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The World Bank

Report No. 15467-IND

STAFF APPRAISAL REPORT

REPUBLIC OF INDONESIA

SECOND VILLAGE INFRASTRUCTURE PROJECT

SEPTEMBER 13, 1996

Infrastructure Operations DivisionCountry Department IIIEast Asia and Pacific Region

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CURRENCY EQUIVALENTS

(As of July1996)

Currency Unit = Indonesian Rupiah (Rp)

US$1.00 = Rp. 2,400

Rp. I million = US$416.67

WEIGHTS AND MEASURES

Metric Units

FISCAL YEAR

Government of Indonesia - April 1 to March 31

INDONESIAN WORDS AND ACRONYMS

APBD Il/K - Annual district govemment development budget

APBN - Aniual central govemnment development budget

BAPPENAS - National Development Planning Agency

BAPPEDA l/Il - Provincial/District Development Planning Agency

Bangda - Directorate General for Regional Development, MoHA

BPKP - Central Audit BureauBPS - Central Bureau of Statistics

BRI - Bank Rakyat Indonesia

Bupati - Head of KabupatenCabang - BranchC'ARE - Catholic Relief. NGO

Camnat - Head of KecamatanCAS - Country Assistance Strategy

DATI 1/11 - Provincial/District level government

DGBM - Directorate Genieral Bina Marga (Roads), MPW

DGCK - Directorate General Cipta Karva (Human Settlements). MPW

DGB - Directorate General of Budget, MOF

DPUK - Kabupateni Department of Public Works

DIP/DIPDA - Central/regional project budget

GOI - Government of Indonesia

INPRES - Presidential Instrmction, including a class of GOI grants

IDT - Inpres Desa Tertinggal (Program for villages left behind)

ILO - Intemationial Labor Organization

Kabupaten - District (Level 11)

Kecamatan - Kabupaten administrative subdistrict

Kepala desa - Head of village and of LKMD

Kepres - Presidential DecreeKIP - Kampung Improvement Program

KPKN - Provincial office of National Treasury

LIBOR - London Interbank Offered Rate

LKMD - Village community resilience council

MoHA - Ministry of Home Affairs

MoF - Ministry of Finance

MPW - Ministr- of Public Works

NGO - Non-govemmental organization

OECF - Overseas Economic Cooperation Fund. Japan

Pimpro - Project Manager

PKK - Women's groupsPKT - Integrated Area Development Scheme

PMD - Directorate General of Village Community Development. MoHA

PMU/P3DT - Project Management Unit/Pembangunan Prasarana Pendukung Desa Tertinggal

PODES - Village survev by BPS

POKMAS - Community self help groups

PP - Govemment regulation/Peraturan Pemerintah

Repelita - Five-year Development Plan

SAKERNAS - Labor SurveyRRA - Rapid rural appraisal

SPABP - Grants from Central to Local Govemment

SOE - Statement of expenditure

SUSENAS - National socio-economic survey by BPS

VIP - Village Infrastructure Pro ject for Java (Ln. 3888-IND)

REPUBLIC OF INDONESIA


LOAN AND PROJECT SUMMARY

Borrower: Republic of Indonesia

Implementing BAPPENAS, the National Development PlanningAgency: Agency

Beneficiaries: 2,600 poor villages on Java and Sumatra (with apopulation of about 5 million)

Poverty: Program of Targeted Interventions

Loan Amount: US$140.1 million

Terms: Payable in 20 years, including 5 years of grace, at thestandard interest rate for Ll:BOR-based US Dollar singlecurrency loans

Commitment Fee: 0.75% on undisbursed loan balances, beginning 60 daysafter signing, less any waiver

Onlending Terms: N/A

Financing Plan: See Table 3.2

Economic Rate of Return: About 20% ERR, on account of the infrastructuredeficiencies the project would help alleviate

MOP: P-6860-IND

Map: IBRD 28086 (Java); IBRD 28087 (Sumatra)

Project ID: ID-PE-40521

INDONESIA


Staff Appraisal Report

TABLE OF CONTENTSPage No.

1. Project Background ............................................ 1A. Poverty Trends .1...........................................

B. Past and Ongoing Poverty Related Prograrns ............................................ 2C. Rural Infrastructure 3...........................................3

2. Past Bank Involvement and Lessons Learned ............................................ 4

3. The Project ............................................ 7A. Project Origin and Formulation ........................................... 7B. Project Objectives ........................................... 7C. Project Description ........................................... 8D. Project Costs and Financing ........................................... 12

4. Project Implementation ........................................... . 13A. Project Coordination and Monitoring ........................................... 13B. Implementation Schedule ........................................... 13C. Implementation of Works ........................................... 14D. Procurement ........................................... 15E. Disbursements ........................................... 17F. Project Accounts, Reports and Audits ........................................... 18G. Land Acquisition, Resettlement and Compensation ............... ............................ 19H. Environmental Impacts ........................................... 201. Project Indicators, Monitoring and Bank Supervision .................. ......................... 21

5. Project Justification and Risks ............................................ 22A. Justification ........................................... 22B. Risks ........................................... 24

6. Agreements Reached and Recommendation ........................................... 25

Text TablesTable 3.1: Project Cost Summary ........................................... 12Table 3.2: Project Financing ........................................... 13Table 4.1: Procurement Arrangements ........................................... 17Table 4.2: Disbursements ............................................ 18

Second Village Infrastructure Project - ii - September 13, 1996StaffAppraisal Report

Annexes

Annex 1Table 1: Poor Population by Province, 1993Table 2: Number of Poor Villages, Average Population and Area (ha), 1993Table 3: Calculation of Number of Villages for Each Province in Java and Sumatra

Annex 2: Financial Flow ChartAnnex 3: Project Implementation PlanAnnex 4: Village Implementation Agreements (same as in VIP)Annex 5: Land Acquisition and Compensation Guidelines (same as in VIP)Annex 6: Disbursement ProfileAnnex 7: Performance Indicators (from VIP reporting system)Annex 8: Supervision PlanAnnex 9: Economic JustificationAnnex 10: Selected Documents Available in the Project File

Maps: IBRD 28086 (Java); IBRD 28087 (Sumatra)

This report is based on the findings of an identification/preparation mission that took place in January-February 1996 and an appraisal mission in July 1996. The core team comprised Messrs. ScottGuggenheim, Sr. Anthropologist; Jacques Tollie, Sr. Engineer (World Bank); Richard Gnagey, Sr.Engineer; Steven Burgess, advisor (consultants to IDT Secretariat); Tatag Wiranto (Project Manager,Bappenas); and Ms. Frida Johansen (Pr. Economist, Task Manager, World Bank). Support teamscomprising staff of BAPPENAS, MOHA, MOF, and MPW contributed to project preparation.Mr. Anupam Khanna, Division Chief EA31N, and Ms. Marianne Haug. Director EA3, have endorsed theproject.

INDONESIA


1. PROJECT BACKGROUND

A. POVERTY TRENDS

1.1 Good overall poverty reduction. Indonesia has been successful in reducing the incidence ofabsolute poverty. The percentage of the population living at or below the absolute poverty level wasreduced from some 40% in 1976 to some 15% in 1990. By 1993, the incidence was estimated at about14%, but in view of the large population, about 189 million, the number of absolute poor remains high:some 26 million people. These estimates result with an absolute poverty line defined as enablingpersonal intakes of 2,100 calories per day and minimum non-food necessities. Poverty incidence issensitive to the definition used, as many people still are just above the absolute line and would becategorized as poor with less stringent standards. (Besides, there are many difficulties in measuringpoverty-identifying and imputing values to non-traded goods, considering price level differentialsacross locations; identifying differing needs by location, type of employment, household size, age, publicinfrastructure availability. etc., identifying pockets of poverty not apparent to outsiders from statisticalaverages for larger areas. and so on.) The average disposable household income is only about a dollarper day per person, even though the average GNP per capita has steadily grown to about $900 equivalent.

1.2 Poverty, predominantly rural. There is no doubt that poverty is an important rural problem.Poverty reduction has been most remarkable in rural areas, but still, some 17 million poor remain in ruralareas, many on marginal uplands, water scarce or remote areas, or coastal fishing villages, or areas toodensely populated to enable a living from the resulting small farms, while alternative sources of incomeare still scant. Rapid urbanization has absorbed many rural poor. Nevertheless the estimated number ofurban poor has decreased somewhat, to some 9 million in 1993. These numbers reflect a similar urbanand rural absolute poverty incidence; other data, such as on infant mortality, suggest that the ruralpoverty incidence may be higher.

1.3 Most poor are on Java and Sumatra. Java, with a population of 112 million of which some40% are in urban areas (in 1993), has one of the highest population densities in the world, of about 8persons per hectare. Java has some 60% of Indonesia's population on only some 7% of the country'sland area. In the 1990s all the population growvth took place in the urban areas. In line with its share ofthe population, Java has the most poor, some 56% of the total, some 15 million. Of Java's absolute poor,almost 60% or some 8.2 million live in rural villages. The povertv incidence in rural areas is about 12%,slightly lower than the national average. Sumatra is the second most populous island, comprising some40 million persons with 72% of them living in rural areas-28 million. Sumatra has some 20% of thecountry's poor, or 5 million. The number of "absolute poor" in rural areas is estimated at about 4million, at a 13% incidence. Java and Sumatra rural poor-14 million-thus comprise 70% ofIndonesia's rural poor, or 50% of the urban plus rural poor (of the total number of poor, Kalimantancomprises 8%, Sulawesi 5%, Bali 1%, and the other islands, 1-3%; these shares are lower even thoughpoverty incidences are higher in some outer island provinces than on Java and Sumatra). Details are inAnnex I Table 1.

1.4 Bank poverty reviews. The Bank has prepared tvo reviews of the poverty situation inIndonesia: "Strategy for a Sustained Reduction in Poverty", in 1990, and "Public Expenditures, Prices

Second Village Infrastructure Project - 2 - September 13, 1996

and the Poor", in 1993. The latter report has been an input to the Government's current povertyprograms, on which this proposed project also builds. The Bank is further analyzing the 1993 SUSENASand SAKERNAS data for poverty implications, and a consistent message comes out: most poor aredependent on agriculture.

B. PAST AND ONGOING POVERTY RELATED PROGRAMS

1.5 Past programs. Steady economic growth, of 6% per year over more than a decade by now, hasbeen a main contributor to poverty reduction in Indonesia. In addition to growth, govemnment goalscontinue to include stability and equity. As part of its policy the Government has emphasized regionaldevelopment programs, with focus on agriculture and food self-sufficiency; socially oriented programs,such as universal primary education, family planning, community health and nutrition; publicinfrastructure development, including water supply, roads, electricitv; village development programs,credit programs, and more. The programs aimed at providing basic levels of services for all, and werefunded yearly through the central government budgets; international agencies provided assistance tosomne of the programs. Given the overall low income levels prevailing, the Government did not generallytry to "target" the poor; also, given the overall low technical skills, the Government kept most planningand implementation in central agencies. Steps are being taken to improve planning and implementationof supply driven, basic standards, types of public programs that continue to be much needed. Also, asboth incomes and income differentials have increased, programs are increasingly targeted-such asurban poverty, kampung improvement programs (KIP), and the integrated area development schemes(PKT'). They are also increasingly developed and implemented with local level agencies andcommunity participation.

1.6 Large revenue transfers. Central government transfers to local levels will continue to beimportanut for equity objectives, because the central government has most tax bases (oil, gas, importduties. etc.). Most transfer categories are based on equal amounts per capita, per jurisdiction and perarea size of the jurisdictions. Many of the transfers are eaninarked for specific uses, such as civil servicesalaries, but one of Repelita VIs aims is furthering decentralization of functions, increasing participationin decision making at local levels, and increasing targeting of programs by type and by region.Decentralization will continue a-s local agencies become more able; the central agencies areoverwhelmed by the workloads imposed bv growing budgets and complexity that often result in delayingprogram implementation unnecessarilv. The FY1994/95 budget for regional development was Rp.5,340billion, comprising Rp.423 billion in transfers to villages (only Rp.6 million per village), transfers tokabupatens of Rp.2,418 billion (of which Rp.968 billion for roads), transfers to provinces of Rp.1,219billion, subsidies to primary schools of Rp.498 billion, subsidies to health centers of Rp.393 billion, andthe IDT program with Rp.389 billion. At the samne time, local revenue efforts are promoted as localneeds exceed available budgets.

1.7 IDT Program. The Government launched its innovative IDT program, the "Inpres DesaTertinggal", in April 1994. It is funded domestically with some $200 million equivalent per year forthree years and has been widely publicized. It is targeted to more than 25,000 poor villages (see para.1.8) that each receives some $10,000 equivalent seed capital, for the poorer villagers. The poor getaccess to working capital. at low cost and in a simple and transparent way. Standard governmentagencies are bypassed but "facilitators" (community workers) paid by the Government are available to

GOIEs area development scheme (PKT) was undertaken during 1989-93 and covered for one year each a totalof 7,900 villages, mainlv for public infrastnrcture provision with village participation.


assist villagers in understanding the program, and in defining "projects". Communitv self-help groups(POKMAS) are central to the IDT process. The villagers agree on who should be the beneficiaries of thefunds, based on low incomes and proposed productive uses of the funds; the beneficiaries have to repaythe "village", as the funds are intended to become a revolving fund for others to use subsequently. Thesubdistrict bank unit receives the grant from the Government in a village account and disburses against aminimum of documentation to the village head and the beneficiaries, and forwards records to theGovemment. The village heads also have to keep records of beneficiaries and activities pursued,repayments, etc., records that are consolidated at the provincial level and fonvarded to Jakarta. IDTresults so far appear to be positive. Villagers surveyed say they value the initiative. Funds are beingused carefully-even so, sometimes the "business" fails. Also, some cases of misappropriation of fundsby officials have been reported (some of them via the "P.O. Complaints Box 5000", that is well known tothe Indonesian population). Strong action-dismissal-has been taken against a nLlniber of identifiedoffenders. Japan's Policy and Humnan Resources Development Fund approved in Januarv 1995 a $2million equivalent grant to BAPPENAS to monitor/supervise/evaluate the IDT pilot during 1995-1997,using the systems partially developed under a Bank-financed studv. Thle monitoring is undervay withinMoHA, and should assist in defining future poverty reduction programs.

1.8 The selection of villages for the IDT program is made by the National Development PlanningAgency (BAPPENAS) and the Ministry of Home Affairs (MoHA) based on the PODES socioeconomicsurvey by the Central Bureau of Statistics. The 1994 selection considered three basic indicators: villagefacilities and potential (10 variables), housing and the environmlent (8 variables) and populationcharacteristics (9 variables). Of the 65.554 villages in Indonesia, 20.633 had at least 2 of the 3 indicatorsbelow the set poverty threshold and were thus defined as "poor". The large majority (95%) of these poorvillages are "rural". The village selection had some flaws for identifying consumption levels-forinstance, too much weight was given to infrastructure deficiencies that do not always reflect lowestconsumption levels-and thus the selection for the 1995 progranm gave more prominence to expenditurelevels; furthermore, villages with less than 50 families received the IDT allocation onlv once: those with50 to 100 families receive the grant twice. As a result. almost a third of the villages selected in 1994changed for the 1995 program. A list of the poor rural villages in Indonesia shows that Java has some30% or 5400 of them, but that they comprise more than 52% or I5 million of the population in poor ruralvillages, as the village size, some 2800 persons, is twvice the national average. Sumatra has some 35% or6600 of the poor rural villages, but their average size of some 900 persons is less than the nationalaverage, so that their population is some 6 million. Thus. Java and Sumatra have more than 60% of thepoor villages and more than 70% of the population in poor villages. Details are in Annex I Table 2.

C. RURAL INFRASTRUCTURE

1.9 Large scope works. The Government has concentrated investment on infrastructure in projectsof national, provincial and district level importance. Projects at these levels usually have a large numberof beneficiaries and high economic returns. In the case of roads, such projects are necessary to improveor create basic networks that carry high traffic volume, and thus normally have priority over subdistrictor village access roads. As a result the road network currently comprises some 260,000 km of whichsome 189,000 km are kabupaten (district) roads. However access roads are not well developed, andgiven heavy rains and difficult terrain and clayish soils in many locations, many villages are cut offduring the rainy season. Extending the road network to provide all weather 'hough low standard accessto villages is now a priority, but because of the large number of villages it is costly even if improvementsare achieved at lowest possible costs. The road subsector already comprises sonic 20% of thedevelopment budget (some Rp.4,530 trillion in FY95), and some reallocations may be warranted


between networks and types of expenditures as recommended in the Bank Road Sector Study (Report no.15394-IND).

1.10 Small scope works. Infrastructure needs at the subdistrict and village level have been addressedwith smaller government programs and with self-help. Since Repelita IV, the Government has classifiedvillages in 3 categories for assistance: the poorest, to which both housing and public infrastructureassistance are given; villages with potential, such as rural growth centers that need ad-hoc programs, andvillages already developing, for which only housing assistance is provided. The Ministry of HomeAffairs (and until 1993 also the Ministry of Public Works) helps implement the programs. By 1996about half the villages have been provided some assistance; some 3,000/4,000 villages selected at thekabupaten level are assisted every year. There have also been special programs such as the integratedarea development scheme (mentioned in para. 1.5). Currently INPRES provides some Rp.50 million perkabupaten for village infrastructure. Most work is undertaken by the villagers, without pay or paid justenough to cover some training and food costs, so that more funds are available to purchase inputs. A siteengineer, often a consultant, is assigned for 2-3 months to a village to help witlh implementation, ifneeded. The Army's "corps of engineers" equivalent has also been active in improving small villageinfrastructures. Often villagers improve infrastructure by themselves-under the -gotong royong"system all villagers mobilize one day to accomplish a chosen task, or each villager is assignedresponsibility for completing by a certain date a given sub-task, such as improvement of a small roadsection. But villagers usually cannot afford to buy materials such as stone, so despite their efforts,results are often of low standard and short-lived. Thus, infrastructure service levels remain low. A 1994study sponsored by OECF estimated that providing for basic infrastructure "needs" (access roads, piers,drinking water, sanitation) in all the poor Indonesian villages, at Ministry of Public Works unit costs,would cost Rp.2,757 billion. The GOI has started in FY96 a national "poros desa" program throughINPRES 11, to provide access to clusters of IDT villages using a combination of community andcontractors for implementation.

