,000 600,000 700,000 750,000deposits generated Actual 385,160 622,000 957,655 926,788 960,773 953,225

No. of savers/ Planned 1,000 1,500 2,300 3,000 3,800 4,000depositors Actual 1,990 2,800 4,020 5,200 5,800 6,260

Amount of loans Planned 150,000 300,000 600,000 900,000 1,200,000 1,400,000disbursed Actual 104,800 410,000 747,195 1,344,600 1,763,900 2,042,700

No. of individual Planned 500 1,100 1,800 3,000 4,500 5,500borrowers Actual 900 2,340 3,380 5,000 6,480 7,470

Repayment rate Planned 92% 87% 85% 80% 80% 80%Actual 97% 98% 96% 89% 92% 93%

No. of MFI / training Planned 7 12 16 20 25 30conducted Actual 8 14 18 23 24 34

Training /Operating Planned 7 8 10 10 12 12manuals prepared Actual 10 102 12 12 12 16

1 Included here is the setting-up of the temporary Dili branch and Head Office after the destruction of the Dili branch,

H.O. and the PMU office in Comoro, Dili.2 Most of the hardfiles and backup copies of the manuals were destroyed during the 4 December riots and all had

to be rewritten.

Development approved in October 2001.


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due is contained well below 8%. The client base of each branch differs in compositionand balance. The characteristics of delinquency-prone groups also differ from branchto branch:

• for Dili Main branch, the microcredits extended to market vendors andstallholders in Dili public markets are the sources of loan delinquencies;

• for Gleno branch, the source of loan delinquencies are the microfinance grouploans made up mainly of vegetable farmers and villagers; and

• for Maliana branch, the rice farmers’ seasonal loans were sources of delinquencybut increased collection efforts reduced delinquency by early 2004; similarcollection efforts are used to reduce delinquency among market vendors.

Sustainable development of IMFTL requires expansion of its portfolio andattainment of broader coverage, while keeping loan delinquencies low, and collectionefficiency high. Microfinance experience shows that expansion of lending operations,especially under supply-led regimes, typically leads to declining repayment rates asthe quality of borrowers and the loan portfolio is sacrificed in favor of quantity.

Through workshops and discussion groups, IMFTL loan officers and field staffare developing approaches which try to balance the needs of growth and quality intheir specific markets. Each district poses different specific challenges:

• Dili is mainly a commercial area and microfinance groups could be formedonly in semi-urban margins of the district, involving time and costs of travelto monitor groups and effect collections;

• most villagers in the Gleno branch area are coffee growers with seasonalcash incomes, making debt service payments difficult on a regular basis duringthe nonharvest months; and

• rice farmers in the Maliana branch area also have seasonal cash incomesand difficulty in maintaining payments outside the February–April harvestperiod unless they generate income from other sources.

Part of the task of the loan officers is to ensure, before lending, that the borrowerfully understands the obligation to repay in a timely manner and the process ofrepayment. Many of the rural poor borrowing from IMFTL have no previous experienceof formal lending.

The IMFTL Board approved and adopted a prudent system of loan lossprovisioning. Loan quality is emphasized to avoid delinquency and consequent erosionof IMFTL’s equity base.

Project Impacts to Date

The Project’s overall goal is poverty reduction through increased ruralemployment and income opportunities, achieved by providing appropriatemicrofinance services for microenterprises.

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Some 6,260 deposit accounts had been opened by 31 March 2004, of which62% are less than $500 and the average deposit is about $150. The microfinancegroup’s first cycle of loans are mostly small and average only $45. IMFTL now servesthe needs of poorer households for secure savings facilities and small, short-termloans.

The small loans create opportunities in microenterprises, small trading activities,and other economic activities so that the poor can Improve their livelihoods.

In the case of the loans to civil servants (see Box 3.3), the chance to improvetheir living conditions took the form of opportunities to repair and refurbish theirburned residences and homes. These are not primary target beneficiaries of IMFTLbut in most areas there is no alternative financial institution. Having demonstratedthe existence of this market a commercial bank has provided a credit scheme andoffered a 3-year loan term.


Portfolio Development

As of 31 March 2004, total loans disbursed cumulatively reached $2,042,713.80.Loans have been made to 7,473 borrowers since operations began in May 2002.Outstanding loans were $670,804.32 to 3,048 borrowers. Of these, $42,292.78 areconsidered past due loans.19 Loan status is summarized in Table 3.4.