1.11 Recent/ongoing village infrastructure projects. Mid-1995, 2 village infrastructure projectswere started to assist poor villages; OECF focusing on villages "with potential" off-Java, the Bankfocusing on the poorest villages on Java (and Madura). The OECF-assisted project provides variableamounts per village, depending on the cost of identified subprojects that may be of subdistrict scale andmay serve various villages (such as a kabupaten road section). It has the local public works departmentin charge of implementation through contractors. The Bank assisted Village Infrastructure Project (VIP,Ln.3888-IND) provides each of 1,200 villages, the bottom 6% of the Javanese villages, with a Rp.120million grant. Completion of both projects is expected by early 1997. The 1994 OECF study identifiedneeds totaling Rp.965 billion on Sumatra and Rp.312 billion on Java, and thus the 2 projects cover only asmall share of the villages and the needs. OECF proposes to assist another project also starting in 1997,off Java and Sumatra. The proposed VIP II Bank-assisted project, is to provide village infrastructures onJava and Sumatra.

2. PAST BANK INVOLVEMENT AND LESSONS LEARNED

2.1 Overall poverty reduction experience. This paragraph summarizes a number of importantgeneral lessons learned. Details on the VIP are in the next paragraphs. The VIP SAR (Report no. 13776-IND) provides details on other past project experiences. A general lesson is that for poverty reductionprograms, involvement of the intended beneficiaries in program design and implementation, and theircontribution in kind or cash are essential for more relevant subproject choices and sustainability. Also,multilayered top-down processes and centralized approval requirements considerably slow processes


down and add to overhead costs; however, central criteria and guidelines are useful, as is the availabilityof technical expertise and advice at the local level to improve understanding of choices and quality ofimplementation. The start-up period tends to be longer than planned, and programs need some flexibilityin implementation time-unless the opportunity cost of their time is nil, people generally need time tochoose and commit to a new activity, and need some certainty about the sustainability of the initiative.Starting small and expanding programs as demand for them increases at each location seems a safe wayto proceed.

2.2 Village Infrastructure Project. The VIP provides assistance to 1,200 villages on Java andMadura, with a Rp.120 million grant to each village. In 1993 the Government identified villages "leftbehind", or poor, largely based on infrastructure deficiencies (having at least 2 of 3 indicators below thePODES poverty threshold). The VIP assists the bottom fifth of the identified poor villages on Java,including the 765 villages categorized as "extremely poor". The first year program included 415villages, 120 in West Java, 145 in Central Java, 30 in Yogyakarta and 120 in East Java. The ProjectManagement Unit under the Coordination Team for village infrastructure (P3DT) first identified thekabupatens (districts) in each province with the highest concentration of poorest villages: 23 of the 82kabupaten on Java include about half of the "extremely poor" villages. Because of the need to limit thetime consultant field engineers spend traveling between villages, villages are selected in clusters of 5,each cluster including at least 3 extremely poor villages. All selected villages have populations of atleast 700 persons, to justify the infrastructure and the grant level.

2.3 The VIP concept is innovative for the Bank in the extent of its decentralization/grassrootapproach: the villages selected choose the works they want and that comply with simple economiccriteria; technical assistance is provided directly to the villages; financing is provided directly throughsubdistrict bank units and delinked from late budget releases. The focus is also on employment:villagers doing the work are paid cash in proportion to work progress and works are organized seasonallyor as convenient for labor availability. Normally, on the other hand, Bank infrastructure projects inIndonesia are implemented via govemment agencies because the works are of a larger scale andcomplexity, and while so far the Govermment has had some village programs implemented at thesubdistrict and even village level, generally district or higher level agencies are fully in charge andvillage laborers are often not paid in cash but expected to contribute "free" labor.

2.4 Implementation started in mid-1995, and despite the new procedures involved, it experiencedminimum delays. The first year program was 90% complete by January 1996 when the mid-term reviewwas conducted. In 415 villages, a total of 1,334 km of roads, 3.2 km of bridges, 901 communal waterunits, 532 communal sanitary units and I jetty will have been built by village labor assisted by fieldconsultant engineers, at a cost of some $22 million. The 90% completion involved almost 5.5 millionlabor-days, of which 4.9 million was by unskilled labor. Some 112,200 persons worked on and off onthe projects, of whom 91% were men, 9% women and 31% youth. By their own reckoning, about 65%were "poor" (a very relative measure, since in even the poorest of villages those better off (poor byaccepted standards) did not consider themselves "poor" given poorer people in the village). Dailyincentive payments for unskilled laborers varied between Rp.2,000 and 7,000, the latter for 2 shifts perday. The main concem was quality of works, in particular road works, as villagers emphasized quantityover quality within the financial possibilities of the grant. If infrastructures are maintained, as per thevillage agreements, then the high savings already experienced should be sustainable-some transportcosts were more than halved, as did some water supply costs. CARE and the BPS undertook fieldsurveys for their monitoring assignments. The CARE draft report shows subproject selection andincentive payments were acceptable to the majority of villagers and that the project has been greatly


appreciated. The BPS report has been prepared and is being reviewed. By April 1996 the first yearprogram was completed.

2.5 During implementation of the first year VIP, the Bank and the IDT Secretariat staff, oftenaccompanied by other central and local agency staff, have conducted joint supervision missions every 3-4 months to samples of villages. A total of some 100 villages (about 25%) were visited at various stagesof progress, and in each village the project documentation was reviewed for consistency with the projectrules, with the works on the ground, with payments to laborers, with the records at the BRI unit, with thePimpro, and more broadly, with the monthly project report. By the sampling method, normally randomand only 1 village from a cluster (of 5), the supervision missions have met with all field engineers (andpresumably all villages under one field engineer follow similar standards). Also provincial agenciesaudited the grant use near the end of the fiscal year, before the audits were due.

2.6 Measures were taken to improve the quality of works in the 1996 program; the fact that workscan start earlier in the year, and take place mostly in the dry season, will also improve their quality.From a "long list" of IDT villages prepared by BAPPENAS, local agencies selected 810 villages,covering all kabupatens, for the 1996 program-more villages than envisaged could be included due todepreciation of the rupiah and to savings in the cost of technical assistance, partly because the worksprograms will be complete in 2 rather than the 3 years allowed in the SAR (the monitoring activities willcontinue into the third year). Additional field engineer consultants were trained, the Project Manual hasbeen enhanced, the Ministry of Finance and Bank Rakyat Indonesia inputs are on schedule, the workswere being planned in the villages already in February-March: there is much anticipation regarding theproject. The success of the VIP resulted in the Government wanting to extend the scheme and requestthe proposed project. By July 1996, works were underway in most project villages and completion isexpected by end-October 1996.

2.7 Related to the project, the Govemment is to review ways to improve the farm gate prices tofanners, by reviewing local regulations and taxation, and non-competitive practices, by assessing ways tomake better information available to farmers to enhance their marketing possibilities, etc. However, theprocess of change is bound to take more time than the 2 years of project works implementation, as itinvolves several sectors and must be sensitive to regional variations.

2.8 Bank poverty strategy. The proposed project, along with its ongoing predecessor, is in theforefront of implementing the objectives of the Country Assistance Strategy. It is geographicallytargeted to reduce poverty, in the poorest villages; it will improve quantity and quality of infrastructureservices, delivered in a less costly and more reliable manner and responsive to local demand, whileensuring good social and environmental practices. It is eminently of a beneficiary participatory nature.Furthermore, it will increase the economic base of the beneficiary villages, promoting economic growth.(Italics denote 1996 CAS objectives).

2.9 Rationale for Bank involvement. The Bank endorses the Government strategy for povertyreduction in Indonesia (para. 3.1). The Bank also has as one of its main objectives the reduction ofpoverty, and given the lessons and experience and generally good results from VIP, it is reasonable thatthe Bank contribute to an expanded VIP program even if there are little foreign costs involved.


3. THE PROJECT

A. PROJECT ORIGIN AND FORMULATION

3.1 Poverty reduction objectives. The Govemment has made further poverty reduction one of itsmain objectives in the Five Year Plan (Repelita VI) that started in April 1994. It is concemed that thenumber of poor remains large and wants to accelerate the process of reducing poverty. It aims atdecreasing poverty incidence to 6%, less than 15 million persons, by the year 2000. The maininstruments foreseen to achieve this objective are an outward oriented, labor-intensive based economicgrowth (expected to generate more than 2 million new jobs per year); human resource development(especially expanded education and health programs); and continuing programs targeted to poor villagesand their linkages to urban markets.

3.2 Client commitment. In 1995 the Govenrnent requested that the Bank assist with the project. Italready has a Project Management Unit, that is in charge of the ongoing VIP. The proposed projectwould start at the end of the VIP works, scheduled for December 1996, and the established PMU wouldcarry on. There is a very high level of commitment to the project at all levels, given that it helpsimplement the Govemment's poverty reduction program that is currently a high priority, promoted bythe President himself.

3.3 Project preparation. The experience from the VIP is straightforward for the proposed projecton Java, with many more poor villages in need of local public infrastructure. For Sumatra, joint reviewsand field trips by Government and Bank staff, and by consultants, clarified that the VIP concept was notonly well suited, despite the lower population densities and occasionally more difficult terrain, but wasalso in considerable demand already in early 1996. Local govemments and villages preferred the VIP'svillage-led approach to OECF's contractor-led implementation. The proposed project will thuscomplement the predecessor OECF project on Sumatra, and continued OECF support to the outerislands.

3.4 The project was developed jointly by the Govenmment and the Bank. BAPPENAS in particular,its Bureau of Regional District and Rural Development and the PMU/P3DT Secretariat, coordinatedinteraction with other relevant Ministries, in particular the Directorate General of Regional Development(Bangda) and the Directorate General of Village Community Development (PMD) in the Ministry ofHome Affairs; the Directorate General of Human Settlements (Cipta Karya) and of Roads (Bina Marga)in the Ministry of Public Works; and the Ministry of Finance.

B. PROJECT OBJECTIVES

3.5 The proposed project is classified as a targeted poverty reduction intervention. The mainobjective is to build small infrastructures in poor rural villages on the two islands where most ofIndonesia's poor are, Java (including Madura) and Sumatra. This also creates cash employment forvillagers-the population in 2600 poor villages totals some 5 million. Secondary objectives are toincrease decentralization and community participation. The instrument is grants and engineeringassistance to 2600 poor villages to plan and build public infrastructure by themselves; i.e. the processitself matters, as described in the next section. Incomes are low, some only $1 per day per capita: thebroadest objective is to reduce rural poverty. This would be met from the temporary income, and somework experience, generated by project implementation, and from the more permanent income increases


expected through benefits from the infrastructure built under the project. Both performance and impactmonitoring indicators are explained in paras. 4.29 and 4.30, and summarized in the following matrix:

PROJECT PERFORMANCE INDICATORS

Objective Indicator Nr. Villages Baseline Mid-term ICR Yeara. Build village Output year 1: 1250 VIAs* Completion byinfrastructure May 31,1997 March 31,98

year 2: 1350 VlAs - Completion byMay 31, 1998 March 31,99

b. Create Output year 1: 1250 VlAs Achievement by -

employment May 31, 1997 March 31, 98

year 2: 1350 VlAs - Achievement byMay 31, 1998 March 31,99

c. Improve Impact all Cost w/o Cost w/ project Costs w/projectincomes project** (FE forms) (FE forms)

Impact 5% >20%EURR >20%ERR(P3DT) (P3DT)

Impact 5% I RRAs/SUSENAS

*: VIA, Village Implementation Agreements; kms of roads, meters of bridges, units of drinking water supply,etc; no. of man-days.

**: costs with and without the project for transport, water, etc., depending on the infrastructure the villages chooseto build

C. PROJECT DESCRIPTION

3.6 Summary description. In order to reach the above objectives, the proposed project comprises a2 year effort to assist some 2600 poor rural villages on Java and Sumatra improve their living standardswhile building public works-such as access roads, bridges, water supply schemes, sanitation facilities,drainage, markets, piers or other small economic infrastructures. The project would essentially be arepeater of the Village Infrastructure Project for Java, that assists 1,200 poor villages on Java. It wouldprovide a grant (about $50,000 equivalent) to each of 2,600 of the poorest villages on Java and Sumatrafor building local public infrastructures, from January 1997 to December 1998. The villagers woulddecide what to build, from a menu of choices, and would build it mostly themselves, the workers beingpaid by output. Much of the grant may be used to purchase materials (which are also produced mostlythrough labor intensive methods, though mostly outside the project villages). Some equipment would beleased, as necessary, mainly from kabupaten level DPUK pools. Field engineers (consultants) wouldassist the villagers plan and implement the works, while also handling financial aspects, such asapprovals for the local bank to pay project related bills, and statements to the center for controls andfunding the local banks for the project needs-the grant is not given up front, except for a Rp.20 millionadvance for materials, but disbursed based on work progress. Senior engineers and a projectmanagement unit would be in charge of the overall planning, coordination and implementationmanagement. District level bodies would be involved in the selection of villages from a list of poor


villages prepared by the Bureau of Statistics following village surveys. The project results would bemonitored on a yearly sampling basis by local consultants/NGOs.

3.7 Decentralization. Decentralization has been built into the project design. Because the"process" is important for the project outcome, it is described below, prior to the description of the"components".

3.8 Poor village selection process. Both the project team and consultants have undertaken fieldsurveys during project preparation and appraisal to ensure the suitability of the VIP approach forSumatra. The number of project villages would be 1500 on Java and Madura and 1100 on Sumatra,distributed by province such that in each about 50% of the rural IDT villages will have been assistedunder both VIP projects and the OECF infrastructure project covering Sumatra. With the experiencegained on Java under VIP, 750 villages can be handled as of the first year under VIP II; on Sumatra,based on the OECF assistance level, some 500 villages the first project year in selected kabupatens, and600 the second year. A preliminary number of villages by province is in Annex 1 Table 3. Theprovincial BAPPEDAs I will propose the number of project villages by kabupaten; the kabupatenBAPPEDAs II, in consultation with the camats (subdistrict heads), will suggest the villages. Kabupatenswith few village clusters would be assisted one project year only. Village lists were discussed inSeptember 1996 for the first project year, and will be proposed no later than September 1, 1997 for thesecond project year. The P3DT Secretariat reviews the proposed village lists for compliance witheligibility criteria. In October 1996 PMDs using a checklist and guidelines provided by the P3DTSecretariat, will verifyi the village clustering possibilities and for the villages selected, will prepare abaseline database. By December 31, 1996 (and December 31, 1997 for the second project year), thecamats/bupatis will inform the kepala desas (elected village heads) of villages selected and will providepublic information-a circular, radio announcements, etc.-with the rules to be followed under theprogram, so that discussions in the villages selected get underway.

3.9 Village selection criteria. To be eligible for the project, villages (a) will be selected from thePODES list (para. 1.8); (b) will have at least 700 inhabitants, or in areas having only smaller villages, 2or 3 close-by villages totaling at least 700 persons can be considered as one Project village (specificallyfor Aceh); (c) will be located in clusters, expected to comprise 5 villages; (d) will be IDT villages or anon-IDT village in a cluster of IDT villages. For equity considerations, priority will be accorded tonon-transmigration villages, as these have already benefited from other programs. Villages covered insome other programs will also be excluded from the project, such as the 134 villages included in theKerinci Seblat Integrated Conservation and Development Project (Ln. 4008-IND), and those assistedunder the OECF village infrastructure project on Sumatra. Very isolated villages would not be assistedgiven that small infrastructures would not have a significant impact in their accessibility to markets orfacilities. Villages of indigenous peoples, such as some villages on Nias island, would require a morecomprehensive approach than that of the project.

3.10 Grants to villages. The allocations are recorded in the kabupaten budgets but the funds arechanneled to villages through the subdistrict units of Bank Rakyat Indonesia (BRI). A flow chart isincluded in Annex 2. Each village grant under the project should ideally reflect infrastructure needs andlabor availability. However, for simplicity and transparency, the grant is a standard Rp.120 million(about $50,000 equivalent). This has been found to be less than the needs of the poor villages, butsufficient to stimulate the community to construct beneficial infrastructure; and it allows reaching morevillages within available funds. If the initial village program tums out to cost less than the grant, then thevillage can select additional works, until no funds remain. Up to 5% of the village grant can be used to


compensate the village leaders, LKMD secretary and work overseers, and to cover administrativeexpenses.

3.11 Selection of public infrastructure subprojects by villagers. The kepala desa heads the LKMD(village community resilience institution) and leads discussions among village group representatives toagree on project priorities; IDT program facilitators and other PMD local staff are available to help theprocess. Village proposals are submitted to the camat, for harmonization. if necessary through theUDKP (Unit Daerah Karva Pembangunan) at the subdistrict level, and agreed programs are furtherchecked to ensure that the proposals are not already covered in another, funded program. Subprojectsthat would normally be included in standard budgets ([NPRES) and normallv larger than those envisagedhere, are in principle not financed under the project. Camats endorse the program. subject to asatisfactory technical review by the field engineers (see below). The final approval should come no laterthan May 31, 1997 and May 31. 1998, as indicated in the Project Implementation Plan.

3.12 Field engineers (consultants) first review the subproject proposals pre-approved by camats,starting around March. They discuss the subprojects and propose modifications as may be needed fortechnical reasons, and either give their technical (final) approval, or if an alternative subproject wereselected of a different type and cost estimate, then consult the camat again about the alternative. Therequirements for approval of a subproject by a consultant field engineer are elaborated in the ProjectManual; they are listed below and the specifics are recorded in each case, as followvs:

a) the subproject must be a public infrastructure, technically and environmentally viable andjustified by the number of users and the cost per user:

b) the funding available-the village grant and any village contributions-must be estimatedto be sufficient to complete the subproject.

c) land requirements will be minimized: for any land or assets requirement that would affectnegatively a villager's income and require compensation, the village and the affected familywould agree on compensation that would improve or restore the living standard, incomeearning or production capacity of the affected persons to pre-subproject levels inaccordance with the agreed Guidelines for Compensation and Resettlement. The fieldengineer verifies that all persons affected and who required compensation are satisfied withthe compensation provided. prior to the start of works. If no agreement can be reached, analtemative location or subproject should be selected and the process, repeated if necessary:

d) implementation plan, contractual arrangements, a work plan and number of village laborersmust be clear; and

e) approaches to provide subsequent maintenance of the subproject must be agreed, includingassignment of responsibilities for maintenance works, training for maintelnance designees.and financing, as necessary.

3. 13 In line with decentralization policies neither the PMU nor the Bank require to approve individualsubprojects. Normally, kabupaten level staff of PMD/P3DT Secretariat routinely survey villages abouttheir infrastructure needs and make the results available as a starting point for proposals by camats and inturn by bupatis (Bappeda II level) and by provincial govemors (Bappeda I level), in the yearly bottom-upplanning process for the budget. This planning consultation process is perused by the project, but


ending essentially at the camat level, in line with current decentralization policies and to leavedecision-making at the village level for village works.

3.14 Implementation by villagers. The LKMDs are the implementation agencies of the project.Village labor, rather than contractors, implemiient most of the works, especially road works. Villagers arewilling to work for some Rp.2,000-3,000 per shift, approximately the going minimum wage level. TheDPUKs act as "administrative" Pimpros for project activity and for recording the financial flows at thekabupaten level. To the extent possible. they also help out with advice and provide/lease equipment tothe LKMDs. The PMD kabupaten and kecamatan levels act as "motivator" for community participationand help the LKMD improve its capabilitv in planning. implementation and maintenance ofinfrastructure constructed by the LKMD.

3.15 Field engineering assistance to villagers. The project provides engineering services to assistdirectly LKMDs with subproject initial approval. cost estimation, design, procurement, organization andsupervision of work, reporting, administration and some training to villagers (anid perhaps localcontractors) for the implementation of the subprojects and subsequent maintenance. Under the VIP itwas proven that I field engineer consultant can assist 5 villages (I cluster). Field engineers live close totheir village cluster to reduce travel and have a motorcycle for their transportation. A total of some 250engineers for the VIP II first vear villages and 270 for the second year are foreseen. Consultants alsoreviewed the clustering possibilities on Sumatra. where villages are more apart than on Java; theirfindings have confirmed that in most areas, clustering is feasible. Where clustering difficulties sorequire, an assistant may be provided to the field engineer. To strengthen the engineering input, areatechnical coordinators will be included in the field engineer contracts.

3.16 The Project Manual. The Project Manual developed for VIP will be retained and made widelyavailable. It includes guidelines with engineering and environmentally sound standards for small publicworks, adopted from existing manuals (mainly from MPW), simple compensation guidelines,procurement forms, procedures and reporting to be used by LKMDs, etc. The Project Manual has beenreviewed and expanded to suit some local conditions on eastern Sumatra, especially swamp areas, whereroad construction may require crib-type foundations and cement or lime soil-stabilization.

3.17 Central engineering/management assistance. The project framework, work standards, hiringof the field engineer consultants and coordination witlh other projects and donors, are done at the centrallevel by the interministerial P3DT Secretariat assisted by consultants. In order to provide homogeneityacross clusters, an engineering/management team with a team leader and one to three senior consultantsper province assisted, will manage and supervise the project. The senior consultants also assist the P3DTSecretariat in the selection of consultant firms from Java and Sumatra for the provision of fieldengineers, in organizing workshops for them, and in launching the project. The team leader and acounterpart with clear responsibilities are based in Jakarta, to assist the P3DT in overall management, butare expected to be in the field most of their time. The other senior engineers are based in the provinces.to be closer to the project villages, and are also assigned a counterpart each, from Bappedas 1, from thetime they mobilize.

3. 18 Monitoring assistance. The project also provides for the services of a tean of experts to assistthe PMU to monitor project implementation and impacts. Monitoring will use participatorv approachesto the extent feasible anid will be coordinated with the IDT's own monitoring efforts. Some nonproject


villages will also be monitored to compare the results of various types of interventions, such as roadbuilding under various type of programs, and some VIP villages would be revisited later on. The termsof reference agreed for VIP monitoring wvill be used again, with improvements as required based on theexperience gained.

D. PROJECT COSTS AND FINANCING

3.19 The project Wxould help finanice (a) village wvorks. and emplovymient up to the agreed grant pervillage, (b) engineerinig services. to help with design and implementation of the sclhcmies at the villagelevel and. at the central level, for the Project Maanagement Unit (PMU) to organize and coordinateactivities, supervise project implementation. and (c) technical assistance to monitor and evaluate projectimpacts.

3.20 Cost composition. TleC total cost of the project. summarized in Table 3.1. is cstimated atRp.383.1 billion ($159.6 millioni cquivalenlt). Technical assistance for implementation support isestimated to cost $18.0 million equivalent or about 11% of the project cost: the technical assistance formonitorinig and evaluation. likely to be provided by local consultanlts, universities and BPS mav amountto some $2.8 millioni or 2% of the project cost. The total base cost for technical assistance is thusestimated at $20.8 million equivalent or 13% of the project cost. The direct or indircct foreign costcomponent is small, estimated at some 10-20% and accountinSg for the foreign, cost component oftechnical assistance services. including vehicles- equipmenit depreciation included in contractors' bills:and fuel and asphalt costs. Direct labor costs would exceed 50% of project costs depeniding on thewvorks. thouglh the share of total labor costs (including labor in materials delivered) would be higher. Thestandard 10% value added tax will apply to works by contractors and supplicr bills; the total tax amountunder the project will depend on the proportion of works done by villagers themiiselves. Administrationcosts are included at standard percenitages (I % for central Governmenit, 1% for provincial agencies and3% for local level agencies, of the grant amounts). Continigencies have been included for technicalassistancc: because of the programmatic nature. village allocations do not carry contingenicies.

3.21 Bank financing. The Bank loan of $140.1 million equivalent would finance 88% of projectcosts. The high financinig percentage is on account of the poverty reductionl objectives of the project andthe fact that the Government is financinig other poverty reductioni programs o01 its own. The Governmenltwoould cover 10°/ of thc village grawts. and the fiull increased administration costs. The 10% 0value addedtax on techinical assistance contracts has been wvaived in accordance with PP42/95.

TABLE 3.1: PROJECT COST SUMMARY

Local Foreign Total Local Foreign Total % of(Rp Billion) (US$ Million) Total

Goods. Works, Services 28(.8 31.2 31210 117.) 13.1) 130() 83TA Inplementation Support 38.9 4.3 43.2 16.2 1.8 I 1)( 11TA Monitoring & Evaluation 6.1 (0.7 6.8 2. 5 0.3 2.8 2

Increased Admiinistrationi 15.6 -- 15.6 6.5 -- 6.5 4

Base Cost 341.4 36.2 377.6 142.3 15.1 157.3 10()

Contingencies 5() 0.5 5. 5 2.1 (.2 2 3 1

TOTAL 346.4 30.7 3x3.1 144.3 15.3 159.6 101

Second Village InfrastmUcture Project - 13 - Septembcr 1 3. 1996

TABLE 3.2: PROJECT FINANCING

Local Forcign Total Local Foreign Total %yo of(Rp Billion) (US$ Million) Total

GOI 46.8 -- 46.8 19.5 -- 19. 12IBRD 299.6 36.7 336.3 124.8 153 140.1 88

TOTAL 346.4 36.7 383. 1 144.3 15.3 1i9.o lO)W

Note: Totals may not add up due to rounlding.

4. PROJECT IMPLEMENTATION

A. PROJECT COORDINATION AND MONITORING

4.1 Coordination. The VIP set-up will continiue for this project. BAPPENAS_ in particular itsBureau of District and Rural Devclopment. will be the overall coordinating agency of the project. AProject Management Unit (PMU/P3DT) has bcen established to oversee imiplementationi and includesrepresentatives of BAPPENAS, the Ministry of Finance. DGs Cipta KarNa and Bina Marga (MPW) andDGs Bangda and PMD (MoHA). The PMU has a Secretariat (P3DT Secretariat) established to deal withthe Government's IDT poverty programii as well as related foreign-assisted village infrastructureprograms. The P3DT Secretariat for the VIP is supported by the leader of the engineer/managementteamn and consultants for sociocconomic moniitoring; this arrangement will also coIItiItnlu uLnder theproposed project.

4.2 Monitoring. The P3DT Secrctariat, with the assistance of experts. would monitor the impact ofthe program in selected villages durinig imiplemenitation and prepare an ex-post evaluation. Monitorersare expected to be Indonesian entities such as uLiversities. NGOs or consultants. Furthlemnore, themonitoring of the IDT program with the grant from the Governmcit of Japan, will be coordiniated withthe monitorinig of this project, and somiec villages included in other programs or with no program will bemonitored as well in order to ascertain differenices. Terms of reference were agreed for VIP and will bereviewed as necessary. The VIP It monitoring fimi should be selected by about July 1997.

4.3 Bappedas levcl I (provincial) provide counterparts to the senior engineers and will monitorinfonriation about the project. Bappedas level 11 will ensure project coordinationi with other governmentprograms at the kabupatcn level. PMD will assist in the selectioni of villages up front, in thestrengthening of LKMDs, in the facilitation of consultation process, and in molnitoring.

B. IMPLEMENTATION SCHEDULE

4.4 Yearly implementation. To achieve the objectives of the project. to maximlize local villagersemplovymient for cash of and provision of local public infrastructure. the works would be executed mainlyduring the dry season, from the beginning of May to end of September. wvhichi is wlhcin farmers are notfullv employed in agricultural activities, when conditions are best for construction of public works, andbefore standard public work budgets are released. Yearly project activities are scheduled around thedesired implementation season. An optimal yearly schedule is in Annex 3-the Project ImplementationPlan. prepared by the PMU following thc experienice unider VIP.


4.5 Implementation period. The project works arc to bc implcmented during 1997 and 1998. Thesubprojects in any village are to be conipletcd in one vear. to curtail the time engineering assistance isneeded. The first VIP project year experience indicated that this is feasible. The impact evaluation willproceed in 1999. Thus in all. the project will take about 3 vears. this is about half the execution time ofother projects, but is realistic given the proposed project characteristics and the experience under VIP.

C. IMPLEMENTATION OF WORKS

4.6 Implementation agencies. LKMDs will be tihc 'implementationi agencies" of villagesubprojects. following agreements signed by the caniat and field engineer. LKMDs will serve ascontractors; they would either employ villagers directly and buy materials, rent equipment, etc. or if needbe, contract work or expertise with local contractors/technical experts. This procedure has already beenused successfully. Normally the local implementing agency is the DPUK but DPUKs have limitedcapabilities and would be unable to implement the proposed project with their current staff. Thus,DPUK Pimpros will delegate the technical and field wNork to the consultant field engineers, and retain anadministrative role onlv. Where DPUK engineers are able to help they are of course welcome to do so.As stated in the Project Implementationi Plan, Pimpros will be selected in February 1997 and February1998. The Pimpro appointment letter should be signed no laterthan April 1. 1997 and April 1, 1998.

4.7 Field engineers. The field cngineers will assist the LKMDs design, cost, plan, implement andsupervise works and prepare reports. They certify paymilent documentation in accordance with progressof work. Field engineers will be trained in project specifics by the central team assisted by staff fromBAPPENAS, MoHA. MPW and MoF. at workslhops in the provinces, prior to deployment. They havethe Project Manual with guidelines for choice of unit price or lump sum contracts, preparation of bill ofquantities or set of unit prices (depending on1 direct labor or subcontract). teclinical specifications to beenforced, including environmental guidelines. quality standards, control activities and other aspects.Special care is needed in the costiilg of subprojects given that there are no funds to cover any costoverrun beyond the village grant. The project design foresees that each engineer will assist 5 villages;this was proven adequate on Java under the VIP. but if necessary under the proposed project, an assistantmay help the field engineers in more -'dispersed" clusters. A provincial senior engineer, from the coreteam, is available to advise and to supervise progress in the field. Given the large number of villages,kabupaten level supervisors and coordinating engineers will also be available to assist the fieldengineers.

4.8 Village labor. Under VIP and in surveys villagers have indicated willingness to work for low"incentive payments" provided the works benefit their village and are seen as a public project. The payshould not be so high as to attract laborers away from similarly paying activities they would otherwiseundertake, since that would not create employment; the wage should be low enough for the poor to self-select for the project works. If more villagers want to work than the works canl absorb (normally the caseunder VIP), an agreement is reached in the village as to number of days each interested villager wouldwork and when. The agreement would be reviewed by the field engineer for approval of the subproject.Unskilled village labor get a lump sum for the task, paid periodicallv by output. This results in someRp.2,000/3,000 equivalent for a 5-6 hour day of work. This is generally accepted minimum local levelwages; villagers would incur no transportation cost nor costs for food away from home. A villageforeman (mandor) would be designated by the LKMD for each subproject and be assisted by the fieldengineer; skilled labor will also be hired as needed, at locallv competitive wages. Organizing workers isan important part of project implementation.


4.9 NGOs. Indonesia has a large number of NGOs-many are present at the subdistrict level andsome are active in village programs. NGOs are welcome to contribute to implementation of theproposed project; they could assist villages with community participation in subproject selection andemployment plans. NGOs and universities are engaged under VIP for project monitoring and evaluatiollnthey are also engaged under a Japanese Grant to monitor and evaluate the IDT program on a sample basisin all provinces in 1996 and 1997. It is expected that NGOs/universities will also participate in thebidding under VIP 11 for the rapid rural appraisals and that BPS will again assist with other impactmonitoring aspects (para. 4.30).

4.10 Project implementation plan. The steps required by each agency as wvell as their timinig arewell established under the VIP. An agreed implementation plan is included in Anniex 3. Some of thesalient steps are:

a) inform villages of their selection. December 3 1. 1996 and December 3 1 1997 (para. 3.8).

b) village work program approval by field enginieers and camnats. May 31. 1 997 and May 3 11998 (para. 3.1 1):

c) VIP 11 monitoring firm to be selected by July 1997 (para. 4.2);

d) Pimpros designated in Febriary 1997 and 1998 and the appointment letter signed bv April30. 1997 and 1998 (para. 4.6);

e) shortlist for monitoring consultants to be agreed by December 3 1, 1996 (para. 4.12): and

f) invite field engineer firms to submit proposals in December 1996 and finalize selection inJanuary 1997 (para. 4.12).

D. PROCUREMENT

4.11 Bank guidelines. Procurement under the project is required for goods and works and forconsultant services. Procurement will be in line with Bank procurement guidelines and procedures("Guidelines for Procurement under IBRD Loans and IDA Credits" dated January 1995 and revised inJanuary 1996 and 'Guidelines for the Use of Consultants by World Bank Borrowers and by World Bankas Executing Agencv' of August 198 1).

4.12 Technical assistance. The engineer/management team, field engineerinig services, andmonitoring and evaluation services are procured at the central government level by the P3DT Secretariat.Subject to prior review bv the Bank are: consultant contracts with an estimated value of $100.000 ormore for the engagement of firms, and $50,000 or more for the engagcment of individuals: all tenis ofreference, and single source selections of consulting firms regardless of contract values. The total cost oftechnical assistance is estimated at $23 million equivalent. The Bank's standard form of Contract forConsultants' Services, dated June 1995, will be used. Modalities and status are as follows:

a) Engineering/management team. The core senior engineer team of VIP will be retained forthe project. Agreemllenlt on terms of referenice for additional experts and a sliortlist of firmnswill be sought between the Bank and P3DT Secretariat. The selection will be based onsubmissions detailing the proposed managemiienit concept, qualification of experts. andcosts/costs bases for the contract.


b) Field engineer services. Under VIP a different firm was hired for each province of West,East and Central Java, the latter including Yogyakarta needs, to provide field engineers(field engineers could be subcontracted from other firms). The same terms of reference willbe used; shortlists each comprising about 5 firms will be agreed by December 2. 1996 forthe Java and Sumatra provinces included in the first year of the proposed project.Bappedas I will provide a long list of Indonesian firms. The P3DT Secretariat will invitethe shortlisted firms to submit proposals in December 1996, and the selection for the firstproject year should be completed in January 1997.

c) Monitoring and evaluation services. Terms of reference for monitoring expertise agreedfor VIP will be retained. Agreement on a shortlist would be sought by December 30, 1996.