Box 3.3 Wider Market Development: Civil Servants

In 2003, the project also provided small loans to civil servants. The majority of the

borrowers indicated “rebuilding” and “repair” of homes as purposes of the loans.

IMFTL tested the scheme first in Maliana as the Maliana branch was requested by

the District Administration to service the payment of salaries to civil servants, there being

no other financial intermediary in the area. As the payment service is free of charge, the

branch was approved to implement a payroll-deducted small loan scheme for civil servants

and government employees in the district.

This was next implemented in Gleno Branch to augment the lending volume in the

district of Ermera. In Dili, by the second half of 2003, the branch was overwhelmed with

applications due to the large number of civil servants in national offices and ministries

in Dili.

Starting in 2004, a foreign commercial bank is offering a similar scheme but for a

longer term of 3 years. As a consequence, many of the civil servants and salaried personnel

have transferred their accounts to the commercial bank.

19 Past due loans are those for which payment of principal, in installment or lump-sum, is more than30 days overdue. Past due ratio is the ratio of past due loans to total loans outstanding.


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The 6,260 deposit accounts stood at $953,225.88 as of 31 March 2004. Depositsreached $1 million in June 2003, but IMFTL’s present license from BPA permits totaldeposits only up to $1 million. IMFTL monitors and controls the level of deposits.Deposit status is summarized in Table 3.5.

IMFTL Financial Status

Although loans and deposits have increased, IMFTL is still incurring operationallosses, though much lower than projected in the IMFTL’s Business Development Planand in project preparation documents. During the early development stage of IMFTLlosses were expected: Dili branch has been in operation for only 22 months, Glenobranch for 20 months, and Maliana for 16 months.

IMFTL has made operating losses in its first 2 years but is expected to breakeven in the current, third accounting year. Such break-even would be after prudentprovisions against doubtful accounts, probable loan losses, and loan risks.

Table 3.6 shows the income statement for the 1st quarter of 2004, leading up to thecompletion of the first 2 full years of banking operations.20 These are compared with the

Table 3.5: Status of Deposits

(As of 31 March 2004)

As at 31 Dec. 2003 As at 31 March 2004 Change (%)

Branch Total Deposits No. Total Deposits No. Amount No.

Dili Main 714,455.67 3,615 715,540.27 3,917 0.15 8.3

Gleno 52,915.75 1,302 52,700.80 1,350 -0.4 3.7

Maliana 189,004.81 849 173,285.87 987 -8.3 16.2

Total 956,376.23 5,766 941,526.94 6,254 -1.5 8.5

20 Though the period is the first quarter of the January to December financial year it is the final fullquarter of the second year since banking operations began in May 2002.

Table 3.4: Disbursements, Loans Outstanding, and Delinquencies


Disbursed Loans Principal Past due Principal PARBranch (cumulative) outstanding Overdue ratio at risk 1 ratio

No. Amount No. Amount (US$) (%) (US$) (%)

Dili Main 3,644 991,166.00 1,421 312,143.78 9,334.70 2.99 32,271.84 10.0

Gleno 2,,583 617,384.30 1,009 211,211.15 25,404.22 12.03 47,161.20 22.0

Maliana 1,246 434,163.50 618 147,449.40 7,553.86 5.12 13,088.42 9.0

Total 7,473 2,042,713.80 3,048 670,804.32 42,292.78 6.30 92,521.46 13.8

1 Loans/principal-at-risk are loans with missed payments even 1 day past due dates. PAR ratio is the ratio of principle

at risk to total loans outstanding.

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projections for the second year activity in the appraisal report. IMFTL did make a profitin the first quarter, giving credence to expectations of a break-even for the full year.

Projections had indicated large losses in the second year of operations,equivalent to 64% of total income, while the quarter to end-March 2004 has a profitof 7% of total income. The gross financial margins and provision for loan losses arevery close to projections in percentage terms and the large favorable variance inoverall net income is due to the much lower operating expenses, particularly savingson salaries and benefits. IMFTL appears to be much more cost efficient than projected.

IMFTL total assets stood at $2.92 million at 31 March 2004 and net worth was$1.97 million. Table 3.7 gives the balance sheet at 31 March 2004 compared withappraisal projections for the end of year 2 operations.