4.13 Subprojects. It is expected that LKMDs will carry out most works by direct village labor(community participation, expected to total $120 million) under village implementation agreements withthe DPUKs. LKMDs may also contract supplies of materials, rental of equipment, and small works bylocal contractors, following national shopping procedures, or procedures for procurement of small works.No intemational competitive bidding is envisaged; each LKMD will procure goods and services, andsuch small contracts would not attract international firms. Simplified implementation agreements anddocumentation for national shopping have been agreed to (Annex 4) and are included in the ProjectManual. National shopping will require at least 3 quotations for each proposed contract. No contract oragreement would exceed $50.000 equivalent (the village grant of Rp. 120 million) and most contracts areexpected to be well below half that amount. All works may be done by community participation;nevertheless, procurement under small works procedures may total up to some $5 million (see Table4. 1). These procedures are in line with the Indonesian government procurement rules; under Kepres16/94. Pimpros can approve, on their own, contracts up to $250,000 equivalent. These procedures areacceptable to the Bank and are emploved.in ongoing projects. Field engineers will help the LKMDs, asma' be needed for the community participation works, to: (i) organize village labor including paysetting (para. 4.8), (ii) hiring equipment, (iii) purchasing materials and tools; or (iv) contracting out.Works would not start until any required compensation for land or assets in the village has been made asmentioned in Annex 5 and the Project Manual. Any contractor will be required to use village labor.

4.14 Prior and post review. Contracts for goods and works of the size envisaged in this project arenot normally subjected to prior review: it would be impractical given their small amounts and their largenumber. the need for quick approval, and the safeguards built-in in the project design (consultants will bein place to assist (field engineers) and to supervise (engineer/management team) the process, and further,audits and Bank supervision will be conducted, as well as random ex-post review of SOEdocumentation). Nevertheless, the Bank shall do a prior review in each kabupaten of the first contract,for goods and for works under the village implementation agreements, that is valued at or above $10,000equivalent. The provincial senior engineer under the project would be responsible for tracking thecontracts; relatively few contracts above $10,000 are expected. The ex-post review of documentation isexpected to be similar to that under the first year VIP (see para. 2.5). Based on experience so far, thesampling coverage will probably be some 10%, but at least 2% of all contracts will be subject to ex-postreview.


TABLE 4.1: PROCUREMENT ARRANGEMENTS(US$ million) a/

Expenditure Category Other 2/ NBF.c/ Total Cost

Goods, Works and Services under Granits 130.0 130.0(117.() (1177.)

Consultant Services 23.1 23.1(23.1) (23.1)

Total 153.1 153.1(140.1) (140.1)

L/ Figures in parentheses are the respective amounts tinanced by the Bank.b/ Includes work by community participation (up to $120 million). and procurement of small wvorks (up to $5 million).

and consultants selected following Bank Guidelines for the Use of Consultants.c/ Not Bank financed.

E. DISBURSEMENTS

4.15 Disbursements at local level. For reasons of cost efficiency, the project will pay for output(itemized works) against measured progress and prorated lump-sum contracts. Following the procedureadopted under the Government's IDT poverty program, by instructions of the Ministry of Finance theBank Rakvat Indonesia (BRI) unit closest to the village will be allowed to disburse the village allocation,against withdrawal requests certified by the field engineer. The field engineer will fornvard theimplementation agreements (certified by the camat), and contracts to the administrative Pimpro inDPUK, who in tum will forward the original to the respective KPKN. LKMDs will be paid at the BR]units when presenting their withdrawal requests certified by the field engineer, according to progress ofworks. Village laborers thus would be paid in cash every 2 weeks or weekly. BRA has agreed that itsunits provide access to their LKMD accounts, inter alia to the field engineers and supenrision and auditstaff. The fund flow is shown in Annex 2.

4.16 The Bank will not be involved in the approval process of every contract and disbursement at thevillage level, but will inspect contracts at random during supervision of the project. Theengineering/management team will supervise the subprojects while visiting every project village at leastonce, on behalf of the PMU/P3DT Secretariat.

4.17 GOI prefinancing. The Government has agreed to make Rp.20 million available per village tofinance the initial advance and the initial disbursements to the units of BRI, no later than April 30, 1997and April 30, 1998. This is required because the Bank cannot have "cascading" advances, at the centrallevel and in the provinces. GOI disbursements will be channeled through the regional KPKNs, to therespective BRI branches.

4. 18 As is customary, the Government will also provide its agencies involved in project monitoring ormanagement, the administrative/operational budget as required. For this purpose. the additional 5% ofthe total project grant amount will be clearly budgeted for each agencv.

Second Village Infrastructure Project - IX - September 13, 1996

TABLE 4.2: DISBURSEMENTS

Category Amount Disbursement Rate(US$ equivalent)

(I ) Goods. Works and Services 117000,00(J0 90%(2) Conisultaut Services 20,800,000 1(0%(3) Uniallocated 2 300-000

Total 140.100,000

IBRD Fiscal Year 1997 1998 1999 2000

Annual 10 55 65 10.1Cumulative 10 65 130 140.1

4.1 9 Bank disbursements. Disbursements uiider the Loan wvould be (i) for expeniditures incurred byproject villages for goods. works and services unlder grants. at 90%, and (ii) consultant services, at 100%.In order to facilitate Bank disbursemenits. the Goveniment would establish a Special Account with anamount of up to $14 million (which represent four months eligible expenditure) in Bank Indonesia, andan initial deposit of $7 million following loan effectiveness. This account should be maintained by theDirectorate General of Budget, MoF, following the established procedures. The proposed SpecialAccouLnt would be used for all eligible foreign and local expenditures. Disbursements under the Bankloan for village infrastructure expenses wvould be made througlh the existing "force account" mechanism(samue as VIP-I) and reimbursed by the Bank loan. Replenishlment applications to the Special Accountwill be made every two weeks or when 20% of the initial deposit has been used, whichever is first.Disbursements from the loani proceeds for the following contracts would be made under fulldocumentation: consultant service contracts costing the equivalent of $100,000 or more for firms and of$50,000 or more for individual consultants. All other disbursements would be made against Statementsof Expenditures (SOEs). The documents would be retained by the respective project implementationuLits aind made available for review as requested by visiting Bank missions or auditors. The loan willnot fund any land acquisition or compensation. The disbursement schedule is shown above. The closingdate of the project is December 31. 1999. A graph with disbursement profiles for Bank loans toIndonesia. for VIP and for the proposed project is in Annex 6.

F. PROJECT ACCOUNTS, REPORTS AND AUDITS

4.20X The pro ject allocation per kabupaten would be inscribed in the vearlv local budgets, APBD Tk II,SPABP for recording purposes: the administrative-related budgets, will be inscribed for each agency andmade available timely for field visits, meetings, etc.

4.21 Monthly reports. As described in the Project Manual, montlhly project accounts will beprovidcd through various sources:

a) field engineers prepare monthly statements, reports and tables on physical progress per typeof works, value of works, and days worked by village in their cluster, and disbursementsbased on the BRI units' statements, anid submit them to the senior engineer. The statementsare completed within I week following the month reported on,


b) the P3DT Secretariat/TA team consolidates the monthly work-related statements of theengineers, by kabupaten and province and total, within 3 weeks of the month reported on:

c) DGB provides periodically consolidated statements per kabupaten, province and total, forreimbursement bv the Bank from the Special Account, and for replenishment of the SpecialAccount, copied to the P3DT Secretariat for information; and

d) villages keep track of their funds via their own accounts, the BRI statements, and data onemployment, outputs and remuneration compiled by the kepala desa/field engineer. Thepublic posting of this information was not fully complied with under the first year of VIP,but was during the second; its enforcement will be given attention under the proposedproject.

BRI units involved keep records of account deposits from the KPKNs, and disbursements and cumulativetotals for each project village, and available balances. Their records are available in their offices, but arenot copied for distribution outside BRI.

4.22 Other periodic reports. Additional reports will be provided as follows:

a) the P3DT Secretariat will prepare quarterly progress reports starting March 31, 1997 andannual progress reports by March 31, 1998 and March 31, 1999, including inter aliaprogress per category (roads, water supply. piers, bridges, others; and labor, materials,contracts); and

b) the DPUK Pimpros keep copy of certified statements to account for expenditures related tothe APBD Tk II allocations and compile an annual report for Bupatis.

4.23 Audits. The above reporting system developed under VIP will be continued for the project.Agreement was also reached that the consolidated project accounts, including the Special Account andthe SOEs, would be audited annually by independent auditors in a manner satisfactory to the Bank andthat the audit report would be furnished to the Bank no later than September 30, each year commencingin 1998. The P3DT Secretariat will undertake project account audits. The SOE audits will be theresponsibility of the DG Budget (MoF). The Bank has no objection to BPKP conducting the audits.Financial audits of SOEs would be conducted randomly, to cover at least 10% of villages. In addition,assurances were obtained that independent auditors will be appointed for technical audits of projectimplementation aspects in a manner satisfactory to the Bank. The technical audits will review, inter alia,the quantity and quality of works performed. their being in line with related expenditures, and themaintenance plans. The financial and technical audits may be made simultaneouslv for the samesubprojects, and start early to avoid bunching. Terms of reference for the audits will be as under VIP.

G. LAND ACQUISITION, RESETTLEMENT AND COMPENSATION

4.24 Minimal land acquisition. As was the experience under VIP, no physical displacement isexpected to take place under this project. Subprojects requiring displacement would be redesigned toavoid resettlement or altemative subprojects, proposed. The infrastructure to be financed is generally ofa small scale. Installations for a public source of drinking water, a tap or a pump, do not need muchspace; small pipes-maybe no more than a hose-if needed to bring water from a natural source, causelittle disruption on land use. All weather access roads would normally be built on existing access paths,and would be no more than 4 meters wide. This width may exceed the existing one. but generally by no

Second Village Infrastructure Project - 20 - September 13. 1996

more than 3 meters. Since houses are normally set back from walk paths and roads, impacts on themwould therefore be minimal. In those cases where houses are partially located within the widening area.house owners normally agree to move them back because houses are normally temporary (bamboo ortimber) structures that can be moved relatively easily. and property values increase significantly onceroads are built-owners could sell the property later at a profit, as there are active land markets. Villagegroups agree to assist the owner in moving his house. However, footpath accesses to the more isolatedvillages but still eligible for the project, normally in mountainous areas. may not have alignmenitsappropriate for upgrading to road standards. In these cases, the field engineer will help determineappropriate alignments and the village would make the land available (if it was too large a project. thenthe village wouLld have been excluded from the program since the grant would not make a significant"access7 difference).

4.25 Compensation per Bank criteria. Negative economic impacts caused by land acquisition arealso expected to be slight for the reasons stated above. The Project Manual states the need to keep landacquisition to a minimum. Traditional processes of voluntary contributions are followed in villageswvhere some land is unavoidably needed. To minimize peer pressure risk, however, where land neededexceeds for example 20% of a villager's plot, the affected villagers will be given replacement land, otherequivalent productive assets or other in-kind compensation as negotiated during the village consultationmeetings (normally common-tenure lanid is used for compensation). If a solid structure has to bedemolished, the village would provide materials and help build an equivalent structure. Subprojects thatinvolve compensation of this nature for land or other assets will not be approved by field engineersunless adequate compensation arrangements have been agreed by the villager affected and the LKMD.and compensation should have been made prior to the start of work (para. 3.12). In the unlikely eventthat a larger number of persons were negativelv affected due to a subproject (e.g. more than 200 personseach lost nmorc than 20% of their land or assets) and the field engineer found nio alternative that wouldreduce the number of affected persons. then Bank approval of a related compensationi/resettlemiient planwould be sought prior to proceeding with the subproject. In case of disagreement, affected villagers cancomplaini to their field engineer and camat. Thev can also complain in writing to the P.O. ComplaintsBox 5000 instituted successfully for the IDT program (para. 1.7). The criteria have been agreed with theGoveniment for the VIP. as sumtimarized in Annex 5: thev are included in the Project Manual. The abovecriteria are consistent with the Bank Guidelines for Involuntarv Resettlement (that include bothphysically relocated as well as only economically affected persons: the proposed project foresees onlythe latter) that require that negativelv affected families have their standard of living improved or at leastrestored to pre-project levels.

H. ENVIRONMENTAL IMPACTS

4.26 Low environmental impact. The project has been classified in environmlental category B. Thescope of village subprojects will be relatively minor. Access roads would be built with appropriatealigiinlenits, cross and longitudinal drainage and gradients to lengthen the road life and minimize erosionthat higlher standard roads may create. Better provision of water in the project areas which are normallvshort of water in drv seasons should have a beneficial environmental impact and mav even help growvegetative contours. Overall the environmental impact is expected to be small, and positive. Given theprogramzmatic nature of the project and the small environmental impact expected, no environmentalimpact assessment will be prepared up front. Progress reports and supervisions would indicate aniproblems encountered and solutions adopted during implementation.

4. 7 Environmental guidelines. The VIP Project Manual includes standard designs and criteriaprepared in the past by DG Bina Marga and DG Cipta Karxa for small works; these designs incorporate


environmental guidelines that are in accordance with Bank requirements. The VIP 11 Manual includespresentation improvements suggested during 1995, the first year of use. The Manual is made widelyavailable to DPUKs, LKMDs and field engineers under the project (and the Manual is also being used forother projects). The field engineers are required to incorporate sound environmental criteria in designsof subprojects and verify their compliance during construction supervision.

4.28 Maintenance. Field engineers are also to explain to villagers the importance of maintenanceand how to maintain the infrastructures built under the project. for the works to last and enlvironmentalsustainability. A maintenance plan is to be prepared in each village as part of the granit villageimplemiientation agreement. Under the first year VIP, villagers agreed to maintain the works with theirgotong-royong' or voluntary labor system; however, some additional discussion1s will be needed if

additional, non-project cash outlays were to be required to buy materials or spare parts. The maintenanicepledges are vet to be tested: the first year works under VIP were completed early 1996. Each fieldengineer would return to the villages he assisted in 1995 to learn from his review, how the infrastructureis holding up, and to help villagers with maintenance, in practice. Samiple villages shall be rcvisited toreview maintenance practices a vear or two after work completion.

1. PROJECT INDICATORS, MONITORING AND BANK SUPERVISION

4.29 Performance indicators. Physical progress as well as other aspects of the project will bemonitored following forms and indicators included in the Project Manual. The indicators are used forVIP as part of the reporting/monitoring system. For monthly monitoring. the indicators focus on inputsand outputs during implementation: participation of the poor (workdays of employmilenit). average andtotal pay to labor; purchases of materials; physical works-such as kilometers of access roads built.percent of plans, etc. These indicators are compiled by village and aggregated by kabupaten. provinceand total. An indicator report sample from VIP is in Annex 7. Any land and compensation matters.environmental effects, qualitv of selection and implementation of works, are to be reviewed and reportedon a sampling basis and will not have standard -"performance indicators". The P3DT Secretariat wouldmake available to the Bank all the progress reports mentioned.

4.30 Impact monitoring. Longer term impacts, such as the effect of a road construction on farmgateprice levels. on transportation costs. or of improved water provision, on its costs and quantitv and healthimpact, can be evaluated once the village subproject is completed. Thuts various monitoring exercisescover these aspects,

a) upon completion of works in the village,

i) the field engineers complete a -'benefit evaluation" report;

ii) NGO/universities or other consultants undertake. in a sample of villages. a rapid ruralappraisal (RRA) of the project impact on various segments of the village population;

iii) BPS undertakes its socioeconomic household (SUSENAS) surveys in the samevillages surveyed for the RRAs. and the results are compared with simultaneous datafrom non project villages- and

iv) all the monitoring sources are analyzed jointly.


b) one or 2 years after completion, BPS SUSENAS surveys would be undertaken again in theoriginal project village sample to compare the evolution of their household data over time,and with non-project villages. If warranted by "significant" results, tracing surveys wouldbe done 3 or 4 years after completion of the village project-probably in the first VIPvillages, for time constraints, and an analysis would be made with the data.

4.31 Supervision. The Bank would supervise the project via about 3 visits per year to randomlyselected villages, BRI units and other relevant agencies to review all aspects of progress, such as localemployment, costs and progress of work and impact on beneficiaries/the village. The Bank and GOIwould undertake an in-depth mid-term review after the first year implementation by February 28, 1998;for which a report integrating the results of monitoring and evaluation activities, should be available onor about January 31, 1998. Any adjustment deemed necessary will be made following the review, orearlier if warranted. A Supervision Plan is included in Annex 8.

5. PROJECT JUSTIFICATION AND RISKS

A. JUSTIFICATION

5.1 Analysis of alternatives. The Govemment wants to accelerate poverty reduction in Indonesiaand has assigned a high priority in the Bank's lending program to assisting its poverty program. Giventhe good experience under VIP. it was estimated that the best way to reach many more poor villagesquickly was a follow on project based on the same VIP criteria. The project design has been embracedby local and central agencies, as the more efficient one. and indeed, other projects are replicating thefeatures to some extent or fully.

5.2 Decentralization/stakeholder involvement. The project provides a means to reach poorvillages directly, enabling a higher share of the funds to reach the poor faster, as layers of agencyinvolvement and supply delivery costs are reduced. By directing the funds to community selectedinfrastructure projects likely to also be implemented and maintained with self-help, the community senseand productivity of the poor are expected to increase and allow the poor to participate in economicgrowth while contributing to it.