The major difference between the actual and projected balance sheets is the$1.5 million reduction in paid-up capital as a consequence of the nonavailability ofthe full grant for the project. This lower equity has resulted in the lower level ofshort-term investments by some $893,000, but the impact of the reduced equity ispartly offset by the greater than projected success in generating funds:

Table 3.6: Actual and Projected Income Statements and Ratios for 2004

Actual Quarter to March 2004 Projected Year1st Quarter Annualized 2 Results Variance

US$ % US$ % US$ %

Income

Income from Loans 49,424 197,697 91 61,268 23 136,429 67

Other Income 5,051 20,203 9 200,305 77 (180,102) (67)

Total Income 54,475 217,899 100 261,573 100 (43,674) –

Financial Cost

Interest on Deposits 1,100 4,399 2 2,879 1 1,520 1

Other Financial Costs 675 2,699 1 – – 2,699 1

Total Financial Costs 1,775 7,099 3 2,879 1 4,220 2

Gross Financial Margin 52,700 210,801 97 258,694 99 (47,893) (2)

Provision for Loan Losses 1,509 6,037 3 7,926 3 (1,889) (0)

Net Financial Margin 51,191 204,764 94 250,768 96 (46,004) (2)

Operating Expenses

Salaries and Benefits 26,590 106,361 49 254,378 97 (148,017) (48)

Other Operation Costs 13,851 55,403 25 119,002 45 (63,599) (20)

Depreciation 6,972 27,889 13 45,367 17 (17,478) (5)

Operating Expenses 47,413 189,653 87 418,747 160 (229,094) (73)

Total Expenses 50,697 202,789 93 429,552 164 (226,763) (71)

Net Income 3,778 15,110 7 (167,979) (64) 183,089 71

Note: Percentages are in relation to total income.


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• accumulated losses are $121,000 less than projected;• deposits are $664,000 more than projected; and• net fixed assets are $198,000 less than projected.This better performance has allowed IMFTL lending activity to exceed projections

by 43% and the overall adverse variance on total assets is less than half the reductionin equity paid-up.

Based on the financial ratios proposed by the Consultative Group to Assist thePoorest (CGAP) on microfinance institutions, IMFTL’s overall financial position as of31 March 2004 is satisfactory. The ratio analysis and explanations are given in Table 3.8.

Table 3.7: Actual and Projected Balance Sheets

Actual Projected March 2004 End Year 2 Variance

US$

Current Assets

Notes and Coins 174,741 1,746 172,995Gross Portfolio Outstanding 670,804 467,149 203,655Less: Loan Loss Reserve (16,978) (9,343) (7,635)

Net Portfolio Outstanding 653,826 457,806 196,020Short-term Investments 2,006,518 2,900,087 (893,569)Accounts Receivable 3,187 – 3,187

Total Current Assets 2,838,273 3,359,639 (521,366)

Fixed Assets

Premises/Leasehold improvements 18,703 180,000 (161,297)Furniture and Equipment 69,675 151,600 (81,925)Less: Accumulated Depreciation (24,022) (69,640) 45,618

Net Fixed Assets 64,356 261,960 (197,604)

Other Assets

Office Accounts 9,683 – 9,683Miscellaneous Assets 10,618 – 10,618

Total Other Assets 20,302 20,302

Total Assets 2,922,931 3,621,599 (698,668)

Current Liabilities

Savings Deposits 953,226 288,845 664,381Other Current Liabilities 718 – 718

Total Current Liabilities 953,944 288,845 665,099

Equity –

Capital Paid-Up & Assigned 2,000,000 3,500,000 (1,500,000)Legal Loan Loss Reserve 14,795 – 14,795Profits /Losses Brought Forward (48,979) 732 (49,711)Current Financial Year 3,170 (167,978) 171,148

Total Equity 1,968,986 3,332,754 (1,363,768)

Total Equity and Liabilities 2,922,931 3,621,599 (698,668)

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Table 3.8: IMFTL Operating and Financial Ratios


Equity-to-Asset Ratio

No. of accounts <500No. of outstanding

loans accounts

1,7782,848

58.3% (Basis of measuring outreach will be changedafter getting population data by village). Using“loan size” as tentative measurement, outreachto the “target poor sector” is around 60%.

Total equityTotal Assets

1,968,986.452,922,930.55

68.5% A minimum of 15–25% capital position versustotal assets is deemed desirable per CGAPstandards. IMFTL’s 68.5% EAR supports furtherexpansion of the loan portfolio and leveraging.

Current assetsCurrent liabilities

2,181,260953,225

2.3 : 1.0 The ratio of 2.3 : 1.0 is very safe. The BusinessPlan submitted to BPA pegs liquidity at 50% oftotal deposit liabilities. 1.0 : 2.0, however, isconsidered in microfinance industry as a standard.

Total repaymentsTotal amount dueincluding past due

533,224575,517

93% The 93% OTRR means that IMFTL is experiencingthe initial stages of collection difficulties thatneed to be addressed immediately. Some 7% fallbehind installment or payment schedules. Therate, however, is still considered acceptable.

Principal at riskLoans outstanding

92,521670,804

13.8% The PAR is the total of all loan balances whereinstallment due and/or maturity have beenmissed by even one (1) day and more. OtherMFIs use PAR >30 days though. If this is used,PAR would go down to around 4–5%.

Past due principalLoans outstanding

42,293670,804

6.3% A loan is considered past due if it has not beenpaid 30 days after installment due or maturitydate. (Definition of East Timor Banking authorityand regulation)

Operating expensesAve. loans outstanding

51,305670,804+62,964/2

13.98% At around 13.98%, this means that IMFTLspends so much for its credit delivery. Theoptimum ratio of expenses over average loanportfolio is 25%, and is the recommended ratioamong microfinance practitioners.

Operating incomeTotal operating

expenses

54,47551,305

106% The has to attain operational self-sufficiency of120% > which is the optimum level. The figures,however, are not final since these are only 3months results of operations.

Operating incomeAdjusted total

operating expense

54,47551,305+20%

88.5 % If IMFTL is to consider the subsidies it gets fromthe ADB-MDP, financial self-sufficiency is at 88%while the optimum ratio is 100%.

Outreach

Current Ratio

On-Time Repayment Ratio

Portfolio at Risk

Past Due Ratio

Operating Cost Ratio

Operating Self-Sufficiency

Financial Self-Sufficiency


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IMFTL Transformation

IMFTL must be transformed from a donor-supported institution into a completelyindependent financial institution sustained by its own resources and operations.

To ensure sustainability, in late 2003, the Foundation trustees requested that astudy be undertaken on transformation/divestment options including seekingadditional equity from local and international social investors. Three studies wereundertaken: (i) a divestment strategy; (ii) a rating assessment; and (iii) a financialaudit of IMFTL. The recommended divestment strategy is that:

• the Foundation and the IMFTL Board need to be strengthened to manageIMFTL effectively;

• an independent rating assessment be undertaken and a business plandeveloped for potential investors;

• additional capital be invested to support a full banking license; and• the Foundation proceed with the transformation/divestment plan including

seeking additional equity of about $1.5 million from potential investors.

In March 2004, the Project engaged an independent rater, Micro-Credit RatingsInternational Ltd., India, for the risk rating assessment. IMFTL was rated as “Beta”,which means it has reasonable safety and systems but needs to strengthen IMFTLstaff capacity to handle large loan volumes. The rating report adds that ‘consideringthat the organization came into existence less than two years ago and suffered onaccount of violence and destruction16 in a new nation, it has done well to establisha presence in its areas of operation”. The key issues identified in the assessmentwere:

• LeadershipLeadershipLeadershipLeadershipLeadership. The second line of leadership, after the closing of theMicrofinance Development Project, may not be fully prepared to immediatelyhandle and run the organization and may face substantial management risk.

• Product designProduct designProduct designProduct designProduct design. The organization’s personnel have not been adequatelyexposed to other credit products, thus limiting the confidence and ability ofthe organization to grow at a rapid pace.

• Internal controlInternal controlInternal controlInternal controlInternal control. IMFTL’s internal control system needs strengthening; and• PersonnelPersonnelPersonnelPersonnelPersonnel. Given the limited number of qualified and experienced personnel,

the skills available in Timor-Leste may not be adequate to manage a largeloan portfolio. There is need for further capacity building support to enablethe staff to acquire additional capabilities and confidence.

The financial audit, carried out by Merit Partners, Australia, in March 2004,recommended that IMFTL needs to strengthen its internal audit capacity and indicateda need for further support in:

• strengthening the audit function and strategy for an audit plan;• personnel management;

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• compliance with internal control procedures; and• documentation and recording of fixed assets.