5.3 Institutional capacity analysis. Under VIP, the village groups and their institution, the LKMD,headed by the village chief, have proven able to plan and, with the help of the field engineer, toimplement, small infrastructures. The branches of the Public Works Ministry have successfullysupported the project with their mainly administrative role, and the BRI units have proven able to dealwith the advances for and disbursements to the villages within their existing capacity. The proposedproject extends the approach (described in Chapter 3) to more villages on Java and to Sumatra.

5.4 Java. Many ongoing programs already focus on the outer islands. Assisting poor villages onJava and Sumatra to improve their infrastructure is justified. Villages on Java are larger so that morepeople will use and benefit from infrastructure there, and construction costs are generally lower on Javathan elsewhere-meaning that more can be achieved with a fiscal dollar targeted on Java. Furthermore,while the overall poverty incidence may be lower on Java than elsewhere, on Java the poor are morenumerous and may be relatively concentrated in smaller areas that can be better targeted and where theearned cash may be more easily used in a productive way than in remote, outer island villages.According to various sources, Java has higher than average infant mortality and high malnutrition.


5.5 Sumatra. Assisting poor villages on Sumatra is also justified. Sumatra has the second largestnumber of poor, mostly in villages with difficult access and limited year round potable water. Whilevillages are normally smaller than on Java, so that the project grant is larger on a per capita basis, theneeds may be larger because of more village isolation and more difficult terrain that may need moreequipment based works or materials. The project would not assist the more remote villages, because thegrant could not make a significant difference there-other types of projects are needed; and in very poorareas, over time new generations may prefer to seek better livelihoods elsewhere. It is common for afamily member to be a migrant worker providing remittances, and this would continuc after the project.In such villages, better education is a priority-they know its value for jobs and pay levels in towns. Thegovemment envisages expanded programs to improve primary education in parallel to the proposedproject; better teachers in villages is a priority for rural development.

5.6 Targeting. While not all the absolute poor live in the poor villages, addressing the needs of thepoor villages facilitates targeting. More of the funds would reach poor villagers compared to othertargeted public programs with higher delivery costs and less self-targeting. Employment and cashcompensation to village laborers is an important feature of the project. The cash to be eamed under theproject could provide an addition to the poorer household budgets; works can be scheduled so as to notinterfere with other income-eaming activities. Indeed, under VIP work demand nonnallv exceeded theemployment possibilities of the village grant, despite the relatively low incentive payment. In somecases, however, there was work substitution: villagers considered the infrastructure to be top priority andcould finally devote their effort to building it because with the project pay they could buy food-withoutthe pay they lacked "credit" or capital. and had to get jobs elsewhere.

5.7 Beneficiaries. Project beneficiaries are estimated at a maximum 5 million-the projectvillagers. Poor laborers from outside the project villages may also benefit: materials such as stone,gravel and sand for road works and surfacing normally have to be procured from outside the projectvillages, and it is normally poor landless laborers who work in quarries. Many villagers in the selectedpoor villages have subsistence livelihoods. Many are living with no more than $100 equivalent per year,and a minimum cash income that however is necessary to buv clothing, basic medicine. primary schoolmaterials, transport serices and other necessities. All weather access could make possible/affordablecommuting from the village to nearby urban type jobs and slow down outright emigration from ruralareas. With the project cash earned, village workers can also improve current or/and future consumption.

5.8 Training. Villagers may gain some technical and administrative knowledge with the program.LKMDs greatly appreciated the VIP experience of managing and administering what for them was alarge project, and expressed interest in undertaking more works, even with bidding provided thecompetition was "reasonable". Furthermore, villagers would be given some training to undertakemaintenance works, during the one year that the engineers assist each village.

5.9 Fiscal impact and cost recovery. The project design achieves the objectives at the lowest fiscalcost: small infrastructures built with villager participation have proven under VIP to have lower unitcosts than equivalent works built under standard Ministry of Work contracts, even when thc cost of thefield engineers is included. The average project cost per villager is about $30 equivalent, somewhatmore on Sumatra, less on Java. That is, the benefits per fiscal dollar are larger with the VIP concept forvillage works, and the benefits compare favorably with other types of public projects. To the extent thatthe assistance is in the form of grants to villages, the Govemment does not have fiscal cost recovery perse--but the benefits accruing to villagers provide economic cost recovery over at most 3 years, based onthe experience of the VIP (see Annex 9).


5.10 Cost-effectiveness. The project focuses on infrastructure where implementation effectiveness isgenerally higher. Labor-intensive methods are also efficient for the public budget. Villagers are willingto work for the equivalent of about $1 per day. and at that cost labor intensive metlhods arc competitivewith capital intensive methods for the simple types of works envisaged. The villagers have to undertaketo maintain the facilities to be built under the project: but having participated in the construction andaware of the infrastructure benefits, in sunveys villagers have indicated that they would maintain theassets at no charge. provided they are taught how to.

5.11 Infrastructure ERRs. Without COunitillg the benefits from employment and lower unit costs ofworks, the assets to be built under the project have high rates of retum, exceeding 20%. A majoritv ofthe fhinds is likely to be used for building all weather access roads and bridges-nany of the poorvillages lack an all weather connection to their kecamatan center" with a minimum of 700 persons pervillage-and several villages possibly usinig a common access-paths have considerable traffic and theirupgrading to all weather passabilitv has good economic retums. Thc provision of drinking water, asdenionstrated alreadv in other projects, also has high retumrs. Water by vendors or fetched at a distancehas highl cost and is rationed to occasionally unhealthy levels. Cost and scarcity of clean water can becased, even when the bulk water supply may be bought from a water utility. Women in villages report adecrease in diarrhea and gastroenteritis following improved water supply. Examples of the high retumsto provision of all weather access roads and bridges are illustrated in Annex 9, based on the VIPexperience.

5.12 Sustainability. The infrastructure the villagers will build can last many years with maintenance,and the villages commit themselves to unldertake the mainiteniance, given that they value theinfrastnictures. An effort will be made to reach good quality construction standards: with high standards,benefits over the infrastructure life should be substantial. During supervision visits, it seems that thedelegation process changes villagers' attitudes and outtlook, but it is too early to gauge the durability ofthis. The employment generated under the proposed project is of a temporary nature. For longer termemllployment, it may be possible to establish systems to contract villagers for labor-intensive roadmainitenlance. The project type itself is not meant to be replicated on a standard basis: following thisassistance, it is the govemrment's objective to proceed with different projects to promote incomegeneration through rural-urban linkages and integration, and the government has started changing theINPRES svstem towards continuing greater decentralization. Some funding under current top-downprograms could be reassigned in the future to similar local decision-making and labor-intensive projects.Provision of technlical assistance to the implementation level will be required for effectiveness.

5.13 Poverty analysis. The ultimate impact on poverty can probably not be measured during projectimplementation. as it will show later. However, the monitoring efforts under the project will ascertainchanges in houiselhold incomes and other variables over time, both in project villages and incounterfactuals, who benefited, wlhat other impacts the project had, etc., and because each village isclearly identified, it will be possible to undertake follow up surveys later on.

B. RISKS

5. 14 Risks. The risks associated with the project are relatively few:

a) the risk of imnproper targeting seems small: a "long list" of villages will be proposed byBappenas based on the national BPS survey and clusters of villages selected by district levelplanning agencies. so that the village "targeting" cannot be too wrong. Even non-IDTvillages are often poor. though not classified as such due to the parameters used to define


IDT villages. Only the poorer villagers tend to want to work for low pay (average of $1 perday). The works have to have high priority since the villagers choose what to do with theone-time grant. There is a risk that if a village is too remote, it mavi not reach significantbenefits from the grant, this being too small to make a difference in accessibility oreconomic growth, though localized improvements should materialize. Very remilote villageswould not be included in the program:

b) the risk of find diversion seems to be small: full avoidance of diversion is not expected, butgiven that funds go directly to the beneficiary village. the program is transparent andcontrols are in place for uses within the village, the level of diversion should be small. Anvfurther controls would most likely cost more than the diversion avoided,

c) the risk of using labor-intensive methods, generally more difficult than capital-intensivemethods due to logistics involved, is worthwhile confronting in order to promote greaterself-reliance and cash employment in poor rural villages deficient in small infrastructures.Self-help projects and small local contractors often employ labor-intensive methods, and theengineering inputs foreseen under the project should help enhance productivitv levels andimprove quality of designs and works. There is a risk of low quality of works: increasedfocus on qualityv output will be emphasized and should give an example to followsubsequently in other works. Cost savings would compensate risks of labor intensiveworks;

d) the risk of slower project implementation is low: the schedule would not be slown down dueto absorptive capacitv constraints, given the VIP experience. but if necessary the projectallows extending the program implementation and the technical assistance;

e) there is a risk of subsequent maintenance of the infrastructures being faulty; however. thevillagers are the users and the infrastructure sustainability will be of prime concemn to them.The field engineers., further, are to impress on villagers the low costs and high benefits ofmaintenance, maintenance practices, and as necessary. will identifv sources for financingfuture maintenance: and

f) there is a risk of field engineers not being up to theJ oh; this is minimized by early scrutiny.workshops, supervision by senior engineers and Bank/PMU missions: the systemn workswell under the VIP.

5.15 During project implementationi. supervisioin, independenit monitoring and audits should all helpidentify problems and take early corrective action.

6. AGREEMENTS REACHED AND RECOMMENDATION

6. 1 Agreement was obtained on the following:

a) IVillagc selection process and criteria, including inter alia that consolidated village lists wvillbe furnished to the P3DT and the Bank not later than September 1. 1997 for the secondproject year. and selected villages will be informed no later than December 31, 1996 (first


year program) and December 31, 1997 (second year program) (para. 3.8). The selectioncriteria include inter alia, that project villages will comprise at least 700 persons, will beselected in clusters, will be IDT villages or a non-lDT village in a cluster of IDT villages(para. 3.9);

b) Subproject selection, including that villagers will propose subprojects; camats will reviewthe proposals for hamronization at the subdistrict level, if necessary. and the field engineerswill review the proposals' technical and financial feasibility (para. 3.1 1). The ProjectManual specifies the criteria for selection and implementation of subprojects (paras. 3.12,3.14, 4.13); incorporates the land acquisition and compensation and environmental criteriaagreed with the Bank (paras. 4.25 and 4.27); and requires a maintenance plan to be includedin the village implementation agreement (para. 4.28);

c) Implemenfation arrangements, including that Bappenas, through the P3DT Secretariat, willbe responsible for overall coordination of the project (para. 4. 1) and that Pimpros shall beappointed no later than April I in each project fiscal year (para. 4.6);

d) GOIfinancing; Rp.20 million will be made available for the initial advance to each projectvillage no later than April 30, 1997 and April 30, 1998 (para. 4.17);

e) Reporting; the P3DT Secretariat will prepare quarterly progress reports starting March 3 1,1997, and annual progress reports by March 31, 1998 and March 31, 1999 (paras. 4.21 and4.22). Technical audits will be carried out by independent auditors in a manner satisfactoryto the Bank and fumished to the Bank no later than September 30 in each year commencingin 1998 (para. 4.23).

f) Per/brmance ,noniloring indicators; the indicators used in VIP wvould be retained andreported in monthly reports (para. 4.29) and in yearly more comprehensive reports (para.4.30); and

g) Mid-termn review; a mid-term review will be undertaken following the first year, byFebruary 28. 1998 (para. 4.31).

6.2 Project Implementation Plan. The PIP (Annex 3) embodies the major steps and theirschedules, as laid out in preceding paragraphs (para. 4.10). The plan was confirmed by the Governmentduring negotiations.

6.3 Conditions of Board presentation. A revised Project Manual was finalized as a condition forBoard presentation.

6.4 Conditions for loan effectiveness. Only the standard requirements.

6.5 Recommendation. With the actions taken prior to negotiations and the above agreements, theproject is suitable for a Bank loan of $140.1 million to the Republic of Indonesia, payable in 20 years,including 5 years grace. at the standard interest rate for LIBOR-based, US Dollar single currency loans.

- 27 - Annex I(Page I of 3)

INDONESIA

SECOND VILLAGE INFRASTRUCTURE PROJ1ECT

TABLE 1: POOR POPULATION BY PROVINCE

1993

URBAN RURAL URBAN + RURAL

PROVINCES Poverty line Number % of Poverty line Number % of Number % of(Rp/Capita/ of Poor in (Rp/Capita/ of Poor in of Poor in

month) Poor Population month) Poor Population Poor Population

Aceh 29,020 69,919 10.13 22,043 426,800 14.23 496,719 13.46NorthSumatra 26,822 494,479 11.72 19,117 837,152 12.70 1,331,631 12.31West Sumatra 27,515 84,073 8.63 21,081 482,060 14.93 566,133 13.47Riau 31,846 81,589 6.65 24,120 329,264 13.49 410,853 11.20Jambi 28,507 7,030 10.22 22,027 242,350 14.43 299,380 13.38South Sumatra 33,484 97,857 19.32 18,154 626,054 13.00 1,023,911 14.89Bengkulu 29,796 2,067 10.26 18,450 141,045 13.99 173,112 13.11Lampung Sumatra 22,374 107,382 11.62 15,587 644,435 11.64 751,817 11.63

Subtotal 1,324,396 12.08 3,729,160 13.18 5,053,556 12.87

Jakarta 39,530 497,121 5.65 -- -- -- 497,121 5.65WestJava 30,559 2,327,139 15.55 20,497 2,285,213 10.01 4,612,352 12.20Central Java 24,204 1,525,901 17.36 16,725 3,092,842 15.10 4,618,743 15.78Yogyakarta 28,367 222,303 14.35 19.972 121,163 8.85 343,466 11.77EastJava 26,680 1,704,433 16.85 16,924 2,719,276 11.69 4.423,709 13.25

Subtotal 6,276,897 14.20 8,218,494 12.10 14,495,391 12.92

Bali 30,066 106,092 11.88 18,218 164,107 8.36 270,199 9.46

West Kalimantan 33,864 130,801 17.84 22,494 743,725 26.97 874,526 25.05Central 35,261 51,823 16.36 26,093 269,755 22.01 321.578 20.85KalimantanSouthKalimantan 34,107 113,929 14.11 24,976 403,823 20.46 517,752 18.61EastKalimantan 40,012 116,681 10.93 29,011 178,241 16.55 294,922 13.75

Subtotal 413,234 14.13 1,595,544 22.68 2,008,778 20.17

North Sulawesi 25,600 2,288 8.10 17,541 252,445 13.02 304,733 11.79Central Sulawesi 22,166 7,842 7.63 16,608 166,055 11.18 193,897 10.48South Sulawesi 25,024 57,162 13.04 16,033 401,990 7.48 659,152 8.97East Sulawesi 24,210 26,555 8.75 16.311 135,724 11.37 162,279 10.84

Subtotal 363,847 11.07 956,214 9.57 1,320,061 9.94

WestNusa 25,503 141,751 21.98 17,677 550,670 18.97 692,421 19.52Central Nusa 23,862 73,278 16.37 17,903 683,161 22.65 756,439 21.84East Timor 29,780 14,814 20.78 19,705 278,144 37.74 292,958 36.24Maluku 31,872 36,123 8.06 22,798 442,732 28.51 478,855 23.93IrianJaya 33,060 56,675 12.31 20,006 385,176 28.15 441,851 24.16

Subtotal 322,641 15.57 2,339,883 24.43 2,662,524 22.86

_ ~~~~~~~~~~~~~~~~~~~~~~... ..... .... .... _..

INDON ESI ASECOND VILLAGE INFRASTRUCI'URIE 1'ROJECT

TABLE 2: Nuoltber of l'or or Villages, Avcrngc Populat ion and Area (ha), 1993

Urban and llural Urban Rural

Province Numlbcr of | Numuber of Average l'er Villkwe Nulihber of Number of Average l'cr Village Number of Nuinher of Average 1'er VillageP'opulation| Villages Population A ,Nrca 'opulation Villages Population A ikrca Population Villages P'opulation I Area

Dl. Aech 905,433 2,275 398 1,964.4 33,774 31 1,089 134.9 871,659 2,244 388 1,989.7Nonh Sumatera 1,165,051 1,364 854 1,135.8 190,041 33 5,759 119.2 975,010 1,331 733 1,461.0WVest Sumatcra 809,408 700 1,156 2,858.3 '11,147 26 1,698 t108.5 765,261 674 1,135 2,952.8Riau 635,076 460 1,381 9,1 59.7 118,215 18 6,568 7,963.2 516,861 442 1,169 9,208.5Jambi 263,553 275 958 5,66.1.0 26.245 12 2,187 1,930.2 237,308 263 902 5,834.4Soulh Sumalera 1,447,246 715 2,024 5,118.8 132,230 38 3,480 1,236.4 1,315,016 677 1,942 5,336.7Bengkulu 204,298 328 623 1,561.9 16,440 7 2,3.19 330.1 187,858 321 585 1,588.8Lampung 1,206,546 635 1,900 1,786.2 31,229 8 3,901 192.2 1,175,317 627 1,875 1,806.5

Sumalra 6,636,611 6,752 983 29,549.1 592,321 173 3,424 12,614.7 6,044,290 6,579 919 30,178.4kVcst Kalimanian 818,001 525 1,558 12,070.6 68,806 12 5,734 572.5 749,195 513 1,460 12,339.5Central Kaliimiantan 848,501 696 1,219 14,489.3 4,369 3 1,156 5,100.0 8.1-1,132 693 1.218 14,528.7Souilt Kalintailan 404,767 568 713 2,414.7 52,463 13 4,036 92.4 352,301 555 635 2,469.1

East Kalimantan 163,538 505 324 14,931.9 33,122 6 5,520 9,563.9 130,416 499 261 14,996.4Kalimantan 2,234,807 2,294 974 43,906.5 158,760 34 4,669 15,628.8 2,076,047 2,260 919 44,333.7

North Sulaw'esi 414,188 361 1,147 2,022.4 60,434 24 2,518 205.6 353,754 337 1,050 2,151.8

Central Sulawvesi 426,349 601 709 20,331.8 5,207 3 1,736 14.2 421,142 598 704 20,433.7

South Sulawvesi 1,266,791 655 1,934 2,990.7 128,648 42 3,063 448.6 1,138,143 613 1,857 3,164.9

South East Sulawesi 391,879 327 1,198 5,576.7 19,549 6 3,258 660.7 372,330 321 1,160 5,668.6

Sulawesi 2,499,207 1,944 1,286 30,921.6 213,838 75 2,851 1,329.1 2,285,369 1,869 1,223 31,419.0WVcs Nusa Tenggara 525,772 125 4,206 3,802.9 97,856 13 7,527 388.5 427,916 112 3,821 4,199.2East Nusalcnggara 713,675 468 1,525 2,733.8 53,182 17 3,128 '126.9 660,493 451 1,465 2,820.7

East limor 423,010 312 1,356 3,166.7 25,235 4 6,309 721.9 397,775 308 1,291 3,198.5

Mlaluk)u 566,802 812 698 6,200.5 7,774 5 1,555 73.4 559,028 807 693 6,238.5

Irian Java 973,070 1,738 560 17,099.8 6,760 7 966 15,917.7 966,310 1,731 558 17,1041.6Eastern Indonesia 3,202,329 3,455 927 33,003.7 190,807 46 4,148 17,528.4 3,011,522 3,409 883 33,561.5

OUISIDEJAVA-BALI 14,572,954 14,445 1,009 6,858.3 1,155,726 328 3,524 1,470.7 13,417,228 14,117 950 6,983.5

DKI JakJana 161,337 11 14,667 484.6 161,337 11 14,667 4841.6 0 0 0 0.0

Vcst Java 5,429,938 1,560 3,481 655.4 1,083,620 203 5,338 234.4 4,346,318 1,357 3,203 718. CentralJava 6,415,002 2,439 2,630 364.8 815,366 198 4,118 173.5 5,599,636 2,241 2,499 381.7 r ZD.l. Yogyakana 587,820 111 5,296 879.1 167,062 19 8,793 611.4 420,758 92 4,573 93-1u4 4 lZ

East Java 5,457,580 1,969 2,772 437.6 865,883 232 3,732 212.2 4,591,697 1,737 2,643 467.8 o1Bali 293,460 98 2,994 878.4 59,137 17 3,479 239.8 234,323 81 2,893 1,012.4l

JAVA-BALI 18,345,137 6,188 2,965 3,699.9 3,152,405 680 4,636 223.8 15,192,732 5,508 2,758 510.3

.NM ,., . ,... s> ., . ...... .... ... 8.,,....H O6 .___

INDONESIASECOND VILLAGE INFRASTRUCTURE PROJECT

TABLE 3: CALCULATION OF NUMBER OF VILLAGES FOR EACH PROVINCE IN JAVA AND SUMATRA

All Rural IDT 94 OECF OECF Final as %Province Villages Rural or VIP or VIP Remainder VIP II VIP II Final of IDT 94 VIP II Per Year

Pop > 700 Pop > 700 1995 1996 Plan (rounded Aided 97/98 98/99

DI Acch 1,239 392 53 75 264 99 150 277 57.91% 50 100

Sumut 2,716 622 62 50 510 248 250 360 57.88% 120 130

Sunibar 1,731 601 64 40 497 244 240 348 57.90% 120 120

Riau 899 330 61 40 229 90 40 141 57.88% 20 20Jambi 827 190 29 40 121 41 40 110 57.89% 20 20Sumsel 2,110 593 114 40 439 189 190 343 57.84% 75 115

Bengkulu 565 109 20 40 49 3 40 103 57.80% 20 20

Lampung 1,796 592 114 40 438 188 190 342 57.77% 75 115

Jabar 5,896 1,199 120 210 869 363 360 693 57.80% 180 180Jateng 6,986 1,870 145 290 1,435 646 650 1,081 57.81% 325 325

DIY 313 85 30 20 35 -1 0 49 57.65% 0 0

Jatim 7,068 1,514 120 265 1,129 490 490 875 57.79% 245 245

32,146 8,097 2,927 1,150 6,015 2,600 2,600 4,682 57.82% 1,090 1,510

Villaees:Sumatra 11,883 3,429 517 365 2,547 1,102 1,100 500 600

Java 20,263 4,668 415 785 3,468 1,498 1,500 750 750

Perccntage:Sumatra 36.97 42.35 55.47 31.74 42.34 42.38 42.31Java 63.03 57.65 44.53 68.26 57.66 57.62 57.69

OECF aided 1,700 villages in 95/96, bIut most werc less thani 700 population

Only includes rural villages with 700 population minimum PI n

Total nunmber of VIP 11 villages = 2,600 wDx

- 0

- 30 - Annex 2


Grant Authorization, Funds and Reporting Flows

WrdBan/S Pua

ecre~ .. ,.

Consultat ! J*jcopy \4 1:

KPKN aang Province

copy copy

Kabupatenr- - - - - -o

g jl ~~copy.

( BRI Unit*n 4 t LKMD Acct Kecamatan

L ------------ =------= -- Desa

STEPSI --------- Infrastructure grant authorization for disbursement2 Fund flow prefinancing3 -- ---- - -- - LKMD project assistance agreements4 ------- LKMD invoices (1st for certification, then to BRI Unit) for projects agreed5 BRI payments to LKMD/Suppliers6 ------------- Disbursement reporting (every 15 days/monthly)7 MoF reimbursement requests w/SOEs8 WB reimbursements

Schedule for ViSage Ilr*asructus,e Project It_____ ______ ~~~~~P3CT Secretarakt _ _ _ _ _ _ _ _ _

1006 1907 1008 1990Activity Date A fobs 0101112 1 2 3 4 5 6 7 8 9101112 1 2 3 4 5 6 7 8 9101112 1 2 3 4 5 S 7 8 0101112is 910 1 1 1 3 5 7 9 0 1 1 1 3 5 7 9 0 1 1

Technical AssisancreSlattEMC Contract Procesn 00.01.06 P3DT Secetauiakt e0<FkiaJize EMCContract 11.0.96 Sec,J/EMC ~ e~'Awe.as on ahortist for field engineers. TORe 12.02.96 P3DT/IM''Request for proposals for FEtfor 1997 12.18.06 Secr.IEMC a v'

Mobiizaaion of EMC 01.06.07 Seer/SECw' * Sitmission of proposals for FE 01.24.07 FE W e Start Advisor contract pro-cess 01.28.97 P3DT Secretatiat 's. e.24Agreement onFE proposals 01.31.97 Secrt/EMC". Signing FE contracts 02.12.07 SecriFE . ''4

Field engineer nmobUizationworlchops 2.24-3.15 SecrIEMCTFE '''2

Field engineers mobilized In kecamatans 3.3-4.6 FE '

Workshop wkhfield enginewrs 10.27-11.1 SecrIEMCtFE q~Request proposals for additional FE 12.18.97 Secr./EMC t

General Prepeationa * I/ -A'Agree onctwanges to Project Manual 10.31.96 Secifi54.'.4" *.Ratification for loan effectiveness 12.18.96 G01 ea.. .

Opening of WB Special Account in Bl 01.15.97 MoP 2 .5Project Manual printing 01.20.97 EMC e.,Selection ofPinmpros 02.14.97 BupatUDPUK(.. ~4Agree with BRI 1997lprogram 02.20.97 SecrBIfll . .. 4...'4Workshops with KPKNt/sat statf 03.20.97 MOP 4 .2 2

Funding instructions tolKPK(Ns 04.01 .07 MoFjS0 Appointment Letter of Project Managers 04.30.07 Bupati

Village SelectionSelection of kecamatan for 1097 program 00.01.96 PaCT SecretariatInstr uctions to Bupati to start 1007 selection 09.04.06 PMO, BanglaeInstructions to camats to start 1007 selection 09.08.96 Bupati Initial selection of 1250 viltages in clusters of 5 09.26.98 CamnatlSend 1097 village list to kabupaten level 09.28.06 CarmateVillage list sent to PaCT Secretariat. Bappeda 10.09.06 Bupati Review proposed clusters for 1097 11.15.96 Pemda Dati II/FE a Review ofl1997village lists 11.20.96 P3DT SecretariateNotifiction of villages of thaW selection 12.27.96 PMDe

Project Planning anbd Imfplembentation*Initial subproject selection 02.17.07 LKMD Review of LKMD proposals; baseline data 03.24.07 Camnal/FE Finl approval of LKMD proposals 03.28.97 Camals eOpen LK(MD accounts in SRI 03.31.07 LK<MD/FE/Bfll e .

Register signatures at BRI/KPKN 03.31.07 LKMID/FE/Pimnpro '

Designs andi imiplenmentation programa 5.16,97 LKIVID/FE/Camats .'e e. tSigning Implementation Agreements 5.19.97 LKMvD/Pin'pro/Camat tD 'e XStautof Works inl1250villages 5.19.07 LKMD/FE e4e$ 9peeeeeeqqq es*a$e4eeeep*4Suttmit agreement-sto KPKN 5.19.07 PimproseeAdvances to SRI K(Abupatens (Rp 22 billion) 5.20.97 KPKN/MoFe' Advances to SRI Units 5.21.97 SRI a

Delivery ot tools arid materials 5.22.97 Su.pplierse.. a.

Note: =routine activiies repeated in second year

Schedule for Village Inrdastructure Project II

____ ____________ ~~~~~~~~~~~~~~P3DT Secretaujat- 1996 1997 __ 1 998 199

_____ Activity Date __A~~~~~~~~~~~~~~~~~~~~~~~~~~~ncies 9101112 1 2 3 4 56 7 B 9101112 1 2 3 4 5 67 B 9101112 12 3 4 567 B 9101112~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Dte ____N~nces91011121 34 6 a 1 2 2 56 01

Reporting ankd Suprqevision Progress Report as of March 31, 1997 4.28.97 Secr/EMC C N 0

St.prervision MAission 7.1 -7.11 Secr/VM .. .....Progress Report as of June 30,1977 7.19.97 Secr/EIVC .

Draft Progress Report 9.18.97 Secr/EMC Sipervision Mission 9.23- 9.30 SecrIWB X

Progress Report as of Septerriter 30,1977 10.17.97 Sect/EMO A

Progress Repoft as of Decan-ter 31 .1997 01.25.98 Secr/EMC .5

Audit of 1977 Program (financial A technricao 10.30.98 3PK(P... ...AnnuaVfinal report 03 30.99 Secr/EMCSSLjpervisionldata tFo completion report 5.15- 5.25.9S SeciPViB Integrated analysis (FE rueports/monit./BPS) 06.30.99 SecrlViB YAudit of 1998 program (financial & technical) 08.30.99 BPKP Cx

Project Comp'jletion Report 11.30.99 Secr/MB.... ..

MonitoringMonitoring final TORs an shortlist (+sample) 06.27.97 SecrMBInvite Proposas fof Monitoring 071.7 SecrftrB ~ .C..

Stbmrnssion of monitoring proposals 08.04.97 Fkms ... ,.

Review monitoring questionnat.s/contracts 08.20.97 Secr/Fems aSelection of monitoring fwins 08.20 97 P3DT SecretariatDraft contract monitoring firms 08.29.97 Secr/1Fnms E-mDetailed monitoring questionnares/methods 10.02.97 FirmsAgreeson monitoring methods 10.09.97 P3DT Sec-retarratWorkshop for monitors 1.49 erMrWStart monitoring infreid (project & norproject) 10.17.97 Monitors .

Monitoring in sample villages 11.10.97 P3DT SecretariatMonitoring reports of 1997 to P3DT Secretaria 12.19.97 MonitorsMonitor ing Report to Decembetr31 012.8 PDXertra Susenas Surveys for 1997 project villages 2.01- 2.28.9E BPS

Susenas surveys in project villages 2.01- 2.28.9~ BPS N;WSusenas, PODES reports 04.30.99 BPS ,X.

Loan Closing .2...9 .0. ..

Note: =routine activiies repeated In second year

0Q 9

0

- 33 -

Annex 4(Page I of 8)

INDONESIA


AGREEMENT

BETWEEN LKMD AND PIMPRO

FOR THIE VILLAGE INFRASTRUJCTnRE ASSISTANCE GRANT

TABLE OF CONTIENTS

General Conditions of Agreement .............................................................. 1......

Sample Form of Agreement ................... 2.........................................................2

General Specifications ...........................................................................(developed per nature of works in Project Manual)

1996

- 34 -Annex 4(Page 2 of 8)

GENERAL CONDITIONS OF IMPLEMENTATION AGREEMENT

3.1. Duties of the Field Engineer (acting for DPUK pimpro)a) Verify subproject proposal and assist with preparation.b) Supervise implementation of works.c) Arrange payment documentation for work performed.d) Accept completed works.

3.2. Duties of the LKMDa) Implement the works in accordance with the specifications and Technical Guidelines for Works in

the Project Manual provided by the Field Engineer.b) Provide materials, equipment and personnel; unskilled personnel will have to be village labor as per

the Manual, in accordance with the agreement and Technical Guidelines.c) Provide local management (team leader, foreman, administration) and pay at appropriate cost based

on the agreement.

3.3. The works shall not be contracted without approval from the Field Engineer/Pimpro.

3.4. The LKMD must obey existing rules and regulations, and respect local customs.

3.5. Force Majeure is an event outside the control of the LKMD which obstructs or damages the work. Suchan event must be reported to the Field Engineer within 7 days. The Field Engineer may agree to costsresulting therefrom, and prepare an agreement addendum if needed.

3.6. Differences of opinion that may occur between the LKMD and the Field Engineer should be brought fordiscussion with the Engineer/management consultant immediately at the kecamantan. Settlement ofsuch differences shall be decided by the Engineer/management consultant and be based on factualevidence and the Agreement. If they entail costs justified in the opinion of the Engineer/managementconsultant due to changes of original specifications, then an Agreement addendum has to be prepared.

3.7. Non-compliance by the LKMDThe LKMD shall be judged negligent if it does not comply with clauses 3.2. or 3.4. or does not obey thewarnings of the Field Engineer. The Field Engineer shall give written notice to the LKMD of any non-compliance and send copy to the Engineer/management consultant.

3.8. Sanctionsa) In relation to negligence of the LKMD under clause 3.7., payments to the LKMD shall be

postponed until the cause of negligence is corrected and accepted by the Field Engineer inaccordance with the Agreement.

b) If within 15 days of receiving a warning under clause 3.7. the LKMD leader takes no correctiveaction, then the Field Engineer may propose to the Pimpro to appoint an alternative leader or toappoint a third party to carry out the works.

3.9. Payment for the works shall be based on the amount of works certified by the Field Engineer inaccordance with the Agreement or addendum if any,

3.10. Reporting by the LKMDa) Weekly personnel records.b) Weekly equipment record.c) Weekly progress of works.d) Monthly cumulative progress.

Attachment I - Agreement Form

- 35 -Ainnex 4(Page 3 of 8)

LKMD:Address:

SPABP No.: Date:

IMPLEMENTATION AGREEMENT NO.for

WORK/SUPPLIES

IN KABUPATEN IN KECAMATAN VILLAGE

No.: / /199Date:Location:

A. We, the undersigned:1. NAME:

TITLE: Field Engineer PimproADDRESS: JI.hereinafter referred to as the FIRST PARTY.

Authorized to act on behalf of the Government Dati 11 Kabupaten as Employer, by assigmnent letterdated: No.:

2. NAME: (LKMD)TITLE: (kepala desa)ADDRESS: J1.hereinafter referred to as the SECOND PARTY.

B. Both parties agree:a. Type of Works:b. Location:c. Description:d. Value of Agreement: Rp. 120,000 000 (in words)e. Execution period: calendar days from the date of signing the agreement,

without warranty period.f. Payment: Initial advance of Rp.20 million. Payments every 2 weeks proportional to

physical progress as stated in bills certified by the Field Engineer and the finalhand-over.

h. Condition forExecution: As stated in the attached General Conditions of Agreement

i. Miscellaneous: - 5 copies of agreement, 2 copies with Rp. 2,000 duty stamp.

SECOND PARTY FIRST PARTY Acknowledged byHead of LKMD for Pimpro Camat

( _ _ _ _ )( _ _ _ _ ) ( _ _ _ _ )

- 36 -

Annex 4(Page 4 of 8)

INDONESIA


Documentation for Procurement of Small Civil Works/Supplies(for contract values between Rp. 10 million and Rp. 50 million)

TABLE OF CONTENTS

Invitation to Bid and Instructions to Bidders .... 1...........................

General Conditions of Contract .... 2

Sample Form of Contract/Work Order .............................. 3

Sample Form of Quotation ............................... 4

General Specifications ..................................................................................................................................(to be developed per nature of works in forthcoming Works Project Manual)

1996

- 37 -


1. INVITATION TO BID

1.1 Works:

1.2 Kabupaten/Kecamatan/Village:SPABP InpresDate No.DIPDA InpresDate No.

1.3 Appointment Procedure

Activity Location Date Hour Remark

1.3.1 Collect Bid Document LKMD Free of Charge1.3.2 Explain Documents idem Site Visit1.3.3 Submit Bid idem Duty Stamps

Rp.20001.3.4 Evaluate/Negotiate idem1.3.5 Appoint contractor idem Duty Stamps1.3.6 Sign Contract idem Rp.2000

2. INSTRUCTION TO BIDDERS

2.0 The contractor will be selected after review of 3 quotations from different sources for localshopping and I quotation for direct contracting, contract values cannot exceed Rp. 10 millionfor direct contracting and Rp. 50,000,000 for local shopping (Kepres 16/94).