On the basis of these reports, ADB has held discussions with the Government,including with the Prime Minister, to seek the Government‘s view with regard to IMFTLownership and transformation/divestment plan. The Prime Minister supports the IMFTLtransformation strategy and has agreed that: (i) IMFTL will be owned by the Foundation(with no Government ownership and management role), subject to a review of thecurrent Foundation legislation to ensure that it is compatible with Government statutes;and (ii) additional equity be sought from local and international social investors. Thecontinued support of the Prime Minister is very encouraging for IMFTL’s sustainability.

ADB also discussed IMFTL progress with the IMF Mission from Washington andthey supported the divestment strategy proposal to apply for a full banking licenseand transformation. To complete the transformation process, the Project will need anextension of additional 6 months to December 2004. Based on consultations withinvolved parties, the following actions are proposed:

• The Project be extended up to 31 December 2004 to complete thetransformation process;

• The Project Director/Microfinance Advisor continue on an intermittent basisup to 31 December 2004 to implement the transformation plan, and recruittwo additional experts (6 person-months each) for strengthening microlendingand internal audit implementation and training;

• The Project establish a special wholesale fund of $200,000 for credit unionsin IMFTL by December 2004 and $200,000 be invested in IMFTL as additionalcapital; IMFTL to seek the Foundation’s approval to sell shares of about$0.5 million to local Timorese, mainly depositors, borrowers and customers,and about $1.0 million from international social investors;

• The Project help strengthen the Board and the Foundation by inductingcapable members of the civil society with the necessary skills;

• A business plan and sale of shares strategy be finalized soon; and• Continuing support be extended for strengthening microfinance operations

through technical assistance from donors, including ADB.


IMFTL operations require continuing development of the scale and quality ofservices which have been initiated under the Project. Key areas of continuing needs are:

IMFTL OperationsIMFTL OperationsIMFTL OperationsIMFTL OperationsIMFTL Operations

• There is a need for continuing support to extend microfinance operationsthrough more branches to provide seasonal saving and loan facilities to ruralmicroenterprises.


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Regulatory FrameworkRegulatory FrameworkRegulatory FrameworkRegulatory FrameworkRegulatory Framework

• Further development of the legal and regulatory framework is needed,especially in the areas of enforcement of credit contracts, mortgages,foreclosure proceedings, escrow, and sale of acquired assets in settlementof financial obligations.

• The regulatory and legal framework for credit unions is not yet complete,although some legislative proposals have already been submitted to theparliament.

Human Resource DevelopmentHuman Resource DevelopmentHuman Resource DevelopmentHuman Resource DevelopmentHuman Resource Development

• More local training in skills upgrading to increase competency levels is neededto support further expansion of operations of IMFTL and increase the nationalresource of experienced and qualified financial specialists.

• Further training needs include training on internal procedures, complianceto regulations, and communication skills.

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Part 4

Technical AssistanceFunded by ADB

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Capacity Building Technical Assistance

In meetings in early 2000, in Manila and Dili, Timorese representatives in theCNRT stressed the need for capacity building. The events of September 2000 includedthe destruction or removal of government buildings, equipment and records and alsothe withdrawal of the Indonesian administrative staff. Buildings, equipment andsystems need to be replaced and, particularly, the Timorese people needed to acquirethe skills to operate, plan and govern their country.

Responding to these requests, ADB has provided 12 capacity building TAs,including 2 approved since the 7th Progress Report. In 2000, the first year of therehabilitation program, seven capacity building TAs were initiated. The total cost ofthe TAs is $5.7 million.

The capacity building TAs can be broadly categorized into two groups: thosefocused on development of administrative skills of new national and districtgovernment officers and those addressing specific information needs, such as thatfor exclusive economic zone demarcation. The following sections briefly summarizethe TAs and the objectives they served.21

Administrative Capacity

Seven TAs have addressed the capacity development of administrative unitswith the major focus being on the reestablishment and development of localgovernment at district, subdistrict and village levels. Support for local and nationalgovernment is summarized below.