2.1 Quotation Form attached.

2.3 Contract Form attached.

2.4 Attachment to the Quotation Form: Schedule of Activities and Prices

2.4 Contract Period: (3-6) months from the date of signing of Contract.

2.5 Type of Contract: Unit Price of Lump Sum, without escalation.

2.6 Payment for Achievement:

Semi-Monthly: After certification for works completed in 2 week period; the last payment,after issuing a Certificate of Hand-over.

-38 -


GENERAL CONDITIONS OF IMPLEMENTATION AGREEMENT

3.1. Duties of the LKMD Head (contract/owner)/Field Engineer (acting for DPUK)a) Supervise implementation of works.b) Arrange payment documents for work performed.d) Accept completed works.

3.2. Duties of the Suppliera) Implement the works in accordance with the specifications and Technical Guidelines for Works in

the Project Manual provided by the Field Engineer.b) Provide materials, equipment and personnel; unskilled personnel will have to be village labor as per

the Manual, in accordance with the agreement and Technical Guidelines.

3.3. The works shall not be contracted without approval from Field Engineer.

3.4. The Supplier must obey existing rules and regulations, and respect local customs.

3.5. Force Majeure is an event outside the control of the LKMD which obstructs or damages the work. Suchan event must be reported to the Field Engineer within 7 days. The Field Engineer may agree to costsresulting therefrom, and prepare an agreement addendum if needed.

3.6. Differences of opinion that may occur between the Supplier and the LKMD should be brought fordiscussion with the Field Engineer immediately. Settlement of such differences shall be decided by theEngineer/management consultant and be based on factual evidence and the Agreement. If they entailcosts justified in the opinion of the Field Engineer due to changes of original specifications, then acontract addendum has to be prepared.

3.7. Non-compliance by the SupplierThe Supplier shall be judged negligent if it does not comply with clauses 3.2. or 3.4. or does not obeythe warnings of the Contract Owner or Field Engineer. The LKMD or Engineer shall give writtennotice to the Supplier of any non-compliance.

3.8. Sanctionsa) In relation to negligence of the Supplier under clause 3.7., payments to the Supplier shall be

postponed until the cause of negligence is corrected and accepted by the LKMD/Field Engineer inaccordance with the Contract.

b) If within 7 days of receiving a warning under clause 3.7. the Supplier takes no corrective action, theLKMD/Field Engineer may terminate the contract and appoint a third party to carry it out.

3.9. Payment for the works shall be based on the amount of works certified by the LKMD/Field Engineer inaccordance with the contract or addendum if any,

3.10. Reporting by the Suppliera) Weekly personnel records.b) Weekly equipment record.c) Weekly progress of works.d) Monthly cumulative progress.

Attachment I - Agreement FormAttachment 2 - Bid Form

-39 -

(Page 7 of 8)ArrAcHENT I

LKMD:Address:

SPABP No.: Date:Implementation Agreement No.: Date:

CONTRACT AGREEMENTfor

WORK/SUPPLIES

IN KABUPATEN IN KECAMATAN VILLAGE

No.: / /199Date:Location:

A. We, the undersigned:I. NAME: ___

TITLE: Project Manager of the Works-LKMDADDRESS: J1. _-

hereinafter referred to as the FIRST PARTY.

Authorized to act on behalf of the Government Dati 11 Kabupaten as Employer, by assigmnent letterdated: No.:

2. NAME: (Supplier)TITLE: (Director)ADDRESS: JI.hereinafter referred to as the SECOND PAR .

B. Both parties agree to enter into Contract as the result of tendering::a. Type of Works:b. Location:c. Description:d. Value of Agreement: Rp. (in words)e. Execution period: calendar days from the date of signing the agreement,

without warranty period.f. Payment: Up to 10% advance to be netted out of payments of the first 2 months.

Payments every 2 weeks proportional to physical progress as stated in billscertified by the Field Engineer and the final hand-over.

h. Condition forExecution: As stated in the attached General Conditions of Agreement

i. Miscellaneous: - 5 copies of agreement, 2 copies with Rp. 2,000 duty stamp.- Copy of contract shall be sent to Pimpro (DPUK).

SECOND PARTY FIRST PARTY Acknowledged bySupplier LKMD Pimpro

( _ _ _ _ ) ( _ _ _ _ ) ( _ _ _ _ )

-40 -


To: The Project Manager of

QUOTATION

1. Having examined the Quotation Documents, comprising the Invitation to Bid, the Instruction toBidders, the General Conditions and Technical Guidelines for Works in the Project Manual,related to the following works:

Description :of :Works :

I/We the undersigned offer to implement the whole of the said works in conformity with theaforesaid documents for the sum of:

Rp(in words)

As detailed in the Attachment to the Quotation showing schedule of Activities and Prices (formto be developed in Manual)

2. I/We undertake to commence the works on the date of signing the Contract and to complete andto hand-over the works comprised in the contract within the period stated in the bid document.

3. This Quotation is valid for one month from its date.

Date:

Supplier Name:

Address:

Supplier Signature



GUIDELINES FOR COMPENSATION FOR LAND OR ASSET AcQuiSMTION

Objectives

1. Land acquisition will be kept to a minimum and no person will be physically displaced undersubprojects financed under the Project. Subproject proposals that would require demolishing houses oracquiring productive land should be carefully reviewed to their impacts through altemativealignments. Proposals that require more than minor expansion along rights of way should be reviewedcarefully. Land or other assets may be acquired through:

a) Voluntary contributions. In accordance with traditional practices, villagers may elect tovoluntarily contribute land or assets and/or relocate temporarily or permanently from theirland without a compensation;

b) Contributions against compensation. A contributor considered "affected" will be eLigiblefor compensation from the village.

2. These guidelines provide principles and instructions to compensate affected persons under l.(b)above, to ensure that all such persons negatively affected, regardless of their land tenure status, will beassisted to improve, or at least restore, their living standards, income earning or production capacity topre-project levels. However, if acquired assets are less dm 20%, the field engineer may dispense withthe procedural requirements delineated in para. 5 below.

Compensation Principles

3. The LKMD shall ensure that any of the following means of compensation are timely provided toaffected persons (the village grant cannot be used to pay compensation):

a) replacement land with an equally productive plot or other equivalent productive assets;

b) materials and assistance to fully replace solid structures to be demolished;

c) replacement of damaged or lost crops at market value;

d) other acceptable in-kind compensation.

Consultation Process

4. The LKMD will ensure that all occupants of land and owners of assets located in a proposedsubproject area, are consulted. There will be a village meeting to inform villagers about their rights tocompensation and options available in accordance with these Guidelines, The Minutes of the villagemeeting shall reflect the discussions held, agreements reached, and include the following:

a) for any voluntary contributions, name of contributor and details about the contribution;

b) for land/asset acquisition against compensation, names of affected persons and details aboutthe nature and level of compensation.

-42 -Annex 5(Page 2 of 2)

Summary Amount Compensation Agreement reached

(1) agric. land (m2)

(2) plots:area affected (m2)houses/structuresto be demolished (units/Mr)

(3) trees or crops affected

(4) signatures of villagers, kepala desa

(5) record of any complaints raised by affected persons

(6) map attached (showing affected areas and replacement areas)

5. The field engineer shall provide a copy of the Minutes to affected persons and confirm indiscussions with each of them their requests and preferences for compensation, agreements reached, andany eventual complaint.

Subproject Approval

6. In the event that a subproject involves acquisition against compensation, the field engineer shall:

(a) not approve the subproject unless a satisfactory compensation has been agreed between theaffected person and the LKMD, as mentioned above;

(b) not allow works to start until the compensation has been completed satisfactorily to theaffected persons;

(c) in the unlikely event that more than 200 persons were affected and required compensationin a village, a compensation plan has to be prepared, and approved by the IDT Secretariat,before the subproject can be approved.

Complaints and Grievances

7. All complaints should first be negotiated to reach an agreement at the village level. If this falls,complaints and grievances about these Guidelines, implementation of the agreements recorded in theVillage Minutes or any alleged irregularity in carrying out the project can also be addressed by theaffected persons or their representative at the kecamatan level. If this also fails, the complaint may besubmitted to the Bupati for a decision.

Verification

8. The village Minutes and evidence of compensation having been made shall be provided to thefield engineer assisting the village, to supervising engineers, auditors and socio-economic monitorerswhen undertaking reviews under the Project.

- 43 - Annex 6

INDONESIA


Disbursement Profile of VIP2 compared to Transport, Urban, VIP1 Profiles

Quarters Transport Profile Urban Profile % Disbursed % To Be Disbursedfrom Board for Indonesia for Indonesia VIP 1* (Actual) under VIP 2

% of Loan Disb'd % of Loan Disb'd1 0 22 0 0 13 53 3 3 29 74 6 6 35 165 10 10 266 14 10 357 148 16 458 22 22 589 30 28 70

10 38 34 8311 44 40 9612 50 46 9813 54 52 100

100

,, . ,.. .. ... .. . ... ... .80

70 -:--- Transport Profile for Indonesia

.. . . . . . . . . .................... ..... .-............... .............. .._--.-... ..-..-60 - - -UraPrflfoInoei

'50 -4- - 4% Disbursed VIP 1- (Actual)

40 o - X: .:: :: ---i - :--- % To Be Disbursed under VIP 2

30

20 -.

0 ,i .i C:, .E .. a. ..'.' ... ........... :10 /

1 2 3 4 5 6 7 8 9 10 11 12 13

Quarters since Approval

* The profile for VIP 2 shows a slower start-up than VIP 1 because GOI pre-financed certain activities.

INDONEStASECOND VILLAGE INFRASTRUCTURE PROJECT

PROTOTYPE MONTHLY PROGRESS REPORT

Number I'hysical 'I'arget Mandays 'l'arget amid Realization Work Force P'r ogressKabupaten of Roads Bridges Jetties Water Saniitary Mlanidays Taiget Nlandays Realized (Pe-sons) (%)

Village (meter) (meter) (meter) (unit) (unit) Ordinary |Skied I Leader Ordiliaiy |Ske |caders Vouth Poor Physical Filaici|

Pandeglang 30 89,570 239 0 24 31 151,039 6,826 3,325 101,074 5,715 3,839 4,312 935 2,357 3,560 72.1 76.2 68.6Leba;k 45 137,865 668 0 53 40 491,056 30,573 11,204 352,709 21,994 11,180 10,966 141 4,092 7,617 82.4 80.5 72.4

Sukiabuii 5 14,540 35 0 3 14 38,332 12,284 2,381 23,786 25,031 1,787 309 3 128 187 92.3 92.3 95.5

Cianjur 10 25,793 88 0 12 38 97,973 4,472 5,166 95,202 4,413 5,303 4,713 41 1,419 3,680 97.3 96.4 97.5

Garut 10 29,410 114 0 0 0 130,964 4,595 1,648 253,483 2,249 2,073 3,717 1,195 691 851 97.1 98.5 187.9

Indramayu 5 11,645 104 15 120 22 23,364 2,224 1,182 21,026 1,994 1,063 2,292 0 767 2,314 96.1 94.9 90.0

Serang 15 53,708 51 0 67 27 70,793 7,994 1,480 75,098 8,496 1,654 5,905 0 1,982 4,470 97.3 95.9 106.2

Banjamegara 20 62,117 129 0 54 33 306,846 24,617 14,998 253,035 21,929 12,412 7,192 627 1,840 5,074 86.5 88.9 82.9Kebumen 30 105,049 272 0 1 113 351,327 52,343 21,894 315,795 29,730 14,133 4,932 1,289 1,476 3,230 91.3 82.4 84.5

Purworejo 20 86,613 117 0 75 89 225,611 14,929 4,688 257,085 15.508 3,520 2,534 1,809 1,095 1,848 95.8 92.3 112.6Wonosobo 10 27,028 40 0 19 2 94,101 4,145 4,565 82,153 3,419 3,910 1,471 42 754 1,320 92.1 81.5 87.0 4

Grobogan 15 61,646 228 0 1 4 163,870 8,831 7,434 149,249 7,875 6,775 2,980 1,016 712 2,568 96.5 93.5 91.0 4Rembang 5 18,485 33 0 20 15 54,636 6,770 1,064 48,765 5,140 504 566 0 374 202 95.2 93.4 87.1 f

Pati 10 39,422 64 0 3 0 79,270 1,984 5,872 78,010 1,950 4,670 1,498 529 540 1,130 98.8 98.9 97.1

Batane 35 105,829 196 0 165 12 426,353 44,017 23,830 407,328 39,247 19,816 5,960 226 1,859 4,841 98.6 96.2 94.4

Gunungkidul 30 83,781 0 0 112 0 394,856 25,515 24,336 319,305 22,493 21,828 12,569 313 4,885 10,696 90.4 80.0 81.8

Probolinggo 10 32,600 60 0 0 5 93,984 17,477 6,255 82,066 9,331 4,067 384 14 217 398 95.0 91.6 81.1

Pasuruan 15 47,158 109 0 5 0 173,732 34,252 9,847 144,960 24,694 9,054 1,577 82 916 1,812 82.9 84.6 82.0

Nganjuk 10 39,851 41 0 21 51 84,385 13,871 4,938 57,958 7,175 1,886 307 2 164 260 68.4 63.0 64.9

Bojonegoro 20 58,424 101 0 1 0 351,539 13,619 355 318,636 8,705 313 7,541 75 3,077 4,341 95.5 80.8 89.6

BanLkalan 30 94,578 31 0 5 9 398,325 7,479 12,716 375,202 6,168 11,942 5,779 289 1,454 2,373 94.3 93.4 94.0

Sanmpang 25 59,552 510 0 53 1 353,989 38,281 29,317 339,267 36,963 27,960 2,337 26 1,132 1,703 94.7 94.4 95.9

Sumtenep 10 33,650 0 0 1 0 134,383 44,826 1,407 130,979 43,X8(2 1,310 1,630 380 256 1,146 97.6 96.0 97.5

Total 415 1,318,314 3,230 15 815 506 4,690,728 421,924 199,902 4,282,171 354,021 170,999 91,471 9,034 32,187 65,621 90.5 87.5 90.5

Source: January 1995 V[P Progress Report. The same format is available per village, and with totals per province.

_j

- 45 -

(Page 1 of 2)

INDONESIA


1. Bank Supervision Input

a) Regular supervision needs for the review of progress reports, procurement actions,correspondence, etc. are estimated to require four staff weeks per year. The staff inputindicated in the table overleaf is additional based on (i) the key activities mentioned in Annex 3(Project Implementation Plan), and (ii) the assumption that a third year (1999) will be needed tocomplete the monitoring and evaluation.

b) Each of the project provinces should be visited at least once per year during projectimplementation. Given the geographic dispersion of the villages, each supervision missionwould focus on a few clusters selected at random, or which would be deemed typical because oftheir characteristics and their performance, as shown by the progress reports.

c) Staff from the Resident Mission would assist in the supervision of this project, in particular(i) in the environmental/social impact reviews and (ii) in the random ex-post review of the SOEdocumentation.

2. Borrower's Contribution to Supervision

a) A Project Launch Workshop per group of provinces is to be organized by GOI, after fillmobilization of the EMC and the Field Engineers, and before the start of the civil works period(May to October).

b) The IDT Project Secretariat is responsible for project coordination, arrangements for Banksupervision missions, and for providing requested information.

c) Review meetings with the participation of the various project agencies will be held normally inFebruary of each year, to discuss the previous year's performance and the current year program.The February 1998 will be a mid-term project implementation review.

d) Quarterly Progress reports will report on the main inputs and outputs of the project. A sampleof the indicators to be used as part of the reporting/monitoring system are described in Annex 7.

e) The Impact Monitoring System will report on the project's impact and development objectives.


BANK SUPERVISION INPUT INTO KEY ACTIVITIES

Dates Activity Skill Needs Input(staffweeks)

03/97 Project launch workshop CE, ESI 2(to clarify project objectives/requirements)

06/97 Supervision Mission E, ESI 2(to review initial project arrangements, and start-upof first year works contracts)

09/97 Supervision Mission CE, E, ESI 2(to review progress in civil works, and monitoringactivities)

12/97 Assist in/review preparation of 1998 program on CE, E 2the basis of experience of 1997 program

02/98 Supervision Mission CE, E, ESI 4(mid-term PIR to review all aspects of the project,especially performance of project arrangementsincluding for maintenance activities, quality ofconsultancy services)

06/98 Supervision Mission CE, ESI 2(to review progress)

09/98 Supervision Mission CE, E, ESI 3(to discuss program performance includingmonitoring activities)

12/98 Assist in/review preparation of last year program CE, E, ESI 3including impact monitoring

1999 Three Supervision Missions CE, E, ESI 8(of which one for preparation of ICR)

CE = Civil Engineering, E = Economics, ESI = Environment/Social Impact (RSI)

- 47-Annex 9(Page I of 3)

INDONESIA

SECOND VILLAGE INFRASTRUCTuRE PROJECT

SAMPLE ECONOhlIC RETURNS TO VILLAGE INFRASTRUCTURE

The first year works of the Village Infrastructure retum, the threshold traffic is only some 700 trips per yearProject for Java have been completed, and the reported of a 7-ton truck or equivalent (some 5000 tons, or 10,000benefits are used here as indicative of the expected results tons both ways) during 5 years, assuming an averageunder the proposed Second Village Infrastructure Project saving of Rp.7,000 per ton. Alternatively, the road cost

recovery may be achieved in less than 3 years; just one 7-Roads and bridges ton truck replacing porters with an average savings of

About 76% of the village grant amounts was used Rp.100,000 per ton, and making 250 trips per year, wouldfor road upgrading or construction, and 11% for new in only one year ensure cost recovery; or, if just five 7-tonbridges. The road lengths improved varied generally from trucks or equivalent could use an improved road with ansome 1.5 km to 5 km, but occasionally were longer. With average saving of Rp.5,000 per ton, and also made 25087% allocated to road upgrading, this annex peruses the trips per year each, cost recovery would take 3 years.transportation benefits mentioned in a sample of village Future road maintenance will be essential for the roads tocompletion/benefit reports, without duplicating what is last, and villagers have agreed to undertake theincluded in the main text. maintenance; but even if roads were to last less, the

investment would still be justified. Unemployed porters

A majority of the road upgrading projects allowed are reported to find alternative jobs without muchmotorized vehicles to replace porters. Transport cost difficulty. To be conservative, only a 20% ERR issavings per ton range from Rp.35,000 to Rp.150,000, reported in the main text, but there is no doubt that thebetween 20% and 75% of the preproject/porter cost. Some upgrading of village roads has favorable returns comparedprojects allowed the use of larger vehicles, for instance to higher standard and higher traffic roads.trucks instead of cars, and others improved the roadsurfaces; these projects had some 20% cost savings--less Drinking water and sanitationthan Rp.5,000 per ton, i.e. much lower in absolute unit Drinking water and sanitation were allocated onlyterms compared to the reductions noted above, but 13% of the village grant amounts. From VIP supenisionprobably such roads had larger traffic volumes (see missions it is known that water supply improvements alsooverleaf). Still, some others and especially bridge projects have rates of return exceeding 20%, even when water isallowed access to new markets, changing routes altogether, purchased in bulk from a water enterprise. When needed,with higher benefits. Benefits from personal transport water user groups are formed to ensure payments orhave not been reported, but these are significant as well, as monitor water use; field engineers have to ensure a groupminibus service substitutes motorcycle "taxis" or even is formed for subsequent maintenance of the facilities.overnight stays outside the village, at a fraction of the cost, Women are the main beneficiaries from water supplyfor access to schools, markets, health centers etc. installations. Benefits from sanitation facilities are less

clear, partly because villagers may require furtherThe larger the population in the village, and thus awareness campaigns and training in maintenance of the

the village production and personal transport, the larger the installations, but this will be addressed under the project.benefits of the road improvement. The productscommonly exported are rice, coconuts, coffee, fruits, fish; Sumatrathe transport cost reduction increases farm gate prices The above examples were derived from Java.considerably. However, transport volumes are not Benefits on Sumatra are expected to be similar, becauseavailable to us at this time. A simulation, assuming a $1 the minimum size of villages is 700 persons, and theper day income, that just 10% is spent on transport average population of eligible IDT villages is almost 3000without the project and that the above noted saving rates persons, as on Java, and very isolated communities wouldapply with the project, and assuming that the road will last not be assisted under the project. Whether engineeringsome 6 years and including in the initial cost the overheads will be higher because of clustering difficultiesengineering overheads, provides rates of return up to will be reviewed at appraisal.200%, wvith a sample median of about 50% ERR (seeoverlcaf). For road works to have a minimum 10% rate of

-48 - ANzx(Page 2 of 3)

INDONESIASECOND VILLAGE DIFRASTRUCTURE PROJECT

REDucTIoN iN TRANSPoRT PRICES UNDER FIRST YEAR VILLAGE INFRASTRUCTURE PROJECT

Comaerison of B6to. and After Transpot Pfrices on IDT Roads in W t Jtt1. r aeny ty wi4Ige rn whie diret eompwison at possible (sarm nmrkl tand eommod"y}2. oCmpa" Om podt prie br fir commodity lis on ftom (sew una of mesat.r

-- 7 Tntn po9 Trenoen nPrtr1wm to m"ra e beiriT (Ro ( s u P30T toad Kmn to ma*oe belore (P) I after (RP) X reduccon PSoT mad sumrnry Statit,s

7 300 ISO 50.0 5oo - 14 750 300 60.0 4050 -0 1a 25 it 30.0 2U5 fa5 S0o 350 5t63 30001t 200 100 50.0 3000 40 400 400 o0. 272 0 325 1000 500 X0.0 4300 13 35000 35000 0.0 1550* 350 2a0 42.3 2750 10.S 30 15 50.0 2550 1-10

la 3J700 60Ooo aSi448 3. 1So0 1250 16.7 190017.5 15000 200 (33.3 2000 4 400 100 75.0 2750 11-21 10I14 70 to 14,3 3000 a 35 25 2e,6 252t

7 IS 10 33.3 4125 4 1000 So 50,0 2400 21-30 1111 70 e0 14.3 402A a5 1000 S00 50.0 2e00IS *0 70 125 4450 3 500 250 50.0 3000 31-40 10

eso S0 16.7 4100 S t00 SW0 50,0 2750* 30 o0 et.7 3e11 5 toOo 500 50,0 3000 41-50 1S7 S0 30 40,0 10S0 e 2S 15 40,0 3165

10 250 100 50.0 3300 5 25 10 6o0. 3568 51-80 0 107 35 7 t0,0 3750 4,5 25 10 60.0 1524* 2U 5 50. 425 4 25 10 60,0 2500 61-70 1

to 20 is 25.0 3100 3,5 25 10 50,0 2275la 20 15 25.0 3035 5 so 40 33.3 la00 71-e0 a3 2t 1S 40,0 2000 7 70 So 2eMe 11254 30 20 33,3 3390 10 70 So 2e8,5 3000 70

20 I00 2500 50,0 4300 5 10 7 30.0 17003 7n 25 64.7 1700 12 110 e0 27.3 12003 7S 25 66,7 3650 10 10.75 6.25 66.7 45503 7S 25 66.7 3650 2 100 25 75,0 10oo

3.5 so 25 5a63 3740 2 150 50 66.7 18751l 7S S0 33.3 1250 2.5 50 25 5a.3 36402e 100 75 25,0 3100 7 100 35 65.0 6000

2.s 1S0 50 66,7 2S50 3 75 25 66,7 1702e 150 100 333 1o50 3 75 25 66,7 385020 100 50 50.0 2250 3 75 25 66,7 36054.5 20000 1S000 25.0 low 7 125 125 0.0 3000

SA63N S0 30 40.0 65 3 S0 25 50.0 30005.165 S0 25 50.0 5165 4 100 25 75.0 3250

SO SOC0O 40000 20, 2255 3 125 25 80.0 300035 75000 550 28.7 2040 a 30 Is 50.0 3000

250 275000 250000 e,1 3100 12 25 20 20.0 214012.5 500 400 20.0 2510 5 I5 10 33,3 4200

tO 4C0 350 12.5 1710 13 20000 5w00 25.0 3500

20 ...

: 15t~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

10

s0

<0 0 1 -10 11-21 21-30 31-40 41-50 51-60 61-70 71-80PerCent RedUCtiOn in PriCe

I.-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~,

Kabupaten Cist Kecamatan Desa Pop Disp Income (a) Transp Expen (b) % of Savings (c) Transp Exp Savings Project Costs (d) NPV (e) IRR(Rp million/year) (Rp million/year) in Transp Expen (Rp million/year) (Rp million) (Rp million

Pandeglang 2 Munjul Pasir Durung 1,690 1,419 142 20% 28.4 132 -7.7 8%Munjul Sindang Resm 1,647 1,383 138 25% 34.6 132 16.9 15%Munjul Kadu Malali 1,717 1,441 144 20% 28.8 132 -5.9 B%Pagelaran Turns 3.880 3.257 326 19% 61.9 132 125.0 41%Munjul PasirLancar 2,085 1,750 175 25% 43.8 132 53.3 24%

Lebak 7 Cibadak Cisangu 1437 1.206 121 43% 51.9 131 86.3 32%Cibadak Asem 3927 3,297 330 50% 164.8 132 532.6 124% CACibadak Malabar 2474 2.077 208 50% 103.8 131 292.1 77%Cibadak Bojongsae 2165 1,818 182 60% 109.1 131 312.7 81% ORangkasbHtun Kolelet Wetan 2583 2.168 217 50% 108.4 132 309.3 80%

8 Maja Mayak 1730 1,452 145 33% 47.9 132 69.8 28%Mala Curug Bitung 2430 2,040 204 60% 122.4 132 364.6 91%Maja Sekarwangl 2329 1.955 196 50% 97.8 132 267.1 71%Maja CRayang 2407 2,021 202 50% 101.0 132 280.0 74%Maja Ciburuy 3182 2,671 267 37% 98.8 132 271.3 72%

Garut 2 Singajaya Sukamulaya 3616 3.036 304 67% 203.4 132 685.3 154%Banjarwangl Talagasari 3140 2.636 264 65% 171.3 132 558.4 129% C) 4-Banjarwangl Padahurip 4544 3,815 381 67% 255.6 132 891.9 193% 'ISingajaya Glrimukli 3107 2.608 261 58% 151.3 132 479.0 113% n USingajaya Jayamukli 3761 3,157 316 67% 211.5 132 717.6 160%

Indramayu 1 Sindang Canigl Wetan 3451 2.897 290 20% 57.9 132 109.4 37% (Sindang Cantlgi Kulon 3155 2,649 265 27% 71.5 132 163.1 49% HSindang Cangkring 2287 1,920 192 9% 17.3 132 -51.6 -6%Lohbener Cidempet 2599 2.182 218 13% 28.4 132 -7.7 8%Lohbener Tawangsarl 1483 1.245 124 20% 24.9 132 -21.41 4%

Note: o(a) disposable Income per person per day: 2.300 Rp/cap/day M(b) % of disposable Income on transport 10%(c) from transport prkce reductions survey: first commodity listed on the survey.(d) village grant of Rpl20 million and 10% overheads.(e) evailuation period of 6 years, NPV @ 10%.

wI

- 50 -

Annex 10

INDONESIA


SELECTED DOCUMENTS AVAILABLE IN THE PROJECT FILE

1. Supervision and progress reports

2. CARE draft report for the 1995/96 village works, April 1996

3 HASFARM's review of conditions in Sumatra, August 1996

-' .s PHILIPPINES\fQR PACIFIC OCEAN INDONESIA-JAWA

M A L A Y S I A r~ M0A L A YsS 1 A_.tSECOND VILLAGE INFRASTRUCTURE PROJECT

%^SINGAPORE '

KAIIATNSULAWESI SERAM PROJECT KABUPATENSUR14h Z

I- q- ~~~~~~~~~~JAYA ~r Jto I N D 0 N E S I 250 NUMBER OF PROJECT VILLAGES IN PROVINCEAREA OF MAP JAWA FLORES ® ( PROVINCE (PROPINSI) CAPITALS

INDIAN OCEAN TAlMO NATIONALCAPITAL

AUSTRALIA_________________________________________________________________ DISTRICT (KABUPATEN) BOUNDARIES

105 106 107 I08- PROVINCE (PROPINSI) BOUNDARIES

SUMATERA

I ~ ~I I ID.K.I. Ilw 110 II;" 1 12 1 13' 1 14'

JAKARTAfl, -mp M-prrmed he Motp Dommgn Unit ol Tho W0,d &mk

20\JAKAI4JP Th, b-od-rem olr, dnni-mnti-n -rd my ote ihmmo2 0 cj | 18 hoo on hi mM t, .p do ,ro repiy, on d6 por f The World 8m-k

J a v a S e a endoenlor,cpO ofrkf or tan

1 , -2 16' JAWA TENGAH 20 JAWA TIMUR

& ' ~'' t4- '<- 13 12> 6509 I918 17 4905 ®Biudn4ja -Seurn 2123Mro

74 6, ' 28 271 2625'245 ' 16 23 ' -262 r d29 7-JAWA BARAT 9 6 ,1 1628 26 27-24 28,L 360 8 Th98 23 -~. 27 14, 22 7 16: t5®SurE

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KABUPATENS - y2kart 2 , 13

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KABUPATENS (JAWA BARAT) KABUPATENS (JAWA TENGAH) KABUPATENS (JAWA TIMUR)

1. Pandeglang 11. Cirebon 1. Cilacap 11. Sukohario 21. Demak 1. Pacitan 11. Bondowoso 21. Ngawi2. Lebak 1 2. Maialenka 2. Banyumas 12. Wonogiri 22. Semaranig 2. Ponorogo 1 2. Situbondo 22. Bojonegoro3. Bogor 13. Sumedang 3. Purbalingga 13. Karanganyar 23. Teman gung 3. Trenggalek 13. Probolinggo 23. Tuban4. Sukabumi 14. Indramayu 4. Baniarnegara 14. Sragen 24. Kendal 4. Tulungagung 14. Pasuruan 24. Lamongan5. Cianjur 15. Subana 5. Kebumen 15. Grobogan 25. Batang 5. Blitar 15. Sidoario 25. Gresik6. Bandung 16. Purwa2arta 6. Purworejo 16. Blora 26. Pekalongan 6. Kediri 16. Mojokerto 26. Bangkolan7. Garut 1 7. Karawang 7. Wonosobo 17. Rembang 27. Pemalang 7. Malang 17. Jombang 27. Sampang8. Tasikmalaya 18. Bekasi 8. Magelang 18. Pati 28. Tegal 8. Lumaljang 18. Nganjuk 28. Pamekasan9. Ciamis 19. Tangerang 9. Boyolali 19. Kudus 29. Brebes 9. Jember 19. Madiun 29. Sumenep

10. Kuningan 20. Serang 10. Klaten 20. Jepara 10. Banyuwangi 20. Magetan 30. Kodya Surabaya <_0 oc

90 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~o

-,0r ,THAILAND 10Sn INDONESIA-SUMATERA

SECOND VILLAGEBanda Aceh INFRASTRUCTURE PROJECT KABUPATENS

-5c2 , PROJECT KABUPATENS 5-- (SUMATERA BARAT)4 7' 3g 1 .Pesisir Seltan

5 ) °'> M A L A Y S I A 250 NUMBER OF PROJECT VILLAGES IN PROVINCE 2. Solok

(' '> 7 t Mda sM ouh hia (3 PROVINCE (PROPINSI) CAPITALS 3. Sawah tuntoSouth China 4. Tanah DatarD.I. ACEH , )1'® -' Sea NATIONAL CAPITAL 5. Padang Pariaman

1 50 C'__ 7/S 6 DISTRICT (KABUPATEN) BOUNDARIES 6 Agami

PROVINCE (PROPINSI) BOUNDARIES 8. Pasaman

~ 4 jS, |RIAU - - INTERNATIONAL BOUNDARIES\ 3 40 ' _0 KABUPATENS

1 ~ ~~2 . ~ .00.C,0SNGAPORE KABUPATENS (IUI I .A 3 ndragiri HuluSUMATERA Pekanbaru".X 3 B(D PI. ACEH) 2. Indragiri Hilir

UTARA 1 . 1 Aceh Selatan 3. Kepulauan Riau250 - >2 2. Aceh Tenggara 4 Kampar

i5>L 1 1 3. Aceh Timur 5. Bengkalis-5s.7 ._ M5 4. Aceh Tengah KABUPATENS

Podang_ 6 2 JAMBI 6. Aceh Besar (JAMBI)8 Ace- Uta4 ra 40 SUMATERA 7 Pde 1 Kerinci

SUMATERA 1 3 SELATAN 2. Bungo TeboBARAT . I 7 190 KABUPATENS 3. Sarko

6 ~~~~~~~~~~~~~~~~~~5 .Tanjung JabungINDIAN ~240 2s 6 8aeblgL (SUMATERA UTARA) 4.. B atjung Jabng

INDIAN OCEAN ' x 2 1. Nias4 K '3} 5 '2~ 2 Tapanuli Selatan KABUPATENS

Bengkulu 1 3. Tapnauli Tengah (SUMATERA SELATAN)BENGKULU ~~~~~~~~~~~~~~4. Tapanuli Utara

0 100 200 300 400 500 40 2 LAMPUNG 6. Asahan 1. Ogan Komering Ulu

5 KILOMETERS 4 ,, 2 190 7. Simalungun 3. Muara Enim1 (SndarLampung 8. Dairi 4. Lahat

100I 9. Karo 5. Musi Rawas

. PHILIPPINES 1 0. Deli Serdang 6. Musi Banyu AsinBRUNEI PINSJAKARTA 1 1. Langkat 7. Bangka

M A L A Y S I A PACIFIC OCEAN 8. Belitung'-, SINt APORE - ( LAMPUNG) ~KABUPATENSSINCAPOREL

&ALWANFAN ~~~~~~~~~~~~~~~~~~~~~~KA BU PATEN SSULAWESI SFRAM (BENGKULU)

IRIAN jz h v c U- o si eL W n 1 Lampung SelatanJav Se JAYA~

+ tAREA OF MAP :+nknrlc I N D O N E SI 2. Lampung Tengah 1 . Bengkulu SelataiwC AREA. M JA,k/4 FLO0ES S I Thebdmeklon ovo onnyol'n 3 Lampung Utra 2. Re ang Lebong

BAH .... ~~~~~~~~pt- f,.,b-vrdo-ve3 Ben g ufu UtniraINDIAN OCEAN BAII IIMOR Lampung Barata

AUSTRALIA 105 _ _ _ _ _

IMAGING

Report No: 15467 INDType: SAP