Local Government Support

• Community Empowerment Program Community Empowerment Program Community Empowerment Program Community Empowerment Program Community Empowerment Program (TA 3400) was the first capacitybuilding TA, jointly financed by ADB ($990,000) and the World Bank ($300,000).The TA targeted establishment of an efficient and effective system of localgovernment throughout Timor-Leste. Support was given for: socioeconomicassessment plans, village rehabilitation training, long-term capacity buildingfor village councils, subdistrict elections and other rehabilitation activities in2000 and 2001. The program was continued as the World Bank-managed,TFET-funded Community Empowerment and Local Governance Project.

• Capacity Bui lding for Local GoCapacity Bui lding for Local GoCapacity Bui lding for Local GoCapacity Bui lding for Local GoCapacity Bui lding for Local Governmentvernmentvernmentvernmentvernment (TA 3515) built on andcomplemented the earlier Community Empowerment Program TA and was

21 Details of the amounts, agencies and status are presented, along with those of other TAs, in theSummary TA Matrix in Table 4.1.


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undertaken in parallel with it. The TA was completed by the end of 2001. ThisTA provided workshops, study tours and a think-tank for target decisionmakers and district administrators to examine options for local government.

• Capaci ty Bui ld ing to Develop Publ ic Sector Management andCapaci ty Bui ld ing to Develop Publ ic Sector Management andCapaci ty Bui ld ing to Develop Publ ic Sector Management andCapaci ty Bui ld ing to Develop Publ ic Sector Management andCapaci ty Bui ld ing to Develop Publ ic Sector Management andGoGoGoGoGovernance Skills – Phase 2 vernance Skills – Phase 2 vernance Skills – Phase 2 vernance Skills – Phase 2 vernance Skills – Phase 2 (TA 4272) was approved in December 2003and will intensify and extend the ongoing Phase 1 in addressing the needsof district, subdistrict and village administrators and trainers. In addition,mobile assistance teams will be strengthened and in-service training will beinstitutionalized. INAP, the National Institute of Public Administration, will bestrengthened as the lead government agency responsible for the professionaltraining and career development of civil servants. The TA will be implementedconcurrently with the first phase and continue until November 2005.

Box 4.1: Training of Local Authorities in Timor-Leste under TA 3839 TIM

Capacity Building to Develop Public Sector Management and Governance Skills

(TA 3839) is jointly funded by ADB and the Japan Special Fund. In October 2002, ADB

formally launched the TA to build the capacity of public sector management and governance

skills at the local level. The Project completed the needs-and-competency-based and

ladderized training curriculum for local authorities in February 2003.

Based on participatory and systematic needs analysis involving 15 local trainers and

117 local authorities nationwide from October 2002 to January 2003, the training curriculum

identifies four core courses and three specialized courses for local authorities. Since March

2003, four training modules have been developed and field-tested: (i) problem solving,

(ii) working with others, (iii) leadership and management, and (iv) project development

and management. The training modules—which include session guides for trainers and

practical reference materials for trainees—have been translated into Bahasa Indonesia.

From July 2003 to

March 2004, the Project has

conducted nine training

courses involving 171

participants. The Project has

also coached and mentored

more than 22 local trainers

in various aspects of

training development and

management. Project activi-

ties have been closely

managed and implemented

with MAE, through INAP

and DNAT.

A study tour to the Philippines of 18 Timorese local authorities in April 2004 was

organized under the project financed by the the USAID office in Timor-Leste.

A participant receives his certificate of completion in a pilot training course

on problem solving in June 2003.

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National Government Support

• Capacity Building and GoCapacity Building and GoCapacity Building and GoCapacity Building and GoCapacity Building and Governance for Sector Managementvernance for Sector Managementvernance for Sector Managementvernance for Sector Managementvernance for Sector Management (TA 3412)was, at $1 million, the largest of the TAs and continued from April 2000 toJune 2003. The TA complemented the local government focus of theCommunity Empowerment Program by providing capacity building to nationallevel sectoral agencies, including for parliamentary business, judicialadministration and public sector management. Workshops, short courses,overseas training, and technical support were provided for over 1,400government staff in training, personnel, information technology, fiscal policy,fisheries and petroleum.

• Economic Policies and Strategies for Development PlanningEconomic Policies and Strategies for Development PlanningEconomic Policies and Strategies for Development PlanningEconomic Policies and Strategies for Development PlanningEconomic Policies and Strategies for Development Planning (TA 3803)is one of the largest TAs at $950,000, provided by the Japan Special Fund. TheTA has three specific objectives: (i) formulating and national developmentstrategy and plan; (ii) developing skills to enhance capabilities of Timoreseleadership; and (iii) setting up systems and procedures to monitor and evaluatethe achievement of strategic economic objectives. Activities so far includesupport to the Timor Sea Office, Banking and Payment Authority, NationalStatistics Office, and Sector Investment Program. Implementation began inNovember 2002 and will continue until December 2004.

• Capacity Building in the Ministry of Planning and Finance to MonitorCapacity Building in the Ministry of Planning and Finance to MonitorCapacity Building in the Ministry of Planning and Finance to MonitorCapacity Building in the Ministry of Planning and Finance to MonitorCapacity Building in the Ministry of Planning and Finance to Monitorthe National Development Planthe National Development Planthe National Development Planthe National Development Planthe National Development Plan (TA 4329) was approved in April 2004.The National Development Plan is in place and each agency is required toproduce Annual Action Plans and corresponding Quarterly Reporting Matrices.The TA is assisting the Government to improve its monitoring capacity throughestablishing an automated system for planning, monitoring and reportingperformance at agency level and increasing skills, knowledge and expertisein the line agencies. Early mobilization is planned with completion inAugust 2004.

Specific Capacity Needs

In addition to building administrative capacity, TAs addressed specific needs inestablishing efficient and effective government systems as summarized here.

• PoPoPoPoPoverty Assessment and Statisticsverty Assessment and Statisticsverty Assessment and Statisticsverty Assessment and Statisticsverty Assessment and Statistics (TA 3425), undertaken in 2000, provideda survey of 1,000 households to assess poverty in the immediate postconflictperiod and establish statistics on social and economic conditions. Coverageincluded agriculture, private sector activity, physical infrastructure, healthand education. The data provided supported project design and otherrehabilitation and development activity.

• EnEnEnEnEnvironmental Assessment Capacity Improvironmental Assessment Capacity Improvironmental Assessment Capacity Improvironmental Assessment Capacity Improvironmental Assessment Capacity Improvementvementvementvementvement (TA 3501), undertakenin 2001 and the first half of 2002, developed Timorese expertise to review,


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evaluate and monitor the implementation of environmental laws andregulations. Institutional and regulatory development was reviewed andrecommendations made. An action plan was produced and in-service trainingundertaken.

• Strategies for Economic and Social DevelopmentStrategies for Economic and Social DevelopmentStrategies for Economic and Social DevelopmentStrategies for Economic and Social DevelopmentStrategies for Economic and Social Development (TA 3512), carried outin 2001 and 2002, the TA supported formulation of policies and strategies foreconomic and social development. Household survey and participatorymethods were used in a detailed poverty analysis. As with the earlier PovertyAssessment and Statistics TA, the data generated was widely disseminatedto help in design and implementation of poverty reduction interventions.Social and economic strategies were developed under the TA.

• Economic Policy ForumEconomic Policy ForumEconomic Policy ForumEconomic Policy ForumEconomic Policy Forum (TA 3592) was held in Dili in March 2001 to providea strategic vision and policy direction and promote Timorese ownership andcapacity in economic policy work. The TA supported preparations, includingpreparation of papers, and the dissemination of papers and forum reports inlocal languages, Portuguese, and Bahasa Indonesia.

• Exclusive Economic Zone DemarcationExclusive Economic Zone DemarcationExclusive Economic Zone DemarcationExclusive Economic Zone DemarcationExclusive Economic Zone Demarcation (TA 3654) was supported, fromMay 2001 to February 2003, through establishment of necessary databases,maps and data sets needed for the requirements of the United NationsConvention on the Law of the Sea (UNCLOS). Data sets are used to supportnegotiations with neighboring countries on exclusive economic zone andadditional support has been given under the ADB-funded Capacity Buildingand Governance for Sector Management TA.

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ADB Technical Assistance Summary

Table 4.1 summarizes the basic details of each of the 22 TAs provided by ADBto date. Brief descriptions of the capacity building TAs are included in the sectionabove. Sector specific TAs on transport, power, water resources and microfinanceare included in the relevant sectoral project description in Part 2 of the report.

Three communications sector TAs have also been provided by ADB as follows:• Rehabilitation of TRehabilitation of TRehabilitation of TRehabilitation of TRehabilitation of Telecommunications Sector Phase 1 and Phase 2elecommunications Sector Phase 1 and Phase 2elecommunications Sector Phase 1 and Phase 2elecommunications Sector Phase 1 and Phase 2elecommunications Sector Phase 1 and Phase 2

(TAs 3428 and 3504) were implemented in parallel between May 2000 andAugust 2002. The TAs examined the technical options for rehabilitation,formulated a strategy and plan for the sector, and drafted a regulatoryframework and modality for Government involvement. Supporting the privatesector’s role in rehabilitation and development of telecommunications, theTAs prepared and supported the tendering and evaluation process. Assistancewas provided for negotiation of a BOT contract with Portugal TelecomInternational in July 2002.

• Postal Services DevelopmentPostal Services DevelopmentPostal Services DevelopmentPostal Services DevelopmentPostal Services Development (TA 3748) provides assistance to reestablisha framework for development of an efficient, cost-effective postal system.Support has been given to preparation of a master plan, legal framework andtraining program—including on-the-job training—for postal services andinformation technology. Implementation of the TA began in March 2002 andwill be completed in June 2004.


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Table 4.1: ADB Technical Assistance Matrix

No. TitleAmount

Agency ApprovalPhysical

Status($) Start Completion

CAPACITY BUILDING 3400 Community Empowerment Program 990,000 UNTAET Feb-00 Feb-00 Dec-01 Closed3412 Capacity Building and Governance

for Sector Management 1,000,000 MPF Mar-00 Apr-00 Jun-03 Closing3425 Poverty Assessment and Statistics 52,900 UNTAET Apr-00 Apr-00 Dec-00 Closed3501 Environmental Assessment

Capacity Improvement 250,000 MDE Sep-00 Jan-01 Jul-02 Closed3512 Strategies for Economic and

Social Development 650,000 MPF Oct-00 Jan-01 Dec-02 Closed3515 Capacity Building for Local

Government 150,000 MPF Oct-00 Oct-00 Dec-01 Closed3592 Economic Policy Forum 150,000 MDE Dec-00 Dec-00 Dec-02 Closed3654 Exclusive Economic Zone

Demarcation 120,000 MPF May-01 May-01 Feb-03 Closed3803 Economic Policies and Strategies

for Development Planning 950,000 MPF Dec-01 Nov-02 Dec-04 Ongoing3839 Capacity Building to Develop

Public Sector Management andGovernance Skills 688,000 MPF Mar-02 Oct-02 Dec-04 Ongoing

4272 Capacity Building to DevelopPublic Sector Management andGovernance Skills: Phase 2 550,000 MSA Dec-03 Nov-05 To Start

4329 Capacity Building in the Ministryof Planning and Finance toMonitor the NationalDevelopment Plan 150,000 MPF Apr-04 May-04 Aug-04 To Start

12 Total Capacity Building 5,700,900

INFRASTRUCTURE

Communications3819 Postal Services Development 250,000 MTCPW Dec-01 Mar-02 Jun-04 Ongoing3428 Rehabilitation of

Telecommunication Sector 1 150,000 MTCPW Apr-00 May-00 Jul-02 Closed3504 Rehabilitation of

Telecommunication Sector 2 150,000 MTCPW Sep-00 Nov-00 Aug-03 Closed3 Subtotal Communications 400,000

Power3748 Preparing the Power Sector

Development Plan 400,000 MTCPW Oct-01 Feb-03 Dec-03 Closing

Transport3401 Transport Sector Restoration 1,000,000 MTCPW Feb-00 Mar-00 Nov-02 Closed3731 Transport Sector Improvement 500,000 MTCPW Oct-01 Delayed

2 Subtotal Transport 1,500,000 3986 Integrated Water Resources MTCPW

Management 600,000 MAFF/MDE Nov-02 Feb-04 Feb-05 Ongoing7 Total Infrastructure 2,900,000

Microfinance3435 Microfinance 150,000 UNTAET May-00 Jun-00 Dec-01 Closed3556 Strengthening the Microfinance

Policy and Legal Framework 250,000 MDE Dec-00 Feb-01 Jun-02 Closed3743 Microfinance Information

Technology System 150,000 MDE Oct-01 Mar-02 Jun-04 Ongoing3 Total Microfinance 550,000

22 Grand Total 9,300,900

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